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E. DISSOLUTION AND WINDING UP (ARTICLES 1828 TO 1842) petitioner's unpaid salaries.

petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
Mountain business enterprise. His unpaid salaries remained unpaid. 3
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
BENDAL, CHIU SHIAN JENG and CHEN HO-FU unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble respondents. The partnership and Willy Co denied petitioner's charges, contending in the
quarrying and export business operated by a registered partnership with the firm name of main that Benjamin Yu was never hired as an employee by the present or new partnership. 4
"Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him
(Taiwan), as limited partners. The partnership business consisted of exploiting a marble his claim for unpaid salaries, backwages and attorney's fees.5
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the
partnership had its main office in Makati, Metropolitan Manila. Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990.
The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as had bought the Jade Mountain business, that the new partnership had not retained petitioner
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, Yu in his original position as Assistant General Manager, and that there was no law requiring
however, he actually received only half of his stipulated monthly salary, since he had the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore,
accepted the promise of the partners that the balance would be paid when the firm shall had not been illegally dismissed by the new partnership which had simply declined to retain
have secured additional operating funds from abroad. Benjamin Yu actually managed the him in his former managerial position or any other position. Finally, the NLRC held that
operations and finances of the business; he had overall supervision of the workers at the Benjamin Yu's claim for unpaid wages should be asserted against the original members of
marble quarry in Bulacan and took charge of the preparation of papers relating to the the preceding partnership, but these though impleaded had, apparently, not been served
exportation of the firm's products. with summons in the proceedings before the Labor Arbiter.6

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
and Rhodora Bendal sold and transferred their interests in the partnership to private aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also amounting to lack or excess of jurisdiction.
sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel
Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership The basic contention of petitioner is that the NLRC has overlooked the principle that a
interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta partnership has a juridical personality separate and distinct from that of each of its members.
continued to use the old firm name of Jade Mountain, though they moved the firm's main Such independent legal personality subsists, petitioner claims, notwithstanding changes in
office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum the identities of the partners. Consequently, the employment contract between Benjamin Yu
Agreement relating to the operation of the marble quarry was entered into with the Cruz and the partnership Jade Mountain could not have been affected by changes in the latter's
spouses in February of 1988.2 The actual operations of the business enterprise continued as membership.7
before. All the employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out. Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu
met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that could nonetheless assert his rights under his employment contract as against the new
the latter had bought the business from the original partners and that it was for him to partnership.
decide whether or not he was responsible for the obligations of the old partnership, including
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the retirement or withdrawal of the partners who had originally owned such 82% interest, was
legal effect of the changes in the membership of the partnership was the dissolution of the enough to constitute a new partnership.
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987. The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal personality
The applicable law in this connection of which the NLRC seemed quite unaware is found of the old partnership. Article 1829 of the Civil Code states that:
in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as
follows: [o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.
Art. 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the carrying In the ordinary course of events, the legal personality of the expiring partnership persists for
on as distinguished from the winding up of the business. (Emphasis the limited purpose of winding up and closing of the affairs of the partnership. In the case at
supplied) bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures
Article 1830 of the same Code must also be noted: relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership,
Art. 1830. Dissolution is caused: and continued using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts, liquidating and
(1) without violation of the agreement between the partners; distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming
xxx xxx xxx
partners. It is not, however, necessary to inquire into such matters.
(b) by the express will of any partner, who
What is important for present purposes is that, under the above described situation, not only
must act in good faith, when no definite
the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
term or particular undertaking is specified;
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court held that under facts very
xxx xxx xxx similar to those in the case at bar, a withdrawing partner remains liable to a third party
creditor of the old partnership.9 The liability of the new partnership, upon the other hand, in
(2) in contravention of the agreement the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil
between the partners, where the Code which reads as follows:
circumstances do not permit a dissolution
under any other provision of this article, by Art. 1840. In the following cases creditors of the dissolved partnership
the express will of any partner at any time; are also creditors of the person or partnership continuing the business :

xxx xxx xxx (1) When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased
(Emphasis supplied) partner assigns) his rights in partnership property to two or more of the
partners, or to one or more of the partners and one or more third persons, if
In the case at bar, just about all of the partners had sold their partnership interests the business is continued without liquidation of the partnership affairs ;
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta.
The record does not show what happened to the remaining 18% of the original partnership (2) When all but one partner retire and assign (or the representative of a
interest. The acquisition of 82% of the partnership interest by new partners, coupled with the deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
partnership affairs, either alone or with others; Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in
(3) When any Partner retires or dies and the business of the dissolved respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the or previous partner insofar as such retired partner's interest in the dissolved partnership is
consent of the retired partners or the representative of the deceased concerned. It is not necessary for the Court to determine under which one or mare of the
partner, but without any assignment of his right in partnership property; above six (6) paragraphs, the case at bar would fall, if only because the facts on record are
not detailed with sufficient precision to permit such determination. It is, however, clear to the
(4) When all the partners or their representatives assign their rights in Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid
partnership property to one or more third persons who promise to pay the salaries, as well as other claims relating to his employment with the previous partnership,
debts and who continue the business of the dissolved partnership; against the new Jade Mountain.

(5) When any partner wrongfully causes a dissolution and remaining partners It is at the same time also evident to the Court that the new partnership was entitled to
continue the business under the provisions of article 1837, second appoint and hire a new general or assistant general manager to run the affairs of the
paragraph, No. 2, either alone or with others, and without liquidation of the business enterprise take over. An assistant general manager belongs to the most senior
partnership affairs; ranks of management and a new partnership is entitled to appoint a top manager of its own
choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did
not therefore constitute unlawful termination, or termination without just or authorized
(6) When a partner is expelled and the remaining partners continue the
cause. We think that the precise authorized cause for termination in the case at bar
business either alone or with others without liquidation of the partnership
was redundancy. 10 The new partnership had its own new General Manager, apparently Mr.
Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain.
Benjamin Yu's old position as Assistant General Manager thus became superfluous or
The liability of a third person becoming a partner in the partnership redundant. 11It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of
continuing the business, under this article, to the creditors of the dissolved one month's pay for each year of service that he had rendered to the old partnership, a
partnership shall be satisfied out of the partnership property only, unless fraction of at least six (6) months being considered as a whole year.
there is a stipulation to the contrary.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
When the business of a partnership after dissolution is continued under any employ, we consider that Benjamin Yu was very shabbily treated by the new partnership.
conditions set forth in this article the creditors of the retiring or deceased The old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
partner or the representative of the deceased partner, have a prior right to previously ran the whole marble quarrying, processing and exporting enterprise. His work
any claim of the retired partner or the representative of the deceased constituted value-added to the business itself and therefore, the new partnership similarly
partner against the person or partnership continuing the business on account benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
of the retired or deceased partner's interest in the dissolved partnership or not try to suggest that there was any cause consisting of some blameworthy act or omission
on account of any consideration promised for such interest or for his right in on the part of Mr. Yu which compelled the new partnership to terminate his services.
partnership property. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and
Nothing in this article shall be held to modify any right of creditors to set the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal
assignment on the ground of fraud. to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu
was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the
xxx xxx xxx new Jade Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case, believes that
(Emphasis supplied) an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of 3. DOMINGO BEARNEZA vs. BALBINO DEQUILLA
six percent (6%) per annum on the amount of unpaid wages, and of his separation pay,
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in formed a partnership for the purpose of exploiting a fish pond situated in the barrio of
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to
amount due from private respondent Jade Mountain. contribute to the payment of the expenses of the business, which obligation she made good,
and both agreeing to divide the profits between themselves, which they had been doing until
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the the death of the said Perpetua in the year 1912.
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari,
and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the
A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in
Company Limited to pay to petitioner Benjamin Yu the following amounts: question.

(a) for unpaid wages which, as found by the Labor Arbiter, Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of
shall be computed at the rate of P2,000.00 per month the part of the fish pond belonging to his decedent, Perpetua, and delivery having been
multiplied by thirty-six (36) months (November 1984 to refused, Domingo Bearneza brought this action to recover said part of the fish pond
December 1987) in the total amount of P72,000.00; belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza
brought this action recover said part of the fish pond and one-half of the profits received by
(b) separation pay computed at the rate of P4,000.00 the defendant from the fish pond from the year 1913 to 1919, as damages (the amended
monthly pay multiplied by three (3) years of service or a complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of
total of P12,000.00; thirteen thousand one hundred pesos (13,100).

(c) indemnity for moral damages in the amount of In his answer, the defendant denies generally and specifically the allegations of the
P20,000.00; complaint, and alleges, as special defense, that "the formation of the supposed partnership
between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was
(d) six percent (6%) per annum legal interest computed on not carried into effect, on account of the plaintiff having refused to defray the expenses of
items (a) and (b) above, commencing on 26 December 1989 reconstruction and exploitation of said fish pond." As another special defense, the defendant
and until fully paid; and alleges "that in the event that the court should hold the plaintiff to be entitled to the
undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has
(e) ten percent (10%) attorney's fees on the total amount prescribed, the time for bringing the same having elapsed."
due from private respondent Jade Mountain.
Proceedings having been held as usual, the court below rendered judgment, declaring the
Costs against private respondents. plaintiff owner of one-half of the fish pond, which was composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the damages claimed by him,
the same not having been proven, in the opinion of the court, and ordering the defendant to
pay the costs.

2. From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages; hence
the only question we are called upon to decide is whether or not the plaintiff has any right to
maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of individually, took any action in response to that requirement, nor made any promise to that
which the proof contained in the record is conclusive and there is no dispute, was of a civil effect, and therefore no new contract of partnership existed.
nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having
had for its subject-matter a specified thing, to with, the exploitation of the aforementioned We find that the plaintiff has not sufficiently shown his right of action.
fish pond. Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish The judgment appealed from is modified, the same being affirmed insofar as it denies the
pond," this reference cannot be held to include the land on which the said fish pond was plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner of
built. It has not been proven that Perpetua Bearneza participated in the ownership of said one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said land
No special finding as to costs is made. So ordered.
belongs to the State. The conclusion, therefore, from the evidence is that the land on which
the fish pond was constructed did not constitute a part of the subject- matter of the
aforesaid partnership. 4. URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator
of the Estate of URBANO LOTA), vs. BENIGNO TOLENTINO, defendant-appellee.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto (article This is an appeal from a resolution of the Court of First Instance of Batangas of May 4, 1949,
1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under worded in full as follows:
the provisions of article 1700, subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil Code. On April 6, 1949, counsel for plaintiff filed a motion praying that deceased defendant
be substituted by his heirs, Marta Sadiasa and Efigenia, Resurreccion and Mercedes,
Neither can it be maintained that the partnership continued to exist after the death of all surnamed Tolentino, as parties defendant in this case. To said motion counsel for
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been defendant interposed an opposition upon the following grounds:
made by her and the defendant, pursuant to the provisions of article 1704 of the Code last
cited. I. That the nature of the action for accounting and liquidation of the partnership filed
by plaintiff since March 3, 1937, is purely personal in character and, upon the death
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent of the defendant on November 22, 1939, the claim was already extinguished. II.
legal status was that of a partnership in liquidation, and the only rights inherited by her Assuming that the action for accounting and liquidation of the partnership is not
testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor purely personal in character and that such claim is not yet extinguished, the case
of the deceased partner, and nothing more. Before this liquidation is made, which up to the should now be dismissed in view of the failure of the plaintiff to prosecute his action
present has not been effected, it is impossible to determine what rights or interests, if any, for an unreasonable length of time. III. Assuming further that the plaintiff's claim
the deceased had, the partnership bond having been dissolved. was not yet extinguished upon the death of the defendant on November 22, 1939,
the rights, if any, sought to be enforced by the plaintiff in the complaint have already
There is no sufficient ground for holding that a community of property existed between the been lost by claches.
plaintiff and the defendant, it not being known whether the deceased still had any interest in
the partnership property which could have been transmitted by will to the plaintiff. There The question before the Court therefore is whether the motion for substitution
being no community of property, article 395 of the Civil Code cited by the plaintiff in support should be granted and the case allowed to go to trial on the merits, or whether the
of his contention can have no application to the case at bar. defendant's opposition should be sustained and the case dismissed. The following
factual background appears of record:
Neither can it be said that the partnership continued between the plaintiff and the defendant.
It is true that the latter's act in requiring the heirs of Perpetua to contribute to the payment On March 3, 1937, plaintiff filed an action against defendant to order the latter ( a) to
of the expenses of exploitation of the aforesaid fishing industry was an attempt to continue render an accounting of his management of their partnership, and ( b) to deliver the
the partnership, but it is also true that neither the said heirs collectively, nor the plaintiff plaintiff whatever share he may have in the assets of the partnership after the
liquidation has been approved by the Court.
The partnership above-mentioned was entered into by and between plaintiff and maintained against deceased defendant. Under these circumstances, the remedy and
defendant in the year 1918, whereby they agreed to engage in general business in duty of the plaintiff are as set out in the following ruling of the Supreme Court in Po
the municipality of Alabat, province of Batangas, both to divide the profits and losses Yeng Cheo vs. Lim Ka Yam, (44 Phil. 172, 178):
share alike, and defendant to be manager of the partnership. Plaintiff alleges that
from 1918 until 1928 defendant had rendered an annual accounting, but has refused In the first place, it is well settled that when a member of a mercantile partnership
to do so from 1929 to 1937, hence, plaintiff's complaint. dies, the duty of liquidating its affairs devolves upon the surviving member, or
members of the firm, not upon the legal representative of the deceased partner.
To plaintiff's complaint, defendant filed an answer, alleging that defendant was the (Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
industrial partner in said partnership; that he rendered a yearly accounting and 744). And the same rule must be equally applicable to a civil partnership clothed with
liquidation thereof from 1918 to 1932, and that in the latter year, 1932, the the form of the commercial association (ART. 1670, Civil Code;
partnership was dissolved and defendant delivered all its properties and assets to the Lichauco vs. Lichauco, 33 Phil., 350).
plaintiff. Hence, defendant prays for the dismissal of plaintiff's complaint.
If, as it appears of record, plaintiff died prior to defendant's death, the duty to
The plaintiff died in 1938, and on September 28, 1939, he was substituted by the liquidate devolved upon the legal representative of the plaintiff because it was the
administrator of his estate, Solomon Lota. latter who sought to establish a claim against the defendant.

On December 8, 1939, defendant's counsel made a suggestion upon the record that 2. If after such liquidation, there should be found money or property due the
defendant died on November 26, 1939. On January 9, 1940, the Court gave plaintiff partnership from the deceased defendant, a claim therefor should be filed against
30 days to amend the complaint by substituting for the deceased defendant the the latter's estate in administration. Again, this is the procedure marked out in the
administrator of his estate or his legal representative. case just cited:

On January 28, 1941, the Court ordered the dismissal of the case for lack of Upon the death of Lim Ka Yam it therefore become the duty of his surviving
prosecution. This order was reconsidered and set aside upon a showing by plaintiff associates to take the proper steps to settle the affairs of the firms, and any claim
that on March 28, 1941, he had filed a petition for the issuance of letters of against him, or his estate, for a sum of money due to the partnership by reason of
administration to deceased defendant's surviving spouse, Marta Sadiasa, for the any misappropriation of its funds by him or damages resulting from his wrongful acts
purpose of substituting her for the deceased defendant, said petition being Special as a manager, should be prosecuted against his estate in administration in the
Proceedings No. 3859 of this Court entitled "Intestate Estate of the late Benigno manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Tolentino, Solomon Lota, petitioner." This special proceedings was, however, Moreover, when it appears, as here, that the property pertaining to Kwong Cheong
dismissed for failure of the administratrix to file a bond and to take her oath. Tay, like the shares in the Ya sieng Chyip Konski and Manila Electric Railroad and
Light Company, are in the possession of the deceased partner, the proper step for
It will thus be seen that from defendant's death on November 26, 1939, to the the surviving associates to take would be to make application to the court having
present, or almost ten years, no administrator or legal representative had been charge of the administration to require the administration to surrender such
actually substituted to take the place of said defendant. It was only on April 6, 1949, property. (Po Yeng Cheo vs. Lim Ka Yam, supra.)
that plaintiff made another try to substitute said deceased by filing his motion,
referred to in the first paragraph of this resolution, praying that defendant's heirs be This procedure was not also followed in the case at bar because plaintiff, or his legal
substituted for him as parties defendant. representative, did not procure the appointment and qualification of an administrator
of the estate of deceased defendant, altho he had already filed a petition looking
The following considerations stand in the way of plaintiff's motion for substitution: towards such administration. This plaintiff was under a duty to do if he considered
himself a creditor with a legitimate claim enforceable against the estate of deceased
1. It being undisputed that defendant was the manager of the partnership formed by defendant.
and between him and the plaintiff, and that said defendant died on November 26,
1939, during the pendency of the present for accounting and liquidation against 3. What plaintiff, or his legal representative, insisted on doing in the present case is
defendant, the said action should have been discontinued as it could no longer be to continue and press his action for accounting and liquidation against the heirs of
deceased defendant, a procedure which, as above stated, runs counter to that set surviving associates to take the proper steps to settle the affairs of the firm, and any
out in the Po Yeng Cheo vs. Lim Ka Yam case. But even in this, plaintiff, or his legal claim against him, or his state, for a sum of money due to the partnership by reason
representative, proceeded half-heartedly, because he only filed a petition for the of any misappropriation of its funds by him, or for damages resulting from his
appointment of an administrator for the estate of deceased defendant, but did not wrongful acts as manager, should be prosecuted against his estate in administration
see to it that administrator filed a bond and qualify as such. Hence, the said petition in the manner pointed out in sections 686 to 701, inclusive, of the Code of Civil
for administration was dismissed. Procedure. Moreover, when it appears, as here, that the property pertaining to
Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and Manila Electric
4. Also, conceding, without admitting, that the present action for accounting would Railroad and Light Company, are in the possession of the partner, the proper step for
lie against defendant, it is this Court's opinion that such a duty to account died with the surviving associates to take would be to make application to the court having
the defendant, was extinguished upon his death, and was not shifted upon his heirs. charge of the administration to require the administrator to surrender such property.
The heirs of the defendant have never been partners in the partnership formed by
and between plaintiff and defendant, and said heirs are hardly in a position and But in the second place, as already indicated, the proceedings in this cause,
hardly called upon to effect an accounting of said partnership. considered in the character of an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting, gave judgment against the
5. Finally, it will be recalled that the partnership in question was organized in 1918 administrator upon the supposed liability of his intestate to respond for the plaintiffs
and dissolved in 1932. The action for accounting was commenced on March 3, 1937. proportionate share of the capital and assets. But of course the action was not
And the present motion for substitution was filed on April 6, 1949, only. Trial on the maintenable in this aspect after the death of the defendant; and the motion to
merits at this late date might prove futile and fruitless if no partnership property is discontinue the action against the administrator should have been granted. (pp. 178-
found in the possession of defendant's heirs, let alone the allegation of said 179.)
defendant in his answer to the complaint back in 1937 that he had already delivered
all the properties and assets of the partnership to the plaintiff. If the principle of Another ground equally decisive against the appellant correctly advanced by the lower
laches is ever to be applied, it should be applied to this case. court in dismissing the present action for accounting, is lack of prosecution on the part of the
appellant. It may be fittingly recalled that the action for accounting and liquidation was filed
Wherefore, the plaintiff's action for substitution is denied and defendant's prayer for on March 3, l937. No sooner had the defendant Benigno Tolentino died on November 22,
the dismissal for this case against the plaintiff. l939, than said fact was made record by his attorney. On January 9, 1940, the lower court
gave the plaintiff (who had then died and was substituted on September 28, 1939, by the
The present appellant is Solomon Lota, in his capacity as administrator of the estate of administrator of his estate, Solomon Lota), 30 days to amend the complaint by substituting
Urbano Lota, original plaintiff, who died in l938. The decisive question that arises is whether the administrator or legal representative of the deceased defendant Benigno Tolentino. On
or not, after the death of the defendant Benigno Tolentino on November 22, 1939, plaintiff's January 28, 1941, the lower court dismissed the case for lack of prosecution on the part of
action for accounting and liquidation of the partnership formed in l918 between Urbano Lota the plaintiff, but the order of dismissal was reconsidered, upon a showing by the plaintiff that
and Benigno Tolentino, of which the latter was the industrial and managing partner, may be on March 28, 1941, an administration proceeding for the estate of Benigno Tolentino was
continued against the heirs of Benigno Tolentino. This question was decided adversely to the instituted by the plaintiff. On August 8, 1941 the lower court issued, at the instance of the
appellant by the lower court and, in our opinion, correctly. The applicable authority is the plaintiff, letters of administration to Tolentino's surviving spouse, Marta Sadiasa, who
case of Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172, in which the following pronouncements however failed to qualify. Accordingly, the court dismissed the administration proceeding on
were made: January 3, 1949, for lack of interest. It was only as late as April 6, l949, that the plaintiff filed
the motion to substitute, not even the legal representative of Benigno Tolentino but his heirs.
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving member, or If the plaintiff was genuinely interested in substituting the proper party, assuming that
members, of the firm, not upon the legal representatives of the deceased partner. plaintiff's action may still be pursued after Tolentino's death, he should have taken timely
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., measures to have the administratrix appointed on August 8, 1941, qualify or, in case of her
744.) And the same rule must be equally applicable to a civil partnership clothed with failure or refusal, to procure the appointment of another administrator; because the plaintiff
the form of a commercial association (art. 1670, Civil Code: Lichauco vs. Licahuco, could have availed himself of section 6, Rule 80, of the Rules of Court, providing that "letters
33 Phil., 350). Upon the death of Lim Ka Yam it therefore become the duty of his of administration may be granted to any qualified applicant, though it appears that there are
other competent persons having better right to the administration, if such persons fail to
appear when notified and claim the issuance of letters to themselves." Certainly, inaction for The lifetime of the partnership was fixed at ten (10) years and also that
almost eight years (after the issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or desistance from its suit. "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.
The theory of the appellant is that the heirs may properly be substituted for the deceased
XII, Articles of Co-Partnership).
Benigno Tolentino, because they are in possession of property allegedly belonging to the
partnership in question, and the appellant seeks the recovery thereof. Apart from the fact However, the partnership could be dissolved and its affairs liquidated at any time upon
that said allegation seems to refer to cause of action foreign to the claim for accounting and mutual agreement in writing of the partners (Art. XIII, articles of Co-Partner ship).
liquidation against Tolentino, and should have been made in proper pleading to duly
admitted by the lower court, the filing of appellant's motion for substitution more than twelve On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
years after the institution of the complaint came too late and already called for the
prosecution. It is immaterial that, before the appealed resolution was issued by the lower "That besides the powers and duties granted the said Tan Sin An by the articles of co-
court, the appellant attempted to have the deceased defendant had not yet been properly partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", the said Tan Sin An
substituted. should act as my Manager for said co-partnership for the full period of the term for which
said co-partnership was organized or until the whole period that the said capital of
P30,000.00 of the co-partnership should last, to carry on to the best advantage and interest
The resolution herein complained of will therefore be as it is hereby affirmed, with costs
of the Said co-partnership, to make and execute, sign, seal and deliver for the co-
against the appellant. So ordered.
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
5. GOQUILAY vs. SYCIP (108 PHIL 947) 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
Direct appeal from the decision of the Court of First Instance of Davao (the amount personal properties for cash or upon such terms as he may deem advisable, to sell personal
involved being more than P200,000) dismissing the plaintiffs-appellants' complaint. or real properties, such as lands and buildings of the co-partnership in any manner he may
From the stipulation of facts of the parties and the evidence on record, it would appear that deem advisable for the best interest of said co-partnership, to borrow money on behalf of the
on May 29, 1940, Tan Sin An and Antonio C. Goquiolay entered into a general commercial co-partnership and to issue promissory notes for the repayment thereof, to deposit the fund's
partnership under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the of the co-partnership in any local bank or elsewhere and to draw checks against funds so
purpose of dealing in real estate. The partnership had a capital of P30,000.00, P18,000.00 of deposited * * *.
which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement lodged
upon Tan Sin An the sole management of the partnership affairs, stipulating that 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,
"III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner subject-matter of the instant litigation, assuming the payment of a mortgage obligation of.
(sic), and Antonio C. Goquiolay as co-partner. P25.000.00, payable to "La Urbana Sociedad Mutua de Construction y Prestamos" for a
"VIII. The affairs of the co-partnership shall be managed exclusively by the managing and period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased
partner (sic) or by his authorized agent, and it is expressly stipulated that the managing and by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt
partner (sic) may delegate the entire management of the affairs of the co-partnership by thereon for P35,000.00, with interest. The down payment and the amortization were
irrevocable power of attorney to any person, firm or corporation he may select upon such advanced by Yutivo and Co., for the account of the purchasers.
terms as regards compensation as he may deem proper, and vest in such person, firm or On September 25, 1940, the two separate obligations were consolidated in an instrument
corporation full power and authority, as the agent of the co-partnership and in his name, executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in
place and stead to do anything for it or on his behalf which he as such managing and partner favor of the "Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
(sic) might do or cause to be done. covenantors bound themselves to pay, jointly and severally, the remaining balance of their
"IX. The co-partner shall have no voice or participation in the management, of the affairs, of unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
the co-partnership; but he may examine its accounts once every six (6) months at any time payable in 96 equal monthly installments.
during ordinary business hours, and in accordance with the provisions of the Code of
Commerce." (Articles of Co-Partnership).
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and "I. The lower court erred in holding that Kong Chai Pin became the managing partner of the
four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan". partnership upon the death of her husband, Tan Sin An, by virtue of the articles of
Defendant Kong Chai Pin was appointed administratrix of the intestate estate of her Partnership executed between. Tan Sin An and Antonio Goquiolay, and the general power of
deceased husband. attorney granted by Antonio Goquiolay.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on II The lower court erred in holding that Kong Chai Pin could act alone as sole managing
the partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., partner in view of the minority of the other heirs.
Inc., upon request of defendant Yutivo Sons Hardware Co., paid the remaining balance of the
mortgage debt, and the mortgage was cancelled. III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as
managing partner.
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 IV The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
alleged obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, properties by virtue of the articles of partnership and the general power of attorney granted
for advances, interests and taxes paid in amortizing and discharging their obligations to "La to Tan Sin An in order to pay the partnership indebtedness.
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at first, Kong V The lower court erred in finding that the partnership did not pay its obligation to the Banco
Chai Pin later admitted the claims in her amended answer and they were accordingly Hipotecario.
approved by the Court.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not necessary
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell to consummate the sale of the partnership properties.
all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose primarily
of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of VII The lower court erred in finding that Kong Chai Pin managed the business of the
April 2, 1949, the administratrix executed on April 4,1949, a deed of sale [1] of the 49 parcels partnership after the death of her husband, and that Antonio Goquiolay knew it.
of land to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and
of vendees' assuming payment of the claims filed by Yutivo Sons Hardware Co. and Sing Yee VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of management of the partnership by Kong Chai Pin estops him now from attacking the validity
the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels of land. of the sale of the partnership properties.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or IX The lower court erred in holding that the buyers of the partnership properties acted in
about July 25,1949, a petition in the intestate proceedings seeking to set aside the order of good faith.
the probate court approving the sale in so far as his interest over the parcels of land sold was X The lower court erred in holding that the sale was, not fraudulent against the partnership
concerned. In its order of December 29, 1949, the probate court annulled the sale executed and Antonio Goquiolay.
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 XI The lower court erred in holding that the sale was not only necessary but beneficial to the
the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision partnership.
setting aside the orders of the probate court complained of and remanding the case for new
XII The lower court erred in dismissing the complaint and,in ordering Antonio Goquiolay to
trial, due to the non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
pay the costs of suit."
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 There is merit in the contention that the lower court erred in holding that the widow, Kong
conveyance in favor of the Insular Development Co., Inc., in so far as the three (3) lots Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the partnership,
owned by the plaintiff partnership are concerned. The answer averred the validity of the sale upon the latter's death. While, as we previously stated in our narration of facts, the Articles
by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the of Co-Partnership and the power of attorney executed by Antonio Goquiolay conferred upon
complaint was dismissed by the lower court in its decision dated October 30, 1956; hence, Tan Sin An the exclusive management of the business, such power, premised as it is upon
this appeal taken directly to us by the plaintiffs, as the amount involved is more than trust and confidence, was a mere personal right that terminated upon Tan's demise. The
P200,000.00. Plaintiffs-appellants assign as errors that 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 "The presumption is sufficient to permit third persons to hold the firm liable on transactions
related to the succession in the proprietary interest of each partner. The covenant that entered into by one of the members of the firm acting apparently in its behalf and within the
Antonio Goquiolay shall have no voice or participation in the management of the partnership, scope of his authority.' [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill &
being a limitation upon his right as a general partner, must be held coextensive only with Ceron, et al., 67 Phil. 513-514)."
Tan's right to manage the affairs, the contrary not being clearly apparent.
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect
Upon the other hand, consonant with the articles of co-partnership providing for the that
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 "If the management of the general partnership has not been limited by special agreement to
articles, became individual partners with Antonio Goquiolay upon Tan's demise. The validity any of the members, all shall have the power to take part in the direction and management
of like clauses in partnership agreements is expressly sanctioned under Article 222 of the of the common business, and the members present shall come to an agreement for all
Code of Commerce.[1] contracts or obligations which may concern the association." (Emphasis supplied)

Appellants argue, however, that since the "new" members' liability in the partnership was but this obligation is one imposed by law on the partners among themselves, that does not
limited merely to the value of the share or estate left by the deceased Tan Sin An, they necessarily affect the validity of the acts of a partner, while acting within the scope of the
became no more than limited partners and, as such, were disqualified from the management ordinary course of business of the partnership, as regards third persons without notice. The
of the business under Article 148 of the Code of Commerce. Although ordinarily, this effect latter may rightfully assume that the contracting partner was duly authorized to contract for
follows from the continuance of the heirs in the partnership, [2] it was not so with respect to and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
the widow Kong Chai Pin, who, by her affirmative actions, manifested her intent to be bound of his co-partners. The regular course of business procedure does not require that each time
by the partnership agreement not only as a limited but as a general partner. Thus, she a third person contracts with one of the managing partners, he should inquire as to the
managed and retained possession of the partnership properties and was admittedly deriving latter's authority to do so, or that he should first ascertain whether or not the other partners
income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In had given their consent thereto. In fact, Article 180 of the same Code of Commerce provides
fact, by executing the deed of sale of the parcels of land in dispute in the name of the that even if a new obligation was contracted against the express will of one of the managing
partnership, she was acting no less than as a managing partner. Having thus preferred to act partners, "it shall not be annulled for such reason, and it shall produce its effects without
as such, she could be held liable for the partnership debts and liabilities as a general partner, prejudice to the responsibility of the member or members who contracted it, for the damages
beyond what she might have derived only from the estate of her deceased husband. By they may have caused to the common fund."
allowing her to retain control of the firm's property from 1942 to 1949, plaintiff estopped
himself to deny her legal representation of the partnership, with the power to bind it by Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114115) points out:
proper contracts. "367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar corresponde
The question now arises as to whether or not the consent of the other partners was a cada socio personalmente. No hay que esperar ciertamente concordia con tantas cabezas,
necessary to perfect the sale of the partnership properties to Washington Sycip and Betty y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que
Lee. The answer is, we believe, in the negative. Strangers dealing with a partnership have evite los inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador privar de
the right to assume, in the absence of restrictive clauses in the co-partnership agreement, la administracion a uno de los socios en beneficio del otro? Seria una arbitrariedad. Debera
that every general partner has power to bind the partnership, specially those partners acting quiza declarar nula la Sociedad que no haya elegido Administrador? El remedio seria peor
with ostensible authority. And so, we held in one case: que el mal. Deberd, 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,
"* * * Third persons, like the plaintiff, are not bound in entering into a contract with any of que es asunto de todos los dias y de todas horas. Hubieran sido disposiciones menos
the two partners, to ascertain whether or not this partner with whom the transaction is made oportunas que lo adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza
has the consent of the other partner. The public need not make inquiries as to the que deberia animar la colaboracion de los socios, y en la ley inflexible de responsabilidad que
agreements bad between the partners. Its knowledge is enough that it is contracting with the implies comunidad en los intereses de los mismos.
partnership which is represented by one of the managing partners.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
"There is a general presumption that each individual partner is an agent for the firm and that contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
he has authority to bind the firm in carrying on the partnership transactions/ [Mills vs. Giggle, administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso de una
112 Pac., 617] administracion culpable. Si debiera dar noticia, el beneficio de su simul^&nia actividad,
frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a perder. Se 1. All the partners shall be considered agents, and whatever any one of them may do
objetara el que de esta forma, el derecho de oposicidn de cada uno de los socios puede individually shall bind, the partnership; but each one may oppose any act of the
quedar frustrado. Pero se puede contestar que este derecho de oposicion concedido por la others before it has become legally binding."
ley como un remedio excepcional, debe subordinate al derecho de ejercer el oficio de
Administrador, que el Codigo concede sin limite: 'se presume que los socios se han concedido The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
reciprocamente la facultad de administrar uno para otro.' Se harfa precipitar esta hipdtesis en partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
la otra de una administracion colectiva (art. 1.721, Codigo Civil) y se acabaria con pedir el (Goquiolay) only interposed his objections after the deed of conveyance was executed and
consentimiento, a lo menos tacito, de todos los socios lo que el Cddigo excluye.........., si se approved by the probate court, and, consequently, his opposition came too late to be
obligase al socio Administrador a dar noticia previa del negocio a los otros, a fin de que effective.
pudieran oponerse si no consintieran."
Appellants assail the correctness of the amounts paid for the account of the partnership as
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) found by the trial court. This question, however, need not be resolved here, as in the deed of
opines: 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
"Para obligar a las Companias enfrente de terceros (art. 128 del Codigo), no es bastante que and Cuan Co., Inc. and Yutivo Sons Hardware Co.
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 Appellants also question the validity of the sale covering the entire firm realty, on the ground
reconocida la facultad de administrar la Companla, y otro, que el acto o contrato haya teido that it, in effect, threw the partnership into dissolution, which requires consent of all the
ejecutado en nombre de la Sociedad y usando de su fima social. Asi es que toda obligacidn partners. This view is untenable. That the partnership was left without the real property it
contraida bajo la razon social, se presume contraida por la Companfa. Esta presuncion es originally had will not work its dissolution, since the firm was not organized to exploit these
impuesta por motivos de necesidad practica. El tercero no puede cada vez que trata con la precise lots but to engage in buying and selling real estate, and "in general real estate
Compania, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris agency and brokerage business". Incidentally, it is to be noted that the payment of the
tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razon social una solidary obligation of both the partnership and the late Tan Sin An, leaves open the question
obligacion que no interesa a la Sociedad, este podra rechazar la accion del tercero probando of accounting and contribution between the co-debtors, that should be ventilated separately.
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, serfan nulos y podria Lastly, appellants point out that the sale of the partnership properties was only a fraudulent
decretarse la responteabilidad civil o penal contra sus autores. 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
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compania, o in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling
contabilizados en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata his share in the partnership; and upon his refusal to sell, was followed by the filing of the
de acto o contrato que ha producido beneficio social, tendria plena validez, aun cuando le claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate
faltase algunos o ambos de aquellos requisitos antes senalados. proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff partnership (whose
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al liability was alleged to be joint and several), Yutivo Sons Hardware Co. and Sing Yee and
nombramiento o designacion de uno o mas de un socio para administrar la Companfa (art. Guan Co., Inc. had every right to file their claims in the intestate proceedings. The denial of
129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y manejo de the claims at first by Kong Chai Pin (for lack of sufficient knowledge) negatives any
los negocios comunes. * * *" 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
Although the partnership under consideration is a commercial partnership and, therefore, to be amiss to remark that the probate court approved the questioned claims.
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: 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
"Should no agreement have been made with respect to the form of management, the the market value of the lots as of the time of their sale to appellees Sycip and Lee. The
following rules shall be observed: 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 (b) That partnership was expressly organized: "to engage in real estate business, either
but to execute the questioned sale, as it appears that the partnership had neither cash nor by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided
other properties with which to pay its obligations. Anyway, we cannot consider seriously the that:
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 IV. The object and purpose of the copartnership are as follows:
Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with 1. To engage in real estate business, either by buying and selling real estates; to
costs against appellant Antonio doquiolay. subdivide real estates into lots for the purpose of leasing and selling them.;

(c) That the properties sold were not part of the contributed capital (which was in cash) but
6. ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP,
land precisely acquired to be sold, although subject to a mortgage in favor of the original
ET AL., defendants-appellees.
owners, from whom the partnership had acquired them.

The matter now pending is the appellant's motion for reconsideration of our main decision,
With these points firmly in mind, let us turn to the points insisted upon by appellant.
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(Executed in her dual capacity as Administratrix of the husband's estate and as partner in lieu It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and
of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following retained possession of the partnership properties. Suffice it to point out that appellant
consideration: Goquiolay himself admitted that

... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
Cash paid P37,000.00 manage the properties (as) she had no other means of income. Then I said, because
Debts assumed by purchaser: I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the properties in order
To Yutivo 62,415.91 to help her and because I believe in God and wanted to help her.
To Sing Yee Cuan & Co., 54,310.13
Q So the answer to my question is you did not take any steps?

TOTAL P153,726.04 A I did not.

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding, Q And this conversation which you had with Mrs. Yu Eng Lai was few
Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than months after 1945?
a limited partner, incapacitated by law to manage the affairs of partnership; that the
testimony of her witness Young and Lim belies that she took over the administration of the A In the year 1945. (Emphasis supplied).
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. The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-
9, wherein he stated:
Three things must be always held in mind in the discussion of this motion to reconsider,
being basic and beyond controversy: that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and
of course they are receiving quiet a lot benefit from the plantation.
(a) That we are dealing here with the transfer of partnership property by one partner, acting
in behalf of the firm, to a stranger. There is no question between partners inter se, and this
aspect to the case was expressly reserved in the main decision of 26 July 1960;
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually
to greater weight than those of Hernando Young and Rufino Lim, having been made against manifested his willingness that the widow should manage the partnership properties.
the party's own interest. 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
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness the questioned sale, because it was never revoked.
found the properties "abandoned and undeveloped", omits to mention that said part of the
testimony started with the question: 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
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere
Kong Chai Pin there in Davao at that time? agent, because she had become a partner upon her husband's death, as expressly provided
by the articles of copartnership. Even more, granting that by succession to her husband, Tan
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the
were undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income partnership property was proof that he considered and recognized her as general partner , at
from the partnership properties, was given in answer to the question: 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:
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). Limited partners may not perform any act of administration with respect to the
interests of the copartnership, not even in the capacity of agents of the managing
partners. (Emphasis supplied).
And also

By seeking authority to manage partnership property, Tan Sin An's widow showed that she
What can you say as to the development of these other properties of the partnership
desired to be considered a general partner. By authorizing the widow to manage partnership
which you saw during the occupation? (Dep. p. 13, Emphasis supplied).
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 which witness gave the following answer: to administer and alienate partnership property.

I saw the properties in Mamay still undeveloped. The third property which is in Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
Tigato is about eleven (11) hectares and planted with abaca seedlings planted by Mr. "necessarily") becomes a limited partner for his own protection, because he would normally
Sin An. When I went there with Hernando Young we saw all the abaca prefer to avoid any liability in excess of the value of the estate inherited so as not to
destroyed. The place was occupied by the Japanese Army. They planted camotes jeopardize his personal assets. But this statutory limitation of responsibility being designed to
and vegetables to feed the Japanese Army. Of course they never paid any money to protect the heir, the latter may disregard it and instead elect to become a collective or
Tan Sin An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied). general partner, with all the rights and privileges of one, and answering for the debts of the
firm not only with the inheritance but also with the heir's personal fortune. This choice
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission pertains exclusively to the heir, and does not require the assent of the surviving partner.
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 It must be remember that the articles of co-partnership here involved expressly stipulated
Goquiolay's authority was, in fact, given to the widow in 1945, after the occupation. that:

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no In the event of the death of any of the partners at any time before the expiration of
acts of management during the Japanese occupation (1942-1944) does not mean that she said term, the co-partnership shall not be dissolved but will have to be continued and
did not do so from 1945 to 1949. the deceased partner shall be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partners; This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or
on the contrary, they expressly stipulated that in case of death of either partner " the co- was given, authority to manage and deal with the firm's properties apart from the
partnership ... will have to be continued " with the heirs or assigns. It certainly could not be presumption that a general partner dealing with partnership property has to requisite
continued if it were to be converted from a general partnership into a limited partnership, authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our
since the difference between the two kinds of associations is fundamental; and specially main decision, p. 11).
because the conversion into a limited association would have the heirs of the deceased
partner without a share in the management. Hence, the contractual stipulation does actually The stipulation in the articles of partnership that any of the two managing partners
contemplate that the heirs would become general partners rather than limited ones. may contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates on obligation between the two partners, which consists in
Of course, the stipulation would not bind the heirs of the deceased partner should they asking the other's consent before contracting for the partnership. This obligation of
refuse to assume personal and unlimited responsibility for the obligations of the firm. The course is not imposed upon a third person who contracts with the partnership.
heirs, in other words, can not be compelled to become general partners against their wishes. Neither it is necessary for the third person to ascertain if the managing partner with
But because they are not so compellable, it does not legitimately follow that they may not whom he contracts has previously obtained the consent of the other. A third person
voluntarily choose to become general partners, waiving the protective mantle of the general may and has a right to presume that the partner with whom he contracts has, in the
laws of succession. And in the latter event, it is pointless to discuss the legality of any ordinary and natural course of business, the consent of his copartner; for otherwise
conversion of a limited partner into a general one. The heir never was a limited partner, but he would not enter into the contract. The third person would naturally not presume
chose to be, and became, a general partner right at the start. 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
It is immaterial that the heir's name was not included in the firm name, since no conversion support in the legal presumption that the ordinary course of business has been
of status is involved, and the articles of co-partnership expressly contemplated the admission followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
of the partner's heirs into the partnership. 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
It must never be overlooked that this case involved the rights acquired by strangers, and Phil. 409, 516). (Emphasis supplied.)
does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin
An. The issues between the partners inter sewere expressly reserved in our main decision. It is next urged that the widow, even as a partner, had no authority to sell the real estate of
Now, in determining what kind of partner the widow of partner Tan Sin an Had elected to the firm. This argument is lamentably superficial because it fails to differentiate between real
become, strangers had to be guided by her conduct and actuations and those of appellant estate acquired and held as stock-in-trade and real estate held merely as business
Goquiolay. Knowing that by law a limited partner is barred from managing the partnership site (Vivante's "taller o banco social") for the partnership. Where the partnership business is
business or property, third parties (like the purchasers) who found the widow possessing and to deal in merchandise and goods, i.e., movable property, the sale of its real property
managing the firm property with the acquiescence (or at least without apparent opposition) (immovables) is not within the ordinary powers of a partner, because it is not in line with the
of the surviving partners were perfectly justified in assuming that she had become a general normal business of the firm. But where the express and avowed purpose of the partnership is
partner, and, therefore, in negotiating with her as such a partner, having authority to act for, to buy and sell real estate (as in the present case), the immovables thus acquired by the firm
and in behalf of the firm. This belief, be it noted, was shared even by the probate court that from part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
approved the sale by the widow of the real property standing in the partnership name. That hence within the ordinary powers of the partner. This distinction is supported by the opinion
belief was fostered by the very inaction of appellant Goquiolay. Note that for seven long of Gay de Montella1 , in the very passage quoted in the appellant's motion for
years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than reconsideration:
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 La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los
rights, and by suitable notice in the commercial registry could have warned strangers that fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
they must deal with him alone, as sole general partner. But he did nothing of the sort, fines sociales, viene limitada a los objetos de comercio o a los productos de la fabrica
because he was not interested (supra), and he did not even take steps to pay, or settle the para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
firm debts that were overdue since before the outbreak of the last war. He did not even take parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario .
that he (Goquiolay) would have no intervention in the management of the partnership. (Montella) (Emphasis supplied).
The same rule obtains in American law. hands of the mortgagees, which was the first intimation to them that there was any
intention to make them. At the time none of the claims secured by the mortgages
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held: 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
a partnership to deal in real estate may be created and either partner has the legal pressing for the payment of their debts. ... The mortgages appear to be without a
right to sell the firm real estate. sufficient condition of defiance, and contain a stipulation authorizing the mortgagees
to take immediate possession of the property, which they did as soon as the
mortgages were filed through the attorney who then represented them, as well as
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
the plaintiff; and the stores were at once closed, and possession delivered by them
to the receiver appointed upon the filing of the petition. The avowed purposes of the
And hence, when the partnership business is to deal in real estate, one partner has ample plaintiff, in the course pursued by him, was to terminate the partnership, place its
power, as a general agent of the firm, to enter into an executory contract for the sale of real properly beyond the control of the firm, and insure the preference of the
estate. mortgagees, all of which was known to them at the time; .... (Cas cit., p. 343,
Emphasis supplied).
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that
If the several partners engaged in the business of buying and selling real estate can the conveyances were made with intent to terminate the partnership, and that they were not
not bind the firm by purchases or sales of such property made in the regular course within the powers of McGrath as a partner. But there is no similarity between those acts and
of business, then they are incapable of exercising the essential rights and powers of the sale by the widow of Tan Sin An. In the McGrath case, the sale included even the fixtures
general partners and their association is not really a partnership at all, but a several used in the business; in our case, the lands sold were those acquired to be sold. In the
agency. 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
Since the sale by the widow was in conformity with the express objective of the partnership, probate court for payment. In the McGrath case, the partnership received nothing beyond
"to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it the discharge of its debts; in the present case, not only were its debts assumed by the
can not be maintained that the sale was made in excess of her power as general partner. 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.
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 We will now turn to the question of fraud. No direct evidence of it exists; but appellant point
different from the one before us. In the McGrath case, the Court expressly found that: 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.
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 First, as to the price: As already noted, this property was actually sold for a total of
actively engaged in the prosecution of its business. On that day, which was Saturday, P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by
the plaintiff caused to be prepared, ready for execution, the four chattel mortgages the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are
in question, which cover all the tangible property then belonging to the not questioned; they were approved by the court, and its approval is now final. The claims
firm, including the counters, shelving, and other furnishings and fixtures necessary were, in fact, for the balance on the original purchase price of the land sold (sue first to La
for, and used in carrying on, its business, and signed the same in this form: "In Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the
witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving two creditors-claimants. To show that the price was inadquate, appellant relies on the
partner, of said firm, and Owen McCrath, individually, have hereunto set their hands, testimony of the realtor Mata, who is 1955, six years after the sale in question, asserted that
this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath. Owen the land was worth P312,000.00. Taking into account the continued rise of real estate values
McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time, since liberation, and the fact that the sale in question was practically a forced sale because
the plaintiff had prepared, ready for filing, the petition for the dissolution of the the partnership had no other means to pay its legitimate debts, this evidence certainly does
partnership and appointment of a receiver which he subsequently filed, as not show such "gross inadequacy" as to justify recission of the sale. If at the time of the sale
hereinafter stated. On the day the mortgages were signed, they were placed in the (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 prejudice to the right of the estate to recover contribution from the other debtor.
years before (1945) that the creditors wanted their money back, as they were justly entitled (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
It is argued that the land could have been mortgaged to raise the sum needed to discharge partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense
the debts. But the lands were already mortgaged, and had been mortgaged since 1940, first that each and every parcel under mortgage answers for the totality of the debt (Civ. Code of
to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that other 1889, Article 1860; New Civil Code, Art. 2089).
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 A final and conclusive consideration: The fraud charged not being one used to obtain a
lenders willing to take a chance on such a bad financial record, would not Goquiolay have party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud
taken advantage of it? But the fact is clear on the record that since liberation until 1949 at al, it can only be a fraud of creditors that gives rise to a rescission of the offending
Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383, New
to cry fraud after the debts were discharged with no help from him. 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
With regard to the relationship between the parties, suffice it to say that the Supreme Court there is no allegation, or evidence, that Goquiolay can not obtain reparation from the widow
has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil. and heirs of Tan Sin An, the present suit to rescind the sale in question is not maintainable,
243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is even if the fraud charged actually did exist.
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 PREMISES CONSIDERED, the motion for reconsideration is denied.
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 & Separate Opinions
BAUTISTA ANGELO, J., dissenting:
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,
This is an appeal from a decision of the Court of First Instance of Davao dismissing the
he could have easily defeated the conspirators by raising money and paying off the firm's
complaint filed by Antonio C. Goquiolay, et al., seeking to annul the sale made Z. Sycip and
debts between 1945 and 1949; but he did not; he did not even care to look for a purchaser
Betty Y. Lee on the ground that it was executed without proper authority and under
of the partnership assets. Were it true that the conspiracy to defraud him arose (as he
fraudulent circumstances. In a decision rendered on July 26, 1960 we affirmed this decision
claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so,
although on grounds different from those on which the latter is predicted. The case is once
it is certainly strange that the conspirators should wait 4 years, until 1949, to have the sale
more before us on a motion for reconsideration filed by appellants raising both questions of
effected by the widow of Tan Sin An, and that the sale should have been routed through the
fact and of law.
probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that
the supposed fraud should be detected.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co.,
contributed P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%.
(as subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of
The business of the partnership was to engage in buying real estate properties for
Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An &
subdivision, resale and lease. The partnership was duly registered, and among the conditions
Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the Banco
agreed upon in the partnership agreement which are material to this case are: (1) that Tan
Hipotecario), and Rule 87, section 6 is the effect that:
Sin An would be the exclusive managing partner, and (2) in the event of the death of any of
the partners the partnership would continue, the deceased to be represented by his heirs. On
Where the obligation of the decedent is joint and several with another debtor, the May 31, 1940, Goquiolay executed a general power of attorney in favor of Tan Sin An
claim shall be filed against the decedent as if he were the only debtor, without appointing the latter manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, Pin of the sum of P37,000.00, and the assumption by the buyers of the claims filed by Yutivo
441 and 521 of the cadastral survey of Davao, the only assets of the partnership, with the & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers executed a
capital orginally invested, financing the balance of the purchase price with a mortgage in mortgage on the properties purchased. Betty Y. Lee and Washington Z. Zycip subsequently
favor of "La Urbana Sociedad Mutua de Construccion Prestamos" in the amount of executed a deed of sale of the same properties in favor of their co-defendant Insular
P25,000.00, payable in ten years. On the same date, Tan Sin An, in his individual capacity, Development Company, Inc. It should be noted that these transactions took place without
acquired 46 parcels of land executing a mortgage thereon in favor of the same company for the knowledge of Goquiolay and it is admitted that Betty Lee and Washington Z. Sycip
the sum of P35,000.00. On September 25, 1940, these two mortgage obligations were bought the properties on behalf of the ultimate buyer, the Insular Development Company,
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin An, Inc., with money given by the latter.
in his individual capacity, and the partnership bound themselves to pay jointly and severally
the total amount of P52,282.80, with 8% annual interest thereon within a period of eight Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in
years mortgaging in favor of said entity the 3 parcels of land belonging to the partnership the intestate proceedings a petition to set aside the order of the court approving the sale.
and the 46 parcels of land belonging individually to Tan Sin An. The court granted the petition. While the order was pending appeal in the Supreme Court,
Goquiolay filed the present case on January 15, 1953 seeking to nullify the sale as stated in
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, the early part of this decision. In the meantime, the Supreme Court remanded the original
and four children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin, case to the probate court for rehearing due to lack of necessary parties.
was appointed administratrix of the intestate estate of Tan Sin An. And on the same date,
Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining unpaid balance of The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
the mortgage obligation of the partnership amounting to P46,116.75 in Japanese currency. partnership properties on the ground that she had no authority to sell because even granting
that she became a partner upon the death of Tan Sin An the power of attorney granted in
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and general favor of the latter expired after his death.
manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay
and the two had a conference in the office of the former during which he offered to buy the Defendants, on the other hand, defended the validity of the sale on the theory that she
interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, succeeded to all the rights and prerogatives of Tan Sin an as managing partner.
Atty. Dominador Zuo, to ask Goquiolay to execute in her favor a power of attorney.
Goquiolay refused both to sell his interest in the partnership as well as to execute the power The trial court sustained the validity of the sale on the ground that under the provisions of
of attorney. the articles of partnership allowing the heirs of the deceased partner to represent him in the
partnership after his death Kong Chai Pin became a managing partner, this being the
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co. capacity held by Tan Sin an when he died.
and Sing, Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate
proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91, respectively, alleging In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on
that they represent obligations of both Tan Sin An and the partnership. After first denying different grounds, among which the salient points are: (1) the power of attorney given by
any knowledge of the claims, Kong Chai Pin, as administratrix, admitted later without Goquiloay to Tan Sin An as manager of the partnership expired after his death; (2) his widow
qualification the two claims in an amended answer she filed on February 28, 1947. The Kong Chai Pin did not inherit the management of the partnership, it being a personal right;
admission was predicted on the ground that she and the creditors were closely related by (3) as a general rule, the heirs of a deceased general partner come into the partnership in
blood, affinity and business ties. In due course, these two claims were approved by the the capacity only of limited partners; (4) Kong Chai Pin, however, became a general partner
court. because she exercised certain alleged acts of management; and (5) the sale being necessary
to pay the obligations of the partnership properties without the consent of Goquiolay under
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed the principle of estoppel the buyers having the right to rely on her acts of management and
a petition in the probate court to sell all the properties of the partnership as well as some of to believe her to be in fact the managing partner.
the conjugal properties left by Tan Sin An for the purpose of paying the claims. Following
approval by the court of the petition for authority to sell, Kong Chai Pin, in her capacity as Considering that some of the above findings of fact and conclusions of law are without legal
administratrix, and presuming to act as managing partner of the partnership, executed on or factual basis, appellants have in due course filed a motion for reconsideration which
April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the partnership in
favor of Betty Y. Lee and Washington Z. Sycip in consideration of the payment to Kong Chai
because of the importance of the issues therein raised has been the subject of mature to Kong Chai Pin. To have a clear view of this factual situation, it becomes necessary that we
deliberation. analyze the evidence of record.

In support of said motion, appellants advanced the following arguments: Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation
with one Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin
1. If the conclusion of the Court is that heirs as a general rule enter the partnership "was attending to the properties and deriving some income therefrom and she had no other
as limited partners only, therefore Kong Chai Pin, who must necessarily have entered means of livelihood except those properties and some rentals derived from the properties."
the partnership as a limited partner originally, could have not chosen to be a general He went on to say by way of remark that she could continue doing this because he wanted
partner by exercising the alleged acts of management, because under Article 148 of to help her. One point that he emphasized was that he was "no interested in agricultural
the Code of Commerce a limited partner cannot intervene in the management of the lands."
partnership, even if given a power of attorney by the general partners. An Act
prohibited by law cannot given rise to any right and is void under the express On the other hand, defendants presented Hernando Young, the same person referred to by
provisions of the Civil Code. Goquiolay, who was a close friend of the family of Kong Chai Pin, for the purpose of denying
the testimony of Goquiolay. Young testified that in 1945 he was still in Davao, and insisted
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the no less than six times during his testimony that he was not in Manila in 1945, the year when
Yu (Yutivo) family, the rest, members of the law firm which handles the Yutivo he allegedly gave the information to Goquiolay, stating that he arrived in Manila for the first
interests and handled the papers of sale. They did not rely on the alleged acts of time in 1947. He testified further that he had visited the partnership properties during the
management they believed (this was the opinion of their lawyers) that Kong Chai period covered by the alleged information given by him to Goquiolay and that he found them
Pin succeeded her husband as a managing partner and it was on this theory alone "abandoned and underdeveloped," and that Kong Chai Pin was not deriving any income from
that they submitted the case in the lower court. them.

3. The alleged acts of management were denied and repudiated by the very The other witness for the defendants, Rufino Lim, also testified that he had seen the
witnesses presented by the defendants themselves. partnership properties and corroborated the testimony of Hernando Young in all respects:
"the properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient to the family of Kong Chai Pin did not receive my income from the partnership properties." He
reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify this specifically rebutted the testimony of Goquiolay, in his deposition given on June 30, 1956
conclusion, it is enough that we lay stress on the following points: (1) there is no sufficient that Kong Chai Pin and her family were living in the partnership properties, and stated that
factual basis to conclude that Kong Chai Pin executed acts of management to give her the the "family never actually lived in the properties of the partnership even before the war or
character of general manager of the partnership, or to serve as basis for estoppel that may after the war."
benefit the purchasers of the partnership properties; (92) the alleged acts of management,
even if proven, could not give Kong Chai Pin the character of general manager for the same It is unquestionable that Goquiolay was merely repeating an information given to him by a
contrary to law and well-known authorities; (3) even if Kong Chai Pin acted as general third person, Hernando Young he stressed this point twice. A careful analysis of the
manager she had no authority to sell the partnership properties as to make it legal and valid; substance of Goquiolay's testimony will show that he merely had no objection to allowing
and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the Kong Chai Pin to continue attending to the properties in order to give her some means of
partnership and if she did so it was merely to favor the purchasers who were close relatives livelihood, because, according to the information given him by Hernando Young, which he
to the prejudice of Goquiolay. assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly he made it
very clear that he did not allow her to manage the partnership when he explained his reason
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty.
to her our ruling cannot be sustained. In making our aforesaid ruling we apparently gave Zuo, brought with him to his house in 1948. He said:
particular importance to the fact that it was Goquiolay himself who tried to prove the acts of
management. Appellants, however, have emphasized the fact, and with reason, the appellees ... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked
themselves are the ones who denied and refuted the so-called acts of management imputed me if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told
Atty. Zuo what is the use of executing a general power of attorney for Mrs. Kong
Chai Pin when Mrs. Kong Chai Pin had already got that plantation for agricultural partner by the mere acceptance of the inheritance. And here Kong Chai Pin did not make
purposes, I said for agricultural purposes she can use that plantation ... (T.S.N. p. 9, such declaration. Being then a limited partner upon the death of Tan Sin An by operation of
Hearing on May 5, 1955). law, the peremptory prohibition contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status by violating its provisions
It must be noted that in his testimony Goquiolay was categorically stating his opposition to not only under the general principle that prohibited acts cannot produce any legal effect, but
the management of the partnership by Kong Chai Pin and carefully made the distinction that also because under the provisions of Article 1473 of the same Code she was precluded from
his conformity was for her to attend to the partnership properties in order to give her merely acquiring more rights than those pertaining to her as a limited partner. The alleged acts of
a means of livelihood. It should be stated that the period covered by the testimony refers to management, therefore, did not give Kong Chai Pin the character of general manager to
the period of occupation when living condition was difficult and precarious. And Atty. Zuo, it authorized her to bind the partnership.
should also be stated, did not deny the statement of Goquiolay.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts her the character of a general partner, could she sell the partnership properties without
of management of the partnership properties is highly controverted. The most that we can authority from the other partners?
say is that the alleged acts are doubtful more so when they are disputed by the defendants
themselves who later became the purchasers of the properties, and yet these alleged acts, if Our answer is also in the negative in the light of the provisions of the articles of partnership
at all, only refer to management of the properties and not to management of the and the pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129
partnership, which are two different things. of the Code of Commerce says:

In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin If the management of the general partnership has not been limited by special
cannot be upheld on the ground of estoppel, first, because the alleged acts of management agreement to any of the members, all shall have the power to take part in the
have not been clearly proven; second, because the record clearly shows that the defendants, direction and management of the common business, and the members present shall
or the buyers, were not misled nor did they rely on the acts of management, but instead they come to an agreement for all contracts or obligations which may concern the
acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she association.
succeeded her husband in the partnership as managing partner by operation of law; and
third, because the defendants are themselves estopped to invoke a defense which they tried And the pertinent portions of the articles of partnership provides:
to dispute and repudiate.
VII. The affairs of the co-partnership shall be managed exclusively by the managing
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could partner or by his authorized agent, and it is expressly stipulated that the managing
such acts give as we have concluded in our decision? partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select, upon
Our answer is in the negative because it is contrary to law and precedents. Garrigues, a well- such terms as regards compensation as he may deem proper, and vest in such
known commentator, is clearly of the opinion that mere acceptance of the inheritance does person, firm or corporation full power and authority, as the agent of the co-
not maked the heir of a general partner a general partner himself. He emphasized that partnership and in his name, place and stead to do anything for it or on his behalf
heir must declare that he is entering the partnership as a general partner unless the which he as such managing partner might do or cause to be done. (Page 23, Record
deceased partner has made it an express condition in his will that the heir accepts the on Appeal).
condition of entering the partnership as a prerequisite of inheritance, in which case
acceptance of the inheritance is enough.1But here Tan Sin An died intestate. It would thus be seen that the powers of the managing partner are not defined either under
the provisions of the Code of Commerce or in the articles of partnership, a situation which,
Now, could Kong Chai Pin be deemed to have declared her intention to become a general under Article 2 of the same Code, renders applicable herein the provisions of the Civil Code.
partner by exercising acts of management? We believe not, for, in consonance with our And since, according to well-known authorities, the relationship between a managing partner
ruling that as a general rule the heirs of a deceased partner succeed as limited partners only and the partnership is substantially the same as that of the agent and his principal, 4the
by operation of law, it is obvious that the heirs, upon entering the partnership, must make a extent of the power of Kong Chai Pin must, therefore, be determined under the general
declaration of his characters, otherwise he should be deemed as having succeeded as limited principles governing agency. And, on this point, the law says that an agency created in
general terms includes only acts of administrations, but with regard to the power to facilitated the transaction of the business of the firm, that is not sufficient, in the
compromise, sell mortgage, and other acts of strict ownership, an express power of attorney absence of evidence of sanction by other partners. Nor, it, seems, will necessity itself
is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the be sufficient if it be an extraordinary necessity. What is necessary for carrying on the
partnership. business of the firm under ordinary circumstances and in the usual way, is the test.
Lindl. Partn. Sec. 126. While, within this rule, one member of a partnership may, in
Of course, there is authority to the effect that a managing partner, even without express the usual and ordinary course of its business, make a valid sale or pledge, by way of
power of attorney may perform acts affecting ownership if the same are necessary to mortgage or otherwise, of all or part of its effects intended for sale, to a bona
promote or accomplish a declared object of the partnership, but here the transaction is not fide purchaser of mortgagee, without the consent of the other members of the
for this purpose. It was effected not to promote any avowed object of the firm, it is not within the scope of his implied authority to make a final disposition of al
partnership.6 Rather, the sale was affected to pay an obligation of the partnership by selling of its effects, including those employed as the means of carrying on its business, the
its real properties which Kong Chai Pin could not do without express authority. The object and effect of which is to immediately terminate the partnership, and place its
authorities supporting this view are overwhelming. property beyond its control. Such a disposition, instead of being within the scope of
the partnership business, or in the usual and ordinary way of carrying it on, is
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los necessarily subversive of the object of the partnership, and contrary to the presumed
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los intention of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49
fines sociales, viene limitada a los objetos de comercio, o a los productos de la N.E., 338, 343; Emphasis supplied).
fabrica para explotacion de los cauale se ha constituido la Sociedad. Ocurrira una
cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, Since Kong Chai Pin sold the partnership properties not in line with the business of the
en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere partnership but to pay its obligation without first obtaining the consent of the other partners
necesario. Por el contrario el generente no tiene attribuciones para vender las the sale is invalid in excess of her authority.
instalaciones del comercio, ni la fabrica, ni las maquinarias, vehiculos de transporte,
etc. que forman parte de la explotacion social. En todos estas casos, equalmente que 4. Finally, the sale under consideration was effected in a suspicious manner as may be
sisse tratase de la venta de una marca o procedimiento mecanico o quimico, gleaned from the following circumstances:
etc., siendo actos de disposicion, seria necesario contar con la conformidad expresa
de todos los socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied). (a) The properties subject of the instant sale which consist of three parcels of land situated in
the City of Davao have an area of 200 hectares more or less, or 2,000,000 square meters.
Los poderes de los Administradores no tienen ante el silencio del contrato otros These properties were purchased by the partnership for purposes of subdivision. According to
limites que los sealados por el objeto de la Sociedad y, por consiguiente, pueden realtor Mata, who testified in court, these properties could command at the time he testified
llevar a cabo todas las operaciones que sirven para aquel ejercicio, incluso a value of not less than P312,000.00, and according to Dalton Chen, manager of the firm
cambiando repetidas veces los propios acuerdos segun el interest convenido de la which took over the administration, since the date of sale no improvement was ever made
Sociedad. Pueden contratar y despedir a los empleados. tomar en arriendo thereon precisely because of this litigation. And yet, for said properties, aside from the sum
almacenes y tiendas; expedir cambiales, girarlas, avalarlas, dar en prenda o en of P37,000.00 which was paid for the properties of the deceased and the partnership, only
hipoteca los bienes de la sociedad y adquirir inmuebles destinados a su explotacion o the paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of
al empleo, estable de sus capitales. Pero no podran ejecutar los actos que esten en P46,116.75 was even paid in Japanese currency.
contradiccion con la explotacion que les fue confiada; no podran cambiar el objeto , el
domicilio, la razon social; fundir a la Sociedad en otro; ceder la accion, y por tanto, el (b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if
uso de la firma social a otro, renunciar definitivamente el ejercicio de uno de otro her purpose was only to pay the partnership obligation. She could have negotiated a loan if
ramo comercio que se les haya confiado y enajenar o pignorar el taller o el banco she wanted to pay it by placing the properties as security, but preferred to sell them even at
social, excepto que la venta o pignoracion tengan por el objeto procurar los medios such low price because of her close relationship with the purchasers and creditors who
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de conveniently organized a partnership to exploit them, as may be seen from the following
Derecho Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied). relationship of their pedigree:

The act of one partner, to bind the firm, must be necessary for the carrying one of
its business. If all that can be said of it was that it was convenient, or that it
KONG CHAI PIN, the administratrix, was a grandaughter of Jose P. Yutivo, founder of that reason these two were included as party defendants. As the original plaintiffs sold their
the defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO. and SING, rights, title and interest in said partnership to Ng Be Chuat and Ng Feng Tuan, the latter two
YEE & CUAN CO., INC., alleged creditors, are owned by the heirs of Jose P. Yutivo were allowed to intervene as plaintiffs. Since Jose C. Tayengco had mortgaged three of the
(Sing, Yee & Cuan are the three children of Jose). YU KHE THAI is a grandson of the lands which he purchased from C. N. Hodges in favor of the Bank of the Philippine Islands,
same Jose P. Yutivo, and president of the two alleged creditors. He is the the complaint was amended so as to include the Bank also as party defendant.
acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original
buyers, is married to Ana Yu, a daughter of Yu Khe Thai. BETTY Y. LEE, the other On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs
original buyer is also a daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., were order to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and
the ultimate buyer, was organized for the specific purpose of buying the partnership Jose C. Tayengco answered the complaint separately setting up certain special defenses and
properties. Its incorporators were: Ana Yu and Betty Y. Lee, Attys. Quisumbing and counterclaims. In substance, they refuted the allegations set forth in the complaint and
Salazar, the lawyers who studied the papers of the sale and have been counsel for prayed for its dismissal.
the Yutivo interests; Dalton Chen, a brother-in-law of Yu Khe Thai and an executive
of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo The parties submitted a partial Stipulation of facts on many points covered by the pleadings
Sons Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos. thus simplifying the trial of the case while at the same time they introduced additional
evidence in amplification of the fact stipulated, Thereupon, the trial court, after a thorough
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong evaluation of the evidence, rendered decision dismissing the complaint with costs. Plaintiffs
Chai Pin, have already conceived the idea of possessing the lands for purposes of interposed the present appeal on purely questions of law.
subdivision, excluding Goquilolay from their plan, and this is evident from the following
sequence of events;lawphil.net The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be
Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, contract of general co-partnership under the name NG CHIN BENG HERMANOS. The
the creditors of the partnership filed their claim against the partnership in the partnership was to exist for a period of 10 years from May 23, 1925 and Ng Diong was
intestate proceedings. The creditors studied ways and means of liquidating the named as managing partner. On May 10, 1935, the articles of co-partnership were amended
obligation of the partnership, leading to the formation of the defendant Insular by extending its life to 16 years more to be counted from May 23, 1925, or up to May 23,
Development Co., composed of members of the Yutivo family and the counsel of 1941.
record of the defendants, which subsequently bought the properties of the
partnership and assumed the obligation of the latter in favor of the creditors of the On January 5, 1938, the partnership obtained from the National Loan and Investment Board
partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family. a loan in the amount of P30,000.00, and to guarantee its payment it executed in its favor a
The buyers took time to study the commercial potentialities of the partnership mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo. On the
properties and their lawyers carefully studied the document and other papers same date, the partnership also obtained from the same entity another loan in the amount of
involved in the transaction. All these steps led finally to the sale of the three P50,000.00 to secure which it also executed in its favor a mortgage on Lots Nos. 386, 829
partnership properties. and 237 of the same cadastral survey.

UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to grant the motion Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in,
for reconsideration. Special Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino
Melocoton was elected as assignee. As a consequence, on June 21, 1939, the titles to the
7. NG CHO CIO ET AL., vs. NG DIONG, .C. N. HODGES, ET AL., seven parcels of land abovementioned were issued in his name as assignee. In due time, the
creditors filed their claims in said proceeding which totalled P192,901.12.
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian
King and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7) On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and
parcels of land situated in the City of Iloilo which were sold by Ng Diong as manager of the the partners of the firm, acting thru counsel, entered into a composition agreement whereby
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had sold four it was agreed that said creditors would receive 20% of the amount of their claims in full
of those parcels of land to Jose C. Tayengco and the other three parcels to Julian Go, and for payment thereof. Prior to this agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the insolvent whose total claims amounted to transferred the right of the latter to repurchase the same from Hodges to Julian Go in full
P139,323.10. Said composition agreement was approved by the insolvency court. payment of the partnership's indebtedness to him. And having Julian Go exercised the option
January 6, 1948, Hodges executed a deed of sale of the properties in his favor, and pursuant
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the National thereto the register of deeds issued new titles' in his name covering said lots. On May 29,
Loan and Investment Board assigned its rights and interests in the loans obtained from it by 1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540
the partnership in the aggregate amount of P80,000.00 in favor of C.N. Hodges, together for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco
with the right and interest in the mortgage executed to secure the loans. Since said loans mortgaged said lots, together with three other lots of his, to the Bank of the Philippine
became due and no payment was forthcoming, Hodges asked permission from the insolvency Islands to secure a loan of P126,000.00 to be used in the construction of a commercial
court to file a complaint against the assignee to foreclose he mortgage executed to secure building on said lots.
the same in a separate proceeding, and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed that the Appellants make in their brief six assignments of errors, which, reduced to bare essentials,
assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per annum may be boiled down to the following points: (1) the sale made by Ng Diong in behalf of the
thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and charges. partnership NG CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N.
Meanwhile, war broke out and nothing appears to have been done in the insolvency Hodges on April 2, 1946 is null and void because at that time said parcels were still in the
proceedings. The court records were destroyed. However, they were reconstituted later and custody of the assignee of the insolvency proceedings, or in custodia legis, and, hence, the
given due course. same is null and void; (2) said sale is also null and void "because of the disparity, irrationality
and unreasonableness between the consideration and the real value of the properties when
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of sold"; and (3) the lower court erred in not finding that the two deeds of mortgage executed
the claims of the creditors, filed a petition with the insolvency court praying at the insolvency by he partnership in favor of the National Loan and Investment Board which were later
proceedings be closed or terminated cause the composition agreement the creditors had assigned to C. N. Hodges can no longer be enforced because the action to foreclose the
submitted relative to the settlement of the claims had already been approved on October 10, same has already prescribed.
1940. And on October 6, 1946, the court, acting favorably on the petition, ordered, closure of
the proceedings directing the assignee to turn and reconvey all the properties of the Anent the first issue, it would be well to state the following facts by way of clarification: It
partnership back to the latter as required by law. In accordance with this order of the court, should be recalled that on August 8, 1940 the majority of the creditors of the partnership, as
the assignee executed a deed of reconveyance of the properties to the partnership on April well as the representatives of the latter, submitted to the court taking cognizance of the
2, 1946 and by virtue thereof, the register of deeds cancelled the titles issued in the name of insolvency proceedings a composition agreement whereby it was agreed that said creditors
the assignee and issued new ones in lieu thereof in the name of the partnership. would receive 20% of the amount of their claims in full payment thereof. This agreement
was approved on October 10, 1940 which, in contemplation of law, has the effect of putting
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which was an end to the insolvency proceedings. However, no further step was taken thereon because
the subject of the foreclosure proceedings in a separate case was P103,883.34. In order to of the outbreak of the war. Later, the record of the case was reconstituted and the parties on
pay off the same and raise necessary funds to pay the other obligations of the partnership, it August 15, 1945 filed a petition with the court praying for the dismissal and closure of the
was deemed proper and wise by Ng Diong, who continued to be the manager of the proceedings in view of the approval of the aforesaid composition agreement, and acting
partnership, to sell all its properties mortgaged to Hodges in order that the excess may be favorably thereon, the court on October 6, 1945, issued an order declaring the proceedings
applied to the Payment of said other obligations, and to that effect Ng Diong executed on terminated and ordering the assignee to return and reconvey the properties the partnership.
April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of P124,580.00. Out of The actual reconveyance was done by a assignee on April 2, 1946.
this price; the sum of P103,883.34 was applied to the payment of the debt of the partnership
to Hodges and the balance was paid to the other creditors of the partnership. On the same It would, therefore, appear that for legal and practical purposes the insolvency ended on said
date, Hodges executed another contract giving the partnership the right to repurchase Lots date. Since then partnership became, restored to its status quo. It again reacquired its
Nos. 237, 386 and 829 in installments for the sum of P26,000.00 within three years with personality as such with Ng Diong as its general manager. From that date on its properties
interest the rate of 1% Per annum, Payable monthly. ceased to be in custodia legis. Such being the case, it is obvious that when Ng Diong as
manager of the partnership sold the seven parcels of land to C. N. Hodges on April 2, 1946
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he by virtue of a deed of sale acknowledged before a notary public on April 6, 1946, the
amount of P24,864.62 under the composition agreement, nor did it have any money to properties were already was at liberty to do what it may deem convenient and proper to
repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the partnership, protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the
power granted to him by the partnership in its articles of co-partnership. We do not, WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the question may
be fixed: Who shall wind up it business affairs? May its manager still execute the sale of its This action was brought by two of the partners of an enterprise of which the
properties to C. N. Hodges as was done by Ng Diong? The answer to this question cannot defendant was manager (gestor), to secure an accounting of its affairs, and the payment to
but be in the affirmative because Ng Diong was still the managing partner of the partnership the plaintiffs of their respective shares of capital and profits.
and he had the necessary authority to liquidate its affairs under its articles of co-partnership.
And considering that war had intervened and the affairs of the partnership were placed under
The defendant admitted the allegations of the complaint as to the organization of the
receivership up to October 6, 1945, we are of the opinion that Ng Diong could still exercise
enterprise and the participation of the plaintiffs therein, but he contended that the plaintiffs
his power as liquidator when he executed the sale in question in favor of C. N. Hodges. This
could not maintain this action under the terms of the written contract by virtue of which the
is sanctioned by Article 228 of the Code of Commerce which was the law in force at the
enterprise was organized. This contention having been overruled, an account of the affairs of
the enterprise was submitted, and the parties having been given an opportunity to offer
evidence for and against certain dispute items of the account, judgment was rendered for the
With regard to the second issue, it is contended that the trial court should have declared the balance shown to be due the plaintiffs, after allowing some of these disputed items and
sale of the lots made to C. N. Hodges null and void "because of the disparity, irrationality and disallowing the rest. To this judgment, both plaintiffs and defendant excepted, and the
unreasonableness between the consideration and real value of the properties when sold." In record is now before us on their respective bills of exceptions.
stressing his point, counsel contends that the lands in question, which are located in a
commercial section of the City of Iloilo, were frittered away only for a "pittance of
In October, 1901, a notarial instrument was executed in Manila, by the terms of which a
P124,580.00" when, borrowing his words they could have been sold like hot cakes to any
partnership was duly organized for the purpose of carrying on a rice-cleaning business at
resident of the city of regular financial standing upon proper approaches and representations,
Dagupan, and for the purchase and sale of "palay" and rice. The articles of association, which
because at that time those properties were fairly worth one-half of a million pesos."
were not recorded in the mercantile registry, contain, among others, the following provisions:
This claim may be true, but the same is unsupported. Appellants have failed to introduce any
2. The association will be named F. Lichauco Hermanos and will be domiciled in the
evidence to show that they could have secured better offers for the properties if given a
center of its operations, that is, in the pueblo of Dagupan, Province of Pangasinan.
chance to do so and that they advance now is a mere speculation or conjecture which had no
place in our judicial system. Since every claim must be substantiated by sufficient evidence,
and this appellants have failed to do, their pretense cannot be entertained. 3. The association cannot be dissolved except by the consent and agreement of two-
thirds of its partners and in the event of the death of any of the latter, the heirs of
the deceased, if they be minors or otherwise incapacitated, shall be represented in
Neither can we give any value to the claim that the action for the foreclosure of the
the association by their legal representatives or if two-thirds of the surviving partners
mortgage executed by the partnership in favor of C. N. Hodges has already prescribed not
agree thereto, the participation of the deceased partner may be liquidated.
only because the same is immaterial but because it is an issue that appellants are raising for
the first time in this appeal. Such issue has never been raised in their pleadings, nor in the
trial court. Verily, this claim has no merit. 4. The management and direction of the association shall be in charged of Don
Faustino Lichauco y Santos, who shall be domiciled in this city of Manila, with ample
powers to direct and manage the business; to carry out all manner of purchases and
With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is that
sales of "palay," rice, chattels, machinery and whatsoever may be necessary and
the trial court failed to adjudicate to the partnership the properties which were bought by
proper for the business of the association; to make all contracts of every kind related
Julian Go from C. N. Hodges, suffice it to say that the same could not be done, firstly,
to said business, either orally, in private documents or in public instruments, as he
because no such claim was made by them in their pleadings in the trial court, and, secondly,
deems fit; to appoint subordinates and other employees such as may be necessary;
because the evidence shows that said properties were bought by Julian Go by virtue of the
and finally to perform whatever acts and things he may deem suitable to the interest
option given to him by the partnership for a valuable consideration in full payment of the
of the association; and to appear before the courts of justice and other authorities
credits assigned to him by a good number of creditors of said partnership. There is no
and public offices in such matters as may concern the association and to appoint
evidence that he promised to reconvey the same to the partnership.
agents for those matters to which he cannot attend personally.
The articles disclose that the capital invested in the enterprise was fixed at P100,000, of The assignments of error made by counsel for the defendant, as appellant, are as follows:
which amount P60,000 was contributed by the defendant and his brothers in the form of
machinery in a mill at Dagupan and the good will of the milling business formerly conducted Error No. 1. The trial court erred in rendering judgment in favor of the plaintiffs
at the place, the balance of the capital being contributed by the plaintiffs and others in cash, and against the defendant for any sum, without first decreeing a dissolution of the
in the following proportions: Eugenia Lichauco, P13,000; Catalino Arevalo, P8,000; Mariano association and final liquidation of its assets in accordance with paragraph 10 of the
Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco, P10,000. articles of association, and because such judgment is not within the issues joined.

The business thus organized was carried on until May, 1904, when it was found to be Error No. 2. The trial court erred in charging the defendant with P5,500, the price
unprofitable and discontinued by the defendant manager ( gestor); and thereafter, the of certain boilers and machinery sold to one Marciano Rivera by Crisanto Lichauco,
machinery of the rice mil was dismantled by his orders, and offered for sale. No accounting which amount never came into the possession of defendant.
ever was made to his associates by the defendant until this action was instituted in October,
1912, although it appears that in the year 1905, Mariano Limjap, one of the participants in Error No. 3. The trial court erred in disallowing the credit of P60.36, taken by
the venture, demanded a rendition of accounts; and that Eugenia Lichauco, one of the defendant for that amount expended in an attempt to make good the sale and
plaintiffs in this action, made repeated unsuccessful demands for the return of her share of delivery to Marciano Rivera of the boilers and machinery mentioned in the second
the capital invested in the enterprise. And yet it further appears that during all that time the assignment of error.
defendant manager of the defunct enterprise had in his possession not less than P20,000,
the cash balance on hand, over and above all claims of indebtedness after suspending
Error No. 4. The court erred in charging the defendant with the P1,820, covered
operations in 1904; and that since that time he received or should have received substantial
by stipulation of December 10, 1913, for the reason that the defendant's liability
sums of money from the sale of the machinery of the dismantled mill.
under that stipulation can only accrue on the final dissolution and liquidation of the
There is evidence in the record tending to show that the defendant informed some of his
associates, about the year 1906 or 1907, that the whole enterprise was bankrupt; and it
Error No. 5. The court erred in rendering judgment against the defendant for the
appears that some months prior to the institution of this action, he rendered upon demand of
costs of the action.
counsel, a so-called account showing a balance to the credit of the enterprise of only
P643.64; although at the trial, some six months afterwards, he expressly admitted the
existence of a cash balance of some P23,131.53, and the amount by the trial judge as due by The assignments of error made by refusing to condemn the defendant to the payment of
him on account of the venture was P29,549.99. The defendant explained that the account interest at the legal rate from May 30, 1904, to date of payment.
rendered to counsel for the plaintiffs showing a balance of P634.64 was mailed by one of his
employees without his knowledge, and that it was a stupid blunder which he greatly Error No. 1 The court erred in refusing to condemn the defendant to the payment
regretted; and it would seem that his statement as to the bankruptcy of the enterprise were of interest at the legal rate of 6 per cent upon the credit balance of the joint venture
not intended to be understood as an assertion that there was no balance due the partners, from May 30, 1904, to date of payment.
but merely that the enterprise had not paid, and that the losses of operation had exceeded
the profits. Error No. 2. The court erred in refusing to allow interest at the legal rate of 6 per
cent upon the sum of P1,147.44 from May 30, 1904, to date of payment, said credit
Giving the defendant the benefit of the doubt, we are inclined to accept these explanations balance of the joint venture was unduly diminished by error in the conversion of gold
of these incidents, as it is hardly possible that he could have hoped to escape indefinitely the currency.
necessity of accounting for his management of the enterprise, and thus permanently retain in
his own possession the substantial balance due to his associates. But it is to be observed Error No. 3. The court erred in refusing to allow the joint venture account the sum
that, viewed for many standpoint, these statements, made and rendered by the defendant as of P17, 746, being the value of 3,736 cavanes of rice at P4.75 per cavan, for which
to the affairs of the association, taken together with the other evidence in the record, leave the defendant has wholly failed to account.
no room for doubt that from the time he concluded the operations of the business in 1904
until the date of the institution of this action in 1912 he made no attempt to account to his Error No. 4. The court erred in declining to allow the joint venture account the
associates or to turn over to them the amount due them on a proper accounting. sum of P8,943.98 as interest upon said last-mentioned sum at the legal rate.
Error No. 5. The court erred in declining to allow the joint venture account the Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership
sum of P564.34, as interest at the legal rate upon the sum of P5,500, for which the (sociedades) as defined in that code, may be terminated. The first article of that chapter is as
defendant has failed and refused to account. follows:

Error No. 6. The court erred in declining to credit the joint venture account with 1700. Partnership is extinguished:
the sum of P2,498.46 as the amount due said account from Mariano Nable Jose,
together with interest thereon at the legal rate, amounting to P1,259.22. (1) When the term for which it was constituted expires.

We shall first examine the contentions of counsel for the defendant in support of his principal (2) When the thing is lost, or the business for which it was constituted ends.
assignment of error, as a ruling in this regard is necessary to the proper disposition of all the
other assignments of error by both plaintiffs and defendant. (3) By the natural death, civil interdiction, or insolvency of any of the partners, and
in the case provided for in article 1699.
Counsel for defendant says in his brief:
(4) By the will of any of the partners, subject to the provisions of articles 1705 and
It is our contention, and we believe it to be unanswerable, that the dissolution and 1707.
liquidation, either in whole or in part, of the association is absolutely prohibited by
paragraph 10 of the articles of association, except by and with the conformity and Partnerships, to which article 1670 refers, are excepted from the provisions of Nos. 3
agreement of two-thirds of the partners, and that as a consequence thereof the and 4 of this article, in the cases in which they should exist, according to the Code of
court, without allegations or proof of compliance with that paragraph and without Commerce.
making the other partners parties to the action, had no power to decree a
distribution either in whole or in part of the capital or assets of the association.
1670. Civil partnerships, on account of the objects for which they are destined, may
adopt all the forms accepted by the Code of Commerce. In this case, the provisions
It certainly cannot be seriously contended that part of the capital and assets of this of the same shall be applicable, in so far as they are not in conflict with those of the
association can be lawfully returned to and distributed between the plaintiffs who present Code.
constitute one-fifth of the total number of partners, as required by paragraph 10 of
the articles of association.
Articles 221 and 222 of the Code of Commerce are as follows:

It is elementary that no lawful liquidation and distribution of capital and assets of any
221. Associations of any kind whatsoever shall be completely dissolved for the
company or association can ever take place except upon dissolution thereof.
following reasons:

These contentions of counsels for the defendant take no account of the provisions of both
(1) The termination of the period fixed in the articles of association of the conclusion
the Civil and Commercial Codes for the dissolution and liquidation of the different classes of
of the enterprise which constitutes its purpose.
partnerships and mercantile associations upon the occurrence of certain contingencies not
within the control of the partners. The provisions of paragraph 10 of the articles of
partnership prohibiting the dissolution of the association under review, except by the consent (2) The entire loss of the capital.
and agreement of two-thirds of its partners, denied the right to a less number of the partners
to effect a dissolution of the partnership through judicial intervention or otherwise; but in no (3) The failure of the association.
wise limited or restricted the rights of the individual partners in the event the dissolution of
the association was effected, not by any act of theirs, but by the express mandate of 222. General and limited copartnerships shall furthermore be totally dissolved for the
statutory law. It would be absurd and unreasonable to hold that such an association could following reasons:
never be dissolved and liquidated without the consent and agreement of two-thirds of its
partners notwithstanding that it had lost all its capital, or had become bankrupt, or that the (1) The death of one of the general partners if the articles of copartnership do not
enterprise for which it had been organized had been concluded or utterly abandoned. contain an express agreement that the heirs of deceased partner are to continue in
the copartnership, or an agreement to the effect that said copartnership will continue in so far as they are not in conflict with those of the Civil Code, may be relied upon in an
between the surviving partners. attempt to define the legal relations of the association and its members. Though the
unregistered articles of partnership gave the association a form of organization closely
(2) The insanity of a managing partner or any other cause which renders him assimilated to that of a regular "compaia en comandita," as prescribed in the Commercial
incapable of administering his property. Code, except that the name designated in the articles did not include the words "y compaia"
(and company) and the additional words "sociedad en comandita," it appears to have been
(3) The failure of any of the general partners. organized and conducted in substantially the manner and form prescribed for "cuentas en
participacion" (joint accounts) in articles 239-243 of that Code.
It cannot be doubted that under these provisions of law the association of which the
defendant was nominated manager (gestor) was totally dissolved in the year 1904, when the The plaintiffs alleged in their complaint and the defendant admitted in his answer that the
rice mill for the operation of which it was organized was dismantled, the machinery offered contract was one of a "sociedad de cuentas en participacion" (joint account partnership) of
for sale and the whole enterprise concluded and abandoned. which the defendant was gestor (manager). In his brief on appeal, however, counsel for
defendant intimates that under article 241 of the Commercial Code, the adoption in the
articles of partnership of a firm name deprived the parties of the rights and privileges
Upon the dissolution of the association in 1904 it became the duty of the defendant to
secured to those interested in cuentas en participacion under the provisions of the
liquidate its affairs and account to his associates for their respective shares in the capital
Commercial Code.
invested this not merely from the very nature of his relation to the enterprise and of his
duties to those associated with him as partners, but also by the express mandate of the law.
The association having been dissolved by the termination and abandonment of the enterprise But whatever effect the inclusion or omission of a firm name in the articles of partnership
for which it was organized, he owed this duty to liquidate and account to all and to each of may have had as to third persons dealing with the partnership, we are of opinion that as
his associates, and upon his failure to perform that duty, all or any of them had a clear legal between the associates themselves, their mutual rights, duties and obligations may properly
right to compel him to fulfill it. Each of his associates had a perfect right to demand for be determined upon the authority of article 1670 of the Civil Code by the provisions of the
himself a full, complete and satisfactory accounting, and in the event that he conceived Commercial Code touching partnerships, the form of which in all other respects, the partners
himself aggrieved in this regard, to institute the appropriate judicial proceedings to secure have adopted in their articles of partnership.
relief. Doubtless, in order to avoid a multiplicity of actions, the defendant in such an action
could require all the associates to be made parties, but the right of an individual member of The duty of the defendant to liquidate the affairs of the enterprise and to account to his
the association to recover his share in the enterprise and to assert his individual claim for associates promptly upon the dissolution of the association in the year 1904 is expressly
redress, wholly independent of the action or attitudes of his associates, could be in no wise prescribed in the Commercial Code, whether we regard the association, so far as it affects
affected thereby. The other associates would be proper, but not necessary, parties to an the mutual rights and obligations of the partners, as clothed with the forms of a "sociedad de
action of this kind; and when, as in the case at bar, the defendant proceeds to trial without cuentas en participacion" (joint account partnership) or a "sociedad en comindata."
objection on the express ground that all the associates in the enterprise have not been made
parties to the action, he cannot thereafter be heard to raise such an objection for the Article 243 of the Code of Commerce prescribes with reference to "cuentas en participacion"
purpose of challenging any judgment which may be rendered therein. (joint accounts) that:

Although the enterprise was organized in the year 1901 for the purpose of conducting 243. The liquidation shall be effected by the manager, and after the transactions
mercantile operations, including the buying and selling of "palay" and rice, the articles of have been concluded he shall render a proper account of its results.
partnership or association were not registered in the mercantile registry in accordance with
the provisions of articles 17 and 119 of the Commercial Code. It was therefore a mere Articles 229 and 230 of the same Code are as follows:
unregistered commercial partnership, and the association never became in the legal sense a
juridical person, nor did it attain the dignity, rights or privileges accorded the different classes 229. In general or limited copartnerships, should there be no opposition on the part
of compaias mercantiles (mercantile partnerships), discussed in Title 1 of Book 2 of the of any of the partners, the persons who managed the common funds shall continue
Commercial Code. Still, under the provisions of the above-cited article 1670 of the Civil Code, in charge of the liquidation; but should all the partners not agree thereto a general
if it be found that the association is clothed with the forms of any of the commercial meeting shall be called without delay, and the decision adopted at the same shall be
association or partnerships recognized in the Commercial Code, the provisions of that code, enforced with regard to the appointment of liquidators from among the members of
the association or not, as well as in all that refers to the form and proceedings of the the trial judge with the sum of P5,500, the purchase price of certain machinery sold by him
liquidation and the management of the common funds. and for which, under all the circumstances, he must account, together with interest at the
rate of six per centum per annum from January 8, 1912, the date of sale to Marciano Rivera.
230. Under the penalty of removal the liquidators shall
With relation to the items mentioned in plaintiff's assignments of errors Nos. 3 and 4, we
(1) Draw up and communicate to the members, within the period of twenty days, an hold that the trial judge properly declines to charge the defendant's account with the
inventory of the common property, with a balance of the association in liquidation amounts mentioned therein, the evidence of record not being sufficient to establish his
according to its books. liability therefor as manager or gestor of the enterprise.

(2) Communicate in the same manner to the members every month the condition of With relation to the matter referred to in plaintiff's assignment of error number 6 and
the liquidation. defendant's assignment No. 4, we are of opinion that the trial judge properly disposed of the
issues between the parties in this regard, as they were submitted to him and as they are
We conclude that an express statutory obligation imposed upon the defendant an imperative disclosed by the record brought here on appeal.
obligation to proceed without delay to the liquidation of the association in the year 1904 and
the further duty to account to his associates for the result of that liquidation. While he We find no merit in defendant's assignment of error numbered 3.
appears to have gone forward with the liquidation far enough to collect all the cash resources
of the association into his own hands, how utterly failed neglected to account therefor to his Twenty days hereafter let judgment be entered reversing the judgment of the lower court,
associates or to make any attempt so to do, and we are of opinion that the plaintiffs were without special condemnation of the costs in this instance, and directing the return of the
clearly entitled to bring this action to compel an accounting, and the payment of their record to the trial court, wherein judgment will be entered in accordance herewith, and ten
respective shares of the capital invested, together with damages resulting from the failure of days thereafter let the record be remanded in confirmity therewith. So ordered.
the defendant to perform the duty expressly imposed upon him by statute. The damages
arising from the failure to account consisted of the loss of the use of the money to which _______________________________________________________________
they would have been entitled upon a proper accounting, from the date at which it should
have been turned over by the defendant until it is actually paid by him, that is to say, interest 9. JOSUE SONCUYA vs. CARMEN DE LUNA
on that amount at the rate of six per centum per annum until paid.
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance
What has been said disposes adversely of the contentions of the defendant in support of his of Manila and amended complaint against Carmen de Luna in her own name and as co-
assignments of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in their administratrix of the intestate estate, of Librada Avelino, in which, upon the facts therein
assignments of errors Nos. 1 and 2, to the extent that interest at the rate of six per centum alleged, he prayed that defendant be sentenced to pay him the sum of P700,432 as damages
per annum should have been allowed upon the credit balance of the enterprise from May 30, and costs.
1904, the date when it should have been distributed among his associates by the defendant
had he performed his statutory duty in that regard. This balance (including the item
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer
mentioned in plaintiff's assignment of error No. 2) we fix at P23, 131.53, adopting as a basis
based on the following grounds: (1) That the complaint does not contain facts sufficient to
for our finding in this regard, the findings and conclusions of the trial judge, and disregarding
constitute a cause of action; and (2) that the complaint is ambiguous, unintelligible and
the possibility that had defendant accounted promptly to his associates, interest might not
have been chargeable on some of the smaller items in included in the account until some
little time after the date just mentioned.
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
As to the other assignments of error it must suffice to say that we have carefully examined
days from receipt of notice of the order.
the record and have arrived at the following conclusions:
Plaintiff having manifested that he would prefer not to amend his amended complaint, the
With relation to the item of account referred to in defendant's assignment of error No . 2 and
attorney for the defendant, Carmen de Luna, filed a motion praying that the amended
plaintiff's assignment No. 5, we hold that the defendant's account was properly charged by
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 SHERIFF OF NEGROS OCCIDENTAL, MARGARITA G. SALDAJENO and her husband
complaint, with costs against the plaintiff. CECILIO SALDAJENO

From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of
committed by the lower court in its order referred to. Negros Occidental in Civil Cage No. 5343, entitled " Manuel G. Singson, et all vs. Isabela
Sawmill, et al.,", the dispositive portion of which reads:
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 IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that
constitute a cause of action and that the complaint is ambiguous, unintelligible and vague, the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has
the only questions which may be raised and considered in the present appeal are those not created a chattel mortgage lien on the machineries and other chattels
which refer to said grounds. mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay partnership, have a preferred right over the assets of the said partnership
plaintiff damages in the sum of P700,432 as a result of the administration, said to be and over the proceeds of their sale at public auction, superior to the right of
fraudulent, of he partnership, "Centro Escolar de Seoritas", of which plaintiff, defendant and the defendant Margarita G. Saldajeno, as creditor of the partners Leon
the deceased Librada Avelino were members. For the purpose of adjudicating to plaintiff Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill'
damages which he alleges to have suffered as a partner by reason of the supposed is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89,
fraudulent management of he partnership referred to, it is first necessary that a liquidation of with legal interest thereon from the filing of the complaint on June 5, 1959;
the business thereof be made to the end that the profits and losses may be known and the (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong
causes of the latter and the responsibility of the defendant as well as the damages which in the total amount of P5,723.50, with interest thereon at the rate of 1 %
each partner may have suffered, may be determined. It is not alleged in the complaint that per month from May 6, 1959, (the date of the statements of account, Exhs.
such a liquidation has been effected nor is it prayed that it be made. Consequently, there is "L" and "M"), and 25% of the total indebtedness at the time of payment, for
no reason or cause for plaintiff to institute the action for damages which he claims from the attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I"
managing partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172). to "17", inclusive; (5) that the same defendant is indebted to the plaintiff
Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from
Having reached the conclusion that the facts alleged in the complaint are not sufficient to the filing of the complaint on June 5, 1959; (6) that the same defendant is
constitute a cause of action on the part of plaintiff as member of the partnership "Centro indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with
Escolar de Seoritas" to collect damages from defendant as managing partner thereof, legal interest thereon from the filing of the complaint on June 5, 1959; (7)
without a previous liquidation, we do not deem it necessary to discuss the remaining that the same defendant is indebted to the plaintiff Bacolod Southern
question of whether or not the complaint is ambiguous, unintelligible and vague. Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the
filing of the complaint on June 5, 1959; (8) that the same defendant is
indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal
In view of the foregoing considerations, we are of the opinion and so hold that for a partner
interest thereon from the filing of the complaint on June 5. 1959; (9) that
to be able to claim from another partner who manages the general copartnership, damages
the defendant Margarita G. Saldajeno, having purchased at public auction
allegedly suffered by him by reason of the fraudulent administration of the latter, a previous
the assets of the defendant partnership over which the plaintiffs have a
liquidation of said partnership is necessary.
preferred right, and having sold said assets for P 45,000.00, is bound to pay
to each of the plaintiffs the respective amounts for which the defendant
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, partnership is held indebted to, them, as above indicated and she is hereby
with costs against the appellant. So ordered. ordered to pay the said amounts, plus attorneys fees equivalent to 25% of
the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in
10. MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor
ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil
vs.ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO Code of the Philippines; (10) The defendants Leon Garibay and Timoteo
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL Tibungbanua are hereby ordered to pay to the plaintiffs the respective
amounts adjudged in their favor in the event that said plaintiffs cannot (3) That the so-called Chattel Mortgage executed by the defendant Leon
recover them from the defendant Margarita G. Saldajeno and the surety on Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
the bond that she has filed for the lifting of the injunction ordered by this Saldajeno on May 26, 1958 be declared null and void being in fraud of
court upon the commencement of this case. creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
The cross-claim cf the defendant Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed (4) That the Honorable Court order the sale of public auction of the assets of
Margarita G. Saldajeno shall pay the costs. the defendnat partnership in case the latter fails to pay the judgment that
the plaintiffs may recover in the action, with instructions that the proceeds of
SO ORDERED.1 the sale b e applied in payment of said judgment before any part of saod
proceeds is paid to the defendant Margarita G. Saldajeno;
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records
of this case to the Supreme Court "considering that the resolution of this appeal involves (5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita
purely questions or question of law over which this Court has no jurisdiction ...2 G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency
may remain unpaid after the proceeds of the sale of the assets of the
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, defendnt partnership are supplied in payment of the judgment that said
Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance plaintiffs may recover in this action;
of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her
husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of (6) The plaintiffs further pray for all other remedies to which the Honorable
Negros Occidental a complaint the prayer of which reads: Court will find them entitled to, with costs to the defendants.

WHEREFORE, the plaintiffs respectfully pray: Bacolod City, June 4, 1959.3

(1) That a writ of preliminary injunction be issued restraining the defendant The action was docketed as Civil Case No. 5343 of said court.
Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18, In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio
1959 in connection with Civil Case No. 5223 of this Honorable Court, until Saldajeno, alleged the following special and affirmative defenses:
further orders of this Court; and to make said injunction permanent after
hearing on the merits: xxx xxx xxx

(2) That after hearing, the defendant partnership be ordered; to pay to the 2. That the defendant Isabela Sawmill has been dissolved by virtue of an
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest action entitled "In the matter of: Dissolution of Isabela Sawmill as
thereon and 25% attorney's fees, and costs; to pay to the plaintiff partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al. , Civil
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and Case No. 4787, Court of First Instance of Negros Occidental;
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's 3. That as a result of the said dissolution and the decision of the Court of
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the First Instance of Negros Occidental in the aforesaid case, the other
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became
and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of the successors-in-interest to the said defunct partnership and have bound
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and themselves to answere for any and all obligations of the defunct partnership
costs: to its creditors and third persons;
4. That to secure the performance of the obligations of the other defendants from the complaint in this case to annul the decision of this same court, but
Leon Garibay and Timoteo Tubungbanua to the answering defendant herein, of another branch (Branch II, Judge Querubin presiding).4
the former have constituted a chattel mortgage over the properties
mentioned in the annexes to that instrument entitled "Assignment of Rights Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo
with Chattel Mortgage" entered into on May 26, 1968 and duly registered in Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross
the Register of Deeds of Negros Occidental on the same date: claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross
claimant whatever amount is paid by the latter to the plaintiff in accordance to the said
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, judgment. ...5
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
no cause of action against answering defendant herein and the defendant
Isabela Sawmill; The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the
Court of Appeals assigning the following errors:
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa I
to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved; II

7. That this Honorable Court has no jurisdictionover the claims of the THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL"
recovered by them in this action is less than P2,000.00 each, exclusive of WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE

8. That in so far as the claims of these alleged creditors plaintiffs are III
concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims for THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil MARGARITA G. SALDAJENO).
Code, and are therefor unenforceable, even assuming that there were such
credits and claims; IV

10. That this Honorable Court has no jurisdiction in this case for it is well THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
settled in law and in jurisprudence that a court of first instance has no power INJUNCTION.
or jurisdiction to annul judgments or decrees of a coordinate court because
other function devolves upon the proper appellate court; (Lacuna, et al. vs. V
Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del
Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears
NULL AND VOID. The facts, as found by the trial court, are:

VI At the commencement of the hearing of the case on the merits the plaintiffs
and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as
ASSETS OF THE DEFENDNAT PARTNERSHIP. 1. That on January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and Timoteo Tubungbanua entered
VII into a Contract of Partnership under the firm name "Isabela
Sawmill", a copy of which is hereto attached Appendix "A".
MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE 2. That on February 3, 1956 the plaintiff Oppen, Esteban,
PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED Inc. sold a Motor Truck and two Tractors to the partnership
CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION Isabela Sawmill for the sum of P20,500.00. In order to pay
WITH CIVIL CASE NO. 5223. the said purcahse price, the said partnership agreed to make
arrangements with the International Harvester Company at
VIII Bacolod City so that the latter would sell farm machinery to
Oppen, Esteban, Inc. with the understanding that the price
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT was to be paid by the partnership. A copy of the
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. corresponding contract of sle is attached hereto as Appendix
OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO 3. That through the method of payment stipulated in the
WAS A PARTNER. contract marked as Appendix "B" herein, the International
Harvester Company has been paid a total of P19,211.11,
IX leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and
ATTORNEY'S FEES. 4. That on April 25, 1958 Civil Case No. 4797 was filed by
the spouses Cecilio Saldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and Timoteo
Tubungbanua, a copy of which Complaint is attached as
Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered
XI into a "Memorandum Agreement", a copy of which is hereto
attached as Appendix 'E' in Civil Case 4797 of the Court of referred to in the foregoing paragraph, a certified true copy
First Instance of Negros Occidental. of which Deed of Sale is hereto attached as Appendix "I".

6. That on May 26, 1958 the defendants Leon Garibay, 11. The plaintiffs and the defendants Cecilio Saldajeno and
Timoteo Tubungbanua and Margarita G. Saldajeno executed Margarita G. Saldajeno reserve the right to present
a document entitled "Assignment of Rights with Chattel additional evidence at the hearing of this case.
Mortgage", a copy of which documents and its Annexes "A"
to "A-5" forming a part of the record of the above mentioned Forming parts of the above copied stipulation are documents that were
Civil Case No. 4797, which deed was referred to in the marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
Decision of the Court ofFirst Instance of Negros Occidental "G-1", "H", and "I".
in Civil Case No. 4797 dated May 29, 1958, a copy of which
is hereto attached as Appendix "F" and "F-1" respectively. The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the cross-
7. That thereafter the defendants Leon Garibay and Timoteo defendants did not present any evidence. The case hardly involves quetions
Tubungbanua did not divide the assets and properties of the of fact at all, but only questions of law.
"Isabela Sawmill" between them, but they continued the
business of said partnership under the same firm name The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
"Isabela Sawmill". Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
8. That on May 18, 1959 the Provincial Sheriff of Negros admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices
Occidental published two (2) notices that he would sell at "B", "C", "C-1", and "C-2".
public auction on June 5, 1959 at Isabela, Negros Occidental
certain trucks, tractors, machinery, officeequipment and The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs.
other things that were involved in Civil Case No. 5223 of the "B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
Court of First Instance of Negros Occidental, entitled total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said
"Margarita G. Saldajeno vs. Leon Garibay, et al." See advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
Appendices "G" and "G-1". leavng an unpaid balance of P933.73, which balance was confirmed on May
15, 1959 by the defendant Leon Garibay, as Manager of the defendant
9. That on October 15, 1969 the Provincial Sheriff of Negros partnership.
Occidental executed a Certificate ofSale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale The plaintiff Manuel G. Singsong proved by his own testimony and by his
conducted by him on October 14 and 15, 1959 for the Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
enforcement of the judgment rendered in Civil Case No. credit to the defendnat "Isabela Sawmill" rice and bran, on account of which
5223 of the Court of First Instance of Negros Occidental, a business transaction there remains an unpaid balance of P3,580.50. The
certified copy of which certificte of sale is hereto attached as same plaintiff also proved that the partnership ownes him the sum of
Appendix "H". P143.00 for nipa shingles bought from him on credit and unpaid for.

10. That on October 20, 1959 the defendant Margarita G. The plaintiff Jose L. Espinos proved through the testimony of his witness
Saldajeno executed a deed of sale in favor of the Pan Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Oriental Lumber Company transfering to the latter for the Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum
sum of P45,000.00 the trucks, tractors, machinery, and of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
other things that she had purchashed at a public auction advance, the defendant partnership delivered to Guia Lumber Yard P920.56
worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony of The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends
the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which
1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela courts of first instance shall have exclusive original jurisdiction over any case the subject
Sawmill', that against the said cash advance, the defendant partnership matter of which is not capable of pecuniary estimation. An action for the annulment of a
delivered to the said plaintiff on November 19, 1958 P377.72 worth of judgment and an order of a court of justice belongs to th category. 8
lumber, and P73.54 worth of lumber on January 27, 1959, leaving an
outstanding balance of P1,048.78. In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay the principal action or remedy sought. If it is primarily for the recovery of a sum of money,
whom he called as his witness, and through the Exhs. "R" to "E" that from the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the
September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela municipal courts or in the courts of first instance would depend on the amount of the claim.
Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of However, where the basic issue is something other than the right to recover a sum of money,
said transactions, the defendant partnersip ownes him an unpaid balance of where the money claim is purely incidental to, or a consequence of, the principal relief
P2,052.10. sought, this Court has considered such actions as cases where the subject ogf the litigation
may not be estimated in terms of money, and are cognizable exclusively by courts of first
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, instance.
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has Actions for specific performance of contracts have been expressly
obtained against he said mortgagors in Civil Case No. 5223 of this Court. prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers'
Appendix "I" of the same stipulation Exh. "A" shows that on October 20, Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL reason appears, and none is here advanced by the parties, why an actin for
LUMBER COMPANY for P45,000.00 part of the said properties that she had rescission (or resolution) should be differently treated, a "rescission" being a
bought at public aucton one week before. counterpart, so to speak, of "specific performance'. In both cases, the court
would certainly have to undertake an investigation into facts that would
xxx xxx xxx7 justify one act of the other. No award for damages may be had in an action
for resicssion without first conducting an inquiry into matters which would
It is contended by the appellants that the Court of First Instance of Negros Occidental had no justify the setting aside of a contract, in the same manner that courts of first
jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. instance would have to make findings of fact and law in actions not capable
Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of of pecuniary estimnation espressly held to be so by this Court, arising from
moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967
jurisdiction of the municipal court. (the legality or illegality of the conveyance sought for and the determination
of the validity of the money deposit made); De Ursua v. Pelayo, L-13285,
April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707,
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the
December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105,
assignment of right with chattel mortgage entered into by and between Margarita G.
August 25, 1960 (the relations of the parties, the right to support created by
Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of
the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159,
action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of
September 30, 1963 (the validity or nullity of documents upon which claims
First Instnace. Where the basic issue is something more than the right to recover a sum of
are predicated). Issues of the same nature may be raised by a party against
money and where the money claim is purely incidental to or a consequence of the principal
whom an action for rescission has been brought, or by the plaintiff himself.
relief sought, the action is as a case where the subject of the litigation is not capable of
It is, therefore, difficult to see why a prayer for damages in an action for
pecuniary estimation and is cognizable exclusively by the Court of First Instance.
rescission should be taken as the basis for concluding such action for
resiccison should be taken as the basis for concluding such action as one The rule which prohibits a Judge from intertering with the actuations of the
cpable of pecuniary estimation - a prayer which must be included in the main Judge of another branch of the same court is not infringed when the Judge
action if plaintiff is to be compensated for what he may have suffered as a who modifies or annuls the order isued by the other Judge acts in the same
result of the breach committed by defendant, and not later on precluded case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But
from recovering damages by the rule against splitting a cause of action and the rule is infringed when the Judge of a branch of the court issues a writ of
discouraging multiplicitly of suits. preliminary injunction in a case to enjoint the sheriff from carrying out an
order by execution issued in another case by the Judge of another branch of
The foregoing doctrine was reiterated in The Good Development Corporation vs. the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).
Tutaan, 10 where this Court held:
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, annulled was rendered by the Court of First Instance of Iloilo and the action for annullment
et al., is in point. It was ruled therein that although the purposes of an was filed with the Court of First Instance of Antique, both courts belonging to the same
action is to recover an amount plus interest which comes within the original Judicial District. This Court held that:
jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at The power to open, modify or vacant a judgment is not only possessed by
more than P2,000, (now P10,000.00) the action should be instituted before but restricted to the court in which the judgment was rendered.
the Court of First Instance.
The reason of this Court was:
In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of Pursuant to the policy of judicial stability, the judgment of a court of
personal properties valued at P15,340.00, so that it is clearly within the competent jurisdiction may not be interfered with by any court concurrrent
competence of the respondent court to try and resolve. jurisdiction.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the
did no err in exercising jurisidction over Civil Case No. 5343. court of First Instance belongs solely to the very same branch which rendered the
judgement. 14
The appellants also contend that the chattel mortgage may no longer be annulled because it
had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Two years later, the same doctrine was laid down in the Sterling Investment case. 15
Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of
the same court. In December 1971, however, this court re-examined and reversed its earlier doctrine on the
matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor
On the question of whether a court may nullify a final judgment of another court of co-equal, declared:
concurrent and coordinate jusridiction, this Court originally ruled that:
... the underlying philosophy expressed in the Dumara-og case, the policy of
A court has no power to interfere with the judgments or decrees of a court judicial stability, to the end that the judgment of a court of competent
of concurrent or coordinate jurisdiction having equal power to grant the relief jurisdiction may not be interfered with by any court of concurrent jurisdiction
sought by the injunction. may not be interfered with by any court of concurrent jurisdiciton, this Court
feels that this is as good an occasion as any to re-examine the doctrine laid
The various branches of the Court of First Instance of Manila are in a sense down ...
coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11 In an action to annul the judgment of a court, the plaintiff's cause of action
springs from the alleged nullity of the judgment based on one ground or
The foregoing doctrine was reiterated in a 1953 case 12
where this Court said: another, particularly fraud, which fact affords the plaintiff a right to judicial
interference in his behalf. In such a suit the cause of action is entirely It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was
different from that in the actgion which grave rise to the judgment sought to published in the newspapers. The appellees and the public in general had a right to expect
be annulled, for a direct attack against a final and executory judgment is not that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the
a incidental to, but is the main object of the proceeding. The cause of action business in the name of the partnership "Isabela Sawmill" could be enforced against the
in the two cases being distinct and separate from each other, there is no proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
plausible reason why the venue of the action to annul the judgment should favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
necessarily follow the venue of the previous action ... partnership.

The present doctrine which postulate that one court or one branch of a court The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not
may not annul the judgment of another court or branch, not only opens the insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon
door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela
limit the opportunity for the application of said rule. Sawmill" by entering into the memorandum-agreement with them.

Our conclusion must therefore be that a court of first instance or a branch Although it may be presumed that Margarita G. Saldajeno had action in good faith, the
thereof has the authority and jurisdiction to take cognizance of, and to act appellees aslo acted in good faith in extending credit to the partnership. Where one of two
in, suit to annul final and executory judgment or order rendered by another innocent persons must suffer, that person who gave occasion for the damages to be caused
court of first instance or by another branch of the same court... must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-
agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business
In February 1974 this Court reiterated the ruling in the Dulap case.17 of the aprtnership, the applees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal
the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued
final judgment of the other two branches of the same court. doping business through the two remaining partners.

It is true that the dissolution of a partnership is caused by any partner ceasing to be The contention of the appellant that the appleees cannot bring an action to annul the chattel
associated in the carrying on of the business. 18 However, on dissolution, the partnershop is mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo
not terminated but continuous until the winding up to the business. 19 Tubungbanua in favor of Margarita G. Saldajeno has no merit.

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
Instead of winding up the business of the partnership, they continued the business still in the contract prejudices the rights of a third person, he may file an action to annul the contract.
name of said partnership. It is expressly stipulated in the memorandum-agreement that the
remaining partners had constituted themselves as the partnership entity, the "Isabela This Court has held that a person, who is not a party obliged principally or subsidiarily under
Sawmill". 20 a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show detriment which would
There was no liquidation of the assets of the partnership. The remaining partners, Leon positively result to him from the contract in which he has no intervention. 21
Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the
name of "Isabela Sawmill". They used the properties of said partnership. The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said
and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, appelees have a right to file the action to nullify the chattel mortgage in question.
Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at
public auction the properties of the partnership which were mortgaged to her. The portion of the decision appealed from ordering the appellants to pay attorney's fees to
the plaintiffs-appellees cannot be sustained. There is no showing that the appellants
displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in The decision made on this occasion takes as its basis the fact stated by the court in its earlier
good faith, albeit erroneously, that they are not liable to pay the claims. decision of July 1, 1921, which may be briefly set fourth as follows:lawphil.net

The defendants-appellants have a right to be reimbursed whatever amounts they shall pay The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po
the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in Manila under
memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release the style of Kwong Cheong Tay. This business had been in existence in Manila for many
Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22 years prior to 1903, as a mercantile partnership, with a capitalization of P160,000, engaged
in the import and export trade; and after the death of Po Gui Yao the following seven
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the persons were interested therein as partners in the amounts set opposite their respective
portion ordering appellants to pay attorney's fees and with the modification that the names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee
defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants- Kom Chuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen,
appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall P10,000. The manager of Kwong Cheong Tay, for many years prior of its complete cessation
pay to the plaintiffs-appellees, without pronouncement as to costs. from business in 1910, was Lim Ka Yam, the original defendant herein.

SO ORDERED. Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were
ten shares of a total par value of P10,000 in an enterprise conducted under the name of Yut
Siong Chyip Konski and certain shares to the among of P1,000 in the Manila Electric Railroad
and Light Company, of Manila.

By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing
sole owner of a business formerly conducted in the City of Manila under the style of Kwong
principally to the fact that the plaintiff ceased at that time to transmit merchandise from
Cheong, as managing partner in said business and to recover from him its properties and
Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the
assets. The defendant having died during the pendency of the cause in the court below and
partners any formal liquidation of the business, though repeated demands to that effect have
the death suggested of record, his administrator, one Lim Yock Tock, was required to appear
been made upon him by the plaintiff.
and make defense.
In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff,
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below,
Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam,
found that the plaintiff was entitled to an accounting from Lim Ka Yam, the original
the sum of sixty thousand pesos (P60,000), constituting the interest of the plaintiff in the
defendant, as manager of the business already reffered to, and he accordingly required Lim
capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in shares of the Yut
Yock Tock, as administrator, to present a liquidation of said business within a stated time.
Siong Chyip Konski and Manila Electric Railroad and Light Company, estimated at P11,000,
This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew
together with the costs. From this judgment the defendant appealed.
nothing about the aforesaid business (which had ceased operation more than ten years
previously) and was apparently unable to find any books or documents that could shed any
real light on its transaction. However, he did submit to the court a paper written by Lim Ka In beginning our comment on the case, it is to be observed that this court finds itself strictly
Yam in life purporting to give, with vague and uncertain details, a history of the formation of circumscribed so far as our power of review is concerned, to the facts found by the trial
the Kwong Cheong Tay and some account of its disruption and cessation from business in judge, for the plaintiff did not appeal from the decision of the court below in so far as it was
1910. To this narrative was appended a statement of assets and liabilities, purporting to unfavorable to him, and the defendant, as appellant, has not caused a great part of the oral
show that after the business was liquidate, it was actually debtor to Lim Ka Yam to the testimony to be brought up. It results, as stated, that we must accept the facts as found by
extent of several thousand pesos. Appreciating the worthlessness of this so-called statement, the trial judge; and our review must be limited to the error, or errors, if any, which may be
and all parties apparently realizing that nothing more was likely to be discovered by further apparent upon the face of the appealed decision, in relation with the pleadings of record.
insisting on an accounting, the court proceeded, on December 27, 1921, to render final
judgment in favor of the plaintiff. Proceeding then to consider the appealed decision in relation with the facts therein stated
and other facts appearing in the orders and proceedings in the cause, it is quite apparent
that the judgment cannot be sustained. In the first place, it was erroneous in any event to
give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong not upon the legal representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5
Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule must be equally
shareholders for the capital embarked by them in the business; and he can only be made applicable to a civil partnership clothed with the form of a commercial association (art. 1670,
liable for the capital when, upon liquidation of the business, there are found to be assets in Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore
his hands applicable to capital account. That the sum of one hundred and sixty thousand became the duty of his surviving associates to take the proper steps to settle the affairs of
pesos (P160,000) was embarked in this business many years ago reveals nothing as to the the firm, and any claim against him, or his estate, for a sum of money due to the partnership
condition of the capital account at the time the concern ceased to do business; and even by reason of any misappropriation of its funds by him, or for damages resulting from his
supposing--as the court possibly did--that the capital was intact in 1908, this would not prove wrongful acts as manager, should be prosecuted against his estate in administration in the
it was intact in 1910 when the business ceased to be a going concern; for in that precise manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
interval of time the capital may have been diminished or dissipated from causes in no wise Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like
chargeable to the negligence or misfeasance of the manager. the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company,
are in the possession of the deceased partner, the proper step for the surviving associates to
Again, so far as appears from the appealed decision, the only property pertaining to Kwong take would be to make application to the court having charge to the administration to require
Cheong Tay at the time this action was brought consisted of shares in the two concerns the administrator to surrender such property.
already mentioned of the total par value of P11,000. Of course, if these shares had been sold
and converted into money, the proceeds, if not needed to pay debts, would have been But, in the second place, as already indicated, the proceedings in this cause, considered in
distributable among the various persons in interest, that is, among the various shareholders, the character of an action for an accounting, were futile; and the court, abandoning entirely
in their respective proportions. But under the circumstances revealed in this case, it was the effort to obtain an accounting, gave judgment against the administrator upon the
erroneous to give judgment in favor of the plaintiff for his aliquot part of the par value of said supposed liability of his intestate to respond for the plaintiff's proportionate share of the
shares. It is elementary that one partner, suing alone, cannot recover of the managing capital and assets. But of course the action was not maintainable in this aspect after the
partner the value of such partner's individual interest; and a liquidation of the business is an death of the defendant; and the motion to discontinue the action as against the administrator
essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court should have been granted.
permitted one partner to recover of the manager the plaintiff's aliquot part of the proceeds of
the business, then long since closed; but in that case the affairs of the defunct concern had The judgment must be reversed, and the defendant will be absolved from the complaint; but
been actually liquidate by the manager to the extent that he had apparently converted all its it will be understood that this order is without prejudice to any proceeding which may be
properties into money and had pocketed the same--which was admitted;--and nothing undertaken by the proper person or persons in interest to settle the affairs of Kwong Cheong
remained to be done except to compel him to pay over the money to the persons in interest. Tay and in connection therewith to recover from the administrator of Lim Ka Yam the shares
In the present case, the shares referred to--constituting the only assets of Kwong Cheong in the two concerns mentioned above. No special pronouncement will be made as to costs of
Tay--have not been converted into ready money and doubtless still remain in the name of either. So ordered.
Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which
would be equivalent to allowing one of several coowners to recover from another, without
process of division, a part of an undivided property.
On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First
Instance of Laguna petition praying that an order be issued by the court declaring that it is
Another condition will be noted as present in this case which in our opinion is fatal to the
not bound to register as a member of respondent Social Security System and, therefore, not
maintenance of the appealed judgment. This is that, after the death of the original
obliged to pay to the latter the contributions required under the Social Security Act. 1 To this
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock Tock,
petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to
as his administrator, and entered judgment for a sum of money against said administrator as
petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is
the accounting party,--notwithstanding the insistence of the attorneys for the latter that the
covered by said Act, since the latter's business has been in operation for at least 2 years prior
action should be discontinued in the form in which it was then being prosecuted. The error of
to September 1, 1957.
the trial court in so doing can be readily demonstrated from more than one point of view.

On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that
In the first place, it is well settled that when a member of a mercantile partnership dies, the
petitioner failed to exhaust administrative remedies. When the case was called for
duty of liquidating its affair devolves upon the surviving member, or members, of the firm,
preliminary hearing, it was postponed by agreement of the parties. Subsequently, it was set
Gonzalo Mercado 66 shares 6,600.00 1,822.49
for trial. On the date of the trial, the parties agreed to present, in lieu of any other evidence,
a stipulation of facts, which they did on May 27, 1958, as follows: Artemio Mercado 94 shares 9,400.00 2,565.90

1. That petitioner is a domestic corporation duly organized and existing under the Florentino Mata 110 shares 11,000.00 3,021.54
laws of the Philippines, with principal place of business at Bian, Laguna;
Sabina Borja 64 shares 6,400.00 1,750.00
2. That respondent is an agency created under Republic Act No. 1161, as amended
by Republic Act No. 1792, with the principal place of business at the new GSIS Bldg., 1,000 shares P100,000.00 P27,481.55
corner Arroceros and Concepcion Streets, Manila, where it may be served with
summons; 8. That the corporation continued the same transportation business of the
unregistered partnership;
3. That respondent has served notice upon the petitioner requiring it to register as
member of the System and to remit the premiums due from all the employees of the 9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a
petitioner and the contribution of the latter to the System beginning the month of supplemental Information Sheet . . .;
September, 1957;
10. That prior to November 11, 1957, plaintiff requested for exemption from
4. That sometime in 1949, the Bian Transportation Co., a corporation duly coverage by the System on the ground that it started operation only on June 20,
registered with the Securities and Exchange Commission, sold part of the lines and 1956, when it was registered with the Securities and Exchange Commission but on
equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata and November 11, 1957, the Social Security System notified plaintiff that it was covered;
Dominador Vera Cruz;
11. On November 14, 1957, plaintiff through counsel sent a letter to the Social
5. That after the sale, the said vendees formed an unregistered partnership under Security System contesting the claim of the System that plaintiff was covered, . . .
the name of Laguna Transportation Company which continued to operate the lines
and equipment bought from the Bian Transportation Company, in addition to new 12. On November 27, 1957, Carlos Sanchez, Manager of the Production Department
lines which it was able to secure from the Public Service Commission; of the respondent System for and in behalf of the Acting Administrator, informed
plaintiff that plaintiff's business has been in actual operation for at least two years, . .
6. That the original partners forming the Laguna Transportation Company, with the .
addition of two new members, organized a corporation known as the Laguna
Transportation Company, Inc., which was registered with the Securities and On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a
Exchange Commission on June 20, 1956, and which corporation is the plaintiff now decision the dispositive part of which reads:
in this case;
Wherefore, the Court is of the opinion and so declares that the petitioner was an
7. That the incorporators of the Laguna Transportation Company, Inc., and their employer engaged in business as common carrier which had been in operation for at
corresponding shares are as follows: least two years prior to the enactment of Republic Act No. 1161, as amended by
Republic Act 1792 and by virtue thereof, it was subject to compulsory coverage
Name No. of Shares Amount Amount Paid under said law. . . .
From this decision, petitioner appealed directly to us, raising purely questions of law.
Dominador Cruz 333 shares P33,300.00 P9,160.81
Petitioner claims that the lower court erred in holding that it is an employer engaged in
Maura Mendoza 333 shares 33,300.00 9,160.81 business as a common carrier which had been in operation for at least 2 years prior to the
enactment of the Social Security Act and, therefore, subject to compulsory coverage To adopt petitioner's argument would defeat, rather than promote, the ends for which the
thereunder. Social Security Act was enacted. An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then claim exemption from
Section 9 of the Social Security Act, in part, provides: contribution to the System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent circumvention of the statute
SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory upon would, thereby, be opened.
all employees between the ages of sixteen and sixty years, inclusive, if they have
been for at least six months in the service of an employer who is a member of the Moreover, petitioner admitted that as an employer engaged in the business of a common
System. Provided, That the Commission may not compel any employer to become a carrier, its operation commenced on April 1, 1949 while it was a partnership and continued
member of the System unless he shall have been in operation for at least two years . by the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by
. . . (Italics supplied.). the Bian Transportation Company to the partners Gonzalo Mercado, Artemio Mercado,
Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the
It is not disputed that the Laguna Transportation Company, an unregistered partnership pleadings or in the stipulation of facts that the lines and equipment of the unregistered
composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, partnership had been sold and transferred to the corporation, petitioner herein. This
commenced the operation of its business as a common carrier on April 1, 1949. These 4 omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a
original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the mere change in the form of the organization of the employer engaged in the transportation
partnership into a corporate entity, by registering its articles of incorporation with the business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will
Securities and Exchange Commission on June 20, 1956. The firm name "Laguna look to the substance and not to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172
Transportation Company" was not altered, except with the addition of the word "Inc." to Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs.
indicate that petitioner was duly incorporated under existing laws. The corporation continued Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)
the same transportation business of the unregistered partnership, using the same lines and
equipment. There was, in effect, only a change in the form of the organization of the entity Finally, the weight of authority supports the view that where a corporation was formed by,
engaged in the business of transportation of passengers. Hence, said entity as an employer and consisted of members of a partnership whose business and property was conveyed and
engaged in business, was already in operation for at least 3 years prior to the enactment of transferred to the corporation for the purpose of continuing its business, in payment for
the Social Security Act on June 18, 1954 and for at least two years prior to the passage of which corporate capital stock was issued, such corporation is presumed to have assumed
the amendatory act on June 21, 1957. Petitioner argues that, since it was registered as a partnership debts, and is prima facie liable therefor. (Stowell vs. Garden City News Corps., 57
corporation with the Securities and Exchange Commission only on June 20, 1956, it must be P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross.,
considered to have been in operation only on said date. While it is true that a corporation 83 June 19, N.Y. Supp. 692.) The reason for the rule is that the members of the partnership
once formed is conferred a juridical personality separate and district from the persons may be said to have simply put on a new coat, or taken on a corporate cloak, and the
composing it, it is but a legal fiction introduced for purposes of convenience and to subserve corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations
the ends of justice. The concept cannot be extended to a point beyond its reasons and [Perm. Ed.] 402-411.)
policy, and when invoked in support of an end subversive of this policy, will be disregarded
by the courts. (13 Am. Jur. 160.) Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed,
with costs against petitioner-appellant. So ordered.
If any general rule can be laid down, in the present state of authority, it is that a
corporation will be looked upon as a legal entity as a general rule, and until sufficient 13. SERGIO V. SISON vs. HELEN J. MCQUAID
reason to the contrary appears; but, when the motion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will On March 28, 1951, plaintiff brought an action in the Court of First Instance of Manila against
regard the corporation as an association of persons. (1 Fletcher Cyclopedia defendant, alleging that during the year 1938 the latter borrowed from him various sums of
Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration Transit Co., 142 money, aggregating P2,210, to enable her to pay her obligation to the Bureau of Forestry
Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.) 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 In view of the foregoing, the order of dismissal is affirmed, but on the ground that the
to contribute to the partnership the said sum of P2,210 due him from defendant in addition complaint states no cause of action and without prejudice to the filing of an action for
to his personal services; that plaintiff agreed to defendant's proposal and, as a result, there accounting or liquidation should that be what plaintiff really wants. Without costs in this
was formed between them, under the provisions of the Civil Code, a partnership in which instance.1awphil.net
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 14. ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased
services to the partnership without compensation from June 15, 1938 to December, 1941; Go-Lio vs.ENRIQUE ORTEGA GO-COTAY
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
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society for
partnership, filed the corresponding claim with the said army after the war; that the claim
the purchase and sale of articles of commerce, and for this purpose they opened a store in
was "finally" approved and the full amount paid the complaint does not say when but
the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte Go-Sengco died
defendant has persistently refused to deliver one-half of it, or P6,900, to plaintiff
and his son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio died in China in
notwithstanding repeated demands, investing the whole sum of P13,800 for her own benefit.
October, 1916, leaving a widow and three children, one of whom came to the Philippines and
Plaintiff, therefore, prays for judgment declaring the existence of the alleged partnership and
filed a petition for the appointment of Ildefonso de la Rosa as administrator of the intestate
requiring the defendant to pay him the said sum of P6,900, in addition to damages and
estate of his deceased father, which petition was granted by the Court of First Instance of
Nueva Ecija. Ildefonso de la Rosa, in his capacity as administrator of the intestate estate of
the deceased Go-Lio, requested Enrique Go-Cotay to wind up the business and to deliver to
Notified of the action, defendant filed a motion to dismiss on the grounds that plaintiff's him the portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay denied the
action had already prescribed, that plaintiff's claim was not provable under the Statute of petition, alleging that the business was his exclusively. In view of this denial, Ildefonso de la
Frauds, and that the complaint stated no cause of action. Sustaining the first ground, the Rosa, as administratorm, on July 2, 1918, filed with the Court of First Instance of Nueva Ecija
court dismissed the case, whereupon, plaintiff appealed to the Court of Appeals; but that a complaint against Enrique Ortega Co-Cotay in which he prayed that the defendant be
court has certified the case here on the ground that the appeal involved only questions of sentenced to deliver to the plaintiff one-half of all the property of the partnership formed by
law. Go-lIo and Vicente Go-Sengco, with costs against the defendant, and that the said plaintiff be
appointed receiver for the property of the said partnership.
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 Defendant, in answering the complaint, denied each and every allegation thereof, and as a
already prescribed or not. Such being the case, the defense of prescription can not be special defense alleged that more than ten years had elapsed before the filing of the
sustained on a mere motion to dismiss based on what appears on the face of the complaint. complaint, and prayed that he be absolved therefrom, with costs against the plaintiff.

But though the reason given for the order of dismissal be untenable, we find that the said On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-Chan,
order should be upheld on the ground that the complaint states no cause of action, which is Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory, liquidate and
also one of the grounds on which defendant's motion to dismiss was based. Plaintiff seeks to determine the one-half belonging to the plaintiff of all the property of the store in question.
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
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
sum he claims. It does not allege that there has been a liquidation of the partnership
receiver, pursuant to the order of the court dated August 3, 1918, the defendant filed a bond
business and the said sum has been found to be due him as his share of the profits. The
in the sum of P10,000.
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 Under the date of November 15, 1920, the said commissioners submitted to the court their
transactions had. Hence, the need for a general liquidation before a member of a partnership report, showing the net profits of the business between the period from 1913 to 1917, which
may claim a specific sum as his share of the profits. amounted to the total sum of P25,038.70 and consisted of the following items:

Profits for the year 1913........................ P2,979.00

Profits for the year 1914........................ 3,046.94 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
Profits for the year 1915........................ 4,103.07 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
Profits for the year 1916........................ 4,735.00 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
Profits for the year 1917........................ 10,174.69 the defendant had exhibited for proper criminal proceeding.
Total........................................................... 25.038.70
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
In view of the appeal taken by defendant the parties on December 7, 1921, entered into an destroyed by white ants (anay), the liquidation of the business of the partnership for the
agreement whereby they agreed to suspend the liquidation ordered by the court until the period from 1906 to 1912 could not be made. But knowing the net profit for the period
appeal to the Supreme Court was decided, and whereby the defenadnt was authorized to between 1904 and 1905, which is P5,551.40, and findng the average of the profits for each
continue in the possession of the property in litigation, upon the giving of a bond in the of these years, which is P2,775.70; and knowing the net profit for the year 1913, which is
amount of P25,000, and cancelling the former bond for P10,000. 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
This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the appeal was profits for the period between 1906 an 1912, which in seven years make a total of
premature and ordered that the record be remanded to the court of origin with instruction to P20,141.45. The assets of the partnership, as well as the value of its property, could not be
enter a final order in accordance with the liquidation made by the commissioners. 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
The record having been remanded and two of the commissioners having filed their to be agreeable to considering the initial partnership capital as the capital at the time of the
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the defendant winding up of the business.
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 August 3, 1918, defendant assumed complete responsibility for the business by objecting to
Cabo-Chan. The former stated in their report that they had examined the books for the years the appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until that
1919 to 1922, for the reason, they said, that they appeared "to have been prepared by some date his acts were those of a managing partner, binding against the partnership; but
person in a careful way at a certain time." The later commissioner examined all books and thereafter his acts were those of a receiver whose authority is contained in section 175 of the
stated in his report that the business had suffered a net loss amounting to the sum of Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or directed
After trial and the parties having introduced all their evidence, the lower court, by order of by the court to do some, and such authority is not derived from an order of appointment to
December 13, 1924, disapproved the report of the commissioners Tantengco and Cua Poco, take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the
but approved, with slight modifications, the report of commissioner Cabo-Chan, holding that defendant as a receiver was authorized by the court to continue the business of the
the result of the liquidation showed liabilities to the amiount of P89,690.45 in view of which partnership in liquidation. This being so, he is personally liable for the losses that the
plaintiff had nothing to recover from defendant, as there was no profit to divide. 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
From this decision the plaintiff has appealed in due time and form making the following August 3, 1918, the date when he ceased to be a member and manager in order to become
assignment of errors: (1) The lower court erred in holding that the books were authentic, receiver.
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 As to the first semester of 1918, during which time the defendant had seen managing the
business; (2) the lower court erred in giving full credit to the testimony of commissioner business of the partnership as a member and manager, taking into account that the profits
Justo Cabo-Chan; (3) the lower court erred in holding that the partnership had incurred debts had been on the increase, said profits having reached the amount of P10,174.69 in the year
and suffered losses, as shown in the report of Justo Cabo-Cahn from 1918 on; (4) the lower 1917, it would not be an exaggeration to estimate that the profits for 1918 would have been
court erred in not holding that the share of the plaintiff, as his capital and profits until the
at least the same as the profits of 1917; so that for the first half of 1918, the profit would be appellant. Appellees thereafter made demands upon appellant for payment, but appellant
P5,087.34. having refused, they filed the initial complaint in the court below. Appellant defended by
denying any partnership with appellees, whom he claimed to be mere employees of his.
In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit: The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed
the complaint on the ground that the other were indispensable parties but hid not been
impleaded. Upon appeal, the Court of Appeals reversed, with the result noted at the start of
Capital of partnership........................... P4,779.39 this opinion.
Profits until 1905.................................. 5,551.40
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due
Profits 1906-1912................................ 20,141.45 course.1wph1.t

Profits 1913-1917................................ 25,038.70

The main argument of appellant is that the appellees' action can not be entertained, because
Profits first semester 1918............... 5,087.34 in the distribution of all or part of a partnership's assets, all the partners have no interest and
are indispensable parties without whose intervention no decree of distribution can be validly
Total....................................................... 60,598.28 entered. This argument was considered and answered by the Court of Appeals in the
following words:
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the
We now come to the last issue involved. While finding that some amounts are due
intestate estate of Go-Lio.
the plaintiffs, the lower court withheld an award in their favor, reasoning that a
judgment ordering the defendant to pay might affect the rights of other partners
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided who were not made parties in this case. The reason cited by the lower court does
by the reversing the judgment appealed from, and sentencing the defendant to pay the not constitute a legal impediment to a judgment for the plaintiffs in this case. This is
plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from not an action for a dissolution of a partnership and winding up of its affairs or
July 1, 1918, until fully paid, with costs. So ordered. liquidation of its assets in which the interest of other partners who are not brought
into the case may be affected. The action of the plaintiffs is one for the recovery of a
15. GREGORIO MAGDUSA, ET AL. vs. GERUNDIO ALBARAN, ET AL., sum of money with Gregorio Magdusa as the principal defendant. The partnership,
with Gregorio Magdusa as managing partner, was brought into the case as an
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of alternative defendant only. Plaintiffs' action was based on the allegation,
the Court of First Instance of Bohol and ordering appellant Gregorio Magdusa to pay to substantiated in evidence, that Gregorio Magdusa, having taken delivery of their
appellees, by way of refund of their shares as partners, the following amounts: Gerundio shares, failed and refused and still fails and refuses to pay them their claims. The
Albaran, P8,979.10; Pascual Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo liability, therefore, is personal to Gregorio Magdusa, and the judgment should be
Bebero, P3,020.27; plus legal interests from the filing of the complaint, and costs. against his sole interest, not against the partnership's although the judgment
creditors may satisfy the judgment against the interest of Gregorio Magdusa in the
The Court of Appeals found that appellant and appellees, together with various other partnership subject to the condition imposed by Article 1814 of the Civil Code.
persons, had verbally formed a partnership de facto, for the sale of general merchandise in
Surigao, Surigao, to which appellant contributed P2,000 as capital, and the others We do not find the preceding reasoning tenable. A partner's share can not be returned
contributed their labor, under the condition that out of the net profits of the business 25% without first dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44
would be added to the original capital, and the remaining 75% would be divided among the Phil. 177), for the return is dependent on the discharge of the creditors, whose claims enjoy
members in proportion to the length of service of each. Sometime in 1953 and 1954, the preference over those of the partners; and it is self-evident that all members of the
appellees expressed their desire to withdraw from the partnership, and appellant thereupon partnership are interested in his assets and business, and are entitled to be heard in the
made a computation to determine the value of the partners' shares to that date. The results matter of the firm's liquidation and the distribution of its property. The liquidation Exhibit "C"
of the computation were embodied in the document Exhibit "C", drawn in the handwriting of is not signed by the other members of the partnership besides appellees and appellant; it
does not appear that they have approved, authorized, or ratified the same, and, therefore, it Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo,
is not binding upon them. At the very least, they are entitled to be heard upon its through fraud and machination, took actual and active management of the partnership and
correctness. although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and building's in
In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla,
the capital shares of the appellees, as retiring partners, can not be repaid, for the firm's some of which were hidden, but the description of those already discovered were as follows:
outside creditors have preference over the assets of the enterprise (Civ. Code, Art. 1839), (list of properties) ...;" and that:
and the firm's property can not be diminished to their prejudice. Finally, the appellant can
not be held liable in his personal capacity for the payment of partners' shares for he does not 13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without
hold them except as manager of, or trustee for, the partnership. It is the latter that must liquidation continued the business of Glory Commercial Company by
refund their shares to the retiring partners. Since not all the members of the partnership purportedly organizing a corporation known as the Glory Commercial
have been impleaded, no judgment for refund can be rendered, and the action should have Company, Incorporated, with paid up capital in the sum of P125,000.00,
been dismissed. which money and other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct Glory Commercial
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the Company partnership, of which the plaintiff has a share equivalent to one
action ordered dismissed, without prejudice to a proper proceeding for the dissolution and third (/3 ) thereof;
liquidation of the common enterprise. Costs against appellees.
14. (P)laintiff, on several occasions after the death of her husband, has
16. ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO asked defendants of the above-mentioned properties and for the liquidation
OYO, petitioners, vs.HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, of the business of the defunct partnership, including investments on real
Cebu and TAN PUT, respondents. estate in Hong Kong, but defendants kept on promising to liquidate said
properties and just told plaintiff to
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of
First Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of 15. (S)ometime in the month of November, 1967, defendants, Antonio Lim
properties and money totalling allegedly about P15 million pesos filed with a common cause Tanhu, by means of fraud deceit and misrepresentations did then and there,
of action against six defendants, in which after declaring four of the said defendants herein induce and convince the plaintiff to execute a quitclaim of all her rights and
petitioners, in default and while the trial as against the two defendants not declared in interests, in the assets of the partnership of Glory Commercial Company,
default was in progress, said court granted plaintiff's motion to dismiss the case in so far as which is null and void, executed through fraud and without any legal effect.
the non-defaulted defendants were concerned and thereafter proceeded to hear ex-parte the The original of said quitclaim is in the possession of the adverse party
rest of the plaintiffs evidence and subsequently rendered judgment by default against the defendant Antonio Lim Tanhu.
defaulted defendants, with the particularities that notice of the motion to dismiss was not
duly served on any of the defendants, who had alleged a compulsory counterclaim against 16. (A)s a matter of fact, after the execution of said quitclaim, defendant
plaintiff in their joint answer, and the judgment so rendered granted reliefs not prayed for in Antonio Lim Tanhu offered to pay the plaintiff the amount P65,000.00 within
the complaint, and (2) prohibition to enjoin further proceedings relative to the motion for a period of one (1) month, for which plaintiff was made to sign a receipt for
immediate execution of the said judgment. the amount of P65,000.00 although no such amount was given and plaintiff
was not even given a copy of said document;
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put
only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an 17. (T)hereafter, in the year 1968-69, the defendants who had earlier
amended complaint dated September 26, 1972, their son Lim Teck Chuan and the other promised to liquidate the aforesaid properties and assets in favor among
spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo others of plaintiff and until the middle of the year 1970 when the plaintiff
were included as defendants. In said amended complaint, respondent Tan alleged that she formally demanded from the defendants the accounting of real and personal
"is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, properties of the Glory Commercial Company, defendants refused and stated
Glory Commercial Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant that they would not give the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows: In a single answer with counterclaim, over the signature of their common counsel,
defendants denied specifically not only the allegation that respondent Tan is the widow of
WHEREFORE, it is most respectfully prayed that judgment be rendered: Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and
with whom he had four (4) legitimate children, a twin born in 1942, and two others born in
a) Ordering the defendants to render an accounting of the real and personal 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and
properties of the Glory Commercial Company including those registered in conversion quoted above, the truth being, according to them, that proper liquidation had
the names of the defendants and other persons, which properties are located been regularly made of the business of the partnership and Tee Hoon used to receive his just
in the Philippines and in Hong Kong; share until his death, as a result of which the partnership was dissolved and what
corresponded to him were all given to his wife and children. To quote the pertinent portions
of said answer:
b) Ordering the defendants to deliver to the plaintiff after accounting, one
third (/3 ) of the total value of all the properties which is approximately
P5,000,000.00 representing the just share of the plaintiff; AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,

c) Ordering the defendants to pay the attorney of the plaintiff the sum of defendants hereby incorporate all facts averred and alleged in the answer,
Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's fees and further most respectfully declare:
and damages in the sum of One Million Pesos (P1,000,000.00).
1. That in the event that plaintiff is filing the present complaint as an heir of
This Honorable Court is prayed for other remedies and reliefs consistent with Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as such,
law and equity and order the defendants to pay the costs. (Page 38, considering that the legitimate wife, namely: Ang Siok Tin, together with
Record.) their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules
of Court, lack of legal capacity to sue is one of the grounds for a motion to
dismiss and so defendants prays that a preliminary hearing be conducted as
The admission of said amended complaint was opposed by defendants upon the ground that
provided for in Sec. 5, of the same rule;
there were material modifications of the causes of action previously alleged, but respondent
judge nevertheless allowed the amendment reasoning that:
2. That in the alternative case or event that plaintiff is filing the present case
under Art. 144 of the Civil Code, then, her claim or demand has been paid,
The present action is for accounting of real and personal properties as well
waived abandoned or otherwise extinguished as evidenced by the 'quitclaim'
as for the recovery of the same with damages.
Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing
An objective consideration of pars. 13 and 15 of the amended complaint be made in connection therewith pursuant to Section 5 of the
pointed out by the defendants to sustain their opposition will show that the aforementioned rule;
allegations of facts therein are merely to amplify material averments
constituting the cause of action in the original complaint. It likewise include
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and
necessary and indispensable defendants without whom no final
were blessed with the following children, to wit: Ching Siong Lim and Ching
determination can be had in the action and in order that complete relief is to
Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born on March
be accorded as between those already parties.
3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in
Considering that the amendments sought to be introduced do not change
the main causes of action in the original complaint and the reliefs demanded
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was
and to allow amendments is the rule, and to refuse them the exception and
no longer his common law wife and even though she was not entitled to
in order that the real question between the parties may be properly and
anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and
justly threshed out in a single proceeding to avoid multiplicity of actions.
generosity on the part of the defendants, particularly Antonio Lain Tanhu,
(Page 40, Record.)
who, was inspiring to be monk and in fact he is now a monk, plaintiff was D. That in order to defend their rights in court, defendants were constrained
given a substantial amount evidenced by the 'quitclaim' (Annex 'A'); to engage the services of the undersigned counsel, obligating themselves to
pay P500,000.00 as attorney's fees;
5. That the defendants have acquired properties out of their own personal
fund and certainly not from the funds belonging to the partnership, just as E. That by way of litigation expenses during the time that this case will be
Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and before this Honorable Court and until the same will be finally terminated and
which are now in the possession of the widow and neither the defendants adjudicated, defendants will have to spend at least P5,000.00. (Pp. 44-47.
nor the partnership have anything to do about said properties; Record.)

6. That it would have been impossible to buy properties from funds After unsuccessfully trying to show that this counterclaim is merely permissive and should be
belonging to the partnership without the other partners knowing about it dismissed for non-payment of the corresponding filing fee, and after being overruled by the
considering that the amount taken allegedly is quite big and with such big court, in due time, plaintiff answered the same, denying its material allegations.
amount withdrawn the partnership would have been insolvent;
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children spouses the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of
who would have been lawfully entitled to succeed to the properties left by plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in
the latter together with the widow and legitimate children; DEFAULT as of February 3, 1973 when they failed to appear at the pre-trial." They sought to
hive this order lifted thru a motion for reconsideration, but the effort failed when the court
8. That despite the fact that plaintiff knew that she was no longer entitled to denied it. Thereafter, the trial started, but at the stage thereof where the first witness of the
anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was plaintiff by the name of Antonio Nuez who testified that he is her adopted son, was up for
filed against the defendant who have to interpose the following re-cross-examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
A. That the defendants hereby reproduced, by way of reference, all the CHUAN AND ENG CHONG LEONARDO
allegations and foregoing averments as part of this counterclaim; .
COMES now plaintiff, through her undersigned counsel, unto the Honorable
B. That plaintiff knew and was aware she was merely the common-law wife Court most respectfully moves to drop from the complaint the defendants
of Tee Hoon Lim Po Chuan and that the lawful and legal is still living, Lim Teck Chuan and Eng Chong Leonardo and to consider the case
together with the legitimate children, and yet she deliberately suppressed dismissed insofar as said defendants Lim Teck Chuan and Eng Chong
this fact, thus showing her bad faith and is therefore liable for exemplary Leonardo are concerned.
damages in an amount which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event that plaintiff is married WHEREFORE, it is most respectfully prayed of the Honorable Court to drop
to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo
suffer the consequences thereof; and to dismiss the case against them without pronouncement as to costs.
(Page 50, Record.)
C. That plaintiff was aware and had knowledge about the 'quitclaim', even
though she was not entitled to it, and yet she falsely claimed that defendants which she set for hearing on December 21, 1974. According to petitioners,
refused even to see her and for filing this unfounded, baseless, futile and none of the defendants declared in default were notified of said motion, in
puerile complaint, defendants suffered mental anguish and torture violation of Section 9 of Rule 13, since they had asked for the lifting of the
conservatively estimated to be not less than P3,000.00; order of default, albeit unsuccessfully, and as regards the defendants not
declared in default, the setting of the hearing of said motion on October 21,
1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch
as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the plaintiff ex-parte to be made on November 20, 1974. However, on October
motion personally only on October 19, 1974, while Atty. Benjamin Alcudia of 28, 1974, the plaintiff, together with her witnesses, appeared in court and
Eng Chong Leonardo was served by registered mail sent only on the same asked, thru counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her
Evidently without even verifying the notices of service, just as simply as witnesses to the court, the Branch Clerk of Court is hereby authorized to
plaintiff had couched her motion, and also without any legal grounds stated, receive immediately the evidence of the plaintiff ex-parte.
respondent court granted the prayer of the above motion thus:
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong Leonardo. Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru
counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974,
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for
The same is hereby GRANTED. The complaint as against defendant Lim Teck reconsideration and clarification of the same orders. These motions were denied in an order
Chuan and Eng Chong Leonardo is hereby ordered DISMISSED without dated December 6, 1974 but received by the movants only on December 23, 1974.
pronouncement as to costs. Meanwhile, respondent court rendered the impugned decision on December 20, 1974. It
does not appear when the parties were served copies of this decision.
Simultaneously, the following order was also issued:
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as the order of October 28, 1974. Without waiting however for the resolution thereof, on
well as defendants Alfonso Ng Sua and his spouse Co Oyo have been January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals
declared in default for failure to appear during the pre-trial and as to the with a petition for certiorari seeking the annulment of the above-mentioned orders of
other defendants the complaint had already been ordered dismissed as October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution of
against them. January 24, 1975, the Court of Appeals dismissed said petition, holding that its filing was
premature, considering that the motion to quash the order of October 28, 1974 was still
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, unresolved by the trial court. This holding was reiterated in the subsequent resolution of
1974, at 8:30 A.M. before the Branch Clerk of Court who is deputized for the February 5, 1975 denying the motion for reconsideration of the previous dismissal.
purpose, to swear in witnesses and to submit her report within ten (10) days
thereafter. Notify the plaintiff. On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their
notice of appeal, appeal bond and motion for extension to file their record on appeal, which
SO ORDERED. was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975,
for defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition with this Court. And with the
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
evident intent to make their procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that "when
But, in connection with this last order, the scheduled ex-parte reception of evidence did not the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in
take place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the Court of Appeals, they in effect abandoned their motion to quash the order of October
the court issued the following self-explanatory order: . 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo, filed their petition for certiorari and prohibition ... in the Supreme Court, they
Acting favorably on the motion of the plaintiff dated October 18, 1974, the likewise abandoned their motion to quash." This manifestation was acted upon by
Court deputized the Branch Clerk of Court to receive the evidence of the
respondent court together with plaintiffs motion for execution pending appeal in its order of posit that in such a situation, there can only be one common judgment for or against all the
the same date February 14, 1975 this wise: defendant, the non-defaulted and the defaulted. Thus, petitioners contend that the order of
dismissal of October 21, 1974 should be considered also as the final judgment insofar as they
ORDER are concerned, or, in the alternative, it should be set aside together with all the proceedings
and decision held and rendered subsequent thereto, and that the trial be resumed as of said
When these incidents, the motion to quash the order of October 28, 1974 date, with the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend
and the motion for execution pending appeal were called for hearing today, the case for all the defendants.
counsel for the defendants-movants submitted their manifestation inviting
the attention of this Court that by their filing for certiorari and prohibition On the other hand, private respondent maintains the contrary view that inasmuch as
with preliminary injunction in the Court of Appeals which was dismissed and petitioners had been properly declared in default, they have no personality nor interest to
later the defaulted defendants filed with the Supreme Court certiorari with question the dismissal of the case as against their non-defaulted co-defendants and should
prohibition they in effect abandoned their motion to quash. suffer the consequences of their own default. Respondent further contends, and this is the
only position discussed in the memorandum submitted by her counsel, that since petitioners
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The have already made or at least started to make their appeal, as they are in fact entitled to
resolution of the motion for execution pending appeal shall be resolved after appeal, this special civil action has no reason for being. Additionally, she invokes the point of
the petition for certiorari and prohibition shall have been resolved by the prematurity upheld by the Court of Appeals in regard to the above-mentioned petition therein
Supreme Court. of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment
and may be reviewed only in an appeal.

After careful scrutiny of all the above-related proceedings, in the court below and mature
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
deliberation, the Court has arrived at the conclusion that petitioners should be granted relief,
if only to stress emphatically once more that the rules of procedure may not be misused and
Upon these premises, it is the position of petitioners that respondent court acted illegally, in abused as instruments for the denial of substantial justice. A review of the record of this case
violation of the rules or with grave abuse of discretion in acting on respondent's motion to immediately discloses that here is another demonstrative instance of how some members of
dismiss of October 18, 1974 without previously ascertaining whether or not due notice the bar, availing of their proficiency in invoking the letter of the rules without regard to their
thereof had been served on the adverse parties, as, in fact, no such notice was timely served real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and
on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically
all was ever sent to the other defendants, herein petitioners, and more so, in actually camouflaging their actuations as earnest efforts to satisfy the public clamor for speedy
ordering the dismissal of the case by its order of October 21, 1974 and at the same time disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule
setting the case for further hearing as against the defaulted defendants, herein petitioners, 1 is that the "rules shall be liberally construed in order to promote their object and to assist
actually hearing the same ex-parte and thereafter rendering the decision of December 20, the parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive
1974 granting respondent Tan even reliefs not prayed for in the complaint. According to the determination of every action and proceeding." We cannot simply pass over the impression
petitioners, to begin with, there was compulsory counterclaim in the common answer of the that the procedural maneuvers and tactics revealed in the records of the case at bar were
defendants the nature of which is such that it cannot be decided in an independent action deliberately planned with the calculated end in view of depriving petitioners and their co-
and as to which the attention of respondent court was duly called in the motions for defendants below of every opportunity to properly defend themselves against a claim of
reconsideration. Besides, and more importantly, under Section 4 of Rule 18, respondent court more than substantial character, considering the millions of pesos worth of properties
had no authority to divide the case before it by dismissing the same as against the non- involved as found by respondent judge himself in the impugned decision, a claim that
defaulted defendants and thereafter proceeding to hear it ex-parte and subsequently appears, in the light of the allegations of the answer and the documents already brought to
rendering judgment against the defaulted defendants, considering that in their view, under the attention of the court at the pre-trial, to be rather dubious. What is most regrettable is
the said provision of the rules, when a common cause of action is alleged against several that apparently, all of these alarming circumstances have escaped respondent judge who did
defendants, the default of any of them is a mere formality by which those defaulted are not not seem to have hesitated in acting favorably on the motions of the plaintiff conducive to
allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not the deplorable objective just mentioned, and which motions, at the very least, appeared to
defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners be 'of highly controversial' merit, considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-sided affair, a situation that should be lifted the default against Lim Tanhu because of the additional consideration that "he has a
readily condemnable and intolerable to any court of justice. defense (quitclaim) which renders the claim of the plaintiff contentious," the default of Dy
Ochay was maintained notwithstanding that exactly the same "contentions" defense as that
Indeed, a seeming disposition on the part of respondent court to lean more on the of her husband was invoked by her.
contentions of private respondent may be discerned from the manner it resolved the
attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal
against them lifted. Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed postures in the orders in question can hardly convince Us that the matters here in issue were
by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein) accorded due and proper consideration by respondent court. In fact, under the circumstances
was over the jurat of the notary public before whom she took her oath, in the order of herein obtaining, it seems appropriate to stress that, having in view the rather substantial
November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the value of the subject matter involved together with the obviously contentious character of
motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18) plaintiff's claim, which is discernible even on the face of the complaint itself, utmost care
of the rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires as should have been taken to avoid the slightest suspicion of improper motivations on the part
interpreted by the Supreme Court is that the motion must have to be accompanied by an of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its
affidavit of merits that the defendant has a meritorious defense, thereby ignoring the very grave concern that much has to be done to dispel the impression that herein petitioners and
simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA their co-defendants are being railroaded out of their rights and properties without due
781, relied upon by His Honor, under which a separate affidavit of merit is required refers process of law, on the strength of procedural technicalities adroitly planned by counsel and
obviously to instances where the motion is not over oath of the party concerned, considering seemingly unnoticed and undetected by respondent court, whose orders, gauged by their
that what the cited provision literally requires is no more than a "motion under oath." Stated tenor and the citations of supposedly pertinent provisions and jurisprudence made therein,
otherwise, when a motion to lift an order of default contains the reasons for the failure to cannot be said to have proceeded from utter lack of juridical knowledgeability and
answer as well as the facts constituting the prospective defense of the defendant and it is competence.
sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is
necessary. 1

What is worse, the same order further held that the motion to lift the order of default "is an The first thing that has struck the Court upon reviewing the record is the seeming alacrity
admission that there was a valid service of summons" and that said motion could not amount with which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan
to a challenge against the jurisdiction of the court over the person of the defendant. Such a and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case.
rationalization is patently specious and reveals an evident failure to grasp the import of the The trial was proceeding with the testimony of the first witness of plaintiff and he was still
legal concepts involved. A motion to lift an order of default on the ground that service of under re-cross-examination. Undoubtedly, the motion to dismiss at that stage and in the light
summons has not been made in accordance with the rules is in order and is in essence verily of the declaration of default against the rest of the defendants was a well calculated surprise
an attack against the jurisdiction of the court over the person of the defendant, no less than move, obviously designed to secure utmost advantage of the situation, regardless of its
if it were worded in a manner specifically embodying such a direct challenge. apparent unfairness. To say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to rightly assume that the parties in a
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default judicial proceeding can never be the victims of any procedural waylaying as long as lawyers
as against defendant Lim Tanhu, His Honor posited that said defendant "has a defense and judges are imbued with the requisite sense of equity and justice.
(quitclaim) which renders the claim of the plaintiff contentious." We have read defendants'
motion for reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any But the situation here was aggravated by the indisputable fact that the adverse parties who
reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended complaint were entitled to be notified of such unanticipated dismissal motion did not get due notice
(Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that her signature thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice
thereto was secured through fraud and deceit. In truth, the motion for reconsideration just required by Section 4 of Rule 15. How could they have had such indispensable notice when
mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion of October the motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim
8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the Teck Chuan, Atty. Sitoy was personally served with the notice only on Saturday, October 19,
common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail
His Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious which was posted only that same Saturday, October 19, 1974? According to Chief Justice
defense". To top it all, whereas, as already stated, the order of February 19, 1972, Annex 6, Moran, "three days at least must intervene between the date of service of notice and the
date set for the hearing, otherwise the court may not validly act on the motion." (Comments Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be
on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of noted in the allegations hereof aforequoted, it arose out of or is necessarily connected with
Section 4 of Rule 15. And in the instant case, there can be no question that the notices to the the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely,
non-defaulted defendants were short of the requirement of said provision. plaintiff's allegedly being the widow of the deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged late husband as partner of defendants
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of
the seeming inattention of respondent judge to the explicit mandate of the pertinent rule, not which allegations all the defendants have denied. Defendants maintain in their counterclaim
to speak of the imperatives of fairness, considering he should have realized the far-reaching that plaintiff knew of the falsity of said allegations even before she filed her complaint, for
implications, specially from the point of view he subsequently adopted, albeit erroneously, of she had in fact admitted her common-law relationship with said deceased in a document she
his favorably acting on it. Actually, he was aware of said consequences, for simultaneously had jointly executed with him by way of agreement to terminate their illegitimate
with his order of dismissal, he immediately set the case for the ex-parte hearing of the relationship, for which she received P40,000 from the deceased, and with respect to her
evidence against the defaulted defendants, which, incidentally, from the tenor of his order pretended share in the capital and profits in the partnership, it is also defendants' posture
which We have quoted above, appears to have been done by him motu propio As a matter of that she had already quitclaimed, with the assistance of able counsel, whatever rights if any
fact, plaintiff's motion also quoted above did not pray for it. she had thereto in November, 1967, for the sum of P25,000 duly receipted by her, which
quitclaim was, however, executed, according to respondent herself in her amended
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent complaint, through fraud. And having filed her complaint knowing, according to defendants,
with a number of known juridical principles concerning defaults, which We will here take as she ought to have known, that the material allegations thereof are false and baseless, she
occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate has caused them to suffer damages. Undoubtedly, with such allegations, defendants'
errors committed in this case. Perhaps some of these principles have not been amply counterclaim is compulsory, not only because the same evidence to sustain it will also refute
projected and elaborated before, and such paucity of elucidation could be the reason why the cause or causes of action alleged in plaintiff's complaint, (Moran, supra p. 352) but also
respondent judge must have acted as he did. Still, the Court cannot but express its vehement because from its very nature, it is obvious that the same cannot "remain pending for
condemnation of any judicial actuation that unduly deprives any party of the right to be independent adjudication by the court." (Section 2, Rule 17.)
heard without clear and specific warrant under the terms of existing rules or binding
jurisprudence. Extreme care must be the instant reaction of every judge when confronted The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been
with a situation involving risks that the proceedings may not be fair and square to all the pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
parties concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks action shall not be dismissed against the defendant's objection unless the counterclaim can
for consistency between the letter of the adjective rules and these basic principles must be remain pending for independent adjudication by the court." Defendants Lim and Leonardo
possessed by every judge, If substance is to prevail, as it must, over form in our courts. had no opportunity to object to the motion to dismiss before the order granting the same
Literal observance of the rules, when it is conducive to unfair and undue advantage on the was issued, for the simple reason that they were not opportunity notified of the motion
part of any litigant before it, is unworthy of any court of justice and equity. Withal, only those therefor, but the record shows clearly that at least defendant Lim immediately brought the
rules and procedure informed, with and founded on public policy deserve obedience in accord matter of their compulsory counterclaim to the attention of the trial court in his motion for
with their unequivocal language or words.. reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of December 6, 1974, however,
Before proceeding to the discussion of the default aspects of this case, however, it should respondent court not only upheld the plaintiffs supposed absolute right to choose her
not be amiss to advert first to the patent incorrectness, apparent on the face of the record, adversaries but also held that the counterclaim is not compulsory, thereby virtually making
of the aforementioned order of dismissal of October 21, 1974 of the case below as regards unexplained and inexplicable 180-degree turnabout in that respect.
non-defaulted defendants Lim and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view of the outrageous procedural There is another equally fundamental consideration why the motion to dismiss should not
strategy conceived by respondent's counsel and sanctioned by respondent court to also make have been granted. As the plaintiff's complaint has been framed, all the six defendants are
reference to the very evident fact that in ordering said dismissal respondent court charged with having actually taken part in a conspiracy to misappropriate, conceal and
disregarded completely the existence of defendant's counterclaim which it had itself earlier convert to their own benefit the profits, properties and all other assets of the partnership
held if indirectly, to be compulsory in nature when it refused to dismiss the same on the Glory Commercial Company, to the extent that they have allegedly organized a corporation,
ground alleged by respondent Tan that he docketing fees for the filing thereof had not been Glory Commercial Company, Inc. with what they had illegally gotten from the partnership.
paid by defendants. Upon such allegations, no judgment finding the existence of the alleged conspiracy or holding
the capital of the corporation to be the money of the partnership is legally possible without Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion
the presence of all the defendants. The non-defaulted defendants are alleged to be of October 18, 1974 by referring to the action he had taken as being "dismissal of the
stockholders of the corporation and any decision depriving the same of all its assets cannot complaint against them or their being dropped therefrom", without perceiving that the
but prejudice the interests of said defendants. Accordingly, upon these premises, and even reason for the evidently intentional ambiguity is transparent. The apparent idea is to rely on
prescinding from the other reasons to be discussed anon it is clear that all the six defendants the theory that under Section 11 of Rule 3, parties may be dropped by the court upon motion
below, defaulted and non-defaulted, are indispensable parties. Respondents could do no less of any party at any stage of the action, hence "it is the absolute right prerogative of the
than grant that they are so on page 23 of their answer. Such being the case, the questioned plaintiff to choosethe parties he desires to sue, without dictation or imposition by the court
order of dismissal is exactly the opposite of what ought to have been done. Whenever it or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's
appears to the court in the course of a proceeding that an indispensable party has not been motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section
joined, it is the duty of the court to stop the trial and to order the inclusion of such party. 11 of Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule
(The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. does not comprehend whimsical and irrational dropping or adding of parties in a complaint.
1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, What it really contemplates is erroneous or mistaken non-joinder and misjoinder of parties.
for the "general rule with reference to the making of parties in a civil action requires the No one is free to join anybody in a complaint in court only to drop him unceremoniously later
joinder of all necessary parties wherever possible, and the joinder of all indispensable parties at the pleasure of the plaintiff. The rule presupposes that the original inclusion had been
under any and all conditions, the presence of those latter being a sine qua non of the made in the honest conviction that it was proper and the subsequent dropping is requested
exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely " because it has turned out that such inclusion was a mistake. And this is the reason why the
when an indispensable party is not before the court (that) the action should be dismissed." rule ordains that the dropping be "on such terms as are just" just to all the other parties.
(People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party In the case at bar, there is nothing in the record to legally justify the dropping of the non-
renders all subsequent actuations of the court null and void, for want of authority to act, not defaulted defendants, Lim and Leonardo. The motion of October 18, 1974 cites none. From
only as to the absent parties but even as to those present. In short, what respondent court all appearances, plaintiff just decided to ask for it, without any relevant explanation at all.
did here was exactly the reverse of what the law ordains it eliminated those who by law Usually, the court in granting such a motion inquires for the reasons and in the appropriate
should precisely be joined. instances directs the granting of some form of compensation for the trouble undergone by
the defendant in answering the complaint, preparing for or proceeding partially to trial, hiring
As may he noted from the order of respondent court quoted earlier, which resolved the counsel and making corresponding expenses in the premises. Nothing of these, appears in
motions for reconsideration of the dismissal order filed by the non-defaulted defendants, His the order in question. Most importantly, His Honor ought to have considered that the outright
Honor rationalized his position thus: dropping of the non-defaulted defendants Lim and Leonardo, over their objection at that,
would certainly be unjust not only to the petitioners, their own parents, who would in
It is the rule that it is the absolute prerogative of the plaintiff to choose, the consequence be entirely defenseless, but also to Lim and Leonardo themselves who would
theory upon which he predicates his right of action, or the parties he desires naturally correspondingly suffer from the eventual judgment against their parents.
to sue, without dictation or imposition by the court or the adverse party. If Respondent court paid no heed at all to the mandate that such dropping must be on such
he makes a mistake in the choice of his right of action, or in that of the terms as are just" meaning to all concerned with its legal and factual effects.
parties against whom he seeks to enforce it, that is his own concern as he
alone suffers therefrom. The plaintiff cannot be compelled to choose his Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October
defendants, He may not, at his own expense, be forced to implead anyone 21, 1974 as well as its order of December 6, 1974 denying reconsideration of such dismissal.
who, under the adverse party's theory, is to answer for defendant's liability. As We make this ruling, We are not oblivious of the circumstance that defendants Lim and
Neither may the Court compel him to furnish the means by which defendant Leonardo are not parties herein. But such consideration is inconsequential. The fate of the
may avoid or mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.) case of petitioners is inseparably tied up with said order of dismissal, if only because the
order of ex-parte hearing of October 21, 1974 which directly affects and prejudices said
This being the rule this court cannot compel the plaintiff to continue petitioners is predicated thereon. Necessarily, therefore, We have to pass on the legality of
prosecuting her cause of action against the defendants-movants if in the said order, if We are to decide the case of herein petitioners properly and fairly.
course of the trial she believes she can enforce it against the remaining
defendants subject only to the limitation provided in Section 2, Rule 17 of The attitude of the non-defaulted defendants of no longer pursuing further their questioning
the Rules of Court. ... (Pages 6263, Record.) of the dismissal is from another point of view understandable. On the one hand, why should
they insist on being defendants when plaintiff herself has already release from her claims?
On the other hand, as far as their respective parents-co-defendants are concerned, they provides that upon "proof of such failure, (the court shall) declare the defendant in default.
must have realized that they (their parents) could even be benefited by such dismissal Thereupon the court shall proceed to receive the plaintiff's evidence and render judgment
because they could question whether or not plaintiff can still prosecute her case against them granting him such relief as the complaint and the facts proven may warrant." This last clause
after she had secured the order of dismissal in question. And it is in connection with this last is clarified by Section 5 which says that "a judgment entered against a party in default shall
point that the true and correct concept of default becomes relevant. not exceed the amount or be different in kind from that prayed for."

At this juncture, it may also be stated that the decision of the Court of Appeals of January Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full
24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted import of what they contemplate. To begin with, contrary to the immediate notion that can
defendants Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no be drawn from their language, these provisions are not to be understood as meaning that
bearing at all in this case, not only because that dismissal was premised by the appellate default or the failure of the defendant to answer should be "interpreted as an admission by
court on its holding that the said petition was premature inasmuch as the trial court had not the said defendant that the plaintiff's cause of action find support in the law or that plaintiff
yet resolved the motion of the defendants of October 28, 1974 praying that said disputed is entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v.
order be quashed, but principally because herein petitioners were not parties in that Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v.
proceeding and cannot, therefore, be bound by its result. In particular, We deem it Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v.
warranted to draw the attention of private respondent's counsel to his allegations in Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
paragraphs XI to XIV of his answer, which relate to said decision of the Court of Appeals and
which have the clear tendency to make it appear to the Court that the appeals court had Being declared in default does not constitute a waiver of rights except that of being heard
upheld the legality and validity of the actuations of the trial court being questioned, when as and of presenting evidence in the trial court. According to Section 2, "except as provided in
a matter of indisputable fact, the dismissal of the petition was based solely and exclusively on Section 9 of Rule 13, a party declared in default shall not be entitled to notice of subsequent
its being premature without in any manner delving into its merits. The Court must and does proceedings, nor to take part in the trial." That provision referred to reads: "No service of
admonish counsel that such manner of pleading, being deceptive and lacking in candor, has papers other than substantially amended pleadings and final orders or judgments shall be
no place in any court, much less in the Supreme Court, and if We are adopting a passive necessary on a party in default unless he files a motion to set aside the order of default, in
attitude in the premises, it is due only to the fact that this is counsel's first offense. But which event he shall be entitled to notice of all further proceedings regardless of whether the
similar conduct on his part in the future will definitely be dealt with more severely. Parties order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a party who has
and counsel would be well advised to avoid such attempts to befuddle the issues as been declared in default may likewise appeal from the judgment rendered against him as
invariably then will be exposed for what they are, certainly unethical and degrading to the contrary to the evidence or to the law, even if no petition for relief to set aside the order of
dignity of the law profession. Moreover, almost always they only betray the inherent default has been presented by him in accordance with Rule 38.".
weakness of the cause of the party resorting to them.
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it
2 may be said that by defaulting he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with law. The evidence to support the
Coming now to the matter itself of default, it is quite apparent that the impugned orders plaintiff's cause is, of course, presented in his absence, but the court is not supposed to
must have proceeded from inadequate apprehension of the fundamental precepts governing admit that which is basically incompetent. Although the defendant would not be in a position
such procedure under the Rules of Court. It is time indeed that the concept of this procedural to object, elementary justice requires that, only legal evidence should be considered against
device were fully understood by the bench and bar, instead of being merely taken for him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff,
granted as being that of a simple expedient of not allowing the offending party to take part the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it
in the proceedings, so that after his adversary shall have presented his evidence, judgment cannot exceed in amount or be different in kind from what is prayed for in the complaint.
may be rendered in favor of such opponent, with hardly any chance of said judgment being
reversed or modified. Incidentally, these considerations argue against the present widespread practice of trial
judges, as was done by His Honor in this case, of delegating to their clerks of court the
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is reception of the plaintiff's evidence when the defendant is in default. Such a Practice is
concerned solely with default resulting from failure of the defendant or defendants to answer wrong in principle and orientation. It has no basis in any rule. When a defendant allows
within the reglementary period. Referring to the simplest form of default, that is, where there himself to be declared in default, he relies on the faith that the court would take care that his
is only one defendant in the action and he fails to answer on time, Section 1 of the rule rights are not unduly prejudiced. He has a right to presume that the law and the rules will
still be observed. The proceedings are held in his forced absence, and it is but fair that the Very aptly does Chief Justice Moran elucidate on this provision and the controlling
plaintiff should not be allowed to take advantage of the situation to win by foul or illegal jurisprudence explanatory thereof this wise:
means or with inherently incompetent evidence. Thus, in such instances, there is need for
more attention from the court, which only the judge himself can provide. The clerk of court Where a complaint states a common cause of action against several
would not be in a position much less have the authority to act in the premises in the manner defendants and some appear to defend the case on the merits while others
demanded by the rules of fair play and as contemplated in the law, considering his make default, the defense interposed by those who appear to litigate the
comparably limited area of discretion and his presumably inferior preparation for the case inures to the benefit of those who fail to appear, and if the court finds
functions of a judge. Besides, the default of the defendant is no excuse for the court to that a good defense has been made, all of the defendants must be absolved.
renounce the opportunity to closely observe the demeanor and conduct of the witnesses of In other words, the answer filed by one or some of the defendants inures to
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare the benefit of all the others, even those who have not seasonably filed their
as a matter of judicial policy that there being no imperative reason for judges to do answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The
otherwise, the practice should be discontinued. proper mode of proceeding where a complaint states a common cause of
action against several defendants, and one of them makes default, is simply
Another matter of practice worthy of mention at this point is that it is preferable to leave to enter a formal default order against him, and proceed with the cause
enough opportunity open for possible lifting of the order of default before proceeding with upon the answers of the others. The defaulting defendant merely loses his
the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by standing in court, he not being entitled to the service of notice in the cause,
default may amount to a positive and considerable injustice to the defendant; and the nor to appear in the suit in any way. He cannot adduce evidence; nor can he
possibility of such serious consequences necessitates a careful and liberal examination of the be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he
grounds upon which the defendant may seek to set it aside." (Moran, supra p. 534, citing may appeal the judgment rendered against him on the merits. (Rule 41, sec.
Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1 of Rule 2.) If the case is finally decided in the plaintiff's favor, a final decree is then
18 aforequoted which says that "thereupon the court shall proceed to receive the plaintiff's entered against all the defendants; but if the suit should be decided against
evidence etc." is not to be taken literally. The gain in time and dispatch should the court the plaintiff, the action will be dismissed as to all the defendants alike. (Velez
immediately try the case on the very day of or shortly after the declaration of default is far v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.)
outweighed by the inconvenience and complications involved in having to undo everything In other words the judgment will affect the defaulting defendants either
already done in the event the defendant should justify his omission to answer on time. favorably or adversely. (Castro v. Pea, 80 Phil. 488.)

The foregoing observations, as may be noted, refer to instances where the only defendant or Defaulting defendant may ask execution if judgment is in his favor. (Castro
all the defendants, there being several, are declared in default. There are additional rules v. Pea, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
embodying more considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and not all of them answer In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran,
opportunely or are in default, particularly in reference to the power of the court to render this Court elaborated on the construction of the same rule when it
judgment in such situations. Thus, in addition to the limitation of Section 5 that the judgment sanctioned the execution, upon motion and for the benefit of the defendant
by default should not be more in amount nor different in kind from the reliefs specifically in default, of a judgment which was adverse to the plaintiff. The Court held:
sought by plaintiff in his complaint, Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as follows: As above stated, Emilia Matanguihan, by her counsel, also was a movant in
the petition for execution Annex 1. Did she have a right to be such, having
Sec. 4. Judgment when some defendants answer, and other make difficult. been declared in default? In Frow vs. De la Vega, supra, cited as authority
When a complaint states a common cause of action against several in Velez vs. Ramas, supra, the Supreme Court of the United States adopted
defendant some of whom answer, and the others fail to do so, the court as ground for its own decision the following ruling of the New York Court of
shall try the case against all upon the answer thus filed and render judgment Errors in Clason vs. Morris, 10 Jons., 524:
upon the evidence presented. The same proceeding applies when a common
cause of action is pleaded in a counterclaim, cross-claim and third-party It would be unreasonable to hold that because one defendant had made
claim. default, the plaintiff should have a decree even against him, where the court
is satisfied from the proofs offered by the other, that in fact the plaintiff is court'. It is obvious that under this provision the case is tried jointly not only
not entitled to a decree. (21 Law, ed., 61.) against the defendants answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and the judgment, if
The reason is simple: justice has to be consistent. The complaint stating a adverse, will prejudice the defaulting defendants no less than those who
common cause of action against several defendants, the complainant's rights answer. In other words, the defaulting defendants are held bound by the
or lack of them in the controversy have to be the same, and not answer filed by their co-defendants and by the judgment which the court
different, as against all the defendant's although one or some make default may render against all of them. By the same token, and by all rules of equity
and the other or others appear, join issue, and enter into trial. For instance, and fair play, if the judgment should happen to be favorable, totally or
in the case of Clason vs. Morris above cited, the New York Court of Errors in partially, to the answering defendants, it must correspondingly benefit the
effect held that in such a case if the plaintiff is not entitled to a decree, he defaulting ones, for it would not be just to let the judgment produce effects
will not be entitled to it, not only as against the defendant appearing and as to the defaulting defendants only when adverse to them and not when
resisting his action but also as against the one who made default. In the favorable.
case at bar, the cause of action in the plaintiff's complaint was common
against the Mayor of Manila, Emilia Matanguihan, and the other defendants In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the
in Civil Case No. 1318 of the lower court. The Court of First Instance in its following words:
judgment found and held upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and defendant Matanguihan In answer to the charge that respondent Judge had committed a grave
the latter was the one legally entitled to occupy the stalls; and it decreed, abuse of discretion in rendering a default judgment against the PC,
among other things, that said plaintiff immediately vacate them. respondents allege that, not having filed its answer within the reglementary
Paraphrasing the New York Court of Errors, it would be unreasonable to hold period, the PC was in default, so that it was proper for Patanao to forthwith
now that because Matanguihan had made default, the said plaintiff should be present his evidence and for respondent Judge to render said judgment. It
declared, as against her, legally entitled to the occupancy of the stalls, or to should be noted, however, that in entering the area in question and seeking
remain therein, although the Court of First Instance was so firmly satisfied, to prevent Patanao from continuing his logging operations therein, the PC
from the proofs offered by the other defendant, that the same plaintiff was was merely executing an order of the Director of Forestry and acting as his
not entitled to such occupancy that it peremptorily ordered her to vacate the agent. Patanao's cause of action against the other respondents in Case No.
stalls. If in the cases of Clason vs. Morris, supra, Frow vs. De la Vega, supra, 190, namely, the Director of Forestry, the District Forester of Agusan, the
and Velez vs. Ramas, supra the decrees entered inured to the benefit of the Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and
defaulting defendants, there is no reason why that entered in said case No. Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court,
1318 should not be held also to have inured to the benefit of the defaulting 'when a complaint states a common cause of action against several
defendant Matanguihan and the doctrine in said three cases plainly implies defendants some of whom answer and the others fail to do so, the court
that there is nothing in the law governing default which would prohibit the shall try the case against all upon the answer thus filed (by some) and
court from rendering judgment favorable to the defaulting defendant in such render judgment upon the evidence presented.' In other words, the answer
cases. If it inured to her benefit, it stands to reason that she had a right to filed by one or some of the defendants inures to the benefit of all the others,
claim that benefit, for it would not be a benefit if the supposed beneficiary even those who have not seasonably filed their answer.
were barred from claiming it; and if the benefit necessitated the execution of
the decree, she must be possessed of the right to ask for the execution Indeed, since the petition in Case No. 190 sets forth a common cause of
thereof as she did when she, by counsel, participated in the petition for action against all of the respondents therein, a decision in favor of one of
execution Annex 1. them would necessarily favor the others. In fact, the main issue, in said
case, is whether Patanao has a timber license to undertake logging
Section 7 of Rule 35 would seem to afford a solid support to the above operations in the disputed area. It is not possible to decide such issue in the
considerations. It provides that when a complaint states a common cause of negative, insofar as the Director of Forestry, and to settle it otherwise, as
action against several defendants, some of whom answer, and the others regards the PC, which is merely acting as agent of the Director of Forestry,
make default, 'the court shall try the case against all upon the answer thus and is, therefore, his alter ego, with respect to the disputed forest area.
filed and render judgment upon the evidence presented by the parties in
Stated differently, in all instances where a common cause of action is alleged against several the pre-trial, the same could be attributed to the fact that they might not have considered it
defendants, some of whom answer and the others do not, the latter or those in default necessary anymore to be present, since their respective children Lim and Leonardo, with
acquire a vested right not only to own the defense interposed in the answer of their co- whom they have common defenses, could take care of their defenses as well. Anything that
defendant or co-defendants not in default but also to expect a result of the litigation totally might have had to be done by them at such pre-trial could have been done for them by their
common with them in kind and in amount whether favorable or unfavorable. The substantive children, at least initially, specially because in the light of the pleadings before the court, the
unity of the plaintiff's cause against all the defendants is carried through to its adjective prospects of a compromise must have appeared to be rather remote. Such attitude of
phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. Indeed, petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare
since the singleness of the cause of action also inevitably implies that all the defendants are them immediately and irrevocably in default was not an absolute necessity. Practical
indispensable parties, the court's power to act is integral and cannot be split such that it considerations and reasons of equity should have moved respondent court to be more
cannot relieve any of them and at the same time render judgment against the rest. understanding in dealing with the situation. After all, declaring them in default as respondent
Considering the tenor of the section in question, it is to be assumed that when any defendant court did not impair their right to a common fate with their children.
allows himself to be declared in default knowing that his defendant has already answered, he
does so trusting in the assurance implicit in the rule that his default is in essence a mere 3
formality that deprives him of no more than the right to take part in the trial and that the
court would deem anything done by or for the answering defendant as done by or for him. Another issue to be resolved in this case is the question of whether or not herein petitioners
The presumption is that otherwise he would not -have seen to that he would not be in were entitled to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo,
default. Of course, he has to suffer the consequences of whatever the answering defendant considering that petitioners had been previously declared in default. In this connection, the
may do or fail to do, regardless of possible adverse consequences, but if the complaint has to decisive consideration is that according to the applicable rule, Section 9, Rule 13, already
be dismissed in so far as the answering defendant is concerned it becomes his inalienable quoted above, (1) even after a defendant has been declared in default, provided he "files a
right that the same be dismissed also as to him. It does not matter that the dismissal is upon motion to set aside the order of default, he shall be entitled to notice of all further
the evidence presented by the plaintiff or upon the latter's mere desistance, for in both proceedings regardless of whether the order of default is set aside or not" and (2) a party in
contingencies, the lack of sufficient legal basis must be the cause. The integrity of the default who has not filed such a motion to set aside must still be served with all
common cause of action against all the defendants and the indispensability of all of them in "substantially amended or supplemented pleadings." In the instant case, it cannot be denied
the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one that petitioners had all filed their motion for reconsideration of the order declaring them in
or some of them, without including all of them, and so, as a rule, withdrawal must be default. Respondents' own answer to the petition therein makes reference to the order of
deemed to be a confession of weakness as to all. This is not only elementary justice; it also April 3, 1973, Annex 8 of said answer, which denied said motion for reconsideration. On page
precludes the concomitant hazard that plaintiff might resort to the kind of procedural 3 of petitioners' memorandum herein this motion is referred to as "a motion to set aside the
strategem practiced by private respondent herein that resulted in totally depriving petitioners order of default." But as We have not been favored by the parties with a copy of the said
of every opportunity to defend themselves against her claims which, after all, as will be seen motion, We do not even know the excuse given for petitioners' failure to appear at the pre-
later in this opinion, the record does not show to be invulnerable, both in their factual and trial, and We cannot, therefore, determine whether or not the motion complied with the
legal aspects, taking into consideration the tenor of the pleadings and the probative value of requirements of Section 3 of Rule 18 which We have held to be controlling in cases of default
the competent evidence which were before the trial court when it rendered its assailed for failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido
decision where all the defendants are indispensable parties, for which reason the absence of de los Angeles etc. et al., 63 SCRA 50.)
any of them in the case would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them must, as a matter of
We do not, however, have here, as earlier noted, a case of default for failure to answer but
correct procedure, have to await until after the rendition of the judgment, at which stage the
one for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues
plaintiff may then treat the matter of its execution and the satisfaction of his claim as
have already been joined. In fact, evidence had been partially offered already at the pre-trial
variably as he might please. Accordingly, in the case now before Us together with the
and more of it at the actual trial which had already begun with the first witness of the
dismissal of the complaint against the non-defaulted defendants, the court should have
plaintiff undergoing re-cross-examination. With these facts in mind and considering that
ordered also the dismissal thereof as to petitioners.
issues had already been joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for an oath or a verification as to
Indeed, there is more reason to apply here the principle of unity and indivisibility of the the merits of the defense of the defaulted defendants in their motion to reconsider their
action just discussed because all the defendants here have already joined genuine issues default. Inasmuch as none of the parties had asked for a summary judgment there can be no
with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at question that the issues joined were genuine, and consequently, the reason for requiring
such oath or verification no longer holds. Besides, it may also be reiterated that being the We do not agree. As already shown in the foregoing discussion, the proceedings in the court
parents of the non-defaulted defendants, petitioners must have assumed that their presence below have gone so far out of hand that prompt action is needed to restore order in the
was superfluous, particularly because the cause of action against them as well as their own entangled situation created by the series of plainly illegal orders it had issued. The essential
defenses are common. Under these circumstances, the form of the motion by which the purpose of certiorari is to keep the proceedings in lower judicial courts and tribunals within
default was sought to be lifted is secondary and the requirements of Section 3 of Rule 18 legal bounds, so that due process and the rule of law may prevail at all times and
need not be strictly complied with, unlike in cases of default for failure to answer. We can arbitrariness, whimsicality and unfairness which justice abhors may immediately be stamped
thus hold as We do hold for the purposes of the revival of their right to notice under Section out before graver injury, juridical and otherwise, ensues. While generally these objectives
9 of Rule 13, that petitioner's motion for reconsideration was in substance legally adequate may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the
regardless of whether or not it was under oath. special remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its consequences
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended that the long and cumbersome procedure of appeal will only further aggravate the situation
complaint was virtually a second amendment of plaintiffs complaint. And there can be no of the aggrieved party because other untoward actuations are likely to materialize as natural
doubt that such amendment was substantial, for with the elimination thereby of two consequences of those already perpetrated. If the law were otherwise, certiorari would have
defendants allegedly solidarily liable with their co-defendants, herein petitioners, it had the no reason at all for being.
effect of increasing proportionally what each of the remaining defendants, the said
petitioners, would have to answer for jointly and severally. Accordingly, notice to petitioners No elaborate discussion is needed to show the urgent need for corrective measures in the
of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule above- case at bar. Verily, this is one case that calls for the exercise of the Supreme Court's inherent
quoted. Consequently, respondent court had no authority to act on the motion, to dismiss, power of supervision over all kinds of judicial actions of lower courts. Private respondent's
pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court procedural technique designed to disable petitioners to defend themselves against her claim
clearly provide that no motion shall be acted upon by the Court without the proof of service which appears on the face of the record itself to be at least highly controversial seems to
of notice thereof, together with a copy of the motion and other papers accompanying it, to have so fascinated respondent court that none would be surprised should her pending
all parties concerned at least three days before the hearing thereof, stating the time and motion for immediate execution of the impugned judgment receive similar ready sanction as
place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. her previous motions which turned the proceedings into a one-sided affair. The stakes here
15, new Rules). When the motion does not comply with this requirement, it is not a motion. are high. Not only is the subject matter considerably substantial; there is the more important
It presents no question which the court could decide. And the Court acquires no jurisdiction aspect that not only the spirit and intent of the rules but even the basic rudiments of fair play
to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; have been disregarded. For the Court to leave unrestrained the obvious tendency of the
Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; proceedings below would be nothing short of wittingly condoning inequity and injustice
21 L.J. 36, citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; resulting from erroneous construction and unwarranted application of procedural rules.
Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines,
pp. 861-862.) Thus, We see again, from a different angle, why respondent court's order of 5
dismissal of October 21, 1974 is fatally ineffective.
The sum and total of all the foregoing disquisitions is that the decision here in question is
4 legally anomalous. It is predicated on two fatal malactuations of respondent court namely (1)
the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not (2) the ex-parte reception of the evidence of the plaintiff by the clerk of court, the
the proper remedy of petitioners. It is contended that inasmuch as said petitioners have in subsequent using of the same as basis for its judgment and the rendition of such judgment.
fact made their appeal already by filing the required notice of appeal and appeal bond and a
motion for extension to file their record on appeal, which motion was granted by respondent For at least three reasons which We have already fully discussed above, the order of
court, their only recourse is to prosecute that appeal. Additionally, it is also maintained that dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of
since petitioners have expressly withdrawn their motion to quash of January 4, 1975 the motion therefor to the non-defaulted defendants, aside from there being no notice at all
impugning the order of October 28, 1974, they have lost their right to assail by certiorari the to herein petitioners; (2) the common answer of the defendants, including the non-defaulted,
actuations of respondent court now being questioned, respondent court not having been contained a compulsory counterclaim incapable of being determined in an independent
given the opportunity to correct any possible error it might have committed. action; and (3) the immediate effect of such dismissal was the removal of the two non-
defaulted defendants as parties, and inasmuch as they are both indispensable parties in the
case, the court consequently lost the" sine qua non of the exercise of judicial power", This conclusion is fully justified by the following considerations of equity:
per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation to
the clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte 1. It is very clear to Us that the procedural maneuver resorted to by private respondent in
reception of plaintiff's evidence and subsequent rendition of the judgment by default based securing the decision in her favor was ill-conceived. It was characterized by that which every
thereon, We have seen that it was violative of the right of the petitioners, under the principle of law and equity disdains taking unfair advantage of the rules of procedure in
applicable rules and principles on default, to a common and single fate with their non- order to unduly deprive the other party of full opportunity to defend his cause. The idea of
defaulted co-defendants. And We are not yet referring, as We shall do this anon to the "dropping" the non-defaulted defendants with the end in view of completely incapacitating
numerous reversible errors in the decision itself. their co-defendants from making any defense, without considering that all of them are
indispensable parties to a common cause of action to which they have countered with a
It is to be noted, however, that the above-indicated two fundamental flaws in respondent common defense readily connotes an intent to secure a one-sided decision, even improperly.
court's actuations do not call for a common corrective remedy. We cannot simply rule that all And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
the impugned proceedings are null and void and should be set aside, without being faced account, one easily understands why such tactics had to be availed of. We cannot directly or
with the insurmountable obstacle that by so doing We would be reviewing the case as indirectly give Our assent to the commission of unfairness and inequity in the application of
against the two non-defaulted defendants who are not before Us not being parties hereto. the rules of procedure, particularly when the propriety of reliance thereon is not beyond
Upon the other hand, for Us to hold that the order of dismissal should be allowed to stand, controversy.
as contended by respondents themselves who insist that the same is already final, not only
because the period for its finality has long passed but also because allegedly, albeit not very 2. The theories of remedial law pursued by private respondents, although approved by His
accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the Honor, run counter to such basic principles in the rules on default and such elementary rules
Court of Appeals whose decision on their petition is also already final, We would have to on dismissal of actions and notice of motions that no trial court should be unaware of or
disregard whatever evidence had been presented by the plaintiff against them and, of should be mistaken in applying. We are at a loss as to why His Honor failed to see through
course, the findings of respondent court based thereon which, as the assailed decision counsel's inequitous strategy, when the provisions (1) on the three-day rule on notice of
shows, are adverse to them. In other words, whichever of the two apparent remedies the motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of plaintiff when
Court chooses, it would necessarily entail some kind of possible juridical imperfection. there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of
Speaking of their respective practical or pragmatic effects, to annul the dismissal would indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in default
inevitably prejudice the rights of the non-defaulted defendants whom We have not heard and when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the
who even respondents would not wish to have anything anymore to do with the case. On the unity and integrity of the fate of defendants in default with those not in default where the
other hand, to include petitioners in the dismissal would naturally set at naught every effort cause of action against them and their own defenses are common, Section 4, Rule 18, are so
private respondent has made to establish or prove her case thru means sanctioned by plain and the jurisprudence declaratory of their intent and proper construction are so readily
respondent court. In short, We are confronted with a legal para-dilemma. But one thing is comprehensible that any error as to their application would be unusual in any competent trial
certain this difficult situations has been brought about by none other than private court.
respondent who has quite cynically resorted to procedural maneuvers without realizing that
the technicalities of the adjective law, even when apparently accurate from the literal point of 3. After all, all the malactuations of respondent court are traceable to the initiative of private
view, cannot prevail over the imperatives of the substantive law and of equity that always respondent and/or her counsel. She cannot, therefore, complain that she is being made to
underlie them and which have to be inevitably considered in the construction of the pertinent unjustifiably suffer the consequences of what We have found to be erroneous orders of
procedural rules. respondent court. It is only fair that she should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
All things considered, after careful and mature deliberation, the Court has arrived at the
conclusion that as between the two possible alternatives just stated, it would only be fair, 4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the
equitable and proper to uphold the position of petitioners. In other words, We rule that the decision in question cannot stand close scrutiny. What is more, the very considerations
order of dismissal of October 21, 1974 is in law a dismissal of the whole case of the plaintiff, contained therein reveal convincingly the inherent weakness of the cause of the plaintiff. To
including as to petitioners herein. Consequently, all proceedings held by respondent court be sure, We have been giving serious thought to the idea of merely returning this case for a
subsequent thereto including and principally its decision of December 20, 1974 are illegal and resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its
should be set aside. attendant difficulties on account of its adverse effects on parties who have not been heard,
but upon closer study of the pleadings and the decision and other circumstances extant in
the record before Us, We are now persuaded that such a course of action would only lead to in the presence of defendant Lim Tanhu and was invested in the partnership
more legal complications incident to attempts on the part of the parties concerned to Glory Commercial Co. sometime in 1950; that after the investment of the
desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by above-stated amount in the partnership its business flourished and it
and large, there is enough basis here and now for Us to rule out the claim of the plaintiff. embarked in the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under huge profits;
Even a mere superficial reading of the decision would immediately reveal that it is littered on
its face with deficiencies and imperfections which would have had no reason for being were xxx xxx xxx
there less haste and more circumspection in rendering the same. Recklessness in jumping to
unwarranted conclusions, both factual and legal, is at once evident in its findings relative That the late Po Chuan was the one who actively managed the business of
precisely to the main bases themselves of the reliefs granted. It is apparent therein that no the partnership Glory Commercial Co. he was the one who made the final
effort has been made to avoid glaring inconsistencies. Where references are made to codal decisions and approved the appointments of new personnel who were taken
provisions and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
commends itself as a deliberate and consciencious adjudication of a litigation which, Ng Sua are brothers, the latter two (2) being the elder brothers of the
considering the substantial value of the subject matter it involves and the unprecedented former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino
procedure that was followed by respondent's counsel, calls for greater attention and skill citizens whereas the late Po Chuan until the time of his death was a Chinese
than the general run of cases would. citizen; that the three (3) brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of the partnership having the
Inter alia, the following features of the decision make it highly improbable that if We took controlling interest; that defendants Lim Tanhu and Ng Sua were partners in
another course of action, private respondent would still be able to make out any case against name but they were mere employees of Po Chuan .... (Pp. 89-91, Record.)
petitioners, not to speak of their co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss: How did His Honor arrive at these conclusions? To start with, it is not clear in the decision
whether or not in making its findings of fact the court took into account the allegations in the
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late pleadings of the parties and whatever might have transpired at the pre-trial. All that We can
Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the gather in this respect is that references are made therein to pre-trial exhibits and to Annex A
commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim of the answer of the defendants to plaintiff's amended complaint. Indeed, it was incumbent
Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after upon the court to consider not only the evidence formally offered at the trial but also the
the death of her husband on March 11, 1966 she is entitled to share not only in the capital admissions, expressed or implied, in the pleadings, as well as whatever might have been
and profits of the partnership but also in the other assets, both real and personal, acquired placed before it or brought to its attention during the pre-trial. In this connection, it is to be
by the partnership with funds of the latter during its lifetime." regretted that none of the parties has thought it proper to give Us an idea of what took place
at the pre-trial of the present case and what are contained in the pre-trial order, if any was
Relatedly, in the latter part of the decision, the findings are to the following effect: . issued pursuant to Section 4 of Rule 20.

That the herein plaintiff Tan Put and her late husband Po Chuan married at The fundamental purpose of pre-trial, aside from affording the parties every opportunity to
the Philippine Independent Church of Cebu City on December, 20, 1949; that compromise or settle their differences, is for the court to be apprised of the unsettled issues
Po Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan between the parties and of their respective evidence relative thereto, to the end that it may
were childless but the former has a foster son Antonio Nuez whom she has take corresponding measures that would abbreviate the trial as much as possible and the
reared since his birth with whom she lives up to the present; that prior to the judge may be able to ascertain the facts with the least observance of technical rules. In other
marriage of the plaintiff to Po Chuan the latter was already managing the words whatever is said or done by the parties or their counsel at the pre- trial serves to put
partnership Glory Commercial Co. then engaged in a little business in the judge on notice of their respective basic positions, in order that in appropriate cases he
hardware at Manalili St., Cebu City; that prior to and just after the marriage may, if necessary in the interest of justice and a more accurate determination of the facts,
of the plaintiff to Po Chuan she was engaged in the drugstore business; that make inquiries about or require clarifications of matters taken up at the pre-trial, before
not long after her marriage, upon the suggestion of Po Chuan the plaintiff finally resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel
sold her drugstore for P125,000.00 which amount she gave to her husband of the proceedings, and hence, matters dealt with therein may not be disregarded in the
process of decision making. Otherwise, the real essence of compulsory pre-trial would be Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of
insignificant and worthless. great weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax
return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang
Now, applying these postulates to the findings of respondent court just quoted, it will be Sick Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that
observed that the court's conclusion about the supposed marriage of plaintiff to the deceased she had been living with the deceased without benefit of marriage and that she was his
Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during "common-law wife". Surely, these two documents are far more reliable than all the evidence
the trial and the pre-trial. of the plaintiff put together.

Under Article 55 of the Civil Code, the declaration of the contracting parties that they take Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered
each other as husband and wife "shall be set forth in an instrument" signed by the parties as to the judge himself, not to the clerk of court, and should have at least moved him to ask
well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged
evidence of a marriage must be an authentic copy of the marriage contract. While a marriage marriage to the deceased, Po Chuan. And in regard to the quitclaim containing the admission
may also be proved by other competent evidence, the absence of the contract must first be of a common-law relationship only, it is to be observed that His Honor found that
satisfactorily explained. Surely, the certification of the person who allegedly solemnized a "defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on November 29,
marriage is not admissible evidence of such marriage unless proof of loss of the contract or 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in
of any other satisfactory reason for its non-production is first presented to the court. In the the capital and profits of the business of Glory Commercial Co. which was engaged in the
case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine hardware business", without making mention of any evidence of fraud and misrepresentation
Independent Church, Cebu City, is not, therefore, competent evidence, there being in its execution, thereby indicating either that no evidence to prove that allegation of the
absolutely no showing as to unavailability of the marriage contract and, indeed, as to the plaintiff had been presented by her or that whatever evidence was actually offered did not
authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant produce persuasion upon the court. Stated differently, since the existence of the quitclaim
provincial fiscal not being authorized by law, since it is not part of the functions of his office. has been duly established without any circumstance to detract from its legal import, the
Besides, inasmuch as the bishop did not testify, the same is hearsay. court should have held that plaintiff was bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more, that she had already renounced for
As regards the testimony of plaintiff herself on the same point and that of her witness valuable consideration whatever claim she might have relative to the partnership Glory
Antonio Nuez, there can be no question that they are both self-serving and of very little Commercial Co.
evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all
her rights in this case to said Nuez, thereby making him the real party in interest here and, And when it is borne in mind that in addition to all these considerations, there are mentioned
therefore, naturally as biased as herself. Besides, in the portion of the testimony of Nuez and discussed in the memorandum of petitioners (1) the certification of the Local Civil
copied in Annex C of petitioner's memorandum, it appears admitted that he was born only on Registrar of Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine
March 25, 1942, which means that he was less than eight years old at the supposed time of Independent Church, Parish of Sto. Nio, Cebu City, that their respective official records
the alleged marriage. If for this reason alone, it is extremely doubtful if he could have been corresponding to December 1949 to December 1950 do not show any marriage between Tee
sufficiently aware of such event as to be competent to testify about it. Hoon Lim Po Chuan and Tan Put, neither of which certifications have been impugned by
respondent until now, it stands to reason that plaintiff's claim of marriage is really
Incidentally, another Annex C of the same memorandum purports to be the certificate of unfounded. Withal, there is still another document, also mentioned and discussed in the
birth of one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro same memorandum and unimpugned by respondents, a written agreement executed in
Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother. Chinese, but purportedly translated into English by the Chinese Consul of Cebu, between Tan
Significantly, respondents have not made any adverse comment on this document. It is more Put and Tee Hoon Lim Po Chuan to the following effect:
likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng.
But she testified she was childless. So which is which? In any event, if on the strength of this CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
document, Nuez is actually the legitimate son of Tan Put and not her adopted son, he would
have been but 13 years old in 1949, the year of her alleged marriage to Po Chuan, and even TRANSLATION
then, considering such age, his testimony in regard thereto would still be suspect.
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Of course, the existence of the partnership has not been denied, it is actually admitted
Lim Po Chuan alias TeeHoon since 1949 but it recently occurs that we are impliedly in defendants' affirmative defense that Po Chuan's share had already been duly
incompatible with each other and are not in the position to keep living settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the
together permanently. With the mutual concurrence, we decided to actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business
terminate the existing relationship of common law-marriage and promised that could have enabled them to make the extractions of funds alleged by plaintiff is at best
not to interfere each other's affairs from now on. The Forty Thousand Pesos confusing and at certain points manifestly inconsistent.
(P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is
Witnesses: entitled to /3 share of the assets and properties of the partnership. In fact, her prayer in
said complaint is, among others, for the delivery to her of such / 3 share. His Honor's
Mr. Lim Beng Guan Mr. Huang Sing Se statement of the case as well as his findings and judgment are all to that same effect. But
what did she actually try to prove at the ex- parte hearing?
Signed on the 10 day of the 7th month of the 54th year of the Republic of
China (corresponding to the year 1965). According to the decision, plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po
(SGD) TAN KI ENG Chuan, she was engaged in the drugstore business; that not long after her marriage, upon
the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she
gave to her husband in the presence of Tanhu and was invested in the partnership Glory
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Commercial Co. sometime in 1950; that after the investment of the above-stated amount in
the partnership, its business flourished and it embarked in the import business and also
Indeed, not only does this document prove that plaintiff's relation to the deceased was that engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge
of a common-law wife but that they had settled their property interests with the payment to profits." (pp. 25-26, Annex L, petition.)
her of P40,000.
To begin with, this theory of her having contributed of P125,000 to the capital of the
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan partnership by reason of which the business flourished and amassed all the millions referred
Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily to in the decision has not been alleged in the complaint, and inasmuch as what was being
established and that, on the contrary, the evidence on record convincingly shows that her rendered was a judgment by default, such theory should not have been allowed to be the
relation with said deceased was that of a common-law wife and furthermore, that all her subject of any evidence. But inasmuch as it was the clerk of court who received the
claims against the company and its surviving partners as well as those against the estate of evidence, it is understandable that he failed to observe the rule. Then, on the other hand, if
the deceased have already been settled and paid. We take judicial notice of the fact that the it was her capital that made the partnership flourish, why would she claim to be entitled to
respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and only to /3 of its assets and profits? Under her theory found proven by respondent court, she
Natalio Castillo, are members in good standing of the Philippine Bar, with the particularity was actually the owner of everything, particularly because His Honor also found "that
that the latter has been a member of the Cabinet and of the House of Representatives of the defendants Lim Tanhu and Ng Sua were partners in the name but they were employees of Po
Philippines, hence, absent any credible proof that they had allowed themselves to be parties Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their
to a fraudulent document His Honor did right in recognizing its existence, albeit erring in not employment with the Glory Commercial Co. under the management of the late Po Chuan
giving due legal significance to its contents. except their salaries therefrom; ..." (p. 27, id.) Why then does she claim only /3 share? Is
this an indication of her generosity towards defendants or of a concocted cause of action
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po existing only in her confused imagination engendered by the death of her common-law
Chuan is not only unconvincing but has been actually overcome by the more competent and husband with whom she had settled her common-law claim for recompense of her services
weighty evidence in favor of the defendants, her attempt to substantiate her main cause of as common law wife for less than what she must have known would go to his legitimate wife
action that defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory and children?
Commercial Co. and converted its properties to themselves is even more dismal. From the
very evidence summarized by His Honor in the decision in question, it is clear that not an iota Actually, as may be noted from the decision itself, the trial court was confused as to the
of reliable proof exists of such alleged misdeeds. participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere employees and then elsewhere as If Po Chuan was in control of the affairs and the running of the partnership, how could the
partners-employees, a newly found concept, to be sure, in the law on partnership. And the defendants have defrauded him of such huge amounts as plaintiff had made his Honor
confusion is worse comfounded in the judgment which allows these "partners in name" and believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership,
"partners-employees" or employees who had no means of livelihood and who must not have the more logical inference is that if defendants had obtained any portion of the funds of the
contributed any capital in the business, "as Po Chuan was practically the owner of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan,
partnership having the controlling interest", /3 each of the huge assets and profits of the for which reason no accounting could be demanded from them therefor, considering that
partnership. Incidentally, it may be observed at this juncture that the decision has made Po Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of
Chuan play the inconsistent role of being "practically the owner" but at the same time getting the other partner or partners. Incidentally again, this theory about Po Chuan having been
his capital from the P125,000 given to him by plaintiff and from which capital the business actively managing the partnership up to his death is a substantial deviation from the
allegedly "flourished." allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names machination, took actual and active management of the partnership and although Tee Hoon
of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His Lim Po Chuan was the manager of Glory Commercial Co., defendants managed to use the
Honor confirmed the same by finding and holding that "it is likewise clear that real properties funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended
together with the improvements in the names of defendants Lim Tanhu and Ng Sua were complaint, Annex B of petition) and should not have been permitted to be proven by the
acquired with partnership funds as these defendants were only partners-employees of hearing officer, who naturally did not know any better.
deceased Po Chuan in the Glory Commercial Co. until the time of his death on March 11,
1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His Honor is Moreover, it is very significant that according to the very tax declarations and land titles
based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how listed in the decision, most if not all of the properties supposed to have been acquired by the
said defendants could have extracted money from the partnership in the fraudulent and defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been
illegal manner pretended by plaintiff. Neither in the testimony of Nuez nor in that of transferred to their names only in 1969 or later, that is, long after the partnership had been
plaintiff, as these are summarized in the decision, can there be found any single act of automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have
extraction of partnership funds committed by any of said defendants. That the partnership no obligation to account to anyone for such acquisitions in the absence of clear proof that
might have grown into a multi-million enterprise and that the properties described in the they had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon
exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but vs. Hansserman and. Beam, 40 Phil. 796.)
of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten
his share of the profits of the business or that the properties in the names of the defendants There are other particulars which should have caused His Honor to readily disbelieve
were bought with money of the partnership. In this connection, it is decisively important to plaintiffs' pretensions. Nuez testified that "for about 18 years he was in charge of the GI
consider that on the basis of the concordant and mutually cumulative testimonies of plaintiff sheets and sometimes attended to the imported items of the business of Glory Commercial
and Nuez, respondent court found very explicitly that, and We reiterate: Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by the same witness as his birth
xxx xxx xxx certificate, shows he was born in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or seven years old? It should not
That the late Po Chuan was the one who actively managed the business of have escaped His Honor's attention that the photographs showing the premises of Philippine
the partnership Glory Commercial Co. he was the one who made the final Metal Industries after its organization "a year or two after the establishment of Cebu Can
decisions and approved the appointments of new Personnel who were taken Factory in 1957 or 1958" must have been taken after 1959. How could Nuez have been only
in by the partnership; that the late Po Chuan and defendants Lim Tanhu and 13 years old then as claimed by him to have been his age in those photographs when
Ng Sua are brothers, the latter to (2) being the elder brothers of the former; according to his "birth certificate", he was born in 1942? His Honor should not have
that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens overlooked that according to the same witness, defendant Ng Sua was living in Bantayan
whereas the late Po Chuan until the time of his death was a Chinese citizen; until he was directed to return to Cebu after the fishing business thereat floundered, whereas
that the three (3) brothers were partners in the Glory Commercial Co. but Po all that the witness knew about defendant Lim Teck Chuan's arrival from Hongkong and the
Chuan was practically the owner of the partnership having the controlling expenditure of partnership money for him were only told to him allegedly by Po Chuan, which
interest; that defendants Lim Tanhu and Ng Sua were partners in name but testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
they were mere employees of Po Chuan; .... (Pp. 90-91, Record.) Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu
was employed by her husband although he did not go there always being a mere employee wives of Lim Tanhu and Ng Sua, respectively. We further note that while His Honor has
of Glory Commercial Co." (p. 22, Annex the decision.) ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
/3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except 31, 1965, in the same breath, they have also been sentenced to partition and give /3share
their salaries. Actually, it is not stated, however, from what evidence such conclusion was of the properties enumerated in the dispositive portion of the decision, which seemingly are
derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the the very properties allegedly purchased from the funds of the partnership which would
decision itself states that according to Exhibit NN-Pre trial, in the supposed income tax return naturally include the P12,223,182.55 defendants have to account for. Besides, assuming
of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries there has not yet been any liquidation of the partnership, contrary to the allegation of the
alone and had a total assess sable net income of P23,920.77 that year for which he paid a defendants, then Glory Commercial Co. would have the status of a partnership in liquidation
tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net and the only right plaintiff could have would be to what might result after such liquidation to
income of P32,000 for which be paid a tax of P3,512.40. ( id.) As early as 1962, "his fishing belong to the deceased partner, and before this is finished, it is impossible to determine,
business in Madridejos Cebu was making money, and he reported "a net gain from operation what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
(in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor other words, no specific amounts or properties may be adjudicated to the heir or legal
gather the conclusion that all the properties registered in his name have come from funds representative of the deceased partner without the liquidation being first terminated.
malversed from the partnership?
Indeed, only time and the fear that this decision would be much more extended than it is
It is rather unusual that His Honor delved into financial statements and books of Glory already prevent us from further pointing out the inexplicable deficiencies and imperfections
Commercial Co. without the aid of any accountant or without the same being explained by of the decision in question. After all, what have been discussed should be more than
any witness who had prepared them or who has knowledge of the entries therein. This must sufficient to support Our conclusion that not only must said decision be set aside but also
be the reason why there are apparent inconsistencies and inaccuracies in the conclusions His that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile and
Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company productive of other legal complications, that plaintiff is liable on defendants' counterclaims.
amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial, according to Resolution of the other issues raised by the parties albeit important and perhaps pivotal has
His Honor, showed that the total value of goods available as of the same date was likewise become superfluous.
P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of
the company for 1966, "the value of inventoried merchandise, both local and imported", as IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent
found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are
company's goods available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and
per Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that is, of the company the decision on December 20, 1974. Respondent court is hereby ordered to enter an order
showed its "cash analysis" was P12,223,182.55. We do not hesitate to make the observation extending the effects of its order of dismissal of the action dated October 21, 1974 to herein
that His Honor, unless he is a certified public accountant, was hardly qualified to read such petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
exhibits and draw any definite conclusions therefrom, without risk of erring and committing respondent court is hereby permanently enjoined from taking any further action in said civil
an injustice. In any event, there is no comprehensible explanation in the decision of the case gave and except as herein indicated. Costs against private respondent.
conclusion of His Honor that there were P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 17. CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants, vs.JAIME
11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the HERNANDEZ, defendant-appellee.
amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to
permit anyone to predicate any claim or right from respondent court's unaided exercise of
This is an action for the recovery of the sum of P115,312.50, with interests, as
accounting knowledge.
plaintiffs' alleged share in the profits of a partnership.
Additionally, We note that the decision has not made any finding regarding the allegation in
It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate or
the amended complaint that a corporation denominated Glory Commercial Co., Inc. was
secret partnership for the purpose of acquiring the plants, franchises and other properties of
organized after the death of Po Chuan with capital from the funds of the partnership. We
the Manila Electric Co. hereinafter called the Meralco in the provinces of Camarines Sur,
note also that there is absolutely no finding made as to how the defendants Dy Ochay and
Albay, and Sorsogon, with the idea of continuing that company's business in that region. No
Co Oyo could in any way be accountable to plaintiff, just because they happen to be the
formal articles were drawn for it was the purpose of the members to incorporate once the Following the dissolution of the partnership, the members who preferred to remain in the
deal had been consummated. But in the meantime they elected Pedro Serranzana and David business went ahead with the formation of the corporation, taking in new associates as
Serrano general manager and secretary-treasurer, respectively, of the partnership. stockholders. And defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the corporation, giving them a book
Negotiation for the purchase was commenced, but as it made no headway, defendant was value of P365,000, in return for which the corporation issued, to the various subscribers to its
taken in as a member of the partnership so that he could push the deal through, and to that capital stock, shares of stock of the total face value of P225,000 and assumed the obligation
end he was given the necessary power of attorney. Using partnership funds, defendant was of paying what was still due the Meralco on the purchase price. The new corporation was
able to buy the Meralco properties for P122,000, paying P40,000 upon the signing of the named "Bicol Electric Company."
deed of sale and agreeing to pay the balance in two equal installments, that is, P41,000 on
or before July 31, 1947, and another P41,000 on or before January 31, 1948, with interest at Though business was losing during the first year, that is, in 1947, the corporation, thanks to
6 per cent per annum and with a penalty clause which reads: a loan obtained from the RFC later prospered and made money. Then trouble began for one
of its big stockholders, the defendant herein.
(6) That in case the VENDEE fails to make the payment or payments of the balance
due or any part thereof as herein provided, this contract shall, at the option of the Two years from their withdrawal from the partnership, when the corporate business was
VENDOR, be annuled and, in such an event, all payments made by the VENDEE to already in a prosperous condition, plaintiffs brought the present suit against Jaime
the VENDOR by virtue of this contract shall be forfeited and retained by the VENDOR Hernandez, claiming a share in the profit the latter is supposed to have made from the
in full satisfaction as the liquidated damages sustained by said VENDOR; and the said assignment of the Meralco properties to the corporation, estimated by plaintiffs to be
VENDOR shall have the right to forthwith reenter and take possession of the P225,000 and their share of it to be P115,312.50.
premises, properties and rights which are the subject-matter of this contract.
Defendant's answer denies that he has made any profit out of the assignment in question
Although defendant was the one named vendee in the deed of sale, there is no question that and alleges that in any event plaintiffs, after their withdrawal from the partnership, ceased to
the transaction was in penalty made for the partnership so that the latter assumed control of have any further interest in the subsequent transactions of the remaining members.
the business the day following the sale.
After trial the lower court found that the partnership had not realized any profit out of the
About the latter half of the following month the members of the partnership proceeded with assignment of the Meralco properties to the corporation and that, even supposing that profit
the formation of the proposed corporation, apportioning among themselves its shares of had really been made, defendant would not be the one to answer to plaintiffs for their share
stock in proportion to their respective contributions to the capital of the partnership and their thereof, because he did not receive the consideration for the assignment, which according to
individual efforts in bringing about the acquisition of the Meralco properties. But before the the court, consisted of the subscriptions of various persons to the capital stock of the
incorporation papers could be perfected, several partners, not satisfied with the way matters corporation. The court therefore dismissed the complaint with costs against the plaintiffs.
were being run and fearful that the venture might prove a failure because the business was From this decision plaintiffs appealed. The case comes within our jurisdiction because of the
not going well and there was a possibility of their being assessed more than their original amount involved.
investments when the time came to meet the two installments of the unpaid purchase price
due the Meralco, expressed their desire to withdraw from the partnership and get back the We find no merit in the appeal.
money they had invested therein. In accordance with this wish, one of them, Judge Jaime
Reyes, in a meeting held on April 10, 1947, to consider various matters connected with the In the first place, the profit alleged to have been realized from the assignment of the Meralco
business, presented a resolution to the effect that those partners who did not want to remain properties to the new corporation, the Bicol Electric Company, is more apparent than real. It
in the association should be allowed to withdraw and get back their contributions. The is true that the value set for those properties in the deed of assignment was P365,000 when
resolution was approved, with the herein plaintiffs voting affirmatively, and on that same day the acquisition price was only P122,000. But one should not jump to the conclusion that a
plaintiffs and Judge Reyes withdrew from the partnership, and, as admitted by both parties, profit, consisting of the difference between the two sums was really made out of the
the partnership was then dissolved. In accordance with the terms of the resolution, the transaction, for the assignment was not made for cash but in payment for subscriptions to
withdrawing partners were, on the following day, reimbursed their respective contributions to shares of stock in the assignee, and while those shares had a total face value of P225,000,
the partnership fund. this is not necessarily their real worth. Needless to say, the real value of the shares of stock
of a corporation depends upon the value of its assets over and above its liabilities. It does
not appear that the Bicol Electric Company had any assets other than those acquired from the withdrawing partners were relinquishing all their rights and interest in the partnership
the Meralco, and according to the evidence the company, aside from owing the Meralco, upon the return to them of their investment. That Judge Reyes did not join the plaintiffs in
P82,000 was, in the language of the court below, actually "in the red." this action is a clear indication that such was really the understanding. Judge Reyes has
testified that when he was invited to join in the present claim he refused because he did not
In the second place, assuming that the assignment actually brought profit to the partnership, want to be a "sin verguenza." And, indeed, if the agreement was that the withdrawing
it is hard to see how defendant could be made to answer for plaintiffs' alleged share thereof. partners were still to have participation in the subsequent transactions of the partnership so
As stated in the decision below, defendant did not receive the consideration for the that they would have a share not only in the profits but also in the losses, it is not likely that
assignment for, as already stated, the assignment was made in payment for subscriptions of their investment would have been returned to them.
various persons to the capital stock of the new corporation. Plaintiffs, in order to give color of
legality to their claim against defendant, maintain that the latter should be held liable for It is, therefore, our conclusion that the acceptance by the withdrawing partners, including
damages caused to them, consisting of the loss of their share of the profits, due to the plaintiffs, of their investment in the instant case was understood and intended by all the
defendant's failure properly to perform his duty as a liquidator of the dissolved partnership, parties as a final settlement of whatever rights or claim the withdrawing partners might have
this on the theory that as managing partner of the partnership, it was defendant's duty to in the dissolved partnership. Such being the case they are now precluded from claiming any
liquidate its affairs upon its dissolutions. But it does not appear that plaintiffs have ever share in the alleged profits, should there be any, at the time of the dissolution.
asked for a liquidation, and as will presently be explained no liquidation was called for
because when plaintiffs withdrew from the partnership the understanding was that after they In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis
had been reimbursed their investment, they were no longer to have any further interest in so that the judgment of dismissal rendered by the court below should be, as it is hereby,
the partnership or its assets and liabilities. Moreover, the stipulation of facts made at the affirmed, with costs against the appellants.
hearing does not bear out the claim that defendant was the managing partner of the
partnership, for if there appears that the partnership had its general manager in the person
of Pedro Serranzana, who upon the formation of the new corporation also became its vice-
president and general manager.
COMMISSION and JOAQUIN L. MISA, respondents.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
may be due him after a liquidation. But certainly no liquidation is necessary where there is
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
already a settlement or an agreement as to what the retiring partner shall receive. In the
Securities and Exchange Commission ("SEC") in SEC AC 254.
instant case, it appears that a settlement was agreed upon on the very day the partnership
was dissolved. For when plaintiffs and Judge Jaime Reyes withdrew from the partnership on
that day they did so as agreed to by all the partners, subject to the only condition that they The antecedents of the controversy, summarized by respondent Commission and quoted at
were to be repaid their contributions or investments within three days from said date. And length by the appellate court in its decision, are hereunder restated.
this condition was fulfilled when on the following day they were reimbursed the respective
amounts due them pursuant to the agreement. 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
There is evidence that the partnership was at that time operating its business at a loss and Exchange Commission on 4 August 1948. The SEC records show that there were
that the partnership did not have necessary funds to meet its obligation to Meralco for the several subsequent amendments to the articles of partnership on 18 September
balance of the purchase price. And in that connection it should be recalled that nonpayment 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965
of that obligation would result in the partnership losing its entire investment because of the . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
penalty clause in the deed of sale. Because of these circumstances there is every reason to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO,
believe that plaintiffs together with Judge Jaime Reyes, withdrew from the partnership for DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
fear that they might lose their entire investment should they choose to remain in the MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980,
partnership which then faced the danger of losing its entire assets. As testified to by Judge [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
Reyes, one of the withdrawing partners, it was clearly understood that upon their withdrawal themselves together, as senior partners with respondents-appellees Gregorio F.
and return to them of their investment they would have nothing more to do with the Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
association. It must, therefore, have been the intention or understanding of the parties that
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter pay petitioners damages for the use thereof despite the dissolution
stating: of the partnership in the amount of at least P50,000.00;

I am withdrawing and retiring from the firm of Bito, Misa and "4. Order respondents jointly and severally to pay petitioner
Lozada, effective at the end of this month. attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
"I trust that the accountants will be instructed to make the proper and equitable under the premises but in no case less than ten (10%)
liquidation of my participation in the firm." per cent of the value of the shares of petitioner or P100,000.00;

On the same day, petitioner-appellant wrote respondents-appellees another letter "5. Order the respondents to pay petitioner moral damages with the
stating: amount of P500,000.00 and exemplary damages in the amount of
"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 "Petitioner likewise prayed for such other and further reliefs that the
particularly, my interest in the two floors of this building. I would like Commission may deem just and equitable under the premises."
to have this resolved soon because it has to do with my own plans."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating: On 13 July 1988, petitioner filed his Reply to the Opposition.

"The partnership has ceased to be mutually satisfactory because of On 31 March 1989, the hearing officer rendered a decision ruling that:
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level of "[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
the pay scale of our employees have been thwarted by the other not dissolve the said law partnership. Accordingly, the petitioner and
partners. Not only have they refused to give meaningful increases to respondents are hereby enjoined to abide by the provisions of the
the employees, even attorneys, are dressed down publicly in a loud Agreement relative to the matter governing the liquidation of the
voice in a manner that deprived them of their self-respect. The result shares of any retiring or withdrawing partner in the partnership
of such policies is the formation of the union, including the assistant interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Clearing Department (SICD) a petition for dissolution and liquidation of partnership, Lozada." The Commission ruled that, being a partnership at will, the law firm could be
docketed as SEC Case No. 3384 praying that the Commission: 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
"1. Decree the formal dissolution and order the immediate liquidation will. In its decision, dated 17 January 1990, the SEC held:
of (the partnership of) Bito, Misa & Lozada;
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
"2. Order the respondents to deliver or pay for petitioner's share in REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not
the partnership assets plus the profits, rent or interest attributable to been dissolved. The case is hereby REMANDED to the Hearing Officer for
the use of his right in the assets of the dissolved partnership; determination of the respective rights and obligations of the parties.2

"3. Enjoin respondents from using the firm name of Bito, Misa & The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked
Lozada in any of their correspondence, checks and pleadings and to 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 not be unduly belabored. We quote, with approval, like did the appellate court, the findings
denying reconsideration, as well as rejecting the petition for receivership, and reiterating the and disquisition of respondent SEC on this matter; viz:
remand of the case to the Hearing Officer.
The partnership agreement (amended articles of 19 August 1948) does not provide
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 for a specified period or undertaking. The "DURATION" clause simply states:
and CA-G.R. SP No. 24648).
"5. DURATION. The partnership shall continue so long as mutually
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney satisfactory and upon the death or legal incapacity of one of the
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The partners, shall be continued by the surviving partners."
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). The hearing officer however opined that the partnership is one for a specific
He expressed concern over the need to preserve and care for the partnership assets. The undertaking and hence not a partnership at will, citing paragraph 2 of the Amended
other partners opposed the prayer. Articles of Partnership (19 August 1948):

The Court of Appeals, finding no reversible error on the part of respondent Commission, "2. Purpose. The purpose for which the partnership is formed, is to
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court act as legal adviser and representative of any individual, firm and
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the corporation engaged in commercial, industrial or other lawful
partnership had changed the relation of the parties and inevitably caused the dissolution of businesses and occupations; to counsel and advise such persons and
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should entities with respect to their legal and other affairs; and to appear
be to the extent of Attorney Misa's interest or participation in the partnership which could be for and represent their principals and client in all courts of justice
computed and paid in the manner stipulated in the partnership agreement; (d) that the case and government departments and offices in the Philippines, and
should be remanded to the SEC Hearing Officer for the corresponding determination of the elsewhere when legally authorized to do so."
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 The "purpose" of the partnership is not the specific undertaking referred to in the
partnership assets were in any such danger of being lost, removed or materially impaired. 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
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves need to provide for articles on partnership at will as none would so exist. Apparently
to the following issues: what the law contemplates, is a specific undertaking or "project" which has a definite
or definable period of completion.3
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; 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
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of foundation and essence of that partnership. Its continued existence is, in turn, dependent on
private respondent dissolved the partnership regardless of his good or bad faith; and 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
3. Whether or not the Court of Appeals has erred in holding that private respondent's may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however,
demand for the dissolution of the partnership so that he can get a physical partition act in good faith, not that the attendance of bad faith can prevent the dissolution of the
of partnership was not made in bad faith; partnership4 but that it can result in a liability for damages.5

to which matters we shall, accordingly, likewise limit ourselves. 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
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa will of a partner.6 Among partners,7 mutual agency arises and the doctrine of delectus
& Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need personae allows them to have the power, although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon
damages. 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
The dissolution of a partnership is the change in the relation of the parties caused by any a wrongful act for a dishonest purpose or moral obliquity.
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 WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
personality is retained until the complete winding up of its business culminating in its
termination.9 SO ORDERED.

The liquidation of the assets of the partnership following its dissolution is governed by 19. IRMA IDOS, petitioner, vs.COURT OF APPEALS and PEOPLE OF THE
various provisions of the Civil Code; 10 however, an agreement of the partners, like any other PHILIPPINES, respondents.
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
Before this Court is the petition for review of the Decision of respondent Court of
Articles of Partnership" reading thusly:
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
. . . In the event of the death or retirement of any partner, his interest in the Bulacan, in Criminal Case No. 1395-M-88 2 as follows:
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
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond
the Senior Partners may determine; provided, however, that with respect to the two
reasonable doubt and is hereby sentenced to suffer the penalty of
(2) floors of office condominium which the partnership is now acquiring, consisting of
imprisonment of six (6) months and to pay a fine of P135,000.00 and to pay
the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village,
private complainant Eddie Alarilla the amount of the check in question of
Makati, Metro Manila, their true value at the time of such death or retirement shall
P135,000.00 at 12% interest from the time of the filing of the (i)nformation
be determined by two (2) independent appraisers, one to be appointed (by the
(August 10, 1988) until said amount has been fully paid.
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 Elevated from the Third Division3 of this Court, the case was accepted for resolution en
the retiring or deceased partner in the aforementioned two (2) floor office banc on the initial impression that here, a constitutional question might be involved. 4 It was
condominium shall be determined upon the basis of the valuation above mentioned opined that petitioner's sentence, particularly six months' imprisonment, might be in violation
which shall be paid monthly within the first ten (10) days of every month in of the constitutional guarantee against imprisonment for non-payment of a debt.5
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 A careful consideration of the issues presented in the petition as well as the comments
Partner. 11 thereon and the findings of fact by the courts below in the light of applicable laws and
precedents convinces us, however, that the constitutional dimension need not be reached in
The term "retirement" must have been used in the articles, as we so hold, in a generic sense order to resolve those issues adequately. For, as herein discussed, the merits of the petition
to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the could be determined without delving into aspects of the cited constitutional guarantee vis-a-
partnership that thereby dissolves it. visprovisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no
necessity therefor, we lay aside discussions of the constitutional challenge to said law in
deciding this petition.
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" The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
among the partners. It would not be right, we agree, to let any of the partners remain in the accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
partnership under such an atmosphere of animosity; certainly, not against their complainant below, Eddie Alarilla.
will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the complainant himself asked for the checks because he did not want to
accused-appellant Irma L. Idos for use in the latter's business of continue in the tannery business and had no use for a share of the stocks.
manufacturing leather. In 1985, he joined the accused-appellant's business (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20,
and formed with her a partnership under the style "Tagumpay Feb. 14, 1990; id, p. 14, June 4, 1990).
Manufacturing," with offices in Bulacan and Cebu City.
On February 15, 1992, the trial court rendered judgment finding the
However, the partnership was short lived. In January, 1986 the parties accused-appellant guilty of the crime charged. The accused-appellant's
agreed to terminate their partnership. Upon liquidation of the business the motion for annulment of the decision and for reconsideration was denied by
partnership had as of May 1986 receivables and stocks worth P1,800,000.00. the trial court in its order dated April 12, 1991.6
The complainant's share of the assets was P900,000.00 to pay for which the
accused-appellant issued the following postdated checks, all drawn against Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Metrobank Branch in Mandaue, Cebu: Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution7 dated June 11, 1993. Petitioner has now appealed to us
CHECK NO. DATE AMOUNT by way of a petition for certiorari under Rule 45 of the Rules of Court.

1) 103110295 8-15-86 P135,828.87 During the pendency of this petition, this Court by a resolutions8 dated August 30, 1993, took
note of the compromise agreement executed between the parties, regarding the civil aspect
2) 103110294 P135,828.87 of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement9 filed on August 5, 1993. After submission of the Comment 10 by the
3) 103115490 9-30-86 P135,828.87 Solicitor General, and the Reply11 by petitioner, this case was deemed submitted for decision.

4) 103115491 10-30-86 P126,656.01 Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
The complainant was able to encash the first, second, and fourth checks, but
the third check (Exh. A) which is the subject of this case, was dishonored on 1. The Honorable Court of Appeals has decided against the
October 14, 1986 for insufficiency of funds. The complainant demanded innocence of the accused based on mere probabilities which,
payment from the accused-appellant but the latter failed to pay. Accordingly, on the contrary, should have warranted her acquittal on
on December 18, 1986, through counsel, he made a formal demand for reasonable doubt. Even then, the conclusion of the trial
payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant court is contrary to the evidence on record, including private
denied liability. She claimed that the check had been given upon demand of complainant's judicial admission that there was no
complainant in May 1986 only as "assurance" of his share in the assets of consideration for the check.
the partnership and that it was not supposed to be deposited until the stocks
had been sold. 2 The Honorable Court of Appeals has confused and merged
into one the legal concepts of dissolution, liquidation and
Complainant then filed his complaint in the Office of the Provincial Fiscal of termination of a partnership and on the basis of such
Bulacan which on August 22, 1988 filed an information for violation of BP misconception of the law, disregarded the fact of absence of
Blg. 22 against accused-appellant. consideration of the check and convicted the accused.

Complainant danied that the checks issued to him by accused-appellant were 3 While this appeal was pending, the parties submitted for
subject to the disposition of the stocks and the collection of receivables of the approval of the Honorable Court a compromise
the business. But the accused-appellant insisted that the complainant had agreement on the civil liability. The accused humbly submits
known that the checks were to be funded from the proceeds of the sale of that this supervening event, which by its terms puts to rest
the stocks and the collection of receivables. She claimed that the any doubt the Court of Appeals had entertained against the
defense of lack of consideration, should have a legal effect check is subsequently dishonored by the drawee bank for insufficiency of
favorable to the accused, considering that the dishonored funds or credit or would have been dishonored for the same reason had not
check constitutes a private transaction between partners the drawer, without any valid reason, ordered the bank to stop payment,
which does not involve the public interest, and considering shall be punished by imprisonment of not less than thirty days but not more
further that the offense is not one involving moral turpitude. than one (1) year or by a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed Two hundred
4 The Honorable Court of Appeals failed to appreciate the thousand pesos, or both such fine and imprisonment at the discretion of the
fact that the accused had warned private complainant that court.
the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent The same penalty shall be imposed upon any person who having sufficient
case of Magno vs. Court of Appeals, 210 SCRA 471, which funds in or credit with the drawee bank when he makes or draws and issues
calls for a more flexible and less rigid application of the a check, shall fail to keep sufficient funds or to maintain a credit or to cover
Bouncing Checks law.12 the full amount of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is dishonored by the
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and drawee bank.
decisive the following issues:
Where the check is drawn by a corporation, company or entity, the person or
1. Whether respondent court erred in holding that the subject check was issued by petitioner persons who actually signed the check in behalf of such drawer shall be
to apply on account or for value, that is, as part of the consideration of a "buy-out" of said liable under this Act.
complainant's interest in the partnership, and not merely as a commitment on petitioner's
part to return the investment share of complainant, along with any profit pertaining to said Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing
share, in the partnership. and issuance of a check payment of which is refused by the drawee because
of insufficient funds in or credit with such bank, when presented within
2. Whether the respondent court erred in concluding that petitioner issued the subject check ninety (90) days from the date of the check, shall be prima facie evidence of
knowing at the time of issue that she did not have sufficient funds in or credit with the knowledge of such insufficiency of funds or credit unless such maker or
drawee bank and without communicating this fact of insufficiency of funds to the drawer pays the holder thereof the amount due thereon or makes
complainant. arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the drawee. (Emphasis supplied)
trial court's judgment that she violated Batas Pambansa Blg. 22?
As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows:
Considering that penal statutes are strictly construed against the state and liberally in favor "(1) the making, drawing and issuance of any check to apply to account or for value; (2) the
of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must knowledge of the maker, drawer or issuer that at the time of issue he does not have
come clearly within both the spirit and the letter of the statue. 13 Otherwise, the act has to sufficient funds in or credit with the drawee bank for the payment of such check in full upon
be declared outside the law's ambit and a plea of innocence by the accused must be its presentment; and (3) subsequent dishonor of the check by the drawee bank for
sustained. insufficiency of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment. 14
The relevant provisions of B.P. 22 state that:
In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by the
Sec. 1. Checks without sufficient funds. Any person who makes or draws
partnership, and only when such collection and sale were realized. 15 Thus, there is sufficient
and issues any check to apply on account or for value, knowing at the time
basis for the assertion that the petitioner issued the subject check (Metrobank Check No.
of issue that he does not have sufficient funds in or credit with the drawee
103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence only
bank for the payment of such check in full upon its presentment , which
complainant's share or interest in the partnership, or at best, to show her commitment that Termination is the point in time after all the partnership affairs have been wound
when receivables are collected and goods are sold, she would give to private complainant the up. 16 [Citation omitted] (Emphasis supplied).
net amount due him representing his interest in the partnership. It did not involve a debt of
or any account due and payable by the petitioner. These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Two facts stand out. Firstly, three of four checks were properly encashed by complainant;
only one (the third) was not. But eventually even this one was redeemed by petitioner. Art 1828. The dissolution of a partnership is the change in the relation of the
Secondly, even private complainant admitted that there was no consideration whatsoever for partners caused by any partner ceasing to be associated in the carrying on
the issuance of the check, whose funding was dependent on future sales of goods and as distinguished from the winding up of the business.
receipts of payment of account receivables.
Art. 1829. On dissolution the partnership is not terminated, but continues
Now, it could not be denied that though the parties petitioner and complainant had until the winding up of partnership affairs is completed. (Emphasis supplied.)
agreed to dissolve the partnership, such ageement did not automatically put an end to the
partnership, since they still had to sell the goods on hand and collect the receivables from The best evidence of the existence of the partnership, which was not yet terminated (though
debtors. In short, they were still in the process of "winding up" the affairs of the partnership, in the winding up stage), were the unsold goods and uncollected receivables, which were
when the check in question was issued. presented to the trial court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. The check was thus issued by the
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding- petitioner to complainant, as would a partner to another, and not as payment from a debtor
up; and (3) termination. These stages are distinguished, to wit: to a creditor.

(1) Dissolution Defined The more tenable view, one in favor of the accused, is that the check was issued merely to
evidence the complainant's share in the partnership property, or to assure the latter that he
Dissolution is the change in the relation of would receive in time his due share therein. The alternative view that the check was in
the partners caused by any partner ceasing consideration of a "buy out" is but a theory, favorable to the complainant, but lacking
to be associated in the carrying on of the support in the record; and must necessarily be discarded.
business (Art. 1828). It is that point of time
the time the partners cease to carry on the For there is nothing on record which even slightly suggest that petitioner ever became
business tonether. (Citation omitted). interested in acquiring, much less keeping, the shares of the complainant. What is very clear
therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to
(2) Winding Up Defined collect the receivables of the partnership, in order to come up with the amount necessary to
satisfy the value of complainant's interest in the partnership at the dissolution thereof. To go
Winding up is the process of settling by accepted custom of the trade, we are more inclined to the view that the subject check
business affairs of dissolution. was issued merely to evidence complainant's interest in the partnership. Thus, we are
persuaded that the check was not intended to apply on account or for value; rather it should
(NOTE: Examples of winding up: the paying be deemed as having been drawn without consideration at the time of issue.
of previous obligations; the collecting of
assets previously demandable; even new Absent the first element of the offense penalized under B.P. 22, which is "the making,
business if needed to wind up, as the drawing and issuance of any check to apply on account or for value", petitioner's issuance of
contracting with a demolition company for the subject check was not an act contemplated in nor made punishable by said statute.
the demolition of the garage used in a "used
car" partnership.) As to the second issue, the Solicitor General contends that under the Bouncing Checks Law,
the elements of deceit and damage are not essential or required to constitute a violation
(3) Termination Defined thereof. In his view, the only essential element is the knowledge on the part of the maker or
drawer of the check of the insufficiency of his/her funds at the time of the issuance of said charged is a malum prohibitum, the prosecution is not thereby excused from
check. its responsibility of proving beyond reasonable doubt all the elements of the
offense, one of which is knowledge of the insufficiency of funds.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special
offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the
offense being malum check, be shown that he knows at the time of issue, that he does not have sufficient funds in
prohibitum," 17 so goes the argument for the public respondents. or credit with the drawee bank for the payment of such check in full upon its presentment.

But of course this could not be an absolute proposition without descending to absurdity. For In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to proportionate share of complainant in the partnership assets upon its dissolution. Payment of
hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go that share in the partnership was conditioned on the subsequent realization of profits from
against public policy and common sense. the unsold goods and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually "encash" the check. The
Public respondents further contend that "since petitioner issued the check in favor of reason for the condition is that petitioner has no independent means to satisfy or discharge
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed the complainant's share, other than by the future sale and collection of the partnership
to make good the check, then petitioner is liable for violation of B.P. 22. 18 Again, this matter assets. Thus, prior to the selling of the goods and collecting of the receivables, the
could not be all that simple. For while "the maker's knowledge of the insufficiency of funds is complainant could not, as of yet, demand his proportionate share in the business. This
legally presumed from the dishonor of his checks for insufficiency of funds, 19 this situation would hold true until after the winding up, and subsequent termination of the
presumption is rebuttable. partnership. For only then, when the goods were already sold and receivables paid that cash
money could be availed of by the erstwhile partners.
In the instant case, there is only a prima facie presumption which did not preclude the
presentation of contrary evidence.20 In fact, such contrary evidence on two points could be Complainant did not present any evidence that petitioner signed and issued four checks
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds; actually knowing that funds therefor would be insufficient at the time complainant would
and (2) lack of adequate notice of dishonor. present them to the drawee bank. For it was uncertain at the time of issuance of the checks
whether the unsold goods would have been sold, or whether the receivables would have
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank been collected by the time the checks would be encashed. As it turned out, three were fully
for the payment of a check upon its presentment is an essential element of the offense. 21 It funded when presented to the bank; the remaining one was settled only later on.
must be proved, particularly where the prima facie presumption of the existence of this
element has been rebutted. The prima facie presumption arising from the fact of drawing, Since petitioner issued these four checks without actual knowledge of the insufficiency of
issuing or making a check, the payment of which was subsequently refused for insufficiency funds, she could not be held liable under B.P. 22 when one was not honored right away. For
of funds is, moreover, not sufficient proof of guilt by the issuer. it is basic doctrine that penal statutes such as B.P. 22 "must be construed with such
strictness as to carefully safeguard the rights of the defendant . . ."24 The element of
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof,
subject check issued by accused merely engendered the prima facie presumption that she petitioner could not be held criminally liable under that law. Moreover, the presumption
knew of the insufficiency of funds, but did not render the accused automatically guilty under of prima facie knowledge of such insufficiency in this case was actually rebutted by
B.P. 22.23 petitioner's evidence.

The prosecution has a duty to prove all the elements of the crime, including Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
the acts that give rise to the prima facie presumption; petitioner, on the subject check on petitioner's part, thus precluding any finding of prima facie evidence of
other hand, has a right to rebut the prima faciepresumption. Therefore, if knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
such knowledge of insufficiency of funds is proven to be actually absent or sent by the complainant or by the drawee bank to the petitioner. On this point, the record is
non-existent, the accused should not be held liable for the offense defined bereft of evidence to the contrary.
under the first paragraph of Section 1 of B.P. 22. Although the offense
But in fact, while the subject check initially bounced, it was later made good by petitioner. In In the instant case, petitioner intimated to private complainant the possibility that funds
addition, the terms of the parties' compromise agreement, entered into during the pendency might be insufficient to cover the subject check, due to the fact that the partnership's goods
of this case, effectively invalidates the allegation of failure to pay or to make arrangement for were yet to be sold and receivables yet to be collected.
the payment of the check in full. Verily, said compromise agreement constitutes an
arrangement for the payment in full of the subject check. As Magno had well observed:

The absence of notice of dishonor is crucial in the present case. As held by this Court in prior For all intents and purposes, the law was devised to safeguard the interest of
cases: the banking system and the legitimate public checking account user. It did
not intend to shelter or favor nor encourage users of the system to enrich
Because no notice of dishonor was actually sent to and received by the themselves through manipulations and circumvention of the noble purpose
petitioner, the prima faciepresumption that she knew about the insufficiency and objective of the law. Least should it be used also as a means of
of funds cannot apply. Section 2 of B.P. 22 clearly provides that this jeopardizing honest-to-goodness transactions with some color of "get-rich"
presumption arises not from the mere fact of drawing, making and issuing a scheme to the prejudice of well-meaning businessmen who are the pillars of
bum check; there must also be a showing that, within five banking days from society.
receipt of the notice of dishonor, such maker or drawer failed to pay the
holder of the check the amount due thereon or to make arrangement for its xxx xxx xxx
payment in full by the drawee of such check. 25 [Emphasis supplied.]
Thus, it behooves upon a court of law that in applying the punishment
The absence of a notice of dishonor necessarily deprives an accused an imposed upon the accused, the objective of retribution of a wronged society,
opportunity to preclude a criminal prosecution. Accordingly, procedural due should be directed against the "actual and potential wrongdoers". In the
process clearly enjoins that a notice of dishonor be actually served on instant case, there is no doubt that petitioner's four (4) checks were used to
petitioner. Petitioner has a right to demand and the basic postulates of collateralize an accommodation, and not to cover the receipt of an actual
fairness require that the notice of dishonor be actually sent to and "account or credit for value" as this was absent, and therefore petitioner
received by her to afford her the opportunity to avert prosecution under should not be punished for mere issuance of the checks in question.
B.P. 26 Following the aforecited theory, in petitioner's stead the "potential
wrongdoer," whose operation could be a menace to society, should not be
Further, what militates strongly against public respondents' stand is the fact that petitioner glorified by convicting the petitioner. 28
repeatedly notified the complainant of the insufficiency of funds. Instructive is the following
pronouncement of this Court in Magno v. Court of Appeals: Under the circumstances obtaining in this case, we find the petitioner to have issued the
check in good faith, with every intention of abiding by her commitment to return, as soon as
Furthermore, the element of "knowing at the time of issue that he does not able, the investments of complainant in the partnership. Evidently, petitioner issued the
have sufficient funds in or credit with the drawee bank for the payment of check with benign considerations in mind, and not for the purpose of committing fraud,
such check in full upon its presentment, which check is subsequently deceit, or violating public policy.
dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason . . ." is inversely applied in this To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
case. From the very beginning. petitioner never hid the fact that he did not for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn
have the funds with which to put up the warranty deposit and as a matter of and issued by petitioner in exchange for value received as to qualify it as a check on account
fact, he openly intimated this to the vital conduit of the transaction, Joey or for value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of
Gomez, to whom petitioner was introduced by Mrs. Teng. It would have the check, had actual knowledge of the insufficiency of funds; and (3) there was no notice of
been different if this predicament was not communicated to all the parties he dishonor of said check actually served on petitioner, thereby depriving her of the opportunity
dealt with regarding the lease agreement the financing or which was covered to pay or make arrangements for the payment of the check, to avoid criminal prosecution.
by L.S. Finance Management. " 27
Having resolved the foregoing principal issues, and finding the petition meritorious, we no of gains and approving a regime of separation of properties based on the Memorandum of
longer need to pass upon the validity and legality or necessity of the purported compromise Agreement executed by the spouses.9 The trial court also granted custody of the children to
agreement on civil liability between the petitioner and the complainant. Filipina. 10

WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. In May 1988, Filipina filed a criminal action for attempted parricide against her husband,
The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby docketed as Criminal Case No. 88-68006, before the Regional Trial Court of Manila. Filipina
REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby testified that in the afternoon of May 15, 1988, she went to the dental clinic at Masangkay,
SET ASIDE. Tondo, Manila, owned by her husband but operated by his mistress, to fetch her son and
bring him to San Fernando, Pampanga. While she was talking to her son, the boy ignored her
NO COSTS. and continued playing with the family computer. Filipina got mad, took the computer away
from her son, and started spanking him. At that instance, Fernando pulled Filipina away from
SO ORDERED. their son, and punched her in the different parts of her body. Filipina also claimed that her
husband started choking her when she fell on the floor, and released her only when he
thought she was dead. Filipina suffered from hematoma and contusions on different parts of
20. FILIPINA Y. SY, petitioner, vs.THE HONORABLE COURT OF APPEALS, THE her body as a result of the blows inflicted by her husband, evidenced by a Medical Certificate
HONORABLE REGIONAL TRIAL COURT, SAN FERNANDO, PAMPANGA, BRANCH issued by a certain Dr. James Ferraren. She said it was not the first time Fernando
XLI, and FERNANDO SY, respondents. maltreated her. 11

For review is the decision1 dated May 21, 1996 of the Court of Appeals in CA-G.R. CV No. The Regional Trial Court of Manila, however, in its decision 12 dated April 26, 1990, convicted
44144, which affirmedthe decision2 of the Regional Trial Court of San Fernando, Pampanga, Fernando only of the lesser crime of slight physical injuries, and sentenced him to 20 days
denying the petition3 for declaration of absolute nullity of marriage of the spouses Filipina Sy imprisonment.
and Fernando Sy.
Petitioner later filed a new action for legal separation against private respondent, docketed as
Petitioner Filipina Y. Sy and private respondent Fernando Sy contracted marriage on Civil Case No. 8273, on the following grounds: (1) repeated physical violence; (2) sexual
November 15, 1973 at the Church of Our Lady of Lourdes in Quezon City. 4 Both were then infidelity; (3) attempt by respondent against her life; and (4) abandonment of her by her
22 years old. Their union was blessed with two children, Frederick and Farrah Sheryll who husband without justifiable cause for more than one year. The Regional Trial Court of San
were born on July 8, 1975 and February 14, 1978, respectively. 5 Fernando, Pampanga, in its decision 13 dated December 4, 1991, granted the petition on the
grounds of repeated physical violence and sexual infidelity, and issued a decree of legal
The spouses first established their residence in Singalong, Manila, then in Apalit, Pampanga, separation. It awarded custody of their daughter Farrah Sheryll to petitioner, and their son
and later at San Matias, Sto. Tomas, Pampanga. They operated a lumber and hardware Frederick to respondent.
business in Sto. Tomas, Pampanga.6
On August 4, 1992, Filipina filed a petition 14 for the declaration of absolute nullity of her
On September 15, 1983, Fernando left their conjugal dwelling. Since then, the spouses lived marriage to Fernando on the ground of psychological incapacity. She points out that the final
separately, and their two children were in the custody of their mother. However, their son judgment rendered by the Regional Trial Court in her favor, in her petitions for separation of
Frederick transferred to his father's residence at Masangkay, Tondo, Manila on May 15, 1988, property and legal separation, and Fernando's infliction of physical violence on her which led
and from then on, lived with his father.7 to the conviction of her husband for slight physical injuries are symptoms of psychological
incapacity. She also cites as manifestations of her husband's psychological incapacity the
On February 11, 1987, Filipina filed a petition for legal separation, docketed as Civil Case No. following: (1) habitual alcoholism; (2) refusal to live with her without fault on her part,
7900 before the Regional Trial Court of San Fernando, Pampanga. Later, upon motion of choosing to live with his mistress instead; and (3) refusal to have sex with her, performing
petitioner, the action was later amended to a petition for separation of property on the the marital act only to satisfy himself. Moreover, Filipina alleges that such psychological
grounds that her husband abandoned her without just cause; that they have been living incapacity of her husband existed from the time of the celebration of their marriage and
separately for more than one year; and that they voluntarily entered into a Memorandum of became manifest thereafter. 15
Agreement dated September 29, 1983, containing the rules that would govern the dissolution
of their conjugal partnership.8 Judgment was rendered dissolving their conjugal partnership
The Regional Trial Court of San Fernando, Pampanga, in its decision 16 dated December 9, THAT RECONCILIATION BETWEEN THE PARTIES IS NOT A REMOTE POSSIBILITY
1993, denied the petition of Filipina Sy for the declaration of absolute nullity of her marriage WHICH IS ERRONEOUS; AND
to Fernando. It stated that the alleged acts of the respondent, as cited by petitioner, do not
constitute psychological incapacity which may warrant the declaration of absolute nullity of 5. WHETHER OR NOT THE CASE OF SANTOS V. COURT OF APPEALS (240 SCRA 20)
their marriage. IS APPLICABLE HERETO. 22

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court. In In sum, two issues are to be resolved:
the decision 17 of the Court of Appeals dated May 21, 1996, it ruled that the testimony of
petitioner concerning respondent's purported psychological incapacity falls short of the 1. Whether or not the marriage between petitioner and private respondent is void from the
quantum of evidence required to nullify a marriage celebrated with all the formal and beginning for lack of a marriage license at the time of the ceremony; and
essential requisites of law. Moreover, the Court of Appeals held that petitioner failed to show
that the alleged psychological incapacity of respondent had existed at the time of the
2. Whether or not private respondent is psychologically incapacitated at the time of said
celebration of their marriage in 1973. It reiterated the finding of the trial court that the
marriage celebration to warrant a declaration of its absolute nullity.
couple's marital problems surfaced only in 1983, or almost ten years from the date of the
celebration of their marriage. And prior to their separation in 1983, they were living together
harmoniously. Thus, the Court of Appeals affirmed the judgment of the lower court which it Petitioner, for the first time, raises the issue of the marriage being void for lack of a valid
found to be in accordance with law and the evidence on record. 18 marriage license at the time of its celebration. It appears that, according to her, the date of
the actual celebration of their marriage and the date of issuance of their marriage certificate
and marriage license are different and incongruous.
Petitioner filed a motion for reconsideration, 19
which the Court of Appeals denied in its
resolution dated November 21, 1996. 20
Although we have repeatedly ruled that litigants cannot raise an issue for the first time on
appeal, as this would contravene the basic rules of fair play and justice, 23 in a number of
Hence, this appeal by certiorari 21
wherein petitioner now raises the following issues:
instances, we have relaxed observance of procedural rules, noting that technicalities are not
ends in themselves but exist to protect and promote substantive rights of litigants. We said
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS MANIFESTLY that certain rules ought not to be applied with severity and rigidity if by so doing, the very
OVERLOOKED THE FACT THAT ON THE DATE OF THE CELEBRATION OF THE reason for their existence would be defeated. 24 Hence, when substantial justice plainly
PARTIES' MARRIAGE ON NOVEMBER 15, 1973, NOT DISPUTED BY RESPONDENT requires, exempting a particular case from the operation of technicalities should not be
FERNANDO, THERE WAS NO MARRIAGE LICENSE THERETO; subject to cavil. 25 In our view, the case at bar requires that we address the issue of the
validity of the marriage between Filipina and Fernando which petitioner claims is void from
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED the beginning for lack of a marriage license, in order to arrive at a just resolution of a deeply
MISAPPREHENSION OF FACTS BY STATING THAT THE GROUNDS RELIED UPON BY seated and violent conflict between the parties. Note, however, that here the pertinent facts
APPELLANT [herein petitioner] DO NOT CONSTITUTE PSYCHOLOGICAL INCAPACITY are not disputed; and what is required now is a declaration of their effects according to
Petitioner states that though she did not categorically state in her petition for annulment of
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED marriage before the trial court that the incongruity in the dates of the marriage license and
MISAPPREHENSION OF FACTS BY STATING THAT APPELLANT FAILED TO SHOW the celebration of the marriage itself would lead to the conclusion that her marriage to
THAT THE ALLEGED UNDESIRABLE ACTUATIONS OF APPELLEE HAD EXISTED OR Fernando was void from the beginning, she points out that these critical dates were
WERE PRESENT AT THE TIME THEIR MARRIAGE WAS CELEBRATED IN 1973; contained in the documents she submitted before the court. The date of issue of the
marriage license and marriage certificate, September 17, 1974, is contained in their marriage
4. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE contract which was attached as Annex "A" in her petition for declaration of absolute nullity of
ABUSE OF DISCRETION IN AFFIRMING THE ERRONEOUS RULING OF THE LOWER marriage before the trial court, and thereafter marked as Exhibit "A" in the course of the
COURT THAT THERE IS A REDEEMING ATTITUDE SHOWN TO THE COURT BY trial. 26 The date of celebration of their marriage at Our Lady of Lourdes, Sta. Teresita Parish,
RESPONDENT FERNANDO WITH RESPECT TO HIS CHILDREN AND ALSO BELIEVES on November 15, 1973, is admitted both by petitioner and private respondent, as stated in
paragraph three of petitioner's petition for the declaration of absolute nullity of marriage The remaining issue on the psychological incapacity of private respondent need no longer
before the trial court, and private respondent's answer admitting it. 27 This fact was also detain us. It is mooted by our conclusion that the marriage of petitioner to respondent is
affirmed by petitioner, in open court, on January 22, 1993, during her direct void ab initio for lack of a marriage license at the time their marriage was solemnized.
examination, 28 as follows:
WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of San
ATTY. RAZON: In the last hearing, you said that you were married on November 15, Fernando, Pampanga, dated December 9, 1993 as well as the Decision promulgated on May
1973? 21, 1996 by the Court of Appeals and its Resolution dated November 21, 1996 in CA-G.R. No.
44144 are set aside. The marriage celebrated on November 15, 1973 between petitioner
FILIPINA SY: Yes, Sir. Filipina Yap and private respondent Fernando Sy is hereby declared void ab initio for lack of a
marriage license at the time of celebration. No pronouncement as to costs.
November 15, 1973, also appears as the date of marriage of the parents in both their son's
and daughter's birth certificates, which are also attached as Annexes "B" and "C" in the SO ORDERED.
petition for declaration of absolute nullity of marriage before the trial court, and thereafter
marked as Exhibits "B" and "C" in the course of the trial. 29 These pieces of evidence on 21. LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T.
record plainly and indubitably show that on the day of the marriage ceremony, there was no CHUA, respondent.
marriage license. A marriage license is a formal requirement; its absence renders the
marriage void ab initio. In addition, the marriage contract shows that the marriage license, Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
numbered 6237519, was issued in Carmona, Cavite, yet, neither petitioner nor private Decision[1] of the Court of Appeals dated January 31, 2000 in the case entitled Lamberto T.
respondent ever resided in Carmona. 30 Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000
Carefully reviewing the documents and the pleadings on record, we find that indeed denying the motion for reconsideration of herein petitioners Lilibeth Sunga Chan and Cecilia
petitioner did not expressly state in her petition before the trial court that there was Sunga (hereafter collectively referred to as petitioners).
incongruity between the date of the actual celebration of their marriage and the date of the
issuance of their marriage license. From the documents she presented, the marriage license The pertinent facts of this case are as follows:
was issued on September 17, 1974, almost one year after the ceremony took place on
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against
November 15, 1973. The ineluctable conclusion is that the marriage was indeed contracted
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
without a marriage license. Nowhere do we find private respondent denying these dates on
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto),
record. Article 80 of the Civil Code 31 is clearly applicable in this case. There being no claim of
for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
an exceptional character, the purported marriage between petitioner and private respondent
Damages with Writ of Preliminary Attachment with the Regional Trial Court, Branch 11,
could not be classified among those enumerated in Articles 72-79 32 of the Civil Code. We
Sindangan, Zamboanga del Norte.
thus conclude that under Article 80 of the Civil Code, the marriage between petitioner and
private respondent is void from the beginning. Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
We note that their marriage certificate and marriage license are only photocopies. So are the convenience, respondent and Jacinto allegedly agreed to register the business name of their
birth certificates of their son Frederick and daughter Farrah Sheryll. Nevertheless, these partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of
documents were marked as Exhibits during the course of the trial below, which shows that Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution
these have been examined and admitted by the trial court, with no objections having been of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his counterpart
made as to their authenticity and due execution. Likewise, no objection was interposed to contribution, with the intention that the profits would be equally divided between them. The
petitioner's testimony in open court when she affirmed that the date of the actual celebration partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter
of their marriage was on November 15, 1973. We are of the view, therefore, that having Josephine), a sister of the wife of respondent, Erlinda Sy. As compensation, Jacinto would
been admitted in evidence, with the adverse party failing to timely object thereto, these receive a managers fee or remuneration of 10% of the gross profit and Josephine would
documents are deemed sufficient proof of the facts contained therein. 33 receive 10% of the net profits, in addition to her wages and other remuneration from the
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business On August 16, 1993, the trial court denied the second motion to dismiss for lack of
operation went quite well and was profitable. Respondent claimed that he could attest to the merit.
success of their business because of the volume of orders and deliveries of filled Shellane
cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and
respondent with the merchandise inventories, balance sheets and net worth of Shellite from Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the
1977 to 1989, respondent however suspected that the amount indicated in these documents denial of the motion to dismiss.
were understated and undervalued by Jacinto and Josephine for their own selfish reasons On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-
and for tax avoidance. trial Conference.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and On December 13, 1993, the trial court granted the motion to suspend pre-trial
particularly his daughter, petitioner Lilibeth, took over the operations, control, custody, conference.
disposition and management of Shellite without respondents consent.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
Despite respondents repeated demands upon petitioners for accounting, inventory,
appraisal, winding up and restitution of his net shares in the partnership, petitioners failed to On January 16, 1995, this Court denied the petition for review on certiorari filed by
comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her petitioner, as petitioners failed to show that a reversible error was committed by the
own use and advantage its properties. appellate court."[2]

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis On February 20, 1995, entry of judgment was made by the Clerk of Court and the case
and reasons to evade respondents demands, she disbursed out of the partnership funds the was remanded to the trial court on April 26, 1995.
amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth On September 25, 1995, the trial court terminated the pre-trial conference and set the
allegedly informed respondent that the P200,000.00 represented partial payment of the hearing of the case on January 17, 1996. Respondent presented his evidence while
latters share in the partnership, with a promise that the former would make the complete petitioners were considered to have waived their right to present evidence for their failure to
inventory and winding up of the properties of the business establishment. Despite such attend the scheduled date for reception of evidence despite notice.
commitment, petitioners allegedly failed to comply with their duty to account, and continued
to benefit from the assets and income of Shellite to the damage and prejudice of respondent. On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive portion of the Decision reads:
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
Zambaonga del Norte had jurisdiction over the action. Respondent opposed the motion to
defendants, as follows:
On January 12, 1993, the trial court finding the complaint sufficient in form and (1) DIRECTING them to render an accounting in acceptable form under accounting
substance denied the motion to dismiss. procedures and standards of the properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga, from whom they continued the
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims,
business operations including all businesses derived from the Shellite Gas Appliance Center;
contending that they are not liable for partnership shares, unreceived income/profits,
submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the
interests, damages and attorneys fees, that respondent does not have a cause of action
Court and to plaintiff for approval or disapproval;
against them, and that the trial court has no jurisdiction over the nature of the action, the
SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorneys fees and expenses of litigation. (2) ORDERING them to return and restitute to the partnership any and all properties, assets,
income and profits they misapplied and converted to their own use and advantage that
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on
that the claim for winding up of partnership affairs, accounting and recovery of shares in pages 4-5 of this petition as basis;
partnership affairs, accounting and recovery of shares in partnership assets /properties
should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding.
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in 2. The Court of Appeals erred in making the legal conclusion that laches and/or
the partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on prescription did not apply in the instant case.
pages 4-5 of the petition;
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership, and
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the
assuming arguendo that indeed there was a partnership, the finding of highly
partnership from 1988 to may 30, 1992, when the plaintiff learned of the closure of the store
exaggerated amounts or values in the partnership assets and profits.[5]
the sum of P35,000.00 per month, with legal rate of interest until fully paid;
Petitioners question the correctness of the finding of the trial court and the Court of
(5) ORDERING them to wind up the affairs of the partnership and terminate its business Appeals that a partnership existed between respondent and Jacinto from 1977 until Jacintos
activities pursuant to law, after delivering to the plaintiff all the interest, shares, participation death. In the absence of any written document to show such partnership between
and equity in the partnership, or the value thereof in money or moneys worth, if the respondent and Jacinto, petitioners argue that these courts were proscribed from hearing the
properties are not physically divisible; testimonies of respondent and his witness, Josephine, to prove the alleged partnership three
years after Jacintos death. To support this argument, petitioners invoke the Dead Mans
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court that provides:
and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary
damages; and, SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or
assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and executor or administrator or other representative of a deceased person, or against a person
P25,00.00 as litigation expenses. of unsound mind, upon a claim or demand against the estate of such deceased person, or
against such person of unsound mind, cannot testify as to any matter of fact occurring
before the death of such deceased person or before such person became of unsound mind.
NO special pronouncements as to COSTS.

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter
ego, Josephine, should not have been admitted to prove certain claims against a deceased
person (Jacinto), now represented by petitioners.
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing
the case to the Court of Appeals. We are not persuaded.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion A partnership may be constituted in any form, except where immovable property or real
of the Decision reads: rights are contributed thereto, in which case a public instrument shall be necessary. [6] Hence,
based on the intention of the parties, as gathered from the facts and ascertained from their
WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all language and conduct, a verbal contract of partnership may arise. [7] The essential points that
respects.[4] must be proven to show that a partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. [8] Understandably so, in view of the
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by absence of a written contract of partnership between respondent and Jacinto, respondent
petitioner. resorted to the introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is whether or not the Dead Mans Statute applies
Hence, this petition wherein petitioner relies upon the following grounds: to this case so as to render inadmissible respondents testimony and that of his witness,
1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L. The Dead Mans Statute provides that if one party to the alleged transaction is precluded
Sunga upon the latters invitation and offer and that upon his death the from testifying by death, insanity, or other mental disabilities, the surviving party is not
partnership assets and business were taken over by petitioners. entitled to the undue advantage of giving his own uncontradicted and unexplained account of
the transaction.[9] But before this rule can be successfully invoked to bar the introduction of
testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or persons in whose considered the evidence for respondent as sufficient to prove the formation of a partnership,
behalf a case is prosecuted. albeit an informal one.
2. The action is against an executor or administrator or other representative of a Notably, petitioners did not present any evidence in their favor during trial. By the
deceased person or a person of unsound mind; weight of judicial precedents, a factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be inquired into by this Court on
3. The subject-matter of the action is a claim or demand against the estate of such review.[17] This Court can no longer be tasked to go over the proofs presented by the parties
deceased person or against person of unsound mind; and analyze, assess and weigh them to ascertain if the trial court and the appellate court
4. His testimony refers to any matter of fact which occurred before the death of were correct in according superior credit to this or that piece of evidence of one party or the
such deceased person or before such person became of unsound mind.[10] other.[18] It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the
Two reasons forestall the application of the Dead Mans Statute to this case. admissibility and authenticity of the documentary evidence of respondent when petitioners
First, petitioners filed a compulsory counterclaim[11] against respondent in their answer failed to object to the admissibility of the evidence at the time that such evidence was
before the trial court, and with the filing of their counterclaim, petitioners themselves offered.[19]
effectively removed this case from the ambit of the Dead Mans Statute. [12] Well entrenched is With regard to petitioners insistence that laches and/or prescription should have
the rule that when it is the executor or administrator or representatives of the estate that extinguished respondents claim, we agree with the trial court and the Court of Appeals that
sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the action for accounting filed by respondent three (3) years after Jacintos death was well
the death of the deceased to defeat the counterclaim. [13] Moreover, as defendant in the within the prescribed period. The Civil Code provides that an action to enforce an oral
counterclaim, respondent is not disqualified from testifying as to matters of fact occurring contract prescribes in six (6) years[20] while the right to demand an accounting for a partners
before the death of the deceased, said action not having been brought against but by the interest as against the person continuing the business accrues at the date of dissolution, in
estate or representatives of the deceased.[14] the absence of any contrary agreement.[21] Considering that the death of a partner results in
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the the dissolution of the partnership[22], in this case, it was after Jacintos death that respondent
simple reason that she is not a party or assignor of a party to a case or persons in whose as the surviving partner had the right to an account of his interest as against petitioners. It
behalf a case is prosecuted.Records show that respondent offered the testimony of Josephine bears stressing that while Jacintos death dissolved the partnership, the dissolution did not
to establish the existence of the partnership between respondent and Jacinto. Petitioners immediately terminate the partnership. The Civil Code[23] expressly provides that upon
insistence that Josephine is the alter ego of respondent does not make her an assignor dissolution, the partnership continues and its legal personality is retained until the complete
because the term assignor of a party means assignor of a cause of action which has arisen, winding up of its business, culminating in its termination.[24]
and not the assignor of a right assigned before any cause of action has arisen.[15] Plainly In a desperate bid to cast doubt on the validity of the oral partnership between
then, Josephine is merely a witness of respondent, the latter being the party plaintiff. respondent and Jacinto, petitioners maintain that said partnership that had an initial capital
We are not convinced by petitioners allegation that Josephines testimony lacks probative of P200,000.00 should have been registered with the Securities and Exchange Commission
value because she was allegedly coerced by respondent, her brother-in-law, to testify in his (SEC) since registration is mandated by the Civil Code. True, Article 1772 of the Civil Code
favor. Josephine merely declared in court that she was requested by respondent to testify requires that partnerships with a capital of P3,000.00 or more must register with the SEC,
and that if she were not requested to do so she would not have testified. We fail to see how however, this registration requirement is not mandatory. Article 1768 of the Civil
we can conclude from this candid admission that Josephines testimony is involuntary when Code[25] explicitly provides that the partnership retains its juridical personality even if it fails
she did not in any way categorically say that she was forced to be a witness of to register. The failure to register the contract of partnership does not invalidate the same as
respondent. Also, the fact that Josephine is the sister of the wife of respondent does not among the partners, so long as the contract has the essential requisites, because the main
diminish the value of her testimony since relationship per se, without more, does not affect purpose of registration is to give notice to third parties, and it can be assumed that the
the credibility of witnesses.[16] members themselves knew of the contents of their contract. [26] In the case at bar, non-
compliance with this directory provision of the law will not invalidate the partnership
Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot considering that the totality of the evidence proves that respondent and Jacinto indeed
prevail over the factual findings of the trial court and the Court of Appeals that a partnership forged the partnership in question.
was established between respondent and Jacinto. Based not only on the testimonial
evidence, but the documentary evidence as well, the trial court and the Court of Appeals WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
SO ORDERED. 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
22. 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
23. JOSE MACHUCA, plaintiff-appellee, vs.CHUIDIAN, BUENAVENTURA & partnership, . . . the assignee, being expressly empowered to do in his own name, and as a
CO., defendants-appellants. 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
Most of the allegations of the complaint were admitted by the defendant at the hearing, and
assignor, it being understood that D. Jose Gervasio Garcia is to receive the 25 per cent
the judgment of the court below is based on the state of facts appearing from such
assigned to him, in the same form in which it may be obtained from said partnership,
admissions, no evidence having been taken.
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
The defendants are a regular general partnership, organized in Manila, December 29, 1882, order to satisfy the credits and the share in the partnership capital hereinbefore mentioned."
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
The plaintiff claims under Garcia by virtue of a subsequent assignment, which has been
Candelaria Chuidian, and D. Mariano Buenaventura. The capital was fixed in the partnership
notified to the liquidator of 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 The liquidator of the partnership having declined to record in the books of the partnership
stock." 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.
In addition to the amounts contributed by the partners to the capital, it appears from the
Vicente Buenaventura's share in his father's account-current, as ascertained when the record
partnership agreement that each one of them had advanced money to the preexisting
was made in the books of the partnership upon the partition of the latters estate, with
partnership, which advances were assumed or accounts-current aggregated something over
interest, less the liability to which the plaintiff is subject by reason of his share in the capital;
665,000 pesos, of which sum about 569,000 pesos represented the advances from the
that the necessary liquidation being first had, the partnership pay to the plaintiff the balance
Chuidians and the balance that balance that from D. Mariano Buenaventura.
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
Doa Raymunda Chuidian retired from the partnership November 4, 1885. On January 1, damages caused by reason of the failure of the liquidator to record his credit in the books of
1888, the partnership went into liquidation, and it does not appear that the liquidation had partnership.
been terminated when this action was brought.
The judgment of the court below goes beyond the relief asked by the plaintiff in the
Down to the time the partnership went into liquidation the accounts-current of D. Telesforo complaint, the plaintiff being held entitled not only to have the credit assigned him recorded
Chuidian and Doa Candelaria Chuidian had been diminished in an amount aggregating in the books of the partnership but also to receive forthwith 25 per cent of an amount
about 288,000 pesos, while that of D. Mariano Buenaventura had been increased about representing the share of D. Vicente Buenaventura in the account-current at the time of the
51,000 pesos. During the period from the commencement of the liquidation down to January partition of his father's estate, with interest, the payment of the 25 percent of
1, 1896, the account-current of each of the Chuidians had been still further decreased, while Buenaventura's share in the capital to be postponed till the termination of the liquidation.
that of D. Mariano Buenaventura had been still further increased. This point has not, however, been taken by counsel, and we have therefore considered the
case upon its merits.
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 underlying question in the case relates to the construction of clause 19 of the
the interest of D. Vicente Buenaventura in his father's account-current and in the capital was partnership agreement, by which it was stipulated that "upon the dissolution of the company,
ascertained and recorded in the books of the firm. 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) assignment does not purport to transfer an interest in the partnership, but only a future
should be paid." 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
Our construction of this clause is that it establishes a a basis for the final adjustment of the interest in the capital.
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 There is nothing in the case to show either that the nonpartner creditors of the partnership
what is due to the respective partners on account of their advances to the firm is to be paid have been paid or that the claims of the Chuidian minors have been satisfied. Such rights as
last of all, leaving the ultimate residue, of course, if there be any, to be distributed, among the plaintiff has acquired against the partnership under the assignment still remain,
the partners in the proportions in which they may be entitled thereto. 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
Although in a sense the partners, being at the same time creditors, were "outside parties," it exhausted in the payment of the creditors entitled to preference under the partnership
is clear that a distinction is made in this clause between creditors who were partners and agreement, thus extinguishing the plaintiff's right to receive anything from the liquidation.
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 It is contended by the plaintiff that, as the partnership was without authority to enter upon
obligations of every kind in favor of such outside parties, and do not refer merely, as claimed new mercantile operations after the liquidation commenced, the increase in D. Mariano
by counsel for the plaintiff, to the completion of mercantile operations unfinished at the time Buenaventura's account-current during that period was the result of a void transaction, and
of the dissolution of the partnership, such as consignments of goods and the like. As respects that therefore the plaintiff is entitled to withdraw at once the proportion of such increase to
the claims of the Chuidian minors, the suggestion of counsel is that the clause in question which he is entitled under the assignment. With reference to this contention, it is sufficient to
means that their accounts are to be adjusted before those of the partners but not paid first. say that it nowhere appears in the case that the increase in D. Mariano Buenaventura's
Such a provision would have been of no practical utility, and the language used that the account-current during the period of liquidation was the result of new advances to the firm,
funds should be "taken out" (se dedujeran) does not admit of such a construction. and the figures would appear to indicate that it resulted from the accumulation of interest.

Such being the basis upon which by agreement of the partners the assets of the partnership Counsel for the plaintiff have discussed at length in their brief the meaning of the clause in
are to be applied to the discharge of the various classes of the firm's liabilities, it follows that the partnership agreement limiting the liability of the partners to the amounts respectively
D. Vicente Buenaventura, whose rights are those of his father, is in no case entitled to brought into the partnership by them, and the effect of this stipulation upon their rights as
receive any part of the assets until the creditors who are nonpartners and the Chuidian creditors of the firm. These are questions which relate to the final adjustment of the affairs
minors are paid. Whatever rights he had either as creditor or partner, he could only transfer of the firm, the distribution of the assets remaining after all liabilities have been discharged,
subject to this condition. And it is clear, from the language of the instrument under which the or, on the other hand, the apportionment of the losses if the assets should not be sufficient
plaintiff claims, that this conditional interest was all that D. Vicente Buenaventura ever to meet the liabilities. They are in no way involved in the determination of the present case.
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 plaintiff having acquired no rights under the assignment which are now enforceable
the liquidation of the partnership," which Garcia is to receive "in the same form in which it against the defendant, this action can not be maintained. The liquidator of the defendant
may be obtained from said partnership," and "on the date when Messrs. Chuidian, having been notified of the assignment, the plaintiff will be entitled to receive from the assets
Buenaventura & Co., in liquidation, shall have effected the operations necessary in order to of the partnership, if any remain, at the termination of the liquidation, 25 per cent of D.
satisfy" the claims of D. Vicente Buenaventura. 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
Upon this interpretation of the assignment, it becomes unnecessary to inquire whether article of the same are finally wound up. The proper judgment will be that the action be dismissed.
143 of the Code of Commerce, prohibiting a partner from transferring his interest in the The judgment of the court below is reversed and the case is remanded to that court with
partnership without the consent of the other partners, applies to partnerships in liquidation, directions to enter a judgment of dismissal. So ordered.
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 24. LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO
distribute the assets, if there should be any, among the partners. Meanwhile the assignor, JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G.
Buenaventura, is to continue in the enjoyment of the rights and is to remain subject to the RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
liabilities of a partner as though no assignment had been made. In other words, the
PANGANIBAN, J.: On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of
the deterioration of the restaurant furniture and equipment stored in their house. She also
A share in a partnership can be returned only after the completion of the latters reiterated the request for the return of their one-third share in the equity of the
dissolution, liquidation and winding up of the business. partnership. The repeated oral and written requests were, however, left unheeded. [10]
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently
filed a Complaint[11] dated November 10, 1987, for the collection of a sum of money from
The Case petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to
The Petition for Review on Certiorari before us challenges the March 23, 2000 withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831
Decision[1] and the July 26, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV of the Civil Code; that respondents had been paid, upon the turnover to them of furniture
No. 41026.The assailed Decision disposed as follows: and equipment worth over P400,000; and that the latter had no right to demand a return of
their equity because their share, together with the rest of the capital of the partnership, had
WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by been spent as a result of irreversible business losses.[12]
the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in In their Reply, respondents alleged that they did not know of any loan encumbrance on
lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay the restaurant. According to them, if such allegation were true, then the loans incurred by
and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to petitioners should be regarded as purely personal and, as such, not chargeable to the
costs.[4] partnership. The former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business. Respondents also alleged
Reconsideration was denied in the impugned Resolution. that they expected the equipment and the furniture stored in their house to be removed by
petitioners as soon as the latter found a better location for the restaurant. [13]
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of
The Facts Restaurant Furniture and Equipment[14] on July 8, 1988. The furniture and the equipment
stored in their house were inventoried and appraised at P29,000.[15] The display freezer was
sold for P5,000 and the proceeds were paid to them.[16]
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering business After trial, the RTC[17] ruled that the parties had voluntarily entered into a partnership,
under the name Aquarius Food House and Catering Services.[5] Villareal was appointed which could be dissolved at any time. Petitioners clearly intended to dissolve it when they
general manager and Carmelito Jose, operations manager. stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held
them liable as follows:[18]
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September
5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.[6] WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the
[petitioners] ordering the [petitioners] to pay jointly and severally the following:
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution
of P250,000 was refunded to him in cash by agreement of the partners. [7] (a) Actual damages in the amount of P250,000.00
In the same month, without prior knowledge of respondents, petitioners closed down
the restaurant, allegedly because of increased rental. The restaurant furniture and equipment (b) Attorneys fee in the amount of P30,000.00
were deposited in the respondents house for storage.[8]
(c) Costs of suit.
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and that they
were accepting the latters offer to return their capital contribution. [9]
The CA Ruling
The CA held that, although respondents had no right to demand the return of their The Petition has merit.
capital contribution, the partnership was nonetheless dissolved when petitioners lost interest
in continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no sufficient First Issue:
evidence was presented to show financial losses, the CA computed their liability as follows: Share in Partnership

Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership before Both the trial and the appellate courts found that a partnership had indeed existed, and
[respondents] have joined the partnership but in accordance with Article 1826 of the New that it was dissolved on March 1, 1987. They found that the dissolution took place when
Civil Code, they are liable which must have to be deducted from the remaining capitalization respondents informed petitioners of the intention to discontinue it because of the formers
of the said partnership which is in the amount of P1,000,000.00 resulting in the amount dissatisfaction with, and loss of trust in, the latters management of the partnership
of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00 affairs. These findings were amply supported by the evidence on record. Respondents
must be divided into three (3) shares or in the amount of P253,114.00 for each share and consequently demanded from petitioners the return of their one-third equity in the
which is the only amount which [petitioner] will return to [respondents] representing the partnership.
contribution to the partnership minus the outstanding debt thereof. [19]
We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally hold its
Hence, this Petition. [20]
equity or assets. The partnership has a juridical personality separate and distinct from that of
each of the partners.[23] Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the retiring partners.[24]

In their Memorandum,[21] petitioners submit the following issues for our consideration: Second Issue:
What Must Be Returned?
9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, Since it is the partnership, as a separate and distinct entity, that must refund the shares
thereby treating the capital contribution like a loan, is in accordance with law and of the partners, the amount to be refunded is necessarily limited to its total resources. In
jurisprudence; other words, it can only pay out what it has in its coffers, which consists of all its
assets. However, before the partners can be paid their shares, the creditors of the
9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and partnership must first be compensated.[25] After all the creditors have been paid, whatever is
severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on left of the partnership assets becomes available for the payment of the partners shares.
record; and
Evidently, in the present case, the exact amount of refund equivalent to respondents
one-third share in the partnership cannot be determined until all the partnership assets will
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as
have been liquidated -- in other words, sold and converted to cash -- and all partnership
to costs.[22]
creditors, if any, paid. The CAs computation of the amount to be refunded to respondents as
their share was thus erroneous.
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latters share in the partnership; (2) whether the CAs computation First, it seems that the appellate court was under the misapprehension that the total
of P253,114 as respondents share is correct; and (3) whether the CA was likewise correct in capital contribution was equivalent to the gross assets to be distributed to the partners at the
not assessing costs. time of the dissolution of the partnership. We cannot sustain the underlying idea that the
capital contribution at the beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is speculative, conjectural and
This Courts Ruling totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by argue that the turnover of the remaining partnership assets to respondents was precisely the
profits earned or decreased by losses sustained. It does not remain static and unaffected by manner of liquidating the partnership and fully settling the latters share in the partnership.
the changing fortunes of the business. In the present case, the financial statements
presented before the trial court showed that the business had made meager We disagree. The delivery of the store furniture and equipment to private respondents
profits.[26] However, notable therefrom is the omission of any provision for the was for the purpose of storage. They were unaware that the restaurant would no longer be
depreciation[27] of the furniture and the equipment. The amortization of the reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored
goodwill[28] (initially valued at P500,000) is not reflected either.Properly taking these non- items to recover their capital investment.
cash items into account will show that the partnership was actually sustaining substantial
losses, which consequently decreased the capital of the partnership.Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to almost nil, but Third Issue:
the latter failed to recognize the consequent corresponding decrease of the capital. Costs
Second, the CAs finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary finding of the Section 1, Rule 142, provides:
RTC, which had rejected the contention that the obligation belonged to the partnership for
the following reason: SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as a matter of course, but the court shall have
x x x [E]vidence on record failed to show the exact loan owed by the partnership to its power, for special reasons, to adjudge that either party shall pay the costs of an action, or
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh. A) that the same be divided, as may be equitable. No costs shall be allowed against the
par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to Republic of the Philippines unless otherwise provided by law.
different creditors, while the Certification issued by Mercator Finance (Exh. 8) shows that it
was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party Although, as a rule, costs are adjudged against the losing party, courts have discretion,
defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the for special reasons, to decree otherwise. When a lower court is reversed, the higher court
original partnership was not yet formed. normally does not award costs, because the losing party relied on the lower courts judgment
which is presumed to have been issued in good faith, even if found later on to be
Third, the CA failed to reduce the capitalization by P250,000, which was the amount erroneous.Unless shown to be patently capricious, the award shall not be disturbed by a
paid by the partnership to Jesus Jose when he withdrew from the partnership. reviewing tribunal.
Because of the above-mentioned transactions, the partnership capital was actually WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET
reduced. When petitioners and respondents ventured into business together, they should ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the
have prepared for the fact that their investment would either grow or shrink. In the present liquidation and the distribution of the remaining partnership assets, if any. No
case, the investment of respondents substantially dwindled. The original amount of P250,000 pronouncement as to costs.
which they had invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much. SO ORDERED.

It is a long established doctrine that the law does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have entered into with all the required formalities
and with full awareness of what they were doing. Courts have no power to relieve them from
obligations they have voluntarily assumed, simply because their contracts turn out to be
disastrous deals or unwise investments.[29]
Petitioners further argue that respondents acted negligently by permitting the
partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible assets of the
partnership and considered the proceeds as payment of their net capital. Hence, petitioners