G.R. No.
97212 June 30, 1993 In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
BENJAMIN YU, vs. NATIONAL LABOR RELATIONS COMMISSION
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal
and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of
the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The
partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General
Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received
only half of his stipulated monthly salary, since he had accepted the promise of the partners that the
balance would be paid when the firm shall have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances of the business; he had overall supervision
of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to
the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co
and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in
the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co
acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co
and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in
February of 1988. 2 The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met
private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it was for him to decide whether or not he was
responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner
was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries
remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's
fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy
Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an
employee by the present or new partnership. 4
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held
that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade
Mountain business, that the new partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new
partnership which had simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against
the original members of the preceding partnership, but these though impleaded had, apparently, not
been served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and
annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess
of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a
juridical personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and
replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new
partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under
his employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect
of the changes in the membership of the partnership was the dissolution of the old partnership which
had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the
Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
 (1) without violation of the agreement between the partners; withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the
new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is
xxx xxx xxx established in Article 1840 of the Civil Code which reads as follows:

(b) by the express will of any partner, who must act in good faith, when no definite term or Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the
particular undertaking is specified; 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 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
(2) in contravention of the agreement between the partners, where the circumstances do
the business is continued without liquidation of the partnership affairs;
not permit a dissolution under any other provision of this article, by the express will of any
partner at any time;
(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the business
xxx xxx xxx
without liquidation of partnership affairs, either alone or with others;

(Emphasis supplied)
(3) When any Partner retires or dies and the business of the dissolved partnership is continued as
set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% representative of the deceased partner, but without any assignment of his right in partnership
of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show property;
what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or withdrawal of the partners who
(4) When all the partners or their representatives assign their rights in partnership property to one
had originally owned such 82% interest, was enough to constitute a new partnership.
or more third persons who promise to pay the debts and who continue the business of the
dissolved partnership;
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do
not, however, automatically result in the termination of the legal personality of the old partnership.
(5) When any partner wrongfully causes a dissolution and remaining partners continue the
Article 1829 of the Civil Code states that:
business under the provisions of article 1837, second paragraph, No. 2, either alone or with others,
and without liquidation of the partnership affairs;
[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership
affairs is completed.
(6) When a partner is expelled and the remaining partners continue the business either alone or
with others without liquidation of the partnership affairs;
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
The liability of a third person becoming a partner in the partnership continuing the business, under
underscore the fact that the business of the old partnership was simply continued by the new partners,
this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership
without the old partnership undergoing the procedures relating to dissolution and winding up of its property only, unless there is a stipulation to the contrary.
business affairs. In other words, the new partnership simply took over the business enterprise owned
by the preceeding partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating When the business of a partnership after dissolution is continued under any conditions set forth in
and distributing its net assets, and then re-assembling the said assets or most of them and opening a this article the creditors of the retiring or deceased partner or the representative of the deceased
new business enterprise. There were, no doubt, powerful tax considerations which underlay such an partner, have a prior right to any claim of the retired partner or the representative of the deceased
informal approach to business on the part of the retiring and the incoming partners. It is not, however, partner against the person or partnership continuing the business on account of the retired or
necessary to inquire into such matters. deceased partner's interest in the dissolved partnership or on account of any consideration
promised for such interest or for his right in partnership property.
What is important for present purposes is that, under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the Nothing in this article shall be held to modify any right of creditors to set assignment on the
business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et ground of fraud.
al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a
 xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such
retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim
for unpaid salaries, as well as other claims relating to his employment with the previous partnership,
against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager to run the affairs of the business enterprise take over.
An assistant general manager belongs to the most senior ranks of management and a new partnership
is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin
Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination
without just or authorized cause. We think that the precise authorized cause for termination in the case
at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy
Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's
old position as Assistant General Manager thus became superfluous or redundant. 11 It follows that
petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of
service that he had rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we
consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business itself
and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was any cause consisting of some
blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate
his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This Court, exercising its discretion and
in view of all the circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six
percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from
the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to
attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent
Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment
filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of
the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby
ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of
P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December 1987) in
the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of
service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing
on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade
Mountain.
Costs against private respondents. SO ORDERED.
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION vs.MA. CLARITA T. LAZATIN-
MAGAT
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners’
motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation
engaged in real estate development. Rafaelito W. Lopez is its President and Chief Executive Officer. 3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos
T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a
combined area of 30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of
Title (TCT) No. T-108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, 1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the
entered into a Joint Venture Agreement5 (JVA) for the development of the aforementioned property into Joint Venture project, after deducting all expenses incurred in connection with the land
a residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings development (such as administrative management and construction expenses), and marketing
obliged themselves to contribute the two parcels of land as their share in the joint venture. For its part, (such as sales, advertising and promotions), and
Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractor’s pool,
marketing activities, managerial expertise and other needed resources to develop the property and 2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the
construct therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the Joint Venture project, after deducting all the above-mentioned expenses.8
following, upon the execution of the deed:
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural and
architectural plans, site development plans, and such other need plans in accordance with existing
SALES-INCOME-COST PROJECTION
laws and the rules and regulations of appropriate government institutions, firms or agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME
c.) Furnish all materials, equipment, labor and services for the development of the land in CLUSTER:
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house); A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00

TWIN:
d.) Guarantee completion of the land development work if not prevented by force majeure or
fortuitous event or by competent authority, or other unavoidable circumstances beyond the B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
DEVELOPER’S control, not to exceed three years from the date of the signing of this Joint Venture
Agreement, except the installation of the electrical facilities which is solely MERALCO’S SINGLE:
responsibility;
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00

e.) Provide necessary manpower resources, like executive and managerial officers, support ROW-TYPE TOWNHOMES:
personnel and marketing staff, to handle all services related to land and housing development
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00
(administrative and construction) and marketing (sales, advertising and promotions).6

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as P138,720,000.00
follows:
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
allowances or make advances not exceeding a total of twenty percent (20%) of the net revenue
for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%) COMPUTATION OF ADD’L. INCOME ON INTEREST
for the LANDOWNERS.
TCP x 30% D/P = P 69,360,000 P 69,360,000.00

The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the Balance = 70% = 161,840,000
first two years, in order to have sufficient reserves or funds to protect and/or guarantee the
x .03069 x 48 = P238,409,740 238,409,740.00
construction and completion of the different types of units mentioned above.
Total Amount (TCP + int. earn.) P307,769,740.00
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances
and/or advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the EXPENSES:
total net revenue or income of the sale of the units.7 less: A Building expenses P 92,480,000.00

They also agreed to share in the profits from the joint venture, thus: B Commission (8% of TCP) 18,496,000.00
 C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00
TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00
less: 132,224,000.00
Total Expenses P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between
the parties relative to the interpretation, scope and reach, and the enforcement/implementation of any
provision of the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration
Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably
with the escrow agreement, the owner’s duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay
City, and applied the permit only on August 30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with
its obligations under the JVA, otherwise the appropriate action would be filed against it to protect their
rights and interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the
latter to review its business records/papers. In another Letter14 dated October 22, 1997, the Lazatins
informed Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter.
The Lazatins demanded that Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages, with prayer for temporary
restraining order and/or preliminary injunction against Primelink and Lopez. The case was docketed as
Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years
from the execution of the JVA and the delivery of the title and possession of the land to defendants, the
land development aspect of the project had not yet been completed, and the construction of the
housing units had not yet made any headway, based on the following facts, namely: (a) of the 50
housing units programmed for Phase I, only the following types of houses appear on the site in these
condition: (aa) single detached, one completed and two units uncompleted; (bb) cluster houses, one
unit nearing completion; (cc) duplex, two units completed and two units unfinished; and (dd) row
houses, two units, completed; (b) in Phase II thereof, all that was done by the defendants was to grade
the area; the units so far constructed had been the object of numerous complaints by their
owners/purchasers for poor workmanship and the use of sub-standard materials in their construction,
thus, undermining the project’s marketability. Plaintiffs also alleged that defendants had, without
justifiable reason, completely disregarded previously agreed accounting and auditing procedures,
checks and balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They averred that
they sent a letter through counsel, demanding compliance of what was agreed upon under the
agreement but defendants refused to heed said demand. After a succession of letters with still no
action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding the
JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants,
they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture
project; to date, however, after almost four (4) years and despite the undertaking in the JVA that
plaintiffs shall initially get 20% of the agreed net revenue during the first two (2) years (on the basis of
the 60%-40% sharing) and their full 40% share thereafter, defendants had yet to deliver these shares
to plaintiffs which by conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be
forthwith issued enjoining the defendants to immediately stop their land development, construction and
marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ of
preliminary injunction enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses
incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million
Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million
Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten
percent (10%) of the total amount due as and for attorney’s fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’
complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant
to the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court,
or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate,
and then asking the parties to resolve their controversies, pursuant to the Arbitration Law, or in the
alternative;
c) staying or suspending the proceedings in captioned case until the completion of the arbitration,
and
d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint,
defendants, invoking their counsel’s heavy workload, prayed for a 15-day extension18 within which to
file their answer. The additional time prayed for was granted by the RTC.19 However, instead of filing
their answer, defendants prayed for a series of 15-day extensions in eight (8) successive motions for
extensions on the same justification.20 The RTC again granted the additional time prayed for, but in
granting the last extension, it warned against further extension.21 Despite the admonition, defendants
again moved for another 15-day extension,22 which, this time, the RTC denied. No answer having been
filed, plaintiffs moved to declare the defendants in default,23 which the RTC granted in its Order24 dated
June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and
Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998,
defendants filed a Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In an
Order28 dated July 14, 1998, the RTC denied defendants’ motion to set aside the order of default and
ordered the reception of plaintiffs’ evidence ex parte. Defendants filed a motion for reconsideration29 of
the July 14, 1998 Order, which the RTC denied in its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as
well as the Order denying their motion to set aside the order of default, alleging that these were
contrary to facts of the case, the law and jurisprudence.31 On September 16, 1999, the appellate court
issued a Resolution32 dismissing the appeal on the ground that the Orders appealed from were
interlocutory in character and, therefore, not appealable. No motion for reconsideration of the Order of
the dismissal was filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17,
2000, the RTC rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the real
estate property belonging to the plaintiffs which is described in, and covered by Transfer Certificate
of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located in Barangay Anulin,
City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been executed,
prepared and retained in connection with any contract to sell or deed of sale of all lots/units sold
during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share
of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint
venture agreement;
5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developer’s (defendant) undertakings, as well as paragraph III and paragraph V
of the JVA. These violations are not limited to those made against the plaintiffs alone as it appears that
some of the unit buyers themselves have their own separate gripes against the defendants as typified
by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August
6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998)
this court has observed, and is thus convinced, that a pattern of what appears to be a scheme or plot
to reduce and eventually blot out the net income generated from sales of housing units by defendants,
has been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint
venture project earned a net income of about P2,603,810.64. This amount, however, was drastically
reduced in a subsequent financial report submitted by the defendants to P1,954,216.39. Shortly
thereafter, and to the dismay of the plaintiffs, the defendants submitted an income statement and a
balance sheet (Exhibits "R" and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not
to be so. Even before the plaintiffs could get hold of their share as indicated above, the defendants
closed the chance altogether by declaring a net loss. The court perceives this to be one calculated
coup-de-grace that would put to thin air plaintiffs’ hope of getting their share in the profit under the
JVA.
That this matter had reached the court is no longer a cause for speculation. The way the defendants
treated the JVA and the manner by which they handled the project itself vis-à-vis their partners, the
plaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received the losing
end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to
file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants’ dilatory
tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37
Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on
June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I. THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT
FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY
ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN
"MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF
FLORIDA" (19 SCRA 814-815).
II. THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
PRIMELINK’S STRONG OPPOSITION THERETO.
III. THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THE WRIT
OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE
COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV. THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY
MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING
THE SAID RESCISSION.
V. THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER
THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS
INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR
PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN
WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL
DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY
MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL AND VERTICAL
DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO UNJUSTLY ENRICH
THEMSELVES AT THE EXPENSE OF PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed
decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay
City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED.
Accordingly, Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the
Escrow Agreement is ordered released for return to the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of Deeds of Tagaytay City of whatever annotation in
TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate
court ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by
the laws of partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied
in its Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR
AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF
THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING
THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY,
AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE
PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE
OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST
 ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT
UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to
respondents "all improvements" on the project without requiring them to pay the value thereof or to
reimburse Primelink for all expenses incurred therefore is inherently and essentially illegal and
confiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, and will
allow respondents to unjustly enrich themselves at Primelink’s expense. At the time respondents
contributed the two parcels of land, consisting of 30,000 square meters to the joint venture project
when the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00
per square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had already been
substantially developed as improvements had already been introduced thereon; petitioners had likewise
incurred administrative and marketing expenses, among others, amounting to more or less
P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared the owners
and entitled to the possession of the improvements made by petitioner Primelink on the property;
neither did they adduce evidence to prove their entitlement to said improvements. It follows,
petitioners argue, that respondents were not entitled to the improvements although petitioner Primelink
was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that, under Article 1385 of the same Code, rescission
creates the obligation to return the things which were not object of the contract, together with their
fruits, and the price with its interest; consequently, it can be effected only when respondents can return
whatever they may be obliged to return. Respondents who sought the rescission of the JVA must place
petitioner Primelink in the status quo. They insist that respondents cannot rescind and, at the same
time, retain the consideration, or part of the consideration received under the JVA. They cannot have
the benefits of rescission without assuming its burden. All parties must be restored to their original
positions as nearly as possible upon the rescission of a contract. In the event that restoration to the
status quo is impossible, rescission may be granted if the Court can balance the equities and fashion an
appropriate remedy that would be equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for
reimbursement because "[w]hat matters is that the improvements exist and they cannot be denied."46
Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically
pray for their takeover of the property and for the possession of the improvements on the parcels of
land, nevertheless, respondents were entitled to said relief as a necessary consequence of the ruling of
the trial court ordering the rescission of the JVA. The appellate court cited the ruling of this Court in the
Aurbach case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. 48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the
RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray
that they are and should be entitled to take over the development of the project, and that the
improvements and existing structures which were introduced by PRIMELINK after spending more or less
Forty Million Pesos – be awarded to them. They merely asked in the complaint that the joint venture
agreement be rescinded, and that the parcels of land they contributed to the project be returned to
them.
PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return possession of the
real estate property belonging to the LAZATINs including all improvements thereon was not a judgment
that was different in kind than what was prayed for by the LAZATINs. The order to return the property
with all the improvements thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. In
Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following
points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since
elements are similar – community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d
1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500
[1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920])
This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a joint venture
is a form of partnership and should thus be governed by the laws of partnership. The Supreme Court
has, however, recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may, however, engage in a joint venture with
others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments,
Notes and Selected Cases, Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a
quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
incomes generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code,
where the partnership contract is rescinded on the ground of the fraud or misrepresentation of one of
the parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a
lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advance contributed by him. In the instant case, the joint venture still
has outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and
Development Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a
necessary consequence of the order of rescission of contract. The reason for the existence of the
Escrow Agreement has ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements
even if their share in the P1,041,524.26 of the net income of the property and the sale of the land were
to be deducted from the value of the improvements, plus administrative and marketing expenses in the
total amount of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents.
Respondents cannot deny the existence and nature of said improvements as they are visible to the
naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the possession of the
parcels of land covered by the JVA and the improvements thereon introduced by petitioners as their
contribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of the
improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint
below that possession of the improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint that, upon the rescission of
the JVA, they be placed in possession of the parcels of land subject of the agreement, and for other
"reliefs and such other remedies as are just and equitable in the premises." However, the trial court
was not precluded from awarding possession of the improvements on the parcels of land to
respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall
specify the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief may be granted
by the court if the facts alleged in the complaint and the evidence introduced so warrant.50 The court
shall grant relief warranted by the allegations and the proof even if no such relief is prayed for.51 The
prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA,
hence, formed part of the assets of the joint venture.53 The trial court declared that respondents were
entitled to the possession not only of the parcels of land but also of the improvements thereon as a
consequence of its finding that petitioners breached their agreement and defrauded respondents of the
net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered
into a joint venture as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA, the court thereby
dissolved/cancelled the partnership.54 With the rescission of the JVA on account of petitioners’
fraudulent acts, all authority of any partner to act for the partnership is terminated except so far as
may be necessary to wind up the partnership affairs or to complete transactions begun but not yet
finished.55 On dissolution, the partnership is not terminated but continues until the winding up of
partnership affairs is completed.56 Winding up means the administration of the assets of the partnership
for the purpose of terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was
only for a specific purpose: the winding up of partnership affairs, and the partition and distribution of
the net partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides
that unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the
partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or
the legal representative of the last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property, subject to the
rights and obligations of the parties, inter se, of the creditors and of third parties under Articles 1837
and 1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between
the parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in
their JVA to the contrary.58 Until the partnership accounts are determined, it cannot be ascertained how (2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of
much any of the parties is entitled to, if at all. the partnership for any payments made by him in respect of the partnership liabilities; and

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of (3) To be indemnified by the person guilty of the fraud or making the representation against all
the improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of debts and liabilities of the partnership.
the parties does not contain any provision designating any party to wind up the affairs of the
partnership. The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the
New Civil Code:
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows: Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:
(1) Each partner who has not caused dissolution wrongfully shall have:
(1) The assets of the partnership are:
(a) All the rights specified in the first paragraph of this article, and
(a) The partnership property,
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages
for breach of the agreement. (b) The contributions of the partners necessary for the payment of all the liabilities specified in
No. 2.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the (2) The liabilities of the partnership shall rank in order of payment, as follows:
agreed term for the partnership and for that purpose may possess the partnership property,
provided they secure the payment by bond approved by the court, or pay to any partner who has
(a) Those owing to creditors other than partners,
caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less
any damages recoverable under the second paragraph, No. 1(b) of this article, and in like manner
indemnify him against all present or future partnership liabilities. (b) Those owing to partners other than for capital and profits,

(3) A partner who has caused the dissolution wrongfully shall have: (c) Those owing to partners in respect of capital,

(a) If the business is not continued under the provisions of the second paragraph, No. 2, all (d) Those owing to partners in respect of profits.
the rights of a partner under the first paragraph, subject to liability for damages in the second
paragraph, No. 1(b), of this article. (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as
against his co-partners and all claiming through them in respect of their interests in the (4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
partnership, to have the value of his interest in the partnership, less any damage caused to his liabilities.
co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by
a bond approved by the court, and to be released from all existing liabilities of the partnership;
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the
but in ascertaining the value of the partner’s interest the value of the good-will of the business
right to enforce the contributions specified in the preceding number.
shall not be considered.

(6) Any partner or his legal representative shall have the right to enforce the contributions
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any
specified in No. 4, to the extent of the amount which he has paid in excess of his share of the
other right, entitled:
liability.

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
(7) The individual property of a deceased partner shall be liable for the contributions specified in
partnership liabilities to third persons for any sum of money paid by him for the purchase of an
No. 4.
interest in the partnership and for any capital or advances contributed by him;
 (8) When partnership property and the individual properties of the partners are in possession of a
court for distribution, partnership creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the
Court.
Costs against petitioners. SO ORDERED.
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle, vs. BALBINO DEQUILLA, defendant-appellant.
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership
for the purpose of exploiting a fish pond situated in the barrio of Talisay, municipality of Barotac Nuevo,
Province of Iloilo, Perpetua obligating herself to contribute to the payment of the expenses of the
business, which obligation she made good, and both agreeing to divide the profits between themselves,
which they had been doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein
plaintiff, as her heir to succeed to all her rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of
the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo
Bearneza brought this action to recover said part of the fish pond belonging to his decedent, Perpetua,
and delivery having been refused, Domingo Bearneza brought this action recover said part of the fish
pond and one-half of the profits received by the defendant from the fish pond from the year 1913 to
1919, as damages (the amended complaint was filed on April 12, 1920), amounting, according to
plaintiff, to the sum of thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the complaint, and
alleges, as special defense, that "the formation of the supposed partnership between the plaintiff and
the defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of
the plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond."
As another special defense, the defendant alleges "that in the event that the court should hold the
plaintiff to be entitled to the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's
action has prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the plaintiff
owner of one-half of the fish pond, which was composed of the portions known as "Alimango" and
"Dalusan," but without awarding him any of the damages claimed by him, the same not having been
proven, in the opinion of the court, and ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The plaintiff did not
appeal from that part of the judgment denying his claim for damages; hence the only question we are
called upon to decide is whether or not the plaintiff has any right to maintain an action for the recovery
of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the
proof contained in the record is conclusive and there is no dispute, was of a civil nature. It was a
particular partnership, as defined in article 1678 of the Civil Code, it having had for its subject-matter a
specified thing, to with, the exploitation of the aforementioned fish pond. Although, as the trial court
says in its decision, the defendant, in his letters to Perpetua or her husband, makes reference to the
fish pond, calling it "our," or "your fish pond," this reference cannot be held to include the land on
which the said fish pond was built. It has not been proven that Perpetua Bearneza participated in the
ownership of said land, and Exhibits 2 and 3 of the defendant show that he has been paying, as
exclusive owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said land
belongs to the State. The conclusion, therefore, from the evidence is that the land on which the fish
pond was constructed did not constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership, and,
therefore, the provisions of the Code of Commerce not being applicable thereto (article 1670 of the Civil
Code), it was dissolved by the death of Perpetua Bearneza, and falls under the provisions of article
1700, subsection 3, of the same Code, and not under the exception established in the last paragraph of
said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the death of Perpetua,
inasmuch as it does not appear that any stipulation to that effect has ever been made by her and the
defendant, pursuant to the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status
was that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the
herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and
nothing more. Before this liquidation is made, which up to the present has not been effected, it is
impossible to determine what rights or interests, if any, the deceased had, the partnership bond having
been dissolved.
There is no sufficient ground for holding that a community of property existed between the plaintiff and
the defendant, it not being known whether the deceased still had any interest in the partnership
property which could have been transmitted by will to the plaintiff. There being no community of
property, article 395 of the Civil Code cited by the plaintiff in support of his contention can have no
application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true
that the latter's act in requiring the heirs of Perpetua to contribute to the payment of the expenses of
exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also
true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to
that requirement, nor made any promise to that effect, and therefore no new contract of partnership
existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the plaintiff's
claim for damages, and reversed insofar as it declares the said plaintiff owner of one-half of the fish
pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
[G.R. No. 126334. November 23, 2001]
EMILIO EMNACE, vs. COURT OF APPEALS,
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business
concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve
their partnership and executed an agreement of partition and distribution of the partnership properties
among them, consequent to Jacinto Divinagracias withdrawal from the partnership. [1] Among the
assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at
Sto. Nio and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the
Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanaos untimely demise in
1994, petitioner failed to submit to Tabanaos heirs any statement of assets and liabilities of the
partnership, and to render an accounting of the partnerships finances. Petitioner also reneged on his
promise to turn over to Tabanaos heirs the deceaseds 1/3 share in the total assets of the partnership,
amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment
thereof. [2]
Consequently, Tabanaos heirs, respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages. [3] In their complaint, respondents prayed as
follows:
1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the
partnership at bar; and
2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the
plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels,
trucks, motor vehicles, and other forms and substance of treasures which belong and/or should belong,
had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the
Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in court.
[4]
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction
over the nature of the action or suit, and lack of capacity of the estate of Tabanao to sue. [5] On
August 30, 1994, the trial court denied the motion to dismiss. It held that venue was properly laid
because, while realties were involved, the action was directed against a particular person on the basis
of his personal liability; hence, the action is not only a personal action but also an action in personam.
As regards petitioners argument of lack of jurisdiction over the action because the prescribed docket
fee was not paid considering the huge amount involved in the claim, the trial court noted that a request
for accounting was made in order that the exact value of the partnership may be ascertained and, thus,
the correct docket fee may be paid. Finally, the trial court held that the heirs of Tabanao had a right to
sue in their own names, in view of the provision of Article 777 of the Civil Code, which states that the
rights to the succession are transmitted from the moment of the death of the decedent. [6]
The following day, respondents filed an amended complaint, [7] incorporating the additional prayer
that petitioner be ordered to sell all (the partnerships) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs their corresponding share in the proceeds thereof. In
due time, petitioner filed a manifestation and motion to dismiss, [8] arguing that the trial court did not
acquire jurisdiction over the case due to the plaintiffs failure to pay the proper docket fees. Further, in a
supplement to his motion to dismiss, [9] petitioner also raised prescription as an additional ground
warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, [10] denying the motion to dismiss inasmuch as the
grounds raised therein were basically the same as the earlier motion to dismiss which has been denied.
Anent the issue of prescription, the trial court ruled that prescription begins to run only upon the
dissolution of the partnership when the final accounting is done. Hence, prescription has not set in the
absence of a final accounting. Moreover, an action based on a written contract prescribes in ten years
from the time the right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, [11] raising the following issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in taking
cognizance of a case despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion
in insisting to try the case which involve (sic) a parcel of land situated outside of its territorial
jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in
allowing the estate of the deceased to appear as party plaintiff, when there is no intestate case and
filed by one who was never appointed by the court as administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in not
dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision, [12] dismissing the petition
for certiorari, upon a finding that no grave abuse of discretion amounting to lack or excess of
jurisdiction was committed by the trial court in issuing the questioned orders denying petitioners
motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the
Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside the said courts
territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate objective in instituting the action below
was to recover the decedents 1/3 share in the partnerships assets. While they ask for an accounting of
the partnerships assets and finances, what they are actually asking is for the trial court to compel
petitioner to pay and turn over their share, or the equivalent value thereof, from the proceeds of the
sale of the partnership assets. They also assert that until and unless a proper accounting is done, the
exact value of the partnerships assets, as well as their corresponding share therein, cannot be
ascertained. Consequently, they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.
We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated
value of the partnerships assets, for respondents themselves voluntarily pegged the worth thereof at
Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is really not beyond pecuniary
estimation, but rather partakes of the nature of a simple collection case where the value of the subject
assets or amount demanded is pecuniarily determinable. [13] While it is true that the exact value of
the partnerships total assets cannot be shown with certainty at the time of filing, respondents can and
must ascertain, through informed and practical estimation, the amount they expect to collect from the
partnership, particularly from petitioner, in order to determine the proper amount of docket and other
fees. [14] It is thus imperative for respondents to pay the corresponding docket fees in order that the
trial court may acquire jurisdiction over the action. [15]
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals, [16] where
there was clearly an effort to defraud the government in avoiding to pay the correct docket fees, we
see no attempt to cheat the courts on the part of respondents. In fact, the lower courts have noted
their expressed desire to remit to the court any payable balance or lien on whatever award which the
Honorable Court may grant them in this case should there be any deficiency in the payment of the
docket fees to be computed by the Clerk of Court. [17] There is evident willingness to pay, and the
fact that the docket fee paid so far is inadequate is not an indication that they are trying to avoid
paying the required amount, but may simply be due to an inability to pay at the time of filing. This
consideration may have moved the trial court and the Court of Appeals to declare that the unpaid
docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-
payment of the proper legal fees and in allowing the same to become a lien on the monetary or
property judgment that may be rendered in favor of respondents. There is merit in petitioners
assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-
litigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such
are exempted from the payment of court fees. [18]
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines
the two kinds of claims as: (1) those which are immediately ascertainable; and (2) those which cannot
be immediately ascertained as to the exact amount. This second class of claims, where the exact
amount still has to be finally determined by the courts based on evidence presented, falls squarely
under the third paragraph of said Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in accordance with the
appraisal of the court, the difference of fee shall be refunded or paid as the case may be. (Underscoring
ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, [19] this Court pronounced that the
above-quoted provision clearly contemplates an initial payment of the filing fees corresponding to the
estimated amount of the claim subject to adjustment as to what later may be proved. [20] Moreover,
we reiterated therein the principle that the payment of filing fees cannot be made contingent or
dependent on the result of the case. Thus, an initial payment of the docket fees based on an estimated
amount must be paid simultaneous with the filing of the complaint. Otherwise, the court would stand to
lose the filing fees should the judgment later turn out to be adverse to any claim of the respondent
heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court
expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary,
and to the government as well, the payment of docket fees cannot be made dependent on the outcome
of the case, except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the value of all the partnership
assets but they did not allege a specific amount. They did, however, estimate the partnerships total
assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter [21] addressed to petitioner.
Respondents cannot now say that they are unable to make an estimate, for the said letter and the
admissions therein form part of the records of this case. They cannot avoid paying the initial docket
fees by conveniently omitting the said amount in their amended complaint. This estimate can be made
the basis for the initial docket fees that respondents should pay. Even if it were later established that
the amount proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of
the Rules of Court specifically provides that the court may refund the excess or exact additional fees
should the initial payment be insufficient. It is clear that it is only the difference between the amount
finally awarded and the fees paid upon filing of this complaint that is subject to adjustment and which
may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion, [22] this Court held
that when the specific claim has been left for the determination by the court, the additional filing fee
therefor shall constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or
his duly authorized deputy to enforce said lien and assess and collect the additional fee. Clearly, the
rules and jurisprudence contemplate the initial payment of filing and docket fees based on the
estimated claims of the plaintiff, and it is only when there is a deficiency that a lien may be constituted
on the judgment award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite their
failure to pay the proper docket fees. Nevertheless, as in other procedural rules, it may be liberally
construed in certain cases if only to secure a just and speedy disposition of an action. While the rule is
that the payment of the docket fee in the proper amount should be adhered to, there are certain
exceptions which must be strictly construed. [23]
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the
plaintiff to pay the proper docket fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period. [24]
In the recent case of National Steel Corp. v. Court of Appeals, [25] this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied by
the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the pleading, as
of the time of full payment of the fees within such reasonable time as the court may grant, unless, of
course, prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the complaint for failure of
private respondent to pay the correct amount of docket fees. Although the payment of the proper
docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay the
same within a reasonable time before the expiration of the applicable prescriptive or reglementary
period. If the plaintiff fails to comply within this requirement, the defendant should timely raise the
issue of jurisdiction or else he would be considered in estoppel. In the latter case, the balance between
the appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien or
any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee based on the
estimated amount that respondents seek to collect from petitioner, and direct them to pay the same
within a reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Failure to comply therewith, and upon motion by petitioner, the immediate dismissal of the
complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the Court of
Appeals in holding that the case below is a personal action which, under the Rules, may be commenced
and tried where the defendant resides or may be found, or where the plaintiffs reside, at the election of
the latter. [26]
Petitioner, however, insists that venue was improperly laid since the action is a real action involving a
parcel of land that is located outside the territorial jurisdiction of the court a quo. This contention is not
well-taken. The records indubitably show that respondents are asking that the assets of the partnership
be accounted for, sold and distributed according to the agreement of the partners. The fact that two of
the assets of the partnership are parcels of land does not materially change the nature of the action. It
is an action in personam because it is an action against a person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the action is against the thing itself instead of against
the person. [27] Furthermore, there is no showing that the parcels of land involved in this case are
being disputed. In fact, it is only incidental that part of the assets of the partnership under liquidation
happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al., [28] settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in
question, did not change the nature or character of the action, such sale being merely a necessary
incident of the liquidation of the partnership, which should precede and/or is part of its process of
dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement
of, and petitioners compliance with, the contract that the partners executed to formalize the
partnerships dissolution, as well as to implement the liquidation and partition of the partnerships assets.
Clearly, it is a personal action that, in effect, claims a debt from petitioner and seeks the performance
of a personal duty on his part. [29] In fine, respondents complaint seeking the liquidation and partition
of the assets of the partnership with damages is a personal action which may be filed in the proper
court where any of the parties reside. [30] Besides, venue has nothing to do with jurisdiction for venue
touches more upon the substance or merits of the case. [31] As it is, venue in this case was properly
laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity
to sue since she was never appointed as administratrix or executrix of his estate. Petitioners objection
in this regard is misplaced. The surviving spouse does not need to be appointed as executrix or
administratrix of the estate before she can file the action. She and her children are complainants in
their own right as successors of Vicente Tabanao. From the very moment of Vicente Tabanaos death,
his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the decedent. [32]
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and obligations to the extent of the value of the
inheritance of a person are transmitted. [33] Moreover, respondents became owners of their respective
hereditary shares from the moment Vicente Tabanao died. [34]
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As successors who
stepped into the shoes of their decedent upon his death, they can commence any action originally
pertaining to the decedent. [35] From the moment of his death, his rights as a partner and to demand
fulfillment of petitioners obligations as outlined in their dissolution agreement were transmitted to
respondents. They, therefore, had the capacity to sue and seek the courts intervention to compel
petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of
prescription, arguing that respondents action prescribed four (4) years after it accrued in 1986. The trial
court and the Court of Appeals gave scant consideration to petitioners hollow arguments, and rightly
so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.
[36] The partnership, although dissolved, continues to exist and its legal personality is retained, at
which time it completes the winding up of its affairs, including the partitioning and distribution of the
net partnership assets to the partners. [37] For as long as the partnership exists, any of the partners
may demand an accounting of the partnerships business. Prescription of the said right starts to run only
upon the dissolution of the partnership when the final accounting is done. [38]
Contrary to petitioners protestations that respondents right to inquire into the business affairs of the
partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to
run in the absence of a final accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal representative as against
the winding up partners or the surviving partners or the person or partnership continuing the business,
at the date of dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited
provision states that the right to demand an accounting accrues at the date of dissolution in the
absence of any agreement to the contrary. When a final accounting is made, it is only then that
prescription begins to run. In the case at bar, no final accounting has been made, and that is precisely
what respondents are seeking in their action before the trial court, since petitioner has failed or refused
to render an accounting of the partnerships business and assets. Hence, the said action is not barred by
prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioners motions to
dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial courts
orders. Precious time has been lost just to settle this preliminary issue, with petitioner resurrecting the
very same arguments from the trial court all the way up to the Supreme Court. The litigation of the
merits and substantial issues of this controversy is now long overdue and must proceed without further
delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the
case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to
determine the proper docket fee based on the estimated amount that plaintiffs therein seek to collect,
and direct said plaintiffs to pay the same within a reasonable time, provided the applicable prescriptive
or reglementary period has not yet expired. Thereafter, the trial court is ORDERED to conduct the
appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner. SO ORDERED.
G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being
more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29,
1940, Tan Sin An and Antonio C. Goquiolay", entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state. The
partnership had a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the sole management of the
partnership affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic),
and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner (sic) or
by his authorized agent, and it is expressly stipulated that the managing and partner (sic) may
delegate the entire management of the affairs of the co-partnership by irrevocable power of
attorney to any person, firm or corporation he may select upon such terms as regards
compensation as he may deem proper, and vest in such persons, firm or corporation full power
and authority, as the agent of the co-partnership and in his name, place and stead to do anything
for it or on his behalf which he as such managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the affairs of the co-
partnership; but he may examine its accounts once every six (6) months at any time during
ordinary business hours, and in accordance with the provisions of the Code of Commerce. (Article
of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that —
In the event of the death of any of the partners at any time before the expiration of said term, the
co-partnership shall not be dissolved but will have to be continued and the deceased partner shall
be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon mutual
agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of
said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An should act as the
Manager for said co-partnership for the full period of the term for which said co-partnership was
 organized or until the whole period that the said capital of P30,000.00 of the co-partnership should
last, to carry on to the best advantage and interest of the said co-partnership, to make and
execute, sign, seal and deliver for the co-partnership, and in its name, all bills, bonds, notes,
specialties, and trust receipts or other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the said businesses, including the
power to mortgage and pledge real and personal properties, to secure the obligation of the co-
partnership, to buy real or personal properties for cash or upon such terms as he may deem
advisable, to sell personal or real properties, such as lands and buildings of the co-partnership in
any manner he may deem advisable for the best interest of said co-partnership, to borrow money
on behalf of the co-partnership and to issue promissory notes for the repayment thereof, to deposit
the funds of the co-partnership in any local bank or elsewhere and to draw checks against funds so
deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels
of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the
instant litigation, assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana
Sociedad Mutua de Construccion y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00 with interest. The downpayment and the
amortization were advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument executed by
the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay,
jointly and severally, the remaining balance of their unpaid accounts amounting to P52,282.80 within
eight 8 years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin
was appointed administratrix of the intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sans Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest and
taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario".
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended
answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the
aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees' assuming payments of
the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a deed of
transfer covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about
July 25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold was concerned. In its order of
December 29, 1949, the probate court annulled the sale executed by the administratrix with respect to
the 60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30,
1953, we rendered decision setting aside the orders of the probate court complained of and remanding
the case for new trial, due to the non-inclusion of indispensable parties. Thereafter, new pleadings were
filed.
The second amended complaint in the case at bar prays, among other things, for the annulment of the
sale in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned.
The answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late
Tan Sin An. After hearing, the complaint was dismissed by the lower court in its decision dated October
30, 1956; hence, this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that —
I — The lower court erred in holding that Kong Chai Pin became the managing partner of the
partnership upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership
executed between Tan Sin An and Antonio Goquiolay, and the general power of attorney granted
by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner
in view of the minority of the other heirs.
III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as
managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
properties by virtue of the articles of partnership and the general power of attorney granted to Tan
Sin An in order to pay the partnership indebtedness.
V — The lower court erred in finding that the partnership did not pay its obligation to the Banco
Hipotecario.
VI — The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.
VII — The lower court erred in finding that Kong Chai Pin managed the business of the partnership
after the death of her husband, and that Antonio Goquiolay knew it.
 VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
management of the partnership by Kong Chai Pin estops him now from attacking the validity of the
sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the partnership properties acted in good
faith.
X — The lower court erred in holding that the sale was not fraudulent against the partnership and
Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only necessary but beneficial to the
partnership.
XII — The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay
the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin,
succeeded her husband, Tan Sin An, in the sole management of the partnership, upon the latter's
death. While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the
power of attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive
management of the business, such power, premised as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise. The provision in the articles stating that "in the event
of death of any one of the partners within the 10-year term of the partnership, the deceased partner
shall be represented by his heirs", could not have referred to the managerial right given to Tan Sin An;
more appropriately, it related to the succession in the proprietary interest of each partner. The
covenant that Antonio Goquiolay shall have no voice or participation in the management of the
partnership, being a limitation upon his right as a general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating
or refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2
Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was limited
merely to the value of the share or estate left by the deceased Tan Sin An, they became no more than
limited partners and, as such, were disqualified from the management of the business under Article 148
of the Code of Commerce. Although ordinarily, this effect follows from the continuance of the heirs in
the partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her affirmative
actions, manifested her intent to be bound by the partnership agreement not only as a limited but as a
general partner. Thus, she managed and retained possession of the partnership properties and was
admittedly deriving income therefrom up to and until the same were sold to Washington Sycip and
Betty Lee. In fact, by executing the deed of sale of the parcels of land in dispute in the name of the
partnership, she was acting no less than as a managing partner. Having thus preferred to act as such,
she could be held liable for the partnership debts and liabilities as a general partner, beyond what she
might have derived only from the estate of her deceased husband. By allowing her to retain control of
the firm's property from 1942 to 1949, plaintiff estopped himself to deny her legal representation of the
partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was necessary to
perfect the sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we
believe, in the negative. Strangers dealing with a partnership have the right to assume, in the absence
of restrictive clauses in the co-partnership agreement, that every general partner has power to bind the
partnership, specially those partners acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make inquiries as to the agreements had
between the partners. Its knowledge is enough that it is contracting with the partnership which is
represented by one of the managing partners.
"There is a general presumption that each individual partner is an agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112
Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of the members of the firm acting apparently in its behalf and within the scope
of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al.,
67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —
If the management of the general partnership has not been limited by special agreement to any of
the members, all shall have the power to take part in the direction and management of the
common business, and the members present shall come to an agreement for all contracts or
obligations which may concern the association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not necessarily
affect the validity of the acts of a partner, while acting within the scope of the ordinary course of
business of the partnership, as regards third persons without notice. The latter may rightfully assume
that the contracting partner was duly authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co-partners. The regular course of
business procedure does not require that each time a third person contracts with one of the managing
partners, he should inquire as to the latter's authority to do so, or that he should first ascertain whether
or not the other partners had given their consent thereto. In fact, Article 130 of the same Code of
Commerce provides that even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its effects without
prejudice to the responsibility of the member or members who contracted it, for the damages they may
have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar corresponde a cada
socio personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando
no vayan de acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador privar de la
administracion a uno de los socios en beneficio del otro? Seria una arbitrariedad. Debera quiza
declarar nula la Sociedad que no haya elegido Administrador? El remedio seria peor que el mal.
Debera, tal vez, pretender que todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la administracion, que es asunto d todos los dias y
de todas horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el Codigo, el cual
se confia al espiritu de reciproca confianza que deberia animar la colaboracion de los socios, y en la
ley inflexible de responsabilidad que implica comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin
dar de ello noticia a los otros, porque cada uno de ellos ejerce la administracion en la totalidad de
sus relaciones, salvo su responsabilidad en el caso de una administracion culpable. Si debiera dar
noticia, el beneficio de su simultania actividad, frecuentemente distribuida en lugares y en tiempos
diferentes, se echaria a perder. Se objetara el que de esta forma, el derecho de oposicion de cada
uno de los socios puede quedar frustrado. Pero se puede contestar que este derecho de oposicion
concedido por la ley como un remedio excepcional, debe subordinarse al derecho de ejercer el oficio
de Administrador, que el Codigo concede sin limite: "se presume que los socios se han concedido
reciprocamente la facultad de administrar uno para otro." Se haria precipitar esta hipotesis en la otra
de una administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a
lo menos tacito, de todos los socios — lo que el Codigo excluye ........, si se obligase al socio
Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran oponerse si no
consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es bastante que los actos
y contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino que es preciso el
concurso de estos dos elementos, uno, que el socio o socios tengan reconocida la facultad de
administrar la Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la
Sociedad y usando de su firma social. Asi se que toda obligacion contraida bajo la razon social, se
presume contraida por la Compañia. Esta presunion es impuesta por motivos de necesidad practica.
El tercero no puede cada vez que trata con la Compañia, inquirir si realmente el negocio concierne a
la Sociedad. La presuncion es juris tantum y no juris et de jure, de modo que si el gerente suscribe
bajo la razon social una obligacion que no interesa a la Sociedad, este podra rechazar la accion del
tercero probando que el acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si
tales actos y contratos no comportasen la concurrencia de ambos elementos, seria nulos y podria
decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compañia, o
contabilizados en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata de acto o
contrato que ha producido beneficio social, tendria plena validez, aun cuando le faltase algunos o
ambos de aquellos requisitos antes señalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos
tienen por un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and, therefore, to be
governed by the Code of Commerce, the provisions of the old Civil Code may give us some light on the
right of one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the following
rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do individually
shall bind the partnership; but each one may oppose any act of the others before it has become
legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership
realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed and approved by the probate
court, and, consequently, his opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the partnership as found by
the trial court. This question, however, need not be resolved here, as in the deed of conveyance
executed by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and
Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in
effect, threw the partnership into dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage business". Incidentally, it is to be
noted that the payment of the solidary obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution between the co-debtors, that should be
ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by
the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the
partnership. The "devise", according to the appellants, started way back sometime in 1945, when one
Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his share in the partnership;
and upon his refusal to sell, was followed by the filing of the claims of Yutivo Sons Hardware Co. and
Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin
An and the plaintiff partnership (whose liability was alleged to be joint and several), Yutivo Sons
Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient knowledge)
negatives any conspiracy on her part in the alleged fraudulent scheme, even if she subsequently
decided to admit their validity after studying the claims and finding it best to admit the same. It may
not be amiss to remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were sold was
unreasonably low, or in any way unfair, since appellants presented no evidence of the market value of
the lots as of the time of their sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May
of 1955 is no proof of the market value in 1949, specially because in the interval, the new owners
appear to have converted the land into a subdivision, which they could not do without opening roads
and otherwise improving the property at their own expense. Upon the other hand, Kong Chai Pin hardly
had any choice but to execute the questioned sale, as it appears that the partnership had neither cash
nor other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the questioned
transactions, leading to the conveyance of the lots in dispute to the appellee Insular Development Co.,
Inc.

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