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DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue
a business and to divide the profits or losses that may arise therefrom, even if it is shown that
they have not contributed any capital of their own to a "common fund." Their contribution may
be in the form of credit or industry, not necessarily cash or fixed assets. Being partners, they
are all liable for debts incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible corporation may lie in a
person who may not have directly transacted on its behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26,
1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby
affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was
affirmed by the CA, reads as follows:
2. That defendants are jointly liable to plaintiff for the following amounts, subject
to the modifications as hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed
on their respective amounts as follows:
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per
appearance in court;
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for
the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public auction
for not less than P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In
effect, the amount of P900,000.00 replaced the attached property as a guaranty for
any judgment that plaintiff may be able to secure in this case with the ownership
and possession of the nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It has also been noted that
ownership of the nets [was] retained by the plaintiff until full payment [was] made
as stipulated in the invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats.Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are hereby relieved
from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from
the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of
floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that Ocean Quest Fishing Corporation was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission.[5] On
September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to respondent some of
the nets which were in his possession.Peter Yao filed an Answer, after which he was deemed
to have waived his right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed
an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won
the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing
Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC
of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and
(e) damages.[10] The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels
sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00
shall be applied as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the
deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit
and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a such for the fishing nets and floats purchased
by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim
undertook a partnership for a specific undertaking, that is for commercial fishing x x
x. Obviously, the ultimate undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is x x x. By a contract of partnership, two
or more persons bind themselves to contribute money, property or industry to a common fund
with the intention of dividing the profits among themselves (Article 1767, New Civil
Code).[13]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on
the following grounds:
In determining whether petitioner may be held liable for the fishing nets and floats
purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim,
Chua and Yao could be deemed to have entered into a partnership.
In arguing that he should not be held liable for the equipment purchased from respondent,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and
Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not a
partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he
had merely leased to the two the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the
gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on
the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim
Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing,
dry docking and other expenses for the boats would be shouldered by Chua and
Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady
Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was petitioners brother. In their
Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These
boats, the purchase and the repair of which were financed with borrowed money, fell under the
term common fund under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been inconceivable for
Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve
only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding
on this Court, absent any cogent proof that the present action is embraced by one of the
exceptions to the rule.[16] In assailing the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review under Rule 45.
Petitioner argues that the appellate courts sole basis for assuming the existence of a
partnership was the Compromise Agreement. He also claims that the settlement was entered
into only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the possible consequential
combinations in harmony with law, logic and fairness. Verily, the two lower courts factual
findings mentioned above nullified petitioners argument that the existence of a partnership was
based only on the Compromise Agreement.
We are not convinced by petitioners argument that he was merely the lessor of the boats
to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in
the Contract of Lease and the registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented
to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to
be divided among the three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with
Chua and Yao, in which debts were undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing business. The sale of the boats,
as well as the division among the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to register the properties acquired
from a loan in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to
pay a debt he did not incur, if the relationship among the three of them was merely that of
lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be
imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party
may be estopped from denying its corporate existence. The reason behind this doctrine is
obvious - an unincorporated association has no personality and would be incompetent to act
and appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority or without
a principal is himself regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and obligations and becomes personally liable
for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. In the first instance, an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation. It cannot allege lack of personality to
be sued to evade its responsibility for a contract it entered into and by virtue of which itreceived
advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such case,
all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to
be paid for the nets it sold. The only question here is whether petitioner should be held
jointly[18] liable with Chua and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held liable. Since his name does
not appear on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of the
fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as contracting parties in representation of
it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by persons with
whom he previously had an existing relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling
of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position , entraps and destroys the
other. It is, rather, a contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing aside as wholly trivial and
indecisive all imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from
courts. There should be no vested rights in technicalities.
Finally, petitioner claims that the Writ of Attachment was improperly issued against the
nets. We agree with the Court of Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his partners owed. The nets and
the floats were specifically manufactured and tailor-made according to their own design, and
were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ
to assure the payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.
MELO, J.:
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of
Appeals dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the
Spouses Lourdes and Menardo Navarro, thusly:
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner
Lourdes Navarro for "Delivery of Personal Properties With Damages". The complaint
incorporated an application for a writ of replevin. The complaint was later docketed as Civil Case
No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and was
subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-
plaintiff, and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire
as Presiding Justice of the Court of Appeals) approved private respondents' application for a writ
of replevin. The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private
respondents of all pieces of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing
as follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered
by plaintiff by virtue of the Writ of Replevin and as listed in the complaint are
hereby sustained to belong to plaintiff being the owner of these properties; the
motor vehicle, particularly that Ford Fiera Jeep registered in and which had
remain in the possession of the defendant is likewise declared to belong to her,
however, said defendant is hereby ordered to reimburse plaintiff the sum of
P6,500.00 representing the amount advanced to pay part of the price therefor;
and said defendant is likewise hereby ordered to return to plaintiff such other
equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the
previous Writ of Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its
rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the
decision of April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was
subsequently filed on February 1, 1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The
Sheriff's Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and
satisfied". A receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in
this case, was likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial
court's decision, claiming that the trial judge erred in declaring the non-existence of a
partnership, contrary to the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show
that the parties "clearly intended to form, and (in fact) actually formed a verbal partnership
engaged in the business of Air Freight Service Agency in Bacolod"; and that the decision
sustaining the writ of replevin is void since the properties belonging to the partnership do not
actually belong to any of the parties until the final disposition and winding up of the partnership"
(p. 15, Rollo). These issues, however, were extensively discussed by the trial judge in her 16-
page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of
execution had been issued and was promptly satisfied by the payment of P6,500.00 to private
respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a
belated judicial review of their case. This was, however, correctly thrown out by the Court of
Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside
of the trial court's decision. We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on
factual issues which can no longer be entertained. Petitioners' arguments are all directed against
the decision of the regional trial court; not a word is said in regard to the appellate's court
disposition of their petition for annulment of judgment. Verily, petitioners keeps on pressing that
the idea of a partnership exists on account of the so-called admissions in judicio. But the factual
premises of the trial court were more than enough to suppress and negate petitioners
submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was
a partnership that existed between the parties based on their verbal contention;
whether the properties that were commonly used in the operation of Allied Air
Freight belonged to the alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On the other hand, the legal
issues revolves on the dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the properties subject matter of
recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of
partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the proceeds among themselves.
Furthermore, the Code provides under Article 1771 and 1772 that while a
partnership may be constituted in any form, a public instrument is necessary
where immovables or any rights is constituted. Likewise, if the partnership
involves a capitalization of P3,000.00 or more in money or property, the same
must appear in a public instrument which must be recorded in the Office of the
Securities and Exchange Commission. Failure to comply with these requirements
shall only affect liability of the partners to third persons.
In consideration of the above, it is undeniable that both the plaintiff and the
defendant-wife made admission to have entered into an agreement of operating
this Allied Air Freight Agency of which the plaintiff personally constituted with the
Manila Office in a sense that the plaintiff did supply the necessary equipments
and money while her brother Atty. Rodolfo Villaflores was the Manager and the
defendant the Cashier. It was also admitted that part of this agreement was an
equal sharing of whatever proceeds realized. Consequently, the plaintiff brought
into this transaction certain chattels in compliance with her obligation. The same
has been done by the herein brother and the herein defendant who started to
work in the business. A cursory examination of the evidences presented no proof
that a partnership, whether oral or written had been constituted at the inception of
this transaction. True it is that even up to the filing of this complaint those
movables brought by the plaintiff for the use in the operation of the business
remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or
any sharing of proceeds by way of advances received by both plaintiff and the
defendant, these are not indicative and supportive of the existence of any
partnership between them. Article 1769 of the New Civil Code is explicit. Even
the books and records retrieved by the Commissioner appointed by the Court did
not show proof of the existence of a partnership as conceptualized by law. Such
that if assuming that there were profits realized in 1975 after the two-year deficits
were compensated, this could only be subject to an equal sharing consonant to
the agreement to equally divide any profit realized. However, this Court cannot
overlook the fact that the Audit Report of the appointed Commissioner was not
highly reliable in the sense that it was more of his personal estimate of what is
available on hand. Besides, the alleged profits was a difference found after
valuating the assets and not arising from the real operation of the business. In
accounting procedures, strictly, this could not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore
that there being no partnership that existed, any dissolution, liquidation or winding
up is beside the point. The plaintiff himself had summarily ceased from her
contract of agency and it is a personal prerogative to desist. On the other hand,
the assumption by the defendant in negotiating for herself the continuance of the
Agency with the principal in Manila is comparable to plaintiff's. Any account of
plaintiff with the principal as alleged, bore no evidence as no collection was ever
demanded of from her. The alleged P20,000.00 assumption specifically, as would
have been testified to by the defendant's husband remain a mere allegation.
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment,
the issue raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June
20, 1991 is AFFIRMED in all respects.
SO ORDERED.
G.R. No. 144214 July 14, 2003
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's dissolution,
liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the
July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed
Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992
rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and
NULLIFIED and in lieu thereof a new decision is rendered ordering the [petitioners] jointly
and severally to pay and reimburse to [respondents] the amount of P253,114.00. No
pronouncement as to costs."4
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership
with a capital of P750,000 for the operation of a restaurant and catering business under the
name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager
and Carmelito Jose, operations manager.
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of
P250,000 was refunded to him in cash by agreement of the partners.7
In the same month, without prior knowledge of respondents, petitioners closed down the
restaurant, allegedly because of increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer
interested in continuing their partnership or in reopening the restaurant, and that they were
accepting the latter's offer to return their capital contribution.9
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also reiterated
the request for the return of their one-third share in the equity of the partnership. The repeated
oral and written requests were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw from
the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code;
that respondents had been paid, upon the turnover to them of furniture and equipment worth over
P400,000; and that the latter had no right to demand a return of their equity because their share,
together with the rest of the capital of the partnership, had been spent as a result of irreversible
business losses.12
In their Reply, respondents alleged that they did not know of any loan encumbrance on the
restaurant. According to them, if such allegation were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such, not chargeable to the partnership. The
former further averred that they had not received any regular report or accounting from the latter,
who had solely managed the business. Respondents also alleged that they expected the
equipment and the furniture stored in their house to be removed by petitioners as soon as the
latter found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant
Furniture and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house
were inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the
proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which
could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped
operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as
follows:18
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in
continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the CA. computed their liability as follows:
"Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in accordance with Article 1826 of the New
Civil Code, they are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount of P1,000,000.00 resulting in
the amount of P759,342.00, and in order to get the share of [respondents], this amount of
P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for
each share and which is the only amount which [petitioner] will return to [respondents']
representing the contribution to the partnership minus the outstanding debt thereof."19
Issues
In their Memorandum,21 petitioners submit the following issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the
capital contribution, instead of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan, is in accordance with law
and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly
and severally pay and reimburse the amount of [P]253,114.00 is supported by the
evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement
as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for
the latter's share in the partnership; (2) whether the CA's computation of P253,114 as
respondents' share is correct; and (3) whether the CA was likewise correct in not assessing
costs.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it
was dissolved on March 1, 1987. They found that the dissolution took place when respondents
informed petitioners of the intention to discontinue it because of the former's dissatisfaction with,
and loss of trust in, the latter's management of the partnership affairs. These findings were amply
supported by the evidence on record. Respondents consequently demanded from petitioners the
return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity
share. Except as managers of the partnership, petitioners did not personally hold its equity or
assets. "The partnership has a juridical personality separate and distinct from that of each of the
partners."23 Since the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it
can only pay out what it has in its coffers, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the partnership must first be
compensated.25 After all the creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third
share in the partnership cannot be determined until all the partnership assets will have been
liquidated — in other words, sold and converted to cash — and all partnership creditors, if any,
paid. The CA's computation of the amount to be refunded to respondents as their share was thus
erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution
at the beginning of the partnership remains intact, unimpaired and available for distribution or
return to the partners. Such idea is speculative, conjectural and totally without factual or legal
support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits earned
or decreased by losses sustained. It does not remain static and unaffected by the changing
fortunes of the business. In the present case, the financial statements presented before the trial
court showed that the business had made meager profits.26However, notable therefrom is the
omission of any provision for the depreciation27 of the furniture and the equipment. The
amortization of the goodwill28 (initially valued at P500,000) is not reflected either. Properly taking
these non-cash items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the partnership. Both the trial
and the appellate courts in fact recognized the decrease of the partnership assets to almost nil,
but the latter failed to recognize the consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in the amount of
P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement
(Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership
owes to different creditors, while the Certification issued by Mercator Finance (Exh. '8')
shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being
the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on
Oct. 1983, when the original partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced.
When petitioners and respondents ventured into business together, they should have prepared
for the fact that their investment would either grow or shrink. In the present case, the investment
of respondents substantially dwindled. The original amount of P250,000 which they had invested
could no longer be returned to them, because one third of the partnership properties at the time
of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts turn out to be disastrous deals or
unwise investments.29
Petitioners further argue that respondents acted negligently by permitting the partnership assets
in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter
should have liquidated these sole tangible assets of the partnership and considered the proceeds
as payment of their net capital. Hence, petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner of liquidating the partnership and
fully settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for
the purpose of storage. They were unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover
their capital investment.
Third Issue:
Costs
"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these
rules, costs shall be allowed to the prevailing party as a matter of course, but the court
shall have power, for special reasons, to adjudge that either party shall pay the costs of
an action, or that the same be divided, as may be equitable. No costs shall be allowed
against the Republic of the Philippines unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for
special reasons," to decree otherwise. When a lower court is reversed, the higher court normally
does not award costs, because the losing party relied on the lower court's judgment which is
presumed to have been issued in good faith, even if found later on to be erroneous. Unless
shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE.
This disposition is without prejudice to proper proceedings for the accounting, the liquidation and
the distribution of the remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision [1] of the
Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision[2] of
the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3,
2001 Resolution[3] denying the motion for reconsideration.
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
from time to time may be required by the MANAGERS within the said
3-year period, for use in the MANAGEMENT of the STO. NINO
MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall
be deemed, for internal audit purposes, as the owners account in the
Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from
the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owners account.
(a) The properties shall be appraised and, together with the cash, shall
be carried by the Sto. Nino PROJECT as a special fund to be known as
the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the
Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the
desire of the PRINCIPAL to extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a projected termination of
this Agency, the ratio which the MANAGERS account has to the
owners account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims,
shall be transferred to the MANAGERS, except that such transferred
assets shall not include mine development, roads, buildings, and
similar property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand, require at
their option that property originally transferred by them to the Sto.
Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%)
of the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS compensation.
xxxx
x x x x[5]
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years which
resulted to petitioners withdrawal as manager of the mine on January 28,
1982 and in the eventual cessation of mine operations on February 20, 1982.[6]
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
operations.
In its 1982 annual income tax return, petitioner deducted from its gross income
the amount of P112,136,000.00 as loss on settlement of receivables from Baguio
Gold against reserves and allowances.[9] However, the Bureau of Internal
Revenue (BIR) disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed
since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a
valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it
was charged off within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it
entered into with Baguio Gold. The bad debt deduction represented advances
made by petitioner which, pursuant to the management contract, formed part of
Baguio Golds pecuniary obligations to petitioner. It also included payments made
by petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
On October 28, 1994, the BIR denied petitioners protest for lack of legal
and factual basis. It held that the alleged debt was not ascertained to be worthless
since Baguio Gold remained existing and had not filed a petition for bankruptcy;
and that the deduction did not consist of a valid and subsisting debt considering
that, under the management contract, petitioner was to be paid fifty percent (50%)
of the projects net profit.[10]
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:
SO ORDERED.[11]
The CTA rejected petitioners assertion that the advances it made for the
Sto. Nino mine were in the nature of a loan. It instead characterized the advances
as petitioners investment in a partnership with Baguio Gold for the development
and exploitation of the Sto. Nino mine. The CTA held that the Power of Attorney
executed by petitioner and Baguio Gold was actually a partnership
agreement. Since the advanced amount partook of the nature of an investment, it
could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt deduction. At
the time the payments were made, Baguio Gold was not in default since its loans
were not yet due and demandable. What petitioner did was to pre-pay the loans
as evidenced by the notice sent by Bank of America showing that it was merely
demanding payment of the installment and interests due. Moreover, Citibank
imposed and collected a pre-termination penalty for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.[12] Hence, upon
denial of its motion for reconsideration,[13] petitioner took this recourse under
Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by
Philex in the management of the Sto. Nino Mine pursuant to the Power
of Attorney partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the
net profits of the Sto. Nino Mine indicates that Philex is a partner of
Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney
and in completely disregarding the Compromise Agreement and the
Amended Compromise Agreement when it construed the nature of the
advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.[14]
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not bind itself to contribute money or
property to the project; that under paragraph 5 of the agreement, it was only
optional for petitioner to transfer funds or property to the Sto. Nio project
(w)henever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NIO MINE.[18]
It should be stressed that the main object of the Power of Attorney was not
to confer a power in favor of petitioner to contract with third persons on behalf
of Baguio Gold but to create a business relationship between petitioner and
Baguio Gold, in which the former was to manage and operate the latters mine
through the parties mutual contribution of material resources and industry. The
essence of an agency, even one that is coupled with interest, is the agents ability
to represent his principal and bring about business relations between the latter
and third persons.[20] Where representation for and in behalf of the principal is
merely incidental or necessary for the proper discharge of ones paramount
undertaking under a contract, the latter may not necessarily be a contract of
agency, but some other agreement depending on the ultimate undertaking of the
parties.[21]
In this case, the totality of the circumstances and the stipulations in the
parties agreement indubitably lead to the conclusion that a partnership was
formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph 5 (d)
thereof provides that upon termination of the parties business relations, the ratio
which the MANAGERS account has to the owners account will be determined,
and the corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims shall be transferred to petitioner.[22] As pointed out by the
Court of Tax Appeals, petitioner was merely entitled to a proportionate return of
the mines assets upon dissolution of the parties business relations. There was
nothing in the agreement that would require Baguio Gold to make payments of
the advances to petitioner as would be recognized as an item of obligation or
accounts payable for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that is
more consistent with a partnership than a creditor-debtor relationship. It should
be pointed out that in a contract of loan, a person who receives a loan or money
or any fungible thing acquires ownership thereof and is bound to pay the creditor
an equal amount of the same kind and quality.[23] In this case, however, there was
no stipulation for Baguio Gold to actually repay petitioner the cash and property
that it had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The Power of Attorney clearly provides that
petitioner would only be entitled to the return of a proportionate share of the mine
assets to be computed at a ratio that the managers account had to the owners
account. Except to provide a basis for claiming the advances as a bad debt
deduction, there is no reason for Baguio Gold to hold itself liable to petitioner
under the compromise agreements, for any amount over and above the proportion
agreed upon in the Power of Attorney.
Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation with
neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity date
for the advances to become due and demandable, and the manner of payment was
unclear. All these point to the inevitable conclusion that the advances were not
loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine
is the fact that it would receive 50% of the net profits as compensation under
paragraph 12 of the agreement. The entirety of the parties contractual stipulations
simply leads to no other conclusion than that petitioners compensation is actually
its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the receipt by a
person of a share in the profits of a business is prima facie evidence that he is a
partner in the business. Petitioner asserts, however, that no such inference can be
drawn against it since its share in the profits of the Sto Nio project was in the
nature of compensation or wages of an employee, under the exception provided
in Article 1769 (4) (b).[24]
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid wages pursuant to an employer-
employee relationship. To begin with, petitioner was the manager of the project
and had put substantial sums into the venture in order to ensure its viability and
profitability. By pegging its compensation to profits, petitioner also stood not to
be remunerated in case the mine had no income. It is hard to believe that petitioner
would take the risk of not being paid at all for its services, if it were truly just an
ordinary employee.
All told, the lower courts did not err in treating petitioners advances as
investments in a partnership known as the Sto. Nino mine. The advances were
not debts of Baguio Gold to petitioner inasmuch as the latter was under no
unconditional obligation to return the same to the former under the Power of
Attorney. As for the amounts that petitioner paid as guarantor to Baguio Golds
creditors, we find no reason to depart from the tax courts factual finding that
Baguio Golds debts were not yet due and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its
bank creditors and this conclusion is supported by the evidence on record.[26]
In sum, petitioner cannot claim the advances as a bad debt deduction from
its gross income. Deductions for income tax purposes partake of the nature of tax
exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed. [27] In this case,
petitioner failed to substantiate its assertion that the advances were subsisting
debts of Baguio Gold that could be deducted from its gross
income. Consequently, it could not claim the advances as a valid bad debt
deduction.
SO ORDERED.
Republic of the Philippines
Supreme Court
Manila
THIRD DIVISION
CORONA, J.,
Chairperson,
VELASCO, JR.,
- versus - NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.
Promulgated:
JULIET VILLA LIM,
Respondent. March 3, 2010
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision [2] dated
June 29, 2005, which reversed and set aside the decision[3] of the Regional Trial
Court (RTC) of Lucena City, dated April 12, 2004.
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna
and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito).
They filed a Complaint[4] for Partition, Accounting and Damages against
respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim
(Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage
in the trucking business. Initially, with a contribution of P50,000.00 each, they
purchased a truck to be used in the hauling and transport of lumber of the sawmill.
Jose managed the operations of this trucking business until his death on August
15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate of Jose were held in
trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire
properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate
serving as his fathers driver in the trucking business. He was never a partner or
an investor in the business and merely supervised the purchase of additional
trucks using the income from the trucking business of the partners. By the time
the partnership ceased, it had nine trucks, which were all registered in Elfledo's
name. Petitioners asseverated that it was also through Elfledos management of
the partnership that he was able to purchase numerous real properties by using
the profits derived therefrom, all of which were registered in his name and that
of respondent. In addition to the nine trucks, Elfledo also acquired five other
motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without their
consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in
favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
SO ORDERED.
In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a partner; and that he and Norberto entered
into a partnership with Jose. Thus, the CA erred in not giving that testimony
greater weight than that of Cresencia, who was merely the spouse of Jose and not
a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in a petition
for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it
would entail the review, evaluation, calibration, and re-weighing of the factual
findings of the CA. Moreover, respondent invokes the rationale of the CA
decision that, in light of the admissions of Cresencia and Edison and the
testimony of respondent, the testimony of Jimmy was effectively refuted;
accordingly, the CA's reversal of the RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant
Petition.
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues an exercise that is not appropriate for a petition
for review on certiorari under Rule 45. This rule provides that the parties may
raise only questions of law, because the Supreme Court is not a trier of facts.
Generally, we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.[10] When supported by
substantial evidence, the findings of fact of the CA are conclusive and binding
on the parties and are not reviewable by this Court, unless the case falls under
any of the following recognized exceptions:
(6) When the Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of
both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(9) When the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised
on the supposed absence of evidence and contradicted by the evidence
on record.[11]
We note, however, that the findings of fact of the RTC are contrary to those of
the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding
that there shall be a proportionate sharing of the profits and losses among them.
A contract of partnership is defined by the Civil Code as one where two or more
persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.[12]
Undoubtedly, the best evidence would have been the contract of partnership or
the articles of partnership. Unfortunately, there is none in this case, because the
alleged partnership was never formally organized. Nonetheless, we are asked to
determine who between Jose and Elfledo was the partner in the trucking business.
(1) Except as provided by Article 1825, persons who are not partners
as to each other are not partners as to third persons;
Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and
Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the initial capital in the
partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;[16] (3) all of the properties, particularly the nine
trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the
business;[17] and (5) none of the petitioners, as heirs of Jose, the alleged
partner, demanded periodic accounting from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng Kee,[18]a demand for periodic accounting
is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and
respondent formed part of the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to refute respondent's
claim that Elfledo and respondent engaged in other businesses. Edison even
admitted that Elfledo also sold Interwood lumber as a sideline.[19] Petitioners
could not offer any credible evidence other than their bare assertions. Thus, we
apply the basic rule of evidence that between documentary and oral evidence, the
former carries more weight.[20]
The above testimonies prove that Elfledo was not just a hired help but
one of the partners in the trucking business, active and visible in the
running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of
the partnership and its business, the fact that its properties were placed
in his name, and that he was not paid salary or other compensation by
the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how the
business was ran. Evidently it was through Elfredos efforts and hard
work that the partnership was able to acquire more trucks and
otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a
year old, and the partnership and its business not only continued but
also flourished. If it were true that it was Jose Lim and not Elfledo
who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were
not done but instead its operation continued under the helm of Elfledo
and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not
limit himself to the business of their partnership but engaged in other
lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA
as they are amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals
Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil
Code to the contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated
August 29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a
fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50%
of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership
funds, had yearly rendered accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June
9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000,
as his share in the profits of the partnership for the period from 1957 to 1963, in addition to
P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the winding
up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence
of said partnership, upon the ground that the contract therefor had not been perfected, despite
the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to
the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex
"A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no
cause of action and that the lower court had no jurisdiction over the subject matter of the case,
because it involves principally the determination of rights over public lands. After due hearing, the
court issued the order appealed from, granting the motion to dismiss the complaint for failure to
state a cause of action. This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code, because an
inventory of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter to us for review by
record on appeal.
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall be
necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if inventory of said property is not made, signed by the parties; and attached to
the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower court held
that the answer should be in the affirmative, because "it is really inconceivable how a partnership
engaged in the fishpond business could exist without said fishpond property (being) contributed
to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of
the partners contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.
The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership.
Neither said fishpond nor a real right thereto was contributed to the partnership or became part of
the capital thereof, even if a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
FIRST DIVISION
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-
G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial Court of
Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier, through
her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under
the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-
president for sales. Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined commissions and/or
salaries of the employees, and assigned them to different branches. The
parties agreed that Belos name should not appear in any documents relating
to their transactions with West Bend Company. Instead, they agreed to use
Anays name in securing distributorship of cookware from that company. The
parties agreed further that Anay would be entitled to: (1) ten percent (10%)
of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the
sales she would make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the strength of Belos
assurances that he was sincere, dependable and honest when it came to
financial commitments.
Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati
City. Belo made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to
the southwestern regional convention in Pismo Beach, California, U.S.A.,
from July 25-26, 1987. Anay accepted the invitation with the consent of
Marjorie Tocao who, as president and general manager of Geminesse
Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co.
for twenty (20) years now, acquired the distributorship of Royal Queen cookware
for Geminesse Enterprise, is the Vice President Sales Marketing and a business
partner of our company, will attend in response to the invitation. (Italics
supplied.)[3]
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the following: (a) there
was an intention to create a partnership; (b) a common fund was established
through contributions consisting of money and industry, and (c) there was a
joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin
and the administrative officer of Geminesse Enterprise from August 21, 1986
until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg
of West Bend Company stating that he awarded the distributorship to Anay
and Marjorie Tocao because he was convinced that with Marjories financial
contribution and Anays experience, the combination of the two would be
invaluable to the partnership, also supported that conclusion. Belos claim
that he was merely a guarantor has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code. Moreover, his
acts of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal sales
belied this. On the contrary, it demonstrated his involvement as a partner in
the business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is often
resorted to in business circles as an impetus to bigger sales volume. It did
not matter that the agreement was not in writing because Article 1771 of the
Civil Code provides that a partnership may be constituted in any form. The
fact that Geminesse Enterprise was registered in Marjorie Tocaos name is
not determinative of whether or not the business was managed and operated
by a sole proprietor or a partnership. What was registered with the Bureau
of Domestic Trade was merely the business name or style of Geminesse
Enterprise.
The trial court finally held that a partner who is excluded wrongfully from
a partnership is an innocent partner. Hence, the guilty partner must give him
his due upon the dissolution of the partnership as well as damages or share
in the profits realized from the appropriation of the partnership business and
goodwill. An innocent partner thus possesses pecuniary interest in every
existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the
amount of damages awarded by the trial court were reduced to P50,000.00
for moral damages and P50,000.00 as exemplary damages.Their Motion for
Reconsideration was denied by the Court of Appeals for lack of
merit.[12] Petitioners Belo and Marjorie Tocao are now before this Court on a
petition for review on certiorari, asserting that there was no business
partnership between them and herein private respondent Nenita A. Anay
who is, therefore, not entitled to the damages awarded to her by the Court of
Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise came into being exactly a
year before the alleged partnership was formed, and that it was very unlikely
that petitioner Belo would invest the sum of P2,500,000.00 with petitioner
Tocao contributing nothing, without any memorandum whatsoever regarding
the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which
are within the exclusive domain of both the trial and appellate courts. This
Court cannot set aside factual findings of such courts absent any showing
that there is no evidence to support the conclusion drawn by the court a
quo.[14] In this case, both the trial court and the Court of Appeals are one in
ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves.[15] It may be constituted in
any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto.[16]This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code[17] did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on
the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from
that of each of the partners, even in case of failure to comply with the requirements
of article 1772, first paragraph.
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not
been terminated, the petitioner and private complainant remained as co-partners. x
x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondents efforts to make the business
venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even
shout at private respondent in front of other people.[38] Her instruction to Lina
Torda Cruz, marketing manager, not to allow private respondent to hold
office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business
operation,[39] and resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does not convert the
partnership into a sham organization.[40] The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated
on their mutual desire and consent, it may be dissolved by the will of a
partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partners
capability to give it, and the absence of cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can
result in a liability for damages.[41]
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of
the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the
Civil Code, in order to determine private respondents ten percent (10%) share in
the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.
THIRD DIVISION
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially disadvantageous to them
will not relieve them of their obligations therein. The lack of an inventory of real
property will not ipso facto release the contracting partners from their respective
obligations to each other arising from acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying reconsideration. The assailed
Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered dismissed.No
pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the development of a
parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was
to be used for the development of the subdivision. [4] All three of them also agreed to share the
proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed by
the bank.
According to petitioners, the project failed because of respondents lack of funds
or means and skills. They add that respondent used the loan not for the development
of the subdivision, but in furtherance of his own company, Universal Umbrella
Company.
On the other hand, respondent alleged that he used the loan to implement the
Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Councils approval of the
subdivision project which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and actually even
set up a model house on one of the subdivision lots. He did all of these for a total
expense of P85,000.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of adverse
claims on the title to the land, which eventually scared away prospective
buyers. Despite his requests, petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project.[5]
Subsequently, petitioners filed a criminal case for estafa against respondent and
his wife, who were however acquitted. Thereafter, they filed the present civil case
which, upon respondent's motion, was later dismissed by the trial court in an Order
dated September 6, 1982. On appeal, however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as
earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the subdivision. Thus,
they must bear the loss suffered by the partnership in the same proportion as their
share in the profits stipulated in the contract. Disagreeing with the trial courts
pronouncement that losses as well as profits in a joint venture should be distributed
equally,[7] the CA invoked Article 1797 of the Civil Code which provides:
Article 1797 - The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital.
The Issue
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th
day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the
FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA
BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the
execution of this contract for the property entrusted by the SECOND PARTY, for
sub-division projects and development purposes;
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as an
advance payment from the FIRST PARTY for the property mentioned to be sub-
divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will
not be deducted from the sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40%
for the FIRST PARTY, and additional profits or whatever income deriving from
the sales will be divided equally according to the x x x percentage [agreed upon]
by both parties.
SIXTH: That the intended sub-division project of the property involved will start
the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back
the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will
be paid in full to the FIRST PARTY, including all necessary improvements spent
by the FIRST PARTY, and the FIRST PARTY will be given a grace period to
turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein stated.[10]
ART. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Under Article 1315 of the Civil Code, contracts bind the parties not only to what
has been expressly stipulated, but also to all necessary consequences thereof, as
follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and insisted on
the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences
of their acts, and the fact that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties thereto of their obligations. They
cannot now disavow the relationship formed from such agreement due to their
supposed misunderstanding of its terms.
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of
the Civil Code, which provides:
They contend that since the parties did not make, sign or attach to the public
instrument an inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771,[12] the execution of a public
instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to inscription
in the Registry of Property, and their contribution cannot prejudice third
persons. This will result in fraud to those who contract with the partnership in the
belief [in] the efficacy of the guaranty in which the immovables may consist. Thus,
the contract is declared void by the law when no such inventory is made. The case
at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for
their claim that respondent should pay them 60 percent of the value of the
property.[13] They cannot in one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which the parties
rights and obligations to each other may be inferred and enforced.
Petitioners also contend that the Joint Venture Agreement is void under Article
1422[14] of the Civil Code, because it is the direct result of an earlier illegal contract,
which was for the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive payment
for the parcel of land sold to respondent. Consideration, more properly denominated
as cause, can take different forms, such as the prestation or promise of a thing or
service by another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision project, for
which the land was intended to be used. As explained by the trial court, the land was
in effect given to the partnership as [petitioners] participation therein. x x x There
was therefore a consideration for the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they [would] get sixty percent of the net
profits.
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay damages
equivalent to 60 percent of the value of the property, which was their share in the
profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were
not the cause of the failure of the project.[16] But it also ruled that neither was
respondent responsible therefor.[17] In imputing the blame solely to him, petitioners
failed to give any reason why we should disregard the factual findings of the
appellate court relieving him of fault. Verily, factual issues cannot be resolved in a
petition for review under Rule 45, as in this case.Petitioners have not alleged, not to
say shown, that their Petition constitutes one of the exceptions to this
doctrine.[18] Accordingly, we find no reversible error in the CA's ruling that
petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
G.R. No. L-6912 March 30, 1912
II. That the defendants, Pedro Syyap and Silvino Lim, are
residents of the city of Manila and domiciled, the former, at No.
640 Calle Herran, and the latter, at No. 75 Calle Santo Cristo.
libra ry
chanroblesvi rtua lawlib rary c hanro bles vi rtua l law
III. That the defendant Antonino Babasa is and has been at all
the times hereinafter mentioned, the sheriff of the Province of
Batangas, and as such is made a party defendant. chanroblesv irt ualawli bra ry chanrob les vi rtual law lib rary
IV. That the plaintiff and the defendant, Pedro Syyap, on or about
November 4, 1908, formed and organized a partnership for the
repair of the highway from Batangas to San Jose, of the Province
of Batangas, P. I., the award of the contract for which, for the
sum of P77,277 Philippine currency, was, on October 20, 1908,
made, through from whom the said partnership, under the name
of the plaintiff, acquired it. chanroblesv irt ualawli bra ry chan robles v irt ual law l ibra ry
VI. That the said partnership formed by and between the plaintiff
and the defendant, Pedro Syyap, purchased and acquired, on or
about the month of December, 1908, through the said Syyap and
with the company's own funds, for the sum of P27,000 Philippine
currency, the following property:
( a) One boiler and one motor, and 25 tons of rails (about 5
miles), 25 pounds to the yard, together with their bolts, spikes,
and other appurtenances and accessories. chanroblesvi rt ualawlib ra ry chan robles v irt ual law li bra ry
The other two defendants, Silvino Lim and Pedro Syyap, filed a
demurrer to the complaint, on the following grounds:
A. That the plaintiff lacks the legal personality requisite for the
prosecution of this action. chanroblesvi rt ualawlib ra ry chan robles v irt ual law li bra ry
That the court find that the plaintiff is now the owner of an
undivided part of the property mentioned in the complaint . . .;
that it sentence the defendant, Silvino Lim, to pay to the
plaintiff the proportional part corresponding to him of the value of
said property . . .; that it further sentence, jointly, the defendant,
Silvino Lim, and the defendant Antonino Babasa to the payment
of P50,000, Philippine currency, for losses and damages
caused to the plaintiff . . . .
Such are the fundamental petitions made in the complaint and all
of them, as is seen, in the plaintiff's own name and for the
plaintiff himself. Accordingly, the plaintiff brought the action in
the exercise of the direct and personal right he had to appear in a
trial, and, therefore, the whole question, in deciding whether he
had or had not the requisite personality to bring such an action, is
reduced to determining whether he was or was not in the full
possession of his civil rights, which is the only condition required
to enable a party to prosecute an action or a personal right as a
plaintiff with full and perfect personality. And there is no
allegation in the complaint from which it may be concluded, either
directly or indirectly, that the plaintiff was not in the enjoyment of
the full possession of his civil rights; consequently, the demurrer
founded on the alleged lack of personality on the part of the
plaintiff should have been overruled. chanroblesv irt ualawli bra ry chan robles v irt ual law l ibra ry
EN BANC
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav
Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00
and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with
the Securities and Exchange Commission. The firm engaged, among other activities, in the
importation, marketing, distribution and operation of automatic phonographs, radios, television
sets and amusement machines, their parts and accessories. It had an office and held itself out as
a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads
bearing its trade-name, maintaining its own books of accounts and bank accounts, and had a
quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on
18 December 1948, limited partner Carlson sold his share in the partnership to Suter and his
wife. The sale was duly recorded with the Securities and Exchange Commission on 20
December 1948.
The limited partnership had been filing its income tax returns as a corporation, without objection
by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the individual incomes of the partners-
spouses Suter and Spirig resulting in a determination of a deficiency income tax against
respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as
not in accordance with law, but his request was denied. Unable to secure a reconsideration, he
appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11
November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the
tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife,
Julia Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent
William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner,
Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of
P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and
Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the
partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality
of the partnership should be disregarded for income tax purposes because the spouses have
exclusive ownership and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his and his wife's individual
incomes and that of the limited partnership, in accordance with Section 45 (d) of the National
Internal Revenue Code, which provides as follows:
(d) Husband and wife. — In the case of married persons, whether citizens, residents or
non-residents, only one consolidated return for the taxable year shall be filed by either
spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that
his marriage with limited partner Spirig and their acquisition of Carlson's interests in the
partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical personality had not been affected
and since, as a limited partnership, as contra distinguished from a duly registered general
partnership, it is taxable on its income similarly with corporations, Suter was not bound to include
in his individual return the income of the limited partnership.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved
by operation of law because of the marriage of the only general partner, William J. Suter to the
originally limited partner, Julia Spirig one year after the partnership was organized is rested by
the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership, because
under the Civil Code, which applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de
Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and
1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was
organized in 1947), a universal partnership requires either that the object of the association be all
the present property of the partners, as contributed by them to the common fund, or else "all that
the partners may acquire by their industry or work during the existence of the partnership".
William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions
of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin"
Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil
Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in
the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal,
pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos
inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general
segun la que toda persona es capaz para contratar mientras no sea declarado incapaz
por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma
tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9
de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not
being one of the causes provided for that purpose either by the Spanish Civil Code or the Code
of Commerce.
The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and
Julia Spirig were separately owned and contributed by them before their marriage; and after they
were joined in wedlock, such contributions remained their respective separate property under the
Spanish Civil Code (Article 1396):
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and English
law that does not recognize such separate juridical personality), the bypassing of the existence of
the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory
mandates and basic principles of our law. The limited partnership's separate individuality makes
it impossible to equate its income with that of the component members. True, section 24 of the
Internal Revenue Code merges registered general co-partnerships (compañias colectivas) with
the personality of the individual partners for income tax purposes. But this rule is exceptional in
its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-
13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as
authority for disregarding the fiction of legal personality of the corporations involved therein are
not applicable to the present case. In the cited cases, the corporations were already subject to
tax when the fiction of their corporate personality was pierced; in the present case, to do so
would exempt the limited partnership from income taxation but would throw the tax burden upon
the partners-spouses in their individual capacities. The corporations, in the cases cited, merely
served as business conduits or alter egos of the stockholders, a factor that justified a disregard of
their corporate personalities for tax purposes. This is not true in the present case. Here, the
limited partnership is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its customers prior to appellee's
marriage, and had been filing its own income tax returns as such independent entity. The change
in its membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage
of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner
with the premeditated scheme or design to use the partnership as a business conduit to dodge
the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to
be included in the individual tax return of respondent Suter is to overstretch the letter and intent
of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the
appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership
(compañia colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in the case
of compañias colectivas that the members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1,
pp. 88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or constructively the income
of the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As
pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila,
60 Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to
defray the expenses for the administration and preservation of the paraphernal capital of the
wife. Then again, the appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income taxability of the
partnership since the law taxes the income of even joint accounts that have no personality of
their own. 1 Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of
gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" (Section
45 [d] in their individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable
year, their consequences would be different, as their contributions in the business partnership
are not the same.
The difference in tax rates between the income of the limited partnership being consolidated with,
and when split from the income of the spouses, is not a justification for requiring consolidation;
the revenue code, as it presently stands, does not authorize it, and even bars it by requiring the
limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26
February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities
and Exchange Commission ("SEC") in SEC AC 254.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948. The SEC records show that there were
several subsequent amendments to the articles of partnership on 18 September 1958, to
change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to
ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio
F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
"Further to my letter to you today, I would like to have a meeting with all
of you with regard to the mechanics of liquidation, and more particularly,
my interest in the two floors of this building. I would like to have this
resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter
stating:
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership,
docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of
(the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use
of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada
in any of their correspondence, checks and pleadings and to pay
petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not
dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of
any retiring or withdrawing partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada."
The Commission ruled that, being a partnership at will, the law firm could be dissolved by any
partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith,
since no partner can be forced to continue in the partnership against his will. In its decision,
dated 17 January 1990, the SEC held:
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for
an appointment of a receiver to take over the assets of the dissolved partnership and to take
charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying
reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of
the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and
CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The
death of the two partners, as well as the admission of new partners, in the law firm prompted
Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed
concern over the need to preserve and care for the partnership assets. The other partners
opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held,
per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had
changed the relation of the parties and inevitably caused the dissolution of the partnership; (b)
that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership which could be computed and paid in
the manner stipulated in the partnership agreement; (d) that the case should be remanded to the
SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in
the partnership assets; and (e) that the appointment of a receiver was unnecessary as no
sufficient proof had been shown to indicate that the partnership assets were in any such danger
of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to
the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito,
Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition of
partnership was not made in bad faith;
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate court, the findings and
disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:
The hearing officer however opined that the partnership is one for a specific undertaking
and hence not a partnership at will, citing paragraph 2 of the Amended Articles of
Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as
legal adviser and representative of any individual, firm and corporation
engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with
respect to their legal and other affairs; and to appear for and represent
their principals and client in all courts of justice and government
departments and offices in the Philippines, and elsewhere when legally
authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would therefore be no need
to provide for articles on partnership at will as none would so exist. Apparently what the
law contemplates, is a specific undertaking or "project" which has a definite or definable
period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partner's capability to give it, and the absence
of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the partnership4 but that it can
result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner.6 Among partners,7 mutual agency arises and the doctrine of delectus personae allows
them to have the power, although not necessarily theright, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Code's
general provisions. We here take note of paragraph 8 of the "Amendment to Articles of
Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership
shall be liquidated and paid in accordance with the existing agreements and his
partnership participation shall revert to the Senior Partners for allocation as the Senior
Partners may determine; provided, however, that with respect to the two (2) floors of
office condominium which the partnership is now acquiring, consisting of the 5th and the
6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the)
retiring partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be appointed by
them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of
the valuation above mentioned which shall be paid monthly within the first ten (10) days
of every month in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of
the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to
mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership
that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith.
Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict"
among the partners. It would not be right, we agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for
as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and
fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here used, is no different
from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
This is a petition for review on certiorari of the decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£
... on February 22, 1971 Pecson and Moran entered into an agreement whereby
both would contribute P15,000 each for the purpose of printing 95,000 posters
(featuring the delegates to the 1971 Constitutional Convention), with Moran
actually supervising the work; that Pecson would receive a commission of P l,000
a month starting on April 15, 1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the distribution and printing of the
95,000 posters would be made, that Pecson gave Moran P10,000 for which the
latter issued a receipt; that only a few posters were printed; that on or about May
28, 1971, Moran executed in favor of Pecson a promissory note in the amount of
P20,000 payable in two equal installments (P10,000 payable on or before June
15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment on the date
due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the
recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1)
on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of
his share in the profits that the partnership would have earned, and, payment of unpaid
commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3)
moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that: têñ.£îhqw â£
From the evidence presented it is clear in the mind of the court that by virtue of
the partnership agreement entered into by the parties-plaintiff and defendant the
plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of
the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters,
the defendant was able to print 2,000 copies only authorized of which, however,
were sold at P5.00 each. Nothing more was done after this and it can be said that
the venture did not really get off the ground. On the other hand, the plaintiff failed
to give his full contribution of P15,000.00. Thus, each party is entitled to rescind
the contract which right is implied in reciprocal obligations under Article 1385 of
the Civil Code whereunder 'rescission creates the obligation to return the things
which were the object of the contract ...
From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the
Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to
the time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in
a way not in accord with law and with Supreme Court decisions when it committed the following
errors:
II
III
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY
AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS
ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
The first question raised in this petition refers to the award of P47,500.00 as the private
respondent's share in the unrealized profits of the partnership. The petitioner contends that the
award is highly speculative. The petitioner maintains that the respondent court did not take into
account the great risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced
by the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqw â£
1. That the partnership will print colored posters of the delegates to the
Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00)
each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786,
Civil Code) and for interests and damages from the time he should have complied with his
obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art.
2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was remiss in his obligations as
a partner and as prime contractor of the construction projects in question. This case was decided
on a particular set of facts. We awarded compensatory damages in the Uy case because there
was a finding that the constructing business is a profitable one and that the UP construction
company derived some profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that the partnership made
some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1,
1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76
were not speculative. In the instant case, there is no evidence whatsoever that the partnership
between the petitioner and the private respondent would have been a profitable venture. In fact,
it was a failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed
much more than what was expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the amount of P15,000.00. He
contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of
him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead,
he printed only 2,000 copies.
The losses and profits shall be distributed in conformity with the agreement. If
only the share of each partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners
that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot
claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to
give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000
posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of
expected profits is obvious. We have to take various factors into account. The failure of the
Commission on Elections to proclaim all the 320 candidates of the Constitutional Convention on
time was a major factor. The petitioner undesirable his best business judgment and felt that it
would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters.
Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any amount from
the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner.
The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a
total printing cost of P4,000.00. The records further show that the 2,000 copies were sold at
P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of
P4,000.00 from the gross income of P10,000.00 and with no evidence on the cost of distribution,
the net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided between
the petitioner and the private respondent. And since only P4,000.00 was undesirable by the
petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to
the private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as
Pecson's supposed commission has no justifiable basis in law.
The partnership agreement stipulated that the petitioner would give the private respondent a
monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight
(8) monthly commissions. The agreement does not state the basis of the commission. The
payment of the commission could only have been predicated on relatively extravagant profits.
The parties could not have intended the giving of a commission inspite of loss or failure of the
venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals
erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed
return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the
"Voice of the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqw â£
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
Moran does not question the due execution of said note. Must Moran therefore
pay the amount of P20,000? The evidence indicates that the P20,000 was
assigned by Moran to cover the following: têñ.£îhqw â£
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for
the Veterans' project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by
the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and
rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; and (5) when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the admissions of both the
appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.
E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in
favor of defendant. Defendant admitted the authenticity of this check and of his
receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is
being offered for the purpose of showing plaintiff's capital investment in the
printing of the "Voice of the Veterans" for which he was promised a fixed profit of
P8,000. This investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated March 31, 1971
marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by
plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing the promised profit to P4,000. With
the balance of P3,000 (capital) and P4,000 (promised profit), defendant signed
and executed the promissory note for P7,000 marked Exhibit 3 for the defendant
and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full
return of the capital investment and P1,000 partial payment of the promised
profit. The P3,000 balance of the promised profit was made part consideration of
the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the P20,000 promissory note.
F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor
of defendant. The authenticity of the check and his receipt of the proceeds
thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P
7,000 is part consideration, and in cash, of the P20,000 promissory note (t.s.n., p.
25, Nov. 29, 1972), and it is being presented to show the consideration for the
P20,000 note and the existence and validity of the obligation.
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which
plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of
P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2;
Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000 promissory
note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's
Exhibit E. This document is being offered for the purpose of further showing the
transaction as explained in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the
transaction mentioned therein.
A Yes, sir.
A It is a book.
têñ.£îhqw â£
(T.S.N., p. 19, Nov. 29, 1972)
A Yes, sir.
Court têñ.£îhqw â£
Mark it as Exhibit M.
A Yes, sir.
A The balance of P3,000.00 and the rest of the profit was applied
as part of the consideration of the promissory note of P20,000.00.
The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy
of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would
be error to state that the project never took place and on this basis decree the return of the
private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case. In view of the foregoing, there is no
reason to pass upon the fourth and fifth assignments of errors raised by the petitioner. We
likewise find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one half (1/2) of the net profits gained by the partnership in the sale of the two
thousand (2,000) copies of the posters, with interests at the legal rate on both amounts from the
date the complaint was filed until full payment is made.
SO ORDERED
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a
private document, acknowledged that they had received the same with the agreement, as stated
by them, "that we are to invest the amount in a store, the profits or losses of which we are to
divide with the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him
an accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given
them for the said purpose. Ong Pong Co alone appeared to answer the complaint; he admitted
the fact of the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose
aforesaid, but he alleged that Ong Lay, who was then deceased, was the one who had managed
the business, and that nothing had resulted therefrom save the loss of the capital of P1,500, to
which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the case ordered Ong
Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together with Ong
Lay, he had received from the plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated
at the rate of 12 per cent per annum for the six months that the store was supposed to have been
open, both sums in Philippine currency, making a total of P840, with legal interest thereon at the
rate of 6 per cent per annum, from the 12th of June, 1901, when the business terminated and on
which date he ought to have returned the said amount to the plaintiff, until the full payment
thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned the following errors:
1. For not having taken into consideration the fact that the reason for the closing of the
store was the ejectment from the premises occupied by it.
2. For not having considered the fact that there were losses.
5. and 6. For holding that the capital ought to have yielded profits, and that the latter
should be calculated 12 per cent per annum; and
With regard to the second and third assignments of error, this court, like the court below, finds no
evidence that the entire capital or any part thereof was lost. It is no evidence of such loss to aver,
without proof, that the effects of the store were ejected. Even though this were proven, it could
not be inferred therefrom that the ejectment was due to the fact that no rents were paid, and that
the rent was not paid on account of the loss of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are based on the statements of
the defendant Ong Pong Co, to the effect that "there were some profits, but not large ones." This
court, however, does not find that the amount thereof has been proven, nor deem it possible to
estimate them to be a certain sum, and for a given period of time; hence, it can not admit the
estimate, made in the judgment, of 12 per cent per annum for the period of six months.
Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part
of a partner who acted as agent in receiving money for a given purpose, for which he has
rendered no accounting, such agent is responsible only for the losses which, by a violation of the
provisions of the law, he incurred. This being an obligation to pay in cash, there are no other
losses than the legal interest, which interest is not due except from the time of the judicial
demand, or, in the present case, from the filing of the complaint. (Arts. 1108 and 1100, Civil
Code.) We do not consider that article 1688 is applicable in this case, in so far as it provides "that
the partnership is liable to every partner for the amounts he may have disbursed on account of
the same and for the proper interest," for the reason that no other money than that contributed as
is involved.
As in the partnership there were two administrators or agents liable for the above-named
amount, article 1138 of the Civil Code has been invoked; this latter deals with debts of a
partnership where the obligation is not a joint one, as is likewise provided by article 1723 of said
code with respect to the liability of two or more agents with respect to the return of the money
that they received from their principal. Therefore, the other errors assigned have not been
committed.
In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that the
defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest
thereon at the rate of 6 per cent per annum from the time of the filing of the complaint, and the
costs, without special ruling as to the costs of this instance. So ordered
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio
Clarin and Carlos de Guzman, might buy and sell mangoes, and, believing that he could make
some money in this business, the said Larin made an agreement with the three men by which the
profits were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained
P203 from the business, but did not comply with the terms of the contract by delivering to Larin
his half of the profits; neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an information only
against Eusebio Clarin in which he accused him of appropriating to himself not only the P172 but
also the share of the profits that belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that the
facts presented concerned the defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to
six months' arresto mayor, to suffer the accessory penalties, and to return to Pedro Larin P172,
besides P30.50 as his share of the profits, or to subsidiary imprisonment in case of insolvency,
and to pay the costs. The defendant appealed, and in deciding his appeal we arrive at the
following conclusions:
When two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, a contract is formed
which is called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman,
he invested his capital in the risks or benefits of the business of the purchase and sale of
mangoes, and, even though he had reserved the capital and conveyed only the usufruct of his
money, it would not devolve upon of his three partners to return his capital to him, but upon the
partnership of which he himself formed part, or if it were to be done by one of the three
specifically, it would be Tarug, who, according to the evidence, was the person who received the
money directly from Larin.
The P172 having been received by the partnership, the business commenced and profits
accrued, the action that lies with the partner who furnished the capital for the recovery of his
money is not a criminal action for estafa, but a civil one arising from the partnership contract for a
liquidation of the partnership and a levy on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the
prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal
property which they may have received as a deposit on commission for administration or in any
other character producing the obligation to deliver or return the same," (as, for example,
in commodatum, precarium, and other unilateral contracts which require the return of the same
thing received) does not include money received for a partnership; otherwise the result would be
that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable
civilly for the share of the capitalist partner who reserved the ownership of the money brought in
by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue
that the partnership had received the money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is
dismissed without prejudice to the institution of a civil action.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case #367 1 dismissing the
complaint 2 for recovery of the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein respondent
insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache
Inc. in the amount of P100,000.00. To secure the payment of the loan, a
mortgage was executed over the land and the building in favor of Tai Tong
Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's interest
with Travellers Multi-Indemnity Corporation for P100,000.00 (P70,000.00 for the
building and P30,000.00 for the contents thereof) (Exhibit "A-a," contents thereof)
(Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500
(Exhibit "A"), covering the building for P50,000.00 with respondent Zenith
Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459
(Exhibit "B") was procured from respondent Philippine British Assurance
Company, covering the same building for P50,000.00 and the contents thereof for
P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
We are showing hereunder another apportionment of the loss which includes the
Travellers Multi-Indemnity policy for reference purposes.
Based on the computation of the loss, including the Travellers Multi- Indemnity,
respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited
Group of Insurers, paid their corresponding shares of the loss. Complainants
were paid the following: P41,546.79 by Philippine British Assurance Co.,
P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint). Demand was made from
respondent Travellers Multi-Indemnity for its share in the loss but the same was
refused. Hence, complainants demanded from the other three (3) respondents
the balance of each share in the loss based on the computation of the
Adjustment Standards Report excluding Travellers Multi-Indemnity in the amount
of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and
P2,866.90, SSS Accredited) but the same was refused, hence, this action.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599
DV and alleged as its special and affirmative defenses the following, to wit: that
Fire Policy No. 599 DV, covering the furniture and building of complainants was
secured by a certain Arsenio Chua, mortgage creditor, for the purpose of
protecting his mortgage credit against the complainants; that the said policy was
issued in the name of Azucena Palomo, only to indicate that she owns the
insured premises; that the policy contains an endorsement in favor of Arsenio
Chua as his mortgage interest may appear to indicate that insured was Arsenio
Chua and the complainants; that the premium due on said fire policy was paid by
Arsenio Chua; that respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention
claiming the proceeds of the fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity.
From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration
but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an issue not
raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one
entitled to the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed
from considering the manner it was written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it was Arsenio Lopez Chua
who has insurable interest over the insured property. Perusal of the decision reveals however
that it readily absolved respondent insurance company from liability on the basis of the
commissioner's conclusion that at the time of the occurrence of the peril insured against
petitioner as mortgagee had no more insurable interest over the insured property. It was based
on the inference that the credit secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The foregoing conclusion was arrived
at on the basis of the certification issued by the then Court of First Instance of Davao, Branch II
that in a certain civil action against the Palomos, Antonio Lopez Chua stands as the complainant
and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that the case of a
party is constituted by his own affirmative allegations. Under Section 1, Rule 1316 each party
must prove his own affirmative allegations by the amount of evidence required by law which in
civil cases as in the present case is preponderance of evidence. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable judgment.7 Thus, petitioner who is
claiming a right over the insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an affirmative defense of lack of
insurable interest on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the insurance
policy taken out by petitioner over the mortgaged property. Neither did it deny that the said
property was totally razed by fire within the period covered by the insurance. Respondent, as
mentioned earlier advanced an affirmative defense of lack of insurable interest on the part of the
petitioner that before the occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the material allegations in the
complaint, has the burden of proof to show that petitioner has no insurable interest over the
insured property at the time the contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present any evidence to substantiate its
claim, while petitioner did. For said respondent's failure, the decision must be adverse to it.
The record of the case shows that the petitioner to support its claim for the insurance proceeds
offered as evidence the contract of mortgage (Exh. 1) which has not been cancelled nor
released. It has been held in a long line of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it is presumed. 8 The validity of the
insurance policy taken b petitioner was not assailed by private respondent. Moreover, petitioner's
claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan granted to
Azucena Palomo by petitioner the same should have been brought by Tai Tong Chuache or by
its representative in its own behalf. From the above premise respondent concluded that the
obligation secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed
out that the action must be brought in the name of the real party in interest. We agree. However,
it should be borne in mind that petitioner being a partnership may sue and be sued in its name or
by its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of
petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the
managing partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may execute all acts of
administration 12 including the right to sue debtors of the partnership in case of their failure to pay
their obligations when it became due and demandable. Or at the very least, Chua being a partner
of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the firm.13 Public respondent's allegation that the
civil case flied by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has
no basis.
The respondent insurance company having issued a policy in favor of herein petitioner which
policy was of legal force and effect at the time of the fire, it is bound by its terms and conditions.
Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner,
respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity Corporation
to pay petitioner the face value of Insurance Policy No. 599-DV in the amount of P100,000.00.
Costs against said private respondent.
SO ORDERED.