Third. The trial court erred in refusing to give judgment in favor of the plaintiff.
It appears from the record that by mutual agreement the defendant had general charge and
FIRST DIVISION
[G.R. No. L-4281. March 30, 1908. ]
JOSE GARRIDO, Plaintiff-Appellant, v. AGUSTIN ASENCIO, Defendant-Appellee.
Gregorio Yulo, for Appellant.
P. Q. Rothrock, for Appellee.
SYLLABUS
1. BOOKS OF ACCOUNT; ADMISSIBILITY. — Books of account, although not kept in accordance
with the provisions of the Code of Commerce, if not objected to, are admissible in evidence,
and, in any event, they may be admitted under section 338 of the Code of Civil Procedure, as a
memorandum to refresh the memory of the witness. (Tan Machan v. Gan Aya, 3 Phil. Rep.,
684.)
2. ID.; ID.; ADMISSION. — Behn Meyer & Co. v. Rosatzin (5 Phil. Rep., 660) followed to the
point that books of account kept by a person (or by him jointly with another) constitute an
admission of the facts stated therein and are admissible to show such admission.
DECISION
CARSON, J. :
Plaintiff and defendant were members of a partnership doing business under the firm name of
Asencio y Cia. The business of the partnership did not prosper and it was dissolved by mutual
agreement of the members. The plaintiff brings this action to recover from the defendant, who
appears to have been left in charge of the books and the funds of the firm, the amount of the
capital which he had invested in the business. The defendant, alleging that there had been
considerable losses in the conduct of the business of the partnership, denied that there was
anything due the plaintiff as claimed, and filed a cross complaint wherein he prayed for a
judgment against the plaintiff for a certain amount which he alleged to be due by the plaintiff
under the articles of partnership on account of plaintiff’s share of these losses.
The trial court found that the evidence substantially sustains the claim of the defendant as to
the alleged losses in the business of the partnership and gave judgment in his favor.
The only question submitted on appeal is the competency and sufficiently of the evidence on
which the trial court based its findings as to the status of the accounts of the company.
Plaintiff and appellant makes the following assignment of errors:chanrob1es virtual 1aw library
First. The trial court erred in holding the estado de cuentas (statement of account) of the
partnership of Asencio y Cia. submitted by the defendant as competent and sufficient evidence
in this case.
Second. The trial court erred in holding that evidence of record proved the existence of losses in
the business of the said partnership.
supervision of the books and funds of the firm, but it appears that these books were at all times
open to the inspection of the plaintiff, and there is evidence which tends to show that the
plaintiff himself made entries in these books touching particular transactions in which he
happened to be interested; so that while it is clear that the defendant was more especially
burdened with the care of the books and accounts of the partnership, it would appear that the
plaintiff had equal rights with the defendant in this regard, and that during the existence of the
partnership they were equally responsible for the mode in which the books were kept and that
the entries made by one had the same effect as if they had been made by the other.
At the trial the principal question at issue was the amount of the profits or losses of the business
of the partnership during the period of its operation. The plaintiff made no allegation as to
profits, but denied defendant’s allegation as to the losses. The defendant in support of his
allegations offered in evidence the estado de cuentas (general statement of accounts) of the
partnership, supported by a number of vouchers, and by his own testimony under oath as to the
accuracy and correctness of the items set out therein. The plaintiff assigns as error the
admission of this account on the ground that the books of the partnership were not kept in
accordance with the provisions of Title III, Book I, of the Code of Commerce.
It is not necessary for us to consider this assignment of error as to the inadmissibility of this
account on the ground that the books were not kept in accordance with the provisions of the
Commercial Code, because no objection was made to its admission in the court below; and
further, because in any event it was admissible under the provisions of section 338 of the Code
of Civil Procedure as memorandum used to refresh the memory of the witness. (Tan Machan v.
Gan Aya, 3 Phil. Rep., 684.) We think further that in view of the testimony of record that the
plaintiff jointly with the defendant kept these books, made entries therein, and was responsible
with him therefor, the doctrine laid down in Behn, Meyer & Co., v. Rosatzin (5 Phil. Rep., 660) is
applicable in this case, and the correctness of the entries in these books must be taken to be
admitted by him, except so far as it is made to appear that they are erroneous as a result of
fraud or mistake.
It appears from the record that the statement of account, the vouchers, and the books of the
company were placed at the disposition of the plaintiff for more than six weeks prior to the trial,
and that during the trial he was given every opportunity to indicate any erroneous or fraudulent
items appearing in the account, yet he was unable, or in any event he declined to specify such
items, contenting himself with a general statement to the effect that there must be some
mistake, as he did not and could not believe that the business had been conducted at a loss.
The court below seems to have scrutinized the account with painstaking care, and to have been
satisfied as to its accuracy, except as to some unimportant items, which he corrected, but
counsel for the appellant reiterates in this court his general allegations as to the inaccuracy of
the account, and points out some instances wherein he alleges that items of expenditure appear
to have been charged against the partnership more than once.
Upon the whole record as brought here by the appellant we are not able to say that the weight
of the evidence does not sustain the findings of the trial court, and the judgment entered in that
court should be, and is hereby, affirmed with the costs of this instance against the Appellant. So
ordered.
Arellano, C.J., Torres, Mapa Johnson, Willard and Tracey, JJ., concur.
DAN FUE LEUNG VS IAC and LEUNG YIU
FACTS:

FACTS:

Dan Fue Leung.The Sun Wah Panciteria was registered as a single proprietorship
and its licenses and permits were issued to and in favor of petitioner Dan Fue
Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its initial
establishment.Lower court ruled in favor of the private respondent. Petitioner
appealed the trial court's amended decision. However,the questioned decision
was further modified and affirmed by the appellate court.

Both the trial court and the appellate court declared that the private petitioner
is a partner and is entitled to a share of the annual profits of the restaurant.
Hence, an appeal to the SC.The petitioner argues that private respondent
extended 'financial assistance' to herein petitioner at the time of the
establishment of the Sun Wah Panciteria, in return of which private respondent
allegedly will receive a share in the profits of the restaurant. It was, therefore,
error for the Appellate Court to interpretor construe 'financial assistance' to
mean the contribution of capital by a partner to a partnership.

ISSUE:

WON the private respondent is a partner of the petitioner in the establishment

of Sun Wah Panciteria.

HELD:

In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he
would be entitled to twenty-two percent (22%) of the annual profit derived from
the operation of the said panciteria. These allegations, which were proved, make
the private respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that"By the
contract of partnership two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the
profits among themselves". Therefore, the lower courts did not err in construing
the complaint as one wherein the private respondent asserted his rights as
partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein.SC affirmed
appellate court's decision and ordered the dissolution of the partnership.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in
AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila,
Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner
Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the
private respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from
petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime in October, 1955. It was registered as a single proprietorship and its
licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that
Sun Wah Panciteria was actually a partnership and that he was one of the partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private respondent
gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as
Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into
English. Florence Yap issued a certification and testified that the translation to the best of her
knowledge and belief was correct. The private respondent identified the signature on the receipt
as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present when the receipt (Exhibit "A")
was signed by the petitioner. So Sia further testified that he himself received from the petitioner
a similar receipt (Exhibit D) evidencing delivery of his own investment in another amount of
P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial
court granting the private respondents motion for examination of certain documentary exhibits.
The signatures in Exhibits "A" and 'D' when compared to the signature of the petitioner
appearing in the pay envelopes of employees of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were indeed the
signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of
the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check (Exhibit B) was deposited
by and duly credited to the private respondents savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of
the Equitable Banking Corporation testified that the check in question was in fact and in truth
drawn by the petitioner and debited against his own account in said bank. This fact was clearly
shown and indicated in the petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and pursuant to normal banking
procedure, said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized
as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He
used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later
as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and permits showing the Sun
Wah Panciteria was and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit
G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of the
plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit derived from the operation of
Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees
in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a motion for
new trial and, as supplement to the said motion, he requested that the decision rendered should
include the net profit of the Sun Wah Panciteria which was not specified in the decision, and
allow private respondent to adduce evidence so that the said decision will be comprehensively
adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the Court,
 is hereby reiterated and the decision rendered by this Court on September
30, 1980, is hereby amended. The dispositive portion of said decision
should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and
against the defendant, ordering the latter to pay the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate Appellate
Court. The questioned decision was further modified by the appellate court. The dispositive
portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages
22% of the net profit of P2,000.00 a day from judicial demand to May 15,
1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day
from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit
of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other
respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's
decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the
court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the former the sum equivalent to
22% of the net profit of P8,000.00 per day from the time of judicial demand,
until fully paid, plus the sum of P5,000.00 as and for attorney's fees and
costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial demand
is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of the
petitioner in the setting up and operations of the panciteria. While the dispositive portions merely
ordered the payment of the respondents share, there is no question from the factual findings that
the respondent invested in the business as a partner. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The
complaint avers that private respondent extended 'financial assistance' to herein petitioner at the
time of the establishment of the Sun Wah Panciteria, in return of which private respondent
allegedly will receive a share in the profits of the restaurant. The same complaint did not claim
that private respondent is a partner of the business. It was, therefore, a serious error for the
lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe
'financial assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75,
Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought
the financial assistance of plaintiff in operating the defendant's eatery known
as Sun Wah Panciteria, located in the given address of defendant; as a
return for such financial assistance. plaintiff would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the said
panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of
four thousand pesos (P4,000.00), Philippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he
gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two
percent (22%) of the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the petitioner partners in the
establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By
the contract of partnership two or more persons bind themselves to contribute money, property
or industry to a common fund, with the intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary meaning, financial
assistance is the giving out of money to another without the expectation of any returns
therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution.
But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in
this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled
doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in the
complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society,
Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was whether
or not the private respondent is a partner of the petitioner in the establishment of Sun Wah
Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative value to
the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or
specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified to
by any witness nor has any witness identified the handwriting in the standards or specimens
belonging to the petitioner. The supposed standards or specimens of handwriting were marked
as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private respondent over the
vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined the
signatures in the two receipts issued separately by the petitioner to the private respondent and
So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the
petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and
Maria Wong, employees of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that
the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not interpose any
objection. Neither did the petitioner file an opposition to the motion of the private respondent to
have these exhibits together with the two receipts examined by the PC Crime Laboratory despite
due notice to him. Likewise, no explanation has been offered for his silence nor was any hint of
objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored.
The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The
alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or
after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1,
1955 to July 13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by the
debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a
partnership which are — 1) two or more persons bind themselves to contribute money, property,
or industry to a common fund; and 2) intention on the part of the partners to divide the profits
among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have
been established. As stated by the respondent, a partner shares not only in profits but also in the
losses of the firm. If excellent relations exist among the partners at the start of business and all
the partners are more interested in seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that if a
partner does not assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is premised upon the failure
of the petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In effect
the private respondent was asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable.
Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private respondent
as embodied in his complaint and testimonial evidence presented by said private respondent to
support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the cashier of
Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was
that you were in charge of the custody of the cashier's
box, of the money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you
were the one who accepted the money and you gave
the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as
you said, what do you do with the money?
 A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or
confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less,
will you please tell us, how much is the gross income of
the restaurant?
A For regular days, I received around P7,000.00 a day
during my shift alone and during pay days I receive
more than P10,000.00. That is excluding the catering
outside the place.
Q What about the catering service, will you please tell
the Honorable Court how many times a week were
there catering services?
A Sometimes three times a month; sometimes two
times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the
catering service?
A Yes, because I am the one who receives the payment
also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand
pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone
in a single day from 3:30 P.M. to 11:30 P.M. in the
evening the restaurant grosses an income of P7,000.00
in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the
cross-examination on the matter of income but he failed to comply with his promise to produce
pertinent records. When a subpoena duces tecum was issued to the petitioner for the production
of their records of sale, his counsel voluntarily offered to bring them to court. He asked for
sufficient time prompting the court to cancel all hearings for January, 1981 and reset them to the
later part of the following month. The petitioner's counsel never produced any books, prompting
the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and for this
purpose, employed a bookkeeper. This inspired the Court to ask counsel for
the defendant to bring said records and counsel for the defendant promised
to bring those that were available. Seemingly, that was the reason why this
case dragged for quite sometime. To bemuddle the issue, defendant instead
of presenting the books where the same, etc. were recorded, presented
witnesses who claimed to have supplied chicken, meat, shrimps, egg and
other poultry products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court gave warning to
the defendant's counsel that if he failed to produce the books, the same will
be considered a waiver on the part of the defendant to produce the said
books inimitably showing decisive records on the income of the eatery
pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
 he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On
said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24, 1981
in order to give said defendant another judicial magnanimity and substantial
due process. It was however a condition in the order granting the
postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and will
submit his case for decision.
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.

On November 24, 1981, there being a typhoon prevailing in Manila said There shall be a liquidation and winding up of partnership affairs, return of capital, and other
date was declared a partial non-working holiday, so much so, the hearing incidents of dissolution because the continuation of the partnership has become inequitable.
was reset to December 7 and 22, 1981. On December 7, 1981, on motion of
defendant's counsel, the same was again reset to December 22, 1981 as
previously scheduled which hearing was understood as intransferable in WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of
character. Again on December 22, 1981, the defendant's counsel asked for the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
postponement on the ground that the defendant was sick. the Court, after
much tolerance and judicial magnanimity, denied said motion and ordered
that the case be submitted for resolution based on the evidence on record SO ORDERED.
and gave the parties 30 days from December 23, 1981, within which to file
their simultaneous memoranda. (Rollo, pp. 148-150)
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in
the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers,
manager, bank employees, and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the
appellate court. If the respondent court awarded damages only from judicial demand in 1978 and
not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that
all profits were being plowed back into the expansion of the business. There is no basis in the
records to sustain the petitioners contention that the damages awarded are excessive. Even if
the Court is minded to modify the factual findings of both the trial court and the appellate court, it
cannot refer to any portion of the records for such modification. There is no basis in the records
for this Court to change or set aside the factual findings of the trial court and the appellate court.
The petitioner was given every opportunity to refute or rebut the respondent's submissions but,
after promising to do so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid. The question now arises as to whether
or not the payment of a share of profits shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership under
Article 1831 of the Civil Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a

dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 44119 March 30, 1937
SHARRUF & CO., known also as SHARRUF & ESKENAZI, SALOMON SHARRUF
and ELIAS ESKENAZI,plaintiffs-appellees,
vs.
BALOISE FIRE INSURANCE CO., SUN INSURANCE OFFICE, LTD., and
SPRINGFIELD INSURANCE CO., represented by KUENZLE & STREIFF,
INC., defendants-appellants.
Carlos A. Sobral for appellants.
Ramon Diokno for appellee.
VILLA-REAL, J.:
This is an appeal taken by the defendant companies Baloise Fire Insurance Co., Sun
Insurance Office Ltd., and Springfield Insurance Co., represented by Kuenzle &
Streiff, Inc., from the judgment of the Court of First instance of Manila, the dispositive
part of which reads as follows:
Wherefore, judgment is rendered ordering the defendant insurance
companies to pay to the plantiffs Salomon Sharruf and Elias Eskenazi the
total amount of P40,000 plus interest thereon at 8 per cent per annum from
the date of the filing of the complaint, with the costs of the trial. The
defendants shall pay this judgment jointly in proportion to the respective
policies issued by them. The plaintiffs Salomon Sharruf and Elias Eskenazi
shall recover the judgment share and share alike, deducting from the portion
of the plaintiff Elias Eskenazi the sum of P3,000 which belongs and shall
turned over to the intervenor E. Awad & Co., Inc. It is so ordered.
In support of their appeal the appellants assign the following alleged errors as
committed by the court a quo in its decision in question, to wit:
1. the lower court erred in holding, that Salomon Sharruf and Elias Eskenazi
had personality to sue, either as a partnership or individually, and therefore,
an insurable interest.
2. The lower court erred in holding, that the fire that broke out in the
premises at Nos. 299-301 Muelle de la Industria of this city, occupied by the
alleged plaintiffs, was not of incendiary origin.
3. The lower court erred in holding, that the "idea of using petroleum in the
fire in question, surged after the fire for the purpose of making it appear as a
part of the evidence."
4. The lower court erred in holding, that the claim of loss filed by the alleged
plaintiffs was not fraudulent, but merely inaccurate, due to the peculiar
circumstances of the case, such as the loss of invoices and sales-slips.
5. The lower court erred in sentencing the defendants to pay jointly to the
alleged plaintiffs the sum of P40,000, with interest thereon at the rate of 8
per cent year and costs.
6. The lower court erred in overruling defendants' motion for new trial and in
failing to dismiss the case altogether, with costs against the alleged plaintiffs.
The preponderance of the evidence shows the existence of the following facts:.
In the months of June and July 1933, the plaintiffs Salomon Sharruf and Elias
Eskenazi were doing business under the firm name of Sharruf & Co. As they had
applied to the defendant companies for insurance of the merchandise they had in
stock, the latter sent their representative P. E. Schiess to examine and asses it. On
July 25, 1933, the defendant insurance companies issued insurance policies Exhibits
D, E, and F in the total amount of P25,000 in the name of Sharruf & Co. issued an
additional policy (Exhibit G) in the sum of P15,000 in favor of said firm Sharruf & Co.,
raising the total amount of the insurance on said merchandise to P40,000. On August
26, 1933, the plaintiffs executed a contract of partnership between themselves
(Exhibit A) wherein they substituted the name of Sharruf & Co. with the Sharruf &
Eskenazi, stating that Elias Eskenazi contributed to the partnership, as his capital,
goods valued at P26,299.94 listed in an inventory Exhibit B. It was likewise stated in
said contract that Salomon Sharruf brought to said partnership, as his capital, goods
valued at P24,205.10, appearing in the inventories Exhibit C and C-1. The total value
of the merchandise contributed by both partners amounted to P50,505.04. Part of
said merchandise, most of which were textiles, was sold for P8,000, leaving goods
worth P43,000. In all there were from 60 to 70 bolts of silk. All the goods, most of
which were aluminum kitchen utensils, various porcelain and glass wares, and other
articles of stucco, were contained in about 39 or 40 cases. The last time the plaintiffs
were in the building was on September 19, 1933, at 4 o'clock in the afternoon. Up to
the month of September 1933, about 30 or 40 cases of merchandise belonging to the
plaintiffs were in Robles' garage at No. 1012 Mabini Street.
At about 12.41 o'clock on the morning of September 22, 1933, the fire alarm bell rang
in the different fire stations of the city. The firemen of the San Nicolas Fire Station,
headed by Captain Charles A. Baker, were the first to arrive at the scene of the fire,
followed by Captain Thomas F. McIntyre of the Santa Cruz Fire Station, who arrived
at 12.44 o'clock. Having found the door at No. 301, Muelle de la Industria Street,
where the building was in flames, locked, the firemen pumped water on the upper part
of the building and later broke open the door through which they an entered the
premises. They then saw an inflamed liquid flowing towards the sidewalk, the flames
thereon blazing more intensely every time water fell on them. The liquid apparently
came from under the staircase of said floor. They likewise noted that the entire space
occupied by the staircase was in flames except the adjoining room. After the fire had
been extinguished, an earthen pot (Exhibit 15) containing ashes and the residue of a
certain substance, all of which smelled of petroleum, was found by detective Manalo
near the railing of the stairway of the second floor. At about 8.30 o'clock that same
morning, detective Irada found nother earthen pot (Exhibit 16), one-fourth full of water
smelled of petroleum, under the staircase of the first floor; straw and excelsior, that
also smelled of petroleum, around said pot, a red rag (Exhibit 18) in front of the toilet,
and a towel which also smelled of petroleum can, Exhibit 21. On the following day,
September 23, 1933, photographs were taken of the condition of the different parts of
the building and of the goods found therein. Said photographs are: Exhibit 1, showing
the interior of the first floor partially burned, with the staircase, the doorway, the
wooden partition wall and pieces of wood scattered on the floor supposed to be from
the door that was demolished; Exhibit 2, showing about 8 or 9 scorched cases, some
closed and others open; Exhibit 3, showing the space or hall of the upper floor
partially damaged by the fire at the place occupied by the staircase, with chairs piled
up and unburnt, pieces of wood and debris apparently from the cement partition wall
beside the staircase and the attic; Exhibit 4, showing the same space taken from
another angle, with the partition wall of cement and stone and some broken railings of
the stairways; Exhibit 5, showing a room with partially burnt partition wall, with a
wardrobe and a table in the background, another table in the center, a showcase near
the wall with porcelain and iron articles on top thereof and fallen and burnt window
shutters on the floor; Exhibit 6, showing an open unburnt showcase containing
necklaces with limitation stones and other jewelry; Exhibit 7, showing piled up chairs
and boxes and the burned and destroyed upper part of the partition wall and attic;
Exhibit 8, presenting a showcase with a burnt top, containing kitchen utensils,
tableware, dinner pails and other articles; Exhibit 9, presenting a half-open trunk with
protruding ends of cloth, other pieces of cloth scattered on the floor, a step of the
staircase and a bench; Exhibit 10, showing the partially destroyed attic and wires
wound around the beams; Exhibit 11, presenting another view of the same attic from
another angle. On the 27th of said month and year, the following photographs were
taken: Exhibit 12, presenting a close-up of the beams and electric wiring on
September 25, 1933, was of the opinion that the wires wound around the beam and a
nail might have caused the fire, but he could not assure whether any of the wires was
burned due to an electrical discharge the passed through it, or whether or not the fire
started from the lighting system. In the burned building the plaintiffs kept petroleum
used for cleaning the floor.
The first question to be decided in the present appeal, which is raised in the first
assignment of alleged error, is whether or not Salomon Sharruf and Elias Eskenazi
had juridical personality to bring this action, either individually or collectively, and
whether or not they had insurable interest.
As already seen, Salomon Sharruf and Elias Eskenazi were doing business under the
firm name of Sharruf & Co. in whose name the insurance policies were issued, Elias
Eskenazi having paid the corresponding premiums.
In the case of Lim Cuan Sy vs. Northern Assurance Co. (55 Phil., 248), this court
said:
A policy insuring merchandise against fire is not invalidated by the fact that
the name of the insured in the policy is incorrectly written "Lim Cuan Sy"
instead of "Lim Cuan Sy & Co.", the latter being the proper legal designation
of the firm, where it appears that the designation "Lim Cuan Sy" was
commonly used as the name of the firm in its business dealings and that the
error in the designation of the insured in the policy was not due to any
fraudulent intent on the part of the latter and did not mislead the insurer as to
the extent of the liability assumed.
In the present case, while it is true that at the beginning the plaintiffs had been doing
business in said name of "Sharruf & Co.", insuring their business in said name, and
upon executing the contract of partnership (exhibit A) on August 26, 1933, they
changed the title thereof to "Sharruf & Eskenazi," the membership of the partnership
in question remained unchanged, the same and only members of the former,
Salomon Sharruf and Elias Eskenazi, being the ones composing the latter, and it
does not appear that in changing the title of the partnership they had the intention of
defrauding the herein defendant insurance companies. Therefore, under the above-
cited doctrine the responsibility of said defendants to the plaintiffs by virtue of the
respective insurance policies has not been altered. If this is true, the plaintiffs have
juridical personality to bring this action.
The second question to be decided is that raised in the second assignment of alleged
error, which consists in whether or not the fire which broke out in the building at Nos.
299-301 Muelle de la Industria, occupied by the plaintiffs, is of incentiary origin.
In maintaining the affirmative, the appellants call attention to the earthen pots Exhibits
15 and 16, the first found by detective Manalo beside the railing of the stairways of
the upper floor and the second found by detective Irada on the first floor, both
containing liquid, ashes and other residues which smelled of petroleum; a red rag
(Exhibit 18) found by detective Irada in front of the toilet; the partially burnt box
(Exhibit 20); and the old can (Exhibit 21) containing garbage. The fact that the liquid
found by the detectives in the earthen jars smelled of petroleum, does not constitute
conclusive evidence that they had been used as containers for petroleum to burn the
house. Said smell could have very well come the strips of China wood of which boxes
from abroad are made, the resin of which smells of petroleum, or from the rags found
therein which might have been used to clean the floor by saturating them with
petroleum. There being petroleum for cleaning the floor in the building, it is not
strange that when the house caught fire the petroleum also caught fire, the flames
floating on the water coming out from under the door from the pumps. There is neither
direct nor strong circumstantial evidence that the plaintiffs personally or through their
agents placed petroleum in the building in order to burn it, because it was locked on
the outside and nobody was staying therein. As it cannot be assumed that the
petroleum might have burned by itself, it is probable that the fire might have
originated from the electric wiring, although electrical engineer Mora stated that he
could not assure whether any of the wires was burned due to an electric discharge
passing through it, or whether or not the fire was caused by the lighting system.
Upon consideration of all the evidence and circumstances surrounding the fire, this
court finds no evidence sufficient to warrant a finding that the plaintiffs are responsible
for the fire.
With respect to the question whether or not the claim of loss filed by the plaintiffs is
fraudulent, it is alleged by them that the total value of the textiles contained in cases
deposited inside the building when the partnership Sharruf & Eskenazi was formed
was P12,000; that of the fancy jewelry with imitation stones from P15,000 to P17,000,
and that of the kitchen utensils and tableware made of aluminum, bronze and glass
P10,676 (Exhibits B, C, and C-1). If, as said plaintiffs claim, they had already sold
articles, mostly textiles, valued at P8,000, a small quantity of cloth must have been
left at the time the fire occured. In their claim, however, the textiles allegedly
consumed by fire and damaged by water are assessed by them at P12,000. The
claim of P12,000 is certainly not attributable to a mere mistake in estimate and
counting because if they had textiles worth only P12,000 before the fire and they sold
goods, mostly textiles, worth P8,000, surely textiles in the same amount of P12,000
could not have been burned and damaged after the fire. Of the kitchen utensils and
tableware made of aluminum, bronze and glass, of which, according to the evidence
for the plaintiffs, they had a stock valued at P10,676 (Exhibit B), there were found
after the fire articles worth only P1,248.80 (Exhibit K). Therefore, utensils valued at
P9,427.20 were lacking. A considerable amount of kitchen utensils made of
noninflammable and fire-proof material could not, by the very nature of things have
been totally consumed by the fire. At most, said articles would have been damaged,
as the rest, and would have left traces of their existence. The same may be said of
the fancy jewels with imitation stones, and others of which the fancy jewels with
imitation stones, and others of which the plaintiffs claim to have had a stock worth
from P15,000 to P17,000 at the time of the fire, of which only a few valued at
P3,471.16, were left after the fire (Exhibit K). According to said plaintiffs, all the
articles, for the alleged loss of which indemnity is sought, were contained in about 40
showcases and wardrobes. According to the testimony of the fire station chiefs,
corrobarated by the photographs of record, the flames caused more damage in the
upper part of the rooms than in the lower part thereof; since, of the ten or eleven
cases found inside the building after the fire, only a few were partially burned and
others scorched judging from their appearance, the goods were damaged more by
water than by fire. According to the inventory made by White & Page, adjusters of the
insurance companies, in the presence of the plaintiffs themselves and according to
data supplied by the latter, the total value thereof, aside, from the articles not included
in the inventories Exhibits B, C, and C-1, assessed at P744.50, amounts to only
P8,077.35. If the plaintiffs' claim that at time of the fire there were about 40 cases
inside the burnt building were true, a ten or eleven of them were found after the fire,
traces of the thirty or twenty-nine cases allegedly burnt would be found, since
experience has shown that during the burning of a building all the cases deposited
therein are not so reduced to ashes that the least vestige thereof cannot be found. In
the case of Go Lu vs. Yorkshire Insurance Co. (43 Phil., 633), this court laid down the
following doctrine:
This court will legally presume that in an ordinary fire fifty bales or boxes of
bolt goods of cloth cannot be wholly consumed or totally destroyed, and that
in the very nature of things some trace or evidence will be left remaining of
their loss or destruction.
The plaintiffs, upon whom devolve the legal obligation to prove the existence, at the
time of the fire, of the articles and merchandise for the destruction of which they claim
indemnity from the defendant companies, have not complied with their duty because
they have failed to prove by a preponderance of evidence that when the fire took
place there where in the burnt building articles and merchandise in the total amount of
the insurance policies or that the textiles and other damaged and undamaged goods
found in the building after the fire were worth P40,000. On the contrary, their own
witness, Robles, testified that up to the month of September, 1933, there were about
39 or 40 cases belonging to the plaintiffs in his garage on Mabini Street, indicating
thereby that the cases of merchandise examined by the agent of the insurance
companies on July 25 and August 15, 1933, and for which the insurance policies
were issued, were taken from the burned building where they were found. So great is
the difference between the amount of articles insured, which the plaintiffs claim to
have been in the building before the fire, and the amount thereof shown by the
vestige of the fire to have been therein, that the most liberal human judgment can not
attribute such difference to a mere innocent error in estimate or counting but to a
deliberate intent to demand of the insurance companies payment of an indemnity for
goods not existing at the time of the fire, thereby constituting the so-called "fraudulent
claim" which, by express agreement between the insurers and the insured, is a
ground for exemption of the insurers from civil liability.
Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a
fraudulent claim, they are not entitled to the indemnity claimed by them by virtue of
the insurance policies issued by the defendant-appellant companies in their favor.
For the foregoing considerations, this court is of the opinion and so holds: (1) that
when the partners of a general partnership doing business under the firm name of
"Sharruf & Co." obtain insurance policies issued to said firm and the latter is
afterwards changed to "Sharruf & Eskenazi", which are the names of the same and
only partners of said firm "Sharruf & Co.", continuing the same business, the new firm
acquires the rights of the former under the same policies; (2) that when the evidence
relative to the cause of a fire and the author thereof is so vague and doubtful, the
insured cannot be attributed incendiary intervention therein for the mere fact that he
had the keys to the unoccupied building in his possession; (3) that a person who
presents a claim for damages caused by fire to articles and goods not existing at the
time of the fire does so fradulently and his claim is fraudulent, and (4) that when
immediately after a fire that broke out inside a completely locked building, lasting
scarcely 27 minutes, only about ten or eleven partly burned and scorched cases,
some containing textiles and wrapping paper and others, statutes of saints, have
been found without any trace of the destruction of other cases by said fire, it can
neither logically nor reasonably be inferred that 40 of said cases were inside the
building when the fire broke out.
Wherefore, the appealed judgment is reversed, and the defendant companies are
absolved from the complaint which is dismissed, with costs to the appellees. So
ordered.
Avanceña, C.J., Abad Santos, Imperial, Diaz, Laurel and Concepcion, JJ., concur.
Insurance Case Digest: Sharuff & Co. V.
Baloise Fire Insurance Co. (1937)
G.R. No. 44119 March 30, 1937

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

Laws Applicable:

FACTS:

 Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf &
Co. They insured their stocks with aloise Fire Insurance Co., Sun Insurance
Office Ltd., and Springfield Insurance Co. raising it to P40,000. Elias
Eskenazi having paid the corresponding premiums
 Soon they changed the name of their partnership to Sharruf &
Eskenazi
 September 22, 1933: A fire ensued at their building at Muelle de la Industria street
where petroleum was spilt lasting 27 minutes
 Sharruf & Co. claimed 40 cases when only 10 or 11 partly burned and
scorched cases were found
 RTC: ordered Baloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield Insurance Co.,
to pay the partners Salomon Sharruf and Elias Eskenazi P40,000 plus 8%
interest
ISSUE: W/N Sharruf & Eskenazi has juridical personality and insurable
interest

HELD: YES. Reversd. Insurance companies are absolved.

 It does not appear that in changing the title of the partnership they had the intention of defrauding
the insurance companies
 fire which broke out in the building at Nos. 299-301 Muelle de la Industria, occupied by Sharruf
& Eskenazi but no evidence sufficient to warrant a finding that they
are responsible for the fire
 So great is the difference between the amount of articles insured, which the plaintiffs claim to have
been in the building before the fire, and the amount thereof shown by the vestige of the fire to have
been therein, that the most liberal human judgment can not attribute such difference to a mere
innocent error in estimate or counting but to a deliberate intent to demand of the insurance
companies payment of an indemnity for goods not existing at the time of the fire, thereby
constituting the so-called "fraudulent claim" which, by express agreement between the insurers and
the insured, is a ground for exemption of the insurers from civil liability
 acted in bad faith in presenting a fraudulent claim, they are not entitled to the indemnity claimed
 when the partners of a general partnership doing business under the firm name of "Sharruf & Co."
obtain insurance policies issued to said firm and the latter is afterwards changed to "Sharruf &
Eskenazi", which are the names of the same and only partners of said firm "Sharruf & Co.",
continuing the same business, the new firm acquires the rights of the former under the same
policies;
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First
Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General
Construction Company to pay plaintiff the sum of P7,119.07 with interest at the
rate of 12% per annum until it is fully paid, plus attorney's fees which the Court
fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding that
the judgment against these individual defendants shall be enforced only if the
defendant company has no more leviable properties with which to satisfy the
judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the
Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of
P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on
the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said
installments as they fall due would render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company
for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim,
Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general
partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default.1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo
B. Lumauig is concerned.2
When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte3 , after which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that
since there are five (5) general partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5 ) of the obligations of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and
Sim to only one-fifth (1/5 ) of the obligations of the defendant company.4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general
partners of a partnership increases the joint and subsidiary liability of each of the remaining partners
for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by the express provisions of
articles l698 and 1137 of the Civil Code, the partners are not liable each for the
whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo
is responsible to plaintiff for only one-half of the debt. The fact that the other
partner, Jaime Palacios, had left the country cannot increase the liability of Pedro
Yulo.
In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the
defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement
as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24243 January 15, 1926
ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased
Go-Lio, plaintiff-appellant,
vs.
ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
Crispin Oben for palintiff-appellant.
Paredes, Buencamino and Yulo for defendant-appellant.
VILLA-REAL, J.:
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a
society for the purchase and sale of articles of commerce, and for this purpose they
opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China.
Vicenyte Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the
businesses. Go-Lio died in China in October, 1916, leaving a widow and three
children, one of whom came to the Philippines and filed a petition for the appointment
of Ildefonso de la Rosa as administrator of the intestate estate of his deceased father,
which petition was granted by the Court of First Instance of Nueva Ecija. Ildefonso de
la Rosa, in his capacity as administrator of the intestate estate of the deceased Go-
Lio, requested Enrique Go-Cotay to wind up the business and to deliver to him the
portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay denied the
petition, alleging that the business was his exclusively. In view of this denial, Ildefonso
de la Rosa, as administratorm, on July 2, 1918, filed with the Court of First Instance of
Nueva Ecija a complaint against Enrique Ortega Co-Cotay in which he prayed that
the defendant be sentenced to deliver to the plaintiff one-half of all the property of the
partnership formed by Go-lIo and Vicente Go-Sengco, with costs against the
defendant, and that the said plaintiff be appointed receiver for the property of the said
partnership.
Defendant, in answering the complaint, denied each and every allegation thereof, and
as a special defense alleged that more than ten years had elapsed before the filing of
the complaint, and prayed that he be absolved therefrom, with costs against the
plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-
Chan, Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory,
liquidate and determine the one-half belonging to the plaintiff of all the property of the
store in question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
receiver, pursuant to the order of the court dated August 3, 1918, the defendant filed
a bond in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the court
their report, showing the net profits of the business between the period from 1913 to
1917, which amounted to the total sum of P25,038.70 and consisted of the following
items:
Profits for the year 1913........................ P2,979.00
Profits for the year 1914........................ 3,046.94
Profits for the year 1915........................ 4,103.07
Profits for the year 1916........................ 4,735.00
Profits for the year 1917........................ 10,174.69
Total........................................................... 25.038.70
In view of the appeal taken by defendant the parties on December 7, 1921, entered
into an agreement whereby they agreed to suspend the liquidation ordered by the
court until the appeal to the Supreme Court was decided, and whereby the defenadnt
was authorized to continue in the possession of the property in litigation, upon the
giving of a bond in the amount of P25,000, and cancelling the former bond for
P10,000.
This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the
appeal was premature and ordered that the record be remanded to the court of origin
with instruction to enter a final order in accordance with the liquidation made by the
commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the
defendant and Cua POco suggested by the plaintiff, as commissioners, who
submitted two reports, one prepared by commissioners Tantengco and Cua Poco,
and the other by commissioners Justo Cabo-Chan. The former stated in their report
that they had examined the books for the years 1919 to 1922, for the reason, they
said, that they appeared "to have been prepared by some person in a careful way at a
certain time." The later commissioner examined all books and stated in his report that
the business had suffered a net loss amounting to the sum of P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by
order of December 13, 1924, disapproved the report of the commissioners Tantengco
and Cua Poco, but approved, with slight modifications, the report of commissioner
Cabo-Chan, holding that the result of the liquidation showed liabilities to the amiount
of P89,690.45 in view of which plaintiff had nothing to recover from defendant, as management of the business until August 3, 1918, the date when he ceased to be a
there was no profit to divide. member and manager in order to become receiver.

From this decision the plaintiff has appealed in due time and form making the
following assignment of errors: (1) The lower court erred in holding that the books
were authentic, and in not holding that they were false books exhibited by the
defendant about alleged operations in the years 1918 et seq. which show enormous
debts and imaginary losses of the business; (2) the lower court erred in giving full
credit to the testimony of commissioner Justo Cabo-Chan; (3) the lower court erred in
holding that the partnership had incurred debts and suffered losses, as shown in the
report of Justo Cabo-Cahn from 1918 on; (4) the lower court erred in not holding that
the share of the plaintiff, as his capital and profits until the end of 1917, is equivalent
to the sum of twenty-seven thousand seven hundred fifty-five pesos and forty-seven
centavos (P27,755.47). Philippine currency, plus an annual quota of at least two
thousand five hundred three pesos and eighty-seven centavos (P2,503.87),
Philippime currency, as his portion of the profits since the beginning of 1918 until the
delivery to the palintiff of his share in the partnership; (5) the court below erred in not
ordering the prosecuting attorney to commence an investigation as to the falsified
books of accounts that the defendant had exhibited for proper criminal proceeding.
As to the first semester of 1918, during which time the defendant had seen managing
the business of the partnership as a member and manager, taking into account that
the profits had been on the increase, said profits having reached the amount of
P10,174.69 in the year 1917, it would not be an exaggeration to estimate that the
profits for 1918 would have been at least the same as the profits of 1917; so that for
the first half of 1918, the profit would be P5,087.34.
In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit:
Capital of partnership........................... P4,779.39
Profits until 1905.................................. 5,551.40
Profits 1906-1912................................ 20,141.45

From the evidence it appears that the partnership capital was P4,779.39, and the net Profits 1913-1917................................ 25,038.70
profits until the year 1915 amounted to P5,551.40. Because some books of account
had been destroyed by white ants (anay), the liquidation of the business of the
Profits first semester 1918............... 5,087.34
partnership for the period from 1906 to 1912 could not be made. But knowing the net
profit for the period between 1904 and 1905, which is P5,551.40, and findng the
Total....................................................... 60,598.28
average of the profits for each of these years, which is P2,775.70; and knowing the
net profit for the year 1913, which is P2,979, we can find the average between the net
profit for 1905, namely, P2,979. Said average is the sum of P2,877.35, which may be
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of
considered as the average of the net annual profits for the period between 1906 an
the intestate estate of Go-Lio.
1912, which in seven years make a total of P20,141.45. The assets of the
partnership, as well as the value of its property, could not be determined when
making the liquidation because there was no inventory and for this reason it was not In view of the foregoing, we are of the opinion that the case must be, as is hereby,
possible to determine the capital of the partnership. The plaintiff, however, seems to decided by the reversing the judgment appealed from, and sentencing the defendant
be agreeable to considering the initial partnership capital as the capital at the time of to pay the plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent
the winding up of the business. per annum from July 1, 1918, until fully paid, with costs. So ordered.

August 3, 1918, defendant assumed complete responsibility for the business by Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and
objecting to the appointment of a receiver as prayed for by plaintiff, and giving a bond Romualdez, JJ., concur.
therefor. Until that date his acts were those of a managing partner, binding against
the partnership; but thereafter his acts were those of a receiver whose authority is
contained in section 175 of the Code of Civil Procedure.

A receiver has no right to carry on and conduct a business unless he is authorized or Footnotes
directed by the court to do some, and such authority is not derived from an order of
appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does 1De la Rosa vs. Ortega Go-Cotay, not reported.
not appear that the defendant as a receiver was authorized by the court to continue
the business of the partnership in liquidation. This being so, he is personally liable for
the losses that the business amy have sustained. (34 Cyc., 296.) The partnership
must not, therefore, be liable for the acts of the defendant in connection with the

EN BANC
[G.R. No. 24243. January 15, 1926. ]
ILDEFONSO DE LA ROSA, administrator of the intestate estate of the
deceased Go-Lio, Plaintiff-Appellant, v. ENRIQUE ORTEGA GO-
COTAY, Defendant-Appellant.
Crispin Oben, for Plaintiff-Appellant.
Paredes, Buencamino & Yulo, for Defendant-Appellant.
SYLLABUS
1. PARTNERSHIPS; LIQUIDATION OF THEIR BUSINESS; DETERMINING PROFITS. —
When in liquidating a partnership the profits for a given period of time cannot be
exactly determined for lack of evidence, but the profits for certain periods prior and
subsequent thereto are known, the profits corresponding to the said given time may
be determined by finding the average of those profits already known and
multiplying it by the length of the time included between said periods.
2. ID.; ID.; MANAGING PARTNER; HIS AUTHORITY; RECEIVER. — When to prevent
a receiver from taking charge of a business in dissolution, the managing partner
gives a bond and continues the business, he ceases to be managing partner from
that time in order to become receiver; and while before that date the property was
liable for his acts, yet that is not the case with his subsequent acts, which are
regulated by the provisions of section 175 of the Code of Civil Procedure, and
without express judicial authority he cannot continue the business of the
partnership, being personally liable for the losses should he do so. (34 Cyc., 296.)
DECISION
VILLA-REAL, J. :
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a
society for the Purchase and sale of articles of commerce, and for this purpose they
opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China.
Vicente Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the
business. Go-Lio died in China in October, 1916, leaving a widow and three children,
one of whom came to the Philippines and filed a petition for the appointment of
Ildefonso de la Rosa as administrator of the intestate estate of his deceased father,
which petition was granted by the Court of First Instance of Nueva Ecija. Ildefonso
de la Rosa, in his capacity as administrator of the intestate estate of the deceased
Go-Lio, requested Enrique Ortega Go-Cotay to wind up the business and to deliver
to him the portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay
denied the petition, alleging that the business was his exclusively. In view of this
denial, Ildefonso de la Rosa, as administrator, on July 2, 1918, filed with the Court
of First Instance of Nueva Ecija a complaint against Enrique Ortega Go-Cotay in
which he prayed that the defendant be sentenced to deliver to the plaintiff one-half
of all the property of the partnership formed by Go-Lio and Vicente Go-Sengco, with
costs against the defendant, and that the said plaintiff be appointed receiver for the
property of the said partnership.
Defendant, in answering the complaint, denied each and every allegation thereof,
and as a special defense alleged that more than ten years had elapsed before the
filing of the complaint, and prayed that he be absolved therefrom, with costs
against the plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-
Chan, Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory,
liquidate and determine the one-half belonging to the plaintiff of all of the property
of the store in question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office
of receiver, pursuant to the order of the court dated August 3, 1918, the defendant
filed a bond in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the
court their report, showing the net profits of the business between the period from
1913 to 1917, which amounted to the total sum of P25,038.70 and consisted of the
following items:
Profits for the year 1913 2,979.00
Profits for the year 1914 3,046.94
Profits for the year 1915 4,103.07
Profits for the year 1916 4,736.00
Profits for the year 1917 10,174.69
————
Total 25,038.70
In view of the appeal taken by defendant the parties on December 7, 1921, entered
into an agreement whereby they agreed to suspend the liquidation ordered by the
court until the appeal to the Supreme Court was decided, and whereby the
defendant was authorized to continue in the possession of the property in litigation,
upon the giving of a bond in the amount of P25,000, and cancelling the former bond
for P10,000.
This court in deciding case R. G. No. 18919, on October 5, 1922, held that the
appeal was premature and ordered that the record be remanded to the court of
origin with instruction to enter a final order in accordance with the liquidation made
by the commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the court below appointed again Justo Cabo-Chan suggested by the against the partnership; but thereafter his acts were those of a receiver whose
defendant and Cua Poco suggested by the plaintiff, as commissioners, who authority is contained in section 175 of the Code of Civil Procedure.
submitted two reports, one prepared by commissioners Tantengco and Cua Poco,
and the other by commissioner Justo Cabo-Chan. The former stated in their report A receiver has no right to carry on and conduct a business unless he is authorized or
that they had examined the books for the years 1919 to 1922, for the reason, they directed by the court to do so, and such authority is not derived from an order of
said, that they appeared "to have been prepared by some person in a careful way at appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It
a certain time." The latter commissioner examined all the books and stated in his does not appear that the defendant as a receiver was authorized by the court to
report that the business had suffered a net loss amounting to the sum of continue the business of the partnership in liquidation. This being so, he is
P89,099.22. personally liable for the losses that the business may have sustained. (34 Cyc.,
296.) The partnership must not, therefore, be liable for the acts of the defendant in
After trial and the parties having introduced all their evidence, the lower court, by connection with the management of the business until August 3, 1918, the date
order of December 13, 1924, disapproved the report of the commissioners when he ceased to be a member and manager in order to become receiver.
Tantengco and Cua Poco, but approved, with slight modifications, the report of
commissioner Cabo-Chan, holding that the result of the liquidation showed liabilities As to the first semester of 1918, during which time the defendant had been
to the amount of P89,690.45 in view of which plaintiff had nothing to recover from managing the business of the partnership as a member and manager, taking into
defendant, as there was no profit to divide. account that the profits had been on the increase, said profits having reached the
amount of P10,174.69 in the year 1917, it would not be an exaggeration to
From this decision the plaintiff has appealed in due time and form making the estimate that the profits for 1918 would have been at least the same as the profits
following assignment of errors: (1) The lower court erred in holding that the books of 1917; so that for the first half of 1918, the profit would be P5,087.34.
were authentic, and in not holding that they were false books exhibited by the
defendant about alleged operations in the years 1918 et seq. which show enormous In conclusion we have the following profits of the business of this partnership now in
debts and imaginary losses of the business; (2) the lower court erred in giving full liquidation, to wit:
credit to the testimony of commissioner Justo Cabo-Chan; (3) the lower court erred
in holding that the partnership had incurred debts and suffered losses, as shown in
Capital of partnership 4,779.39
the report of Justo Cabo-Chan from 1518 on; (4) the lower court erred in not
holding that the share of the plaintiff, as his capital and profits until the end of
Profits until 190 5,651.40
1917, is equivalent to the sum of twenty-seven thousand seven hundred fifty-five
pesos and forty-seven centavos (P27,755.47), Philippine currency, plus an annual
Profits 1906-1912 20,141.4
quota of at least two thousand five hundred three pesos and eighty-seven centavos
(P2,503.87), Philippine currency, as his portion of the profits since the beginning of
Profits 1913-1917 25,038.70
1918 until the delivery to the plaintiff of his share in the partnership; (5) the court
below erred in not ordering the prosecuting attorney to commence an investigation
Profits first semester 1918 6,087.34
as to the falsified books of accounts that the defendant had exhibited for proper
criminal proceeding.
————
From the evidence it appears that the partnership capital was P4,779.39, and the
Total 60,598.28
net profits until the year 1915 amounted to P5,551.40. Because some books of
account had been destroyed by white ants (anay), the liquidation of the business of
the partnership for the period from 1906 to 1912 could not be made. But knowing One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of
the net profit for the period between 1904 and 1905, which is P5,551.40, and the intestate estate of Go-Lio.
finding the average of the profits for each of these years, which is P2,775.70; and
knowing the net profit for the year 1913, which is P2,979, we can find the average In view of the foregoing, we are of the opinion that the case must be, as is hereby,
between the net profit for 1905, namely, P2,275.70, and the net profit for the said decided by reversing the judgment appealed from, and sentencing the defendant to
year 1913, namely, P2,979. Said average is the sum of P2,877.35, which may be pay the plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent
considered as the average of the net annual profits for the period between 1906 and per annum from July 1, 1918, until fully paid, with the costs. So ordered.
1912, which in seven years make a total of P20,141.45. The assets of the
partnership, as well as the value of its property, could not be determined when Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and
making the liquidation because there was no inventory and for this reason it was Romualdez, JJ., concur.
not possible to determine the capital of the partnership. The plaintiff, however,
seems to be agreeable to considering the initial partnership capital as the capital at
the time of the winding up of the business.

August 3, 1918, defendant assumed complete responsibility for the business by

objecting to the appointment of a receiver as prayed for by the plaintiff, and giving
a bond therefor. Until that date his acts were those of a managing partner, binding
 Republic of the Philippines IV. The object and purpose of the copartnership are as follows:
SUPREME COURT
Manila
1. To engage in real estate business, either by buying and selling real estates; to subdivide
real estates into lots for the purpose of leasing and selling them.;
EN BANC
(c) That the properties sold were not part of the contributed capital (which was in cash) but land
G.R. No. L-11840 December 10, 1963 precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from
whom the partnership had acquired them.
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,
vs. With these points firmly in mind, let us turn to the points insisted upon by appellant.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained
Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees. possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself
Jose C. Calayco for plaintiffs-appellants.. admitted that —

RESOLUTION
REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we
have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An,
made in 1949 by the widow of the managing partner, Tan Sin An (Executed in her dual capacity as
Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers
Washington Sycip and Betty Lee for the following consideration:
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the
properties (as) she had no other means of income. Then I said, because I wanted to help
Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural
lands. I allowed her to take care of the properties in order to help her and because I believe
in God and — wanted to help her.
Q — So the answer to my question is you did not take any steps?
A — I did not.

Q — And this conversation which you had with Mrs. Yu Eng Lai was few months
Cash paid P37,000.00 after 1945?
Debts assumed by purchaser:
A — In the year 1945. (Emphasis supplied).
To Yutivo 62,415.91
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-9,
To Sing Yee Cuan & Co., 54,310.13 wherein he stated:

TOTAL P153,726.04 that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of
course they are receiving quiet a lot benefit from the plantation.

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding, Kong Chai Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater
Pin, widow of the deceased partner Tan Sin An, never became more than a limited partner, weight than those of Hernando Young and Rufino Lim, having been made against the party's own
incapacitated by law to manage the affairs of partnership; that the testimony of her witness Young and interest.
Lim belies that she took over the administration of the partnership property; and that, in any event, the
sale should be set aside because it was executed with the intent to defraud appellant of his share in
the properties sold. Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the
properties "abandoned and undeveloped", omits to mention that said part of the testimony started with
the question:
Three things must be always held in mind in the discussion of this motion to reconsider, being basic
and beyond controversy:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong
Chai Pin there in Davao at that time?
(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partners inter se, and this aspect to the case was
expressly reserved in the main decision of 26 July 1960; Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were
undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the
partnership properties, was given in answer to the question:
(b) That partnership was expressly organized: "to engage in real estate business, either by buying and
selling real estate". The Articles of co-partnership, in fact, expressly provided that:
 According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his family lived
on the plantation of the partnership and derived their subsistence from that plantation. What
can you say to that? (Dep. 19 July 1956, p. 8).
And also —
What can you say as to the development of these other properties of the partnership which
you saw during the occupation? (Dep. p. 13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigato is
about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Young we saw all the abaca destroyed. The place was occupied
by the Japanese Army. They planted camotes and vegetables to feed the Japanese Army.
Of course they never paid any money to Tan Sin An or his family. (Dep., Lim, pp. 13-14.
Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he
told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the properties).
Witnesses Lim and Young referred to the period of Japanese occupation; but Goquiolay's authority
was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of
management during the Japanese occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested
his willingness that the widow should manage the partnership properties. Whether or not she complied
with this authority is a question between her and the appellant, and is not here involved. But the
authority was given, and she did have it when she made the questioned sale, because it was never
revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the
property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was not a mere agent, because she had become a
partner upon her husband's death, as expressly provided by the articles of copartnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only became a limited
partner, Goquiolay's authorization to manage the partnership property was proof that he considered
and recognized her as general partner, at least since 1945. The reason is plain: Under the law (Article
148, last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the interests of
the copartnership, not even in the capacity of agents of the managing partners. (Emphasis
supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to
be considered a general partner. By authorizing the widow to manage partnership property (which a
limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection, because he would normally prefer to avoid any
liability in excess of the value of the estate inherited so as not to jeopardize his personal assets. But
this statutory limitation of responsibility being designed to protect the heir, the latter may disregard it
and instead elect to become a collective or general partner, with all the rights and privileges of one,
and answering for the debts of the firm not only with the inheritance but also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does not require the assent of the surviving
partner.
It must be remember that the articles of co-partnership here involved expressly stipulated that:
In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership (Art.
XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of death of either partner "the co-partnership ... will
have to be continued" with the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the difference between the two
kinds of associations is fundamental; and specially because the conversion into a limited association
would have the heirs of the deceased partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs would become general partners rather
than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to
assume personal and unlimited responsibility for the obligations of the firm. The heirs, in other words,
can not be compelled to become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily choose to become general
partners, waiving the protective mantle of the general laws of succession. And in the latter event, it is
pointless to discuss the legality of any conversion of a limited partner into a general one. The heir
never was a limited partner, but chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs
into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and does not deal
with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between
the partners inter sewere expressly reserved in our main decision. Now, in determining what kind of
partner the widow of partner Tan Sin an Had elected to become, strangers had to be guided by her
conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is
barred from managing the partnership business or property, third parties (like the purchasers) who
found the widow possessing and managing the firm property with the acquiescence (or at least without
apparent opposition) of the surviving partners were perfectly justified in assuming that she had become
a general partner, and, therefore, in negotiating with her as such a partner, having authority to act for,
and in behalf of the firm. This belief, be it noted, was shared even by the probate court that approved
the sale by the widow of the real property standing in the partnership name. That belief was fostered by
the very inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's
death in 1942 to the sale in 1949, there was more than ample time for Goquiolay to take up the
management of these properties, or at least ascertain how its affairs stood. For seven years Goquiolay
could have asserted his alleged rights, and by suitable notice in the commercial registry could have
warned strangers that they must deal with him alone, as sole general partner. But he did nothing of the
sort, because he was not interested (supra), and he did not even take steps to pay, or settle the firm
debts that were overdue since before the outbreak of the last war. He did not even take steps, after
Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay)
would have no intervention in the management of the partnership. This laches certainly contributed to
confirm the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the
firm's properties apart from the presumption that a general partner dealing with partnership property
has to requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in
our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the other, undoubtedly
creates on obligation between the two partners, which consists in asking the other's consent
before contracting for the partnership. This obligation of course is not imposed upon a third
person who contracts with the partnership. Neither it is necessary for the third person to
ascertain if the managing partner with whom he contracts has previously obtained the
consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his
copartner; for otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the transaction is violating
the articles of partnership, but on the contrary is acting in accordance therewith. And this
finds support in the legal presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed
(No. 31, section 334). This last presumption is equally applicable to contracts which have
the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516).
(Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm.
This argument is lamentably superficial because it fails to differentiate between real estate acquired
and held as stock-in-trade and real estate held merely as business site (Vivante's "taller o banco
social") for the partnership. Where the partnership business is to deal in merchandise and goods, i.e.,
movable property, the sale of its real property (immovables) is not within the ordinary powers of a
partner, because it is not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the present case), the
immovables thus acquired by the firm from part of its stock-in-trade, and the sale thereof is in
pursuance of partnership purposes, hence within the ordinary powers of the partner. This distinction is
supported by the opinion of Gay de Montella1 , in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comercio o a los productos de la fabrica para explotacion de
los cuales se ha constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal right to
sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate can not
bind the firm by purchases or sales of such property made in the regular course of business,
then they are incapable of exercising the essential rights and powers of general partners
and their association is not really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the partnership, "to engage
... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it can not be maintained
that the sale was made in excess of her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al.,
vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In
the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its property was
insufficient to pay its debts, though it still had good credit, and was actively engaged in the
prosecution of its business. On that day, which was Saturday, the plaintiff caused to be
prepared, ready for execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters, shelving, and other
furnishings and fixtures necessary for, and used in carrying on, its business, and signed the
same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner, of said firm, and Owen McCrath, individually, have hereunto set
their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath. Owen
McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time,
the plaintiff had prepared, ready for filing, the petition for the dissolution of the partnership
and appointment of a receiver which he subsequently filed, as hereinafter stated. On the
day the mortgages were signed, they were placed in the hands of the mortgagees, which
was the first intimation to them that there was any intention to make them. At the time none
of the claims secured by the mortgages were due, except, it may be, a small part of one of
them, and none of the creditors to whom the mortgages were made had requested security,
or were pressing for the payment of their debts. ... The mortgages appear to be without a
sufficient condition of defiance, and contain a stipulation authorizing the mortgagees to take
immediate possession of the property, which they did as soon as the mortgages were filed
through the attorney who then represented them, as well as the plaintiff; and the stores
were at once closed, and possession delivered by them to the receiver appointed upon the
filing of the petition. The avowed purposes of the plaintiff, in the course pursued by him, was
to terminate the partnership, place its properly beyond the control of the firm, and insure the
preference of the mortgagees, all of which was known to them at the time; .... (Cas cit., p.
343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that the
conveyances were made with intent to terminate the partnership, and that they were not within the
powers of McGrath as a partner. But there is no similarity between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the business; in
our case, the lands sold were those acquired to be sold. In the McGrath case, none of the creditors
were pressing for payment; in our case, the creditors had been unpaid for more than seven years, and
their claims had been approved by the probate court for payment. In the McGrath case, the partnership
received nothing beyond the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of
the partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant point out, as
indicia thereof, the allegedly low price paid for the property, and the relationship between the buyers,
the creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of
which P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These
debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they were
approved by the court, and its approval is now final. The claims were, in fact, for the balance on the
original purchase price of the land sold (sue first to La Urbana, later to the Banco Hipotecario) plus
accrued interests and taxes, redeemed by the two creditors-claimants. To show that the price was
inadquate, appellant relies on the testimony of the realtor Mata, who is 1955, six years after the sale in
question, asserted that the land was worth P312,000.00. Taking into account the continued rise of real
estate values since liberation, and the fact that the sale in question was practically a forced sale
because the partnership had no other means to pay its legitimate debts, this evidence certainly does
not show such "gross inadequacy" as to justify recission of the sale. If at the time of the sale (1949) the
price of P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if
the creditor's representative, Yu Khe Thai, had already warned him four years before (1945) that the
creditors wanted their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts.
But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and
then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the
partnership when it was unable even to pay the taxes on the property, and the interest on the principal
since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is clear on the record that since
liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he
entitled now to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled
that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also
Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that
the original buyers, Washington Sycip and Betty Lee, were without independent means to purchase the
property. That the Yutivos should be willing to extend credit to them, and not to appellant, is neither
illegal nor immoral; at the very least, these buyers did not have a record of inveterate defaults like the
partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo
firm and their component members. But no proof is adduced. If he was such a victim, he could have
easily defeated the conspirators by raising money and paying off the firm's debts between 1945 and
1949; but he did not; he did not even care to look for a purchaser of the partnership assets. Were it
true that the conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands
when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4
years, until 1949, to have the sale effected by the widow of Tan Sin An, and that the sale should have
been routed through the probate court taking cognizance of Tan Sin An's estate, all of which increased
the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This
for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (Joint
and several)debtors (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is the
effect that:
Where the obligation of the decedent is joint and several with another debtor, the claim shall
be filed against the decedent as if he were the only debtor, without prejudice to the right of
the estate to recover contribution from the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership
and those of Tan Sim An personally, and a mortgage is indivisible, in the sense that each and every
parcel under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil
Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a party's consent
to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at al, it can only be a fraud
of creditors that gives rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission is subsidiary;
it can not be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolay can not obtain
reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is
not maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Regala, J., took no part.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed
by Antonio C. Goquiolay, et al., seeking to annul the sale made Z. Sycip and Betty Y. Lee on the
ground that it was executed without proper authority and under fraudulent circumstances. In a decision
rendered on July 26, 1960 we affirmed this decision although on grounds different from those on which
the latter is predicted. The case is once more before us on a motion for reconsideration filed by
appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision, resale and lease. The
partnership was duly registered, and among the conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An would be the exclusive managing partner, and
(2) in the event of the death of any of the partners the partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor of
Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of the partnership, with the capital orginally invested,
financing the balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00, payable in ten years. On the same date, Tan
Sin An, in his individual capacity, acquired 46 parcels of land executing a mortgage thereon in favor of
the same company for the sum of P35,000.00. On September 25, 1940, these two mortgage
obligations were consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan
Sin An, in his individual capacity, and the partnership bound themselves to pay jointly and severally the
total amount of P52,282.80, with 8% annual interest thereon within a period of eight years mortgaging
in favor of said entity the 3 parcels of land belonging to the partnership and the 46 parcels of land
belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co.,
Inc. paid to the Banco Hipotecario the remaining unpaid balance of the mortgage obligation of the
partnership amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of
Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a
conference in the office of the former during which he offered to buy the interest of Goquiolay in the
partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador Zuño, to ask
Goquiolay to execute in her favor a power of attorney. Goquiolay refused both to sell his interest in the
partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co. and Sing,
Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin
An for the sum of P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of
both Tan Sin An and the partnership. After first denying any knowledge of the claims, Kong Chai Pin,
as administratrix, admitted later without qualification the two claims in an amended answer she filed on
February 28, 1947. The admission was predicted on the ground that she and the creditors were closely
related by blood, affinity and business ties. In due course, these two claims were approved by the
court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition
in the probate court to sell all the properties of the partnership as well as some of the conjugal
properties left by Tan Sin An for the purpose of paying the claims. Following approval by the court of
the petition for authority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming to act
as managing partner of the partnership, executed on April 4, 1949 a deed of sale of the properties
owned by Tan Sin An and by the partnership in favor of Betty Y. Lee and Washington Z. Sycip in
consideration of the payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the
buyers of the claims filed by Yutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose
favor the buyers executed a mortgage on the properties purchased. Betty Y. Lee and Washington Z.
Zycip subsequently executed a deed of sale of the same properties in favor of their co-defendant
Insular Development Company, Inc. It should be noted that these transactions took place without the
knowledge of Goquiolay and it is admitted that Betty Lee and Washington Z. Sycip bought the
properties on behalf of the ultimate buyer, the Insular Development Company, Inc., with money given
by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the court approving the sale. The court granted the
petition. While the order was pending appeal in the Supreme Court, Goquiolay filed the present case
on January 15, 1953 seeking to nullify the sale as stated in the early part of this decision. In the
meantime, the Supreme Court remanded the original case to the probate court for rehearing due to
lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to sell because even granting that she became a
partner upon the death of Tan Sin An the power of attorney granted in favor of the latter expired after
his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all
the rights and prerogatives of Tan Sin an as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner to represent him in the partnership after his
death Kong Chai Pin became a managing partner, this being the capacity held by Tan Sin an when he
died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the power of attorney given by Goquiloay to Tan Sin
An as manager of the partnership expired after his death; (2) his widow Kong Chai Pin did not inherit
the management of the partnership, it being a personal right; (3) as a general rule, the heirs of a
deceased general partner come into the partnership in the capacity only of limited partners; (4) Kong
Chai Pin, however, became a general partner because she exercised certain alleged acts of
management; and (5) the sale being necessary to pay the obligations of the partnership properties
without the consent of Goquiolay under the principle of estoppel the buyers having the right to rely on
her acts of management and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for reconsideration which because of the
importance of the issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as
limited partners only, therefore Kong Chai Pin, who must necessarily have entered the
partnership as a limited partner originally, could have not chosen to be a general partner by
exercising the alleged acts of management, because under Article 148 of the Code of
Commerce a limited partner cannot intervene in the management of the partnership, even if
given a power of attorney by the general partners. An Act prohibited by law cannot given
rise to any right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu
(Yutivo) family, the rest, members of the law firm which handles the Yutivo interests and
handled the papers of sale. They did not rely on the alleged acts of management — they
believed (this was the opinion of their lawyers) that Kong Chai Pin succeeded her husband
as a managing partner and it was on this theory alone that they submitted the case in the
lower court.
3. The alleged acts of management were denied and repudiated by the very witnesses
presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient to
reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion,
it is enough that we lay stress on the following points: (1) there is no sufficient factual basis to conclude
that Kong Chai Pin executed acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of the partnership
properties; (92) the alleged acts of management, even if proven, could not give Kong Chai Pin the
character of general manager for the same contrary to law and well-known authorities; (3) even if Kong
Chai Pin acted as general manager she had no authority to sell the partnership properties as to make it
legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of
the partnership and if she did so it was merely to favor the purchasers who were close relatives to the
prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our
ruling cannot be sustained. In making our aforesaid ruling we apparently gave particular importance to
the fact that it was Goquiolay himself who tried to prove the acts of management. Appellants, however,
have emphasized the fact, and with reason, the appellees themselves are the ones who denied and
refuted the so-called acts of management imputed to Kong Chai Pin. To have a clear view of this
factual situation, it becomes necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one
Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to
the properties and deriving some income therefrom and she had no other means of livelihood except
those properties and some rentals derived from the properties." He went on to say by way of remark
that she could continue doing this because he wanted to help her. One point that he emphasized was
that he was "no interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay,
who was a close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of
Goquiolay. Young testified that in 1945 he was still in Davao, and insisted no less than six times during
his testimony that he was not in Manila in 1945, the year when he allegedly gave the information to
Goquiolay, stating that he arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the alleged information given by him to
Goquiolay and that he found them "abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership
properties and corroborated the testimony of Hernando Young in all respects: "the properties in Mamay
were underdeveloped, the shacks were destroyed in Tigato, and the family of Kong Chai Pin did not
receive my income from the partnership properties." He specifically rebutted the testimony of
Goquiolay, in his deposition given on June 30, 1956 that Kong Chai Pin and her family were living in
the partnership properties, and stated that the "family never actually lived in the properties of the
partnership even before the war or after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a third person,
Hernando Young — he stressed this point twice. A careful analysis of the substance of Goquiolay's
testimony will show that he merely had no objection to allowing Kong Chai Pin to continue attending to
the properties in order to give her some means of livelihood, because, according to the information
given him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of
livelihood. But certainly he made it very clear that he did not allow her to manage the partnership when
he explained his reason for refusing to sign a general power of attorney for Kong Chai Pin which her
counsel, Atty. Zuño, brought with him to his house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me if I
could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño
what is the use of executing a general power of attorney for Mrs. Kong Chai Pin when Mrs.
Kong Chai Pin had already got that plantation for agricultural purposes, I said for agricultural
purposes she can use that plantation ... (T.S.N. p. 9, Hearing on May 5, 1955).
It must be noted that in his testimony Goquiolay was categorically stating his opposition to the
management of the partnership by Kong Chai Pin and carefully made the distinction that his conformity
was for her to attend to the partnership properties in order to give her merely a means of livelihood. It
should be stated that the period covered by the testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuño, it should also be stated, did not deny the
statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly controverted. The most that we can say is that the
alleged acts are doubtful more so when they are disputed by the defendants themselves who later
became the purchasers of the properties, and yet these alleged acts, if at all, only refer to management
of the properties and not to management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly
proven; second, because the record clearly shows that the defendants, or the buyers, were not misled
nor did they rely on the acts of management, but instead they acted solely on the opinion of their
counsel, Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as
managing partner by operation of law; and third, because the defendants are themselves estopped to
invoke a defense which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such
acts give as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere acceptance of the inheritance does not maked the heir
of a general partner a general partner himself. He emphasized that heir must declare that he is
entering the partnership as a general partner unless the deceased partner has made it an express
condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become a general partner by
exercising acts of management? We believe not, for, in consonance with our ruling that as a general
rule the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious
that the heirs, upon entering the partnership, must make a declaration of his characters, otherwise he
should be deemed as having succeeded as limited partner by the mere acceptance of the inheritance.
And here Kong Chai Pin did not make such declaration. Being then a limited partner upon the death of
Tan Sin An by operation of law, the peremptory prohibition contained in Article 1482 of the Code of
Commerce became binding upon her and as a result she could not change her status by violating its
provisions not only under the general principle that prohibited acts cannot produce any legal effect, but
also because under the provisions of Article 1473 of the same Code she was precluded from acquiring
more rights than those pertaining to her as a limited partner. The alleged acts of management,
therefore, did not give Kong Chai Pin the character of general manager to authorized her to bind the
partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says: —
If the management of the general partnership has not been limited by special agreement to
any of the members, all shall have the power to take part in the direction and management
of the common business, and the members present shall come to an agreement for all
contracts or obligations which may concern the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing partner
or by his authorized agent, and it is expressly stipulated that the managing partner may
delegate the entire management of the affairs of the co-partnership by irrevocable power of
attorney to any person, firm or corporation he may select, upon such terms as regards
compensation as he may deem proper, and vest in such person, firm or corporation full
power and authority, as the agent of the co-partnership and in his name, place and stead to
do anything for it or on his behalf which he as such managing partner might do or cause to
be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing partner are not defined either under the
provisions of the Code of Commerce or in the articles of partnership, a situation which, under Article 2
of the same Code, renders applicable herein the provisions of the Civil Code. And since, according to
well-known authorities, the relationship between a managing partner and the partnership is
substantially the same as that of the agent and his principal,4the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles governing agency. And, on this point, the
law says that an agency created in general terms includes only acts of administrations, but with regard
to the power to compromise, sell mortgage, and other acts of strict ownership, an express power of
attorney is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the
partnership.
Of course, there is authority to the effect that a managing partner, even without express power of
attorney may perform acts affecting ownership if the same are necessary to promote or accomplish a
declared object of the partnership, but here the transaction is not for this purpose. It was effected not to
promote any avowed object of the partnership.6 Rather, the sale was affected to pay an obligation of
the partnership by selling its real properties which Kong Chai Pin could not do without express
authority. The authorities supporting this view are overwhelming.
 La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comercio, o a los productos de la fabrica para explotacion de
los cauale se ha constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario. Por el contrario el generente no tiene
attribuciones para vender las instalaciones del comercio, ni la fabrica, ni las maquinarias,
vehiculos de transporte, etc. que forman parte de la explotacion social. En todos estas
casos, equalmente que sisse tratase de la venta de una marca o procedimiento mecanico o
quimico, etc., siendo actos de disposicion, seria necesario contar con la conformidad
expresa de todos los socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que
los señalados por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas
las operaciones que sirven para aquel ejercicio, incluso cambiando repetidas veces los
propios acuerdos segun el interest convenido de la Sociedad. Pueden contratar y despedir
a los empleados. tomar en arriendo almacenes y tiendas; expedir cambiales, girarlas,
avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y adquirir inmuebles
destinados a su explotacion o al empleo, estable de sus capitales. Pero no podran ejecutar
los actos que esten en contradiccion con la explotacion que les fue confiada; no podran
cambiar el objeto, el domicilio, la razon social; fundir a la Sociedad en otro; ceder la accion,
y por tanto, el uso de la firma social a otro, renunciar definitivamente el ejercicio de uno de
otro ramo comercio que se les haya confiado y enajenar o pignorar el taller o el banco
social, excepto que la venta o pignoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de Derecho
Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for the carrying one of its
business. If all that can be said of it was that it was convenient, or that it facilitated the
transaction of the business of the firm, that is not sufficient, in the absence of evidence of
sanction by other partners. Nor, it, seems, will necessity itself be sufficient if it be an
extraordinary necessity. What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While, within
this rule, one member of a partnership may, in the usual and ordinary course of its business,
make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects
intended for sale, to a bona fide purchaser of mortgagee, without the consent of the other
members of the firm, it is not within the scope of his implied authority to make a final
disposition of al of its effects, including those employed as the means of carrying on its
business, the object and effect of which is to immediately terminate the partnership, and
place its property beyond its control. Such a disposition, instead of being within the scope of
the partnership business, or in the usual and ordinary way of carrying it on, is necessarily
subversive of the object of the partnership, and contrary to the presumed intention of the
partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.E., 338, 343; Emphasis
supplied).
Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but
to pay its obligation without first obtaining the consent of the other partners the sale is invalid in excess
of her authority.
4. Finally, the sale under consideration was effected in a suspicious manner as may be gleaned from
the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in the City
of Davao have an area of 200 hectares more or less, or 2,000,000 square meters. These properties
were purchased by the partnership for purposes of subdivision. According to realtor Mata, who testified
in court, these properties could command at the time he testified a value of not less than P312,000.00,
and according to Dalton Chen, manager of the firm which took over the administration, since the date
of sale no improvement was ever made thereon precisely because of this litigation. And yet, for said
properties, aside from the sum of P37,000.00 which was paid for the properties of the deceased and
the partnership, only the paltry sum of P66,529.91 was paid as a consideration therefor, of which the
sum of P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her
purpose was only to pay the partnership obligation. She could have negotiated a loan if she wanted to
pay it by placing the properties as security, but preferred to sell them even at such low price because
of her close relationship with the purchasers and creditors who conveniently organized a partnership to
exploit them, as may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a grandaughter of Jose P. Yutivo, founder of the
defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO. and SING, YEE &
CUAN CO., INC., alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee &
Cuan are the three children of Jose). YU KHE THAI is a grandson of the same Jose P.
Yutivo, and president of the two alleged creditors. He is the acknowledged head of the Yu
families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana Yu, a
daughter of Yu Khe Thai. BETTY Y. LEE, the other original buyer is also a daughter of Yu
Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the
specific purpose of buying the partnership properties. Its incorporators were: Ana Yu and
Betty Y. Lee, Attys. Quisumbing and Salazar, the lawyers who studied the papers of the
sale and have been counsel for the Yutivo interests; Dalton Chen, a brother-in-law of Yu
Khe Thai and an executive of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an
executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the
Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai
Pin, have already conceived the idea of possessing the lands for purposes of subdivision, excluding
Goquilolay from their plan, and this is evident from the following sequence of events;lawphil.net
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the
creditors of the partnership filed their claim against the partnership in the intestate
proceedings. The creditors studied ways and means of liquidating the obligation of the
partnership, leading to the formation of the defendant Insular Development Co., composed
of members of the Yutivo family and the counsel of record of the defendants, which
subsequently bought the properties of the partnership and assumed the obligation of the
latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee &
Cuan, also of the Yutivo family. The buyers took time to study the commercial potentialities
of the partnership properties and their lawyers carefully studied the document and other
papers involved in the transaction. All these steps led finally to the sale of the three
partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to grant the motion for
reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L-11840, December 10,
1963
FACTS:
Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name
“Tan Sin An and Antonio Goquiolay” for the purpose of dealing in real estate. The agreement lodged
upon Tan Sin An the sole management of the partnership affairs. The lifetime of the partnership was
fixed at ten years and the Articles of Co-partnership stipulated that in the event of death of any of the
partners before the expiration of the term, the partnership will not be dissolved but will be continued by
the heirs or assigns of the deceased partner. But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff
partnership purchased 3 parcels of land which was mortgaged to “La Urbana” as payment of P25,000.
Another 46 parcels of land were purchased by Tan Sin An in his individual capacity which he assumed
payment of a mortgage debt for P35K. A downpayment and the amortization were advanced by Yutivo
and Co. The two obligations were consolidated in an instrument executed by the partnership and Tan
Sin An, whereby the entire 49 lots were mortgaged in favor of “Banco Hipotecario”
 Tan Sin An died
leaving his widow, Kong Chai Pin and four minor children. The widow subsequently became the
administratrix of the estate. Repeated demands were made by Banco Hipotecario on the partnership
and on Tan Sin An. 
 Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the remaining
balance of the mortgage debt, the mortgage was cancelled Yutivo Sons and Sing Yee filed their claim in
the intestate proceedings of Tan Sin An for advances, interest and taxes paid in amortizing and
discharging their obligations to “La Urbana” and “Banco Hipotecario.” Kong Chai Pin filed a petition with
the probate court for authority to sell all the 49 parcels of land. She then sold it to Sycip and Lee in
consideration of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons and
Sing Yee. Later, Sycip and Lee executed in favor of Insular Development a deed of transfer covering the
49 parcels of land.
 When Goquiolay learned about the sale to Sycip and Lee, he filed a petition in the
intestate proceedings to set aside the order of the probate court approving the sale in so far as his
interest over the parcels of land sold was concerned. Probate court annulled the sale executed by the
administratrix w/ respect to the 60% interest of Goquiolay over the properties Administratrix
appealed.
 The decision of probate court was set aside for failure to include the indispensable parties.
New pleadings were filed. The second amended complaint prays for the annulment of the sale in favor
of Sycip and Lee and their subsequent conveyance to Insular Development. The complaint was
dismissed by the lower court hence this appeal.
ISSUE/S: Whether or not a widow or substitute become also a general partner or only a limited partner.
Whether or not the lower court err in holding that the widow succeeded her husband Tan Sin An in the
sole management of the partnership upon Tan’s death Whether or not the consent of the other partners
was necessary to perfect the sale of the partnership properties to Sycip and Lee?
HELD:
Kong Chai Pin became a mere general partner. By seeking authority to manage partnership property,
Tan Sin An’s widow showed that she desired to be considered a general partner. By authorizing the
widow to manage partnership property (which a limited partner could not be authorized to do), Goqulay
recognized her as such partner, and is now in estoppel to deny her position as a general partner, with
authority to administer and alienate partnership property. The articles did not provide that the heirs of
the deceased would be merely limited partners; on the contrary, they expressly stipulated that in case of
death of either partner, “the co partnership will have to be continued” with the heirs or assignees. It
certainly could not be continued if it were to be converted from a general partnership into a limited
partnership since the difference between the two kinds of associations is fundamental, and specially
because the conversion into a limited association would leave the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation actually contemplated that the heirs would
become general partners rather than limited ones.
ANTONIO C. GOQUIOLAY, ET AL. vs. WASHINGTON Z. SYCIP, ET AL.
G.R. No. L-11840, December 10, 1963
REYES, J.B.L., J.
FACTS:
Tan Sin An and Antonio Goquiolay entered into a general commercial partnership which was tolast for 10
years for the purpose of dealing in realestate. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs and his co – partner, Goquiolay, has no voice or participationin the
management of the affairs of the co –partnership. They further agreed upon that in the event of the death
of any of the partners at any timebefore the expiration of the term, the co –partnership shall not be
dissolved but will have to becontinued and the deceased partner shall berepresented by his heirs or assigns
in the said co –partnership. A general power of attorney (GPA) was executed by Goquiolay in favor of Tan
Sin An whichincluded buy, sell, alienate and convey properties ofthe partnership as well as obtain loans as
he maydeem advisable for the best interest of the co –partnership. With the authority of the GPA,
thepartnership through Tan Sin An purchased 3 parcelsof land which was mortgaged to La Urbana
Sociedadand another 46 parcels of land which which werepurchased by Tan Sin An in his individual
capacity,and assumed mortgaged debt thereon. The downpayment for the 46 parcels of land was
advanced by Yutivo and Co. The two separate obligations were consolidated in an instrumentexecuted by
the partnership and Tan Sin An,whereby the entire 49 lots were mortgaged in favorof the Banco
Hipotecario de Filipinas (as successor toLa Urbana). Repeated demandsfor payment were made by Banco
Hipotecario on thepartnership and on Tan Sin An which was initiallypaid by Yutivo and Co. and Sing Yee
Cuan and Co. The mortgage waseventually cancelled. Now Yutivo and Sing Yee CuanCompany filed their
claims in the intestateproceedings of Tan Sin An. Kong Chai Pin filed apetition with the probate court for
authority to sell allthe 49 parcels of land to Washington Sycip and BettyLee for the purpose primarily of
settling the aforesaiddebts of her husband and the partnership. The court ordered the execution of deed
of sale in favor of Sycip and Lee in consideration of P37,000.00 and assuming payment of the claims filed
by Yutivo & Co.and Sing Yee Co. Later, Sycip and Lee executed infavor of the Insular Dev’t. Co. a deed of
transfercovering said 49 parcels of land. Upon learning the sale, the surviving partner Goquiolay filed a
petition to set aside thedecision of the probate court and annul the sale ofthe parcels of land by Kong Chai
Pin in favor of Sycipand Lee and their subsequent conveyance in favor ofInsular Devt. Co. in so far as the 3
lots owned by thepartnership is concerned. Kong Chai Pin averred thevalidity of the sale as successor
partner, in lieu of thelate Tan Sin An. The complaint was dismissed by thelower court and appeal was
directly taken to the SCby Goquiolay.
ISSUE:
1.Whether or not Kong Chai Pin acquired the managerial rights of her late husband Tan Sin An
2. Whether or not there was a valid sale of property to Sycip and Lee
HELD:
1. The right of exclusive management conferred upon Tan Sin An, being premised upontrust and
confidence, was a mere personal right thatterminated upon Tan’s demise. The provision in thearticles of
partnership stating that the deceasedpartner shall be represented by his heirs could nothave referred to
the managerial rights given to TanSin An but it more appropriately relates to thesuccession in the propriety
interest of each partner(heir becomes limited partner only).
2. However, consonant with the articles of co –partnership providing for the continuation of the
firmnotwithstanding the death of one of the partners, theheir of the deceased, by never repudiating
orrefusing to be bound under said provision, becameindividual partner with Goquiolay upon Tan’s
demise.By allowing Kong Chai Pin to retain control of thepartnership properties from 1942 to 1949,
Goquiolayis estopped from denying her legal representation ofthe partnership, with the power to bind it
with propercontracts. By authorizing the widow of the managingpartner to manage partnership property
(which alimited partner could not be authorized to do), theother general partner recognized her as a
generalpartner, and is now in estoppel to deny her positionas a general partner, with authority to
administerand alienate partnership property.
Antonio C. Goquiolay, et al. vs. Washington Z. Sycip, et al.
G.R. No. L-11840
December 10, 1963

FACTS:
Tan Sin An and Antonio C. Goquiolay executed a commercial partnership for
a period of ten years of which Goquiolay contributed 60% while Tan Sin An 40%. The
business of the partnership was to engage in buying real estate properties for
subdivision, resale and lease. The partnership also agreed upon in the partnership
agreement that Tan Sin An would be the exclusive managing partner, and in the event
of the death of any of the partners the partnership would continue, wherein the
deceased shall be represented by his heirs. Goquiolay executed a general power of
attorney in favor of Tan Sin An appointing the latter as manager of the partnership and
conferring upon him the usual powers of management. The partnership acquired three
parcels of land in Davao; these which are the only assets of the partnership. On the
same date, Tan Sin An, in his individual capacity, acquired 46 parcels of land. These
two mortgage obligations were, later on, consolidated. Tan Sin An died and was
survived by his widow, defendant Kong Chai Pin. Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An. Kong Chai Pin filed a petition with
the probate court for authority to sell all the 49 parcels of land for a claim in intestate
proceedings and sold it to Sycip and Lee. When Goquiolay learned about the said sale,
he filed a petition in the intestate proceedings to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold was concerned.

ISSUE:
Is the Partnership between Goquiolay and Kong Chai Pin valid considering
that it is Tan Sin An – the latter’s deceased spouse – who was the original Partner?

RULING:
Yes. Though it is stated by the Civil Code that “Dissolution is caused… 5) by
the death of any Partner…” it must be remembered that it is the Agreement/Contract of
the Partners that shall govern the Partnership and shall only be substantiated by the
Civil Code; this which is expressly stated in the same provision that “Dissolution is
caused… 1) Without Violation of the Agreement Between the partners…”. In the case,
it was agreed upon by the Original Partners that their Heirs/Assigns shall succeed over
them in case of their death and while the Partnership term has not yet expired.
Therefore, Kong Chai Pin, upon the death of her husband, shall succeed over the
latter’s rights as manager of the partnership.

(The case also appear under Articles 1845-1852 with a separate issue and ruling
relevant to said article)

G.R. No. 135813 October 25, 2001
FERNANDO SANTOS, petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are
binding on the Supreme Court. However, there are several exceptions to this principle. In the
present case, we find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,1 as
well as the August 17, 1998 and the October 9, 1998 Resolutions, 2 issued by the Court of
Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner]." 3
Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution
ruled as follows:
"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly,
the court's decision dated November 28, 1997 is hereby MODIFIED in that the
decision appealed from is AFFIRMED in toto, with costs against [petitioner]."4
The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for Reconsideration
of the August 17, 1998 Resolution.5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves
Reyes were introduced to each other by one Meliton Zabat regarding a lending
business venture proposed by Nieves. It was verbally agreed that [petitioner would]
act as financier while [Nieves] and Zabat [would] take charge of solicitation of
members and collection of loan payments. The venture was launched on June 13,
1986, with the understanding that [petitioner] would receive 70% of the profits while x
x x Nieves and Zabat would earn 15% each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as
chairman of the Monte Maria Development Corporation6 (Monte Maria, for brevity),
sought short-term loans for members of the corporation. [Petitioner] and Gragera
executed an agreement providing funds for Monte Maria's members. Under the
agreement, Monte Maria, represented by Gragera, was entitled to P1.31 commission
per thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as
credit investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of
Agreement' which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the
same lending business in competition with their partnership[.] Zabat was thereby
expelled from the partnership. The operations with Monte Maria continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated funds intended for Gragera for
the period July 8, 1986 up to March 31, 1987. Upon Gragera's complaint that his
commissions were inadequately remitted, [petitioner] entrusted P200,000.00 to x x x
Nieves to be given to Gragerax x x . Nieves allegedly failed to account for the amount.
[Petitioner] asserted that after examination of the records, he found that of the total
amount of P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted
to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
"In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the profits of the partnership.
"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat
after [petitioner] learned of Zabat's activities. Arsenio resigned from his job at the
Asian Development Bank to join the partnership.
"For her part, x x x Nieves claimed that she participated in the business as a partner,
as the lending activity with Monte Maria originated from her initiative. Except for the
limited period of July 8, 1986 through August 20, 1986, she did not handle sums
intended for Gragera. Collections were turned over to Gragera because he
guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made on
worksheets were based on this assumptive 100% collection of all loans. The loan
releases were made less Gragera's agreed commission. Because of this
arrangement, she neither received payments from borrowers nor remitted any amount
to Gragera. Her job was merely to make worksheets (Exhs. '15' to '15-
DDDDDDDDDD') to convey to [petitioner] how much he would earn if all the sums
guaranteed by Gragera were collected.
"[Petitioner] on the other hand insisted that [respondents] were his mere employees
and not partners with respect to the agreement with Gragera. He claimed that after he
discovered Zabat's activities, he ceased infusing funds, thereby causing the
extinguishment of the partnership. The agreement with Gragera was a distinct
partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the partnership
between [petitioner] and Gragera.
"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she received all
payments from which Nieves deducted Gragera's commission. The commission would
then be remitted to Gragera. She likewise determined loan releases.
 "During the pre-trial, the parties narrowed the issues to the following points: whether
[respondents] were employees or partners of [petitioner], whether [petitioner]
entrusted money to [respondents] for delivery to Gragera, whether the P1,555,068.70
claimed under the complaint was actually remitted to Gragera and whether
[respondents] were entitled to their counterclaim for share in the profits." 7
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner,
not his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves.
Thus, respondents' counterclaim for their share in the partnership and for damages was granted.
The trial court disposed as follows:
executed after the Agreement with Gragera and petitioner and thus showed the parties' intention
to consider it as a transaction of the partnership. In their common venture, petitioner invested
capital while respondents contributed industry or services, with the intention of sharing in the
profits of the business.
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000 which
was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect
the amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. "15-
15DDDDDDDDDD") to keep track of his collections.
Hence, this Petition.9
Issue

"39. WHEREFORE, the Court hereby renders judgment as follows: Petitioner asks this Court to rule on the following issues:10
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the following:
tantamount to excess or lack of jurisdiction in:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint
venture with the [petitioner]. 1. Holding that private respondents were partners/joint venturers and not employees
39.2.2. Six(6) percent of - As damages from August 3, 1987 until the P3,064,428.00 isoffully
Santos
paid.in connection with the agreement between Santos and Monte
P3,064,428.00 Maria/Gragera;

39.2.3. P50,000.00 - As moral damages

2. Affirming the findings of the trial court that the phrase 'Received by' on documents
39.2.4. P10,000.00 - As exemplary damages signed by Nieves Reyes signified receipt of copies of the documents and not of the
sums shown thereon;
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent] ARSENIO REYES
3. Affirming in the
that the profits of Nieves Reyes on Exhibit 'E' was a forgery;
signature
of his joint venture with the [petitioner].
39.3.2. Six(6) percent of - As damages from August 3, 1987 until the P2,899,739.50 is4.fully
Finding
paid.that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00
P2,899,739.50 for delivery to Gragera;
39.3.3. P25,000.00 - As moral damages
5 Affirming the dismissal of Santos' [Second] Amended Complaint;
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the
6. [respondents]:
Affirming the decision of the trial court, upholding private respondents' counterclaim;
39.4.1. P50,000.00 - As attorney's fees; and
7. Denying Santos' motion for reconsideration dated September 11, 1998."
39.4.2. The cost of the suit."8

Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's Decision was
reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration was denied in the
CA Resolution of October 9, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties'
relationship was one of partnership or of employer employee; (2) whether Nieves
misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents were entitled to the partnership profits as determined
by the trial court.
The Court's Ruling

The CA ruled that the following circumstances indicated the existence of a partnership among The Petition is partly meritorious.
the parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending
business and introduced him to Gragera; (2) Arsenio received "dividends" or "profit-shares"
First Issue:
covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That
Nieves introduced Gragera to Santos did not make her a partner. She was only a witness to the
Agreement between the two. Separate from the partnership between petitioner and Gragera was
that which existed among petitioner, Nieves and Zabat, a partnership that was dissolved when
Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioner's contentions and ruled that
the business relationship was one of partnership. We quote from the CA Decision, as follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided
the initiative in the lending activities with Monte Maria. In consonance with the
agreement between appellant, Nieves and Zabat (later replaced by Arsenio),
[respondents] contributed industry to the common fund with the intention of sharing in
the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it
was organized and as such [were] considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was
technically dissolved by the expulsion of Zabat therefrom, the remaining partners
simply continued the business of the partnership without undergoing the procedure
relative to dissolution. Instead, they invited Arsenio to participate as a partner in their
operations. There was therefore, no intent to dissolve the earlier partnership. The
partnership between [petitioner,] Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one of the incidents of which was
the lending operations with Monte Maria.
xxx xxx xxx
"Gragera and [petitioner] were not partners. The money-lending activities undertaken
with Monte Maria was done in pursuit of the business for which the partnership
between [petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who
represented Monte Maria was merely paid commissions in exchange for the collection
of loans. The commissions were fixed on gross returns, regardless of the expenses
incurred in the operation of the business. The sharing of gross returns does not in
itself establish a partnership."11
"3. That the bookkeeping and daily balancing of account of the business operation
shall be handled by the SECOND PARTY."14
The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other
hand, Arsenio's duties as credit investigator are subsumed under the phrase "screening of
prospective borrowers." Because of this Agreement and the disbursement of monthly
"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner
and Gragera. Contrary to petitioner's contention, there is no evidence to show that a different
business venture is referred to in this Agreement, which was executed on August 6, 1986, or
about a month after the Memorandum had been signed by petitioner and Gragera on July 14,
1986. The Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined and
established for their mutual benefit and understanding."15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by
Exhibit "B." (the "Schedule of Daily Payments"), which bears her signature under the words
"received by." For the period July 1986 to March 1987, Gragera should have earned a total
commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus,
petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the
unpaid commissions. Exhibit "H." is an untitled tabulation which, according to him, shows that
Gragera was also entitled to a commission of P200,000, an amount that was never delivered by
Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves received
for delivery to Gragera any amount from which the P1,214,296.10 unpaid commission was
supposed to come, and that such exhibits were insufficient proof that she had embezzled
P200,000. Said the CA:

We agree with both courts on this point. By the contract of partnership, two or more persons bind
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not
themselves to contribute money, property or industry to a common fund, with the intention of
clearly establish that Nieves received amounts from Monte Maria's members. The
dividing the profits among themselves.12 The "Articles of Agreement" stipulated that the
document does not clearly state what amounts the entries thereon represent. More
signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting
importantly, Nieves made the entries for the limited period of January 11, 1987 to
the lion's share.13 This stipulation clearly proved the establishment of a partnership.
February 17, 1987 only while the rest were made by Gragera's own staff.

We find no cogent reason to disagree with the lower courts that the partnership continued
"Neither can we give probative value to Exhibit 'E' which allegedly shows
lending money to the members of the Monte Maria Community Development Group, Inc., which
acknowledgment of the remittance of commissions to Verona Gonzales. The
later on changed its business name to Private Association for Community Development, Inc.
document is a private one and its due execution and authenticity have not been duly
(PACDI). Nieves was not merely petitioner's employee. She discharged her bookkeeping duties
proved as required in [S]ection 20, Rule 132 of the Rules of Court which states:
in accordance with paragraphs 2 and 3 of the Agreement, which states as follows:

'SECTION 20. Proof of Private Document — Before any private document

"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and
offered as authentic is received in evidence, its due execution and
screening of prospective borrowers, and shall x x x each be responsible in handling
authenticity must be proved either:
the collection of the loan payments of the borrowers that they each solicited.
 (a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
'Any other private document need only be identified as that which it is
claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it found that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that it
is a forgery. The initial stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures of NIEVES (Exhs. A-
3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and of
the genuine signatures lends credence to Nieves' claim that the signature
Exh. E-1 is a forgery.'
xxx xxx xxx
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F') were based
on the predetermined 100% collection as guaranteed by Gragera is credible and
clearly in accord with the evidence. A perusal of Exhs. "B" and "F" as well as Exhs.
'15' to 15-DDDDDDDDDD' reveal that the entries were indeed based on the 100%
assumptive collection guaranteed by Gragera. Thus, the total amount recorded on
Exh. 'B' is exactly the number of borrowers multiplied by the projected collection of
P150.00 per borrower. This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that she
signed them not to signify that she collected the amounts but that she received the
documents themselves is more believable than [petitioner's] assertion that she
actually handled the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x
x x Nieves received P200,000.00 as commission for Gragera. As correctly stated by
the court a quo, the document showed a liquidation of P240.000 00 and not
P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were
made by Gragera believable and worthy of credence. Since Gragera guaranteed a
daily 100% payment of the loans, he took charge of the collections. As [petitioner's]
representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD')
to enable [petitioner] to keep track of Gragera's operations. Gragera on the other hand
devised the schedule of daily payment (Exhs. 'B' and 'F') to record the projected gross
daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version
would have given rise to this improbable situation: GRAGERA would collect
the daily amortizations and then give them to NIEVES; NIEVES would get
GRAGERA's commissions from the amortizations and then give such
commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column
'ADDITIONAL CASH' that the additional cash was P240,000.00. If Exh. H were the
liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true. This
is so because it is a liquidation of the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to
GRAGERA when he received the latter's letter complaining of its delayed release.
Assuming as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is
no competent evidence that NIEVES did not give it to GRAGERA. The only proof that
NIEVES did not give it is the letter. But SANTOS did not even present the letter in
evidence. He did not explain why he did not.
"21.2. The evidence shows that all money transactions of the money-lending business
of SANTOS were covered by petty cash vouchers. It is therefore strange why
SANTOS did not present any voucher or receipt covering the P200,000.00."18
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from
the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his
commissions before remitting his collections. Exhibits "B" and "F" are merely computations of
what Gragera should collect for the day; they do not show that Nieves received the amounts
stated therein. Neither is there sufficient proof that she misappropriated P200,000, because
Exhibit "H." does not indicate that such amount was received by her; in fact, it shows a different
figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted.
Well-entrenched is the basic rule that factual findings of the Court of Appeals affirming those of
the trial court are binding and conclusive on the Supreme Court.19 Although there are exceptions
to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He
maintains that "both business propositions were flops," as his investments were "consumed and
eaten up by the commissions orchestrated to be due Gragera" — a situation that "could not have
been rendered possible without complicity between Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to
avoid payment of the demands of Nieves, because sometime in March 1987, she "signified to
petitioner that it was about time to get her share of the profits which had already accumulated to
some P3 million." Respondents add that while the partnership has not declared dividends or
liquidated its earnings, the profits are already reflected on paper. To prove the counterclaim of
Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled
P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15 percent share
under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus
the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an accounting of
the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.
Affirming the trial court's ruling on the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the profits and losses of
the partnership before we can rule with certainty as to the respective shares of the
partners. Upon a further review of the records of this case, however, there appears to
be sufficient basis to determine the amount of shares of the parties and damages
incurred by [respondents]. The fact is that the court a quo already made such a
determination [in its] decision dated August 13, 1991 on the basis of the facts on
record."20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the profits of their
joint venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on the
agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs.
10 to 10-I, inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on
the daily cash flow reports of which Exh. 3 is a sample. The originals of the daily cash
flow reports (Exhs. 3 and 15 to 15-D(10) were given to SANTOS. The joint venture
had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from June 13,
1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business
he was engaged in netted a profit and that the originals of the daily case flow reports
were furnished to him. SANTOS however alleged that the money-lending operation of
his joint venture with NIEVES and ZABAT resulted in a loss of about half a million
pesos to him. But such loss, even if true, does not negate NIEVES' claim that overall,
the joint venture among them — SANTOS, NIEVES and ARSENIO — netted a profit.
There is no reason for the Court to doubt the veracity of [the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits
(Exhs. 6, 6-A and 6-B) should be deducted from his total share."21
After a close examination of respondents' exhibits, we find reason to disagree with the CA.
Exhibit "10-I"22 shows that the partnership earned a "total income" of P20,429,520 for the period
June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts under the
following column headings: "2-Day Advance Collection," "Service Fee," "Notarial Fee,"
"Application Fee," "Net Interest Income" and "Interest Income on Investment." Such entries
represent the collections of the money-lending business or its gross income.
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the
partnership. For instance, it did not factor in the "gross loan releases" representing the money
loaned to clients. Since the business is money-lending, such releases are comparable with the
inventory or supplies in other business enterprises.
Noticeably missing from the computation of the "total income" is the deduction of the weekly
allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq.23 show that Arsenio
received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These
allowances are different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all expenses
incurred by the money-lending enterprise of the parties must first be deducted from the "total
income" in order to arrive at the "net profit" of the partnership. The share of each one of them
should be based on this "net profit" and not from the "gross income" or "total income" reflected in
Exhibit "10-I," which the two courts invariably referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not reflect the
business expenses incurred by the parties, because they show only the daily cash collections.
Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits do not
reflect the complete financial condition of the money-lending business. The lower courts
obviously labored over a mistaken notion that Exhibit " 10-I-1" represented the "net profits"
earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who shares in
the profits but is not liable for the losses), the gross income from all the transactions carried on
by the firm must be added together, and from this sum must be subtracted the expenses or the
losses sustained in the business. Only in the difference representing the net profits does the
industrial partner share. But if, on the contrary, the losses exceed the income, the industrial
partner does not share in the losses.25
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice
certain relevant facts that would otherwise justify a different conclusion, as in this particular
issue, a review of its factual findings may be conducted, as an exception to the general rule
applied to the first two issues.26
The trial court has the advantage of observing the witnesses while they are testifying, an
opportunity not available to appellate courts. Thus, its assessment of the credibility of witnesses
and their testimonies are accorded great weight, even finality, when supported by substantial
evidence; more so when such assessment is affirmed by the CA. But when the issue involves
the evaluation of exhibits or documents that are attached to the case records, as in the third
issue, the rule may be relaxed. Under that situation, this Court has a similar opportunity to
inspect, examine and evaluate those records, independently of the lower courts. Hence, we
deem the award of the partnership share, as computed by the trial court and adopted by the CA,
to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is
AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are
REVERSED and SET ASIDE. No costs.
SO ORDERED.

Fernando Santos vs Spouses Arsenio and Nieves Reyes
Facts:
This is a petition for review on certiorari assailing CA decision which affirmed the RTC
decision. Santos and Nieves Reyes verbally agreed that Santos would act as financier
while Nieves and Meliton Zabat would act as solicitors for membership and collectors
of loan payment. 70% of the profits would go to Santos while Nieves and Zabat would
get 15% each.
It was a lending venture business.
Nieves introduced Gragera of Monte Maria Corp, who obtained short term loans for
the partnership in consideration of commissions. In 1986, Nieves and Zabat executed
an agreement which formalized their earlier verbal agreement. But, Santis and
Nieves later discovered that Zabat engaged in the same lending business. Hence,
Zabat was expelled from the partnership. On June 1987, Santos filed a complaint for
recovery of sum of money and damages against the respondents, alleging them as
employees who misappropriated the funds. Respondents assert they were partners
and not mere employees. Santos claimed that after discovery of Zabat's activities, he
ceased infusing funds thereby extinguishing the partnership.
Issue:
Whether or not the parties' relationship was one of partnership or of employer-
employee
Held:
Yes they were partners. 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. The "Articles of Agreement"
stipulated that the signatories shall share the profits of the business in a 70-15-15
manner, with petitioner getting the lion's share. This stipulation clearly proved the
establishment of a partnership.
Indeed, the partnership was established to engage in a money-lending business,
despite the fact that it was formalized only after the Memorandum of Agreement
had been signed by petitioner and Gragera.
G.R. No. 135813 October 25, 2001 FERNANDO SANTOS, petitioner, vs. SPOUSES
ARSENIO and NIEVES REYES, respondents.
FACTS: In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton
Zabat (15%) orally instituted a partnership with them as partners. Their venture is to
set up a lending business where it was agreed that Santos shall be financier and that
Nieves and Zabat shall contribute their industry. **The percentages after their names
denote their share in the profit. Later, Nieves introduced Cesar Gragera to Santos.
Gragera was the chairman of a corporation. It was agreed that the partnership shall
provide loans to the employees of Gragera’s corporation and Gragera shall earn
commission from loan payments. In August 1986, the three partners put into writing
their verbal agreement to form the partnership. As earlier agreed, Santos shall
finance and Nieves shall do the daily cash flow more particularly from their dealings
with Gragera, Zabat on the other hand shall be a loan investigator. But then later,
Nieves and Santos found out that Zabat was engaged in another lending business
which competes with their partnership hence Zabat was expelled. The two continued
with the partnership and they took with them Nieves’ husband, Arsenio, who became
their loan investigator. Later, Santos accused the spouses of not remitting Gragera’s
commissions to the latter. He sued them for collection of sum of money. The spouses
countered that Santos merely filed the complaint because he did not want the
spouses to get their shares in the profits. Santos argued that the spouses, insofar as
the dealing with Gragera is concerned, are merely his employees. Santos alleged that
there is a distinct partnership between him and Gragera which is separate from the
partnership formed between him, Zabat and Nieves. The trial court as well as the
Court of Appeals ruled against Santos and ordered the latter to pay the shares of the
spouses.
ISSUE: Whether or not the spouses are partners.
HELD: Yes. Though it is true that the original partnership between Zabat, Santos and
Nieves was terminated when Zabat was expelled, the said partnership was however
considered continued when Nieves and Santos continued engaging as usual in the
lending business even getting Nieves’ husband, who resigned from the Asian
Development Bank, to be their loan investigator – who, in effect, substituted Zabat.
There is no separate partnership between Santos and Gragera. The latter being
merely a commission agent of the partnership. This is even though the partnership
was formalized shortly after Gragera met with Santos (Note that Nieves was even the
one who introduced Gragera to Santos exactly for the purpose of setting up a lending
agreement between the corporation and the partnership). HOWEVER, the order of
the Court of Appeals directing Santos to give the spouses their shares in the profit is
premature. The accounting made by the trial court is based on the “total income” of
the partnership. Such total income calculated by the trial court did not consider the
expenses sustained by the partnership. All expenses incurred by the money-lending
enterprise of the parties must first be deducted from the “total income” in order to
arrive at the “net profit” of the partnership. The share of each one of them should be
based on this “net profit” and not from the “gross income” or “total income”.

TITLE OF THE CASE: FERNANDO SANTOS, petitioner vs. Spouses ARSENIO and NIEVES REYES, respondents.
GR NO: 135813 DATE: October 25, 2001
PONENTE
FACTS:
In June 1986, Fernando Santos and Nieves Reyes were introduced to each other by Meliton Zabat regarding a lending
business venture proposed by Nieves. Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally
instituted a partnership with them as partners. It was agreed that Santos shall be financier and that Nieves and Zabat
shall contribute their industry by taking charge of solicitation of members and collection of loan payments. Their venture
was launched on June 13, 1986, with the agreement that Santos would receive 70% of the profits while Nieves and Zabat
would earn 15% each.
Later, in July 1986, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of Monte Maria Development
Corporation. Gragera sought short-term loans for members of the corporation. It was agreed that the partnership shall
provide loans to the employees of Gragera’s corporation and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal agreement to form the partnership. As earlier agreed,
Santos shall finance and Nieves shall do the daily cash flow more particularly from their dealings with Gragera, Zabat on
the other hand shall be a loan investigator. But then later, Nieves and Santos found out that Zabat was engaged in another
lending business which competes with their partnership hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves’ husband, Arsenio, who became their loan
investigator. Later, Santos accused the spouses of not remitting Gragera’s commissions to the latter. He sued them for
collection of sum of money. The spouses countered that Santos merely filed the complaint because he did not want the
spouses to get their shares in the profits. Santos argued that the spouses, insofar as the dealing with Gragera is concerned,
are merely his employees. Santos alleged that there is a distinct partnership between him and Gragera which is separate
from the partnership formed between him, Zabat and Nieves.
PLAINTIFF’S ARGUMENTS:
Petitioner maintains that he employed the services of respondent spouses in the money-lending venture with Gragera,
with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves introduced Gragera to Santos did not make
her a partner. She was only a witness to the Agreement between the two. Separate from the partnership between
petitioner and Gragera was that which existed among petitioner, Nieves and Zabat, a partnership that was dissolved
when Zabat was expelled.
DEFENDANT’S ARGUMENTS:
In their answer, the defendants asserted that they were partners and not mere employees of petitioner. The complaint,
they alleged, was filed to preempt and prevent them from claiming their rightful share to the profits of the partnership.
Arsenio alleged that he was enticed by the petitioner to take the place of Zabat after petitioner learned of Zabat's
activities. Arsenio resigned from his job at the Asian Development Bank to join the partnership. Nieves claimed that she
participated in the business as a partner, as the lending activity with Monte Maria originated from her initiative.
DECISIONS OF --
 LOWER COURT: The Trial court held that respondents were partners, and not merely employees of the
petitioner. It ruled that Gragera was only a commission agent of petitioner, not his partner.
 CA: The CA upheld the decision of the lower court. The CA ruled that the following circumstances indicated
the existence of a partnership among the parties (1) it was Nieves who broached to petitioner the idea of
starting a money-lending business and introduced him to Gragera (2) Arsenio received dividends or profit-
shares covering the period of July 15 to August 7, 1986 (3) the partnership contract was executed after the
Agreement with Gragera and petitioner and thus showed the parties’ intention to consider it as a transaction
of the partnership. In their common venture, petitioner invested capital while respondents contributed
industry or services with the intention of sharing in the profits of the business.

 The defendants were industrial partners of the petitioner. Nieves herself provided the initiative in the lending
activities with Monte Maria. In consonance with the agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), they contributed industry to the common fund with the intention of sharing in the
profits of the partnership. The spouses provided services without which the partnership would not have
[had] the wherewithal to carry on the purpose for which it was organized and as such [were] considered
industrial partners the partnership between Santos, Nieves and Zabat was technically dissolved by the
expulsion of Zabat therefrom, the remaining partners simply continued the business of the partnership
without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to participate as a
partner in their operations. There was therefore, no intent to dissolve the earlier partnership. The
partnership between Santos, Nieves and Arsenio simply took over and continued the business of the former
partnership with Zabat, one of the incidents of which was the lending operations with Monte Maria.

 Gragera and Santos were not partners. The money-lending activities undertaken with Monte Maria was done
in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat (later Arsenio)
was organized. Gragera who represented Monte Maria was merely paid commissions in exchange for the
collection of loans. The commissions were fixed on gross returns, regardless of the expenses incurred in the
operation of the business. The sharing of gross returns does not in itself establish a partnership.
ISSUE/S:
Whether or not the Santos and Spouses Reyes are partners
Whether or not the Spouses Reyes has a share in the partnership profits being Industrial partners.
HELD:
FIRST ISSUE: BUSINESS RELATIONSHIP
Yes, the court upheld the decisions of the Trial Court and CA that there was a partnership created between Santos and
Spouses Reyes. 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. The "Articles of Agreement"
stipulated that the signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting the
lion's share. This stipulation clearly proved the establishment of a partnership.
Though it is true that the original partnership between Zabat, Santos and Nieves was terminated when Zabat was
expelled, the said partnership was however considered continued when Nieves and Santos continued engaging as usual
in the lending business even getting Nieves’ husband, who resigned from the Asian Development Bank, to be their loan
investigator – who, in effect, substituted Zabat. There is no separate partnership between Santos and Gragera. The latter
being merely a commission agent of the partnership. This is even though the partnership was formalized shortly after
Gragera met with Santos.
SECOND ISSUE: ACCOUNTING OF PARTNERSHIP
HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares in the profit is premature.
The accounting made by the trial court is based on the “total income” of the partnership. Such total income calculated by
the trial court did not consider the expenses sustained by the partnership. All expenses incurred by the money-lending
enterprise of the parties must first be deducted from the “total income” in order to arrive at the “net profit” of the
partnership. The share of each one of them should be based on this “net profit” and not from the “gross income” or “total
income”.
For the purpose of determining the profit that should go to an industrial partner (who shares in the profits but is not liable
for the losses), the gross income from all the transactions carried on by the firm must be added together, and from this
sum must be subtracted the expenses or the losses sustained in the business. Only in the difference representing the net
profits does the industrial partner share. But if, on the contrary, the losses exceed the income, the industrial partner does
not share in the losses.

G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.
SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina
Noguera, party of the first part; the Tourist World Service, Inc., represented
by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to
as appellants, the Tourist World Service, Inc. leased the premises belonging
to the party of the first part at Mabini St., Manila for the former-s use as a
branch office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment of the
monthly rental agreed on. When the branch office was opened, the same
was run by the herein appellant Una 0. Sevilla payable to Tourist World
Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.
appears to have been informed that Lina Sevilla was connected with a rival
firm, the Philippine Travel Bureau, and, since the branch office was anyhow
losing, the Tourist World Service considered closing down its office. This
was firmed up by two resolutions of the board of directors of Tourist World
Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second,authorizing the corporate secretary to
receive the properties of the Tourist World Service then located at the said
branch office. It further appears that on Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office premises was terminated and
while the effectivity thereof was Jan. 31, 1962, the appellees no longer used
it. As a matter of fact appellants used it since Nov. 1961. Because of this,
and to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the
premises locked, and, being unable to contact Lina Sevilla, he padlocked
the premises on June 4, 1962 to protect the interests of the Tourist World
Service. When neither the appellant Lina Sevilla nor any of her employees
could enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For
apparent lack of interest of the parties therein, the trial court ordered the
dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated June
8, 1963, granted permitting her to present evidence in support of her
counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were
jointly heard following which the court a quo ordered both cases dismiss for
lack of merit, on the basis of which was elevated the instant appeal on the
following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE
OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES
HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM
THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the
telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service 6. It was the understanding between them that
was actionable or not; and appellant Mrs. Sevilla would be given the title of branch
manager for appearance's sake only (p. 31 tsn. Id.),
appellee Eliseo Canilao admit that it was just a title for
3. Whether or not the lessee to the office premises belonging to the
dignity (p. 36 tsn. June 18, 1965- testimony of appellee
appellee Noguera was appellees TWS or TWS and the appellant.
Eliseo Canilao pp. 38-39 tsn April 61965-testimony of
corporate secretary Gabino Canilao (pp- 2-5,
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture Appellants' Reply Brief)
was entered into by and between her and appellee TWS with offices at the
Ermita branch office and that she was not an employee of the TWS to the
Upon the other hand, appellee TWS contend that the appellant was an
end that her relationship with TWS was one of a joint business venture
employee of the appellee Tourist World Service, Inc. and as such was
appellant made declarations showing:
designated manager.1

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and

xxx xxx xxx
wife of an eminent eye, ear and nose specialist as well
as a imediately columnist had been in the travel
business prior to the establishment of the joint business The trial court2 held for the private respondent on the premise that the private respondent,
venture with appellee Tourist World Service, Inc. and Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the
appellee Eliseo Canilao, her compadre, she being the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere
godmother of one of his children, with her own clientele, employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her
coming mostly from her own social circle (pp. 3-6 tsn. employer. 4 The respondent Court of Appeal 5 rendered an affirmance.
February 16,1965).
The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
2. Appellant Mrs. Sevilla was signatory to a lease Specifically, they state:
agreement dated 19 October 1960 (Exh. 'A') covering
the premises at A. Mabini St., she expressly warranting
I
and holding [sic] herself 'solidarily' liable with appellee
Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
Noguera (pp. 14-15, tsn. Jan. 18,1964). DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT
LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
3. Appellant Mrs. Sevilla did not receive any salary from
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA),
appellee Tourist World Service, Inc., which had its own,
WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH
separate office located at the Trade & Commerce
THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
Building; nor was she an employee thereof, having no
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE
participation in nor connection with said business at the
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
Trade & Commerce Building (pp. 16-18 tsn Id.).
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A"
PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO
4. Appellant Mrs. Sevilla earned commissions for her THE RULE OF LAW.
own passengers, her own bookings her own business
(and not for any of the business of appellee Tourist
II
World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by
the airline companies giving appellee Tourist World THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
Service, Lic. 3% thereof aid retaining 4% for herself (pp. DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED
18 tsn. Id.) TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS
LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
5. Appellant Mrs. Sevilla likewise shared in the
expenses of maintaining the A. Mabini St. office, paying III
for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from desicion the office
furniture and supplying some of fice furnishings (pp. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
15,18 tsn. April 6,1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
in consideration for the 3% split in the co procured by CODE ON RELATIONS.
appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING
HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC.
OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE
TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between
Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by
the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla
entitled the latter to the relief of damages prayed for and whether or not the evidence for the said
appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and
without the consent of the appellant disconnected the telephone lines of the Ermita branch office
of the appellee Tourist World Service, Inc.7 Tourist World Service, Inc., insists, on the other
hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch"
office and that inferentially, she had no say on the lease executed with the private respondent,
Segundina Noguera. The petitioners contend, however, that relation between the between
parties was one of joint venture, but concede that "whatever might have been the true
relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World
Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking
now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist
World Service, Inc., maintains, that the relation between the parties was in the character of
employer and employee, the courts would have been without jurisdiction to try the case, labor
disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of
Labor Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-
employee relation. In general, we have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to control not only the end to be
achieved but also the means to be used in reaching such end." 10Subsequently, however, we
have considered, in addition to the standard of right-of control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in the payrolls, in determining
the existence of an employer-employee relationship.11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the
means used in connection therewith. In the first place, under the contract of lease covering the
Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an
arrangement that would be like claims of a master-servant relationship. True the respondent
Court would later minimize her participation in the lease as one of mere guaranty, 12 that does
not make her an employee of Tourist World, since in any case, a true employee cannot be made
to part with his own money in pursuance of his employer's business, or otherwise, assume any
liability thereof. In that event, the parties must be bound by some other relation, but certainly not
employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened,
the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc.
by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these
circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc.
"as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and
capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained
4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an
employee then, who earns a fixed salary usually, she earned compensation in fluctuating
amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such
a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World
Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist
World Service, Inc.'s control over the manner in which the business was run. A joint venture,
including a partnership, presupposes generally a of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital or property
contributed 15 and where each party exercises equal rights in the conduct of the
business.16 furthermore, the parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant
to a contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another.18 In the case at bar, Sevilla solicited airline fares, but she
did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she
received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself
based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the
business undertaking. We are convinced, considering the circumstances and from the
respondent Court's recital of facts, that the ties had contemplated a principal agent relationship,
rather than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she
had acquired an interest in the business entrusted to her. Moreover, she had assumed a
personal obligation for the operation thereof, holding herself solidarily liable for the payment of
rentals. She continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not to the commissions she earned as a result of
her business transactions, but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said, cannot be revoked at the
pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner,
Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what cannot be denied is the fact
that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming,
therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it,
and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for
For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not the same damages in a solidary capacity.
accord it any authority to terminate that contract without notice to its actual occupant, and to
padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
acquired a personal stake in the business itself, and necessarily, in the equipment pertaining
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She
could not be ousted from possession as summarily as one would eject an interloper.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages, 25and P5,000.00 as nominal 26 and/or temperate27 damages, to be just, fair,
The Court is satisfied that from the chronicle of events, there was indeed some malevolent
and reasonable under the circumstances.
design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked
for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the
closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued
such reverses, let alone, the fact that Sevilla had moonlit for another company. What the on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE.
evidence discloses, on the other hand, is that following such an information (that Sevilla was The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly
working for another company), Tourist World's board of directors adopted two resolutions and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral
abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as
Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private and for nominal and/or temperate damages.
respondents ended the lease over the branch office premises, incidentally, without notice to her.
Costs against said private respondents.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was
padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect
SO ORDERED.
the interests of the Tourist World Service. " 22It is strange indeed that Tourist World Service, Inc.
did not find such a need when it cancelled the lease five months earlier. While Tourist World
Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been anywhere near the
premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa
it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of
justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil
Code, moral damages may be awarded for "breaches of contract where the defendant acted ...
in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury
done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219
(10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the following and

analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and
35.

SEVILLA v. CA
G.R. Nos. L-41182-3; April 15, 1988
Ponente: J. Sarmiento
FACTS:
On Oct. 19, 1960, the Tourist World Service, Inc. leased an office at Mabini St., Manila for the former's use as a branch
office. When the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina
Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961, the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office.
This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961, the
first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second, authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the
said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch
Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As
a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist
World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises
locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests
of the Tourist World Service.
When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint was
filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction.
Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered
the dismissal of the case without prejudice.
ISSUE:
Whether the act of Tourist World Service in abolishing its Ermita branch proper
HELD:
No, the act of Tourist World Service in abolishing its Ermita branch is not proper.
The Supreme Court held that when the petitioner, Lina Sevilla, agreed to manage Tourist World Service, Inc.'s Ermita
office, she must have done so pursuant to a contract of agency.
In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World
Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said,
Sevilla herself, based on her letter of November 28, 1961, presumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that
the parties had contemplated a principal-agent relationship, rather than a joint management or a partnership.
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of
the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been
created for the mutual interest of the agent and the principal. Accordingly, the revocation complained of should entitle
the petitioner, Lina Sevilla, to damages
Sevilla vs CA
G..R. No. L-41182-3
April 16, 1988
Employer-Employee Relationship
Facts:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari.
Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as
party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises
belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract
the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly
rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla
payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to
go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On November 24, 1961 the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected
with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World
Service considered closing down its office.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined,
the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard
following which the court ordered both cases dismiss for lack of merit.
In her appeal, Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee
TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made declarations.
Issue:
Whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of
the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the
said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent
of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service,
Inc.?
Held:
The trial court held for the private respondent on the premise that the private respondent, Tourist World Service, Inc.,
being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. It likewise found
the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by
the acts of her employer. The respondent Court of Appeal rendered an affirmance.
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In
general, we have relied on the so-called right of control test, "where the person for whom the services are performed
reserves a right to control not only the end to be achieved but also the means to be used in reaching such end."
Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic
conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.
the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent
Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and
Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as
and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.
G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and
LEOCADIO SANTIAGO, respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.
GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.
Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then
being leased to the Shell Company of the Philippines Limited (SHELL). They agreed
to open and operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P 15,000.00 to be taken from the advance rentals
due to them from SHELL for the occupancy of the said lots owned in common by
them. A joint affidavit was executed by them on April 11, 1966 which was prepared
byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by
allowing him to operate and manage the gasoline service station of the family. They
negotiated with SHELL. For practical purposes and in order not to run counter to the
company's policy of appointing only one dealer, it was agreed that petitioner would
apply for the dealership. Respondent Remedios helped in managing the bussiness
with petitioner from May 3, 1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental
shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a
proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11
April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of
the business to private respondents, but therafter petitioner failed to render
subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make
a profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was
realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the
partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering
the period from May 6, 1966 up to December 21, 1968 and from
January 1, 1969 up to the time the order is issued and that the
same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net
profits of the business in an amount of no less than P l50,000.00
with interest at the rate of 1% per month from date of demand until
full payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees
and costs of the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to pay
petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid
derision and rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975
is hereby reconsidered and a new judgment is hereby rendered in
favor of the plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public instrument
embodying all the provisions of the partnership agreement entered
into between plaintiffs and defendant as provided for in Article
1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the
business operation from April 1969 up to the time this order is
issued, the same to be subject to examination and audit by the
plaintiff,
 (3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P
5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as
the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)
errors allegedly committed by the trial court. In due course, a decision was rendered
by the Court of Appeals on November 28,1978 affirming in toto the decision of the
lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by
way of this petition for certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-
a-vis the Additional Cash Pledge Agreement (Exhs. "B-2","6", and
"L"); and
2. In declaring that a partnership was established by and among
the petitioner and the private respondents as regards the ownership
and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in
Transfer Certificates of Title Nos. 45071 and 71244 of the Register
of Deeds of Quezon City, in favor of the LESSEE - SHELL
COMPANY OF THE PHILIPPINES LIMITED a corporation duly
licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE
PHILIPPINE LIMITED advanced rentals in the total amount of
FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency,
so that we can use the said amount to augment our capital
investment in the operation of that gasoline station constructed ,by
the said company on our two lots aforesaid by virtue of an
outstanding Lease Agreement we have entered into with the said
company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED
out of its benevolence and desire to help us in aumenting our
capital investment in the operation of the said gasoline station, has
agreed to give us the said amount of P 15,000.00, which amount
will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of
the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00)
from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be applied as monthly
rentals for the sai two lots under our Lease Agreement starting on
the 25th of May, 1966 until such time that the said of P 15,000.00
be applicable, which time to our estimate and one-half months from
May 25, 1966 or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL
COMPANY OF THE PHILIPPINES LIMITED execute an instrument
for us to sign embodying our conformity that the said amount that it
will generously grant us as requested be applied as ADVANCED
RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November,
1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book
Nos. V & III, Series of 1963 in the Notarial Registers of Notaries
Public Rosauro Marquez, and R.D. Liwanag, respectively) executed
in favour of SHELL by the herein CO-OWNERS and another Lease
Agreement dated 19th March 1964 . . . also executed in favour of
SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for
the lease of adjoining portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total
monthly rental of PESOS THREE THOUSAND THREE HUNDRED
EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the
Shell Station constructed on the leased land, and as Dealer under
the Cash Pledge Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN THOUSAND (P
10,000), Philippine Currency, to secure his purchase on credit of
Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an
increased the limit up to P 25,000, has secured the conformity of
his CO-OWNERS to waive and assign to SHELL the total monthly
rentals due to all of them to accumulate the equivalent amount of P
15,000, commencing 24th May 1966, this P 15,000 shall be treated
 as additional cash deposit to SHELL under the same terms and
conditions of the aforementioned Cash Pledge Agreement dated
llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing
premises,and the mutual covenants among the CO-OWNERS
herein and SHELL, said parties have agreed and hereby agree as
follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the
monthly rentals due to all CO-OWNERS, collectively, under the
above describe two Lease Agreements, one dated 13th November
1963 and the other dated 19th March 1964 to enable DEALER to
increase his existing cash deposit to SHELL, from P 10,000 to P
25,000, for such purpose, the SHELL CO-OWNERS and DEALER
hereby irrevocably assign to SHELL the monthly rental of P
3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly
rentals accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated
as additional cash deposit by DEALER to SHELL, thereby in
increasing his credit limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and supersedes the Joint affidavit
dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to
allow DEALER to purchase from SHELL petroleum products, on
credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same
terms and conditions of the above-mentioned Cash Pledge
Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6";
emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P 15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and one-
half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time that
the monthly rentals accumulated equal P 15,000.00 which private respondents agree
to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as
dealer. As above-stated it provided therein that "This agreement, therefore, cancels
and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-
OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this argument.
Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00
advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is, therefore, a
duplication of reference to the P 15,000.00 hence the need to provide in the
subsequent document that it "cancels and supersedes" the previous one. True it is
that in the latter document, it is silent as to the statement in the Joint Affidavit that the
P 15,000.00 represents the "capital investment" of the parties in the gasoline station
business and it speaks of petitioner as the sole dealer, but this is as it should be for in
the latter document SHELL was a signatory and it would be against its policy if in the
agreement it should be stated that the business is a partnership with private
respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private
respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written authority
to private respondent Remedies Estanislao, his sister, to examine and audit the
books of their "common business' aming negosyo). 5 Respondent Remedios assisted
in the running of the business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to a common fund with
the intention of dividing the profits among themselves.6 The sole dealership by the
petitioner and the issuance of all government permits and licenses in the name of
petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordancewith the
applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against
petitioner. This decision is immediately executory and no motion for extension of time
to file a motion for reconsideration shag beentertained.
SO ORDERED.
 ⁃ Petitioner gave a written authority to private respondent Remedios Estanislao, his
sister, to examine and audit the books of their "common business" (aming negosyo).

Eligio Estanislao, Jr. v. Court of Appeals ,REMEDIOS ESTANISLAO, EMILIO ⁃ Respondent Remedios assisted in the running of the business.
and LEOCADIO SANTIAGO
FACTS:

Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., Quezon City which were then
being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to
open and operate a gas station thereat to be known as Estanislao Shell Service Station
with an initial investment of P15,000.00 to be taken from the advance rentals due to
them from SHELL for the occupancy of the said lots owned in common by them.

On May 26, 1966, the parties herein entered into an Additional Agreement with a
proviso that said agreement cancels and supersedes the original
agreement executed by the co-owners.

For sometime, the petitioner submitted financial statements regarding the operation
of the business to private respondents, but thereafter petitioner failed to render
subsequent accounting.

A demand was made on petitioner:

• to render an accounting of the profits;
• to execute a public document embodying all the provisions of the partnership
agreement;
• to pay the plaintiffs their lawful shares and participation in the net profits of the
business.

ISSUE:
IS A PARTNERSHIP a FORMED WHERE MEMBERS OF THE SAME FAMILY BIND
THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION
OF DIVIDING THE PROFITS AMONG THEMSELVES?

HELD:
YES. The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by the
members of the same family that the P15,000.00 advance rental due to them from
SHELL shall augment their "capital investment" in the operation of the gasoline
station.

other evidence in the record:

⁃ Petitioner submitted to private respondents periodic accounting of the business.

[G.R. No. 143340. August 15, 2001.]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, Petitioners, v. LAMBERTO T.
CHUA, Respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision 1 of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto
T. Chua v. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23,
2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga Chan
and Cecilia Sunga (hereafter collectively referred to as petitioners).chanrob1es virtua1
1aw 1ibrary
The pertinent facts of this case are as follows:chanrob1es virtual 1aw library
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter
Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial Court,
Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of
their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name
of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital
contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as
his counterpart contribution, with the intention that the profits would be equally divided
between them. The partnership allegedly had Jacinto as manager, assisted by Josephine
Sy (hereafter Josephine), a sister of the wife of respondent, Erlinda Sy. As compensation,
Jacinto would receive a manager’s fee or remuneration of 10% of the gross profit and
Josephine would receive 10% of the net profits, in addition to her wages and other
remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business
operation went quite well and was profitable. Respondent claimed that he could attest to
the success of their business because of the volume of orders and deliveries of filled
Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto
furnished respondent with the merchandise inventories, balance sheets and net worth of
Shellite from 1977 to 1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto and Josephine for their
own selfish reasons and for tax avoidance.chanrob1es virtua1 1aw 1ibrary
Upon Jacinto’s death in the later part of 1989, his surviving wife, petitioner Cecilia and
particularly his daughter, petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondent’s consent. Despite
respondent’s repeated demands upon petitioners for accounting, inventory, appraisal,
winding up and restitution of his net shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her
own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and
reasons to evade respondent’s demands, she disbursed out of the partnership funds the
amount of P200,000.00 and partially paid the same to Respondent. Petitioner Lilibeth
allegedly informed respondent that the P200,000.00 represented partial payment of the
latter’s share in the partnership, with a promise that the former would make the complete
inventory and winding up of the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite to the damage and prejudice
of Respondent.chanrob1es virtua1 1aw 1ibrary
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
Zamboanga del Norte had jurisdiction over the action. Respondent opposed the motion to
dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims,
contending that they are not liable for partnership shares, unreceived income/profits,
interests, damages and attorney’s fees, that respondent does not have a cause of action
against them, and that the trial court has no jurisdiction over the nature of the action, the
SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorney’s fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground
that the claim for winding up of partnership affairs, accounting and recovery of shares in
partnership affairs, accounting and recovery of shares in partnership assets/properties
should be dismissed and prosecuted against the estate of deceased Jacinto in a probate
or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of
merit.chanrob1es virtua1 1aw 1ibrary
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and
Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial
Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by
petitioner, "as petitioners failed to show that a reversible error was committed by the
appellate court." 2
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case
was remanded to the trial court on April 26, 1995.chanrob1es virtua1 1aw 1ibrary
On September 25, 1995, the trial court terminated the pre-trial conference and set the
hearing of the case on January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to present evidence for their failure
to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for Respondent. The
dispositive portion of the Decision reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:chanrob1es virtual 1aw library
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga, from whom they continued
the business operations including all businesses derived from the Shellite Gas Appliance
Center; submit an inventory, and appraisal of all these properties, assets, income, profits,
etc. to the Court and to plaintiff for approval or disapproval;chanrob1es virtua1 1aw
1ibrary
(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and advantage
that legally pertain to the plaintiff and account for the properties mentioned in pars. A
and B on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the
plaintiff in the partnership of the listed properties, assets and good will (sic) in schedules
A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from
the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of
the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business
activities pursuant to law, after delivering to the plaintiff all the ½ interest, shares,
participation and equity in the partnership, or the value thereof in money or money’s
worth, if the properties are not physically divisible;chanrob1es virtua1 1aw 1ibrary
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith
and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney’s (sic) and
P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED." 3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing
the case to the Court of Appeals.chanrob1es virtua1 1aw 1ibrary
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion
of the Decision reads:jgc:chanrobles.com.ph
"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects." 4
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by
petitioner.
Hence, this petition wherein petitioner relies upon the following
grounds:jgc:chanrobles.com.ph
"1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the
latter’s invitation and offer and that upon his death the partnership assets and business
were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was competent
and credible evidence to warrant the finding of a partnership, and assuming arguendo
that indeed there was a partnership, the finding of highly exaggerated amounts or values
in the partnership assets and profits." 5
Petitioners question the correctness of the finding of the trial court and the Court of
Appeals that a partnership existed between respondent and Jacinto from 1977 until
Jacinto’s death. In the absence of any written document to show such partnership
between respondent and Jacinto, petitioners argue that these courts were proscribed from
hearing the testimonies of respondent and his witness, Josephine, to prove the alleged
partnership three years after Jacinto’s death. To support this argument, petitioners invoke
the "Dead Man’s Statute" or "Survivorship Rule" under Section 23, Rule 130 of the Rules
of Court that provides:jgc:chanrobles.com.ph
"SECTION 23. Disqualification by reason of death or insanity of adverse party. — Parties
or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against
an executor or administrator or other representative of a deceased person, or against a
person of unsound mind, upon a claim or demand against the estate of such deceased
person, or against such person of unsound mind, cannot testify as to any matter of fact
occurring before the death of such deceased person or before such person became of
unsound mind." chanrob1es virtua1 1aw 1ibrary
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter
ego, Josephine, should not have been admitted to prove certain claims against a
deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
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. 6
Hence, based on the intention of the parties, as gathered from the facts and ascertained
from their language and conduct, a verbal contract of partnership may arise. 7 The
essential points that must be proven to show that a partnership was agreed upon are (1)
mutual contribution to a common stock, and (2) a joint interest in the profits. 8
Understandably so, in view of the absence of a written contract of partnership between
respondent and Jacinto, respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial issue to settle then is whether
or not the "Dead Man’s Statute" applies to this case so as to render inadmissible
respondent’s testimony and that of his witness, Josephine.
The "Dead Man’s Statute" provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving
party is not entitled to the undue advantage of giving his own uncontradicted and
unexplained account of the transaction. 9 But before this rule can be successfully invoked
to bar the introduction of testimonial evidence, it is necessary that:jgc:chanrobles.com.ph
"1. The witness is a party or assignor of a party to a case or persons in whose behalf a
case is prosecuted.chanrob1es virtua1 1aw 1ibrary
2. The action is against an executor or administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such
deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the death of such
deceased person or before such person became of unsound mind." 10
Two reasons forestall the application of the "Dead Man’s Statute" to this case.
First, petitioners filed a compulsory counterclaim 11 against respondent in their answer
before the trial court, and with the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the "Dead Man’s Statute." 12 Well
entrenched is the rule that when it is the executor or administrator or representatives of
the estate that sets up the counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the counterclaim. 13 Moreover, as
defendant in the counterclaim, respondent is not disqualified from testifying as to matters
of fact occurring before the death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased. 14
Second, the testimony of Josephine is not covered by the "Dead Man’s Statute" for the
simple reason that she is not "a party or assignor of a party to a case or persons in whose
behalf a case is prosecuted." Records show that respondent offered the testimony of
Josephine to establish the existence of the partnership between respondent and Jacinto.
Petitioners’ insistence that Josephine is the alter ego of respondent does not make her an
assignor because the term "assignor" of a party means "assignor of a cause of action
which has arisen, and not the assignor of a right assigned before any cause of action has
arisen." 15 Plainly then, Josephine is merely a witness of respondent, the latter being the
party plaintiff.chanrob1es virtua1 1aw 1ibrary
petitioners failed to object to the admissibility of the evidence at the time that such
evidence was offered. 19
With regard to petitioners’ insistence that laches and/or prescription should have
extinguished respondent’s claim, we agree with the trial court and the Court of Appeals
that the action for accounting filed by respondent three (3) years after Jacinto’s death
was well within the prescribed period. The Civil Code provides that an action to enforce an
oral contract prescribes in six (6) years 20 while the right to demand an accounting for a
partner’s interest as against the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement. 21 Considering that the death of a
partner results in the dissolution of the partnership22 , in this case, it was after Jacinto’s
death that respondent as the surviving partner had the right to an account of his interest
as against petitioners. It bears stressing that while Jacinto’s death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The Civil Code
23 expressly provides that upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business, culminating in its
termination. 24
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had an initial
capital of P200,000.00 should have been registered with the Securities and Exchange
Commission (SEC) since registration is mandated by the Civil Code. True, Article 1772 of
the Civil Code requires that partnerships with a capital of P3,000.00 or more must
register with the SEC, however, this registration requirement is not mandatory. Article
1768 of the Civil Code 25 explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership
does not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew of the contents of
their contract. 26 In the case at bar, non-compliance with this directory provision of the
law will not invalidate the partnership considering that the totality of the evidence proves
that respondent and Jacinto indeed forged the partnership in question.

We are not convinced by petitioners’ allegation that Josephine’s testimony lacks probative WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is
value because she was allegedly coerced by respondent, her brother-in-law, to testify in AFFIRMED.chanrob1es virtua1 1aw 1ibrary
his favor. Josephine merely declared in court that she was requested by respondent to
testify and that if she were not requested to do so she would not have testified. We fail to SO ORDERED.
see how we can conclude from this candid admission that Josephine’s testimony is
involuntary when she did not in any way categorically say that she was forced to be a
witness of Respondent. Also, the fact that Josephine is the sister of the wife of respondent
does not diminish the value of her testimony since relationship per se, without more,
does not affect the credibility of witnesses. 16

Petitioners’ reliance alone on the "Dead Man’s Statute" to defeat respondent’s claim
cannot prevail over the factual findings of the trial court and the Court of Appeals that a
partnership was established between respondent and Jacinto. Based not only on the
testimonial evidence, but the documentary evidence as well, the trial court and the Court
of Appeals considered the evidence for respondent as sufficient to prove the formation of
a partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight
of judicial precedents, a factual matter like the finding of the existence of a partnership
between respondent and Jacinto cannot be inquired into by this Court on review. 17 This
Court can no longer be tasked to go over the proofs presented by the parties and
analyze, assess and weigh them to ascertain if the trial court and the appellate court were
correct in according superior credit to this or that piece of evidence of one party or the
other. 18 It must be also pointed out that petitioners failed to attend the presentation of
evidence of Respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when

G.R. No. 143340 August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
FACTS
Lamberto Chua alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane LPG. For business convenience, Lamberto and Jacinto allegedly
agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER,
under the name of Jacinto as a sole proprietorship. Both Lamberto and Jacinto contributed
P100,000.00 to the partnership, with the intention that the profits would be equally divided between
them.
The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, sister-in-law
of Lamberto. Upon Jacinto’s death in the later part of 1989, his daughter, Lilibeth took over the
operations of Shellite without Lamberto’s consent. Despite Lamberto’s repeated demands for
accounting, she failed to comply.
On June 22m 1992, Lamberto filed a complaint against Lilibeth with the RTC. RTC
decided in favor of Lamberto.
Lilibeth questions the correctness of the finding that a partnership existed between
Lamberto and Jacinto. In the absence of any written document to show such partnership between
Lamberto and Jacinto, Lilibeth argues that these courts were proscribed from hearing the
testimonies of Lamberto and his witness, Josephine, to prove the alleged partnership three (3)
years after Jacinto’s death.
To support the argument, Lilibeth invokes the “DEAD MAN’S STATUTE OR
SURVIVORSHIP RULE” under Sec. 23, Rule 130. Lilibeth thus implores this Court to rule that
the testimonies of Lamberto and his alter ego, Josephine, should not have been admitted to prove
certain claims against a deceased person (Jacinto).
ISSUE
Whether or not the “DEAD MAN’S STATUTE” applies to this case so as to render
inadmissible Lamberto’s testimony and that if his witness, Josephine.
HELD
No. The “Dead Man’s Statute” provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving party is not
entitled to the undue advantage of giving his own contradicted and unexplained account of the
transaction.
Lilibeth filed a compulsory counterclaim against Lamberto in their answer before the
RTC, and with the filing of their counterclaim, Lilibeth herself effectively removed this case from
the ambit of the “Dead Man’s Statute”. Well entrenched is the rule that when it is the executor or
administrator or representatives of the estate that sets up the counterclaim, Lamberto, may testify
to occurrences before the death of the deceased to defeat the counterclaim. Moreover, as
defendant in the counterclaim, Lamberto is not disqualified from testifying as to matters of fact
occurring before the death of the deceased, said action not having been bought against but by the
estate or representatives of the deceased.
The testimony of Josephine is not covered by the “Dead Man’s Statute” for the simple
reason that she is not “a party or assignor of a party to a case or persons in whose behalf a case
is prosecuted”. Lamberto offered the testimony of Josephine to establish the existence of the
partnership between Lamberto and Jacinto. Lilibeth’s insistence that Josephine is the alter ego of
Lamberto does not make her an assignor because of the term “assignor” of a party means
“assignor of a cause of action which has arisen, and not the assignor of a right assigned before
any cause of action has arisen”. Plainly then, Josephine is merely a witness of Lamberto, latter
being the plaintiff.
Lilibeth’s reliance alone on the “Dead Man’s Statue” to defeat Lamberto’s claim cannot
prevail over the factual findings that a partnership was established between Lamberto and
Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well, they
considered the evidence for Lamberto as sufficient to prove the formation of a partnership, albeit
an informal one.
Sunga – Chan v. Chua
Facts:
On June 22, 1992, respondent Lamberto T. Chua filed a complaint against
petitioners, Lilibeth Sunga Sunga Chan and Cecilia Sunga, daughter and wife,
respectively of the deceased Jacinto L. Sunga, for winding up of Partnership
Affairs, accounting, appraisal and recovery of Shares and Damages with Writ of
Preliminary Attachment with the Regional Trial Court, Branch 11, Zamboanga del
Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with
Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila
with initial capital contribution of Php100,000.00 each, with the intention that
the profits would be equally divided between them. For business convenience,
respondent and Jacinto agreed to register the business name of their partnership
SHELLITE GAS APPLIANCE CENTER under the name of Jacinto as sole
proprietorship.
Petitioners question the correctness of the finding of the Trial Court and the
Court of Appeals that a partnership existed in the absence of any written
document to show partnership between respondent and Jacinto from 1977 until
Jacinto’s death.
Issue:
Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into
a partnership?
Held:
Yes. The court ruled that 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. Also, Article 1772 of the Civil Code
requires that partnership with a capital of Php3,000.00 or more must register
with the Securities and Exchange Commission, however this registration
requirement is not mandatory. Article 1768 of the Civil Code explicitly provides
that the partnership retains its juridical personality even if it fails register. The
failure to register the contract of partnership does not invalidate the same as
among the partners, so long as the contract has the essential requisites, because
the main purpose of registration is to give notice to third parties, and it can be
assumed that the members themselves knew of the contents of their contract.
liabilities of Lilibeth Sunga-Chan as the same is a part of absolute community property. The use of
the assets of Shellite may be reasonably considered to have been used for Lilibeth Sunga-Chan and
Norberto Chan’s benefit. The property was auctioned for a price of P8 million by Chua but the claim
of Chua only amounts to P5,529,392.52 which means that Lamberto Chua owes Lilibeth Sunga-Chan
the excess amount of P2,470,607.48.

Lilibeth Sunga-Chan and Cecilia Sunga vs. The Court of Apeals and Lamberto Chua
G.R. No. 154401
June 25, 2008
Ponente: Velasco, Jr. J.
Facts
· Lamberto Chua (respondents) and Jacinto Sunga, husband of Cecilia Sunga (petitioner), formed
a partnership to engage in the marketing of liquefied petroleum gas in 1977, which was named
Shellite that was registered as a sole proprietorship in the name of Jacinto. Lilibeth Sunga-Chan and
Cecilia Sunga continued the business when Jacinto Sunga died in 1989, without Chua’s consent.
Subsequently, Chua repeatedly demanded for accounting but was ignored which prompted him to
file a Complaint for Winding Up of a Partnership Affairs, Accounting, Appraisal, and Recovery of
Shares and Damages with a Writ of Preliminary Attachment. The RTC ruled in favor of Chua and
ordered Lilibeth Sunga-Chan and Cecilia Sunga to render an accounting and return all assets, income
and profits, and to pay several sums of money. The same court issued a writ of execution while Chua
asked the court to admit the accounting report prepared by CPA. The accounting report came up
with P8,733,644.75 as Chua’s claim and was approved by the trial court as the final computation
and the liability of petitioners. The petitioners elevated the case to the Court of Appeals but was
denied for lack of merit. Due to the petitioner’s failure to appear the hearings, they were deemed
to have waived the right to object the claim. The Sheriff of Manila levied the property of Lilibeth
Sunga-Chan which was auctioned to Lamberto Chua for P8 million. However, petitioner Sunga-Chan
argues that such property forms part of a conjugal partnership between his husband and cannot be
held liable.

Issue:
· W/N the absolute community of property of spouses Lilibeth Sunga-Chan and Norberto Chan
may be lawfully made to answer Lilibeth Sunga-Chan’s liability

Held
“WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the assailed decision and resolution of
the CA in CA-G.R. SP No. 75688 are hereby AFFIRMED with the following MODIFICATIONS:
(1) The Resolutions dated November 6, 2002 and January 7, 2003 of the RTC, Branch 11 in Sindangan,
Zamboanga Del Norte in Civil Case No. S-494, as effectively upheld by the CA, are AFFIRMED with
the modification that the approved claim of respondent Chua is hereby corrected and adjusted to
cover only the aggregate amount of PhP 5,529,392.52;
(2) Subject to the payment by respondent Chua of PhP 2,470,607.48 to petitioner Sunga-Chan, the
Resolution dated April 11, 2005 of the RTC, confirming the sheriff’s final deed of sale of the levied
property, ordering the Registry of Deeds of Manila to cancel TCT No. 208782, and issuing a writ of
possession in favor of respondent Chua, is AFFIRMED; and The TRO issued by the Court on May 31,
2005 in the instant petition is LIFTED. No pronouncement as to costs. SO ORDERED.”
Ratio:
· YES. The fact that the levied parcel of land is a conjugal property of the spouses Chan does not
vitiate the levy an the sale of property, per se. The property is not among those exepted from
execution under the rules of Court. The property levied by the Sheriff may be held liable for the

G.R. No. L-14441 December 17, 1966
PEDRO R. PALTING, petitioner,
vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.
BARRERA, J.:
This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another
dated September 9, 1958, of the Securities and Exchange Commission denying the opposition to, and
instead, granting the registration, and licensing the sale in the Philippines, of 5,000,000 shares of the capital
stock of the respondent-appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE
PETROLEUM), a corporation organized and existing in the Republic of Panama.
On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange
Commission a sworn registration statement, for the registration and licensing for sale in the Philippines Voting
Trust Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00
per share. It was alleged that the entire proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter
to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions covering an area of a
little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union,
Iloilo, Cotabato, Davao and Agusan. It was the express condition of the sale that every purchaser of the
securities shall not receive a stock certificate, but a registered or bearer-voting-trust certificate from the voting
trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and
the second in New York City. While this application for registration was pending consideration by the
Securities and Exchange Commission, SAN JOSE PETROLEUM filed an amended Statement on June 20,
1958, for registration of the sale in the Philippines of its shares of capital stock, which was increased from
2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to P0.70 per share. At this time the par value
of the shares has also been reduced from $.35 to $.01 per share.1
Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed
with the Securities and Exchange Commission an opposition to registration and licensing of the securities on
the grounds that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and
SAN JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and
the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the
sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers;
and (4) the issuer as an enterprise, as well as its business, is based upon unsound business principles.
Answering the foregoing opposition of Palting, et al., the registrant SAN JOSE PETROLEUM claimed that it
was a "business enterprise" enjoying parity rights under the Ordinance appended to the Constitution, which
parity right, with respect to mineral resources in the Philippines, may be exercised, pursuant to the Laurel-
Langley Agreement, only through the medium of a corporation organized under the laws of the Philippines.
Thus, registrant which is allegedly qualified to exercise rights under the Parity Amendment, had to do so
through the medium of a domestic corporation, which is the SAN JOSE OIL. It refused the contention that the
Corporation Law was being violated, by alleging that Section 13 thereof applies only to foreign corporations
doing business in the Philippines, and registrant was not doing business here. The mere fact that it was a
holding company of SAN JOSE OIL and that registrant undertook the financing of and giving technical
assistance to said corporation did not constitute transaction of business in the Philippines. Registrant also
denied that the offering for sale in the Philippines of its shares of capital stock was fraudulent or would work or
tend to work fraud on the investors. On August 29, 1958, and on September 9, 1958 the Securities and
Exchange Commissioner issued the orders object of the present appeal.
The issues raised by the parties in this appeal are as follows:
1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's
securities, has personality to file the present petition for review of the order of the Securities and
Exchange Commission;
2. Whether or not the issue raised herein is already moot and academic;
3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign
corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of
the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation
Law; and
4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work
fraud to purchasers of such securities in the Philippines.
1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2
newspapers of general circulation in the Philippines, for "any person who is opposed" to the petition for
registration and licensing of respondent's securities, to file his opposition in 7 days, herein petitioner so filed an
opposition. And, the Commissioner, having denied his opposition and instead, directed the registration of the
securities to be offered for sale, oppositor Palting instituted the present proceeding for review of said order.
Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere
"prospective investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit.
Citing a 1931 ruling of Utah State Supreme Court2 it is claimed that the phrase "party aggrieved" used in the
Securities Act3and the Rules of Court4 as having the right to appeal should refer only to issuers, dealers and
salesmen of securities.
It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the
judgment or decree where it operates on his rights of property or bears directly upon his interest", that the
word "aggrieved" refers to "a substantial grievance, a denial of some personal property right or the imposition
upon a party of a burden or obligation." But a careful reading of the case would show that the appeal therein
was dismissed because the court held that an order of registration was not final and therefore not appealable.
The foregoing pronouncement relied upon by herein respondent was made in construing the provision
regarding an order of revocation which the court held was the one appealable. And since the law provides that
in revoking the registration of any security, only the issuer and every registered dealer of the security are
notified, excluding any person or group of persons having no such interest in the securities, said court
concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of securities.
We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our
Securities Act in Section 7(c) thereof, requires the publication and notice of the registration statement.
Pursuant thereto, the Securities and Exchange Commissioner caused the publication of an order in part
reading as follows:
. . . Any person who is opposed with this petition must file his written opposition with this
Commission within said period (2 weeks). . . .
In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act,
any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or
permitted to file an opposition to the registration of securities for sale in the Philippines. And this is in
consonance with the generally accepted principle that Blue Sky Laws are enacted to protect investors and
prospective purchasers and to prevent fraud and preclude the sale of securities which are in fact worthless or
worth substantially less than the asking price. It is for this purpose that herein petitioner duly filed his
opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the
opposition. Subsequently both the petition and the opposition were set for hearing during which the petitioner
was allowed to actively participate and did so by cross-examining the respondent's witnesses and filing his
memorandum in support of his opposition. He therefore to all intents and purposes became a party to the
proceedings. And under the New Rules of Court,5 such a party can appeal from a final order, ruling or decision
of the Securities and Exchange Commission. This new Rule eliminating the word "aggrieved" appearing in the
old Rule, being procedural in nature,6 and in view of the express provision of Rule 144 that the new rules
made effective on January 1, 1964 shall govern not only cases brought after they took effect but all further
proceedings in cases then pending, except to the extent that in the opinion of the Court their application would
not be feasible or would work injustice, in which event the former procedure shall apply, we hold that the
present appeal is properly within the appellate jurisdiction of this Court.
The order allowing the registration and sale of respondent's securities is clearly a final order that is
appealable. The mere fact that such authority may be later suspended or revoked, depending on future
developments, does not give it the character of an interlocutory or provisional ruling. And the fact that seven
days after the publication of the order, the securities are deemed registered (Sec. 7, Com. Act 83, as
amended), points to the finality of the order. Rights and obligations necessarily arise therefrom if not reviewed
on appeal.
Our position on this procedural matter — that the order is appealable and the appeal taken here is proper — is
strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as
the constitutional issues herein presented affect the validity of Section 13 of the Corporation Law, which,
according to the respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement
recognizing, it is claimed, its right to exploit our petroleum resources notwithstanding said provisions of the
Corporation Law.
2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took
effect 30 days from September 3, 1958, and since no stay order has been issued by the Supreme Court,
respondent's shares became registered and licensed under the law as of October 3, 1958. Consequently, it is
asserted, the present appeal has become academic. Frankly we are unable to follow respondent's
argumentation. First it claims that the order of August 29 and that of September 9, 1958 are not final orders
and therefor are not appealable. Then when these orders, according to its theory became final and were
implemented, it argues that the orders can no longer be appealed as the question of registration and licensing
became moot and academic.
But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the
open market. Consequently the issue is much alive as to whether respondent's securities should continue to
be the subject of sale. The purpose of the inquiry on this matter is not fully served just because the securities
had passed out of the hands of the issuer and its dealers. Obviously, so long as the securities are outstanding
and are placed in the channels of trade and commerce, members of the investing public are entitled to have
the question of the worth or legality of the securities resolved one way or another.
But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared
as amicus curiae in this case, that while apparently the immediate issue in this appeal is the right of
respondent SAN JOSE PETROLEUM to dispose of and sell its securities to the Filipino public, the real and
ultimate controversy here would actually call for the construction of the constitutional provisions governing the
disposition, utilization, exploitation and development of our natural resources. And certainly this is neither
moot nor academic.
3. We now come to the meat of the controversy — the "tie-up" between SAN JOSE OIL on the one hand, and
the respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these
corporations involved or affected in this case is admitted and established through the papers and documents
which are parts of the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding
capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation,
the majority interest of which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company.
This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and
PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the laws of Venezuela. As
of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American
states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956,
PANTEPEC OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49
American state. In the two lists of stockholders, there is no indication of the citizenship of these
stockholders,7 or of the total number of authorized stocks of each corporation, for the purpose of determining
the corresponding percentage of these listed stockholders in relation to the respective capital stock of said
corporation.
Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between
herein respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of
1949, the Philippine Constitution, and Section 13 of the Corporation Law, which inhibits a mining corporation
from acquiring an interest in another mining corporation. It is respondent's theory, on the other hand, that far
from violating the Constitution; such relationship between the two corporations is in accordance with the
Laurel-Langley Agreement which implemented the Ordinance Appended to the Constitution, and that Section
13 of the Corporation Law is not applicable because respondent is not licensed to do business, as it is not
doing business, in the Philippines.
Article XIII, Section 1 of the Philippine Constitution provides:
SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization shall
be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum
of the capital of which is owned by such citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of this Government established under this Constitution. .
. . (Emphasis supplied)
In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources)
was extended to citizens of the United States, thus:
Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen,
of the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July, nineteen
hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred
and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventy-
four, the disposition, exploitation, development, and utilization of all agricultural, timber, and
mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, and other natural resources of the Philippines, and the operation of
public utilities shall, if open to any person, be open to citizens of the United States, and to all forms
of business enterprises owned or controlled, directly or indirectly, by citizens of the United States
in the same manner as to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by citizens of the
Philippines (Emphasis supplied.)
In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known
as the Laurel-Langley Agreement, embodied in Republic Act 1355, the following provisions appear:
ARTICLE VI
1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and
sources of potential energy, and other natural resources of either Party, and the operation of public
utilities, shall, if open to any person, be open to citizens of the other Party and to all forms of
business enterprise owned or controlled, directly or indirectly, by citizens of such other Party in the
same manner as to and under the same conditions imposed upon citizens or corporations or
associations owned or controlled by citizens of the Party granting the right.
2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the
United States, with respect to natural resources in the public domain in the Philippines, only
through the medium of a corporation organized under the laws of the Philippines and at least 60%
of the capital stock of which is owned or controlled by citizens of the United States. . . .
3. The United States of America reserves the rights of the several States of the United States to
limit the extent to which citizens or corporations or associations owned or controlled by citizens of
the Philippines may engage in the activities specified in this Article. The Republic of the Philippines
reserves the power to deny any of the rights specified in this Article to citizens of the United States
who are citizens of States, or to corporations or associations at least 60% of whose capital stock or
capital is owned or controlled by citizens of States, which deny like rights to citizens of the
Philippines, or to corporations or associations which are owned or controlled by citizens of the
Philippines. . . . (Emphasis supplied.)
Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by
Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which
is owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to
citizens of the United States and business enterprises owned or controlled directly or indirectly, by citizens of
the United States.
There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned
provisions of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or
American citizens) and juridical persons (corporations 60% of which capital is owned by Filipinos and business
enterprises owned or controlled directly or indirectly, by citizens of the United States). In American law,
"citizen" has been defined as "one who, under the constitution and laws of the United States, has a right to
vote for representatives in congress and other public officers, and who is qualified to fill offices in the gift of the
people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is —
One of the sovereign people. A constituent member of the sovereignty, synonymous with the
people." (Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)
A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v.
Cruikshank 92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise
entitled to parity rights in the Philippines? The answer must be in the negative, for the following reasons:
Firstly — It is not owned or controlled directly by citizens of the United States, because it is owned and
controlled by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.
Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens through the
OIL INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United
States, but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.
Thirdly — Although it is claimed that these two last corporations are owned and controlled respectively by
12,373 and 9,979 stockholders residing in the different American states, there is no showing in the certification
furnished by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock,
are citizens of the United States.
Fourthly — Granting that these individual stockholders are American citizens, it is yet necessary to establish
that the different states of which they are citizens, allow Filipino citizens or corporations or associations owned
or controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states
(see paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no proof to
this effect.
Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied,
nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign
corporations, comes within the purview of the Parity Amendment regarding business enterprises indirectly
owned or controlled by citizens of the United States, is to unduly stretch and strain the language and intent of
the law. For, to what extent must the word "indirectly" be carried? Must we trace the ownership or control of
these various corporations ad infinitum for the purpose of determining whether the American ownership-
control-requirement is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and
PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are traded in
the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances,
we have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business
enterprise that is authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley
Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE
PETROLEUM? This is a query which we need not resolve in this case as SAN JOSE OIL is not a party and it
is not necessary to do so to dispose of the present controversy. But it is a matter that probably the Solicitor
General would want to look into.
There is another issue which has been discussed extensively by the parties. This is whether or not an
American mining corporation may lawfully "be in anywise interested in any other corporation (domestic or
foreign) organized for the purpose of engaging in agriculture or in mining," in the Philippines or whether an
American citizen owning stock in more than one corporation organized for the purpose of engaging in
agriculture or in mining, may own more than 15% of the capital stock then outstanding and entitled to vote, of
each of such corporations, in view of the express prohibition contained in Section 13 of the Philippine
Corporation Law. The petitioner in this case contends that the provisions of the Corporation Law must be
applied to American citizens and business enterprise otherwise entitled to exercise the parity privileges,
because both the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31),
specifically provide that the enjoyment by them of the same rights and obligations granted under the
provisions of both laws shall be "in the same manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines."
The petitioner further contends that, as the enjoyment of the privilege of exploiting mineral resources in the
Philippines by Filipino citizens or corporations owned or controlled by citizens of the Philippines (which
corporation must necessarily be organized under the Corporation Law), is made subject to the limitations
provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by citizens of the
United States or business enterprise owned or controlled, directly or indirectly, by citizens of the United States,
must equally be subject to the same limitations contained in the aforesaid Section 13 of the Corporation Law.
In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this
legal question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that
it is essentially a holding company, and as found by the Securities and Exchange Commissioner, its principal
activity is limited to the financing and giving technical assistance to SAN JOSE OIL.
4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the
Philippines, was incorporated under the laws of Panama in April, 1956 with an authorized capital stock of
$500,000.00, American currency, divided into 50,000,000 shares at par value of $0.01 per share. By virtue of
a 3-party Agreement of June 14, 1956, respondent was supposed to have received from OIL INVESTMENTS
8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share), plus a note for
$250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000 shares
of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in
2 years at 6% per annum interest,9 and the assumption of payment of the unpaid price of 7,500,000 (of the
8,000,000 shares of SAN JOSE OIL).
On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to
$17,500,000.00 by increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any
additional consideration, the 16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total
value of $160,000.00 were changed with 16,000,000 shares of the recapitalized stock at $0.35 per share, or
valued at $5,600,000.00. And, to make it appear that cash was received for these re-issued 16,000,000
shares, the board of directors of respondent corporation placed a valuation of $5,900,000.00 on the 8,000,000
shares of SAN JOSE OIL (still having par value of $0.10 per share) which were received from OIL
INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.
In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the
8,000,000 shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged
difference between the "value" of the said shares and the subscription price thereof which is $800,000.00 (at
$0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE OIL shares, the amount of
$319,702.03 was deducted, as allegedly unpaid subscription price, thereby giving a difference of $480,297.97,
which was placed as the amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL
shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for $250,000.00 (part-
consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred
expenses, SAN JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.
These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000
shares of SAN JOSE OIL. There appears no basis for such valuation other than belief by the board of
directors of respondent that "should San Jose Oil Company be granted the bulk of the concessions applied for
upon reasonable terms, that it would have a reasonable value of approximately $10,000,000." 10 Then, of this
amount, the subscription price of $800,000.00 was deducted and called it "difference between the (above)
valuation and the subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price, they
deducted the sum of $480,297.97 and the difference was placed as the unpaid portion of the subscription
price. In other words, it was made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN
JOSE OIL. This amount ($480,297.97) was supposedly that $250,000.00 paid by OIL INVESMENTS for
7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the
amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an item
among respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments, maturing in two
(2) years at six percent (6%) per annum. 11 As far as it appears from the records, for the 16,000,000 shares at
$0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL
INVESTMENTS only the note for $250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of
$0.10 per share or a total of $1,050,000.00 — the only assets of the corporation. In other words, respondent
actually lost $4,550,000.00, which was received by OIL INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE
PETROLEUM are noteworthy; viz:
(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for
the election of directors designated by the Trustees in their own discretion, having in mind the best
interests of the holders of the voting trust certificates, it being understood that any and all of the
Trustees shall be eligible for election as directors;
(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or
proxies to vote for or against such proposition as the Trustees in their own discretion may
determine, having in mind the best interest of the holders of the voting trust certificates;
(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will
instruct such proxy or proxies attending such meetings to vote the shares of stock held by the
Trustees in accordance with the written instructions of each holder of voting trust certificates.
(Emphasis supplied.)

(1) the directors of the Company need not be shareholders; It was also therein provided that the said Agreement shall be binding upon the parties thereto, their
successors, and upon all holders of voting trust certificates.

(2) that in the meetings of the board of directors, any director may be represented and may vote
through a proxy who also need not be a director or stockholder; and
(3) that no contract or transaction between the corporation and any other association or
partnership will be affected, except in case of fraud, by the fact that any of the directors or officers
of the corporation is interested in, or is a director or officer of, such other association or
partnership, and that no such contract or transaction of the corporation with any other person or
persons, firm, association or partnership shall be affected by the fact that any director or officer of
the corporation is a party to or has an interest in, such contract or transaction, or has in anyway
connected with such other person or persons, firm, association or partnership; and finally, that all
and any of the persons who may become director or officer of the corporation shall be relieved
from all responsibility for which they may otherwise be liable by reason of any contract entered into
with the corporation, whether it be for his benefit or for the benefit of any other person, firm,
association or partnership in which he may be interested.
And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange
Commissioner. It can not be doubted that the sale of respondent's securities would, to say the least, work or
tend to work fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied
and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's
securities and licensing their sale in the Philippines are hereby set aside. The case is remanded to the
Securities and Exchange Commission for appropriate action in consonance with this decision. With costs. Let
a copy of this decision be furnished the Solicitor General for whatever action he may deem advisable to take
in the premises. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

Castro, J., took no part.

These provisions are in direct opposition to our corporation law and corporate practices in this country. These
provisions alone would outlaw any corporation locally organized or doing business in this jurisdiction. Consider
the unique and unusual provision that no contract or transaction between the company and any other
association or corporation shall be affected except in case of fraud, by the fact that any of the directors or
officers of the company may be interested in or are directors or officers of such other association or
corporation; and that none of such contracts or transactions of this company with any person or persons,
firms, associations or corporations shall be affected by the fact that any director or officer of this company is a
party to or has an interest in such contract or transaction or has any connection with such person or persons,
firms associations or corporations; and that any and all persons who may become directors or officers of this
company are hereby relieved of all responsibility which they would otherwise incur by reason of any contract
entered into which this company either for their own benefit, or for the benefit of any person, firm, association
or corporation in which they may be interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and the
stockholders of a corporation is too obvious to escape notice by those who are called upon to protect the
interest of investors. The directors and officers of the company can do anything, short of actual fraud, with the
affairs of the corporation even to benefit themselves directly or other persons or entities in which they are
interested, and with immunity because of the advance condonation or relief from responsibility by reason of
such acts. This and the other provision which authorizes the election of non-stockholders as directors,
completely disassociate the stockholders from the government and management of the business in which they
have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE
PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former corporation and
acting "on behalf of all future holders of voting trust certificates," entered into a voting trust agreement12 with
James L. Buckley and Austin E. Taylor, whereby said Trustees were given authority to vote the shares
represented by the outstanding trust certificates (including those that may henceforth be issued) in the
following manner:
 3. that no contract or transaction between the corporation and any other association or partnership will be affected, except
in case of fraud, by the fact that any of the directors or officers of the corporation is interested in, or is a director or
officer of, such other association or partnership, and that no such contract or transaction of the corporation with any other
person or persons, firm, association or partnership shall be affected by the fact that any director or officer of the
corporation is a party to or has an interest in, such contract or transaction, or has in anyway connected with such other
person or persons, firm, association or partnership; and finally, that all and any of the persons who may become director
or officer of the corporation shall be relieved from all responsibility for which they may otherwise be liable by reason of
any contract entered into with the corporation, whether it be for his benefit or for the benefit of any other person, firm,
association or partnership in which he may be interested.

Palting v. San Jose Petroleum

G.R. No. L-14441 December 17, 1966
G.R. No. L-14441, December 17, 1966

Lessons Applicable:
Pedro R. Palting

 Up to what level do you apply the grandfather rule? (Corporation Law)

 Pre-Corporation Code (Corporation Law) vs Sanjose Petroleum Inc.
FACTS:
 September 7, 1956: San Jose Petroleum (SJP) filed with the Philippine Securities and Exchange Commission a sworn Ponente: Barrera
registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing
2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share
 It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to finance the Facts:
operations of San Jose Oil Company, Inc. (Domestic Mining Oil Company)
 express condition of the sale that every purchaser of the securities shall not receive a stock certificate, but a registered or San Jose Petroleum a corporation organized and existing in the Republic of Panama, PETROLEUM filed with
bearer-voting-trust certificate from the voting trustees James L. Buckley and Austin G.E. Taylor the Philippine Securities and Exchange Commission a sworn registration statement, for the registration and
 June 20, 1958: SJP amended Statement increasing 2,000,000 to 5,000,000, at a reduced offering price of from P1.00 to licensing for sale in the Philippines Voting Trust Certificates.
P0.70 per share
 Pedro R. Palting together with other investors in the share of SJP filed with the SEC an opposing the registration and
It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to
licensing of the securities on the grounds that:
1. tie-up between the issuer, SJP, a Panamanian corp. and San Jose Oil (SJO), a domestic corporation, violates the finance the operations of San Jose Oil Company, Inc. which is a domestic mining corporation. Pedro R.
Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949 Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the
2. issuer has not been licensed to transact business in the Philippines Securities and Exchange Commission an opposition to registration and licensing of the securities on the
3. sale of the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers grounds that the tie-up between SAN JOSE PETROLEUM, and SAN JOSE OIL, violates the Constitution of
4. issuer as an enterprise, as well as its business, is based upon unsound business principles the Philippines, the Corporation Law and the Petroleum Act of 1949.
ISSUES:
1. W/N Pedro R. Palting, as a "prospective investor" in SJP's securities, has personality to file -YES
2. W/N the tie-up violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949 (Up to Issue:
what level do you apply the grandfather rule?) - YES
HELD: motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange Commissioner,
allowing the registration of Respondent's securities and licensing their sale in the Philippines are hereby set aside. The case is Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, and SAN JOSE OIL
remanded to the Securities and Exchange Commission for appropriate action in consonance with this decision. COMPANY, INC., is violative of the
1. YES
 any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to
Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949
file an opposition to the registration of securities for sale in the Philippines
 eliminating the word "aggrieved" appearing in the old Rule, being procedural in nature, and in view of the express provision
of Rule 144 that the new rules made effective on January 1, 1964 shall govern not only cases brought after they took effect Held:
but all further proceedings in cases then pending, except to the extent that in the opinion of the Court their application
would not be feasible or would work injustice, in which event the former procedure shall apply
*amiscus curae -stranger to the case Yes. In the 1946 Ordinance Appended to the Constitution, this right was extended to citizens of the United
States; states that to all forms of business enterprises owned or controlled, directly or indirectly, by citizens of
the United States in the same manner as to, and under the same conditions imposed upon, citizens of the
2. YES Philippines or corporations or associations owned or controlled by citizens of the Philippines, would have the
 SJO (domestic)- 90% owned by SJP (foreign) wholly owned by Pantepec Oil Co. and Pancoastel Petroleum, both organized privilege of disposition, exploitation, development, and utilization of all Philippine natural resources. However,
and existing under the laws of Venezuela respondent is owned, controlled, directly and indirectly by Panamanian Corporation.
 CANNOT go beyond the level of what is reasonable
 SJO is not a party and it is not necessary to do so to dispose of the present controversy. The Laurel-Langley Agreement also states that with respect to natural resources in the public domain in the
 SJP actually lost $4,550,000.00, which was received by SJO Philippines, only through the medium of a corporation organized under the laws of the Philippines and at least
 Articles of Incorporation of SJP is unlawful:
60% of the capital stock of which is owned or controlled by citizens of the United States.

1. the directors of the Company need not be shareholders;

Although it was claimed that the corporation has stockholders residing in United States, there was no
2. that in the meetings of the board of directors, any director may be represented and may vote through a proxy who also
need not be a director or stockholder; and indication if they are all citizens of America, how much percentage do they occupy as stockholders, and if they
have the same rules that apply to the conditions mentioned. In the circumstances, the court ruled that the
respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized
to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum
Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.
The parity rights agreement is not applicable to SJP. The parity rights are only granted to American business
enterprises or enterprises directly or indirectly controlled by US citizens. SJP is a Panamanian corporate
citizen. The other owners of SJO are Venezuelan corporations, not Americans. SJP was not able to show
contrary evidence. Further, the Supreme Court emphasized that the stocks of these corporations are being
traded in stocks exchanges abroad which renders their foreign ownership subject to change from time to time.
This fact renders a practical impossibility to meet the requirements under the parity rights. Hence, the tie up
between SJP and SJO is illegal, SJP not being a domestic corporation or an American business enterprise
contemplated under the Laurel-Langley Agreement.
G.R. No. L-14441 December 17, 1966
PEDRO R. PALTING, petitioner,
vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.
FACTS: On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and
Exchange Commission a sworn registration statement, for the registration and licensing for sale in
the Philippines Voting Trust Certificates representing 2,000,000 shares of its capital stock of a par
value of $0.35 a share, at P1.00 per share.
It was alleged that the entire proceeds of the sale of said securities will be devoted or used
exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic mining corporation
hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum exploration concessions
covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan,
Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.
SAN JOSE PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale
in the Philippines of its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at
a reduced offering price of from P1.00 to P0.70 per share. At this time the par value of the shares
has also been reduced from $.35 to $.01 per share.
Pedro R. Palting and others, allegedly prospective investors in the shares of SAN
JOSE PETROLEUM, filed with the Securities and Exchange Commission an
opposition to registration and licensing of the securities on the grounds that (1) the
tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE
OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and
the Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the
Philippines; (3) the sale of the shares of the issuer is fraudulent, and works or tends to work a fraud
upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is based upon
unsound business principles.
ISSUE: (apat to, isa lang kinuha ko) Whether or not the “tie-up” between the respondent SAN
JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic
mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum
Act of 1949, and the Corporation Law
HELD:
Established Facts:
 SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of
which is owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian)
corporation, the majority interest of which is owned by OIL INVESTMENTS, Inc., another
foreign (Panamanian) company. This latter corporation in turn is wholly (100%) owned by
PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A.,
both organized and existing under the laws of Venezuela.
 As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM
found in 49 American states and U.S. territories, holding 3,476,988 shares of stock; whereas,
as of November 30, 1956, PANTEPEC OIL COMPANY was said to have 3,077,916 shares
held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders,
there is no indication of the citizenship of these stockholders,7 or of the total number of
authorized stocks of each corporation, for the purpose of determining the corresponding
percentage of these listed stockholders in relation to the respective capital stock of said
corporation.
There could be no serious doubt as to the meaning of the word “citizens” used in the
aforementioned provisions of the Constitution.
The right was granted to 2 types of persons: natural persons (Filipino or American
citizens) and juridical persons (corporations 60% of which capital is owned by
Filipinos and business enterprises owned or controlled directly or indirectly, by
citizens of the United States).
These concepts clarified, is herein respondent SAN JOSE PETROLEUM an
American business enterprise entitled to parity rights in the Philippines? The
answer must be in the negative, for the following reasons:
Firstly — It is not owned or controlled directly by citizens of the United States, because it is
owned and controlled by a corporation, the OIL INVESTMENTS, another foreign
(Panamanian) corporation.
Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens
through the OIL INVESTMENTS, for this latter corporation is in turn owned and
controlled, not by citizens of the United States, but still by two foreign
(Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.
Thirdly — Although it is claimed that these two last corporations are owned and controlled
respectively by 12,373 and 9,979 stockholders residing in the different American states, there is
no showing in the certification furnished by respondent that the stockholders of
PANCOASTAL or those of them holding the controlling stock, are citizens of the United States.
Fourthly — Granting that these individual stockholders are American citizens, it is yet necessary
to establish that the different states of which they are citizens, allow Filipino citizens or
corporations or associations owned or controlled by Filipino citizens, to engage in the exploitation,
etc. of the natural resources of these states (see paragraph 3, Article VI of the Laurel-Langley
Agreement, supra). Respondent has presented no proof to this effect.
Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are
satisfied, nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening
foreign corporations, comes within the purview of the Parity Amendment regarding business
enterprises indirectly owned or controlled by citizens of the United States, is to unduly stretch and
strain the language and intent of the law. For, to what extent must the word “indirectly” be carried?
Must we trace the ownership or control of these various corporations ad infinitum for the purpose of
determining whether the American ownership-control-requirement is satisfied? Add to this the
admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which are allegedly
owned or controlled directly by citizens of the United States, are traded in the stock exchange in
New York, and you have a situation where it becomes a practical impossibility to determine at any
given time, the citizenship of the controlling stock required by the law. In the circumstances, we
have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a
business enterprise that is authorized to exercise the parity privileges under the Parity Ordinance,
the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with SAN JOSE OIL is,
consequently, illegal.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this
appeal, is denied and the orders of the Securities and Exchange Commissioner, allowing the
registration of Respondent’s securities and licensing their sale in the Philippines are hereby set
aside. The case is remanded to the Securities and Exchange Commission for appropriate action in
consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor
General for whatever action he may deem advisable to take in the premises. So ordered.
G.R. No. L-35840 March 31, 1933
FRANCISCO BASTIDA, plaintiff-appellee,
vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
Romualdez Brothers and Harvey and O'Brien for appellant.
Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee.
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First
Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and
defendants' amended answer thereto of September 1, 1928. For the sake of clearness, we shall
incorporate herein the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of
the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C.
Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager,
J.M. Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to
engage in the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit
A, attached to the original complaint as a part thereof, and likewise made a part of the amended
complaint, as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture
prepared fertilizers, the former superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled
"FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept; the plaintiff had no participation in the making of these
entries, which were wholly in the defendants' charge, under whose orders every entry was made;
IV
That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged
to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff
had no intervention in the preparation of these yearly balances, nor was he permitted to have any
access to the books of account; and when the balance sheets were shown him, he, believing in good
faith that they contained the true statement of the partnership business, and relying upon the good faith
of the defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the
last balance sheet having been rendered in the year 1926;
V
That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the
plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature
and amount of which it is impossible to ascertain, even after the examination of the books of the
business, due to the defendants' refusal to furnish all the books and data required for the purpose, and
the constant obstacles they have placed in the way of the examination of the books of account and
vouchers;
VI
That when the plaintiff received the information mentioned in the preceding paragraph, he demanded
that the defendants permit him to examine the books and vouchers of the business, which were in their
possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to the examination until
after the original complaint was filed in this case; but up to this time they have refused to furnish all the
books, data, and vouchers necessary for a complete and accurate examination of all the partnership's
accounts; and
VII
That as a result of the partial examination of the books of account of the business, the plaintiff has,
through his accountants, discovered that the defendants, conspiring and confederating together,
presented to the plaintiff during the period covered by the partnership contract false and incorrect
accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which should have
been paid and were in fact paid by the defendant Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which should have been paid
for its own account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the
purchase of materials for the manufacture of fertilizers;
 (e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained
from the sale of fertilizers belonging to the partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon
materials for fertilizer bought abroad, no entries of said rebates having been made on the
books to the credit of the partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and concealing
the books and papers of the partnership constituted between the defendant Menzi & Co.,
Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true account of all facts
relating to the partnership between the plaintiff and the defendant Menzi & Co., Inc., and of
each and every act and transaction connected with the business of said partnership from
the beginning to April 27, 1927, and a true statement of all merchandise of whatever
description, purchased for said partnership, and of all the expenditures and sale of every
kind, together with the true amount thereof, besides the sums received by the partnership
from every source together with their exact nature, and a true and complete account of the
vouchers for all sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the defendants to the plaintiff
from 1922 to 1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and disbursements of the
partnership during the period of its existence, besides granting the plaintiff any other remedy
that the court may deem just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compañia, de Manila, como Primera Parte, y D.
Francisco Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes
CONDICIONES
1.ª El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes
Preparados, para diversas aplicaciones agricolas;
2.ª La duracion de este contrato sera de cinco años, a contrar desde la fecha de su firma;
3.ª La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el
negocio;
4.ª La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la
disposicion del negocio;
5.ª La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en
sociedad con otras personas, o de manera alguna que no sea con la Primera Parte, al
negecio de Abonos, simples o preparados, o de materia alguna que se aplique
comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este contrato, a
menos que obtenga autorizacion expresa de la Primera Parte para ello;
6.ª La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con
otras personas o entidades, ni de otro modo que en sociedad con la Segunda Parte, al
negocio de Abonos o Fertilizantes preparados, ya sean ellos importados, ya preparados en
las Islas Fllipinas; tampoco podra dedicarse a la venta o negocio de materias o productos
que tengan aplicacion como fertilizantes, o que se usen en la composicion de fertilizantes o
abonos, si ellos son productos de suelo de la manufactura filipinos, pudiendo sin embargo
vender o negociar en materim fertilizantes simples importados de los Estados Unidos o del
Extranjero;
7.ª La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por
ciento (treinta y cinco por ciento) de las utilidades netas del negocio de abonos, liquidables
el 30 de junio de cada año;
8.ª La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos
pesos), a cuenta de su parte de beneficios.
9.ª Durante el año 1923 la Parte concedera a la Segunda permiso para que este se ausente
de Filipinas por un periodo de tiempo que no exceda de un año, sin menoscabo para
derechos de la Segunda Parte con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de
abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except the formal allegations as to the
parties, and as a special defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general
merchandise business in the Philippine Islands since its organization in October, 1921,
including the importation and sale of all kinds of goods, wares, and merchandise, and
especially simple fertilizer and fertilizer ingredients, and as a part of that business, it has
been engaged since its organization in the manufacture and sale of prepared fertilizers for
agricultural purposes, and has used for that purpose trade-marks belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered
into an employment agreement with the plaintiff, who represented that he had had much
experience in the mixing of fertilizers, to superintend the mixing of the ingredients in the
manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such
prepared fertilizers subject to its approval, for a compensation of 50 per cent of the net
profits which it might derive from the sale of the fertilizers prepared by him, and that said
Francisco Bastida worked under said agreement until April 27, 1922, and received the
compensation agreed upon for his services; that on the said 27th of April, 1922, the said
Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written
agreement, which is marked Exhibit A, and made a part of the amended complaint in this
case, whereby they mutually agreed that the employment of the said Francisco Bastida by
the said Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years
from that date and under the other terms and conditions stated therein, but with the
understanding and agreement that the said Francisco Bastida should receive as
compensation for his said services only 35 per cent of the net profits derived from the sale
of the fertilizers prepared by him during the period of the contract instead of 50 per cent of
such profits, as provided in his former agreement; that the said Francisco Bastida was found
to be incompetent to do anything in relation to its said fertilizer business with the exception
of over-seeing the mixing of the ingredients in the manufacture of the same, and on or about
the month of December, 1922, the defendant, Menzi & Inc., in order to make said business
successful, was obliged to and actually did assume the full management and direction of
said business;
3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc.,
were duly kept in the regular books of its general business, in the ordinary course thereof,
up to June 30, 1923, and that after that time and during the remainder of the period of said
agreement, for the purpose of convenience in determining the amount of compensation due
to the plaintiff under his agreement, separate books of account for its said fertilizer business
were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and used exclusively for that
purpose and it was mutually agreed between the said Francisco Bastida and the said Menzi
& Co., Inc., that the yearly balances for the determination of the net profits of said business
due to the said plaintiff as compensation for his services under said agreement would be
made as of December 31st, instead of June 30th, of each year, during the period of said
agreement; that the accounts of the business of its said fertilizer department, as recorded in
its said books, and the vouchers and records supporting the same, for each year of said
business have been duly audited by Messrs. White, Page & Co., certified public
accountants, of Manila, who, shortly after the close of business at the end of each year up
to and including the year 1926, have prepared therefrom a manufacturing and profit and
loss account and balance sheet, showing the status of said business and the share of the
net profits pertaining to the plaintiff as his compensation under said agreement; that after
the said manufacturing and profit and the loss account and balance sheet for each year of
the business of its said fertilizer department up to and including the year 1926, had been
prepared by the said auditors and certified by them, they were shown to and examined by
the plaintiff, and duly accepted, and approved by him, with full knowledge of their contents,
and as evidence of such approval, he signed his name on each of them, as shown on the
copies of said manufacturing and profit and loss account and balance sheet for each year
up to and including the year 1926, which are attached to the record of this case, and which
are hereby referred to and made a part of this amended answer, and in accordance
therewith, the said plaintiff has actually received the portion of the net profits of its said
business for those years pertaining to him for his services under said agreement; that at no
time during the course of said fertilizer business and the liquidation thereof has the plaintiff
been in any way denied access to the books and records pertaining thereto, but on the
contrary, said books and records have been subject to his inspection and examination at
any time during business hours, and even since the commencement of this action, the
plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over and
examining said books and records for months and the defendant, Menzi & Co. Inc., through
its officers, have turned over to said plaintiff and his accountant the books and records of
said business and even furnished them suitable accommodations in its own office to
examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi &
Co., Inc., duly notified the plaintiff that it would not under any conditions renew his said
agreement or continue his said employment with it after its expiration, and after the
termination of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified
public accountants, White, Page & Co., audit the accounts of the business of its said
fertilizer department for the four months of 1927 covered by plaintiff's agreement and
prepare a manufacturing and profit and loss account and balance sheet of said business
showing the status of said business at the termination of said agreement, a copy of which
was shown to and explained to the plaintiff; that at that time there were accounts receivable
to be collected for business covered by said agreement of over P100,000, and there was
guano, ashes, fine tobacco and other fertilizer ingredients on hand of over P75,000, which
had to be disposed of by Menzi & Co., Inc., or valued by the parties, before the net profits of
said business for the period of the agreement could be determined; that Menzi & Co., Inc.,
offered to take the face value of said accounts and the cost value of the other properties for
the purpose of determining the profits of said business for that period, and to pay to the
plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to
accept, and being disgruntled because the said Menzi & Co., Inc., would not continue him in
its service, the said plaintiff commenced this action, including therein not only Menzi & Co.
Inc., but also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly make
various false and malicious allegations against the defendants; that since that time the said
Menzi & Co., Inc., has been collecting the accounts receivable and disposing of the stocks
on hand, and there is still on hand old stock of approximately P25,000, which it has been
unable to dispose of up to this time; that as soon as possible a final liquidation and
amounting of the net profits of the business covered by said agreement for the last four
months thereof will be made and the share thereof appertaining to the plaintiff will be paid to
him; that the plaintiff has been informed from time to time as to the status of the disposition
of such properties, and he and his auditors have fully examined the books and records of
said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That the examination made by the plaintiff's auditors of some of the books of the
partnership that were furnished by the defendants disclosed the fact that said defendants
had charged to "purchases" of the business, undue interest, the amount of which the plaintiff
is unable to determine, as he has never had at his disposal the books and vouchers
necessary for that purpose, and especially, owning to the fact that the partnership
constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own
cash book, but that its funds were maliciously included in the private funds of the defendant
entity, neither was there a separate BANK ACCOUNT of the partnership, such account
being included in the defendant's bank account.
III. That from the examination of the partnership books as aforesaid, the plaintiff estimates
that the partnership between himself and the defendant Menzi & Co., Inc., has been
defrauded by the defendants by way of interest in an amount of approximately P184,432.51,
of which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally
to pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from
the defendants to the plaintiff upon this ground, with legal interest from the filing of the original
complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer;
2. That under the contract of employment, Exhibit A, of the amended complaint, the
defendant, Menzi & Co., Inc., only undertook and agreed to facilitate financial aid in carrying
on the said fertilizer business, as it had been doing before the plaintiff was employed under
the said agreement; that the said defendant, Menzi & Co., Inc., in the course of the said
 business of its fertilizer department, opened letters of credit through the banks of Manila,
accepted and paid drafts drawn upon it under said letters of credit, and obtained loans and
advances of moneys for the purchase of materials to be used in mixing and manufacturing
its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the
case in all, such business enterprises, and that such payments of interest as were actually
made on such drafts, loans and advances during the period of the said employment
agreement constituted legitimate expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and
P.C. Schlobohm, nor the defendant Menzi & Co., Inc., had a right to collect for itself or
themselves any amount whatsoever by way of salary for services rendered to the
partnership between the plaintiff and the defendant, inasmuch as such services were
compensated with the 65% of the net profits of the business constituting their share.
III. That the plaintiff has, on his on account and with his own money, paid all the employees
he has placed in the service of the partnership, having expended for their account, during
the period of the contract, over P88,000, without ever having made any claim upon the
defendants for this sum because it was included in the compensation of 35 per cent which
he was to receive in accordance with the contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue
and excessive salaries for themselves, have made the partnership, or the fertilizer business,
pay the salaries of a number of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have appropriated P43,920 of the
partnership funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and
severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the
original complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the
special defense the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and
conducted its said fertilizer business, in which the plaintiff was to receive 35 percent of the
net profits as compensation for this services, as hereinbefore alleged, from on or about
January 1, 1923, when its other departments had special experienced Europeans in charge
thereof, who received not only salaries but also a percentage of the net profits of such
departments; that its said fertilizer business, after its manager took charge of it, became
very successful, and owing to the large volume of business transacted, said business
required great deal of time and attention, and actually consumed at least one-half of the
time of the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the
said Menzi & Co., furnished office space, stationery and other incidentals, for said business,
and had its employees perform the duties of cashiers, accountants, clerks, messengers,
etc., for the same, and for that reason the said Menzi & Co., Inc., charged each year, from
and after 1922, as expenses of said business, which pertained to the fertilizer department,
as certain amount as salaries and wages to cover the proportional part of the overhead
expenses of Menzi & Co., Inc.; that the same method is followed in each of the several
departments of the business of Menzi & Co., Inc., that each and every year from and after
1922, a just proportion of said overhead expenses were charged to said fertilizer
departments and entered on the books thereof, with the knowledge and consent of the
plaintiff, and included in the auditors' reports, which were examined, accepted and approved
by him, and he is now estopped from saying that such expenses were not legitimate and
just expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C.
Schlobohm, has paid, with the funds of the partnership between the defendant entity and
the plaintiff, the income tax due from said defendant entity for the fertilizer business, thereby
defrauding the partnership in the amount of P10,361.72 of which 35 per cent belongs
exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own money the
income tax corresponding to his share which consists in 35 per cent of the profits of the
fertilizer business, expending about P5,000 without ever having made any claim for
reimbursement against the partnership, inasmuch as it has always been understood among
the partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff
the sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its
payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to
the Government of the Philippine Islands each year during the period of the agreement,
Exhibit A, of the income of its whole business, including its fertilizer department; that the
proportional share of such income taxes found to be due on the business of the fertilizer
department was charged as a proper and legitimate expense of that department, in the
same manner as was done in the other departments of its business; that inasmuch as the
agreement with the plaintiff was an employment agreement, he was required to make his
own return under the Income Tax Law and to pay his own income taxes, instead of having
them paid at the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said Menzi &
Co., Inc., pertaining to the business, were duly entered on the books of that department,
and included in the auditors' reports hereinbefore referred to, which reports were examined,
accepted and approved by the plaintiff, with full knowledge of their contents, and he is now
estopped from saying that such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
 I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been
receiving, during the period of the contract Exhibit A, from foreign firms selling fertilizing
material, a secret commission equivalent to 5 per cent of the total value of the purchases of
fertilizing material made by the partnership constituted between the plaintiff and the
defendant Menzi Co., Inc., and that said 5 per cent commission was not entered by the
defendants in the books of the business, to the credit and benefit of the partnership
constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus suffered by the
plaintiff cannot be determined, because the entries referring to these items do not appear in
the partnership books, although the plaintiff believes and alleges that they do appear in the
private books of the defendant Menzi & Co., Inc., which the latter has refused to furnish,
notwithstanding the demands made therefore by the auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing material made by
the partnership during the first four years of the contract Exhibit A, the plaintiff estimates that
this 5 per cent commission collected by the defendant Menzi Co., Inc., to the damage and
prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs exclusively
to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the
plaintiff the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have
adduced their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement,
Exhibit A, and has now what is called a "Propaganda Agency Agreement" which the
Deutsches Kalesyndikat, G.M.B., of Berlin, which is a manufacturer of potash, by virtue of
which said Menzi & Co., Inc., was to receive for its propaganda work in advertising and
bringing about sales of its potash a commission of 5 per cent on all orders of potash
received by it from the Philippine Islands; that during the period of said agreement, Exhibit
A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the
agent of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per
cent commission, amounting in all to P2,222.32 for the propaganda work which it did for
said firm in the Philippine Islands; that said commissioners were not in any sense discounts
on the purchase price of said potash, and have no relation to the fertilizer business of which
the plaintiff was to receive a share of the net profits for his services, and consequently were
not credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that there are only two
items of commissions, which were received from the United Supply Co., of San Francisco,
in the total of sum $66.51, which through oversight, were not credited on the books of the
fertilizer department of Menzi & Co., Inc., but due allowance has now been given to the
department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M.
Menzi and P.C. Schlobohm and their assistants, has tampered with the books of the
business making fictitious transfers in favor of the defendant Menzi & Co., Inc., of
merchandise belonging to the partnership, purchased with the latter's money, and deposited
in its warehouses, and then sold by Menzi & Co., Inc., to third persons, thereby
appropriating to itself the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this
respect as the real amount obtained from such sales can only be ascertained from the
examination of the private books of the defendant entity, which the latter has refused to
permit notwithstanding the demand made for the purpose by the auditors and the lawyers of
the plaintiff, and no basis of computation can be established, even approximately, to
ascertain the extent of the fraud sustained by the plaintiff in this respect, by merely
examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to
make a sworn statement as to all the profits received from the sale to third persons of the fertilizers
pertaining to the partnership, and the profits they have appropriated, ordering them jointly and severally
to pay 35 per cent of the net amount, with legal interest from the filing of the original complaint until the
payment thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer:
2. That under the express terms of the employment agreement, Exhibit A, the defendant,
Menzi & Co., Inc., had the right to import into the Philippine Islands in the course of its
fertilizer business and sell fro its exclusive account and benefit simple fertilizer ingredients;
that the only materials imported by it and sold during the period of said agreement were
simple fertilizer ingredients, which had nothing whatever to do with the business of mixed
fertilizers, of which the plaintiff was to receive a share of the net profits as a part of his
compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for
the account of the partnership constituted between itself and the plaintiff, and with the
latter's money, purchased from a several foreign firms various simple fertilizing material for
the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the cost price of
the merchandise, other amounts for freight, insurance, duty, etc., some of which were not
entirely thus spent and were later credited by the selling firms to the defendant Menzi & Co.,
Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M.
Menzi and P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of
fertilizing material, for rebates upon freight, insurance, duty, etc., charged in the invoice but
 not all expended, did not enter them upon the books to the credit of the partnership
constituted between the defendant and the plaintiff, but entered or had them entered to the
credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35 per cent of the value of
such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot be
ascertained without an examination of the private books of Menzi & Co., Inc., which the
latter has refused to permit notwithstanding the demand to this effect made upon them by
the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to
make a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay
the plaintiff jointly and severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer:
2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi &
Co., Inc., received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to
the fertilizer business in the profits of which the plaintiff was interested, by way of refunds of
German Export Taxes, in the total sum of P1,402.54; that all of department as received, but
it has just recently been discovered that through error an additional sum of P216.22 was
credited to said department, which does not pertain to said business in the profits of which
the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of
the complaint, the defendant Menzi & Co., Inc., acting as manager of the fertilizer business
constituted between said defendant and the plaintiff, entered into a contract with the
Compañia General de Tabacos de Filipinas for the sale of said entity of three thousand tons
of fertilizers of the trade mark "Corona No. 1", at the rate of P111 per ton, f. o. b. Bais,
Oriental Negros, to be delivered, as they were delivered, according to information received
by the plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom, which the
plaintiff estimates at P90,000, Philippine currency, belongs to the fertilizer business
constituted between the plaintiff and the defendant, of which 35 per cent, or P31,500,
belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27,
1927, the defendants have not rendered a true accounting of the profits obtained by the
business during the last four months thereof, as the purposed balance submitted to the
plaintiff was incorrect with regard to the inventory of merchandise, transportation equipment,
and the value of the trade marks, for which reason such proposed balance did not represent
the true status of the business of the partnership on April 30, 1927.
V. That the proposed balance submitted to the plaintiff with reference to the partnership
operations during the last four months of its existence, was likewise incorrect, inasmuch as
it did not include the profit realized or to be realized from the contract entered into with the
Compañia General de Tabacos de Filipinas, notwithstanding the fact that this contract was
negotiated during the existence of the partnership, and while the defendant Menzi & Co.,
Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into with the Compañia
General de Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff
his share consisting in 35 per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed
account of the business during the last four months of the existence of the partnership, i. e., from
January 1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the
net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from
the Compañia General de Tabacos Filipinas on April 21, 1927, was taken by it in the regular
course of its fertilizer business, and was to be manufactured and delivered in December,
1927, and up to April, 1928; that the employment agreement of the plaintiff expired by its
own terms on April 27, 1927, and he has not been in any way in the service of the
defendant, Menzi & Co., Inc., since that time, and he cannot possibly have any interest in
the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration
of his contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the period of the contract Exhibit A, the partnership constituted thereby
registered in the Bureau of Commerce and Industry the trade marks "CORONA NO. 1",
CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant having by their
efforts succeeded in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the
fertilizing business a prosperous concern to such an extent that the profits obtained from the
business during the five years it has existed, amount to approximately P1,000,000,
Philippine currency.
IV. That the value of the good will and the trade marks of a business of this nature amounts
to at least P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the defendant entity,
notwithstanding and in spite of the plaintiff's insistent opposition, has assumed the charge of
liquidating the fertilizing business, without having rendered a monthly account of the state of
the liquidation, as required by law, thereby causing the plaintiff damages.
 VI. That the damages sustained by the plaintiff, as well as the amount of his share in the
remaining property of the plaintiff, and may only be truly and correctly ascertained by
compelling the defendants J. M. Menzi and P. C. Schlobohm to declare under oath and
explain to the court in detail the sums obtained from the sale of the remaining merchandise,
after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to use for its own
benefit the good-will and trade marks belonging to the partnership, as well as its
transportation equipment and other machinery, thereby indicating its intention to retain such
good-will, trade marks, transportation equipment and machinery, for the manufacture of
fertilizers, by virtue of which the defendant is bound to pay the plaintiff 35 per cent of the
value of said property.
VIII. That the true value of the transportation equipment and machinery employed in the
preparation of the fertilizers amounts of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and
detailed account of the state of the liquidation of the partnership business, but said
defendants has ignored such demands, so that the plaintiff does not, and this date, know
whether the liquidation of the business has been finished, or what the status of it is at
present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed
account of the status of business in liquidation, that is, from April 28, 1927, until it is
finished, ordering all the defendants to pay the plaintiff jointly and severally 35 per cent of
the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000,
which is 35 per cent of the value of the goodwill and the trade marks of the fertilizer
business;
3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000
which is 35 per cent of the value of the transportation equipment and machinery of the
business; and
4. To order the defendants to pay the costs of this trial, and further, to grant any other
remedy that this Honorable Court may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the
special defense to the first cause of action in this amended answer;
2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc.,
pertains exclusively to it, and the plaintiff can have no interest therein of any nature under
his said employment agreement; that the trade-marks mentioned by the plaintiff in his
amended complaint, as a part of such good-will, belonged to and have been used by the
said Menzi & Co., Inc., in its fertilizer business from and since its organization, and the
plaintiff can have no rights to or interest therein under his said employment agreement; that
the transportation equipment pertains to the fertilizer department of Menzi & Co., Inc., and
whenever it has been used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said business; that the machinery
pertaining to the said fertilizer business was destroyed by fire in October, 1926, and the
value thereof in the sum of P20,000 was collected from the Insurance Company, and the
plaintiff has been given credit for 35 per cent of that amount; that the present machinery
used by Menzi & Co., Inc., was constructed by it, and the costs thereof was not charged to
the fertilizer department, and the plaintiff has no right to have it taken into consideration in
arriving at the net profits due to him under his said employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a
contract of general regular commercial partnership, wherein Menzi & Co., Inc., was the
capitalist, and the plaintiff, the industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets,
Exhibits C to C-8, is not estopped from questioning the statements of the accounts therein
contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the
sum of P 60,385.67 with legal interest from the date of the filing of the original complaint
until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum
of P3,821.41, with legal interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the
plaintiff the sum of P6,578.38 with legal interest from January 1, 1929, the date of the
liquidation of the fertilizer business, until paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of
P196,709.20 with legal interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of
the business accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35
per cent of the net balance shown in Exhibits 51 and 51-A, after deducting the item of
P2,410 for income tax, and any other sum charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit
52 and 52-A, to pay the plaintiff the sum of P17,463.54 with legal interest from January 1,
1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C.
Schlobohm; and
 (n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular
collective commercial copartnership between the defendant corporation, Menzi & Co., Inc.,
and the plaintiff, Francisco Bastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had
wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income
taxes partners' balances, foreign drafts, local drafts, and on other credit balances in the sum
of P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67, with legal interest
thereon from the date of filing his complaint, corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had
wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income
taxes for the years 1923, 1924, 1925 and 1926, and that the plaintiff is entitled to 35 per
cent thereof, or the sum of P3,821.41, with legal interest thereon from the date of filing his
complaint, and in disallowing the item of P2,410 charged as income tax in the liquidation in
Exhibits 51 and 51 A for the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence in this case that the
contract, Exhibit A was daring the whole period thereof considered by the parties and
performed by them as a contract of employment in relation to the fertilizer business of the
defendant, and that the accounts of said business were kept by the defendant, Menzi & Co.,
Inc., on that theory with the knowledge and consent of the plaintiff, and that at the end of
each year for five years a balance sheet and profit and loss statement of said business were
prepared from the books of account of said business on the same theory and submitted to
the plaintiff, and that each year said balance sheet and profit and loss statement were
examined, approved and signed by said contract in accordance therewith with full
knowledge of the manner in which said business was conducted and the charges for
interest and income taxes made against the same and that by reason of such facts, the
plaintiff is now estopped from raising any question as to the nature of said contract or the
propriety of such charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled
to 35 per cent of the net profits in the sum of P18,795.38 received by the defendant, Menzi
& Co., Inc., from its contract with the Compañia General de Tabacos de Filipinas, or the
sum of P6.578.38, with legal interest thereon from January 1, 1929, the date upon which the
liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer
business in question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to
35 per cent of such valuation, or the sum of P196,709.20, with legal interest thereon from
the date of filing his complaint.
VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant,
Menzi & Co., Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal
interest thereon from the date of filing the complaint; (b) on the fourth cause of action, for
the sum of P3,821.41, with legal interest thereon from the date of filing the complaint; (c) on
the eight cause of action, for the sum of P6,578.38, with legal interest thereon from January
1, 1929; and (d) on the ninth cause of action, for the sum of P196,709.20, with legal interest
thereon from the date of filing the original complaint; and (e) for the costs of the action, and
in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and 52-
A, as true and correct, and entering judgment against said defendant only for the amounts
admitted therein as due the plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new trial.
It appears from the evidence that the defendants corporation was organized in 1921 for purpose of
importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will, trade-marks, business, and other
assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910
until that firm was taken over the Alien Property Custodian in 1917. Among the trade-marks thus
acquired by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were
registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks
"ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and
the trade mark "CORONA" had been used in its other business. The "HOZ" trade-mark was used by
John Bordman and the Menzi-Bordman Co. in the continuation of the fertilizer business that had
belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different departments, each of which was
in charge of a manager, who received a fixed salary and a percentage of the profits. The corporation
had to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid
for interest was charged against the department concerned, and the interest charges were taken into
account in determining the net profits of each department. The practice of the corporation was to debit
or credit each department with interest at the bank rate on its daily balance. The fertilizer business of
Menzi & Co., Inc., was carried on in accordance with this practice under the "Sundries Department"
until July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to
see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that
he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he
did not have the money to buy the ingredients to fill the order and carry on the on the business. He
offered to assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to
supervise the mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that
Menzi & Co., might derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted
plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and
the defendant corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter,
Exhibit B:
MANILA, 10 de enero de 1922
Sr. FRANCISCO BASTIDA
Manila
MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la
explotacion del negocio de abono y fertilizantes, por la presente venimos en confirmar su derecho de
50 por ciento de las untilidades que se deriven del contrato obtenido por Vd. de la Philippine Sugar
Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como de cuantos contratos
se cierren con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato
mutuo, lo que hacemos para garantia y seguridad de Vd.
MENZI & CO.,
Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff.
It ordered ingredients from the United States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer
business had no separate capital. A fertilizer account was opened in the general ledger, and interest at
the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the
daily balances of the fertilizer business. This was in accordance with appellant's established practice,
to which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on under the oral agreement were
determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent
and salaries and wages, and the other expenses of said business, and the plaintiff was paid some
twenty thousand pesos in full satisfaction of his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the
basis of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in
practically the same manner as it was prior thereto. The intervention of the plaintiff was limited to
supervising the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce &
Industry in the name of Menzi & Co., Inc., and the fees were paid by that company. They were not
changed to the fertilizer business, in which the plaintiff was interested. Only the fees for registering the
formulas in the Bureau of Science were charged to the fertilizer business, and the total amount thereof
was credited to this business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and
scraps to tobacco that it might need for its fertilizer business either in the Philippine Islands or for
export to other countries. This contract is rendered to in the record as the "Vastago Contract". Menzi &
Co., Inc., advanced the plaintiff, paying the salaries of his employees, and other expenses in
performing his contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month,
and at the end of each year they prepared a balance sheet and a profit and loss statement of the
fertilizer business. These statements were delivered to the plaintiff for examination, and after he had
had an opportunity of verifying them he approved them without objection and returned them to Menzi &
Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer
business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
Total . . . . . . . . . . . . . . . . . . . . P196,483.92
To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927,
amounting to P34,766.87, making a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff
that the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had
on hand materials and ingredients and two Ford trucks of the book value of approximately P75,000,
and accounts receivable amounting to P103,000. There were claims outstanding and bills to pay.
Before the net profits could be finally determined, it was necessary to dispose of the materials and
equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a
profit and loss statement for the period from January 1 to April 27, 1927 as a basis of settlement, but
the plaintiff refused to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it
proposed to the plaintiff that the old and damaged stocks on hand having a book value of P40,000,
which the defendant corporation had been unable to dispose of, be sold at public or private sale, or
divided between the parties. The plaintiff refused to agree to this. The defendant corporation then
applied to the trial court for an order for the sale of the remaining property at public auction, but
apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business
was completed in December, 1928 and a final balance sheet and a profit and loss statement were
submitted to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the
whole period of the contract in question were reaudited by White, Page & Co.., certain errors of
bookkeeping were discovered by them. After making the corrections they found the balance due the
plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and
vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and
that Menzi & Co., Inc., was obliged to furnish free of charge all the capital the partnership should need.
He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and
the arguments of counsel, we are unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as
appears from the statement of facts, was in effect a continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived
by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests.
Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges.
The business was continued in the same manner under the written agreement, Exhibit A, and for four
years the plaintiff never made any objection. On the contrary he approved and signed every year the
balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to
expire and the defendant corporation had notified him that it would not renew it that the plaintiff began
to make objections.
The trial court relied on article 116 of the Code of Commerce, which provides that articles of
association by which two or more persons obligate themselves to place in a common fund any
property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what
its class may be, provided it has been established in accordance with the provisions of this Code; but
in the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or
partners. The business belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc.
Instead of receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to
receive 35 per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to
advanced him P300 a month on account of his participation in the profits. It will be noted that no
provision was made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end
of the year. It is now well settled that the old rule that sharing profits as profits made one a partner is
overthrown. (Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become
partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation
not engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad
con). The fact is that en sociedad con as there used merely means en reunion con or in association
with, and does not carry the meaning of "in partnership with".
The trial judge found that the defendant corporation had not always regarded the contract in question
as an employment agreement, because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said
business. The trial judge concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded by the amended complaint and
the answer thereto, and the answer to the original complaint not having been presented in evidence as
an exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have
been filed, allegations in the original pleadings are held admissible, but in such case the original
pleadings can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273;
Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay
to the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month
on account of his share of the profits, and to grant him permission during 1923 to absent himself from
the Philippines for not more than one year are utterly incompatible with the claim that it was the
intention of the parties to form a copartnership. Various other reasons for holding that the parties were
not partners are advanced in appellant's brief. We do not deem it necessary to discuss them here. We
merely wish to add that in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi & Co.,
Inc., as the owners of the fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they were in our opinion proper
charges and erroneously disallowed, and this would true even if the parties had been partners.
Although Menzi & Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it
did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of
securing the necessary credit. Some of the contentions of the plaintiff and his expert witness
Thompson are so obviously without merit as not to merit serious consideration. For instance, they
objected to the interest charges on draft for materials purchased abroad. Their contention is that the
corporation should have furnished the money to purchase these materials for cash, overlooking the
fact that the interest was added to the cost price, and that the plaintiff was not prejudiced by the
practice complained of. It was also urged, and this seems to us the height of absurdity, that the
defendant corporation should have furnished free of charge such financial assistance as would have
made it unnecessary to discount customers' notes, thereby enabling the business to reap the interest.
In other words, the defendant corporation should have enabled the fertilizer department to do business
on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the same as those made under the
verbal agreement, upon the termination of which the parties made a settlement; the charges in
question were acquiesced in by the plaintiff for years, and it is now too late for him to contest them.
The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A
portion of the syllabus of that case reads as follows:
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. —
Acts done by the parties to a contract in the course of its performance are admissible in
evidence upon the question of its meaning, as being their own contemporaneous
interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an action upon a
contract containing a provision a doubtful application it appeared that under a similar prior
contract the parties had, upon the termination of said contract, adjusted their rights and
made a settlement in which the doubtful clause had been given effect in conformity with the
interpretation placed thereon by one of the parties. Held: That this action of the parties
under the prior contract could properly be considered upon the question of the interpretation
of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract acquiesces in the
interpretation placed by the other upon a provision of doubtful application, the party so
acquiescing is bound by such interpretation.
4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being aware at the time of
the execution thereof that the other placed a certain interpretation upon a provision of
doubtful application, nevertheless proceeded, without raising any question upon the point, to
perform the services which he was bound to render under the contract. Upon the
termination of the contract by mutual consent a question was raised as to the proper
interpretation of the doubtful provision. Held: That the party raising such question had
acquiesced in the interpretation placed upon the contract by the other party and was bound
thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived
by Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is
not justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's
contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for
himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no
right to participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of
the fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent
thereof or P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of
the accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and
Menzi & Co., Inc., were partners; but even if they had been partners there would have been no good-
will to dispose of. The defendant corporation had a fertilizer business before it entered into any
agreement with the plaintiff; plaintiff's agreement was for a fixed period, five years, and during that time
the business was carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and
after the expiration of plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a
perfect right to do. There was really nothing to which any good-will could attach. Plaintiff maintains,
however, that the trade-marks used in the fertilizer business during the time that he was connected
with it acquired great value, and that they have been appropriated by the appellant to its own use. That
seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As we
have seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business
for other goods and one of them for fertilizer. They belonged to Menzi & Co., Inc., and were registered
in its name; only the expense of registering the formulas in the Bureau of Science was charged to the
business in which the plaintiff was interested. These trade-marks remained the exclusive property of
Menzi & Co., and the plaintiff had no interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the
evidence that said balance is correct.
For the foregoing reasons, the decision appealed from is modified and the defendant corporation is
sentenced to pay the plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June
17, 1927, without a special finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.
Justice Hull participated in this case, but on account of his absence on leave at the time of the
promulgation of the decision he authorized the undersigned to certify that he voted to modify the
decision of the trial court as appears in the foregoing decision of this court. — VILLAMOR,
J., Presiding.
G.R. No. L-39607 February 6, 1934
ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,
vs.
JUAN PESAYCO, defendant-appellant.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero and Lutero and Ramon Maza for appellee.
GODDARD, J.:
In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and the
defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de bañgus
o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique
Province, for the year 1931. It was agreed that the defendant should put in a bid for this privilege
and that the partners should each supply one third of the capital in case the defendant was
awarded the desired privilege. The defendant, having had experience in this line, was to be the
manager in case his bid was accepted. The defendant offered the sum of P5,550.09 for the year
ending December 31, 1931. As a deposit of
one-fourth of the amount of the bid was required each of the partners put up one third of this
amount. This bid, being the highest, was accepted by the municipality and the privilege was
awarded to the defendant. The latter entered upon his duties under the contract and gave an
account of two sales of "semillas de bañgus", to Tiburcio Lutero as representative of the plaintiff
Magalona. As the defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A,
Lutero for sufficient money to complete the payment of the first quarter which was to be paid
within the first twenty days of the second quarter of the year 1931. This telegram reads as
follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira
telegraficamente restante." Lutero immediately sent P1,000 to the municipal treasurer of San
Jose, Antique (Exhibit D).
The defendant managed the business from January 1,1931, and with the exception of the two
sales above-mentioned, never gave any account of his catches or sales to his partners, the
plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was prayed that
a receiver be appointed by the court to take charge of the funds of the partnership and the
management of its affairs; that the defendant be ordered to render an account of his
management and to pay to the plaintiff their participation in the profits thereof; that the defendant
be required to turn over to the receiver all of the funds of the partnership and that the defendant
be condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond for
the same amount.
The receiver took over the management and took possession of all the devices and implements
used in the catching of "semillas de bañgus".
At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of
975,000 "semillas de bañgus" the market value of which was P3 per thousand. The defendant
made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the
sales thereof. This was not denied.
In his two counter-complaints the defendant prays that he be awarded damages in the sum of
P34,700. He denies that there was a partnership and depends principally upon the fact that the
partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of the plaintiffs and other
witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection to the
questions asked with regard to the forming of this partnership. This court has held that if a party
permits a contract, which the law provides shall be in writing, to be proved, without objection as
to the form of the proof, it is just as binding as if the statute had been complied with.
However, we cannot agree with the appellant that one of the requisites of a partnership
agreement such as the one under consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form
whatever, unless real property or real rights are contributed to the same, in which case a public
instrument shall be necessary."
Articles of partnership are not required to be in writing except in the cases mentioned
in article 1667, Civil Code, which controls article 1280 of the same Code.
(Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the parties even though more than
1,500 pesetas are involved and can be enforced without bringing action under article
1279, Civil Code, to compel execution of a written instrument. (Arts. 1261, 1278-1280,
1667, Civil Code; arts. 116-119, 51, Code of Commerce.) Thunga Chui vs. Que
Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.)
The dispositive part of the decision of the trial court reads as follows:
Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo durante
su administracion de este negocio, semillas de bañgus por valor de P2,925 que no dio
cuenta ni participacion a sus consocios los demandantes, el Juzgado declara al
demandado en deber a la sociedad, compuesta por demandantes y demandado, en la
suma de P2,925, importe de 975,000 semillas de bañgus a P3 el millar, y ordena que
entregue esta suma al depositario judicial nombrado, como fondos de dicha sociedad.
Se sobreseen las contrademandas y se condena en costas al demandado. Asi se
ordena.
This decision is affirmed with costs in both instances against the defendant-appellant. So
ordered.
Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.
59 Phil 453
G.R. No. L-39607 February 6, 1934
ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,
vs.
JUAN PESAYCO, defendant-appellant.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero and Lutero and Ramon Maza for appellee.
GODDARD, J.:
In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and
the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de
bañgus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose,
Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for
this privilege and that the partners should each supply one third of the capital in case the
defendant was awarded the desired privilege. The defendant, having had experience in this
line, was to be the manager in case his bid was accepted. The defendant offered the sum of
P5,550.09 for the year ending December 31, 1931. As a deposit of one-fourth of the amount
of the bid was required each of the partners put up one third of this amount. This bid, being
the highest, was accepted by the municipality and the privilege was awarded to the defendant.
The latter entered upon his duties under the contract and gave an account of two sales of
"semillas de bañgus", to Tiburcio Lutero as representative of the plaintiff Magalona. As the
defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for sufficient
money to complete the payment of the first quarter which was to be paid within the first
twenty days of the second quarter of the year 1931. This telegram reads as follows: "Hemos
conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente
restante." Lutero immediately sent P1,000 to the municipal treasurer of San Jose, Antique
(Exhibit D).
The defendant managed the business from January 1,1931, and with the exception of the two
sales above-mentioned, never gave any account of his catches or sales to his partners, the
plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was prayed
that a receiver be appointed by the court to take charge of the funds of the partnership and
the management of its affairs; that the defendant be ordered to render an account of his
management and to pay to the plaintiff their participation in the profits thereof; that the
defendant be required to turn over to the receiver all of the funds of the partnership and that
the defendant be condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond
for the same amount.
The receiver took over the management and took possession of all the devices and implements
used in the catching of "semillas de bañgus".
At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total
of 975,000 "semillas de bañgus" the market value of which was P3 per thousand. The
defendant made no report of this nor did he pay the plaintiffs any part of the P2,925 realized
by him on the sales thereof. This was not denied.
In his two counter-complaints the defendant prays that he be awarded damages in the sum of
P34,700. He denies that there was a partnership and depends principally upon the fact that
the partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of the plaintiffs and other
witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection to
the questions asked with regard to the forming of this partnership. This court has held that if
a party permits a contract, which the law provides shall be in writing, to be proved, without
objection as to the form of the proof, it is just as binding as if the statute had been complied
with.
However, we cannot agree with the appellant that one of the requisites of a partnership
agreement such as the one under consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form
whatever, unless real property or real rights are contributed to the same, in which case a public
instrument shall be necessary."
Articles of partnership are not required to be in writing except in the cases mentioned in article
1667, Civil Code, which controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1
Phil., 671.)
A verbal partnership agreement is valid between the parties even though more than 1,500
pesetas are involved and can be enforced without bringing action under article 1279, Civil
Code, to compel execution of a written instrument. (Arts. 1261, 1278-1280, 1667, Civil Code;
arts. 116-119, 51, Code of Commerce.) Thunga Chui vs. Que Bentec, 2 Phil., 561. (4 Phil. Digest,
3468.)
The dispositive part of the decision of the trial court reads as follows:
Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo durante su
administracion de este negocio, semillas de bañgus por valor de P2,925 que no dio cuenta ni
participacion a sus consocios los demandantes, el Juzgado declara al demandado en deber a la
sociedad, compuesta por demandantes y demandado, en la suma de P2,925, importe de
975,000 semillas de bañgus a P3 el millar, y ordena que entregue esta suma al depositario
judicial nombrado, como fondos de dicha sociedad.
Se sobreseen las contrademandas y se condena en costas al demandado. Asi se ordena.
This decision is affirmed with costs in both instances against the defendant-appellant. So
ordered.
Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.
Articles of partnership are not required to be in writing except in the
cases mentioned in article 1667, Civil Code, which controls article 1280
of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the parties even though
more than 1,500 pesetas are involved and can be enforced without
bringing action under article 1279, Civil Code, to compel execution of a
written instrument.

MAGALONA vs. PESAYCO

G.R. No. L-39607 February 6, 1934
ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs. JUAN
PESAYCO, defendant-appellant.

Facts:
Encarnacion Magalona, Juan Sermeno, and the defendant, Juan
Pesayco, formed a partnership for the purpose of catching "semillas de
bañgus o aua" in the sea and rivers within the jurisdiction of the
municipality of San Jose, Antique Province, for the year 1931.

The defendant managed the business from January 1, 1931, and with the
exception of the two sales above-mentioned, never gave any account of
his catches or sales to his partners, the plaintiffs. Hence, a complaint was
filed praying that a receiver be appointed by the court.

During trial, it was proven that the defendant obtained and sold a total of
975,000 "semillas de bañgus" the market value of which was P3 per
thousand. The defendant made no report of this nor did he pay the
plaintiffs any part of the P2,925 realized by him on the sales thereof.

Defendant however denies that there was a partnership and depends

principally upon the fact that the partnership agreement was not in
writing.

Issue:
Whether a partnership agreement should be in writing? NO.

Held:
Article 1667 of the Civil Code provides that "Civil partnerships may be
established in any form whatever, unless real property or real rights are
contributed to the same, in which case a public instrument shall be
necessary."

G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
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.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights"
have been contributed to the partnership under consideration. Mabato alleged and
the lower court held that the answer should be in the affirmative, because "it is really
inconceivable how a partnership engaged in the fishpond business could exist without
said fishpond property (being) contributed to the partnership." It should be noted,
however, that, as stated in Annex "A" the partnership was established "to operate a
fishpond", not to "engage in a fishpond business". Moreover, none of the partners
contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has
been contributed by Mauricio Agad.
xxx xxx xxx
The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that,
the order appealed from should be, as it is hereby set aside and the case remanded
to the lower court for further proceedings, with the costs of this instance against
defendant-appellee, Severino Mabato. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando,
JJ., concur.
HELD:
No. The Court held that Art. 1773 cannot apply. The public instrument
forming the supposed partnership indicated that it was established
“to operate a fishpond” and not to “engage in a fishpond business.”
Moreover, no fishpond or a real right to any was contributed, even if a
fishpond or a real right thereto could become part of its assets, and that
contributions merely consisted of P1, 000.00 each from both parties.
Thus, Art. 1773 and 1771 are inapplicable as a basis for the dismissal of
the complaint since no immovable property or real rights were
contributed.

Agad v. Mabato and Agad

Company
G.R. No. L-24193; June 28, 1968

FACTS:
Mauricio Agad and Severino Mabato executed a public instrument to
form a partnership engaged in a fishpond business. Agad Contributed
P1,000.00 with the right to receive 50% of the profits. Mabato handled
the partnership funds and rendered accounts of the operations of the
partnership. However, for the years 1957 to 1963, Mabato failed to render
accounts and pay Agad his share in the profits. Thus, Agad filed a
complaint for the recovery of the amount. However, Mabato contended
that no partnership had ever existed since the contract was not perfected
because Agad allegedly failed to contribute his P1,000.00 contribution.
The court dismissed the complaint since the contract was void for being
in violation of Art. 1773 in because no inventory of the fishpond had been
attached with the instrument.

ISSUE:
Does the provision on Art. 1773 of the Civil Code apply?

[G.R. No. L-3186. March 7, 1907. ]
THE GREAT COUNCIL OF THE UNITED STATES OF THE
IMPROVED ORDER OF RED MEN, Plaintiff-Appellee, v. THE
VETERAN ARMY OF THE PHILIPPINES, Defendant-Appellant.
Hartigan, Rohde, & Gutierrez, for Appellant.
W. A. Kincaid, for Appellee.
SYLLABUS
1. VETERAN ARMY OF THE PHILIPPINES. — The constitution of the
Veteran Army of the Philippines makes provision for the
management of its affairs, so that article 1695 of the Civil Code,
making each member an agent of the partnership in the absence of
such provision, is not applicable to that organization.
2. ID.; FRATERNAL SOCIETIES; PARTNERSHIP. — Whether a
fraternal society, such as the Veteran Army of the Philippines, is a
civil partnership is not decided.
DECISION
WILLARD, J. :
Article 3 of the Constitution of the Veteran Army of the Philippines
provides as follows:jgc:chanrobles.com.ph
"The object of this association shall be to perpetuate the spirit of
patriotism and fraternity those men who upheld the Stars and
Stripes in the Philippine Islands during the Spanish war and the
Philippine insurrection, and to promote the welfare of its members
in every just and honorable way; to assist the sick and afflicted
and to bury the dead, to maintain among its members in time of
peace the same union and harmony with which they served their
country in times of war and insurrection."cralaw virtua1aw library
Article 5 provides that:jgc:chanrobles.com.ph
"This association shall be composed of —
"(a) A department.
"(b) Two or more posts."cralaw virtua1aw library
It is provided in article 6 that the department shall be composed of
a department commander, fourteen officers, and the commander
of each post, or some member of the post appointed by him. Six
members of the department constitute a quorum for the
transaction of business.
The Constitution also provides for the organization of posts. Among
the posts thus organized is the General Henry W. Lawton Post, No.
1. On the 1st day of March, 1903, a contract of lease of parts of a
certain buildings in the city of Manila was signed by W.W. Lewis,
E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No.
1, Improved Order of Red Men, as lessors, and Albert E. McCabe,
citing for and on behalf of Lawton Post, Veteran Army of the
Philippines as lessee. The lease was for the term of two years
commencing February 1, 903, and ending February 28, 1905. The
Lawton Post occupied the premises in controversy for thirteen
months, and paid the rent for that time. It them abandoned them
and this action was commenced to recover the rent for the
unexpired term. Judgment was rendered in the court below on
favor of the defendant McCabe, acquitting him of the complaint.
Judgment was rendered also against the Veteran Army of the
Philippines for P1,738.50, and the costs. From this judgment, the
last named defendant has appealed. The plaintiff did not appeal
from the judgment acquitting defendant McCabe of the complaint.

It is claimed by the appellant that the action can not be maintained
by the plaintiff, The Great Council of the United States of the
Improved Order of Red Men, as this organization did not make the
contract of lease.
It is also claimed that the action can not be maintained against the
Veteran Army of the Philippines because it never contradicted,
either with the plaintiff or with Apach Tribe, No. 1, and never
authorized anyone to so contract in its name.
We do not find it necessary to consider the first point because we
think the contention of the appellant on the second point must be
sustained.
It is difficult to determine the exact nature of the defendant
organization. It is of course not a mercantile partnership. There is
some doubt as to whether it is a civil partnership, in view of the
definition of the term in article 1665 of the Civil Code. That article
is as follows:jgc:chanrobles.com.ph
"Partnership is a contract by which 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."cralaw virtua1aw library
It seems to be the opinion of the commentators that where the
society is not constituted for the purpose of gain. it does not fall
within this article of the Civil Code. Such an organization is fully
covered by the Law of Associations of 1887, but that law was never
extended to the Philippine Islands. According to some
commentators it would be governed by the provisions relating to
the community of property. However, the questions thus presented
we do not find necessary to , and to not resolve. The view most
favorable to the appellee is the one that makes the appellant a civil
partnership. Assuming that is such, and is covered by the
provisions of title 8, book 4 of the Civil Code, it is necessary for the
appellee to prove that the contract in question was executed by
some authorized to so by the Veteran Army of the Philippines.
Article 1695 of the Civil Code provides as
follows:jgc:chanrobles.com.ph
"Should no agreement have been made with regard to the form of
management, the following rules shall be
observed:jgc:chanrobles.com.ph
"1 All the partners shall be considered as agents, and whatever any
one of them may do by himself shall bind the partnership; but each
one may oppose the act of the others before they may have
produced any legal effect."cralaw virtua1aw library
One partner, therefore, is empowered to contract in the name of
the partnership only when the articles of partnership make no
provision for the management of the partnership business. In the
case at bar we think that the articles of the Veteran Army of the
Philippines do so provide. It is true that an express disposition to
that effect is not found therein, but we think one may be fairly
deduced from the contents of those articles. They declare what the
duties of the several officers are. In these various provisions there
is nothing said about the power of making contracts, and that
faculty is not expressly given to any officer. We think that it was,
therefore, reserved to the department as a whole; that is, that in
any case not covered expressly by the rules prescribing the duties
of the officers, the department were present. It is hardly
conceivable that the members who formed this organization should
have had the intention of giving to any one of the sixteen or more
persons who composed the department the power to make any
contract relating to the society which that particular officer saw fit
to make, or that a contract when so made without consultation
with, or knowledge of the other members of the department should
bind it. We therefore, hold, that no contract, such as the one in
question, is binding on the Veteran Army of the Philippines unless
it was authorized at a meeting of the department. No evidence was
offered to show that the department had never taken any such
action. In fact, the proof shows that the transaction in question
was entirely between Apache Tribe, No. 1, and the Lawton Post,
and there is nothing to show that any member of the department
ever knew anything about it, or had anything to do with it. The
liability of the Lawton Post is not presented in this appeal.
Judgment against the appellant is reversed, and the Veteran Army
of the Philippines is acquitted of the complaint. No costs will be
allowed to either party in this court. After the expiration of twenty
days let judgment be rendered in accordance to the lower court for
proper action. So ordered.
Arellano, C.J., Torres, Mapa, Johnson, and Tracey, JJ., concur.

Carson, J., did not sit in this case.
G.R. No. L-12371 March 23, 1918
LEOPOLDO CRIADO, plaintiff-appellant,
vs.
GUTIERREZ HERMANOS, defendant-appellant.
Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.
C. W. O'Brien for defendant-appellant.
TORRES, J.:
In the ordinary proceedings prosecuted in the Court of First Instance of Manila by counsel for
Leopoldo Criado against the firm of Gutierrez Hermanos for the recovery of a sum of money, on
September 11, 1916, judgment was handed down whereby said firm was ordered to pay, in
addition to other amounts therein specified, P54,292.62 with interest thereon at the rate of 6 per
cent per annum from May 25, 1912, and whereby it was held that plaintiff was entitled to a share
of .34064 per cent on P818,260.70, the total amount of the unpaid bills, subject to the liability of
10 per cent contracted toward the defendant in respect to said bills or to such part thereof as
should be found to be uncollectible, with the costs against the defendant. Both parties excepted
from this judgment and moved for a new trial, which motion was denied by an order of
September 25th of the same year, to which both parties excepted. Plaintiff and defendant by
mutual consent have filed but a single bill of exceptions and the same was approved, certified
and forwarded to the clerk of this court, together with the oral and documentary evidence of
record.
The original complaint was filed in the Court of First Instance on May 25, 1912, and after being
twice amended was finally filed on January 15, 1913. Upon answering it, defendant interposed a
cross-complaint. After full trial, judgment was rendered on July 8, 1913, by which, dismissing
plaintiff's first, second, third, and fourth causes of action and the cross-complaint of the
defendant of the court sentenced the defendant, the firm of Gutierrez Hermanos, to pay the
several sums specified in the fifth, sixth, seventh, eighth, ninth, and tenth causes of action, with
legal interest thereon from May 25, 1912, and ordered same further to render accounts to the
plaintiff for the reason therein stated, and to pay the costs. From this judgment defendant
appealed and moved for a trial. The motion was denied and defendant excepted and filed the
proper bill of exceptions which was forwarded to this court. Upon hearing, a decision was
rendered on March 24, 1915, whereby, for the reasons therein given, the judgment appealed
from was set aside and the record remanded to the court of origin for the proper proceedings.
The proceedings in the Court of First Instance having been reopened upon petition by plaintiff,
on May 24, 1915, the judge ordered the defendant Gutierrez Hermanos to render within a period
of twenty days a detailed account, supported by vouchers, of the share which the plaintiff might
have in the capital stock of said firm up to that date. In compliance with this order, defendant
presented an account (record, pp. 103-124) certified by the bookkeeper of the firm of Gutierrez
Hermanos to on June 3 of the same year.
In view of the fact that the defendant firm had not complied with the order of the court in respect
to the account presented, counsel for plaintiff moved in writing that the clerk of court, McMicking,
be appointed so that, in his presence and in that of the parties, G. B. Wicks might proceed to
make true liquidation of plaintiff's said share of the capital stock of the firm of Gutierrez
Hermanos, since he began his connection therewith, on January 1, 1900, until his separation
therefrom, on December 31, 1911. Said motion was accompanied by an affidavit in which the
plaintiff Leopoldo Criado declared under oath that he had examined the accounts presented by
the defendant referring to his capital in that firm and that said accounts were based upon a false
debit balance of P26,349.13 — a balance which had been previously impeached by the affiant
as well as the accounts from which said sum is sought to be derived. Wherefore he gain
assailed them in their totality on the grounds that some of the entries thereof were improper,
other fraudulent, and still other false. Therefore plaintiff's counsel moved that defendant be
ordered to place immediately at the disposal of Commissioner Wicks all the books, accounts,
bills, vouchers, and other documents that might be necessary, in order that said liquidation might
be made by defendants counsel, by an order of September 2, 1915, the court ruled in conformity
therewith, authorizing defendant to appoint another expert accountant who, together with the
one already designated. Wicks, might examine the books and documents aforementioned. On
motion by plaintiff, and notwithstanding the arguments made by the defendant firm, it was
provided by another order of the court that said firm should comply with what the court had
previously ordered, to wit, to place said books and documents at the disposal of the
commissioner for his examination in the office of the clerk of court, on the three specified days of
the week, from 2.30 o'clock up every afternoon.
After a rehearing of the case and an examination of George B. Wicks was made regarding the
contents of the report that he submitted after studying for that purpose the books and other
documents placed at his disposal by the defendant — to which report he attached several
documents in proof or substantiation of the different items mentioned in said report (Exhibit Z-3)
— in view of the result and the evidence adduced by the parties, and by the said commissioner's
report duly supported by vouchers, the court rendered the judgment aforementioned, on
September 11, 1916. This motion was denied, exception was taken, and, upon receipt of the
proper bill of exceptions, both appeals were forwarded in the in the usual manner.
Counsel for the defendant-appellant assails in general the judgment appealed from because the
trial court did not determine the issues raised in the first, second, third, fourth, sixth, seventh,
eighth, ninth, and tenth causes of action, and in defendant's cross-complaint; and inasmuch as
in the judgment the contrary appears with the exception of the first cause of action, the court will
now proceed to examine each of the causes of action referred to in the cross-complaint filed by
the latter in its answer.
The first cause of action consists in the obligation assumed by Miguel Alonso, formerly one of
the general partners and manager of the firm of Gutierrez Hermanos, to pay to the plaintiff
Leopoldo Criado, and sum P1,100 by reason of the contract of loan prevent plaintiff from suing
for the recovery of that debt an action against the testate or intestate estate of the debtor who
died without having paid his debt; the other partner Miguel Gutierrez de Celis, manager of the
firm, succeeded in persuading the plaintiff by promising to return said sum to Criado — this not
being a strange obligation, for at the time of his death the deceased debtor Miguel Alfonso, was
a partner in the firm of Gutierrez Hermanos and had a share in the firm's assets. But the fact is
that from 1898, when Alfonso died, until 1912, the date the complaint was filed, such settlement
had already been made of the decedent's said share and in spite of the attempts to collect made
by the creditor he was unable to recover the loan.
Even on the supposition that at the time of his death the debtor Miguel Alfonso certainly and
positively left this debt and that in order to avoid judicial proceedings on the part of the creditor,
Miguel Gutierrez de Celis subrogated and put himself in the place of the debtor, binding himself
to pay said amount to plaintiff, yet, in view of the fact that said, loan was made as an
independent private act, unconnected with the mercantile operations of the firm of Gutierrez
Hermanos, and that the record does not duly show that this firm, though its manager assumed
the obligation to reimbursed the sum, there is no provision of law to warrant us in holding that
the firm of Gutierrez Hermanos is obliged to pay the amount claimed by the plaintiff as the
subject-matter of his first cause of action.
In the second cause of action plaintiff demands the payment of P43,410.86, and alleges that,
pursuant to a notarial instrument of March 29, 1900, he became a partner of the firm of Gutierrez
Hermanos; and that said document stipulated that the partnership should last for four years from
January 1, 1900, and, among other conditions, it contained the following:
Second. Therefore the partnership is organized among the parties to this instrument,
Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don Miguel Alonso y
Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y Garcia, the first
three as capitalist partners, and the last two as industrial partners.
Eighth. All earnings or profits that may be obtained shall be distributed among the
partners in the following proportion: 37 per cent shall go to Don Placido Gutierrez de
Celis; 37 per cent to Don Miguel Gutierrez de Celis; 16 per cent to Don Miguel Alfonso
y Gutierrez; 5 per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don Leopoldo
Criado y Garcia. In the same proportion above established for the profits the capitalist
partners shall be liable for all losses or damages that may be sustained.
A copy of said instrument was presented as Exhibit A and made an integral part of the
complaint.
Plaintiff also alleged that, according to the books of the defendant firm, his capital was
P56,796.25 in 1902 and, according to the balance had on December 31, 1903, the profits
obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26, belonged to him,
according to the eight clause of the articles of partnership, although the manager Miguel
Gutierrez de Celis, by means of false and erroneous entries in the books, succeeded in
concealing such profits, thereby injuring him in said amount of P43,410.86. Plaintiff testified that
as soon as he learned of such entries, he at once protested, but that said manager assured him
that as soon as the probate proceedings concerning the estate of the decedent Miguel Alfonso
should be determined said amount would be refunded although in spite of his efforts said
promise has not been fulfilled.
In its answer the defendant firm admitted that plaintiff Criado was an industrial partner entitled to
5 per cent of the profits, but denied all the other averments of the complaint. In special defense it
alleged that on December 31, 1903, there was made a liquidation and balance of the business
of the firm — operations which were approved by all the partners with no protest made by the
plaintiff before or after said liquidation, but contrary, he gave his assent thereto and without
reserve whatsoever he executed a new partnership contract, inasmuch as the sum shown by
said liquidation and balance of the business of the firm at the end of December, 1903, formed
the basis of the capital mentioned in the articles of partnership executed before a notary on May
9, 1904. Finally, the defendant alleged that, in accordance with the provisions of section 43 of
the Code of Civil Procedure, this second cause of action had already prescribed, inasmuch as its
object, the recovery of personal property, prescribed after four years, just as an action for
damages by reason of fraud.
The purpose of the second cause of action exercised by plaintiff's counsel is to obtain from the
defendant the share of the profits earned by the firm from 1900 to December 31, 1903,
belonging to plaintiff, by reason of the partnership contract — a contract that produced reciprocal
rights and obligation between the partners — and if the record shows as duly proven that there
were profits, the obligation on the part of the defendant firm to pay to plaintiff his share of said
profits at the rate of 5 per cent is inevitable, there appearing no just and legal reason in the
record for exempting the defendant from the fulfillment of said obligation. It is therefore no proper
to assert that the action brought by the plaintiff has for its object the recovery of personal
property, or demand damages for fraud, and therefore the period for prescription is not the four
years fixed by section 43, paragraph 1 of the Code of Civil Procedure, but that of ten years, as
provided in paragraph 1 of said section, in as much as the action brought is founded on a
contract in writing and demand is thereby made for the payment of a certain net sum, entered in
the books of the firm of Gutierrez Hermanos, for the prescription of which the lapse of ten years
is required — a period which certainly has not elapsed since the last balance was made of the
business of the firm of which Leopoldo Criado was a partner.
In order to determine whether — besides the sum of P25,129.09 which constituted the capital
brought by the plaintiff Leopoldo Criado, as capitalist, during the second period of the firm newly
organized in 1904 — plaintiff still has a right to demand the sum that is the subject of his
complaint in the second cause of action, or any other sum that might be found to be a remainder
of the salary owing him in his capacity of industrial partner during the first period of the firm
organized for four years from January, 1900, it becomes necessary first too decide whether in
fact the plaintiff is in estoppel and unable to oppose any valid objection against said liquidation
and balance; inasmuch as, according to the inventory of the firm's business, made on December
31, 1903, which was signed by Leopoldo Criado, Miguel Gutierrez de Celis and Daniel Perez de
Celis, plaintiff Criado's capital on that date was only P25,129.09, the sum recorded as his capital
in the articles of partnership, Exhibit O, which were in force during the second period from
January, 1904, although this contract was executed on May 9 of that year. From clause 7 of said
contract, and according to said inventory of December 31, 1903, it appears that the firm's capital
stock amounted to P1,605,497.30, of which the sum of P25,129.09 belonged to Leopoldo
Criado.
In an affidavit plaintiff stated that when he learned of the contents of the firm's books, he
protested against the entries therein, but that the manager Guiterrez de Celis assured him that
he would lose nothing by those entries made in connection with a serious matter then pending;
that afterwards he learned that said entries had been made in the books through fear that Jose
Fortiz, a creditor of 5 per cent of the profits, should claim his share of the profits pertaining to the
years 1902 and 1903; that in fact Fortiz did bring suit against Gutierrez Hermanos and obtained
a favorable judgment not only in the Court of First Instance but also in the Supreme Court which
affirmed the judgment of the lower court (record, p. 381); that another reason why said false and
erroneous entries were made in the firm's books by Gutierrez de Celis was to show the family of
the deceased Miguel Alonso that the losses reported in his letter received during his lifetime
from Gutierrez de Celis were due to his poor management of the firm's business (record, pp. 381
and 382); that as, in spite of repeated steps taken by plaintiff, said Gutierrez de Celis did not
fulfill his promise to pay the sums which had been unduly withheld by means of those improper
entries, plaintiff therefore finally refused to sign the balance sheet for the business of 1909, but
did sign the previous one containing the record of a loss of P110,000 and also the partnership
contract of 1904, showing his capital to be P25,129.09 as he believed that Miguel Gutierrez de
Celis would reimburse him, as he had promised, his share of the sums which had been entered
as losses in the firm's books.
In Exhibit 10 (record, p. 205) there appears an entry which reads thus:
 P501,513.57, amount of the bills cancelled in the books in this date which should have
been cancelled in previous years on account of difficulty in their collection, some of
these bills being of such a nature that they should be charged to the account of the
management as they are contrary to the provisions of the 5th and 10th clauses of the
partnership contract . . . but, in view of the fact that the author of these irregularities is
not living so that compliance with the contract may be demanded of him, we have
distributed the losses equally among the three principal partners . . . and 5 per cent
against each of the industrial partners, Leopoldo Criado's share of the losses being
P25,080.68.
Without doubt this entry was made for the purpose of showing that Miguel Alonso, former
manger of the partnership, was to blame for these losses. It is to be noted that, according to the
contract, plaintiff as an industrial partner is not liable for said losses; therefore in this distribution
said sum was unduly deducted from his share of the assets.
In order to prove the certainty of the protest made by plaintiff and the repeated promises of
payment by Miguel Gutierrez de Celis, Attorney Eduardo Gutierrez Repide was called as witness
and testified that, as a consequence to the complaint made by the plaintiff to the attorney
Marple, one of the members of the Hartigan law firm, against the acts of the manager of the firm
of Gutierrez Hermanos — a proceeding which, as plaintiff stated produced the effect of
continually reducing his assets in the firm by order of the said Marple — he, witness, went to
confer with said manager Guiterrez de Celis who after learning of plaintiff's complaint stated to
witness that there was then good and sufficient reason for making it appear in the firm's books
that the industrial partner Leopoldo Criado had less assets in the firm than in reality he had, but
that he should not worry further as later on the firm would pay him the reduced amount of the
forty-three thousand and odd pesos which made up the reduction, and that, sometime
afterwards, witness having been called as a friend, and not as an attorney, by said manager of
the firm, on meeting the latter, he learned that just then Leopoldo Criado was refusing to sign the
instrument setting forth the new articles of partnership for a new period because said manager
had not fulfilled his promise to return to plaintiff the aforesaid sum deducted from the capital
stock, on which occasion the notary Barrera was there waiting; that then Guiterrez de Celis
directed the witness to tell plaintiff not to worry, and that said sum would be returned to him; that
therefore witness, trusting in these words of the manger, advised plaintiff to sign the instrument,
just as he did; and that witness afterwards learned that these promises had not been fulfilled.
In view of the evidence adduced by plaintiff, not rebutted by counsel for the defendant, it cannot
be held that plaintiff was in estoppel immediately after having signed the partnership contract of
May 9, 1904, in which it appears that he brought into the new firm, as capital of his own,
P25129.09, nor may it be said that he was not entitled to claim the rest of his assets in the firm
during the first period from 1900 to 1903, to wit, the difference between the sum of P56,793.25,
plaintiff Criado's capital as an industrial partner and said P25,129.09, the capital brought into the
new firm, inasmuch as it was not the plaintiff, but the manager of the firm, Miguel Gutierrez de
Celis, who intentionally and deliberately induced Leopoldo Criado to sign said partnership
contract of May, 1904, in which plaintiff appeared as capitalist partner for the last mentioned sum
brought into the general assets of the firm under the repeated promise that he would afterwards
be paid the rest of the assets due him up to the aforestated sum of P56,793.25, the amount of
capital standing to his credit at the time of the termination of the previous partnership on
December 31, 1903.
As aforesaid, plaintiff signed the instrument of 1904 in the belief that the manager of the firm of
Gutierrez Hermanos would fulfill the promise he had made not only to the plaintiff but also to the
attorney Gutierrez Repide; wherefore, it is evident that the defendant cannot set up estoppel
against the plaintiff, who relied upon said repeated promise (Act No. 190, sec. 333), inasmuch
as the defendant was aware that plaintiff, as an industrial partner, was entitled to collect a
greater sum as a part of his capital than that brought into the new partnership and he had an
indisputable right to contradict and adduce oral evidence against the contents of said instrument
of May 9, 1904 (Act No. 190, sec. 285), in case the exception of the plaintiff which the defendant
denied were based on the contents of that instrument, and likewise against the liquidation and
balance made at the expiration of the term of the first partnership, causing to appear in said
balance and in the books of the firm, among other entries, that aforementioned sum of
P501,513.57, certified to in the document Exhibit 10, this amount is sufficiently large when
distributed among the partners, as losses when plaintiff Criado, as one of the industrial partners
is not liable for the losses which the firm may have sustained according to the eighth clause of
the notarial instrument of May 29, 1900. The allotment to the industrial partner Leopoldo Criado
of the amount of P25,080.68 as losses suffered by the firm in its business during the years 1900
to 1903 was notoriously illegal, inasmuch as he, being merely an industrial partner, was not
liable for any loss whatever.
Plaintiff assails several entries made in the books of the firm consisting of losses in hemp,
merchandise, depreciation of steamers, and reduction in capital stock belonging to the partners,
all amounting to P793,199.24, as well as the net loss estimated at P110,578.38. But it suffices
our purpose to mention the reduction as losses, distributed among the partners, of P501,613.57,
P25,080.68 of which was charged against the plaintiff as his proportionate loss of the capital, in
order to show the propriety of plaintiff's averments that without any good reason or ground
whatever he sustained a loss by the decrease of his capital.
For the practical application and the fulfillment of the stipulations made by the partners, in the
second and eighth clauses of said articles of partnership of March 29, 1900, it should be
understood that, for the purpose of determining the profits that correspond to an industrial
partner who shares in the profits from the different transactions carried on by the firm must be
added together from which sum must be subtracted that of the losses sustained in its business,
and in the difference which represents the net profits — if these are greater than the losses —
the industrial partner shares, i. e., in the sum total of the profits. But if, on the contrary, the
losses are greater and exceed the profits in said difference the industrial partner should not be
liable, for this constitutes a real loss to the firm.
Wherefore, having examined the documents presented at the trial, among them Exhibits C, F, H,
P, 2 and 8 as well as the report of the commissioner, Wicks, Exhibit Z-3, together with the
documents attached by him to his report, and taking into account that only sixty-seven thousand
and odd pesos could be collected from the credits considered as uncollectible, and that the
plaintiff, as an industrial partner, should not be liable for the losses, according to the articles of
partnership, it follows that, at the termination of the partnership in 1903, plaintiff's assets were
P56,793.25, and his liabilities P1,054.56, there being in his favor consequently a balance of
P55,738.69; but as in the instrument of May, 1904, he was credited with only P25,129.09, as
capital brought into the new company, the plaintiff is entitled to demand that the firm of Gutierrez
Hermanos pay him in the sum of P30,609.60.
Furthermore, in the instrument of May 9, 1904, it is not stated that the amount brought in the
plaintiff was the balance and sole asset that he had as an industrial partner in the extinct firm in
1903, nor that he condoned and renounced any other assets he might have therein;
consequently, he has not lost his right to collect the rest of his capital by having signed said
instrument, and it is not fair that his copartners should benefit with no just reason and to his
prejudice.
The commissioner, Wicks, awarded plaintiff P32,875.46, as a part of his capital which he was
entitled to collect (Exhibit Z-3). Plaintiff accepts this sum, though he demanded more in his
complaint; but this court can not accept the commissioner's conclusion in this particular,
inasmuch as plaintiff admitted that his capital, on December 31, 1902, was the sum
aforementioned which appears in the defendant's books, and in 1903 the firm of Gutierrez
Hermanos netted no profits from its business; because, as a result of the commissioner's
examination if the books and papers of the defendant firm, he unduly awarded plaintiff
P6,205.25, as a part of his capital, which the defendant had failed to pay him in the years 1900
to 1902, and P1,660.91, as a part of his assets unduly excluded by the defendant firm from his
account of invested capital in 1903, both amount aggregating P7,866.17. It is to be observed
that plaintiff agrees that his capital in 1903, according to the defendant firm's books amounts to
P56,793.25, without the debt of P1,054.56.
On pages 8 to 12 of Exhibit Z-3 the commissioner Wicks also unduly charged plaintiff 5 per cent
of the interests on certain personal accounts that were canceled in the books, and on certain
sums which appeared on the firm's books as losses pertaining to the years 1904 to 1911, as
being related to certain other accounts that originated during the period 1900 to 1903. These
charges were improper because the interests on the accounts stricken from the books are, like
the principal debts, also losses for which, according to the articles of partnership, the industrial
partner should not be held liable. The amount thus unduly charged against plaintiff on account of
the said 5 per cent interest aggregates P5,600.32, which sum, subtracted from said P7,866.17,
an amount also unduly paid, leaves a difference of P2,265.85 likewise unduly credited to the
plaintiff and which apparently increases his assets. This latter sum, subtracted from that
awarded by the commissioner, shows that plaintiff is entitled only to the sum of P30,609.60, a
sum which, with the sole difference of one centavo through inaccuracy in the calculations, we
deem to be mathematically correct, lawful, just, and in conformity with the stipulations made by
and among the partners in said instrument; and therefore the defendant should be ordered to
pay the same, together with the legal interest thereon from the date of the filing of the complaint.
As regards the third cause of action in the previous judgment which was set aside, the
complaint, in so far as this cause of action was concerned, was dismissed and upon a reopening
of the case, in the subsequent judgment rendered therein on September 11, 1916, the court
abstained from granting the petition made in connection with said third cause of action;
notwithstanding, the plaintiff-appellant in his brief made no assignment of error with respect to
this matter, nor did he request the court to make any ruling on the petition submitted in
connection with said cause of action. Therefore, notwithstanding the agreement contained in the
document Exhibit 50, and in view of the fact that plaintiff tacitly waived any right he might have
had to enforce this claim, judging from his conduct in the matter of the collection of the sum of
P406.99, also mentioned by the commissioner in his report Exhibit Z-3, this court dismisses the
complaint in so far as said third cause of action is concerned.
In the judgment appealed from, the trial court holds that the item relative to the shares of stock in
the Bataan mines pertained to the losses suffered in 1906 and should have been charged to the
account of profits and losses as, according to the 8th clause of the articles of partnership,
plaintiff had suffered a loss not only of 5 but 10 per cent. The plaintiff-appellant likewise makes
no assignment of error against this judicial declaration. Therefore the complaint is also
dismissed with respect to the fourth cause of action. By the fifth cause of action counsel for
plaintiff demands payment of the sum of P88,245.93, and the trial court, for the reason stated in
the judgment, held that the defendant firm was obliged to pay to plaintiff the sum of P51,296.62,
with legal interest thereon from May 25, 1912, the date of the filing of the complaint. This finding
has not been assailed, nor has any error been assigned against it by the plaintiff-appellant in his
brief, but the defendant-appellant, ordered in the judgment to pay that sum, made an assignment
of errors based on the reason set forth in its brief.
The plaintiff having impliedly acquiesced in the finding of the trial court with respect to the fifth
cause of action, we shall now proceed merely to inquire whether that court actually committed
the errors assigned to the judgment by the defendant-appellant.
According to the document Exhibit 7, presented by the defendant, which appears to be a copy of
plaintiff's stock account, certified as authentic by the defendant's bookkeeper, the capital stock of
the plaintiff Leopoldo Criado, prior to December 29, 1911, was P73,147.87, an amount which
also appears in the document (Exhibit P) and tends to prove that on December 31, 1911,
plaintiff's capital was the amount stated, before the annotation of the entries assailed as false
and fraudulent by plaintiff.
The eighth and sixteenth clauses of the articles of partnership, Exhibit O (record, p. 82),
executed in May, 1904, which ratified and approved the transactions of the firm of Gutierrez
Hermanos from January of that year state the following:
Eighth. The earnings or profits which may be obtained shall be distributed among the
partners in the following proportion:
Forty per cent to D. Placido Gutierrez de Celis;
Forty per cent to D. Miguel Gutierrez de Celis;
Ten per cent to D. Daniel Perez Albertos; and
Ten per cent to D. Leopoldo Criado Garcia.
In the same proportion provided for the profits, the partners shall be liable for the
losses that may be incurred.
Sixteenth. In case the partnership business should incur such losses as to prevent a
continuance of the business or to make a dissolution of the partnership advisable,
same shall be liquidated, each capitalist partner bearing such loss in a pro rata
proportion to the capital he represents, the expenses necessary for the prosecution of
the business being chargeable to the firm as a whole. Notwithstanding these
provisions the partners Don Placido and Don Miguel as principal capitalist partners
may liquidate the partnership or alienate its rights whenever they deem proper so to
do.
By a notarial instrument of January 2, 1908, the life of the partnership was extended to another
term of four years, upon the same bases and conditions (Exh. X, p. 100).
From the two preinstated clauses of the partnership contract it is deduced that the partners
should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th
clause; but that, in case such losses should be of so great importance as to prevent a
continuation of the partnership business, or to make advisable the dissolution of the partnership,
then due action should be taken in conformity with the provisions of said clause 16, and the
partners should be liable from the losses in a proportion pro rata to their share in the partnership
assets; in consequence whereof, plaintiff should be liable at the rate of 10 per cent of the losses
sustained.
The trial judge held that, according to the balance sheet (Exhibit P) admitted by the defendant
(sten. notes, p. 45), the profits in 1911 were P120,986.34; but a mere reading of this balance
sheet shows that the profits were not so much as the plaintiff claims, even by adding thereto the
sum of P30,000, nor did they amount to the sum fixed by the court, for the reason that same
document shows losses of P21,963.38 for general expenses and of P22,569.41 for the account
on its face, which accounts bear debit balances.
In order to determine the exact amount of the profits and losses during the year 1911, it
becomes necessary to examine the 1910 inventory, not discussed by the litigants, and to make
a comparison between its contents and those of the 1911 inventory. Having examined various
documents stating accounts of several kinds relating to the business of the firm of Gutierrez
Hermanos, as those of the merchandise, various debtors, furnitures, shares, consignments,
vessels, cash operations of provincial business, and rural and urban properties, it appears that
the active capital of the partnership was, on December 31, 1911, P2,685,096.40.
According to the inventory Exhibit 51 (record, p. 172), the liabilities of the partnership were
P789,228.65 in 1911.
The unpaid accounts aggregate a total of P148,965.66. In his report (Exhibit Z-3) the
commissioner classified these credits as uncollectible, doubtful and slow collection, a
classification we find very just, since entry No. 1657, Exhibit T, admits that a part of such credits,
without being uncollectible or doubtful, is of slow collection. According to said commissioner's
report, the uncollectible credits amount to P33,746.58, an amount which may, in justice, be
considered as lost; those doubtful amount to P39,864.49, and those of slow collection to
P75,354.59, making a total of P118,219.08.
We cannot consider as lost the credits of slow collection nor even the doubtful ones, as there is
the hope that they may be collected in the future; therefore the sum of the doubtful credits and
those of slow collection should be deducted, as unpaid accounts from the liabilities which,
consequently, are reduced to P671,019.57, an amount that still must be reduced to P662,337
because in 1912 the balance of P8,682.57, Ramon Madarieta's debt, was collected as the
commissioner states in his report. According to the entry No. 1658, Exhibit U, the active capital
was reduced on account of the difference in the price of hemp, by the sum of P110,091.19.
Therefore, deducting from the liabilities the excess of P102,534.27, it appears that, on
December 31, 1911, the liabilities were only P2,125,293.67, and this sum, compared with the
capital that the defendant firm had on December 31, 1910, which according to Exhibit Z (record,
p. 120) was P2,182,010.04, shows a loss of P56,716.57. Consequently, there should be
deducted from plaintiff's capital 10 per cent of this sum or P5,671.64 as his share of the loss.
The capital which the plaintiff had in the firm in 1911, according to Exhibit 7 (record, p. 197),
amounts to P76,141.08, a balance which constituted his capital on December 31, 1910, and
adding thereto the sum of the amounts collected, P605.50, the result is that plaintiff's true
assets, in his account of capital stock, must be P76,746.58. Deducting from this sum that of
P2,570.98 which is charged as a debit against plaintiff, there appears a net balance in his favor
of P74,175.60 and, deducting from this sum 10 per cent of the P56,716.37 or P5,671.64 as
losses, there results the difference of P68,503.97, the sum which he was entitled to collect from
the defendant by this fifth cause of action — although the amount was reduced to P51,296.62 as
fixed in the judgment — the payment of which the defendant is obliged in the manner stipulated
in the 19th clause of the articles of partnership, in proportion to the total net capital, the date is,
at the rate of 3.22 per cent with legal interest from the date of the filing of the complaint.
By the sixth cause of action plaintiff claims the sum of P2,000, alleging that same was unduly
charged against his private account when, in truth and in fact, in consequence of a compromise
made by advice of the attorneys of the defendant, the former firm of Del Pan and Ortigas, he, as
manager of the defendant firm, paid said sum to Leopoldo who for this reason, in spite of his
better right, desisted from claiming P8,000 from Tirso Nery against whom the defendant then
had an action pending.
The trial court rendered judgment in favor of the plaintiff for P2,000, with legal interest thereon,
at the first hearing of this case, and at the second hearing held that plaintiff should be paid
P1,800, considering the remaining P200 as plaintiff's share in the loss suffered by the firm on
account of said compromise.
The defendant alleged that its manager's statement shows that this sum of P2,000 was paid by
Guiterrez Hermanos on the account of Leopoldo Criado, as there was no need of buying this
credit of Leopoldo Ferrer against Tirso Nery, and that while acting as manager plaintiff took
advantage of the opportunity to buy said credit for 25 per cent of its nominal value.
Plaintiff testified that Miguel Gutierrez de Celis read the complaint of Leopoldo Ferrer and
believed that it was advisable to pay this creditor's claim; that therefore De Celis himself drew
the check for the payment of Ferrer's claim and ordered plaintiff to go to court in company with
the attorney to stipulate a compromise about the matter.
The manager, Miguel Gutierrez de Celis, testified that he had no knowledge of that complaint
and of that compromise; but the court, who saw and observed these witnesses while they were
testifying, gave credence to the plaintiff's testimony, and we see no reason whatever for
modifying his judgment in this matter, for the evidence as a whole tends to prove that plaintiff
told the truth.
So therefore plaintiff is entitled to recover from the defendant the sum of P1,800 but must suffer
the loss of the remaining P200 as his share of the loss of the credit.
In the seventh cause of action plaintiff claims compensation for the services rendered the
defendant firm at the instance of Miguel Gutierrez de Celis, and alleged that a just and
reasonable compensation from December 31, 1911, when he left the firm, until March 30, 1912,
is P1,000 per month, such services being rendered at the request of Miguel Gutierrez de Celis,
with the promise that compensation would be in accordance with the profits obtained; that this
value of services, P1,000 per month, was estimated on the basis of the work done by him and
the profits obtained; that he therefore demanded of Miguel Gutierrez de Celis the payment of
said compensation, but that the latter refused to pay anything (record, p. 427).
The manager Miguel Gutierrez de Celis testified that Leopoldo Criado lodged and boarded in the
house of Gutierrez Hermanos during the months of January, February, and March, 1912; that his
work consisted solely in being there and seeing that things were accomplished; that he
intervened in the preparation of the balance sheets; and that consequently his services were of
no value.
Upon the foregoing evidence the lower court rendered judgment in favor of the plaintiff for the
amount claimed and fixed by himself, and basing judgment on the nature of his work and on
what he had earned previously as a partner.
In trying to prove that the trial court erred in its award in favor of plaintiff for this cause of action,
counsel for the defendant says, on page 33 of the Spanish brief, No. 9300, that plaintiff could not
establish his right under this cause of action; that, according to the testimony of the defendant's
manager, the sole reason why plaintiff continued in the firm after December 31, 1911, was to
make the final balance sheets; and that therefore he can recover nothing for his services
because the rule established in various American cases cited is that a liquidator-partner is not
entitled to any compensation for his services as such, unless there are special stipulations in the
matter of circumstances from which such contractual stipulations may be deducted.
Assuming that the rule cited were applicable in this country, the same rule favors the plaintiff for,
in the present case, there was not only an implied but an express contract that the defendant
should pay plaintiff a compensation proportionate to the profits that might be obtained from the
business of the firm.
With respect to the amount of that compensation, counsel for the defendant say on the
aforecited page of their brief, that plaintiff testified that his salary ought to be in accordance with
the profits that might be obtained but that he did not prove how much he could have earned
elsewhere.
It is undeniable that plaintiff did render services to the defendant firm when he was not obliged to
do so gratuitously, for, neither in the partnership contract (Exhibit O), nor in the law, is there any
provision whatever to the effect that plaintiff as a partner was obliged to liquidate the business
without compensation, since among the partner's obligations as prescribed by articles 170 to
174 of the Code of Commerce, such an obligation does not appear, but on the contrary, articles
228 and 229 of the said Code provide that in general or limited partnerships, should there be no
objection on the part of any of the partners, the persons who managed the common funds shall
continue in charge of the liquidation. Plaintiff, without being obliged, rendered service to the
defendant at the manager's request, with the understanding that his compensation should be in
proportion to the profits that might be obtained, and, therefore, it is just and reasonable that such
services should be remunerated.
As regards the amount of the compensation we do not find satisfactory rebuttal of plaintiff's
testimony in this matter, as the manager merely said that plaintiff's services were worth nothing,
a statement that falls by its own weight, for, however insignificant may be the work one person
does on behalf of another, it is always worth something. There is no estimate of his
compensation were not received nor do we find his estimate exaggerated. Nor does there
appear any reason whatever for modifying the judgment of the trial court in respect to this point.
Therefore the defendant ought in justice pay to the plaintiff the amount claimed in this seventh
cause of action.
In the eighth cause of action plaintiff claims the sum of P52 as his 10 per cent share of the P520
which La Germinal paid the defendant as dividend obtained in 1911 and corresponding to the
shares of stock the defendant held in that company, alleging that, notwithstanding the fact that
the defendant collected said amount, it failed to credit him with P52, the sum to which he was
entitled.
In its answer defendant admitted that it collected the dividend mentioned, and that plaintiff was
entitled to the payment of P52.
Plaintiff testified (record, p. 429) that the books do not show that the sum of P520 was divided
among the partners. Counsel for the defendant admitted that they had no evidence to present in
respect to this cause of action.
Therefore plaintiff has an unquestionable right to collect from the defendant the sum of P52, as
held by the trial court.
By the ninth cause of action plaintiff claims the payment of P1,171.11 as his 10 per cent share of
the P11,711.16 which the insurers of several of the defendant's steamers paid on account of
certain damages suffered by these vessels — said repairs were paid proportionately by all the
partners — and that, notwithstanding the collection of this sum, defendant did not pay him his
share thereof.
Defendant denied that is received P11,711.16, but admitted that it did receive P9,032.92, and
that this sum plaintiff should be credited with P953.92.
The court below rendered in favor of plaintiff judgment for P953.90, from which judgment he did
not appeal, nor did the defendant make any assignment of error in respect thereto. We see no
reason whatever for changing or modifying this finding, for the defendant admitted, as aforesaid,
that plaintiff was entitled to the amount awarded him in the judgment. We therefore affirm this
part of the judgment.
By the tenth cause of action plaintiff asks judgment for P3,000. alleging that in 1911, after he
had ceased to be a partner of Gutierrez Hermanos, the defendant firm charged to the account of
"Items pending collection" and credited in favor of Movellan and Angulo, of Paris, insurers of the
defendant's steamers for the year 1912, thereby diminishing the partners' capital; and that of
said P35,334.09, he is entitled P3,000 which the defendant's manager failed to pay plaintiff,
notwithstanding the demand made upon him so to do.
The defendant alleges that the premium pertaining to the year 1912 amount to only P958.97, of
which P95.89 belongs to plaintiff, and admits that said sum should be credited to plaintiff's
account.
The lower court rendered judgment in favor of plaintiff for P1,001.22, from which judgment he did
not appeal, and although the defendant appealed he from this award of the judgment, it was not
included in its assignment of errors. Nor do we find anything in the record to show that the trial
court erred; on the contrary, we see that the dates and premiums of the insurance policies
mentioned in the judgment, for which plaintiff should not be held liable, agree with those given in
Exhibit 45 (record, p. 297) which is a copy of the insurance policies of the steamers Montañez,
Dos Hermanos, and Magallanes, certified to by the bookkeeper of the defendant firm, no policies
of other steamers having been presented, while the report of the commissioner (record, p. 77),
schedule 28 of Exhibit Z-3, differs very much from Exhibit 45. Therefore said award of the trial
court should likewise be affirmed.
DEFENDANT'S CROSS-COMPLAINT.
The defendant asks therein that plaintiff be ordered to pay any amount proved due the
partnership, and alleges that during the time that plaintiff acted as the official in charge and the
manager of the defendant firm's business, to wit, during the period between May 1 and
December 10, 1903, he, knowingly and in contravention of the stipulations contained in the
articles of partnership, sold and delivered various merchandise and other effects to several
debtors, such as Antonio de la Riva, whose debt had then reached the amount of P88,617.96,
and Gerena and Co. whose account showed a debit balance of P39,417.16, without having the
security required by the articles of partnership; that therefore plaintiff alone is responsible for
losses occasioned through such procedure; and that, upon making the balance sheet on
December 31, 1911, a loss was found whereby plaintiff owed the defendant more than P26,000.
The clause to which this cross-complaint refers and which was violated by plaintiff is the fifth of
the instrument of March 16, 1900, presented as Exhibit A (record, p. 58), and is of the following
tenor:
The purpose of the partnership shall be the transaction of business in the purchase
and sale of groceries and beverages from Europe and America, and domestic
merchandise; and in the advancement of funds on goods under security to companies
or to private parties, the credit allowed thereon not to exceed thirty thousand pesos
and granted only on the approval of the principal capitalist partners.
The trial court dismissed this cross-complaint, for the reason that the transactions, the
responsibility for which the defendant claims to hold plaintiff liable, were ratified by Miguel
Gutierrez de Celis upon his arrival in the Philippines.
The cross-complaint raises two questions, to wit: (First.) Is plaintiff liable for the debts of Antonio
de la Riva and of Gerena and Co.? (Second.) Is plaintiff in debt to the defendant in the sum of
twenty-six thousand and odd pesos?
With respect to the second question we have already shown in discussing the fifth cause of
action, that, as disclosed by the record, the defendant is indebted to plaintiff. This question
should therefore be determined in the negative.
As regards the first question, even supposing that plaintiff has violated the stipulations of articles
of partnership by giving credit to various persons without taking the security required in the fifth
clause of said articles, yet in the cross-complaint no other reasons are alleged by virtue of which
he should be held liable for said breach of contract.
Article 144 of the Code of Commerce makes a partner liable for the damages suffered by the as security, nor that De la Riva was the owner of the boat, for, if the launch were sold to De la
partnership, by reason of his malice, abuse of powers, or serious negligence, and requires him Riva and the proceeds from the sale were charged to the latter's account, together with the
to indemnify the partnership should the other partners so require, provided an express or verbal expenses occasioned by the trips made by that boat (Exhibit 5), it is obvious that Antonio de la
approval or ratification of the act on which the claim is based can not be deduced in any manner Riva was the owner of the launch, although he was a debtor to the firm of Gutierrez Hermanos
whatsoever. According to this legal provision, in order that the partner at fault may be compelled for its price and the expenses incurred.
to pay an indemnity, it is indispensable, in the first, place, that his conduct shall have caused
some damage to the partnership, and, in the second place, that his conduct should not have
Consequently it is indisputable and beyond all doubt that when plaintiff turned over to Miguel
been expressly or impliedly ratified by the other partners or the manager of the partnership.
Gutierrez de Celis the management and administration of the business of the firm, this business
was in very good condition, and if afterwards losses had been sustained same were due to the
In the cross-complaint the allegation is made that plaintiff, violating said fifth clause of the fault of Gutierrez de Celis himself; so it is that, in canceling in the books the account of Antonio
articles of partnership, sold and delivered merchandise and other effects to various debtors, de la Riva, he divided the amount thereof among all the partners, in the belief that it was a loss
such as Antonio de la Riva and Gerena and Co., without the security required in said articles; that affected them all.
and that, because of the large sums which said debtors owe to the partnership, plaintiff is liable
for all the damage and harm caused, amounting to P128,035.12.
Starting from the fact that the record shows that the defendant owes plaintiff various sums of
greater or lesser importance, as stated in the findings on the majority of the causes of action
Plaintiff Leopoldo Criado testified, with respect to Gerena and Co., that subsequent to his arrival prosecuted by plaintiff, it is logical that this court should not find any well-founded or legal reason
in this country, Miguel Gutierrez de Celis continued to maintain commercial relations with said by virtue of which judgment may be rendered against plaintiff for whatever amount he may be
debtor firm, whose debt would have been collected had Gutierrez de Celis followed his owing the defendant firm, inasmuch as the latter is shown to be his debtor. Therefore plaintiff
(plaintiff's) advice and that of the attorneys of the firm of Gutierrez Hermanos — aside from the should be absolved from the cross-complaint filed by the defendant.
fact that the firm of Genera and Co. was solvent and could pay its debt; so it is that the manager
Miguel Gutierrez de Celis continuing said business ratified plaintiff's procedure during the three
As regards the amount of the collectible accounts and of unpaid credits which total sum is stated
months and several days that he acted temporarily, in 1903, as manager of the partnership; and
in the part of this decision relative to the fifth cause of action, it is undeniable that the plaintiff
for said reason there is no ground upon which plaintiff may be held liable for the harm
Leopoldo Criado, as capitalist partner of the partnership organized in May, 1904, is entitled to
occasioned by the non-payment of the debt of Gerena and Co.; and that rather did the liability for
receive 10 per cent of every sum collected from the date on which he ceased to belong to the
such harm fall upon the manager Gutierrez de Celis who conscientiously never believed that
firm, January, 1912, and of whatever sum that in the future may be collected from said collectible
plaintiff was solely liable for the loss, for the Entry No. 1889 (Exhibit 10, aforecited) contains the
accounts or unpaid credits, and it is so held, without any liability on his part in relation to the bad
statement that the author of such losses no longer exists, the fault being attributed to the
or uncollectible credits. Therefore, in view of section 126 of Act No. 190, we reverse that part of
deceased Miguel Alfonso, although Miguel Gutierrez de Celis testified (record, p. 557) that he
the judgment of the court below whereby such liability for 10 per cent is imposed upon the
gave his approval to what had been done, without knowing what it was, and that the plaintiff who
plaintiff.
gave the money to Gerena and Co. This testimony is in direct contradiction to the evidence
contained in the entry aforementioned, written on December 31, 1903, and notwithstanding that
error was discovered by Gutierrez de Celis, as he stated, the truth is that the amount of the loss The last error assigned by the defendant to the judgment of the court below relates to the order
was not charged to Leopoldo Criado, neither was a similar charge made in respect to the of September 2, 1915, in which it is held that the accounts presented by the defendant are not in
amount paid to Leopoldo Ferrer of which mention has previously been made herein above. So accord with the orders given by the Supreme Court in its previous decision, in so far as it was
said Entry No. 1889 of the document Exhibit 10 remained intact. directed that the firm of Gutierrez Hermanos should render a new account supported by
vouchers to determine exactly plaintiff's share in the firm's assets. In fact the defendant was
ordered immediately to present to the court all its books, vouchers and other documents that
With respect to the account of Antonio de la Riva which shows, as of December 31, 1903, a
might be necessary for the settlement of the assets pertaining to plaintiff during the years 1900
debit balance of P91,000 and odd pesos, plaintiff testified (record, p. 590) that as security for this
to 1911, and to place the same at the disposal of the expert, G. B. Wicks, and was authorized to
debt De la Riva had delivered to the firm of Gutierrez Hermanos a lot of hemp worth P33,218.06,
appoint another expert who, with said Wicks, might examine the books and papers of the firm of
a power of attorney to collect P26,000 from the store "Isla de Cuba" in monthly installments of
Gutierrez Hermanos. This order is perfectly legal and just. It is an interlocutory order of mere
P2,000, and the insurance policy of the launch Concha, which represented P34,000; whereby
procedure, issued in compliance with and in consequence of the decision of this court, to end
the debt was reduced to P12,000, on December 31, 1903.
that, with the result of the liquidation of the accounts made by the expert appointed, without the
defendant having wished to appoint another in use of its right so to do, this court may decide this
This testimony appears other corroborated documents and other evidence of record for, with suit equitably, in accordance with its true merits and in conformity with the law.
respect to the power of attorney to collect the sum mentioned from the "Isla de Cuba," the same
exhibit, No. 5, which is the account of Antonio de la Riva, certified to by the defendant's
For the foregoing reasons, whereby the errors assigned to the judgment appealed from with
bookkeeper, shows that on July 3, August 5, and September 5, 1903, the account of Antonio de
respect to the parts thereof discussed in this decision have been refuted, the defendant should
la Riva's indebtedness to the partnership was credited with various sums collected from the "Isla
be, as it hereby is absolved from the complaint by the first cause of action. By the second cause
de Cuba." With respect to the hemp referred to by witness, the manager himself Miguel
of action the firm of Gutierrez Hermanos, the defendant, should be, as it hereby is ordered to
Gutierrez de Celis testified (record, p. 565) that upon his arrival in the Philippines, he allowed an
pay to the plaintiff Leopoldo Criado the sum of P30,609.60, with legal interest thereon from May
increase in De la Riva's debt, by reason of the security of the hemp which this debtor was
25, 1912, the date of the filing of the complaint. In so far as it is based on the third and the fourth
sending to the firm. With reference to the insurance of the launch Concha, there is no evidence
causes of action, said complaint is dismissed. In accordance with the fifth cause of action, the
of record in contradiction of the facts, except the testimony of Miguel Gutierrez de Celis in which
defendant should be, as it hereby is, ordered to pay to plaintiff the sum of P51,296.62 fixed in
the latter claims that the launch was purchased by plaintiff in his own name with money
the judgment appealed from, with legal interest thereon from the date when the original
belonging to the firm, in order afterwards to sell it to Antonio de la Riva (record, p. 567). The
complaint was filed, May, 1912, and the plaintiff must pay said sum in the manner prescribed in
manager De Celis does not deny that the partnership held said insurance policy on the launch
the 19th clause of the articles of partnership of 1904. By the sixth cause of action, the defendant
is likewise ordered to pay P1,800; by the seventh, P3,000; by the eighth, P52; by the ninth,
P953.90; and by the tenth, P1,001.22. That part of the judgment relating to the plaintiff's liability
for 10 per cent of the outstanding and the uncollectible bills is reversed, and he is reserved his
right in the sums collected or which may be collected from same. The plaintiff Leopoldo Criado is
absolved from the cross-complaint filed by the defendant Gutierrez Hermanos.

The plaintiff shall pay one-third, and the defendant two thirds, of the costs of both instances. The
judgment appealed from is thus affirmed in so far as it is in accord with this decision, and is
reversed in so far as it is not. So ordered.

Arellano, C.J., Johnson, Araullo, Street, Avanceña and Fisher, JJ., concur.