THIRD DIVISION

[G.R. No. 135813. October 25, 2001.] FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.

Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner. Benito P. Fabie for private respondents.
SYNOPSIS On June 13, 1986, petitioner Fernando Santos, respondent Nieves Reyes and Meliton Zabat launched a lending business venture. It was agreed that the petitioner as financier will receive 70% of the profit while Nieves and Zabat as industrial partner will receive 15% each. Later, it was discovered that Zabat engaged in the same lending business in competition with their partnership, thus, he was expelled from the partnership. Arsenio, Nieves' husband, replaced Zabat. On June 5, 1987, petitioner filed a complaint for recovery of sum of money claiming that Spouses Arsenio and Nieves Reyes in their capacities as employees misappropriated funds intended for Cesar Gragera. In their answer, spouses Reyes asserted that they were partners and not mere employees of petitioner. The complaint was filed to preempt and prevent them from claiming their rightful share to the profits of the partnership. After trial, the court a quo ruled in favor of spouses Reyes. It further ruled that petitioner failed to prove that he had entrusted any money to Nieves. Thus, it granted spouses Reyes' counterclaim for their share in the partnership and for damages. On appeal, the decision of the trial court was affirmed by the Court of Appeals (CA). Hence, this petition for review. The Court ruled 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. 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. However, after a close examination of respondent's exhibits, the Court found a reason to disagree with

the CA. Exhibit "10-I" showed that the partnership earned a "total income" of P20,429,520 for the period June 13, 1986 until April 19, 1987. It did not consider the expenses sustained by the partnership. 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." Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits did 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. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; DEFINED. 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. 2.ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR. The "Articles of Agreement" stipulated that the signatories shall share the profits of the business in a 70-1515 manner, with petitioner getting the lion's share. This stipulation clearly proved the establishment of a partnership. . . . Nieves was not merely petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement . . . . 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 moneylending 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. 3.REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF THE COURT OF APPEALS AFFIRMING THOSE OF THE TRIAL COURT ARE BINDING AND CONCLUSIVE ON THE SUPREME COURT. 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. Although there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue. 4.ID.; ID.; ID.; ID.; THE RULE MAY BE RELAXED WHEN THE ISSUE INVOLVES THE EVALUATION OF EXHIBITS OR DOCUMENTS THAT ARE ATTACHED TO THE CASE RECORDS. 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. 5.CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; TOTAL INCOME; ELUCIDATED. Exhibit "10-I" 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. 6.ID.; ID.; ID.; SHARE OF EACH PARTNER SHOULD BE BASED ON THE NET PROFIT. 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. 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. 7.ID.; ID.; ID.; ID.; INDUSTRIAL PARTNER'S SHARE MUST COME FROM THE NET PROFITS; INDUSTRIAL PARTNER DOES NOT SHARE IN THE LOSSES IF LATTER EXCEEDS THE 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.
DEcTCa

DECISION PANGANIBAN, J :
p

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, 2issued 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 . . . Nieves and Zabat would earn 15% each.

"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte Maria Development Corporation 6 (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'). . . . Nieves kept the books as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator. "On August 6, 1986, [petitioner], . . . [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 . . . Nieves to be given to Gragera. . . . 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. ". . . 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, . . . 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:
"39.WHEREFORE, the Court hereby renders judgment as follows: 39.1.THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED. 39.2.The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the following: 39.2.1P3,064,428.00The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture with the [petitioner]. 39.2.2.Six (6) percent of As damages from August 3, P3,064,428.001987 until the P3,064,428.00 is fully paid. 39.2.3.P50,000.00As moral damages 39.2.4.P10,000.00As exemplary damages 39.3.The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following: 39.3.1.P2,899,739.50The balance of the 15 percent share of the [respondent]

ARSENIO REYES in the profits of his joint venture with the [petitioner]. 39.3.2.Six (6) percent ofAs damages from August 3, P2,899,739.501987 until the P2,899,739.50 is fully paid. 39.3.3.P25,000.00As moral damages 39.3.4.P10,000.00As exemplary damages 39.4.The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]: 39.4.1.P50,000.00As attorney's fees; and 39.4.2The 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. 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 July 15 to August 7, 1986 (Exh. "6"); and (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 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.

Issue
Petitioner asks this Court to rule on the following issues:
10

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess or lack of jurisdiction in: 1.Holding that private respondents were partners/joint venturers and not employees of Santos in connection with the agreement between Santos and Monte Maria/Gragera; 2.Affirming the findings of the trial court that the phrase 'Received by' on documents signed by Nieves Reyes signified receipt of copies of the documents and not of the sums shown thereon; 3.Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery; 4.Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera; 5Affirming the dismissal of Santos' [Second] Amended Complaint; 6.Affirming the decision of the trial court, upholding private respondents' counterclaim; 7.Denying Santos' motion for reconsideration dated September 11, 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 Petition is partly meritorious.

First Issue: 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]. . . . 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

We agree with both courts on this point. 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. 12 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. 13 This stipulation clearly proved the establishment of a partnership. We find no cogent reason to disagree with the lower courts that the partnership continued lending money to the members of the Monte Maria Community Development Group, Inc., which later on changed its business name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement, which states as follows:
"2.That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of prospective borrowers, and shall . . . each be responsible in handling the collection of the loan payments of the borrowers that they each solicited. "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:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly establish that Nieves received amounts from Monte Maria's members. The document does not clearly state what amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period of January 11, 1987 to February 17, 1987 only while the rest were made by Gragera's own staff. "Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of the remittance of commissions to Verona Gonzales. The document is a private one and its due execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court which states: 'SECTION 20.Proof of Private Document Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (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: '. . . . 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 . . . 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 moneylending 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-I3"); 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. "27.1.1SANTOS 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. "27.2The 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: "2Day 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.
SEACTH

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 moneylending, 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.

SECOND DIVISION
[G.R. Nos. L-41182-3. April 15, 1988.] DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitionersappellants, vs. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S. CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

Roman P. Mosqueda for petitioners-appellants. Felipe Magat for respondents-appellees.

SYLLABUS 1.LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYER-EMPLOYEE RELATIONSHIP; TEST TO DETERMINE ITS EXISTENCE. In this jurisdiction, there has been no uniform test to determine the existence of an employeremployee 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. 2.CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; CONSTRUED. 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." 3.ID.; ID.; ID.; CASE AT BAR. 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. 4.ID.; ID.; ID.; CANNOT BE REVOKED AT WILL. 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. 5.CIVIL LAW; DAMAGES; AWARD THEREOF PROPER IN BREACH OF CONTRACT. We rule 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." We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla arising 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. The Court considers the sums of P25,000.00 as and for moral damages, P10,000.00 as exemplary damages, and P5,000.00 as nominal and/or temperate damages, to be just, fair, and reasonable under the circumstances. DECISION SARMIENTO, J :
p

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 appellants 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 second 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 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. Cdpr 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 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. 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 dismissed 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 O. SEVILLA'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 PLAINTIFFAPPELLANT 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 MRS. LINA O. SEVILLA'SFORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES. "VI.THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS." On the foregoing facts and in the light of the errors assigned the issues to be resolved are: 1.Whether the appellee Tourist World Service unilaterally disconnected the telephone line at the branch office on Ermita; 2.Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and 3.Whether or not the lessee to the office premises belonging to the appellee Noguera was appellee TWS or TWS and the appellant.
cdll

In this appeal, appellant Lina Sevilla claims that a joint business 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 showing: "1.Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an eminent eye, ear and nose specialist as well as a society columnist, had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16, 1965). "2.Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. "A") covering the premises at A. Mabini St., she expressly warranting 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. Noguera (pp. 14-15, tsn. Jan. 18, 1964). "3.Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn. id.). "4.Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings, her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies, giving appellee Tourist World Service, Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)

"5.Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from designing the office furniture and supplying some office furnishings (pp. 15, 18 tsn. April 6, 1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the commissions procured by appellant Mrs. Sevilla (p. 35 tsn. Feb. 16, 1965).

"6.It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. id.), appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn June 18, 1965 - testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April 6, 1966 - testimony of corporate secretary Gabino Canilao)." (pp. 2-5, Appellants' Reply Brief) Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager." 1 xxx xxx xxx

The trial court 2 held for the private respondents 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. 3 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. 4 The respondent Court of Appeals 5 rendered an affirmance.
prLL

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS 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 EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILLA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMPT TO AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE . . . (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7, 8 AND ANNEX "B" P. 2) - A DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW. II.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMPLAINT PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8) III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING - IN FACT NOT PASSING AND RESOLVING - APPELLANT SEVILLA'S CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON HUMAN RELATIONS. IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING 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 Appeals did not 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 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.
cdphil

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 existence 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." 10 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. 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 World's Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would belie 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 parity 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.," 17 in 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." 18In 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. 19 It appears that Lina Sevillais 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 limited 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.
cdll

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." 20Yet, 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. For the fact that Tourist World Service, Inc. was the lessee named in the lease contract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such blitzkrieg fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named 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 is satisfied that from the chronicle of events, there was indeed some malevolent 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 such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of "manager" and

authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her. 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 the interests of the Tourist World Service." 22 It 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 of her participation therein. This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevilla for what 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 arising 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. prcd ART. 2219.Moral damages may be recovered in the following and analogous cases: xxx xxx xxx (10)Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to respond for the same damages in a solidary capacity. Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a co-tortfeasor. The Court considers the sums of P25,000.00 as and for moral damages, 24 P10,000.00 as exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate 27damages, to be just, fair, and reasonable under the circumstances. WHEREFORE, 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 P25,000.00 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.
llcd

Costs against said private respondents. SO ORDERED.

FIRST DIVISION
[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.

SYLLABUS

1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED WHERE MEMBERS OF THE SAME FAMILY BOUND THEMSELVES TO CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES. 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. 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 Remedios Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. Petitioner gave a written authority to private respondent Remedios Estanislao, his sister, to examine and audit the books of their "common business" (aming negosyo). 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. 2.REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS, GENERALLY CONCLUSIVE ON APPEAL. The findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said facts are in accordance with the applicable law. DECISION GANCAYCO, J :
p

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., 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. A joint affidavit was executed by them on April 11, 1966 which was prepared by Atty. 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 co-managing the business 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 P15,000.00 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 thereafter 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 P87,293.79 and that by the year ending 1969, a profit of P150,000.00 was realized. 3 Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner saying 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 defendants 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 P150,000.00 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 P10,000.00 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 P3,000.00 attorney's fee and costs. Private respondent filed a motion for reconsideration of the decision. On December 1, 1975, Hon. Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside the aforesaid decision and rendered another decision in favor of said respondents.
cdll

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 P150,000.00, 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 P5,000.00 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-avis 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 described 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 PHILIPPINES LIMITED, advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P15,000.00) 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 said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its benevolence and desire to help us in augmenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount of P15,000.00, 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 (P15,000,00) from the SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as monthly rentals for the said two lots under our Lease Agreement starting on the 25th of May, 1966 until such time that the said amount of P15,000.00 be applicable, which time to our estimate will cover at four 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 & 111, 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 COOWNERS RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P3,382.29), 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 11th May 1966, he deposited to SHELL in cash the amount of PESOS TEN THOUSAND (P10,000), Philippine Currency, to secure his purchases on credit of Shell petroleum products; . . . cdll "WHEREAS, said DEALER, in his desire to be granted an increased credit limit up to P25,000, 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 P15,000, commencing 24th May 1966, this P15,000 shall be treated as additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash Pledge Agreement dated 11th 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:

"1.The CO-OWNERS do hereby waive in favour of DEALER the monthly rentals due to all CO-OWNERS, collectively, under the above described 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 P10,000 to P25,000, for such purpose, the SHELL, CO-OWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P3,382.29 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 P15,000. "2.The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL, thereby increasing his credit limit from P10,000 to P25,000. 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 P25,000. "4.This increase in the credit limit shall also be subject to the same terms and conditions of the above-mentioned Cash Pledge Agreement dated 11th 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 P15,000.00 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 P15,000.00. 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 P15,000.00 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 P15,000.00 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 P15,000.00 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 P15,000.00 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.
LibLex

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 Remedios Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4 Petitioner gave a written authority to private respondent Remedios 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 accordance with 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 shall be entertained. SO ORDERED.

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.

SYLLABUS 1.REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF ACTION; NATURE OF ACTION IS DETERMINED BY THE FACTS CONSTITUTING THE CAUSE OF ACTION. 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). 2.CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; REQUISITES. 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) 3.ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO DEMAND AN ACCOUNTING EXISTS AS LONG AS PARTNERSHIP EXISTS; PRESCRIPTION BEGINS TO RUN ONLY UPON DISSOLUTION OF PARTNERSHIP WHEN FINAL ACCOUNTING IS DONE. 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. 4.ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQUIDATION AND WINDING UP OF PARTNERSHIP AFFAIRS, RETURN OF CAPITAL AND OTHER INCIDENTS OF DISSOLUTION PROPER BECAUSE CONTINUATION OF PARTNERSHIP HAS BECOME INEQUITABLE. There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership has become inequitable. DECISION

GUTIERREZ, JR., J :
p

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 respondent's 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's) presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondent's 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 respondent's 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.
llcd

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 respondent's 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 plaintiff's. 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.
Cdpr

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.
llcd

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 respondent's 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 wellsettled 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 identifiedthe 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.
LLphil

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 "H24") 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 twentytwo (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to duly 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 section 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.
LexLib

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). "QMrs. Witness, yon 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?

"AYes, sir. "QSo 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? "AYes. "QNow, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money? "AWe balance it with the manager, Mr. Dan Fue Leung. "ATTY. HIPOLITO:

I see. "QSo, in other words, after your job, you huddle or confer together? "AYes, count it all. I total it. We sum it up. "QNow, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of the restaurant? "AFor 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. "QWhat about the catering service, will you please tell the Honorable Court how many times a week were there catering services? "ASometimes three times a month; sometimes two times a month or more. xxx xxx xxx "QNow more or less, do you know the cost of the catering service? "AYes, because I am the one who receives the payment also of the catering. "QHow much is that? "AThat ranges from two thousand to six thousand pesos, sir. "QPer service? "APer service, Per catering. "QSo 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? "AYes. "QAnd ten thousand pesos during pay day?

"AYes.(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. (TSN. 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:
Cdpr

"Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales book, ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to ask counsel for the defendant to bring said records and counsel for the defendant promised to bring those that were available. Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle the issue, defendant instead of presenting the books where the same, etc. were recorded, presented witnesses who claimed to have supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show the gross sales nor does it prove that the same is the best evidence. This Court gave warning to the defendant's counsel that if he failed to produce the books, the same will be considered a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if produced.' " (Rollo, p. 145)

The records show that the trial court went out of its way to accord due process to the petitioner.
"The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his case on February 25, 1981,

however, after presenting several witnesses, counsel for defendant promised that he will present the defendant as his last witness. Notably there were several postponement asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this case be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will be back after said period. The Court acting with great concern and understanding reset the hearing to November 17, 1981. On said date, the counsel for the defendant who again failed to present the defendant asked for another postponement, this time to November 24, 1981 in order to give said defendant another judicial magnanimity and substantial due process. It was however a condition in the order granting the postponement to said date that if the defendant cannot be presented, counsel is deemed to have waived the presentation of said witness and will submit his case for decision. "On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset to December 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the defendant's counsel asked for postponement on the ground that the defendant was sick. The Court, after much tolerance and judicial magnanimity, denied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their simultaneous memoranda." (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people from all walks of life converge and patronize Sun Wah. There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back into the expansion of the business. There is no basis in the records to sustain the petitioner's 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.
LLpr

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides:
"Art. 1831.On application by or for a partner the court shall decree a dissolution whenever: xxx xxx xxx "(3)A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; "(4)A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; xxx xxx xxx "(6)Other circumstances render a dissolution equitable."

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because the continuation of the partnership has become inequitable. WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved. SO ORDERED.

THIRD DIVISION

[G.R. No. 135813. October 25, 2001.] FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.

Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner. Benito P. Fabie for private respondents.
SYNOPSIS On June 13, 1986, petitioner Fernando Santos, respondent Nieves Reyes and Meliton Zabat launched a lending business venture. It was agreed that the petitioner as financier will receive 70% of the profit while Nieves and Zabat as industrial partner will receive 15% each. Later, it was discovered that Zabat engaged in the same lending business in competition with their partnership, thus, he was expelled from the partnership. Arsenio, Nieves' husband, replaced Zabat. On June 5, 1987, petitioner filed a complaint for recovery of sum of money claiming that Spouses Arsenio and Nieves Reyes in their capacities as employees misappropriated funds intended for Cesar Gragera. In their answer, spouses Reyes asserted that they were partners and not mere employees of petitioner. The complaint was filed to preempt and prevent them from claiming their rightful share to the profits of the partnership. After trial, the court a quo ruled in favor of spouses Reyes. It further ruled that petitioner failed to prove that he had entrusted any money to Nieves. Thus, it granted spouses Reyes' counterclaim for their share in the partnership and for damages. On appeal, the decision of the trial court was affirmed by the Court of Appeals (CA). Hence, this petition for review. The Court ruled 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. 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. However, after a close examination of respondent's exhibits, the Court found a reason to disagree with the CA. Exhibit "10-I" showed that the partnership earned a "total income" of P20,429,520 for the period June 13, 1986 until April 19, 1987. It did not consider the expenses sustained by the partnership. 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." Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits did 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. SYLLABUS 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; DEFINED. 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. 2.ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR. The "Articles of Agreement" stipulated that the signatories shall share the profits of the business in a 70-1515 manner, with petitioner getting the lion's share. This stipulation clearly proved the establishment of a partnership. . . . Nieves was not merely petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement . . . . 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 moneylending 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. 3.REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF THE COURT OF APPEALS AFFIRMING THOSE OF THE TRIAL COURT ARE BINDING AND CONCLUSIVE ON THE SUPREME COURT. 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. Although there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.

4.ID.; ID.; ID.; ID.; THE RULE MAY BE RELAXED WHEN THE ISSUE INVOLVES THE EVALUATION OF EXHIBITS OR DOCUMENTS THAT ARE ATTACHED TO THE CASE RECORDS. 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. 5.CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; TOTAL INCOME; ELUCIDATED. Exhibit "10-I" 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. 6.ID.; ID.; ID.; SHARE OF EACH PARTNER SHOULD BE BASED ON THE NET PROFIT. 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. 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.

7.ID.; ID.; ID.; ID.; INDUSTRIAL PARTNER'S SHARE MUST COME FROM THE NET PROFITS; INDUSTRIAL PARTNER DOES NOT SHARE IN THE LOSSES IF LATTER EXCEEDS THE 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.
DEcTCa

DECISION PANGANIBAN, J :
p

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, 2issued 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 . . . Nieves and Zabat would earn 15% each.

"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte Maria Development Corporation 6 (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'). . . . Nieves kept the books as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator. "On August 6, 1986, [petitioner], . . . [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 . . . Nieves to be given to Gragera. . . . 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. ". . . 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, . . . 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:
"39.WHEREFORE, the Court hereby renders judgment as follows: 39.1.THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED. 39.2.The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the following: 39.2.1P3,064,428.00The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture with the [petitioner]. 39.2.2.Six (6) percent of As damages from August 3, P3,064,428.001987 until the P3,064,428.00 is fully paid. 39.2.3.P50,000.00As moral damages 39.2.4.P10,000.00As exemplary damages 39.3.The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following: 39.3.1.P2,899,739.50The balance of the 15 percent share of the [respondent] ARSENIO REYES in the profits of his joint venture with the [petitioner]. 39.3.2.Six (6) percent ofAs damages from August 3,

P2,899,739.501987 until the P2,899,739.50 is fully paid. 39.3.3.P25,000.00As moral damages 39.3.4.P10,000.00As exemplary damages 39.4.The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]: 39.4.1.P50,000.00As attorney's fees; and 39.4.2The 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. 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 July 15 to August 7, 1986 (Exh. "6"); and (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 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
Petitioner asks this Court to rule on the following issues:
10

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess or lack of jurisdiction in: 1.Holding that private respondents were partners/joint venturers and not employees of Santos in connection with the agreement between Santos and Monte Maria/Gragera; 2.Affirming the findings of the trial court that the phrase 'Received by' on documents signed by Nieves Reyes signified receipt of copies of the documents and not of the sums shown thereon; 3.Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery; 4.Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera; 5Affirming the dismissal of Santos' [Second] Amended Complaint; 6.Affirming the decision of the trial court, upholding private respondents' counterclaim; 7.Denying Santos' motion for reconsideration dated September 11, 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 Petition is partly meritorious.

First Issue: 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]. . . . 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

We agree with both courts on this point. 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. 12 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. 13 This stipulation clearly proved the establishment of a partnership. We find no cogent reason to disagree with the lower courts that the partnership continued lending money to the members of the Monte Maria Community Development Group, Inc., which later on changed its business name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement, which states as follows:
"2.That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of prospective borrowers, and shall . . . each be responsible in handling the collection of the loan payments of the borrowers that they each solicited. "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:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly establish that Nieves received amounts from Monte Maria's members. The document does not clearly state what amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period of January 11, 1987 to February 17, 1987 only while the rest were made by Gragera's own staff. "Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of the remittance of commissions to Verona Gonzales. The document is a private one and its due execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court which states: 'SECTION 20.Proof of Private Document Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (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: '. . . . 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 . . . 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 moneylending 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-I3"); 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. "27.1.1SANTOS 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. "27.2The 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: "2Day 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.
SEACTH

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 moneylending, 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.

THIRD DIVISION
[G.R. No. 143340. August 15, 2001.] LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA, respondent.

Manuel T. Chan for petitioners. Pacatang Law Office for respondent.

SYNOPSIS On June 22, 1992, respondent filed a complaint against petitioner Lilibeth 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 of Sindangan, Zamboanga del Norte. Respondent claimed that he verbally entered into a partnership with Jacinto. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, a sister of the wife of the respondent. Upon Jacinto's death, petitioners took over the operations of the business 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. Petitioners filed a Motion to Dismiss on the ground of lack of jurisdiction. The trial court denied the motion to dismiss. Petitioners then filed their Answer with Compulsory Counterclaim denying any liability. Petitioners' second Motion to Dismiss was likewise denied. Petitioners' Petition for Certiorari, Prohibition

andMandamus filed with the Court of Appeals was also denied by the appellate court.
HaTISE

Respondent presented documentary and testimonial evidence to prove the partnership. He offered the testimony of Josephine to establish the existence of a partnership between him and Jacinto. The trial court eventually rendered a judgment in favor of respondent. Petitioners' appeal and motion for reconsideration were dismissed by the Court of Appeals. Petitioners sought recourse before the Supreme Court. Invoking the "Dead Man's Statute" or "Survivorship Rule", petitioners contended that the testimonies of respondent and that of his witness, Josephine, were inadmissible to prove certain claims against Jacinto, a deceased person. In denying the petition, the Court held that the "Dead Man's Statute" was inapplicable to this case. Petitioners' filing of a compulsory claim and counterclaim 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, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the counterclaim, respondent was 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. Moreover, the testimony of Josephine was not covered by the "Dead Man's Statute" because she was not "a party or assignor of a party to a case or persons in whose behalf a case is prosecuted." Josephine was merely a witness of respondent, the latter being the party plaintiff. Moreover, 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. SYLLABUS 1.CIVIL LAW; PARTNERSHIP; MAY BE CONSTITUTED IN ANY FORM; EXCEPTION; REQUISITES TO PROVE EXISTENCE OF PARTNERSHIP. 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. 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. 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. 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. 2.ID.; ID.; ACTION FOR ACCOUNTING; PRESCRIPTION. 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 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. Considering that the death of a partner results in the dissolution of the partnership, 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 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. 3.ID.; ID.; REGISTRATION REQUIREMENT IS NOT MANDATORY; NONREGISTRATION OF THE CONTRACT OF PARTNERSHIP DOES NOT INVALIDATE THE PARTNERSHIP; CASE AT BAR. 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 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. In the case at bar, noncompliance 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.

4.REMEDIAL LAW; EVIDENCE; DEAD MAN'S STATUTE; APPLICABILITY. 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. But before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that: "1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted. 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." 5.ID.; ID.; ID.; NOT APPLICABLE IN CASE AT BAR. Two reasons forestall the application of the "Dead Man's Statute" to this case. First, petitioners filed a compulsory counterclaim 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." 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. 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. 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." Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff. 6.ID.; ID.; CREDIBILITY OF WITNESSES; NOT AFFECTED BY RELATIONSHIP PER SE. We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly coerced by respondent, her brother-in-law, to testify in 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 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.
DcCITS

7.ID.; ID.; FACTUAL FINDINGS OF TRIAL COURT AND COURT OF APPEALS OF THE EXISTENCE OF PARTNERSHIP, CANNOT BE INQUIRED INTO BY THE SUPREME COURT ON REVIEW. 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. 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. 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 petitioners failed to object to the admissibility of the evidence at the time that such evidence was offered. DECISION GONZAGA-REYES, J :
p

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 vs. 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). The pertinent facts of this case are as follows: 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.
aEAcHI

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. 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.
HIcTDE

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.
DSTCIa

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:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: (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; (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 1/2 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 1/2 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;
HEScID

(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.
TSIDEa

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:
"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:
"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:
"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."

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:
"1.The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.
EDCIcH

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. We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly coerced by respondent, her brotherin-law, to testify in 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 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 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 partnership 22 , 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.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED. SO ORDERED.

EN BANC
[G.R. No. L-14441. December 17, 1966.] PEDRO R. PALTING, petitioner, vs. SAN JOSE PETROLEUM INCORPORATED, respondent. SYLLABUS 1.CORPORATION; REGISTRATION AND SALE OF SECURITIES; RIGHT TO FILE AN OPPOSITION TO APPEAL FROM AN ADVERSE RULING OF THE SECURITIES AND EXCHANGE COMMISSION; PURPOSES OF BLUE SKY LAWS. The right to file an opposition to the registration of securities for sale in the Philippines, and, in case of an adverse order, ruling or decision by the Securities and Exchange Commission, to appeal to the Supreme Court, is not limited to issues, dealers or salesmen of securities. 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 worthless or worth substantially less than the asking price. Moreover, petitioner in the case at bar became to all intents and purposes a party to the proceedings. And under the New Rules of Court, which can be applied here pursuant to Rule 144, he can appeal from a final order, ruling or decision of the Securities and Exchange Commission. 2.ID.; ID., ID.; WHEN SECURITIES ARE DEEMED REGISTERED. The order under review allowing the registration and sale of respondent's securities is a final order that is appealable. This is so because the securities are deemed registered seven days after publication of the order (Section 7, Commonwealth Act 83, as amended). The mere fact that the authority may be later suspended or revoked, depending on future developments, does not give it the character of an interlocutory or provisional ruling.

3.ID.; ID.; WHEN INQUIRY AS TO THE WORTH OR LEGALITY OF SECURITIES CAN BE MADE. Where 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. The purpose of the inquiry on the matter is not fully served just because the securities has passed out of the hands of the issuers and its dealers. 4.CONSTITUTIONAL LAW; UTILIZATION, EXPLOITATION AND DEVELOPMENT OF NATURAL RESOURCES; PERSONS WHO CAN EXERCISE THE PRIVILEGE. The privilege to utilize, exploit and develop the natural resources of the Philippines 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 enterprise owned or controlled, directly or indirectly, by citizens of the United States. There can 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 two types of persons; natural persons (Filipino or American citizen) 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). 5.ID.; ID.; ID.; SAN JOSE PETROLEUM INCORPORATED NOT AUTHORIZED TO EXERCISE PARITY PRIVILEGES. San Jose Petroleum Incorporated is not owned or controlled directly by citizens of the United States, because it is owned and controlled by Oil Investments, Inc., another foreign (Panamanian) corporation. Neither is it indirectly owned or controlled by American citizens through Oil Investments, Inc., which is owned and controlled, not by citizens of the United States, but by two foreign (Venezuelan) corporations. There is no showing that the stockholders in these two corporations are citizens of the United States. But even granting that they are, it is still 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 (par. 3, Art. VI of the Laurel-Langley Agreement). And even if these requirements are satisfied, to hold that the set-up disclosed in the present 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. Hence, San Jose Petroleum. Incorporated as presently constituted, is not a business enterprise that is authorized to exercise the parity

privilege under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-up with San Jose Oil Company, Inc. is consequently, illegal. DECISION BARRERA, J :
p

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 Commissioner 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 with 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 P.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 the 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 share 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 refuted 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 Commissioner; 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 court,2 it is claimed that the phrase "party aggrieved" used in the Securities Acts3 and 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 orders of August 29 and that of September 9, 1958 are not final orders and therefore 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 9,979 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 states. In the two list 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 LaurelLangley 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 at the time of the inauguration of this Government established under this Constitution . . ." (Emphasis supplied)

or associations of least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease or concession

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 sources 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 enterprise 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 of 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 and 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 and 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 ore 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 III 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 tocitizens 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 vs. 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. vs. Cruikshank, 92 U.S. 542, 23 L. Ed. 588; Minor vs. 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 those 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 directlyby 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 any wise 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 provisions of the Corporation Law must be applied to American citizens and business enterprise otherwise entitled to exercise the parity privileges, because both the LaurelLangley Agreement (Art. VI, par. 1) and the Petroleum Act of 1949 (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 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 at 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 $.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 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 $488,297.97 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 INVESTMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14Agreement, 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 2 years at 6% interest 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 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:
(1)the director of the Company need not be share-holders; (2)that in the meeting 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 connection 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.

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 authorize 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 agreement 12 with James L. Buckley and Austin E. Taylor whereby said Trustees were given authority to vote the shares represented by the outstanding trust certificate (including those that may henceforth be issued) in the following manner:
(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 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 each meetings to vote the shares of stock held by the Trustee in

accordance with the written instructions of each holder of voting trust certificates. (Emphasis supplied.)

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. And these are the voting trust certificates that are offered to investors as authorized by the 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.

EN BANC
[G.R. No. 35840. March 31, 1933.] FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & CO., INC., J. M. MENZI and P. C. SCHLOBOHM, defendants. MENZI & CO., INC.,appellant.

Romualdez Brothers and Harvey & O'Brien, for appellant. Jose M. Casal, Alberto Barretto and Gibbs & McDonough, for appellee.

SYLLABUS 1.CONTRACT OF EMPLOYMENT; RELATIONSHIP BETWEEN EMPLOYER AND EMPLOYEE; COPARTNERSHIP. The relationship established between the defendant corporation and the plaintiff by their contract was not that of partners, but that of employer and employee, whereby the plaintiff was to receive 35 per cent of the net profits of the fertilizer business of the defendant corporation 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. 2.ID.; ID.; ID. 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 that 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. Instead of receiving a fixed salary or a fixed salary and a small percentage of the net profits, the plaintiff was to receive 35 per cent of the net profits as compensation for his services. 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.) 3.ID.; ID.; ID. It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress is laid by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of said exhibit the phrase "en sociedad con" is used in providing that defendant corporation shall 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". 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. 4.PLEADINGS; ADMISSIBILITY AS EVIDENCE. "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.)

DECISION VICKERS, J :
p

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 where 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 the 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 partner ship 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 sales 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 Compaa, de Manila, como Primera Parte, y D. Francisco Bastida, tambin de Manila, como Segunda Parte, bajo las siguientes "CONDICIONES "1. El objeto de este contrato es la explotacion del negocio de Abonos e Fertilizantes Preparados, para diversas aplicaciones agrcolas; "2.aLa duracion de este contrato sera de cinco aos, a contar desde la fecha de su firma; "3.aLa Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio; "4.aLa Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del negocio; "5.aLa Segunda Parte no podra, directa o indirectamente, dedicarse por s sola ni en sociedad con otras personas, o de manera alguna no sea con la Primera Parte, al negocio 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.aLa Primera Parte no podra dedicarse, por s 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 Filipinas; 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 materias fertilizantes simples importados de los Estados Unidos o del Extranjero; "7.aLa 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 ao; "8.aLa Primera Parte facilitara a la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su parte de beneficios; "9.aDurante el ao 1923 la Primera Parte concedera a la Segunda permiso para que ste se ausente de Filipinas por un perodo de tiempo que no exceda de un ao, sin menoscabo para los derechos de la Segunda Parte con arreglo a este contrato.
a

"En testimonio de lo cual firmanos 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 fertilizers 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 & Co., 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, 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 where 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 its 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 accounting 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 "purchase" 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, owing to the fact that the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own cash book, but that it 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 defendantMenzi & 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 own 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 to 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 per cent of the net profits as compensation for his 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., Inc., 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 paragraphs I, II, III, IV, and V of the first cause of action. II.That the defendant Menzi & Co., Inc., through the defendants 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 P3,626.60, 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 requested 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 of the fertilizer department and charged to that 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 he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II.That the plaintiff has discovered that the defendant 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 therefor 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 paragraphs 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" with the Deutsches Kalesyndikat, G. M. B., of Berlin, which is a manufacturer of potash, by virtue of which the 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 commissions were not in any sense discounts of 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 sum of $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 that department for such item. SIXTH CAUSE OF ACTION As sixth 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 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 an 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. 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 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 for 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 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 of 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 to 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 said credits were duly noted on the books of the fertilizer 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. EIGHTH CAUSE OF ACTION As eight 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 Compaa General de Tabacos de Filipinas for the sale to 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 proposed 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 Compaa 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 Compaa 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 Compaa General de Tabacos de 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 business, after its expiration, are wholly unknown to 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 to P20,000, 35 per cent of which amounts 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 defendant has ignored such demands, so that the plaintiff does not, at 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 the 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 the 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 therefor 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, is a contract of general regular commercial partnership, whereinMenzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner; "(b)Holding that 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 accounts therein contained; "(c)Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P60,385.67 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 complaint 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 out in Exhibits 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 assignments 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 P60,385.67, with legal interest thereon from the date of filing his complaint, corresponds to the plaintiff. "III.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 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 during 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

plaintiff and he was paid the amount due him under 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 Compaa 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 the 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 eighth 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 defendant corporation was organized in 1921 for the purpose of importing and selling general merchandise, including fertilizers and fertilizer ingredients. It acquired 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 by 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 MenziBordman 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 that he did not have the money to buy the ingredients to fill the order and carry 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., Inc., 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: Interim 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 utilidades que se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, as como de cuantos contratos se cierren con compradores de abonos preparados antes de la formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para garanta 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 charged 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 on April 27, 1922 entered into 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 charged 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 of tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other countries. This contract is referred to in the record as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff large sums of money for buying and installing machinery, 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:

1922P1,874.73 192330,212.62 1924101,081.56 192535,665.03 192627,649.98

TotalP196,483.92

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, and pay the debts of the business. The accountants 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 the 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 andMenzi & 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 assignments 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 the plaintiff by the contract, Exhibit A, was not that of partners, but that of employer and employee, whereby 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 onehalf 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 advance 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 is 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 shall 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 expense rejected by the trial judge, they were in our opinion proper charges and erroneously disallowed, and this would be 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:
"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 of 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 forMenzi & 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 of 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 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 same of Menzi & Co., Inc., and inMenzi & 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 trademarks 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 trademarks 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, s 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 or June 17, 1927, without a special finding as to costs.

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

Manuel Polido and Pedro V. Jimenez for appellant. Lutero & Lutero and Ramon Maza for appellees.
SYLLABUS 1.PARTNERSHIP; PROOF OF EXISTENCE OF CONTRACT; FAILURE TO OBJECT. 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. 2.ID.; CIVIL PARTNERSHIP; FORM OF CONTRACT. "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." (Article 1667, Civil Code.) 3.ID.; ID.; ID. "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. De la Rosa, 1 Phil., 671.)" (4 Phil. Digest, 3468.)

DECISION GODDARD, J :
p

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 bagus 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 bagus", 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 plaintiffs 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 bagus".

At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of 975,000 "semillas de bagus" 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. De la 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 bagus 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 bagus 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.

EN BANC
[G.R. No. L-24193. June 28, 1968.] MAURICIO AGAD, plaintiffappellant, vs. SEVERINO MABATO & MABATO & AGAD COMP ANY, defendants-appellees.

Angeles, Maskario & Associates for plaintiff-appellant. Victorio S. Advincula for defendants-appellees.
SYLLABUS 1.CIVIL LAW; PARTNERSHIP; PURPOSE TO "OPERATE A FISHPOND"; APPLICABILITY OF ART. 1773 N.C.C. Where a partnership was formed "to operate a fishpond", not to "engage in a fishpond business", and the partners contributed P1,000.00 each as their share, Art. 1773 of the Civil Code does not apply, it appearing that neither a fishpond nor a real right thereto was contributed to the partnership or become a part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets. DECISION CONCEPCION, J :
p

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 "tooperate 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 the 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.

FIRST DIVISION
[G.R. No. L-3186. March 7, 1907.] THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED MEN, plaintiff-appellee, vs.

THE VETERAN ARMY OF THE PHILIPPINES, defendantappellant.

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 :
p

Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows:
"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."

Article 5 provides that:

"This association shall be composed of "(a)A department. "(b)Two or more posts."

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 theVeteran 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 RedMen, 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:
"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."

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 theVeteran Army of the Philippines. Article 1695 of the Civil Code provides as follows:
"Should no agreement have been made with regard to the form of management, the following rules shall be observed: "1All 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."

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.

FIRST DIVISION
[G.R. No. L-12371. March 23, 1918.] LEOPOLDO CRIADO, plaintiff-appellant, vs. GUTIRREZ HERMANOS, defendant-appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant. C.W. O'Brien for defendant-appellant.
SYLLABUS 1.PARTNERSHIP; LIMITATION OF ACTIONS; RECOVERY OF PROFITS ON PARTNERSHIP CONTRACT. The period of time fixed for the prescription of an action brought for the purpose of demanding from a mercantile firm a certain sum as the profits of its business, by reason of a partnership contract that produces between the partners reciprocal rights and obligations is that of ten years as fixed in section 43 No. 1 of the Code of Civil Procedure. 2.ID.; DETERMINATION OF INTEREST OF INDUSTRIAL PARTNERS; LIABILITY FOR LOSSES. Pursuant to the pertain to the industrial, in order to determine the profits that pertain to the industrial partner entitled to share in the profits but no obliged to guarantee the firm's losses, all the various profits produced by the firm's business and transactions must be added together, from which sum must be deducted the firm's losses, if the profits are greater than the losses, and the difference is the net profit in which the industrial partner shares; but if, on the contrary, the losses are greater than the profits, according to the articles of partnership, the industrial partner should not be liable for the resultant balance which constitute a real failure for the firm.

3.ID.; TERMINATION OF EXISTENCE; SIGNING OF ARTICLES OF RECONSTITUTED PARTNERSHIP BY INDUSTRIAL PARTNER AS CAPITALIST DOES NOT AMOUNT TO RENUNCIATION OF INTEREST IN FORMER FIRM. When in a mercantile partnership, at the expiration of the term of its existence and upon its reorganization for the continuance of its business, an industrial partner becomes a capitalist partner by bringing in a certain determine amount of assets-in the new articles of partnership no mention being made of any larger amount which constitutes the remainder of his aliquot part of the total assets of the extinct partnership of which he was a mere industrial partner, nor of the condonation or waiver of any other sum whatever which might pertain to him from the previous extinct partnership-it is not proper to hold that such partner was in estoppel and lost his right to collect the remainder of his assets in the previous partnership by having joined the new partnership wherein he appears as a capitalist partner who has brought a fixed sum to the assets of the new partnership, as it would not be just that the deprived of what belongs to him, nor that his copartners in the previous extinct partnership should, without any equitable reason and to the grave detriment of his interest, benefit by such misappropriation. 4.ID.; ID.; PARTNER NOT OBLIGED TO BE LIQUIDATOR. The partner who is not the administrator of a general or a limited partnership is not obliged to discharge the duties of a liquidator of the partnership to which he belongs. (Arts. 170-174, 228 and 229, Code of Commerce.) DECISION TORRES, J :
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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. P54.296.62. 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 his 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 t 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 the court sentenced the defendant, the firm of Gutierrez Hermanos, to pay the several sums specified in the fifth, sixth, seventh, eight, 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 new 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 GutierrezHermanos 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, the defendant presented an account (record, pp. 103-124) certified by the bookkeeper of the firm ofGutierrez Hermanos 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 a true liquidation of plaintiff's said share of the capital stock of the firm of Gutierrez Hermanos, since 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 again assailed

them in their totality on the grounds that some of the entries thereof were improper, others 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 might within a period of 30 days. Despite the motion made by defendant's 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 an 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 this 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 had 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. To this both parties excepted and moved for a new trial. This motion was denied, exception was taken, and, upon receipt of the proper bill of exceptions, both appeals were forwarded 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, eight, 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 complaint and assailed by defendant and also the cross-complaint filed by the latter in its answer. The first cause of action consists in the obligation assumed by Miguel Alonzo, formerly one of the general partners and the manager of the firm of GutierrezHermanos, to pay to the plaintiff Leopoldo Criado the sum of P1,100 by reason of the contract of loan of said sum executed by Alonzo in behalf of Criado, and to prevent plaintiff from suing for the recovery of that 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 Criado to refrain from suing for the recovery of his credit 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 Alonzo, was a partner in the firm ofGutierrez Hermanos and had a share in the firm's assets. But the fact is that from 1889, when 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 Alonzo certainly and positively left this debt an that order to avoid judicial proceedings on the part of the creditor, Miguel Gutierrez de Celis subrogated and put himself in the place of debtor, binding himself to pay said amount to plaintiff, yet, in view of the fact that said loan we 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, through its manager assumed the obligation to reimburse 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 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 Alonzo 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." "Eight.All earnings or profits that may be obtained shall be distributed among the partners in the following proportion: 37 per cent to Don MiguelGutierrez de Celis; 16 per cent to Don Miguel Alonzo 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 Alonzo 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 plaintiff before or after said liquidation, but on the 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 not proper to assert that the action brought by plaintiff has for its object the recovery of personal property, or to demand damages for fraud, and therefore the period for prescription is not the four years fixed by section 43, paragraph 3, of the Code of Civil Procedure, but that of ten years, as provided in paragraph 1 of

said section, inasmuch 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 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 to 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, it appears that the firm's capital stock amounted to P1,605,479.30, of which the sum of P25,129.09 belonged to Leopoldo Criado, as the capital brought by him into the new firm. 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 managerGutierrez 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 years 1902 and 1903; that in fact Fortiz did bring 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 Alonzo that the losses reported in hi 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 the 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 . . . an 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 Alonzo, former manager 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 certainly of the protest made by plaintiff and the repeated promises of payment by Miguel Gutierrez de Celis, Attorney EduardoGutierrez Repide was called as a 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 Gutierrez 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 LeopoldoCriado 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 his capital stock, on which occasion the

notary Barrera was there waiting; that then Gutierrez 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 manager; 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, if cannot be held that plaintiff was 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, P25,129.09, nor many it be said that he was not entitled to claim the rest of his assets in the firm during the first period form 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 a 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 upon 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 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 eight 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 streamers, and reductions in the capital stock belonging to the partners, and 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, but is not liable for the losses, all the various 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 there are greater than the losses-the industrial partners, 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, 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 by 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 of 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 year 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 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 compliant. 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 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 said third cause of action is concerned. In the judgment appealed from , the trial court holds that 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 dismissed with 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 reasons 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 defendantappellant, ordered in the judgment to pay that sum, made an assignment of errors based on the reasons 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 capital was the amount stated, before the annotation of the entries assailed as false and fraudulent by plaintiff.

The eight 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:
"Eight.The earnings or profits which may 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 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 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 preinserted clauses of the partnership contracts it is deduced that the partners should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th clauses; 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, 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, the 1911 inventory. Having examined various documents stating accounts of several kinds relating to the business of the firm of GutierrezHermanos, as those of 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 of slow collection a classification we find very just, since the 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, and amount which may, in justice, be and 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, subtracted from the active capital, shows that the firm's sum, compared with the capital that the defendant firm had no 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 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 is 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, that 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 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 Gutierrez 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 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 the 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 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 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 deduced. 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 defendant should pay plaintiff a compensation proportionate to the profits that might be obtained from the business for 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 partnership, 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 evidence that the benefits on which plaintiff bases the 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 divided obtained in 1911 and corresponding to the shares of stock the defendant held in that 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 divided mentioned, and that plaintiff was entitled to the payment of the 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 share thereof. Defendant denied that it received P11,711.16, but admitted that it did receive P9,032.92, and that of this sum plaintiff should be credited with P935.90. 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 to the account of "Items pending collection" and credited in favor of Movellan and Angulo, of Paris, insurers of the defendant's steamers, P35,334.09 for the premiums on the insurance of said steamers of the year 1912, thereby diminishing the partners' capital; and that of said P35,334.09, he is entitled to 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 premiums 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 appealed he did not appeal, and although the defendant appealed 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, of 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 streamers Montaez 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 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 & 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 the 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 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 & 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, is disclosed by the record, the defendant is indebtedness to plaintiff.

As regard the first question, even supposing that plaintiff 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 partnership by reason of his malice, abuse of powers, or serious negligence, and requires him to indemnity the partnership, should the other partners so require, provided an express or verbal approval or ratification of the act on which the claim is based can not be deduced in any manner whatsoever. According to this legal provision, in order that the partner at fault may be compelled 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 been expressly or impliedly ratified by the other partners or by the manager of the partnership. In the cross-complaint the allegation is made that plaintiff, violating said fifth clause of the articles of partnership, sold and delivered merchandise and other effects to various debtors, such as Antonio de la Riva and Gerena & Co., without the security required in said articles; 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. Plaintiff Leopoldo Criado testified, with respect to Gerena & Co., that subsequent to his arrival in this country, Miguel Gutierrez de Celis continued to maintain commercial relations with said debtor firm, whose debt would have been collected had Gutierrez de Celis followed his (plaintiff's) advice and that of the attorneys of the firm of Gutierrez Hermanos-aside from the fact that the firm of Gerena & Co. was solvent and could pay its debt; so it is that the business ratified plaintiff's procedure during the three months and several days that he acted temporarily; in 1903, as manager of the partnership; and for said reason there is no ground upon which plaintiff may be held liable for the harm occasioned by the non-payment of the debt of Gerena & Co,: and that rather did the liability for such hard fall upon the manager Gutierrez de Celis who conscientiously never believed that plaintiff was solely liable for the loss, for the Entry No. 1889 (Exhibit 10, aforecited) contains the statement that the author of such losses no longer exists, the fault being attributed to the deceased Miguel Alonzo, although MiguelGutierrez de Celis testified (record, p. 557) that he gave his approval to what had been done, without knowing what it was, and that he afterwards saw that it was an error, for it was plaintiff who gave the money to Gerena & Co. 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 was not charged to Leopoldo Criado, neither was a similar charge made in respect to the amount paid to Leopoldo Ferrer of which mention has previously been made herein above. So said Entry No. 1889 of the document Exhibit 10 remained intact. With respect to the account of Antonio de la Riva which shows, as of December 31, 1903, a debit balance of P91,000 and odd pesos, plaintiff testified (record, p. 590) that as security for this debt De la Riva had delivered to the firm of Gutierrez Hermanos a lot of hemp worth P33,218.06, a power of attorney to collect P26,000 from the store "Isla de Cuba" in monthly installments of P2,000, and the insurance policy of the launch Concha, which represented P34,000; whereby the debt was reduced to P12,000, on December 31, 1903. This testimony appears corroborated by the documents and other evidence of record for, with respect to the power of attorney to collect the sum mention 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 bookkeeper, shows that on July 3, August 5, and September 5, 1903, the account of Antonio de la Riva's indebtedness to the partnership was credited with various sums collected from the "Isla de Cuba." With respect to the hemp referred to by witness, the manager himself Miguel Gutierrez de Celis testified (record, p. 565) that upon his arrival in the Philippines, he allowed an increase in De la Riva's debt, by reason of the security of the hemp which this debtor was sending to the firm. With reference to the insurance of the launch Concha, there is no evidence of record in contradiction of the facts, except the testimony of Miguel Gutierrez de Celis in which the latter claims that the launch was purchased by plaintiff in his own name with money belonging to the firm, in order afterwards to sell it to Antonio de la Riva (record, p. 567). The manager De Celis does not deny that the partnership policy on the launch as security, more that De la Riva was the owner of the boat, for, if the launch were sold to De la Riva and the proceeds from the sale were charged to the latter's account, together with the expenses occasioned by the trips made by that boat (Exhibit 5), it is obvious that Antonio de la Riva was the owner of the launch, although he was a debtor to the firm of Gutierrez Hermanos for its price and the expense incurred. Consequently it is indisputable and beyond all doubt that when plaintiff turned over to Miguel 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 fault of Gutierrez de Celis himself; so it is that, in canceling in the books the account of Antonio de la Riva, he divided the amount thereof among all partners, in the belief that it was a loss that affected them all. 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 prosecuted by plaintiff, it is logical that this court should not find any well-founded or legal reason by virtue of which judgment may be rendered against plaintiff for whatever amount he may be owing the defendant firm, inasmuch as the latter is shown to be his debtor. Therefore plaintiff should be absolved from the cross-complaint filed by the defendant. As regards the amount of the collectible accounts and of unpaid credits which total sum is stated in part of this decision relative to the fifth cause of action, it is undeniable that the plaintiff Leopoldo Criado, as a capitalist partner of the partnership organized in May, 1904, is entitled to receive 10 per cent of every sum collected from the date on which he ceased to belong to the firm, January, 1912, and of whatever sum that in the future may be collected from said collectible accounts or unpaid credits, and it is so held, without any liability on his part in relation to the bad or uncollectible credits. Therefore, in view of section 126 of Act No. 190, we reverse that part of the judgment of the court below whereby such liability for 10 per cent is imposed upon the plaintiff. The last error assigned by the defendant to the judgment of the court below relates to the order of September 2, 1915, in which it is held that the accounts presented by the defendants are not in accord with the orders given by the Supreme Court in its previous decision, in so far as it was directed that the firm ofGutierrez Hermanos should render a new account supported by vouchers to determine exactly plaintiff's share in the first's assets. In fact the defendant was ordered immediately to present to the court all its book, vouchers and other documents that might be necessary for the settlement of the assets pertain to plaintiff during the years 1900 to 1911, and to place the same at the disposal of the expert, Wicks, might examine the books and papers of the firm of GutierrezHermanos. This order is perfectly legal and just. It is an interlocutory order of mere procedure, issued in compliance with and in consequence of the decision of this court, to the end 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 suit equitably, in accordance with it true merits and in conformity with the law.

For the foregoing reasons, whereby the errors assigned to the judgment appealed from with respect to the parts thereof discussed in this decision have been refuted, the defendant should be, as it hereby is absolved from the complaint by the first cause of action. By the second cause of action the firm of GutierrezHermanos, the defendant, should be, as it hereby is ordered to pay to the plaintiff Leopoldo Criado the sum of P30,609.60, with legal interest thereon from May 25, 1912, the date of the filing of the complaint. In so far as it is based on the third and the fourth causes of action, said compliant is dismissed. In accordance with the fifth cause of action, the defendant should be, as it hereby is, ordered to pay to plaintiff the sum of P51,296.62 fixed in the judgment appealed from with legal interest thereon from the date when the original complaint was filed, May, 1912, and the plaintiff must pay said sum in the manner prescribed in 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 eight, P52; by the ninth, P935.90; and by the tenth, P1,001.22. The part of the judgment relating to 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 by the 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.

JJ., concur.

Arellano, C.J., Johnson, Araullo, Street, Malcolm, Avancea, and Fisher,

FIRST DIVISION
[G.R. No. L-4281. March 30, 1908.] JOSE GARRIDO, plaintiff-appellant, vs. 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 vs. Gan Aya, 3 Phil. Rep., 684.) 2.ID.; ID.; ADMISSION. Behn Meyer & Co. vs. 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 :
p

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:

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. 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 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 vs. 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., vs. 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.

FIRST DIVISION
[G.R. No. 44119. March 30, 1937.] SHARRUF & CO., known also as SHARRUF & ESKANAZI, SALOMON SHARRUF and ELIAS ESKENAZI, plaintiffsappellees, vs. BALOISEFIRE INSURANCE CO., SUN INSURANCE OFFICE, LTD., and SPRINGFIELD INSURANCE CO., SUN INSURANCE CO., represented by KUENZLE & STREIFF, INC., defendants-appellants.

Carlos A. Sobral for appellants.

Ramon Diokno for appellees.

SYLLABUS 1.FIRE INSURANCE; RIGHTS TO INSURANCE POLICIES OF A FIRM TRANSMITTED TO A NEW ONE SUBSTITUTING IT. 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.ID.; PROOF OF THE CAUSE OF THE FIRE. 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.ID.; FRAUDULENT CLAIMS. 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 fraudulently, and his claim is fraudulent. 4.ID.; ID. 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, statues 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. DECISION VILLA-REAL, J :
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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 plaintiffs Salomon Sharruf and Elias Eskenazi the total amount of P40,000 plus interest thereon at 8 per cent

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 be 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 interests. "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 per 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 assess 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 ofSharruf & Co. On August 15, 1933, the defendant Springfield Insurance 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 that of 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 Exhibits 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 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 spice 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 another earthen pot (Exhibit 16), one-fourth full of water that 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 on the garbage, rages and other things stuffed into the 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 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 stairway; 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 imitation 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 wires in the same attic shown in Exhibit 10; Exhibit 13, presenting a close-up of the wires found in the attic, with an electric bulb hanging from a beam, and the burnt beams; and Exhibit 14, showing Nos. 14 and 18 wire entwined with one another on the first floor, with the burnt posts and partition walls. Electrical Engineer Joseph Mora, who inspected the 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 that 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 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 under the firm 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 he 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 incendiary origin. In maintaining the affirmative, the appellants call attention to the earthen pots Exhibits 15 and 15, the first found by detective Manalo beside the railing of the stairway of the upper floor and the second fund 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 on 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 detective 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 from the strips of China wood of which boxes from abroad are made, the resin of which smells of petroleum, or from the rages found therein which might have been sued 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 cause 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 occurred. 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 fireproof material could not, by the very nature of things have been totally consumer 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 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 value 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 cases kept on the upper and lower floors of the building, in show cases and wardrobes. According to the testimony of the fire station chiefs, corroborated by the photographs of record, the flames cause 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 wart 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 the time of the fire there were about 40 cases inside the burnt building were true, as 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 of 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 proved by a preponderance of evidence that when the fire took place in the total amount of the insurance policies or that the textiles and other damaged and undamaged goods found 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 names 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 fraudulently 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 party burned and wrapping paper and others, statues 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.

JJ., concur.

Avanea, C. J., Abad Santos, Imperial, Diaz, Laurel and Concepcion,

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 & Santiago for plaintiff-appellee. Anacleto D. Badoy, Jr. for defendant-appellant.
SYNOPSIS The defendant company, a general partnership, purchased from Island Sales, Inc. a motor vehicle, executing for that purpose a promissory note for the entire price, payable in twelve monthly installments. Having failed to receive the third installment, Island Sales sued the company, including its general partners as codefendants. On motion of plaintiff, the complaint was later dismissed insofar as one of the partners was concerned. After trial, judgment was entered sentencing the defendant to pay the sum due, with interest, and expressly stating that the four of the five partners would pay in case the company has no properties with which to satisfy judgment. One of the partners appealed claiming that the liability of each partner should not exceed 1/5 of the obligation due inasmuch as there are five partners in the company. The Supreme Court ruled that under Art. 1816 of the Civil Code, the liability of partners shall be pro-rata; that the dismissal of the complaint to favor one of the general partners results in the condonation of the debt of that partner's individual share and that appellant's share in the obligation shall not be increased thereby but shall be limited to 1/5 of the obligation of defendant company. Decision affirmed as clarified. SYLLABUS 1.OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL PARTNERS, PRORATA; CONDONATION OF INDIVIDUAL LIABILITY DOES NOT AFFECT THE OTHER'S SHARE IN THE OBLIGATION. Where there was five general partners

when the promissory note in question executed for and in behalf of the partnership, and the complaint against one of them was dismissed upon motion of the plaintiff, the general partner's share in the obligation remains limited to only 1/5 of the amount due and demandable, their liability being pro-rata. DECISION CONCEPCION, JR., J :
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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-parte 3 , 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 1698 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.

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, vs. 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 :
p

During the Spanish regime the Chinamen Go-Lio and Vicente GoSengco 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 GoLio. 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 19132,979.00 Profits for the year 19143,046.94 Profits for the year 19154,103.07 Profits for the year 19164,736.00 Profits for the year 191710,174.69 Total25,038.70

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 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 commissioner 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 latter commissioner examined all the 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 amount of P89,690.45 in view of which plaintiff had nothing to recover from defendant, as there was no profit to divide. From this decision the plaintiff has appealed in due time and form making the following assignment of errors: (1) The lower court erred in holding that the books were authentic, and in not holding that they were false books exhibited by the defendant about alleged operations in the years 1918 et seq. which show enormous debts and imaginary losses of the business; (2) the lower court erred in giving full credit to the testimony of commissioner Justo Cabo-Chan; (3) the lower court erred in holding that the partnership had incurred debts and suffered losses, as shown in the report of Justo Cabo-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 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 eightyseven centavos (P2,503.87), Philippine currency, as his portion of the profits since the beginning of 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 as to the falsified books of accounts that the defendant had exhibited for proper criminal proceeding. From the evidence it appears that the partnership capital was P4,779.39, and the net profits until the year 1915 amounted to P5,551.40. Because some books of account had been destroyed by white ants (anay), the liquidation of the business of the partnership for the period from 1906 to 1912 could not be made. But knowing the net profit for the period between 1904 and 1905, which is P5,551.40, and 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 between the net profit for 1905, namely, P2,275.70, and the net profit for the said year 1913, namely, P2,979. Said average is the sum of P2,877.35, which may be considered as the average of the net annual profits for the period between 1906 and 1912, which in seven years make a total of P20,141.45. The assets of the partnership, as well as the value of its property, could not be determined when making the liquidation because there was no inventory and for this reason it was not possible to determine the capital of the partnership. The plaintiff, however, seems to be agreeable to considering the initial partnership capital as the capital at the time of the winding up of the business. August 3, 1918, defendant assumed complete responsibility for the business by objecting to the appointment of a receiver as prayed for by the plaintiff, and giving a bond therefor. Until that date his acts were those of a managing partner, binding against the partnership; but thereafter his acts were those of a receiver whose authority is contained in section 175 of the Code of Civil Procedure. A receiver has no right to carry on and conduct a business unless he is authorized or directed by the court to do so, and such authority is not derived from an order of appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the defendant as a receiver was authorized by the court to continue the business of the partnership in liquidation. This being so, he is personally liable for the losses that the business may have sustained. (34 Cyc., 296.) The partnership must not, therefore, be liable for the acts of the defendant in connection with the management of the business until August 3, 1918, the date when he ceased to be a member and manager in order to become receiver. As to the first semester of 1918, during which time the defendant had been 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 partnership4,779.39 Profits until 1905,651.40 Profits 1906-191220,141.4 Profits 1913-191725,038.70 Profits first semester 19186,087.34 Total60,598.28

One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the intestate estate of Go-Lio. In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided by reversing the judgment appealed from, and sentencing the defendant to pay the plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from July 1, 1918, until fully paid, with the costs. So ordered.

EN BANC
[G.R. No. L-11840. December 10, 1963.] ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Norberto J. Quisumbing and Sycip, Salazar & Associates for defendantsappellees.

Jose C. Calayco for plaintiffs-appellants.

SYLLABUS 1.PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF MANAGING PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE PARTNERSHIP. By authorizing the widow of the managing partner to manage partnership property

(which a limited partner could not be authorized to do), the other general partner recognized her as a general partner, and is now in estoppel to deny her position as a general partner, with authority to administer and alienate partnership property. 2.ID.; HEIR OF PARTNER; STATUS ORDINARILY AS LIMITED PARTNER BUT MAY WAIVE IT AND BECOME A GENERAL PARTNER. Although the heir of a partner ordinarily becomes a limited partner for his own protection, yet the heir may disregard it and instead elect to become a collective or general partner, with all the rights and obligations of one. This choice pertains exclusively to the heir, and does not require to assent of the surviving partner. 3.ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH PROPERTY. A third person has the right to presume that a general partner dealing with partnership property has the requisite authority from his co- partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513). 4.ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLE, WHEN CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL PARTNER. Where the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm form part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the ordinary powers of the partner. 5.ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION ON GROUND OF FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR. Appellant's claim that the price was inadequate, relies on the testimony of a realtor, who in 1955, six years after the sale in question, asserted that the land was by then worth double the price for which it was sold. But taking into account the continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to justify rescission of the sale. 6.ID.; ID.; ID.; RELATIONSHIP ALONE IS NO BADGE OF FRAUD. The Supreme Court has ruled that relationship alone is not a badge of fraud (Oria Hnos vs.McMicking, 21 Phil. 243; Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). 7.ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD TO OBTAIN CONSENT. The fraud charged not being one used to obtain a party's

consent to a contract (not being deceit or dolus in contrahendo) it can only be a fraud of creditors that gives rise to a rescission of contract. 8.ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER MEANS TO OBTAIN REPARATION, NECESSARY. 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. Hence, if there is no allegation or evidence that the plaintiff- appellant can not obtain reparation from the widow and heirs of the deceased partner, the suit to rescind the sale in question is not maintainable, even if the fraud charged actually did exist. BAUTISTA ANGELO, J., dissenting: 1.PARTNERSHIP; SALE OF PARTNERSHIP PROPERTY BY WIDOW OF MANAGING PARTNER; NO ESTOPPEL; CASE AT BAR. The sale of the partnership properties by the widow of the managing partner cannot be upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly proven; second, because 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; and third because the defendants were themselves estopped to invoke a defense which they tried to dispute and repudiate. 2.ID.; ID.; ACCEPTANCE OF INHERITANCE BY HEIR DOES NOT MAKE HIM A GENERAL PARTNER; CASE AT BAR. Mere acceptance of the inheritance does not make the heir of a general partner a general partner himself. The heir must declare that he is entering the partnership as a general partner unless the deceased partner had made it an express condition in his will that the requisite of inheritance, in which case acceptance of the inheritance is enough. But in the case at bar, the deceased partner died intestate. 3.ID.; ID.; NECESSITY OF HEIR MAKING A DECLARATION OF HIS CHARACTER AS GENERAL PARTNER. The heir upon entering the partnership must make a declaration of his character, otherwise he should be deemed as having succeeded as limited partner by the mere acceptance of the inheritance. 4.ID.; ID.; ID.; PROHIBITION ON LIMITED PARTNER TO PERFORM ACTS OF ADMINISTRATION. In the absence of declaration of the heir's character of general partner, the peremptory prohibition contained in Article 148 of the Code of Commerce became binding upon such heir and she could not change her status as limited partner by violating its provisions not only under the general

principle that prohibited acts cannot produce any legal effect, but also because Art. 147 of the same Code precludes her from acquiring more rights than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give said heir the character of general partner to authorize her to bind the partnership. 5.ID.; ID.; GENERAL PARTNER CANNOT SELL PARTNERSHIP PROPERTIES WITHOUT AUTHORITY FROM OTHER PARTNERS. Assuming arguendo that the alleged acts of management imputed to the heir of the deceased partner gave her the character of a general partner, still she could not sell the partnership property to pay an obligation of the partnership without authority from the other partners. Such a sale is invalid for being in excess of her authority. RESOLUTION REYES, J.B.L., J :
p

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 buyers Washington Sycip and Betty Lee for the following consideration:
Cash paidP 37,000.00 Debts assumed by purchaser: To Yutivo62,415.91 To Sing Yee Cuan & Co.,54,310.13 TOTALP153,726.04.

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin an, never became more than a limited partner, incapacitated by law to manage the affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she took over 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.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond controversy: (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 of the case was expressly reserved in the main decision of 26 July 1960; (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:
"IV.The object and purpose of the copartnership are as follows: 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.";

(c)That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the partnership had acquired them. With these points firmly in mind, let us turn to the points insisted upon by appellant. It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that
". . . Mr. Yun 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." QSo the answer to my question is you did not take any steps? AI did not.

QAnd this conversation which you had with Mrs. Yu Eng Lai was few months after 1945? AIn the year 1945." (Italics supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-9, wherein he stated:
"that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are receiving quite a lot of benefit from that plantation."

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

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:
"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, Italics supplied)

to which witness gave the following answer:

I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or his family." (Dep., Lim, pp. 13-14. Italics 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 window "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 reform any act of administration with respect to the interest of the co-partnership, not even in the capacity of agents of the managing partners." (Italics 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 hid 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 remembered 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 leave the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation does actually contemplate that the heirs would become general partners rather than limited ones. Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to become general partners against their wishes. But because they are not so

compellable, it does not legitimately follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the start. It is immaterial that the 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 involves 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 se were 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 registry could have warned strangers that they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was not interested (supra), and he did not even take steps to pay, or settle, the firm debts that were overdue since before the outbreak of the last war. He did not even take steps, after Tan sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the management of the partnership. This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties apart from the presumption that a general partner dealing with partnership property has the requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11).

"The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the name of the partnership with the consent of the others, undoubtedly creates an obligation between the two partners, which consists in asking the other's consent before contracting for the partnership.This obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it necessary for the third person to ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural course of business, the consent of his 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). 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). (Italics 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 Montella 1 , in the very passage quoted in the appellant's motion for reconsideration:
"La enjenacion puede entrar en la 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 cuales se ha constituido la Sociedad.Ocurrira una cosa parecida cuando el objecto 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) (Italics 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 powers as general partner. Considerable stress is laid by appellant in the ruling of the Supreme court of Ohio in McGrath, et al. vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the Court expressly found that:
"The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in question, which cover all the tangible property then belonging to the firm, including the counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business, and signed the same in this form: "In witness

whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving partner, of said firm, and Owen McGrath, individually, have 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, theplaintiff 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 mortgages, 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 the, and none of the creditors to whom the mortgages were made had requested security, or were pressing for the payment of their debts. . . . The mortgages appear to be without a sufficient condition of defeasance, and contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they did as soon as the mortgages were filed through the attorney who then represented them, as well as the plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed upon the filing of the petition. The avowed purpose of the plaintiff, in the course pursued by him, was to terminate the known to them at the time; . . ." (Cas cit., p. 343, Italics supplied).

partnership, place its property beyond the control of the firm, and insure the preference of the mortgagees, all of which was

It is natural that from 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 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 points out, as indicia thereof, the allegedly low price paid for the

property, and the relationship between the buyers, the creditors of the partnership, and the widow of Tan Sin An. First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to Sing 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 (due first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadequate, appellant relies on the testimony of the realtor Mata, who in 1955, six years after the sale in question, asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to justify rescission of the sale. If at the time of the sale (1949) the price of P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditor's representative, Yu Khe Thai, had already warned him four years before 91945) 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 either 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 to 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 (Exhibit "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is to the effect that:
"Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed against the decedent as if he were the only debtor,without prejudice to the right of the estate to recover contribution from the other debtor. (Italics supplied).

Secondly, the solidary obligation was guaranteed by a mortgage on the

properties of the partnership and those of Tan Sin An personally, and a mortgage 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 all, it can only be a fraud of creditors that gives rise to a rescission of the offending contract. But 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., did not take 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 by Kong Chai Pin of three parcels of land to Washington 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 predicated. 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 originally invested, financing the balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de

Construccion Prestamos" in the among 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. Sometime 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 Zuo, to ask Goquiolay to execute in her favor a power of attorney. Goquiolay refused both to sell his interest in the partnership as well as to execute the power of attorney. Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co. and Sing, Yee 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 predicated 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 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. Sycip subsequently executed a deed of sale of the same properties in favor of their codefendant 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 Goquiolay 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, she was therefore authorized to sell 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 facts 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 basis 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; (2) the alleged acts of management, even if proven, could not give Kong Chai Pin the character of general manager for the same is contrary to law and well- known authorities; (3) even if Kong Chai Pin acted as general manager she has 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 "not 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 respect: "the properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and the family of Kong Chai Pin did not receive any 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 livelihood, because, according to the information given him by Hernando Young, which he assumed to be true, Kong Chai Ping 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. Zuo, brought with him to his house in 1948. He said:
". . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked me if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is the use of executing a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that plantation for agricultural 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 h is 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. Zuo, 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 resum, 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 her the character of general manager of the partnership 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 make 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. 1 But 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 heir, upon entering the partnership, must make a declaration of his character, 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 148 2 of the Code of Commerce became binding upon her and as a result she could not change her status by violating its provisions not only under the general principle that prohibited acts cannot produce any legal effect, but also because under the provisions of Article 147 3 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 authorize 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 copartnership 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 copartnership 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 wellknown authorities, the relationship between a managing partner and the partnership is substantially the same as that of the agent and his principal, 4 the 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 administration, 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 told 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 affected not to promote any avowed object of the partnership. 6 Rather, the sale was effected 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 en las facultades del gerente, cuando es conforme a los fines sociales. Pero esta facultad de enajenar limitada a las ventasconforme 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. Por el contrario el

gerente no tiene attribuciones para vender las instalaciones del comercio, ni la fabrica, ni las maquinarias, vehiculos de trasporte, etc. que forman parte de la explotacion social. En todos estas
casos, egualmente que sisse tratase de la venta de una marca o procedimiento mecanico o quimico, etc., siendo actos de supplied)

disposicion, seria necesario contar con la conformidad expresa de todos los socios." (R. Gay de Montella, id., pp. 223-224; Italics
"Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los sealados 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 acuerdoes 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 otra; 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.; Italics 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 extra-ordinary 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 or 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 all of its effects, including those employed as the means of carrying on its business, the object and effect of 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; Italics 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 being in excess of her authority. 4.Finally, the sale under consideration was affected 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 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 granddaughter 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 sale and have been counsel for the Yutivo interests; Dalton Chen, a brother-inlaw 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 Goquiolay from their plan, and this is evident from the following sequence of events:
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.