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Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.
D E C I S I O N
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision
1
of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution
2
of the
CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials
and pipe products. Its manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters. The properties, located in Mandaluyong City,
Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119,
451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust
Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by
Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the
laws of Belgium.
3
Jack Glanville, an Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of the
eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so
that the properties could be offered for sale to prospective buyers. Glanville later showed
the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and that
the terms of the sale were subject to negotiation.
4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer
and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to
the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex
to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation."
5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua,
Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a
Letter dated February 26, 1987, confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm full
payment within 90 days after execution and preparation of all documents of sale, together
with the necessary governmental clearances.
6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank &
Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he
had met with the buyer, which had given him the impression that "he is prepared to press
for a satisfactory conclusion to the sale."
8
He also emphasized to Delsaux that the buyers
were concerned because they would incur expenses in bank commitment fees as a
consequence of prolonged period of inaction.
9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
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followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
his principal to inform Marquez that "the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is situated."
10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional
Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the] new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.
x x x
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)
11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding
payment for damages they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC
(now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company,
and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant
EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V.
Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares of stocks and were the
controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine
courts; the Board and stockholders of EC never approved any resolution to sell subject
properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986
of Jack Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.
12
The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack
of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of merit.
13

The trial court declared that since the authority of the agents/realtors was not in writing, the
sale is void and not merely unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any retroactive effect. Plaintiffs
could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out that the supposed sale involves
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substantially all the assets of defendant EC which would result in the eventual total
cessation of its operation.
14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution of
the board of directors."
15
They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy
and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporations assets, it
would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC.
16
The
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code,
he needed a special authority from ECs board of directors to bind such corporation to the
sale of its properties. Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was
not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT
BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER
TO SELL THE SAID PROPERTIES.
17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of
sale of the parcels of land and the improvements thereon for "US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they
had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors
of EC for Marquez to validly act as broker/middleman/intermediary. As broker, Marquez
was not an ordinary agent because his authority was of a special and limited character in
most respects. His only job as a broker was to look for a buyer and to bring together the
parties to the transaction. He was not authorized to sell the properties or to make a binding
contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code
does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows
that Glanville, who was the President and General Manager of respondent EC, and
Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by respondent EC to hold
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themselves out in the public as having the power to sell the subject properties. Petitioners
identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as
evidenced by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT
ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact
that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.
18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by
respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the properties
in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX
19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux
were knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual,
hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of
respondent EC and its Board of Directors to offer the properties for sale to the petitioners,
or to any other person or entity for that matter. They assert that the decision and resolution
of the CA are in accord with law and the evidence on record, and should be affirmed in
toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan on June
1, 1997. Given the significance of their positions and their duties in respondent EC at the
time of the transaction, and the fact that respondent ESAC owns 90% of the shares of
stock of respondent EC, a formal resolution of the Board of Directors would be a mere
ceremonial formality. What is important, petitioners maintain, is that Marquez was able to
communicate the offer of respondent EC and the petitioners acceptance thereof. There
was no time that they acted without the knowledge of respondents. In fact, respondent EC
never repudiated the acts of Glanville, Marquez and Delsaux.
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The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by
petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their authority as agents, is a question of fact.
In the absence of express written terms creating the relationship of an agency, the
existence of an agency is a fact question.
20
Whether an agency by estoppel was created or
whether a person acted within the bounds of his apparent authority, and whether the
principal is estopped to deny the apparent authority of its agent are, likewise, questions of
fact to be resolved on the basis of the evidence on record.
21
The findings of the trial court
on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence that
the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances
of substance which, if considered, would warrant a modification or reversal of the outcome
of the case.
22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the
Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess
the evidence on record, whether testimonial and documentary. There are, however,
recognized exceptions where the Court may delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.
23

We have reviewed the records thoroughly and find that the petitioners failed to establish
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer
the properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear, certain
and specific proof.
24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the board
of directors or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter.
25
It may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.
26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
x x x x
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of a lawful business of the corporation may
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reasonably and necessarily require, subject to the limitations prescribed by the law and the
Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the board of
directors.
27
Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.
28
Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such
director, are not binding on the corporation.
29

While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.
30
An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies the same expressly or impliedly by
its board of directors. Any sale of real property of a corporation by a person purporting to
be an agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of
his/her authority.
31

By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of the
latter.
32
Consent of both principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in words
or conduct between them.
33

An agency may be expressed or implied from the act of the principal, from his silence or
lack of action, or his failure to repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.
34
Agency may be oral unless the law requires a specific form.
35
However, to
create or convey real rights over immovable property, a special power of attorney is
necessary.
36
Thus, when a sale of a piece of land or any portion thereof is through an
agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.
37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution
of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as
its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC,
on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,
38
the Board of Directors of respondent ESAC,
39
and the Belgian/Swiss
component of the management of respondent ESAC.
40
As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for
sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations.
When petitioners offered to purchase the property for P20,000,000.00, through Marquez,
the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners offer. However, as admitted by
petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of
Glanville because Delsaux had to wait for confirmation from respondent ESAC.
41
When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based
on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final liquidation.
42
The offer of
Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management
or Board of Directors of respondent ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was not a party to the transaction
between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams
and Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90%
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of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a
majority of the shares of stocks of another, or even all of such shares of stocks, taken
alone, will not justify their being treated as one corporation.
43

It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court.
44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale
and to sell the said properties to the petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the agents; statements as to the
extent of his powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope of his
authority.
45
The settled rule is that, persons dealing with an assumed agent are bound at
their peril, and if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to prove it.
46
In this case, the petitioners failed to discharge their
burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as
their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had accepted such offer to sell
the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A
real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell.
47

Equally barren of merit is petitioners contention that respondent EC is estopped to deny
the existence of a principal-agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established: (1) the principal manifested
a representation of the agents authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3) relying
upon such representation, such third person has changed his position to his
detriment.
48
An agency by estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.
49
Such proof is lacking in this case.
In their communications to the petitioners, Glanville and Delsaux positively and
unequivocally declared that they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the Board of
Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.













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Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision
1
of the Court of Appeals, dated
November 29, 1990, which reversed the decision of the Regional Trial Court, Branch 273,
Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed the petition for
declaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de
Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina,
Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband,
and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of
Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by the FIRST PARTY conveying
the property to the SECOND PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase
the said property within a period of ninety (90) days from the execution of this
memorandum of agreement effective April 18, 1991, for the amount of TWO HUNDRED
THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said
property within a period of ninety (90) days, the FIRST PARTY is obliged to deliver
peacefully the possession of the property to the SECOND PARTY within fifteen (15) days
after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor shall be cause the annotation of say claim
at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against any
party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the account
of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the principal
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and
for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within
ninety (90) days period above-mentioned, this memorandum of agreement shall be
deemed cancelled and the Deed of Absolute Sale, executed by the parties shall be the
final contract considered as entered between the parties and the SECOND PARTY shall
proceed to transfer ownership of the property above described to its name free from lines
and encumbrances.
2

On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale,
3
dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by petitioner,
for P200,000,00. In a special power of attorney dated the same day, April 18, 1991, private
respondent authorized petitioner to cause the cancellation of TCT No. 195101 and the
issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event
she failed to redeem the subject property as provided in the Memorandum of Agreement.
4

9 | P a g e

Private respondent failed to redeem the property within the 90-day period as provided in
the Memorandum of Agreement. Hence, pursuant to the special power of attorney
mentioned above, petitioner caused the cancellation of TCT No. 195101 and the issuance
of a new certificate of title in the name of A.C. Aguila and Sons, Co.
5

Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C.
Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises
within 15 days after receipt of the letter and surrender its possession peacefully to A.C.
Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in court.
6

Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons,
Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court
ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not
redeem the subject property before the expiration of the 90-day period provided in the
Memorandum of Agreement. Private respondent appealed first to the Regional Trial Court,
Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to this Court, but
she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with the
Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She
alleged that the signature of her husband on the deed of sale was a forgery because he
was already dead when the deed was supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification
against petitioner with the Office of the Prosecutor of Quezon City which was dismissed in
a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because they could
not personally appear before Notary Public Lamberto C. Nanquil on June 11, 1991
because her husband, Ruben Abrogar, died on May 8, 1991 or one month and 2 days
before the execution of the Deed of Absolute Sale, while the plaintiff was still in the Quezon
City Medical Center recuperating from wounds which she suffered at the same vehicular
accident on May 8, 1991, cannot be sustained. The Court is convinced that the three
required documents, to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties on the same date
on April 18, 1991. It is a common and accepted business practice of those engaged in
money lending to prepare an undated absolute deed of sale in loans of money secured by
real estate for various reasons, foremost of which is the evasion of taxes and surcharges.
The plaintiff never questioned receiving the sum of P200,000.00 representing her loan from
the defendant. Common sense dictates that an established lending and realty firm like the
Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who are
virtual strangers to it, without the simultaneous accomplishment and signing of all the
required documents, more particularly the Deed of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED
DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New Civil
Code finds strong application in the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the residential
house of plaintiff-appellant stands. The property is inside a subdivision/village. The
property is situated in Marikina which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per
square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-
appellant is obliged to deliver peacefully the possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration of the said ninety (90) day grace period.
Otherwise stated, plaintiff-appellant is to retain physical possession of the thing allegedly
sold.
In fact, plaintiff-appellant retained possession of the property "sold" as if they were still the
absolute owners. There was no provision for maintenance or expenses, much less for
payment of rent.
10 | P a g e

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property "sold". It is well-known that payment of taxes accompanied by actual possession
of the land covered by the tax declaration, constitute evidence of great weight that a
person under whose name the real taxes were declared has a claim of right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602 of the
New Civil Code is sufficient to declare a contract of sale with right to repurchase an
equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued paying the
realty taxes over the subject property, (circumstances mentioned in par. (1) (2) and (5) of
Article 1602 of the New Civil Code), it must be conclusively presumed that the transaction
the parties actually entered into is an equitable mortgage, not a sale with right to
repurchase. The factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable
mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by
reason of the loan extended by defendant-appellee to plaintiff-appellant. The amount of
loan being the same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt, now deemed to be
repurchase price: the transaction shall then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum
commissorium which is clearly prohibited by Article 2088 of the New Civil Code. Article
2088 of the New Civil Code reads:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged
by way of security for the payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged and
mortgaged in the event of non-payment of the principal obligation within the stipulated
period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period within which plaintiff-appellant can repurchase
the property. Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the P30,000.00
excess is the interest for the loan extended. Failure of plaintiff-appellee to pay the
P230,000.00 within the ninety (90) days period, the property shall automatically belong to
defendant-appellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so
declare to be invalid, for being violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and
SET ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101
issued in favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in favor of
defendant-appellee pursuant to the questioned Deed of Sale is hereby declared VOID and
is hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is
hereby ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within
ninety (90) days from the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold at public auction to
satisfy the mortgage debt and costs and if there is an excess, the same is to be given to
the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co.,
against which this case should have been brought; (2) the judgment in the ejectment case
is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this case;
and (3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed,
provided that "every action must be prosecuted and defended in the name of the real party
in interest." A real party in interest is one who would be benefited or injured by the
11 | P a g e

judgment, or who is entitled to the avails of the suit.
7
This ruling is now embodied in Rule
3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a
person who is not a real party in interest in the case cannot be executed.
8
Hence, a
complaint filed against such a person should be dismissed for failure to state a cause of
action.
9

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and
distinct from that of each of the partners." The partners cannot be held liable for the
obligations of the partnership unless it is shown that the legal fiction of a different juridical
personality is being used for fraudulent, unfair, or illegal purposes.
10
In this case, private
respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is
being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement
was executed between private respondent, with the consent of her late husband, and A.C.
Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers
or agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint.
11
We cannot
understand why both the Regional Trial Court and the Court of Appeals sidestepped this
issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action
should be prosecuted makes it unnecessary to discuss the other issues raised by him in
this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.
SO ORDERED.




























12 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 143340 August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision
1
of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T.
Chua 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 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 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 and was profitable. Respondent claimed that he could attest to
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.
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 the 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 from and substance
denied the motion to dismiss.
13 | P a g e

On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims,
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 denied the second motion to dismiss for lack of merit.
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.
On September 25, 1995, the trial court terminated the pre-trial conference and set the
hearing of the case of 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 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 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
the 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 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 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;
(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
P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED."
3

14 | P a g e

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the
case to the Court of Appeals.
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 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'' 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 argues that these courts were proscribes 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:
"SEC. 23. Disqualification by reason of death or insanity of adverse party. Parties or
assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
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 of real
rights are contributed thereto, in which case a public instrument shall 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 profits
that must be proven to 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 the 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 to 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 case or persons in whose behalf a case
in 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;
15 | P a g e

4. His testimony refers to any matter of fact of 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 respondents 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
estates 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
facts 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 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.
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
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 respondents 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 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 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,
16 | P a g e

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.1wphi1.nt




































17 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18703 August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,
vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL
BANKING CORPORATION,petitioners-appellants.
Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.
Antonio Sanz for appellee.
ROMUALDEZ, J.:
The record of this proceeding having been transmitted to this court by virtue of an appeal
taken herein, a motion was presented by the appellants praying this court that this case be
considered purely a moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily filed an application for a
judicial decree adjudging itself insolvent, which is just what the herein petitioners and
appellants tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by
the appellants in their motion aforesaid. The question raised in this case is not purely moot
one; the fact that a man was insolvent on a certain day does not justify an inference that he
was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that he was
on a day some time prior thereto. Many contingencies, such as unwise investments, losing
contracts, misfortune, or accident, might happen to reduce a person from a state of
solvency within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge
Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another
to declare it insolvent in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and is,
indebted to the appellants in various sums amounting to not less than P1,000, payable in
the Philippines, which were not paid more than thirty days prior to the date of the filing by
the petitioners of the application for involuntary insolvency now before us. These facts
were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged, that the
members of the aforesaid firm were insolvent at the time the application was filed; and that
was said partners are personally and solidarily liable for the consequence of the
transactions of the partnership, it cannot be adjudged insolvent so long as the partners are
not alleged and proven to be insolvent. From this judgment the petitioners appeal to this
court, on the ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether or not a limited
partnership, such as the appellee, which has failed to pay its obligation with three creditors
for more than thirty days, may be held to have committed an act of insolvency, and thereby
be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a juridical
entity for all intents and purposes, which personality is recognized in all its acts and
contracts (art. 116, Code of Commerce). This being so and the juridical personality of a
limited partnership being different from that of its members, it must, on general principle,
answer for, and suffer, the consequence of its acts as such an entity capable of being the
subject of rights and obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. Failed to pay its obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of
bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and must be adjudged
insolvent. We are not unmindful of the fact that some courts of the United States have held
that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary view. But it
must be borne in mind that under the American common law, partnerships have no juridical
personality independent from that of its members; and if now they have such personality
for the purpose of the insolvency law, it is only by virtue of general law enacted by the
Congress of the United States on July 1, 1898, section 5, paragraph (h), of which reads
thus:
18 | P a g e

In the event of one or more but not all of the members of a partnership being adjudged
bankrupt, the partnership property shall not be administered in bankruptcy, unless by
consent of the partner or partners not adjudged bankrupt; but such partner or partners not
adjudged bankrupt shall settle the partnership business as expeditiously as its nature will
permit, and account for the interest of the partner or partners adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the
limitations prescribed in subsection (h) above set forth gave rise to the conflict noted in
American decisions, as stated in the case of In reSamuels (215 Fed., 845), which mentions
the two apparently conflicting doctrines, citing one from In reBertenshaw (157 Fed., 363),
and the other from Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that contained in section 5 of
said Act of Congress of July 1, 1898, nor any rule similar thereto, and the juridical
personality of limited partnership being recognized by our statutes from their formation in
all their acts and contracts the decision of American courts on this point can have no
application in this jurisdiction, nor we see any reason why these partnerships cannot be
adjudged bankrupt irrespective of the solvency or insolvency of their members, provided
the partnership has, as such, committed some of the acts of insolvency provided in our
law. Under this view it is unnecessary to discuss the other points raised by the parties,
although in the particular case under consideration it can be added that the liability of the
limited partners for the obligations and losses of the partnership is limited to the amounts
paid or promised to be paid into the common fund except when a limited partner should
have included his name or consented to its inclusion in the firm name (arts. 147 and 148,
Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more
than thirty days to pay its obligations to the petitioners the Pacific Commercial Co. the
Asiatic Petroleum Co. and the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners have the
right to a judicial decree declaring the involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited
partnership Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable
for having failed for more than thirty days to meet its obligations with the three petitioners
herein, and it is ordered that this proceeding be remanded to the Court of First Instance of
Manila with instruction to said court to issue the proper decrees under section 24 of Act No.
1956, and proceed therewith until its final disposition.
It is so ordered without special finding as to costs.



















19 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange Commission. The firm
engaged, among other activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership
to Suter and his wife. The sale was duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when
the latter, in an assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered
a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William J.
Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of
Suter and Spirig and their subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction
of juridical personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business; consequently
the income tax return of respondent Suter for the years in question should have included
his and his wife's individual incomes and that of the limited partnership, in accordance with
Section 45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents or
non-residents, only one consolidated return for the taxable year shall be filed by either
spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals
held, that his marriage with limited partner Spirig and their acquisition of Carlson's interests
in the partnership in 1948 is not a ground for dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as contra distinguished from a duly
20 | P a g e

registered general partnership, it is taxable on its income similarly with corporations, Suter
was not bound to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner, William
J. Suter to the originally limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed.,
page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership, because
under the Civil Code, which applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de
Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force
when the subject firm was organized in 1947), a universal partnership requires either that
the object of the association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by their industry or
work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho
Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal,
pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos
inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general
segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por
la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis
en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de
marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage
not being one of the causes provided for that purpose either by the Spanish Civil Code or
the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter
and Julia Spirig were separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and
English law that does not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaias colectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77
Phil. 504) as authority for disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited cases, the corporations
21 | P a g e

were already subject to tax when the fiction of their corporate personality was pierced; in
the present case, to do so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business
purposes; it conducted its own dealings with its customers prior to appellee's marriage, and
had been filing its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a
business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that
income to be included in the individual tax return of respondent Suter is to overstretch the
letter and intent of the law. In fact, it would even conflict with what it specifically provides in
its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise,
of a general copartnership (compaia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its income, but not the
former, because it is in the case of compaias colectivas that the members, and not the
firm, are taxable in their individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively the
income of the spouses and forms part of the conjugal partnership of gains. This is not
wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the appellant's argument
erroneously confines itself to the question of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law taxes the
income of even joint accounts that have no personality of their own.
1
Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it
is not. What is taxable is the "income of both spouses" (Section 45 [d] in their individual
capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the
joint income of husband and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in the business partnership are not
the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a justification for
requiring consolidation; the revenue code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.













22 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG,
MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA,
JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U.
ONG, in his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289,
the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net
Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal
Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by
public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the
amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act
No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
Article III, Section 1 No person shall be deprived of . . . property without due process of
law, nor shall any person be denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93,
argue that public respondents have exceeded their rule-making authority in applying SNIT
to general professional partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in compliance with the
Court's directive, have filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No.
7496, is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income
Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No.
109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29
of the National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal
Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents.
xxx xxx xxx
23 | P a g e

(f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the
Practice of Profession. A tax is hereby imposed upon the taxable net income as
determined in Section 27 received during each taxable year from all sources, other than
income covered by paragraphs (b), (c), (d) and (e) of this section by every individual
whether
a citizen of the Philippines or an alien residing in the Philippines who is self-employed or
practices his profession herein, determined in accordance with the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. In computing taxable income subject to tax
under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions
the items specified in paragraphs (a) to (i) of this section: Provided, however, That in
computing taxable income subject to tax under Section 21 (f) in the case of individuals
engaged in business or practice of profession, only the following direct costs shall be
allowed as deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or pursuant to the
business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for the
rehabilitation of calamity stricken areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans contracted from accredited
financial institutions which must be proven to have been incurred in connection with the
conduct of a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are difficult to determine, a
maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions to
answer for business or professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept petitioner's
view that the amendatory law should be considered as having now adopted
a gross income, instead of as having still retained the netincome, taxation scheme. The
allowance for deductible items, it is true, may have significantly been reduced by the
questioned law in comparison with that which has prevailed prior to the amendment;
limiting, however, allowable deductions from gross income is neither discordant with, nor
opposed to, the net income tax concept. The fact of the matter is still that various
deductions, which are by no means inconsequential, continue to be well provided under
the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-
rolling legislation intended to unite the members of the legislature who favor any one of
unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the
legislature, and (c) to fairly apprise the people, through such publications of its proceedings
as are usually made, of the subjects of legislation.
1
The above objectives of the
fundamental law appear to us to have been sufficiently met. Anything else would be to
require a virtual compendium of the law which could not have been the intendment of the
constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement
that taxation "shall be uniform and equitable" in that the law would now attempt to tax
single proprietorships and professionals differently from the manner it imposes the tax on
corporations and partnerships. The contention clearly forgets, however, that such a system
of income taxation has long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges
24 | P a g e

and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the standards that are used therefor are substantial
and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class (Pepsi Cola vs.
City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the amendatory law is the legislative
intent to increasingly shift the income tax system towards the schedular approach
2
in the
income taxation of individual taxpayers and to maintain, by and large, the present global
treatment
3
on taxable corporations. We certainly do not view this classification to be
arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the
process, what he believes to be an imbalance between the tax liabilities of those covered
by the amendatory law and those who are not. With the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. This court cannot freely delve into those matters
which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust as to amount to confiscation of property,
courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax
cannot override constitutional proscriptions. This stage, however, has not been
demonstrated to have been reached within any appreciable distance in this controversy
before us.
Having arrived at this conclusion, the plea of petitioner to have the law declared
unconstitutional for being violative of due process must perforce fail. The due process
clause may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power. No such transgression is so
evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question of whether
or not public respondents have exceeded their authority in promulgating Section 6,
Revenue Regulations No. 2-93, to carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership The general professional partnership (GPP)
and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining
the net profit of the partnership, only the direct costs mentioned in said law are to be
deducted from partnership income. Also, the expenses paid or incurred by partners in their
individual capacities in the practice of their profession which are not reimbursed or paid by
the partnership but are not considered as direct cost, are not deductible from his gross
income.
The real objection of petitioners is focused on the administrative interpretation of public
respondents that would apply SNIT to partners in general professional partnerships.
Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act
No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the
House of Representatives, in the latter's privilege speech by way of commenting on the
questioned implementing regulation of public respondents following the effectivity of the
law, thusly:
MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do
we speak here of individuals who are earning, I mean, who earn through business
enterprises and therefore, should file an income tax return?
MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies
only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours).
Other deliberations support this position, to wit:
MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this
bill is intended to increase collections as far as individuals are concerned and to make
collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of
the SNITS, it is categorically stated, thus:
This bill, Mr. President, is not applicable to business corporations or to partnerships; it is
only with respect to individuals and professionals. (Emphasis ours)
25 | P a g e

The Court, first of all, should like to correct the apparent misconception that general
professional partnerships are subject to the payment of income tax or that there is a
difference in the tax treatment between individuals engaged in business or in the practice
of their respective professions and partners in general professional partnerships. The fact
of the matter is that a general professional partnership, unlike an ordinary business
partnership (which is treated as a corporation for income tax purposes and so subject to
the corporate income tax), is not itself an income taxpayer. The income tax is imposed not
on the professional partnership, which is tax exempt, but on the partners themselves in
their individual capacity computed on their distributive shares of partnership profits. Section
23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships. (a) Persons
exercising a common profession in general partnership shall be liable for income tax only
in their individual capacity, and the share in the net profits of the general professional
partnership to which any taxable partner would be entitled whether distributed or otherwise,
shall be returned for taxation and the tax paid in accordance with the provisions of this
Title.
(b) In determining his distributive share in the net income of the partnership, each partner

(1) Shall take into account separately his distributive share of the partnership's income,
gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this
Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his
distributive share of the gross income undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a person who
practices his profession alone or individually and one who does it through partnership
(whether registered or not) with others in the exercise of a common profession. Indeed,
outside of the gross compensation income tax and the final tax on passive investment
income, under the present income tax system all individuals deriving income from any
source whatsoever are treated in almost invariably the same manner and under a common
set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider
Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of
legislation. The view can easily become myopic, however, when the law is understood, as
it should be, as only forming part of, and subject to, the whole income tax concept and
precepts long obtaining under the National Internal Revenue Code. To elaborate a little,
the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable income. The law, in levying the tax,
adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that
renders citizens, regardless of residence, and resident aliens subject to income tax liability
on their income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and foreign
corporations to income tax on their income from Philippine sources). In the process, the
Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations,
(3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as
to corpus and as to income).
Partnerships are, under the Code, either "taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to
income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the context of, and so legally
contemplated as, corporations. Except for few variances, such as in the application of the
"constructive receipt rule" in the derivation of income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly
pointed out in the discussions in Congress during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and partnerships which are independently subject to the
payment of income tax.
"Exempt partnerships," upon the other hand, are not similarly identified as corporations nor
even considered as independent taxable entities for income tax purposes. A
general professional partnership is such an example.
4
Here, the partners themselves, not
the partnership (although it is still obligated to file an income tax return [mainly for
administration and data]), are liable for the payment of income tax in
their individual capacity computed on their respective and distributive shares of profits. In
the determination of the tax liability, a partner does so as an individual, and there is no
choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-
through entity in the generation of income by, and the ultimate distribution of such income
to, respectively, each of the individual partners.
26 | P a g e

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above
standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all individual income
taxpayers on their non-compensation income. There is no evident intention of the law,
either before or after the amendatory legislation, to place in an unequal footing or in
significant variance the income tax treatment of professionals who practice their respective
professions individually and of those who do it through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs.
SO ORDERED.




































27 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted
at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18 September 1958, to change
the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS,
SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter
stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of
this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard
to the mechanics of liquidation, and more particularly, my interest in the two floors of this
building. I would like to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter
stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions
of our employees including the assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership,
docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets
plus the profits, rent or interest attributable to the use of his right in the assets of the
dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as maybe proven during the trial and which the Commission may
28 | P a g e

deem just and equitable under the premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may
deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said
law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide
by the provisions of the Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership interest."
1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not
been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of
the respective rights and obligations of the parties.
2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved partnership
and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued
an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new partners,
in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R.
SP No. 24648). He expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should
be to the extent of Attorney Misa's interest or participation in the partnership which could
be computed and paid in the manner stipulated in the partnership agreement; (d) that the
case should be remanded to the SEC Hearing Officer for the corresponding determination
of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito,
Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition of
partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa
& Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need
not be unduly belabored. We quote, with approval, like did the appellate court, the findings
and disquisition of respondent SEC on this matter; viz:
29 | P a g e

The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon
the death or legal incapacity of one of the partners, shall be continued by the surviving
partners."
The hearing officer however opined that the partnership is one for a specific undertaking
and hence not a partnership at will, citing paragraph 2 of the Amended Articles of
Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities
with respect to their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would therefore be no need to
provide for articles on partnership at will as none would so exist. Apparently what the law
contemplates, is a specific undertaking or "project" which has a definite or definable period
of completion.
3

The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one
of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership
4
but that it can result in a liability for damages.
5

In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act
or will of a partner.
6
Among partners,
7
mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business.
8
Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.
9

The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code;
10
however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership
shall be liquidated and paid in accordance with the existing agreements and his
partnership participation shall revert to the Senior Partners for allocation as the Senior
Partners may determine; provided, however, that with respect to the two (2) floors of office
condominium which the partnership is now acquiring, consisting of the 5th and the 6th
floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their
true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the)
retiring partner or the heirs of a deceased partner, as the case may be. In the event of any
disagreement between the said appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the
valuation above mentioned which shall be paid monthly within the first ten (10) days of
every month in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the
new Junior Partner.
11

The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
30 | P a g e

faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will.
12
Indeed, for as long as the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage
upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.




































31 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of
First Instance of Davao, we are called upon to determine the applicability of Article 1773 of
our Civil Code to the contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public instrument
dated August 29, 1952, copy of which is attached to the complaint as Annex "A"
partners in a fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who
handled the partnership funds, had yearly rendered accounts of the operations of the
partnership; and that, despite repeated demands, Mabato had failed and refused to render
accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and
Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing
Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership
for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the
dissolution of the partnership, as well as the winding up of its affairs by a receiver to be
appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the
existence of said partnership, upon the ground that the contract therefor had not been
perfected, despite the execution of Annex "A", because Agad had allegedly failed to give
his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the
complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states
no cause of action and that the lower court had no jurisdiction over the subject matter of
the case, because it involves principally the determination of rights over public lands. After
due hearing, the court issued the order appealed from, granting the motion to dismiss the
complaint for failure to state a cause of action. This conclusion was predicated upon the
theory that the contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of
our Civil Code, because an inventory of the fishpond referred in said instrument had not
been attached thereto. A reconsideration of this order having been denied, Agad brought
the matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where immovable property
or real rights are contributed thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if inventory of said property is not made, signed by the parties; and attached to the
public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower
court held that the answer should be in the affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond business could exist without said fishpond
property (being) contributed to the partnership." It should be noted, however, that, as
stated in Annex "A" the partnership was established "to operate a fishpond", not to "engage
in a fishpond business". Moreover, none of the partners contributed either a fishpond or a
real right to any fishpond. Their contributions were limited to the sum of P1,000 each.
Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.
x x x x x x x x x
32 | P a g e

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.






































33 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 105836 March 7, 1994
SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners,
vs.
THE HON. COURT OF APPEALS and CITYTRUST BANKING
CORPORATION, respondents.
Gonzales, Batiller, Bilog & Associates for petitioners.
Agcaoli & Associates for private respondent.

REGALADO, J.:
Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron
gasoline station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong,
Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil
Corporation on cash on delivery (COD) basis. Orders for bulk fuel and other related
products were made by telephone and payments were effected by personal checks upon
delivery.
1

Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7)
and two savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard
branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it
considered as valued clients, the bank allowed them to maintain a zero balance in their
current account. Transfers from Saving Account No. 1037002387 to their current account
could be made only with their prior authorization, but they gave written authority to Citytrust
to automatically transfer funds from their Savings Account No. 1037001372 to their Current
Account No. 37-00066-7 at any time whenever the funds in their current account were
insufficient to meet withdrawals from said current account. Such arrangement for automatic
transfer of funds was called a pre-authorized transfer (PAT) agreement.
2

The PAT letter-agreement entered into by the parties on March 19, 1982 contained the
following provisions:
xxx xxx xxx
1. The transfer may be effected on the day following the overdrawing of the current
account, but the check/s would be honored if the savings account has sufficient balance to
cover the overdraft.
2. The regular charges on overdraft, and activity fees will be imposed by the Bank.
3. This is merely an accommodation on our part and we have the right, at all times and for
any reasonwhatsoever, to refuse to effect transfer of funds at our sole and absolute option
and discretion, reserving our right to terminate this arrangement at any time without written
notice to you.
4. You hold CITYTRUST free and harmless for any and all omissions or oversight in
executing this automatic transfer of funds; . . .
3

xxx xxx xxx
On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No.
041960) for P50,576.00 payable to Petrophil
Corporation.
4
The next day, December 13, 1983, petitioners, again through Librada Moran,
issued another check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the
same corporation.
5
The total sum of the two checks was P106,666.00.
On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to
its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting
bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine
Clearing House Corporation in the afternoon of the same day. The records show that on
December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings
Account No. 1037001372 (covered by the PAT) had an available balance of
P26,104.30
6
and Savings Account No. 1037002387 had an available balance of
P43,268.39.
7

At about ten o'clock in the morning of the following day, December 15, 1983, petitioner
George Moran went to the bank, as was his regular practice, to personally oversee their
daily transactions with the bank. He deposited in their Savings Account No. 1037002387
34 | P a g e

the amounts of P10,874.58 and P6,754.25,
8
and he likewise deposited in their Savings
Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00.
9
The amount
of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their
current account by means of a pro forma withdrawal form (a debit memorandum), which
was provided by the bank, authorizing the latter to make the necessary transfer. At the
same time, the amount of P66,666.00 was transferred from Savings Account No.
1037001372 to the same current account through the pre-authorized transfer (PAT)
agreement.
10

Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada,
that Petrophil refused to deliver their orders on a credit basis because the two checks they
had previously issued were dishonored upon presentment for payment. Apparently, the
bank dishonored the checks due to "insufficiency of funds."
11
The non-delivery of gasoline
forced petitioners to temporarily stop business operations, allegedly causing them to suffer
loss of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them
to pay for their purchases in cash.
12
George Moran, furious and upset, demanded an
explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he
talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo,
the customer service officer, had committed a "grave error".
13

On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of
the petitioners on an application for a manager's check so that the dishonored checks
could be redeemed. Diaz then went to Petrophil to personally present the checks in
payment for the two dishonored checks.
14

In a chance meeting around May or June, 1984, George Moran learned from one
Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust,
through Diaz, a letter dated December 16, 1983, notifying them that the two
aforementioned checks were "inadvertently dishonored . . . due to operational error." Said
letter was received by Petrophil on January 4, 1984.
15

On July 24, 1984, or a little over six months after the incident, petitioners, through counsel,
wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched
business and personal reputation, shame and anxiety, hence they were contemplating the
filing of the necessary legal actions unless the bank issued a certification clearing their
name and paid them P1,000,000.00 as moral damages.
16

The bank did not act favorably on their demands, hence petitioners filed a complaint for
damages on September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro
Manila, which was docketed therein as Civil Case No. 51549. In turn, Citytrust filed a
counterclaim for damages, alleging that the case filed against it was unfounded and unjust.
After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both
the complaint and the counterclaim.
17
On appeal, the Court of Appeals rendered judgment
in CA-G.R. CV No. 25009 on October 9, 1989 affirming the decision of the trial court.
18

We start some basic and accepted rules, statutory and doctrinal. A check is a bill of
exchange drawn on a bank payable on demand.
19
Thus, a check is a written order
addressed to a bank or persons carrying on the business of banking, by a party having
money in their hands, requesting them to pay on presentment, to a person named therein
or to bearer or order, a named sum of money.
20

Fixed savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan.
21
In other words, the relationship
between the bank and the depositor is that of a debtor and creditor.
22
By virtue of the
contract of deposit between the banker and its depositor, the banker agrees to pay checks
drawn by the depositor provided that said depositor has money in the hands of the bank.
23

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to
the extent of the amount of his deposits. The failure of a bank to pay the check of a
merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial
damages without any proof of actual
damages.
24

Conversely, a bank is not liable for its refusal to pay a check on account of insufficient
funds, notwithstanding the fact that a deposit may be made later in the day.
25
Before a
bank depositor may maintain a suit to recover a specific amount from his bank, he must
first show that he had on deposit sufficient funds to meet his demand.
26

The present action for damages accordingly hinges on the resolution of the inquiry as to
whether or not petitioners had sufficient funds in their accounts when the bank dishonored
the checks in question. In view of the factual findings of the two lower courts the
correctness of which are challenged by what appear to be plausible, arguments, we feel
that the same should properly be resolved by us. This would necessarily require us to
35 | P a g e

inquire into both the savings and current accounts of petitioners in relation to the PAT
arrangement.
On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection,
the available balance for Savings Account No. 1037001372 was P26,104.30 while Current
Account No. 37-00066-7 expectedly had a zero balance. On December 15, 1983, at
approximately ten o'clock in the morning, petitioners, through George Moran, learned that
P66,666.00 from Saving Account No. 1037001372 was transferred to their current account.
Another P40,000.00 was transferred from Saving Accounts No. 1037002387 to the current
account. Considering that the transfers were by then sufficient to cover the two checks, it is
asserted by petitioners that such fact should have prevented the dishonor of the checks. It
appears, however, that it was not so.
As explained by respondent court in its decision, Gerard E. Rionisto, head of the
centralized clearing unit of Citytrust, detailed on the witness stand the standard clearing
procedure adopted by respondent bank and the Philippine Clearing House Corporation, to
wit:.
Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs.
Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation were
drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks were
made payable to Petrophil Corporation. On record, Petrophil Corporation presented these
two (2) checks for clearing with PNB Pandacan Branch on December 14, 1983. Now in
accordance with the bank, what would happen with these checks drawn with (sic) PNB on
December 14, 1983?.
A: So these checks will now be presented by PNB with the Philippine Clearing House on
December 14, and then the Philippine Clearing House will process it until midnight of
December 14. Citytrust will send a clearing representative to the Philippine Clearing House
at around 2:00 o'clock in the morning of December 15 and then get the checks. The checks
will now be processed at the Citytrust Computer at around 3:00 o'clock in the morning of
December 14 (sic)but it will be processed for balance of Citytrust as of December 14
because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing
house rules, we are supposed to process it on the date it was presented for clearing. (tsn,
September 9, 1988, pp. 9-10).
27

Considering the clearing process adopted, as explained in the aforequoted testimony, it is
clear that the available balance on December 14, 1983 was used by the bank in
determining whether or not there was sufficient cash deposited to fund the two checks,
although what was stamped on the dorsal side of the two checks in question was
"DAIF/12-15-83," since December 15, 1983 was the actual date when the checks were
processed. As earlier stated, when petitioners' checks were dishonored due to insufficiency
of funds, the available balance of Savings Account No. 1037001372, which was the subject
of the PAT agreement, was not enough to cover either of the two checks. On December
14, 1983, when PNB, Pandacan branch presented the checks for collection, the available
balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while
Current Account No. 37-0006-7 had no available balance. It was only on December 15,
1983 at around ten o'clock in the morning that the necessary funds were deposited, which
unfortunately was too late to prevent the dishonor of the checks.
Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed
to consider the fact that the witness himself admitted that he had no personal knowledge
surrounding the dishonor of the two checks in question. Thus, although he knew the
standard clearing procedure, it does not necessarily mean that the same procedure was
adopted with regard to the two checks.
We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable
presumption in law that the ordinary course of business has been followed. In the absence
of a contrary showing, it is presumed that the acts in question were in conformity with the
usual conduct of business. In the case at bar, petitioners failed to present countervailing
evidence to rebut the presumption that the checks involved underwent the same regular
process for clearing of checks followed by the bank since 1983.
Petitioner had no reason to complain, for they alone were at fault. A drawer must
remember his responsibilities every time he issues a check. He must personally keep track
of his available balance in the bank and not rely on the bank to notify him of the necessity
to fund certain check she previously issued. A check, as distinguished from an ordinary bill
of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily
intended for immediately payment.
28

Moreover, between the time of the issuance of said checks on December 12 and 13 and
the time of their presentment on December 14, petitioners had, at the very least, twenty-
four hours to replenish their balance in the bank.
As previously noted, it was only during business hours in the morning of December 15,
1983, that P66,666.00 was automatically transferred from Savings Account No.
36 | P a g e

1037001372 to Current Account No. 37-00066-7, and another P40,000.00 was transferred
from Savings Account No. 1037002387 to the same current by a debit memorandum.
Petitioners argue that if indeed the checks were dishonored in the early morning of
December 15, 1983, the bank would not have automatically transferred P66,666.00 to said
current account. They theorize that the checks having already been dishonored, there was
no necessity to put into effect the pre-authorized transfer agreement.
That theory is incorrect. When the transfer from both savings accounts to the current
account were made, they were done in the hope that the checks may be retrieved, thus
preventing their dishonor. Unfortunately, respondent bank did not succeed in effectuating
its good intentions. The transfers were made to preserve its relations with petitioners whom
it knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the
same was at all possible. Although not admitting fault, it tried its best to make sure that the
checks would not bounce.
Under similar circumstances, it was held in Whitman vs. First National Bank
29
that a bank
performs its full duty where, upon the receipt of a check drawn against an account in which
there are insufficient funds to pay it in full, it endeavors to induce the drawer to make good
his account so that the check can be paid, and failing in this, it protests the check on the
following morning and notifies its correspondent bank by the telegraph of the protest. It
cannot, therefore, be held liable to the payee and holder of the check for not protesting it
upon the day when it was received. In fact, the court added that the bank did more that it
was required to do by making an effort to induce the drawer to deposit sufficient money to
make the check good, and by notifying its correspondent of the dishonor of the check by
telegram.
Petitioners maintain that at the time the checks were dishonored, they had already
deposited sufficient funds to cover said checks. To prove their point, petitioners quoted in
their petition the following testimony of said witness Rionisto, to wit:
Q: Now according to you, you would receive the checks from (being deposited to) the
collecting bank which in this particular example was the Pandacan Branch of PNB which in
turn will deliver it to the Philippine Clearing House and the Philippine Clearing House will
deliver it to your office around 12:00 o'clock of December . . . ?
A: Around 2:00 o'clock of December 15. We sent a clearing representative.
Q: And the checks will be processed in accordance with the balance available as of
December 14?
A: Yes, sir.
Q: And naturally you will place there "drawn against insufficient funds, December 14,
1983"?
A: Yes, sir.
Q: Are you sure about that?
A: Yes, sir . . . (tsn, September 9, 1988, p. 14)
30

Obviously witness Rionisto was merely confused as to the dates (December 14 and 15)
because it did not jibe with his previous testimony, wherein he categorically stated that "the
checks will now be processed as the Citytrust Computer at around 3:00 in the morning of
December 14 (sic) but it will be processed for balance of Citytrust as of December 14
because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing
house rules, we are supposed to process it on the date it was presented for
clearing."
31
Analyzing the procedure he had previously explained, and analyzing his
testimony in its entirety and not in truncated portions, it would logically and ineluctably
appear that he actually meant December 15, and not December 14.
In the early morning of every business day, prior to banking hours, the various branches of
Citytrust would receive a computer printout called the "rejected transactions" report from
the head office. The report contains, among others, a listing of "checks to be funded."
When Citytrust, Shaw Boulevard branch, received said report in the early morning of
December 15, 1983, the two checks involved were included in the "checks to be funded."
That report was used by the bank as its basis in dishonoring the two checks in question.
Petitioner contends that the bank erred when it did so because on previous occasions, the
report was merely used by the bank as a basis for determining whether or not it was
necessary to notify them of the need to deposit certain amounts in their accounts.
Amy Belen Rogado, a bank employee, testified that she would normally copy the details
stated in the report and transfer in on a "pink slip." These pink slips were then given to
George Moran. In turn, George Moran testified that he would deposit the necessary funds
stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check
written on the notices was ever dishonored after he had funded said checks with the bank.
37 | P a g e

Thus, petitioner argues, the checks were not yet dishonored after the bank received the
report in the early morning of December 15, 1983.
Said argument does not persuade. If ever petitioners on previous occasions were given
notices every time a check was presented for clearing and payment and there were no
adequate funds in their accounts, these were, at most, mere accommodations on the part
of respondent bank. It was not a requirement or a general banking practice, hence non-
compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank
had all the right to dishonor the checks because there were no sufficient funds to speak of
in the first place. If the demand is by check, a drawer must have to his credit enough to
cover the demand. If his credit with the bank is less than the amount on the face of the
check, the bank may lawfully refuse payment.
32

Pursuing this matter further, the bank could also not be faulted for not accepting either of
the two checks. The first check issued was in the amount of P50,576.00, while the second
one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only
P26,104.30. This being the case, Citytrust could not be expected to accept for payment
either one of the two checks nor partially honor one check.
A bank is under no obligation to make part payment on a check, up to only the amount of
the drawer's funds, where the check is drawn for an amount larger than what the drawer
has on deposit. Such a practice of paying checks in part has never existed. Upon partial
payment, the check holder could not be called upon to surrender the check, and the bank
would be without a voucher affording a certain means of showing the payment. The rule is
based on commercial convenience, and any rule that would work such manifest
inconvenience should not be recognized. A check is intended not only to transfer a right to
the amount named in it, but to serve the further purpose of affording evidence for the bank
of the payment of such amount when the check is taken up.
33

On the other hand, assuming arguendo that Savings Account No. 1037002387, which is
not covered by a pre-arranged automatic transfer agreement, had enough amount
deposited to cover both checks (which is not so in this case), the bank still had no
obligation to honor said checks as there was then no authority given to it to make the
transfer of funds. Where a depositor has two accounts with a bank, an open account and a
savings account, and draws a check upon the open account for more money than the
account contains, the bank may rightfully refuse to pay the check, and is under no duty to
make up the deficiency from the savings account.
34

We are agree with respondent Court of Appeals in its assessment and interpretation of the
nature of the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and
correctly stated by said court, ". . . the letter is not an admission of liability as it was written
merely to maintain the goodwill and continued patronage of plaintiff-appellants. (This)
cannot be characterized as baseless, considering the totality of the circumstances
surrounding its writing."
35

In the present case, the actions taken by the bank after the incident clearly show that there
was neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated
client. Raul Diaz, the branch manager, even went for this purpose to the Moran residence
to facilitate their application for a manager's check. Later, he went to the Petrophil
Corporation to personally redeem the checks. Still later, the letter was sent by respondent
bank to Petrophil explaining that the dishonor of the checks was due to "operational error."
However, we reiterate, it would be a mistake to construe that letter as an admission of guilt
on the part of the bank. It knew that it was confronted with a client who obviously was not
willing to admit any fault on his part, although the facts show otherwise. Thus, respondent
bank ran the risk of losing the business of an important and influential member of the
financial community if it did not do anything to assuage the feelings of petitioners.
It will be recalled that the credit standing of the Morans with Petrophil Corporation was
involved, which fact, more than anything, displeased them, to say the least. On demand of
petitioners that their names be cleared, the bank considered it more prudent to send the
letter. It never realized that it would thereafter be used by petitioners as one of the bases of
their legal action. It will be noted that there was no reason for the bank to send the letter to
Petrophil Corporation since the latter was not a client nor was it demanding any
explanation. Clearly, therefore, the letter was merely intended to accommodate the request
of the Morans and was part of the series of damage-control measures taken by the bank to
placate petitioners.
Respondent Court of Appeals perceptively observed that "all these somehow pacified
plaintiffs-appellants (herein petitioners) for they did not thereafter take immediate punitive
action against the defendant-appellee (herein private respondent). As pointed out by the
court a quo, it took plaintiffs-appellants about six (6) months after the dishonor of the
checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that
time, plaintiffs-appellants had discovered the letter of Mr. Diaz attributing the dishonor of
their checks to 'operational error'. The attempt to unduly ride on the letter of Mr. Diaz
speaks for itself."
36

38 | P a g e

On the above premises which irresistibly commend themselves to our acceptance, we find
no cogent and sufficient to award actual, moral, or exemplary damages to petitioners.
Although we take judicial notice of the fact that there is a fiduciary relationship between a
bank and its depositors, as well as the extent of diligence expected of it in handling the
accounts entrusted to its care,
37
the bank may not be held responsible for such damages
in the absence of fraud, bad faith, malice, or wanton attitude.
38

WHEREFORE, finding no reversible error in the judgment appealed from, the same is
hereby AFFIRMED, with costs against petitioners.
SO ORDERED.





































39 | P a g e


SECOND DIVISION
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.
MAGLANA,Defendant-Appellee.
D E C I S I O N
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of
Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's
complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership
(Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them as
partners. The partnership EDE with an indefinite term of existence was duly registered on
January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests rights and concessions." (Rollo, p.
114).
A duly registered Articles of Co-Partnership was filed together with an application for a
timber concession covering the area located at Cateel and Baganga, Davao with the
Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued
and became the basis of subsequent renewals made for and in behalf of the duly
registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business
affairs of the partnership, including marketing and handling of cash and is authorized to
sign all papers and instruments relating to the partnership, while appellant Rojas shall be
the logging superintendent and shall manage the logging operations of the partnership. It is
also provided in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said
partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services
of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-
Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of
the second partnership which is to hold and secure renewal of timber license instead of to
secure the license as in the first partnership and the term of the second partnership is fixed
to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1,
1956, and was able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled
"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that
Maglana and Rojas shall purchase the interest, share and participation in the Partnership
of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said
instrument that after payment of the sum of P31,501.12 to Pahamotang including the
amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and
Rojas) shall become the owners of all equipment contributed by Pahamotang and the
EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second
partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other
rights and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas
without the benefit of any written agreement or reconstitution of their written Articles of
Partnership (Decision, R.A. 948).
40 | P a g e

On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the
newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was
transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the partnership as
well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply
with the promised contributions and he will not work as logging superintendent. Maglana
then told Rojas that the latter's share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the
partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against
Maglana for the recovery of properties, accounting, receivership and damages, docketed
as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development Enterprises
(Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114)
was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required
the inclusion of the entire year 1961 in the report to be submitted by the commissioners
(Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information furnished them by the
parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with
counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was granted
on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report
(Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,
1964 approving the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-
451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues
were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the
dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the
partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion
of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered
by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after
Pahamotang retired from the second partnership, that is, after August 31, 1957, when
Pahamotang was finally paid his share the partnership of the defendant and the plaintiff
is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is
the ratio and proportion of their respective contributions, or on the basis of share and share
41 | P a g e

alike this covered by actual contributions of the plaintiff and the defendant and by their
verbal agreement; that the sharing of profits and losses is on the basis of actual
contributions; that from 1957 to 1959, the sharing is on the basis of 80% for the defendant
and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution, February
23, 1961, the plaintiff's share will be on the basis of his actual contribution and, considering
his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of
the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in
his wife's name were acquired with partnership funds or with funds of the defendant and
the Court declares that there is no evidence that these properties were acquired by the
partnership funds, and therefore the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and
who should be liable for them the Court declares that neither parties is entitled to
damages, for as already stated above it is not a wise policy to place a price on the right of
a person to litigate and/or to come to Court for the assertion of the rights they believe they
are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23,
1961; did it dissolve the partnership or not the Court declares that the letter of the
defendant to the plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other
merchandise to the laborers and employees of the Eastcoast Development Enterprises,
the COURT DECLARES THE SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles
David is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED
AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS Estate, Inc.
operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00
which according to him he is still entitled to receive from the CMS Estate, Inc. is hereby
denied considering that it has not yet been actually received, and further the receipt is
merely based upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his
personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should
have received as logging superintendent, and which was not paid to him, and this should
be considered as part of Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that
when the second partnership was dissolved there was no written contract of co-
partnership; there was no reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas
and Maglana after the dissolution of the second partnership was a de facto partnership and
at will. It was considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of
Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership
dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved
by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana
and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms
and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern
the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A")
continues to govern the relations between them and it was legal error to consider a de
facto partnership between said two partners or a partnership at will. Hence, the letter of
appellee Maglana dated February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the partnership agreement agreed
upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is
entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits
42 | P a g e

between them of "share and share alike" as stipulated in the registered Articles of Co-
Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana,
it appears evident that it was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they unmistakably called an
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for
the fact that they took in one industrial partner; gave him an equal share in the profits and
fixed the term of the second partnership to thirty (30) years, everything else was the same.
Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as
stipulated in both partnerships call for the same amounts. Just as important is the fact that
all subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First Articles of
Partnership were only amended, in the form of Supplementary Articles of Co-Partnership
(Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise
stated, even during the existence of the second partnership, all business transactions were
carried out under the duly registered articles. As found by the trial court, it is an admitted
fact that even up to now, there are still subsisting obligations and contracts of the latter
(Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second
partnership except in favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the
latter of his obligation to contribute either in cash or in equipment, to the capital investment
of the partnership as well as his obligation to perform his duties as logging superintendent.
This reminder cannot refer to any other but to the provisions of the duly registered Articles
of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with
the promised contributions and he will not work as logging superintendent. By such
statements, it is obvious that Roxas understood what Maglana was referring to and left no
room for doubt that both considered themselves governed by the articles of the duly
registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in
the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way he may view the situation, the conclusion is inevitable
that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of
the partnership shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners
from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have contributed P160,984.00,
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner
who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of
the partnership for whatever he may have promised to contribute (Article 1786, Civil Code)
and for interests and damages from the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a
contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their
voluminous reports which was approved by the trial court, they showed that on 50-50%
basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for
43 | P a g e

P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of
Pahamotang which is unquestionably a continuation of the duly registered partnership and
the sharing of profits and losses which should be on the basis of share and share alike as
provided for in the duly registered Articles of Co-Partnership, no plausible reason could be
found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled
that after the withdrawal of Pahamotang, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc., a company engaged in the same
business as the partnership. He withdrew his equipment, refused to contribute either in
cash or in equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records also show that
Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,
Branch III, is hereby MODIFIED in the sense that the duly registered partnership of
Eastcoast Development Enterprises continued to exist until liquidated and that the sharing
basis of the partners should be on share and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.


























44 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract between himself
and the defendant, entered into on October 15, 1920, the reimbursement by the latter of
his 50,000 peso investment therein, with interest at 12 per cent per annum form October
15, 1920, with costs, and any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the complaint which
are incompatible with his special defenses, cross-complaint and counterclaim, setting up
the latter and asking for the dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also
prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved
that the defendant had not contributed all the capital he had bound himself to invest, and
that the plaintiff had demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was constituted, and
ordered the defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the accounts and vouchers
within the period of thirty days from receipt of notice of said judgment, without costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the
partnership contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to
the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest
from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to
show that this appeal is premature and therefore will not lie. The point is based on the
contention that inasmuch as the liquidation ordered by the trial court, and the consequent
accounts, have not been made and submitted, the case cannot be deemed terminated in
said court and its ruling is not yet appealable. In support of this contention counsel cites
section 123 of the Code of Civil Procedure, and the decision of this court in the case
of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by the
trial court, and until they have been either approved or disapproved, the litigation involved
in this action cannot be considered as completely decided; and, as it was held in said case
of Natividad vs .Villarica, also with reference to an appeal taken from a decision ordering
the rendition of accounts following the dissolution of partnership, the appeal in the instant
case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings referred to above, which we cannot revise
because the parol evidence has not been forwarded to this court, articles 1681 and 1682 of
the Civil Code have been properly applied. Owing to the defendant's failure to pay to the
partnership the whole amount which he bound himself to pay, he became indebted to it for
the remainder, with interest and any damages occasioned thereby, but the plaintiff did not
thereby acquire the right to demand rescission of the partnership contract according to
article 1124 of the Code. This article cannot be applied to the case in question, because it
refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically
refer to the contract of partnership in particular. And it is a well known principle that special
provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed
from in full force, without special pronouncement of costs. So ordered.
45 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.
STREET, J.:
For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo
Seng and Pang Lim, Chinese residents of the City of Manila, were partners, under the firm
name of Lo Seng and Co., in the business of running a distillery, known as "El Progreso,"
in the Municipality of Paombong, in the Province of Bulacan. The land on which said
distillery is located as well as the buildings and improvements originally used in the
business were, at the time to which reference is now made, the property of another
Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911, leased the
same to the firm of Lo Seng and Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact, became effective whereby the lease was
extended for fifteen years. The reason why the contract was made for so long a period of
time appears to have been that the Bureau of Internal Revenue had required sundry
expensive improvements to be made in the distillery, and it was agreed that these
improvements should be effected at the expense of the lessees. In conformity with this
understanding many thousands of pesos were expended by Lo Seng and Co., and later by
Lo Seng alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
x x x x x x x x x
1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of
Hongkong, cede by way of lease for fifteen years more said distillery "El Progreso" to
Messrs. Pang Lim and Lo Seng (doing business under the firm name of Lo Seng and Co.),
after the termination of the previous contract, because of the fact that they are required, by
the Bureau of Internal Revenue, to rearrange, alter and clean up the distillery.
2. That all the improvements and betterments which they may introduce, such as
machinery, apparatus, tanks, pumps, boilers and buildings which the business may
require, shall be, after the termination of the fifteen years of lease, for the benefit of Mr. Lo
Yao, my principal, the buildings being considered as improvements.
3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract
of September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all
modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and
Lo Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at
present conducting, hereby accept this contract in each and all its parts, said contract to be
effective upon the termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending the same was inscribed
in the property registry, for the reason that the estate which is the subject of the lease has
never at any time been so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus
placing the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting
as attorney in fact of Lo Yao, executed and acknowledged before a notary public a deed
purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire
distillery plant including the land used in connection therewith. As in case of the lease this
document also was never recorded in the registry of property. Thereafter Pang Lim and
Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the
present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises.
From the decision of the justice of the peace the case was appealed to the Court of First
Instance, where judgment was rendered for the plaintiffs; and the defendant thereupon
appealed to the Supreme Court.
46 | P a g e

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil
Code, which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in
force at the time of making the sale, unless the contrary is stipulated, and subject to the
provisions of the Mortgage Law.
In considering this provision it may be premised that a contract of lease is personally
binding on all who participate in it regardless of whether it is recorded or not, though of
course the unrecorded lease creates no real charge upon the land to which it relates. The
Mortgage Law was devised for the protection of third parties, or those who have not
participated in the contracts which are by that law required to be registered; and none of its
provisions with reference to leases interpose any obstacle whatever to the giving of full
effect to the personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to be so understood by
all commentators, there being, so far as we are aware, no authority suggesting the
contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage
Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid of
and in respect to third persons only; it does not affect the relations between the contracting
parties, nor their capacity to contract. Any question affecting the former will be determined
by the dispositions of the special law [i.e., the Mortgage Law], while any question affecting
the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la
Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards the personal
obligations expressed therein, the lease in question was from the beginning, and has
remained, binding upon all the parties thereto among whom is to be numbered Pang
Lim, then a member of the firm of Lo Seng and Co. this does not really solve the
problem now before us, which is, whether the plaintiffs herein, as purchasers of the estate,
are at liberty to terminate the lease, assuming that it was originally binding upon all parties
participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article
1571 of the Civil Code; and the position of the defendant derives no assistance from the
mere circumstance that the lease was admittedly binding as between the parties
thereto. 1awph!l.net
The words "subject to the provisions of the Mortgage Law," contained in article 1571,
express a qualification which evidently has reference to the familiar proposition that
recorded instruments are effective against third persons from the date of registration (Co-
Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be
respected by any purchaser of the estate whomsoever. But there is nothing in the
Mortgage Law which, so far as we now see, would prevent a purchaser from exercising the
precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease
which is unrecorded; nothing in that law that can be considered as arresting the force of
article 1571 as applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as
supplying authority for the proposition that the lease in question cannot be terminated by
one who, like Pang Lim, has taken part in the contract. That provision is practically identical
in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that
unrecorded leases shall be of no effect as against third persons; and the same observation
will suffice to dispose of it that was made by us above in discussing the Mortgage Law,
namely, that while it recognizes the fact that an unrecorded lease is binding on all persons
who participate therein, this does not determine the question whether, admitting the lease
to be so binding, it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation with the Mortgage Law,
as well as article 1549 of the Civil Coded all of which, as we have seen, are undecisive
we are brought to consider the aspect of the case which seems to us conclusive. This is
found in the circumstance that the plaintiff Pang Lim has occupied a double role in the
transactions which gave rise to this litigation, namely, first, as one of the lessees; and
secondly, as one of the purchasers now seeking to terminate the lease. These two
positions are essentially antagonistic and incompatible. Every competent person is by law
bond to maintain in all good faith the integrity of his own obligations; and no less certainly
is he bound to respect the rights of any person whom he has placed in his own shoes as
regards any contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of
this lease, and when he sold out his interest in that firm to Lo Seng this operated as a
transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an
interest derived from himself, and for which he has received full value.
47 | P a g e

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly
revealed in the circumstance that prior to the acquisition of this property Pang Lim had
been partner with Lo Seng and Benito Galvez an employee. Both therefore had been in
relations of confidence with Lo Seng and in that position had acquired knowledge of the
possibilities of the property and possibly an experience which would have enabled them, in
case they had acquired possession, to exploit the distillery with profit. On account of his
status as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease had
been extended for fifteen years; and he knew the extent of valuable improvements that had
been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to
the moral sense if the condition of the law were found to be such that Pang Lim, after
profiting by the sale of his interest in a business, worthless without the lease, could
intervene as purchaser of the property and confiscate for his own benefit the property
which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils
before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required to exhibit towards each
other the highest degree of good faith. In fact the relation between partners is essentially
fiduciary, each being considered in law, as he is in fact, the confidential agent of the other.
It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to
the detriment of another, apply exclusively to his own benefit the results of the knowledge
and information gained in the character of partner. Thus, it has been held that if one
partner obtains in his own name and for his own benefit the renewal of a lease on property
used by the firm, to commence at a date subsequent to the expiration of the firm's lease,
the partner obtaining the renewal is held to be a constructive trustee of the firm as to such
lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the
name of one partner after the dissolution of the firm and pending its liquidation. (16 R. C.
L., 906; Knapp vs.Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y.,
123; 19 Am. Rep., 252.)
An additional consideration showing that the position of the plaintiff Pang Lim in this case is
untenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that
every person who sells anything is bound to deliver and warrant the subject-matter of the
sale and is responsible to the vendee for the legal and lawful possession of the thing sold.
The pertinence of these provisions to the case now under consideration is undeniable, for
among the assets of the partnership which Pang Lim transferred to Lo Seng, upon selling
out his interest in the firm to the latter, was this very lease; and while it cannot be supposed
that the obligation to warrant recognized in the articles cited would nullify article 1571, if the
latter article had actually conferred on the plaintiffs the right to terminate this lease,
nevertheless said articles (1461, 1474), in relation with other considerations, reveal the
basis of an estoppel which in our opinion precludes Pang Lim from setting up his interest
as purchaser of the estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is analogous to the doctrine
recognized in courts of common law under the head of estoppel by deed, in accordance
with which it is held that if a person, having no title to land, conveys the same to another by
some one or another of the recognized modes of conveyance at common law, any title
afterwards acquired by the vendor will pass to the purchaser; and the vendor is estopped
as against such purchaser from asserting such after-acquired title. The indenture of lease,
it may be further noted, was recognized as one of the modes of conveyance at common
law which created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a participant in the contract
of lease now in question, is not in a position to terminate it: and this is a fatal obstacle to
the maintenance of the action of unlawful detainer by him. Moreover, it is fatal to the
maintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is
that in the action of unlawful detainer, under section 80 of the Code of Civil Procedure, the
only question that can be adjudicated is the right to possession; and in order to maintain
the action, in the form in which it is here presented, the proof must show that occupant's
possession is unlawful, i. e., that he is unlawfully withholding possession after the
determination of the right to hold possession. In the case before us quite the contrary
appears; for, even admitting that Pang Lim and Benito Galvez have purchased the estate
from Lo Yao, the original landlord, they are, as between themselves, in the position of
tenants in common or owners pro indiviso, according to the proportion of their respective
contribution to the purchase price. But it is well recognized that one tenant in common
cannot maintain a possessory action against his cotenant, since one is as much entitled to
have possession as the other. The remedy is ordinarily by an action for partition.
(Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo Seng is vested with the possessory
right as against Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez.
Having lawful possession as against one cotenant, he is entitled to retain it against both.
Furthermore, it is obvious that partition proceedings could not be maintained at the
instance of Benito Galvez as against Lo Seng, since partition can only be effected where
the partitioners are cotenants, that is, have an interest of an identical character as among
themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito
48 | P a g e

Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is
concerned.
We have assumed in the course of the preceding discussion that the deed of sale under
which the plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in
behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this
document, having never been recorded in the property registry, cannot under article 389 of
the Mortgage Law, be used in court against him because as to said instrument he is a third
party. The important question thus raised is not absolutely necessary to the decision of this
case, and we are inclined to pass it without decision, not only because the question does
not seem to have been ventilated in the Court of First Instance but for the further reason
that we have not had the benefit of any written brief in this case in behalf of the appellees.
The judgment appealed from will be reversed, and the defendant will be absolved from the
complaint. It is so ordered, without express adjudication as to costs.



































49 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 39 May 19, 1903
TUASON & SAN PEDRO, plaintiffs-appellees,
vs.
GAVINA ZAMORA & SONS, defendants-appellants.
Del Pan and Ortigas for appellants.
Palma, Gerona and Mercado for appellees.
MAPA, J.:
Don Mariano Tuason and Don Manuel Garcia San Pedro had entered into a mercantile
partnership en comanditawith Luis Vives, under the firm name of "Luis Vives & Co." By the
death of Luis Vives the partnership was dissolved, and was then reorganized under the
name of "Tuason & San Pedro" on the 31st of December, 1898, composed solely of the
surviving partners. This partnership assumed the business of the former partnership as
wood sawyers and building contractors, the liability of the firm being made retroactive to
the 11th of July, 1897. In February, 1898, Don Mariano Tuason entered into the contract
with Don Juan Feliciano upon which this case turns, the contract being for the construction
of a house. He did not mention in the contract that it was made on behalf of the firm of
Tuason & San Pedro. In the protest, dated the 23d day of June, 1898, it is seen that Don
Manuel San Pedro makes this protest with respect to the delivery of the house, and makes
it on behalf of the firm of "Tuason & San Pedro," the manager of which, Don Mariano
Tuason, says Don Manuel San Pedro had contracted for the building. On the 25th of
August, 1900, Tuason & San Pedro brought this action. Objection having been made to the
right of the plaintiff partnership to sue, the question must be determined whether a
partnership can maintain an action in its own behalf upon a contract entered into by one of
the partners in his own name, thus binding the third person who contracted with this
partner.
The purpose of the complaint is the recovery of the price of the house built. The entire
question is reduced to these terms: Should this payment be made to the partnership?
The following facts had been made to appear of record before the exception was taken: (1)
That the partnership claimed to be the owner of this credit by its protest against default. (2)
That it was in the possession of the document evidentiary of the credit and others
connected with it, such as the notarial record of demand for payment made by the partner
Tuason, and the record made of the offer to deliver the keys of the house, prepared at the
instance of Tuason. (3) That the attorney appearing for the partnership held a power of
attorney from the partnership, executed by Tuason as managing partner. There can not,
therefore, by any duality, any incompatibility, or repetition of action. Everything which
Tuason might have done is being done by the partnership, and after what the partnership
has done Tuason can do nothing. The action being a solidary one, therefore, the result is
the same whether it has been brought by Tuason & San Pedro or by Tuason alone.
"Payment should be made to the person in whose favor the obligation is constituted, or to
some other person authorized to receive it in his name." (Art. 1162 of the Civil Code.)
"The first of these cases," says Manresa, "the most natural and simple, refers not only to
the person who may have been the creditor at the time the obligation was created but
rather to the person who is the creditor at the time payment is due. . . . That the principle
laid down by the code has this wide meaning is demonstrated by the fact that it has no
rules, as have other codes (for instance, the Argentine code) which expressly authorized
heirs, assignees, and subrogated creditors to demand payment, and the right of these
persons being unquestionable they must be regarded as included in the first part of article
1162, because, although the obligation was not created in their favor, it has subsequently
resulted that its constitutions is to their benefit." (Manresa, Commentaries on the Civil
Code, vol. 8, p. 252.)
When process was served upon the defendant to answer the complaint, it could be seen
that the plaintiff was not an heir, an assignee, or a subrogated creditor, physically distinct
from the person who made the contract, but this very same person, also bringing with him
into the case the responsibility of a general partnership, which, far from declining to
entertain the exceptions, set-offs, and counter claims which might be available against the
original creditor, undertakes to defend against them as the original, actual, and sole
creditor.
Hence it is that the defense of the defendant is by no means limited, nor will the effects of
the payment be frustrated. Furthermore, it is evident that although Tuason may have
operated in his own name, it certainly was not with his own private funds. Therefore it was
50 | P a g e

that this contract was communicated to the partnership which became responsible therefor.
(Art. 134, Code of Commerce.)
In view of the understanding and agreement between Tuason and the partnership, shown
by the facts stated, the responsibility of the partner Tuason being included in the
responsibility of Tuason & San Pedro, the liability of the firm is not less than the personal
liability of the partner, as the partnership was a general one. And the action brought by the
firm being simply the action in favor of the partner assumed by the firm as the result of the
assumption of the business and the filing of the complaint, the exception, practically
speaking, is entirely unnecessary, although, from a theoretical point of view, it might
perhaps be supported. We therefore decide that the action brought by the partnership will
lie, and the payment which may be made to the partnership upon the circumstances stated
will be perfectly legal.
The legal grounds on which paragraph 8 of the conclusions of law of the appealed
judgment was based, are hereby modified to conform to the preceding opinion, and so
modified we accept the findings of fact and the conclusions of law of the court below, with
the following amendment: That part of the first conclusion of law which reads, "the owner of
the property, Don Juan Feliciano, and, by reason of his death, his heirs, now defendants,
are bound to pay the entire price agreed upon with the contractor, as the work was
terminated and delivered," being amended to read as follows: "The owner, Don Juan
Feliciano, and, by his death, his heirs, now defendants, are bound to pay all the price
agreed upon to the contractor, because the house burned after the work terminated, and
after the defendants had become in default with respect to their obligation to receive it," for
although it is evident, as stated in the seventh conclusion of law, that the contractor has
done everything incumbent upon him for the delivery of the house, it is none the less true,
as a matter of fact, that no such delivery took place.
We therefore affirm the judgment below, with costs in this instance to the appellant. So
ordered.

























51 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO
OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN
PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of
First Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of
properties and money totalling allegedly about P15 million pesos filed with a common
cause of action against six defendants, in which after declaring four of the said defendants
herein petitioners, in default and while the trial as against the two defendants not declared
in default was in progress, said court granted plaintiff's motion to dismiss the case in so far
as the non-defaulted defendants were concerned and thereafter proceeded to hear ex-
parte the rest of the plaintiffs evidence and subsequently rendered judgment by default
against the defaulted defendants, with the particularities that notice of the motion to
dismiss was not duly served on any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and the judgment so rendered granted
reliefs not prayed for in the complaint, and (2) prohibition to enjoin further proceedings
relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put
only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in
an amended complaint dated September 26, 1972, their son Lim Teck Chuan and the
other spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong
Leonardo were included as defendants. In said amended complaint, respondent Tan
alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu and
Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck
Chuan, and Eng Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to use the funds of the partnership to
purchase lands and building's in the cities of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla, some of which were hidden, but the description of
those already discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation
continued the business of Glory Commercial Company by purportedly organizing a
corporation known as the Glory Commercial Company, Incorporated, with paid up capital in
the sum of P125,000.00, which money and other assets of the said Glory Commercial
Company, Incorporated are actually the assets of the defunct Glory Commercial Company
partnership, of which the plaintiff has a share equivalent to one third (/
3
) thereof;
14. (P)laintiff, on several occasions after the death of her husband, has asked defendants
of the above-mentioned properties and for the liquidation of the business of the defunct
partnership, including investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by
means of fraud deceit and misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in the assets of the partnership
of Glory Commercial Company, which is null and void, executed through fraud and without
any legal effect. The original of said quitclaim is in the possession of the adverse party
defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim
Tanhu offered to pay the plaintiff the amount P65,000.00 within a period of one (1) month,
for which plaintiff was made to sign a receipt for the amount of P65,000.00 although no
such amount was given and plaintiff was not even given a copy of said document;
52 | P a g e

17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate
the aforesaid properties and assets in favor among others of plaintiff and until the middle of
the year 1970 when the plaintiff formally demanded from the defendants the accounting of
real and personal properties of the Glory Commercial Company, defendants refused and
stated that they would not give the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of
the Glory Commercial Company including those registered in the names of the defendants
and other persons, which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (/
3
) of the
total value of all the properties which is approximately P5,000,000.00 representing the just
share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00) by way of attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and
equity and order the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground
that there were material modifications of the causes of action previously alleged, but
respondent judge nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the
recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the
defendants to sustain their opposition will show that the allegations of facts therein are
merely to amplify material averments constituting the cause of action in the original
complaint. It likewise include necessary and indispensable defendants without whom no
final determination can be had in the action and in order that complete relief is to be
accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes
of action in the original complaint and the reliefs demanded and to allow amendments is
the rule, and to refuse them the exception and in order that the real question between the
parties may be properly and justly threshed out in a single proceeding to avoid multiplicity
of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel,
defendants denied specifically not only the allegation that respondent Tan is the widow of
Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and
with whom he had four (4) legitimate children, a twin born in 1942, and two others born in
1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and
conversion quoted above, the truth being, according to them, that proper liquidation had
been regularly made of the business of the partnership and Tee Hoon used to receive his
just share until his death, as a result of which the partnership was dissolved and what
corresponded to him were all given to his wife and children. To quote the pertinent portions
of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further
most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim
Po Chuan, then, she has no legal capacity to sue as such, considering that the legitimate
wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d),
Rule 16 of the Revised Rules of Court, lack of legal capacity to sue is one of the grounds
for a motion to dismiss and so defendants prays that a preliminary hearing be conducted
as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144
of the Civil Code, then, her claim or demand has been paid, waived abandoned or
otherwise extinguished as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h), Rule 16) and hence defendants pray
that a preliminary hearing be made in connection therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed
with the following children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on
53 | P a g e

February 16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June
25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his
common law wife and even though she was not entitled to anything left by Tee Hoon Lim
Po Chuan, yet, out of the kindness and generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was inspiring to be monk and in fact he is now a
monk, plaintiff was given a substantial amount evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and
certainly not from the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan
had acquired properties out of his personal fund and which are now in the possession of
the widow and neither the defendants nor the partnership have anything to do about said
properties;
6. That it would have been impossible to buy properties from funds belonging to the
partnership without the other partners knowing about it considering that the amount taken
allegedly is quite big and with such big amount withdrawn the partnership would have been
insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would
have been lawfully entitled to succeed to the properties left by the latter together with the
widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the
shares of the late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant
who have to interpose the following
C O U N T E R C L A I M
A. That the defendants hereby reproduced, by way of reference, all the allegations and
foregoing averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon
Lim Po Chuan and that the lawful and legal is still living, together with the legitimate
children, and yet she deliberately suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount which the Honorable Court may
determine in the exercise of its sound judicial discretion. In the event that plaintiff is married
to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should suffer the
consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was
not entitled to it, and yet she falsely claimed that defendants refused even to see her and
for filing this unfounded, baseless, futile and puerile complaint, defendants suffered mental
anguish and torture conservatively estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage the
services of the undersigned counsel, obligating themselves to pay P500,000.00 as
attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this
Honorable Court and until the same will be finally terminated and adjudicated, defendants
will have to spend at least P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should
be dismissed for non-payment of the corresponding filing fee, and after being overruled by
the court, in due time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-
spouses the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in
DEFAULT as of February 3, 1973 when they failed to appear at the pre-trial." They sought
to hive this order lifted thru a motion for reconsideration, but the effort failed when the court
denied it. Thereafter, the trial started, but at the stage thereof where the first witness of the
plaintiff by the name of Antonio Nuez who testified that he is her adopted son, was up for
re-cross-examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most
respectfully moves to drop from the complaint the defendants Lim Teck Chuan and Eng
Chong Leonardo and to consider the case dismissed insofar as said defendants Lim Teck
Chuan and Eng Chong Leonardo are concerned.
54 | P a g e

WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the
complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to dismiss the
case against them without pronouncement as to costs. (Page 50, Record.)
which she set for hearing on December 21, 1974. According to petitioners, none of the
defendants declared in default were notified of said motion, in violation of Section 9 of Rule
13, since they had asked for the lifting of the order of default, albeit unsuccessfully, and as
regards the defendants not declared in default, the setting of the hearing of said motion on
October 21, 1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch as
Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion personally
only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was
served by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff had
couched her motion, and also without any legal grounds stated, respondent court granted
the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and
Eng Chong Leonardo is hereby ordered DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as
defendants Alfonso Ng Sua and his spouse Co Oyo have been declared in default for
failure to appear during the pre-trial and as to the other defendants the complaint had
already been ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30
A.M. before the Branch Clerk of Court who is deputized for the purpose, to swear in
witnesses and to submit her report within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not
take place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized
the Branch Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28, 1974, the plaintiff, together with her
witnesses, appeared in court and asked, thru counsel, that she be allowed to present her
evidence.
Considering the time and expenses incurred by the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby authorized to receive immediately the evidence
of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru
counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974,
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders. These motions were denied in an
order dated December 6, 1974 but received by the movants only on December 23, 1974.
Meanwhile, respondent court rendered the impugned decision on December 20, 1974. It
does not appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash
the order of October 28, 1974. Without waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals
with a petition for certiorari seeking the annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution
of January 24, 1975, the Court of Appeals dismissed said petition, holding that its filing was
premature, considering that the motion to quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was reiterated in the subsequent resolution of
February 5, 1975 denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their
notice of appeal, appeal bond and motion for extension to file their record on appeal, which
was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975,
55 | P a g e

for defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition with this Court. And with the
evident intent to make their procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that
"when the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their
petition in the Court of Appeals, they in effect abandoned their motion to quash the order of
October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and prohibition ... in the
Supreme Court, they likewise abandoned their motion to quash." This manifestation was
acted upon by respondent court together with plaintiffs motion for execution pending
appeal in its order of the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974 and the motion
for execution pending appeal were called for hearing today, counsel for the defendants-
movants submitted their manifestation inviting the attention of this Court that by their filing
for certiorari and prohibition with preliminary injunction in the Court of Appeals which was
dismissed and later the defaulted defendants filed with the Supreme Court certiorari with
prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the
motion for execution pending appeal shall be resolved after the petition for certiorari and
prohibition shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in
violation of the rules or with grave abuse of discretion in acting on respondent's motion to
dismiss of October 18, 1974 without previously ascertaining whether or not due notice
thereof had been served on the adverse parties, as, in fact, no such notice was timely
served on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no
notice at all was ever sent to the other defendants, herein petitioners, and more so, in
actually ordering the dismissal of the case by its order of October 21, 1974 and at the
same time setting the case for further hearing as against the defaulted defendants, herein
petitioners, actually hearing the same ex-parte and thereafter rendering the decision of
December 20, 1974 granting respondent Tan even reliefs not prayed for in the complaint.
According to the petitioners, to begin with, there was compulsory counterclaim in the
common answer of the defendants the nature of which is such that it cannot be decided in
an independent action and as to which the attention of respondent court was duly called in
the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule
18, respondent court had no authority to divide the case before it by dismissing the same
as against the non-defaulted defendants and thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted defendants, considering that in
their view, under the said provision of the rules, when a common cause of action is alleged
against several defendants, the default of any of them is a mere formality by which those
defaulted are not allowed to take part in the proceedings, but otherwise, all the defendants,
defaulted and not defaulted, are supposed to have but a common fate, win or lose. In other
words, petitioners posit that in such a situation, there can only be one common judgment
for or against all the defendant, the non-defaulted and the defaulted. Thus, petitioners
contend that the order of dismissal of October 21, 1974 should be considered also as the
final judgment insofar as they are concerned, or, in the alternative, it should be set aside
together with all the proceedings and decision held and rendered subsequent thereto, and
that the trial be resumed as of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as
petitioners had been properly declared in default, they have no personality nor interest to
question the dismissal of the case as against their non-defaulted co-defendants and should
suffer the consequences of their own default. Respondent further contends, and this is the
only position discussed in the memorandum submitted by her counsel, that since
petitioners have already made or at least started to make their appeal, as they are in fact
entitled to appeal, this special civil action has no reason for being. Additionally, she invokes
the point of prematurity upheld by the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo. Finally, she argues that in any event, the errors attributed to respondent court
are errors of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion that petitioners should be granted
relief, if only to stress emphatically once more that the rules of procedure may not be
misused and abused as instruments for the denial of substantial justice. A review of the
record of this case immediately discloses that here is another demonstrative instance of
56 | P a g e

how some members of the bar, availing of their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in inducing courts to act contrary to
the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet
unfair advantage by ironically camouflaging their actuations as earnest efforts to satisfy the
public clamor for speedy disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every action and proceeding." We
cannot simply pass over the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately planned with the calculated end
in view of depriving petitioners and their co-defendants below of every opportunity to
properly defend themselves against a claim of more than substantial character, considering
the millions of pesos worth of properties involved as found by respondent judge himself in
the impugned decision, a claim that appears, in the light of the allegations of the answer
and the documents already brought to the attention of the court at the pre-trial, to be rather
dubious. What is most regrettable is that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to have hesitated in acting favorably on
the motions of the plaintiff conducive to the deplorable objective just mentioned, and which
motions, at the very least, appeared to be 'of highly controversial' merit, considering that
their obvious tendency and immediate result would be to convert the proceedings into a
one-sided affair, a situation that should be readily condemnable and intolerable to any
court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the
contentions of private respondent may be discerned from the manner it resolved the
attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of
default against them lifted. Notwithstanding that Dy Ochay's motion of October 8, 1971, co-
signed by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer
herein) was over the jurat of the notary public before whom she took her oath, in the order
of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of
the motion is not the one contemplated by the abovequoted pertinent provision (See. 3,
Rule 18) of the rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires
as interpreted by the Supreme Court is that the motion must have to be accompanied by
an affidavit of merits that the defendant has a meritorious defense, thereby ignoring the
very simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1
SCRA 781, relied upon by His Honor, under which a separate affidavit of merit is required
refers obviously to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a "motion under
oath." Stated otherwise, when a motion to lift an order of default contains the reasons for
the failure to answer as well as the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a formal verification nor a separate
affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an
admission that there was a valid service of summons" and that said motion could not
amount to a challenge against the jurisdiction of the court over the person of the defendant.
Such a rationalization is patently specious and reveals an evident failure to grasp the
import of the legal concepts involved. A motion to lift an order of default on the ground that
service of summons has not been made in accordance with the rules is in order and is in
essence verily an attack against the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner specifically embodying such a direct
challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default
as against defendant Lim Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff contentious." We have read defendants'
motion for reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it
any reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended
complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that her
signature thereto was secured through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's
earlier motion of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff
Tan could be but the common law wife only of Tee Hoon, since his legitimate wife was still
alive, which allegation, His Honor held in the order of November 2, 1971, Annex 3, to be
"not good and meritorious defense". To top it all, whereas, as already stated, the order of
February 19, 1972, Annex 6, lifted the default against Lim Tanhu because of the additional
consideration that "he has a defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained notwithstanding that exactly the
same "contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the
legal postures in the orders in question can hardly convince Us that the matters here in
issue were accorded due and proper consideration by respondent court. In fact, under the
57 | P a g e

circumstances herein obtaining, it seems appropriate to stress that, having in view the
rather substantial value of the subject matter involved together with the obviously
contentious character of plaintiff's claim, which is discernible even on the face of the
complaint itself, utmost care should have been taken to avoid the slightest suspicion of
improper motivations on the part of anyone concerned. Upon the considerations hereunder
to follow, the Court expresses its grave concern that much has to be done to dispel the
impression that herein petitioners and their co-defendants are being railroaded out of their
rights and properties without due process of law, on the strength of procedural
technicalities adroitly planned by counsel and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor and the citations of supposedly
pertinent provisions and jurisprudence made therein, cannot be said to have proceeded
from utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity
with which the motion to dismiss the case against non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo was disposed of, which definitely ought not to have been
the case. The trial was proceeding with the testimony of the first witness of plaintiff and he
was still under re-cross-examination. Undoubtedly, the motion to dismiss at that stage and
in the light of the declaration of default against the rest of the defendants was a well
calculated surprise move, obviously designed to secure utmost advantage of the situation,
regardless of its apparent unfairness. To say that it must have been entirely unexpected by
all the defendants, defaulted and non-defaulted , is merely to rightly assume that the
parties in a judicial proceeding can never be the victims of any procedural waylaying as
long as lawyers and judges are imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who
were entitled to be notified of such unanticipated dismissal motion did not get due notice
thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice
required by Section 4 of Rule 15. How could they have had such indispensable notice
when the motion was set for hearing on Monday, October 21, 1974, whereas the counsel
for Lim Teck Chuan, Atty. Sitoy was personally served with the notice only on Saturday,
October 19, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by
registered mail which was posted only that same Saturday, October 19, 1974? According
to Chief Justice Moran, "three days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may not validly act on the
motion." (Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the
correct construction of Section 4 of Rule 15. And in the instant case, there can be no
question that the notices to the non-defaulted defendants were short of the requirement of
said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is
the seeming inattention of respondent judge to the explicit mandate of the pertinent rule,
not to speak of the imperatives of fairness, considering he should have realized the far-
reaching implications, specially from the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he was aware of said consequences, for
simultaneously with his order of dismissal, he immediately set the case for the ex-parte
hearing of the evidence against the defaulted defendants, which, incidentally, from the
tenor of his order which We have quoted above, appears to have been done by him motu
propio As a matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is
inconsistent with a number of known juridical principles concerning defaults, which We will
here take occasion to reiterate and further elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps some of these principles have not been
amply projected and elaborated before, and such paucity of elucidation could be the
reason why respondent judge must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial actuation that unduly deprives any party
of the right to be heard without clear and specific warrant under the terms of existing rules
or binding jurisprudence. Extreme care must be the instant reaction of every judge when
confronted with a situation involving risks that the proceedings may not be fair and square
to all the parties concerned. Indeed, a keen sense of fairness, equity and justice that
constantly looks for consistency between the letter of the adjective rules and these basic
principles must be possessed by every judge, If substance is to prevail, as it must, over
form in our courts. Literal observance of the rules, when it is conducive to unfair and undue
advantage on the part of any litigant before it, is unworthy of any court of justice and equity.
Withal, only those rules and procedure informed, with and founded on public policy
deserve obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should
not be amiss to advert first to the patent incorrectness, apparent on the face of the record,
of the aforementioned order of dismissal of October 21, 1974 of the case below as regards
non-defaulted defendants Lim and Leonardo. While it is true that said defendants are not
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petitioners herein, the Court deems it necessary for a full view of the outrageous
procedural strategy conceived by respondent's counsel and sanctioned by respondent
court to also make reference to the very evident fact that in ordering said dismissal
respondent court disregarded completely the existence of defendant's counterclaim which
it had itself earlier held if indirectly, to be compulsory in nature when it refused to dismiss
the same on the ground alleged by respondent Tan that he docketing fees for the filing
thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be
noted in the allegations hereof aforequoted, it arose out of or is necessarily connected with
the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely,
plaintiff's allegedly being the widow of the deceased Tee Hoon entitled, as such, to
demand accounting of and to receive the share of her alleged late husband as partner of
defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial
Company, the truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said allegations even
before she filed her complaint, for she had in fact admitted her common-law relationship
with said deceased in a document she had jointly executed with him by way of agreement
to terminate their illegitimate relationship, for which she received P40,000 from the
deceased, and with respect to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had already quitclaimed, with the
assistance of able counsel, whatever rights if any she had thereto in November, 1967, for
the sum of P25,000 duly receipted by her, which quitclaim was, however, executed,
according to respondent herself in her amended complaint, through fraud. And having filed
her complaint knowing, according to defendants, as she ought to have known, that the
material allegations thereof are false and baseless, she has caused them to suffer
damages. Undoubtedly, with such allegations, defendants' counterclaim is compulsory, not
only because the same evidence to sustain it will also refute the cause or causes of action
alleged in plaintiff's complaint, (Moran, supra p. 352) but also because from its very nature,
it is obvious that the same cannot "remain pending for independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court." Defendants Lim and Leonardo
had no opportunity to object to the motion to dismiss before the order granting the same
was issued, for the simple reason that they were not opportunity notified of the motion
therefor, but the record shows clearly that at least defendant Lim immediately brought the
matter of their compulsory counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other defendant,
Leonardo, predicated his motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiffs supposed absolute right to choose
her adversaries but also held that the counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not
have been granted. As the plaintiff's complaint has been framed, all the six defendants are
charged with having actually taken part in a conspiracy to misappropriate, conceal and
convert to their own benefit the profits, properties and all other assets of the partnership
Glory Commercial Company, to the extent that they have allegedly organized a
corporation, Glory Commercial Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the existence of the alleged
conspiracy or holding the capital of the corporation to be the money of the partnership is
legally possible without the presence of all the defendants. The non-defaulted defendants
are alleged to be stockholders of the corporation and any decision depriving the same of all
its assets cannot but prejudice the interests of said defendants. Accordingly, upon these
premises, and even prescinding from the other reasons to be discussed anon it is clear
that all the six defendants below, defaulted and non-defaulted, are indispensable parties.
Respondents could do no less than grant that they are so on page 23 of their answer. Such
being the case, the questioned order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and to
order the inclusion of such party. (The Revised Rules of Court, Annotated & Commented
by Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101
Phil. 705.) Such an order is unavoidable, for the "general rule with reference to the making
of parties in a civil action requires the joinder of all necessary parties wherever possible,
and the joinder of all indispensable parties under any and all conditions, the presence of
those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico,
47 Phil. 345, at p. 347.) It is precisely " when an indispensable party is not before the court
(that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The
absence of an indispensable party renders all subsequent actuations of the court null and
void, for want of authority to act, not only as to the absent parties but even as to those
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present. In short, what respondent court did here was exactly the reverse of what the law
ordains it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the
motions for reconsideration of the dismissal order filed by the non-defaulted defendants,
His Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon
which he predicates his right of action, or the parties he desires to sue, without dictation or
imposition by the court or the adverse party. If he makes a mistake in the choice of his right
of action, or in that of the parties against whom he seeks to enforce it, that is his own
concern as he alone suffers therefrom. The plaintiff cannot be compelled to choose his
defendants, He may not, at his own expense, be forced to implead anyone who, under the
adverse party's theory, is to answer for defendant's liability. Neither may the Court compel
him to furnish the means by which defendant may avoid or mitigate their liability. (Vao vs.
Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause
of action against the defendants-movants if in the course of the trial she believes she can
enforce it against the remaining defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion
of October 18, 1974 by referring to the action he had taken as being "dismissal of the
complaint against them or their being dropped therefrom", without perceiving that the
reason for the evidently intentional ambiguity is transparent. The apparent idea is to rely on
the theory that under Section 11 of Rule 3, parties may be dropped by the court upon
motion of any party at any stage of the action, hence "it is the absolute right prerogative of
the plaintiff to choosethe parties he desires to sue, without dictation or imposition by the
court or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's
motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on
Section 11 of Rule 3. But the truth is that nothing can be more incorrect. To start with, the
latter rule does not comprehend whimsical and irrational dropping or adding of parties in a
complaint. What it really contemplates is erroneous or mistaken non-joinder and misjoinder
of parties. No one is free to join anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that it was proper and the subsequent
dropping is requested because it has turned out that such inclusion was a mistake. And
this is the reason why the rule ordains that the dropping be "on such terms as are just"
just to all the other parties. In the case at bar, there is nothing in the record to legally justify
the dropping of the non-defaulted defendants, Lim and Leonardo. The motion of October
18, 1974 cites none. From all appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting such a motion inquires for the
reasons and in the appropriate instances directs the granting of some form of
compensation for the trouble undergone by the defendant in answering the complaint,
preparing for or proceeding partially to trial, hiring counsel and making corresponding
expenses in the premises. Nothing of these, appears in the order in question. Most
importantly, His Honor ought to have considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their objection at that, would certainly be
unjust not only to the petitioners, their own parents, who would in consequence be entirely
defenseless, but also to Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against their parents. Respondent court
paid no heed at all to the mandate that such dropping must be on such terms as are just"
meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October
21, 1974 as well as its order of December 6, 1974 denying reconsideration of such
dismissal. As We make this ruling, We are not oblivious of the circumstance that
defendants Lim and Leonardo are not parties herein. But such consideration is
inconsequential. The fate of the case of petitioners is inseparably tied up with said order of
dismissal, if only because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We
have to pass on the legality of said order, if We are to decide the case of herein petitioners
properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning
of the dismissal is from another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself has already release from her
claims? On the other hand, as far as their respective parents-co-defendants are
concerned, they must have realized that they (their parents) could even be benefited by
such dismissal because they could question whether or not plaintiff can still prosecute her
case against them after she had secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept of default becomes
relevant.
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At this juncture, it may also be stated that the decision of the Court of Appeals of January
24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of dismissal of October 21, 1974, has
no bearing at all in this case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was premature inasmuch as the trial
court had not yet resolved the motion of the defendants of October 28, 1974 praying that
said disputed order be quashed, but principally because herein petitioners were not parties
in that proceeding and cannot, therefore, be bound by its result. In particular, We deem it
warranted to draw the attention of private respondent's counsel to his allegations in
paragraphs XI to XIV of his answer, which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear to the Court that the appeals court
had upheld the legality and validity of the actuations of the trial court being questioned,
when as a matter of indisputable fact, the dismissal of the petition was based solely and
exclusively on its being premature without in any manner delving into its merits. The Court
must and does admonish counsel that such manner of pleading, being deceptive and
lacking in candor, has no place in any court, much less in the Supreme Court, and if We
are adopting a passive attitude in the premises, it is due only to the fact that this is
counsel's first offense. But similar conduct on his part in the future will definitely be dealt
with more severely. Parties and counsel would be well advised to avoid such attempts to
befuddle the issues as invariably then will be exposed for what they are, certainly unethical
and degrading to the dignity of the law profession. Moreover, almost always they only
betray the inherent weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the impugned orders
must have proceeded from inadequate apprehension of the fundamental precepts
governing such procedure under the Rules of Court. It is time indeed that the concept of
this procedural device were fully understood by the bench and bar, instead of being merely
taken for granted as being that of a simple expedient of not allowing the offending party to
take part in the proceedings, so that after his adversary shall have presented his evidence,
judgment may be rendered in favor of such opponent, with hardly any chance of said
judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule
is concerned solely with default resulting from failure of the defendant or defendants to
answer within the reglementary period. Referring to the simplest form of default, that is,
where there is only one defendant in the action and he fails to answer on time, Section 1 of
the rule provides that upon "proof of such failure, (the court shall) declare the defendant in
default. Thereupon the court shall proceed to receive the plaintiff's evidence and render
judgment granting him such relief as the complaint and the facts proven may warrant." This
last clause is clarified by Section 5 which says that "a judgment entered against a party in
default shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the
full import of what they contemplate. To begin with, contrary to the immediate notion that
can be drawn from their language, these provisions are not to be understood as meaning
that default or the failure of the defendant to answer should be "interpreted as an
admission by the said defendant that the plaintiff's cause of action find support in the law or
that plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary &
Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42;
Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111.
328; Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A.
253.)
Being declared in default does not constitute a waiver of rights except that of being heard
and of presenting evidence in the trial court. According to Section 2, "except as provided in
Section 9 of Rule 13, a party declared in default shall not be entitled to notice of
subsequent proceedings, nor to take part in the trial." That provision referred to reads: "No
service of papers other than substantially amended pleadings and final orders or
judgments shall be necessary on a party in default unless he files a motion to set aside the
order of default, in which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not." And pursuant to Section 2 of
Rule 41, "a party who has been declared in default may likewise appeal from the judgment
rendered against him as contrary to the evidence or to the law, even if no petition for relief
to set aside the order of default has been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it
may be said that by defaulting he leaves himself at the mercy of the court, the rules see to
it that any judgment against him must be in accordance with law. The evidence to support
the plaintiff's cause is, of course, presented in his absence, but the court is not supposed to
admit that which is basically incompetent. Although the defendant would not be in a
position to object, elementary justice requires that, only legal evidence should be
considered against him. If the evidence presented should not be sufficient to justify a
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judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment
should be justifiable, it cannot exceed in amount or be different in kind from what is prayed
for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial
judges, as was done by His Honor in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in default. Such a Practice is
wrong in principle and orientation. It has no basis in any rule. When a defendant allows
himself to be declared in default, he relies on the faith that the court would take care that
his rights are not unduly prejudiced. He has a right to presume that the law and the rules
will still be observed. The proceedings are held in his forced absence, and it is but fair that
the plaintiff should not be allowed to take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. Thus, in such instances, there is need for
more attention from the court, which only the judge himself can provide. The clerk of court
would not be in a position much less have the authority to act in the premises in the
manner demanded by the rules of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably inferior preparation for the
functions of a judge. Besides, the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare
as a matter of judicial policy that there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave
enough opportunity open for possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by
default may amount to a positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a careful and liberal examination of
the grounds upon which the defendant may seek to set it aside." (Moran, supra p. 534,
citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1
of Rule 18 aforequoted which says that "thereupon the court shall proceed to receive the
plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch should the
court immediately try the case on the very day of or shortly after the declaration of default
is far outweighed by the inconvenience and complications involved in having to undo
everything already done in the event the defendant should justify his omission to answer
on time.
The foregoing observations, as may be noted, refer to instances where the only defendant
or all the defendants, there being several, are declared in default. There are additional
rules embodying more considerations of justice and equity in cases where there are
several defendants against whom a common cause of action is averred and not all of them
answer opportunely or are in default, particularly in reference to the power of the court to
render judgment in such situations. Thus, in addition to the limitation of Section 5 that the
judgment by default should not be more in amount nor different in kind from the reliefs
specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the court
in rendering judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. When a
complaint states a common cause of action against several defendant some of whom
answer, and the others fail to do so, the court shall try the case against all upon the answer
thus filed and render judgment upon the evidence presented. The same proceeding
applies when a common cause of action is pleaded in a counterclaim, cross-claim and
third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling
jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some
appear to defend the case on the merits while others make default, the defense interposed
by those who appear to litigate the case inures to the benefit of those who fail to appear,
and if the court finds that a good defense has been made, all of the defendants must be
absolved. In other words, the answer filed by one or some of the defendants inures to the
benefit of all the others, even those who have not seasonably filed their answer. (Bueno v.
Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding where a
complaint states a common cause of action against several defendants, and one of them
makes default, is simply to enter a formal default order against him, and proceed with the
cause upon the answers of the others. The defaulting defendant merely loses his standing
in court, he not being entitled to the service of notice in the cause, nor to appear in the suit
in any way. He cannot adduce evidence; nor can he be heard at the final hearing, (Lim
Toco v. Go Fay, 80 Phil. 166.) although he may appeal the judgment rendered against him
on the merits. (Rule 41, sec. 2.) If the case is finally decided in the plaintiff's favor, a final
decree is then entered against all the defendants; but if the suit should be decided against
the plaintiff, the action will be dismissed as to all the defendants alike. (Velez v. Ramas, 40
Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words the judgment
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will affect the defaulting defendants either favorably or adversely. (Castro v. Pea, 80 Phil.
488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Pea, supra.)
(Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran, this Court
elaborated on the construction of the same rule when it sanctioned the execution, upon
motion and for the benefit of the defendant in default, of a judgment which was adverse to
the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be such, having been declared in default?
In Frow vs. De la Vega,supra, cited as authority in Velez vs. Ramas, supra, the Supreme
Court of the United States adopted as ground for its own decision the following ruling of the
New York Court of Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made default, the
plaintiff should have a decree even against him, where the court is satisfied from the proofs
offered by the other, that in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause
of action against several defendants, the complainant's rights or lack of them in the
controversy have to be the same, and not different, as against all the defendant's although
one or some make default and the other or others appear, join issue, and enter into trial.
For instance, in the case of Clason vs. Morris above cited, the New York Court of Errors in
effect held that in such a case if the plaintiff is not entitled to a decree, he will not be
entitled to it, not only as against the defendant appearing and resisting his action but also
as against the one who made default. In the case at bar, the cause of action in the
plaintiff's complaint was common against the Mayor of Manila, Emilia Matanguihan, and
the other defendants in Civil Case No. 1318 of the lower court. The Court of First Instance
in its judgment found and held upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and defendant Matanguihan the latter was
the one legally entitled to occupy the stalls; and it decreed, among other things, that said
plaintiff immediately vacate them. Paraphrasing the New York Court of Errors, it would be
unreasonable to hold now that because Matanguihan had made default, the said plaintiff
should be declared, as against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so firmly satisfied, from the proofs
offered by the other defendant, that the same plaintiff was not entitled to such occupancy
that it peremptorily ordered her to vacate the stalls. If in the cases of Clason vs. Morris,
supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the decrees entered
inured to the benefit of the defaulting defendants, there is no reason why that entered in
said case No. 1318 should not be held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three cases plainly implies that there is
nothing in the law governing default which would prohibit the court from rendering
judgment favorable to the defaulting defendant in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim that benefit, for it would not be a benefit if the
supposed beneficiary were barred from claiming it; and if the benefit necessitated the
execution of the decree, she must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It
provides that when a complaint states a common cause of action against several
defendants, some of whom answer, and the others make default, 'the court shall try the
case against all upon the answer thus filed and render judgment upon the evidence
presented by the parties in court'. It is obvious that under this provision the case is tried
jointly not only against the defendants answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and the judgment, if adverse, will prejudice
the defaulting defendants no less than those who answer. In other words, the defaulting
defendants are held bound by the answer filed by their co-defendants and by the judgment
which the court may render against all of them. By the same token, and by all rules of
equity and fair play, if the judgment should happen to be favorable, totally or partially, to
the answering defendants, it must correspondingly benefit the defaulting ones, for it would
not be just to let the judgment produce effects as to the defaulting defendants only when
adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the
following words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion
in rendering a default judgment against the PC, respondents allege that, not having filed its
answer within the reglementary period, the PC was in default, so that it was proper for
Patanao to forthwith present his evidence and for respondent Judge to render said
judgment. It should be noted, however, that in entering the area in question and seeking to
prevent Patanao from continuing his logging operations therein, the PC was merely
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executing an order of the Director of Forestry and acting as his agent. Patanao's cause of
action against the other respondents in Case No. 190, namely, the Director of Forestry, the
District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of action against several defendants some of
whom answer and the others fail to do so, the court shall try the case against all upon the
answer thus filed (by some) and render judgment upon the evidence presented.' In other
words, the answer filed by one or some of the defendants inures to the benefit of all the
others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all
of the respondents therein, a decision in favor of one of them would necessarily favor the
others. In fact, the main issue, in said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is not possible to decide such issue in
the negative, insofar as the Director of Forestry, and to settle it otherwise, as regards the
PC, which is merely acting as agent of the Director of Forestry, and is, therefore, his alter
ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against
several defendants, some of whom answer and the others do not, the latter or those in
default acquire a vested right not only to own the defense interposed in the answer of their
co- defendant or co-defendants not in default but also to expect a result of the litigation
totally common with them in kind and in amount whether favorable or unfavorable. The
substantive unity of the plaintiff's cause against all the defendants is carried through to its
adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice
itself. Indeed, since the singleness of the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act is integral and cannot be
split such that it cannot relieve any of them and at the same time render judgment against
the rest. Considering the tenor of the section in question, it is to be assumed that when any
defendant allows himself to be declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the rule that his default is in
essence a mere formality that deprives him of no more than the right to take part in the trial
and that the court would deem anything done by or for the answering defendant as done
by or for him. The presumption is that otherwise he would not -have seen to that he would
not be in default. Of course, he has to suffer the consequences of whatever the answering
defendant may do or fail to do, regardless of possible adverse consequences, but if the
complaint has to be dismissed in so far as the answering defendant is concerned it
becomes his inalienable right that the same be dismissed also as to him. It does not matter
that the dismissal is upon the evidence presented by the plaintiff or upon the latter's mere
desistance, for in both contingencies, the lack of sufficient legal basis must be the cause.
The integrity of the common cause of action against all the defendants and the
indispensability of all of them in the proceedings do not permit any possibility of waiver of
the plaintiff's right only as to one or some of them, without including all of them, and so, as
a rule, withdrawal must be deemed to be a confession of weakness as to all. This is not
only elementary justice; it also precludes the concomitant hazard that plaintiff might resort
to the kind of procedural strategem practiced by private respondent herein that resulted in
totally depriving petitioners of every opportunity to defend themselves against her claims
which, after all, as will be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into consideration the tenor of
the pleadings and the probative value of the competent evidence which were before the
trial court when it rendered its assailed decision where all the defendants are indispensable
parties, for which reason the absence of any of them in the case would result in the court
losing its competency to act validly, any compromise that the plaintiff might wish to make
with any of them must, as a matter of correct procedure, have to await until after the
rendition of the judgment, at which stage the plaintiff may then treat the matter of its
execution and the satisfaction of his claim as variably as he might please. Accordingly, in
the case now before Us together with the dismissal of the complaint against the non-
defaulted defendants, the court should have ordered also the dismissal thereof as to
petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the
action just discussed because all the defendants here have already joined genuine issues
with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at
the pre-trial, the same could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and Leonardo, with
whom they have common defenses, could take care of their defenses as well. Anything
that might have had to be done by them at such pre-trial could have been done for them by
their children, at least initially, specially because in the light of the pleadings before the
court, the prospects of a compromise must have appeared to be rather remote. Such
attitude of petitioners is neither uncommon nor totally unjustified. Under the circumstances,
to declare them immediately and irrevocably in default was not an absolute necessity.
Practical considerations and reasons of equity should have moved respondent court to be
64 | P a g e

more understanding in dealing with the situation. After all, declaring them in default as
respondent court did not impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein
petitioners were entitled to notice of plaintiff's motion to drop their co-defendants Lim and
Leonardo, considering that petitioners had been previously declared in default. In this
connection, the decisive consideration is that according to the applicable rule, Section 9,
Rule 13, already quoted above, (1) even after a defendant has been declared in default,
provided he "files a motion to set aside the order of default, he shall be entitled to notice
of all further proceedings regardless of whether the order of default is set aside or not" and
(2) a party in default who has not filed such a motion to set aside must still be served with
all "substantially amended or supplemented pleadings." In the instant case, it cannot be
denied that petitioners had all filed their motion for reconsideration of the order declaring
them in default. Respondents' own answer to the petition therein makes reference to the
order of April 3, 1973, Annex 8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum herein this motion is referred to as
"a motion to set aside the order of default." But as We have not been favored by the parties
with a copy of the said motion, We do not even know the excuse given for petitioners'
failure to appear at the pre-trial, and We cannot, therefore, determine whether or not the
motion complied with the requirements of Section 3 of Rule 18 which We have held to be
controlling in cases of default for failure to answer on time. (The Philippine-British Co. Inc.
etc. et al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but
one for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues
have already been joined. In fact, evidence had been partially offered already at the pre-
trial and more of it at the actual trial which had already begun with the first witness of the
plaintiff undergoing re-cross-examination. With these facts in mind and considering that
issues had already been joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for an oath or a verification as to
the merits of the defense of the defaulted defendants in their motion to reconsider their
default. Inasmuch as none of the parties had asked for a summary judgment there can be
no question that the issues joined were genuine, and consequently, the reason for
requiring such oath or verification no longer holds. Besides, it may also be reiterated that
being the parents of the non-defaulted defendants, petitioners must have assumed that
their presence was superfluous, particularly because the cause of action against them as
well as their own defenses are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is secondary and the requirements of
Section 3 of Rule 18 need not be strictly complied with, unlike in cases of default for failure
to answer. We can thus hold as We do hold for the purposes of the revival of their right to
notice under Section 9 of Rule 13, that petitioner's motion for reconsideration was in
substance legally adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended
complaint was virtually a second amendment of plaintiffs complaint. And there can be no
doubt that such amendment was substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the remaining defendants, the said
petitioners, would have to answer for jointly and severally. Accordingly, notice to petitioners
of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule
above-quoted. Consequently, respondent court had no authority to act on the motion, to
dismiss, pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules
of Court clearly provide that no motion shall be acted upon by the Court without the proof
of service of notice thereof, together with a copy of the motion and other papers
accompanying it, to all parties concerned at least three days before the hearing thereof,
stating the time and place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules
of Court (now Sec. 15, new Rules). When the motion does not comply with this
requirement, it is not a motion. It presents no question which the court could decide. And
the Court acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier,
et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of Lipa
vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The
Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of dismissal of October 21, 1974 is fatally
ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position that certiorari is
not the proper remedy of petitioners. It is contended that inasmuch as said petitioners have
in fact made their appeal already by filing the required notice of appeal and appeal bond
and a motion for extension to file their record on appeal, which motion was granted by
65 | P a g e

respondent court, their only recourse is to prosecute that appeal. Additionally, it is also
maintained that since petitioners have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28, 1974, they have lost their right to
assail by certiorari the actuations of respondent court now being questioned, respondent
court not having been given the opportunity to correct any possible error it might have
committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the
court below have gone so far out of hand that prompt action is needed to restore order in
the entangled situation created by the series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the proceedings in lower judicial courts and
tribunals within legal bounds, so that due process and the rule of law may prevail at all
times and arbitrariness, whimsicality and unfairness which justice abhors may immediately
be stamped out before graver injury, juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal, it is undoubtedly the better rule to
allow the special remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its consequences
that the long and cumbersome procedure of appeal will only further aggravate the situation
of the aggrieved party because other untoward actuations are likely to materialize as
natural consequences of those already perpetrated. If the law were otherwise, certiorari
would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the
case at bar. Verily, this is one case that calls for the exercise of the Supreme Court's
inherent power of supervision over all kinds of judicial actions of lower courts. Private
respondent's procedural technique designed to disable petitioners to defend themselves
against her claim which appears on the face of the record itself to be at least highly
controversial seems to have so fascinated respondent court that none would be surprised
should her pending motion for immediate execution of the impugned judgment receive
similar ready sanction as her previous motions which turned the proceedings into a one-
sided affair. The stakes here are high. Not only is the subject matter considerably
substantial; there is the more important aspect that not only the spirit and intent of the rules
but even the basic rudiments of fair play have been disregarded. For the Court to leave
unrestrained the obvious tendency of the proceedings below would be nothing short of
wittingly condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here in question is
legally anomalous. It is predicated on two fatal malactuations of respondent court namely
(1) the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo
and (2) the ex-parte reception of the evidence of the plaintiff by the clerk of court, the
subsequent using of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of
dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice
of the motion therefor to the non-defaulted defendants, aside from there being no notice at
all to herein petitioners; (2) the common answer of the defendants, including the non-
defaulted, contained a compulsory counterclaim incapable of being determined in an
independent action; and (3) the immediate effect of such dismissal was the removal of the
two non-defaulted defendants as parties, and inasmuch as they are both indispensable
parties in the case, the court consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular
delegation to the clerk of court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and subsequent rendition of the
judgment by default based thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on default, to a common and single
fate with their non-defaulted co-defendants. And We are not yet referring, as We shall do
this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent
court's actuations do not call for a common corrective remedy. We cannot simply rule that
all the impugned proceedings are null and void and should be set aside, without being
faced with the insurmountable obstacle that by so doing We would be reviewing the case
as against the two non-defaulted defendants who are not before Us not being parties
hereto. Upon the other hand, for Us to hold that the order of dismissal should be allowed to
stand, as contended by respondents themselves who insist that the same is already final,
not only because the period for its finality has long passed but also because allegedly,
albeit not very accurately, said 'non-defaulted defendants unsuccessfully tried to have it set
aside by the Court of Appeals whose decision on their petition is also already final, We
would have to disregard whatever evidence had been presented by the plaintiff against
them and, of course, the findings of respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words, whichever of the two apparent
66 | P a g e

remedies the Court chooses, it would necessarily entail some kind of possible juridical
imperfection. Speaking of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We
have not heard and who even respondents would not wish to have anything anymore to do
with the case. On the other hand, to include petitioners in the dismissal would naturally set
at naught every effort private respondent has made to establish or prove her case thru
means sanctioned by respondent court. In short, We are confronted with a legal para-
dilemma. But one thing is certain this difficult situations has been brought about by none
other than private respondent who has quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective law, even when apparently accurate
from the literal point of view, cannot prevail over the imperatives of the substantive law and
of equity that always underlie them and which have to be inevitably considered in the
construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court has arrived at the
conclusion that as between the two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in law a dismissal of the whole case of the
plaintiff, including as to petitioners herein. Consequently, all proceedings held by
respondent court subsequent thereto including and principally its decision of December 20,
1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in
securing the decision in her favor was ill-conceived. It was characterized by that which
every principle of law and equity disdains taking unfair advantage of the rules of
procedure in order to unduly deprive the other party of full opportunity to defend his cause.
The idea of "dropping" the non-defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense, without considering that all of
them are indispensable parties to a common cause of action to which they have countered
with a common defense readily connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious weakness of plaintiff's evidence is
taken into account, one easily understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the commission of unfairness and inequity in
the application of the rules of procedure, particularly when the propriety of reliance thereon
is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His
Honor, run counter to such basic principles in the rules on default and such elementary
rules on dismissal of actions and notice of motions that no trial court should be unaware of
or should be mistaken in applying. We are at a loss as to why His Honor failed to see
through counsel's inequitous strategy, when the provisions (1) on the three-day rule on
notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of
plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting
the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon
defendants in default when there are substantial amendments to pleadings, Section 9,
Rule 13, and (5) on the unity and integrity of the fate of defendants in default with those not
in default where the cause of action against them and their own defenses are common,
Section 4, Rule 18, are so plain and the jurisprudence declaratory of their intent and proper
construction are so readily comprehensible that any error as to their application would be
unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private
respondent and/or her counsel. She cannot, therefore, complain that she is being made to
unjustifiably suffer the consequences of what We have found to be erroneous orders of
respondent court. It is only fair that she should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the
decision in question cannot stand close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness of the cause of the plaintiff.
To be sure, We have been giving serious thought to the idea of merely returning this case
for a resumption of trial by setting aside the order of dismissal of October 21, 1974, with all
its attendant difficulties on account of its adverse effects on parties who have not been
heard, but upon closer study of the pleadings and the decision and other circumstances
extant in the record before Us, We are now persuaded that such a course of action would
only lead to more legal complications incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a bad situation. Anyway, We feel
confident that by and large, there is enough basis here and now for Us to rule out the claim
of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered
on its face with deficiencies and imperfections which would have had no reason for being
were there less haste and more circumspection in rendering the same. Recklessness in
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jumping to unwarranted conclusions, both factual and legal, is at once evident in its
findings relative precisely to the main bases themselves of the reliefs granted. It is
apparent therein that no effort has been made to avoid glaring inconsistencies. Where
references are made to codal provisions and jurisprudence, inaccuracy and inapplicability
are at once manifest. It hardly commends itself as a deliberate and consciencious
adjudication of a litigation which, considering the substantial value of the subject matter it
involves and the unprecedented procedure that was followed by respondent's counsel,
calls for greater attention and skill than the general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took
another course of action, private respondent would still be able to make out any case
against petitioners, not to speak of their co-defendants who have already been exonerated
by respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late
Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the
commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim
Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that
after the death of her husband on March 11, 1966 she is entitled to share not only in the
capital and profits of the partnership but also in the other assets, both real and personal,
acquired by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine
Independent Church of Cebu City on December, 20, 1949; that Po Chuan died on March
11, 1966; that the plaintiff and the late Po Chuan were childless but the former has a foster
son Antonio Nuez whom she has reared since his birth with whom she lives up to the
present; that prior to the marriage of the plaintiff to Po Chuan the latter was already
managing the partnership Glory Commercial Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff to
Po Chuan she was engaged in the drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which
amount she gave to her husband in the presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the
investment of the above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale and retail trade of
cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the
elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese
citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the controlling interest; that defendants
Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan
.... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision
whether or not in making its findings of fact the court took into account the allegations in
the pleadings of the parties and whatever might have transpired at the pre-trial. All that We
can gather in this respect is that references are made therein to pre-trial exhibits and to
Annex A of the answer of the defendants to plaintiff's amended complaint. Indeed, it was
incumbent upon the court to consider not only the evidence formally offered at the trial but
also the admissions, expressed or implied, in the pleadings, as well as whatever might
have been placed before it or brought to its attention during the pre-trial. In this connection,
it is to be regretted that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the pre-trial order,
if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to
compromise or settle their differences, is for the court to be apprised of the unsettled
issues between the parties and of their respective evidence relative thereto, to the end that
it may take corresponding measures that would abbreviate the trial as much as possible
and the judge may be able to ascertain the facts with the least observance of technical
rules. In other words whatever is said or done by the parties or their counsel at the pre- trial
serves to put the judge on notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of justice and a more accurate
determination of the facts, make inquiries about or require clarifications of matters taken up
68 | P a g e

at the pre-trial, before finally resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence, matters dealt with therein may
not be disregarded in the process of decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be
observed that the court's conclusion about the supposed marriage of plaintiff to the
deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before
it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take
each other as husband and wife "shall be set forth in an instrument" signed by the parties
as well as by their witnesses and the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic copy of the marriage contract. While
a marriage may also be proved by other competent evidence, the absence of the contract
must first be satisfactorily explained. Surely, the certification of the person who allegedly
solemnized a marriage is not admissible evidence of such marriage unless proof of loss of
the contract or of any other satisfactory reason for its non-production is first presented to
the court. In the case at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent
evidence, there being absolutely no showing as to unavailability of the marriage contract
and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly
signed by a second assistant provincial fiscal not being authorized by law, since it is not
part of the functions of his office. Besides, inasmuch as the bishop did not testify, the same
is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness
Antonio Nuez, there can be no question that they are both self-serving and of very little
evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all
her rights in this case to said Nuez, thereby making him the real party in interest here
and, therefore, naturally as biased as herself. Besides, in the portion of the testimony of
Nuez copied in Annex C of petitioner's memorandum, it appears admitted that he was
born only on March 25, 1942, which means that he was less than eight years old at the
supposed time of the alleged marriage. If for this reason alone, it is extremely doubtful if he
could have been sufficiently aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of
birth of one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother.
Significantly, respondents have not made any adverse comment on this document. It is
more likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim
Beng. But she testified she was childless. So which is which? In any event, if on the
strength of this document, Nuez is actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in 1949, the year of her alleged
marriage to Po Chuan, and even then, considering such age, his testimony in regard
thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of
great weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax
return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was
Ang Sick Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated
that she had been living with the deceased without benefit of marriage and that she was
his "common-law wife". Surely, these two documents are far more reliable than all the
evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence
offered to the judge himself, not to the clerk of court, and should have at least moved him
to ask plaintiff to explain if not rebut it before jumping to the conclusion regarding her
alleged marriage to the deceased, Po Chuan. And in regard to the quitclaim containing the
admission of a common-law relationship only, it is to be observed that His Honor found that
"defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on November 29,
1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in
the capital and profits of the business of Glory Commercial Co. which was engaged in the
hardware business", without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that no evidence to prove that
allegation of the plaintiff had been presented by her or that whatever evidence was actually
offered did not produce persuasion upon the court. Stated differently, since the existence
of the quitclaim has been duly established without any circumstance to detract from its
legal import, the court should have held that plaintiff was bound by her admission therein
that she was the common-law wife only of Po Chuan and what is more, that she had
already renounced for valuable consideration whatever claim she might have relative to the
partnership Glory Commercial Co.
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And when it is borne in mind that in addition to all these considerations, there are
mentioned and discussed in the memorandum of petitioners (1) the certification of the
Local Civil Registrar of Cebu City and (2) a similar certification of the Apostolic Prefect of
the Philippine Independent Church, Parish of Sto. Nio, Cebu City, that their respective
official records corresponding to December 1949 to December 1950 do not show any
marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which certifications
have been impugned by respondent until now, it stands to reason that plaintiff's claim of
marriage is really unfounded. Withal, there is still another document, also mentioned and
discussed in the same memorandum and unimpugned by respondents, a written
agreement executed in Chinese, but purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
T R A N S L A T I O N
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan
alias TeeHoon since 1949 but it recently occurs that we are incompatible with each other
and are not in the position to keep living together permanently. With the mutual
concurrence, we decided to terminate the existing relationship of common law-marriage
and promised not to interfere each other's affairs from now on. The Forty Thousand Pesos
(P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that
of a common-law wife but that they had settled their property interests with the payment to
her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been
satisfactorily established and that, on the contrary, the evidence on record convincingly
shows that her relation with said deceased was that of a common-law wife and
furthermore, that all her claims against the company and its surviving partners as well as
those against the estate of the deceased have already been settled and paid. We take
judicial notice of the fact that the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are members in good standing of the
Philippine Bar, with the particularity that the latter has been a member of the Cabinet and
of the House of Representatives of the Philippines, hence, absent any credible proof that
they had allowed themselves to be parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po
Chuan is not only unconvincing but has been actually overcome by the more competent
and weighty evidence in favor of the defendants, her attempt to substantiate her main
cause of action that defendants Lim Tanhu and Ng Sua have defrauded the partnership
Glory Commercial Co. and converted its properties to themselves is even more dismal.
From the very evidence summarized by His Honor in the decision in question, it is clear
that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted
impliedly in defendants' affirmative defense that Po Chuan's share had already been duly
settled with and paid to both the plaintiff and his legitimate family. But the evidence as to
the actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the
business that could have enabled them to make the extractions of funds alleged by plaintiff
is at best confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is
entitled to /
3
share of the assets and properties of the partnership. In fact, her prayer in
said complaint is, among others, for the delivery to her of such /
3
share. His Honor's
statement of the case as well as his findings and judgment are all to that same effect. But
what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po
Chuan, she was engaged in the drugstore business; that not long after her marriage, upon
the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount
she gave to her husband in the presence of Tanhu and was invested in the partnership
70 | P a g e

Glory Commercial Co. sometime in 1950; that after the investment of the above-stated
amount in the partnership, its business flourished and it embarked in the import business
and also engaged in the wholesale and retail trade of cement and GI sheets and under
(sic) huge profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the
partnership by reason of which the business flourished and amassed all the millions
referred to in the decision has not been alleged in the complaint, and inasmuch as what
was being rendered was a judgment by default, such theory should not have been allowed
to be the subject of any evidence. But inasmuch as it was the clerk of court who received
the evidence, it is understandable that he failed to observe the rule. Then, on the other
hand, if it was her capital that made the partnership flourish, why would she claim to be
entitled to only to /
3
of its assets and profits? Under her theory found proven by
respondent court, she was actually the owner of everything, particularly because His Honor
also found "that defendants Lim Tanhu and Ng Sua were partners in the name but they
were employees of Po Chuan that defendants Lim Tanhu and Ng Sua had no means of
livelihood at the time of their employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries therefrom; ..." (p. 27, id.) Why then
does she claim only /
3
share? Is this an indication of her generosity towards defendants or
of a concocted cause of action existing only in her confused imagination engendered by
the death of her common-law husband with whom she had settled her common-law claim
for recompense of her services as common law wife for less than what she must have
known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the
participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere employees and then elsewhere as
partners-employees, a newly found concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which allows these "partners in name" and
"partners-employees" or employees who had no means of livelihood and who must not
have contributed any capital in the business, "as Po Chuan was practically the owner of the
partnership having the controlling interest", /
3
each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture that the decision has made Po
Chuan play the inconsistent role of being "practically the owner" but at the same time
getting his capital from the P125,000 given to him by plaintiff and from which capital the
business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names
of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is likewise clear that real
properties together with the improvements in the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as these defendants were only partners-
employees of deceased Po Chuan in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of
His Honor is based on nothing but pure unwarranted conjecture. Nowhere is it shown in the
decision how said defendants could have extracted money from the partnership in the
fraudulent and illegal manner pretended by plaintiff. Neither in the testimony of Nuez nor
in that of plaintiff, as these are summarized in the decision, can there be found any single
act of extraction of partnership funds committed by any of said defendants. That the
partnership might have grown into a multi-million enterprise and that the properties
described in the exhibits enumerated in the decision are not in the names of Po Chuan,
who was Chinese, but of the defendants who are Filipinos, do not necessarily prove that
Po Chuan had not gotten his share of the profits of the business or that the properties in
the names of the defendants were bought with money of the partnership. In this
connection, it is decisively important to consider that on the basis of the concordant and
mutually cumulative testimonies of plaintiff and Nuez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new Personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the time of his death was a Chinese citizen; that
the three (3) brothers were partners in the Glory Commercial Co. but Po Chuan was
practically the owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; ....
(Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the
defendants have defrauded him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control of the affairs of the
71 | P a g e

partnership, the more logical inference is that if defendants had obtained any portion of the
funds of the partnership for themselves, it must have been with the knowledge and consent
of Po Chuan, for which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners. Incidentally again, this theory about Po
Chuan having been actively managing the partnership up to his death is a substantial
deviation from the allegation in the amended complaint to the effect that "defendants
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo,
through fraud and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Co., defendants
managed to use the funds of the partnership to purchase lands and buildings etc. (Par. 4,
p. 2 of amended complaint, Annex B of petition) and should not have been permitted to be
proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles
listed in the decision, most if not all of the properties supposed to have been acquired by
the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been
transferred to their names only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have
no obligation to account to anyone for such acquisitions in the absence of clear proof that
they had violated the trust of Po Chuan during the existence of the partnership. (See
Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve
plaintiffs' pretensions. Nuez testified that "for about 18 years he was in charge of the GI
sheets and sometimes attended to the imported items of the business of Glory Commercial
Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by the same witness as his birth
certificate, shows he was born in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or seven years old? It should
not have escaped His Honor's attention that the photographs showing the premises of
Philippine Metal Industries after its organization "a year or two after the establishment of
Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How could Nuez
have been only 13 years old then as claimed by him to have been his age in those
photographs when according to his "birth certificate", he was born in 1942? His Honor
should not have overlooked that according to the same witness, defendant Ng Sua was
living in Bantayan until he was directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about defendant Lim Teck Chuan's arrival
from Hongkong and the expenditure of partnership money for him were only told to him
allegedly by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and
hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note that according
to plaintiff herself, "Lim Tanhu was employed by her husband although he did not go there
always being a mere employee of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income
except their salaries. Actually, it is not stated, however, from what evidence such
conclusion was derived in so far as Ng Sua is concerned. On the other hand, with respect
to Lim Tanhu, the decision itself states that according to Exhibit NN-Pre trial, in the
supposed income tax return of Lim Tanhu for 1964, he had an income of P4,800 as salary
from Philippine Metal Industries alone and had a total assess sable net income of
P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per
Exhibit GG-Pretrial in the year, he had a net income of P32,000 for which be paid a tax of
P3,512.40. (id.) As early as 1962, "his fishing business in Madridejos Cebu was making
money, and he reported "a net gain from operation (in) the amount of P865.64" (id., per
Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the
properties registered in his name have come from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory
Commercial Co. without the aid of any accountant or without the same being explained by
any witness who had prepared them or who has knowledge of the entries therein. This
must be the reason why there are apparent inconsistencies and inaccuracies in the
conclusions His Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets
of the company amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-
Pre-trial, according to His Honor, showed that the total value of goods available as of the
same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed
balance sheet of the company for 1966, "the value of inventoried merchandise, both local
and imported", as found by His Honor, was P584,034.38. Again, as of December 31, 1966,
the value of the company's goods available for sale was P5,524,050.87, per Exhibit YY and
YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that
is, of the company showed its "cash analysis" was P12,223,182.55. We do not hesitate to
make the observation that His Honor, unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite conclusions therefrom, without risk of
erring and committing an injustice. In any event, there is no comprehensible explanation in
the decision of the conclusion of His Honor that there were P12,223,182.55 cash money
72 | P a g e

defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-
4, 11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the circumstances,
We are not prepared to permit anyone to predicate any claim or right from respondent
court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in
the amended complaint that a corporation denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with capital from the funds of the partnership. We
note also that there is absolutely no finding made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to plaintiff, just because they happen to be the
wives of Lim Tanhu and Ng Sua, respectively. We further note that while His Honor has
ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
/
3
of the P12,223,182.55, the supposed cash belonging to the partnership as of December
31, 1965, in the same breath, they have also been sentenced to partition and give /
3
share
of the properties enumerated in the dispositive portion of the decision, which seemingly are
the very properties allegedly purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to account for. Besides, assuming
there has not yet been any liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the status of a partnership in
liquidation and the only right plaintiff could have would be to what might result after such
liquidation to belong to the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties may be adjudicated to the heir
or legal representative of the deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would be much more extended than it is
already prevent us from further pointing out the inexplicable deficiencies and imperfections
of the decision in question. After all, what have been discussed should be more than
sufficient to support Our conclusion that not only must said decision be set aside but also
that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile
and productive of other legal complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by the parties albeit important and
perhaps pivotal has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in
respondent court in its Civil Case No. 12328 subsequent to the order of dismissal of
October 21, 1974 are hereby annulled and set aside, particularly the ex-parte proceedings
against petitioners and the decision on December 20, 1974. Respondent court is hereby
ordered to enter an order extending the effects of its order of dismissal of the action dated
October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo
Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking
any further action in said civil case gave and except as herein indicated. Costs against
private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.














73 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14617 December 9, 1920
R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.
1

Cohn and Fisher for appellants
Thomas D. Aitken and Gibbs, McDonough & Johnson for appellee.

STREET, J.:
We take occasion, from the presentation of a motion to rehear, to add a few words to an
opinion already perhaps unduly extended. Directing attention again to the interpretation of
clause (d) of paragraph II of the profit sharing agreement, which is the central feature of the
case, we note that the proponents of the motion reiterate their contention to the effect that
the discharge contemplated in that clause is merely a discharge of the guaranty, so-called,
to raise the capital which Sellner on the one part, and Haussermann and Beam on the
other, had respectively agreed to raise on or before May 6, 1914; and that the discharge of
Haussermann and Beam from this obligation left intact the broad obligation, expressed in
paragraph I of the same contract, to do all in their power to promote the Hanlon project.
Upon this point counsel say that not only the language but the punctuation of clause (d)
shows conclusively that the antecedent of the word "obligation," twice employed therein, is
the guaranty, or promise, to obtain the subscriptions within the period stated.
This may possibly be true, but the statement is apparently barren of significance; for when
the contract is carefully examined, it will be found that his promise (guaranty?) expresses
exactly the principal thing that these parties had agreed to do towards realizing the
projects. To be more specific: In one of the introductory clauses of the contract it is recited
that the parties have agreed to cooperate and assist Hanlon in the flotation of the project
for the rehabilitation of the Benguet Consolidated Mining Company; in paragraph I it is
stipulated that each shall do all in his power to float said project and make the same a
success; and in paragraph II it is agreed that said project shall be floated by the raising of
capital in a certain manner and within a certain time. In other words, that which in the
beginning is expressed in general terms as an undertaking to cooperate is finally reduced
by a process of definition to the precise obligation indicated in the mutual promises of
Sellner, Haussermann, and Beam, to raise the necessary capital within the period of six
months. Of course nobody will be misled, by the use of the very guarantee in clause (d),
into supposing that the obligation there created is of a distinct type, different from that
created by any ordinary and direct promise. In its ordinary significance the word
"guarantee" implies the creation of a collateral obligation, but here it is evidently used for
emphasis simply in the sense of promise.
What has been said shows the impossibility of separating the duty of the three associates
above-mentioned to assist in the promotion of the Hanlon project from the more specific
duty to raise the necessary capital in the particular manner set forth in clause (d). When
the one obligation was discharged the other was necessarily extinguished also.lawphi1.net
A single observation will be made upon another point, which may be indicated in the
following question: What are the conditions under which an attorney in fact is bound to
exercise a power in behalf of and for the benefit of his principal? Manifestly, before the
attorney in fact can be held liable for the breach of duty towards his principal there must
have existed a specific obligation on the part of the attorney in fact to act for the principal.
Such obligation is sometimes discoverable from an examination of the power itself, but is
more often discoverable by implication in the circumstances surrounding the parties and
their special relations with reference to each other and the subject-matter of the power.
In the present case the specific power of attorney executed by Hanlon in favor of Beam on
November 10, 1913, prior to Hanlon's departure for the United States, clearly shows that it
was executed in relation with the contract of November 5 and 6, and was to be used in
carrying those contracts into effect. Those contracts, however, as we have shown in the
principal opinion, failed and became inoperative without fault of the defendants on May 6,
1914; and so far as the record shows, there was no act which could have been done in
furtherance of those contracts prior to that date which was neglected by Beam under that
power.
Burt it will be said that, even conceding that Beam was under no positive duty to act for
Hanlon under the power of attorney in the matter of rehabilitating the mine after the sixth of
74 | P a g e

May, nevertheless as he did afterwards in fact proceed in that matter under new and
different auspices, he must now be held in equity to have been acting, in cooperation with
Haussermann, for the benefit of the old joint enterprise. The difficulty here is and this we
consider to be one of the fundamental fallacies underlying the case that the plaintiff is
attempting to enforce an equitable obligation inconsistent with the specific contract. It is a
well-known rule that no implied obligation, either legal or equitable, is ever created or
imposed by law in respect to a matter which has been made the subject of express
contract. Likewise, no implied duty can ever spring from the same solid where an express
contract has existed and has been discharged. It follows that the discharge of
Haussermann and Beam under the express provisions of clause (d), paragraph I, of the
profit-sharing agreement, is a fatal obstacle to the creation of any implied duty, legal or
equitable, derived from that contract or from the relation of the parties as incident thereto.
the rights of the parties must be determined by the contract. And this applied not only with
reference to the extent of the contractual obligation but to the conditions under which the
obligation was extinguished.itc-alf
The motion to rehear is denied. So ordered.


































75 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of
"Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in
Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses.
1
The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to
private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the
partnership interest. The partnership now constituted solely by Willy Co and Emmanuel
Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into
with the Cruz spouses in February of 1988.
2
The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in
the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati
to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and
there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co
that the latter had bought the business from the original partners and that it was for him to
decide whether or not he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in
the Jade Mountain business enterprise. His unpaid salaries remained unpaid.
3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new
partnership.
4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and
awarded him his claim for unpaid salaries, backwages and attorney's fees.
5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of
the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November
1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General Manager, and that there
76 | P a g e

was no law requiring the new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any other position.
Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted
against the original members of the preceding partnership, but these though impleaded
had, apparently, not been served with summons in the proceedings before the Labor
Arbiter.
6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims, notwithstanding
changes in the identities of the partners. Consequently, the employment contract between
Benjamin Yu and the partnership Jade Mountain could not have been affected by changes
in the latter's membership.
7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether
the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner
Yu could nonetheless assert his rights under his employment contract as against the new
partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the
legal effect of the changes in the membership of the partnership was the dissolution of the
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is
found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code
provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of any
partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the original
partnership interest. The acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal personality
of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists
for the limited purpose of winding up and closing of the affairs of the partnership. In the
case at bar, it is important to underscore the fact that the business of the old partnership
was simply continued by the new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its business affairs. In other words, the
77 | P a g e

new partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most
of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the
retiring and the incoming partners. It is not, however, necessary to inquire into such
matters.
What is important for present purposes is that, under the above described situation, not
only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al,
8
the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains liable to a third party
creditor of the old partnership.
9
The liability of the new partnership, upon the other hand, in
the set of circumstances obtaining in the case at bar, is established in Article 1840 of the
Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of
the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners
or the representative of the deceased partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign their rights in partnership property
to one or more third persons who promise to pay the debts and who continue the business
of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the
businessunder the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set
forth in this article the creditors of the retiring or deceased partner or the representative of
the deceased partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on the
ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu
in respect of his claim for unpaid wages, is entitled to priority vis-a-visany claim of any
retired or previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine under which one or
mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts
on record are not detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to
78 | P a g e

enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to appoint a top manager of its own
choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager
did not therefore constitute unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for termination in the case at bar
was redundancy.
10
The new partnership had its own new General Manager, apparently
Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade
Mountain. Benjamin Yu's old position as Assistant General Manager thus became
superfluous or redundant.
11
It follows that petitioner Benjamin Yu is entitled to separation
pay at the rate of one month's pay for each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
employ, we consider that Benjamin Yu was very shabbily treated by the new partnership.
The old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
previously ran the whole marble quarrying, processing and exporting enterprise. His work
constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
not try to suggest that there was any cause consisting of some blameworthy act or
omission on the part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati
to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The
treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant
General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary,
bad faith treatment, for which the new Jade Mountain may legitimately be required to
respond by paying moral damages. This Court, exercising its discretion and in view of all
the circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of
six percent (6%) per annum on the amount of unpaid wages, and of his separation pay,
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the
total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to the
Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby
NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the
following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of
P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December
1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3)
years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade
Mountain.
Costs against private respondents.
SO ORDERED.





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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13680 April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by
the Court of Appeals, for the reason that only questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a
contract with defendant Serafin Depakakibo wherein they established a partnership
capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and the defendant, 40%,
for the purpose of maintaining, operating and distributing electric light and power in the
Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs. Piadosa
Buenaflor. However, the franchise or certificate of public necessity and convenience in
favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by the Public Service
Commission on May 15, 1955. But the decision of the Public Service Commission was
appealed to Us on October 21, 1955. A temporary certificate of public convenience was
issued in the name of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently
because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff
herein Mauro Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No.
479, to the new grantee Olimpia D. Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold one Crossly Diesel
Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder, by a
deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant,
alleging that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70
wooden posts with the wires connecting the generator to the different houses supplied by
electric current in the Municipality of Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained them as a consequence of which
plaintiff suffered damages. Plaintiff prayed that said properties be delivered back to him.
Three days after the filing of the complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possession
of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of
P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December 5,
1955, defendant filed an answer, denying that the generator and the equipment mentioned
in the complaint belong to the plaintiff and alleging that the same had been contributed by
the plaintiff to the partnership entered into between them in the same manner that
defendant had contributed equipments also, and therefore that he is not unlawfully
detaining them. By way of counterclaim, defendant alleged that under the partnership
agreement the parties were to contribute equipments, plaintiff contributing the generator
and the defendant, the wires for the purpose of installing the main and delivery lines; that
the plaintiff sold his contribution to the partnership, in violation of the terms of their
agreement. He, therefore, prayed that the complaint against him be dismissed; that plaintiff
be adjudged guilty of violating the partnership contract and be ordered to pay the
defendant the sum of P3,000, as actual damages, P600.00 as attorney's fees and P2,600
annually as actual damages; that the court order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on
October 25, 1956 and November 5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment and entitled to the possession thereof,
with costs against defendant. It is against this judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of Partnership, a copy of which is attached as Annex "A"
of defendant's answer and counterclaim, for the purpose set forth therein and under the
national franchise granted to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro
Lozana, contributed the amount of Eighteen Thousand Pesos (P18,000.00); said
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contributions of both parties being the appraised values of their respective properties
brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and
cancelled by order of the Public Service Commission dated March 15, 1955, promulgated
in case No. 58188, entitled, "Piadosa Buenaflor, applicant", which order has been appealed
to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of
Sale dated October 30, 1955 executed and ratified before Notary Public, Delfin Demaisip,
in and for the Municipality of Dumangas, Iloilo and entered in his Notarial Registry as Doc.
No. 832; Page No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex
"B" of defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October
30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those
properties sold were taken by the Provincial Sheriff on November 20, 1955 and delivered
to the plaintiff on November 25, 1955 upon the latter posting the required bond executed
by himself and the Luzon Surety Co., dated November 17, 1955 and ratified before the
Notary Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200;
Page 90; Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the
purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and
Felisa Harder contributed by him to the partnership for P3,500.00 as per Deed of Sale
executed and ratified before the Notary Public Rodrigo J. Harder in and for the Province of
Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and made an integral part hereof; (pp, 27-
29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered
into the contract of partnership, plaintiff contributing the amount of P18,000, and as it is not
stated therein that there bas been a liquidation of the partnership assets at the time plaintiff
sold the Buda Diesel Engine on October 15, 1955, and since the court below had found
that the plaintiff had actually contributed one engine and 70 posts to the partnership, it
necessarily follows that the Buda diesel engine contributed by the plaintiff had become the
property of the partnership. As properties of the partnership, the same could not be
disposed of by the party contributing the same without the consent or approval of the
partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the
contract of partnership, the parties thereto have become dummies of the owner of the
franchise. The reason for this holding was the admission by defendant when being cross-
examined by the court that he and the plaintiff are dummies. We find that this admission by
the defendant is an error of law, not a statement of a fact. The Anti-Dummy law has not
been violated as parties plaintiff and defendant are not aliens but Filipinos. The Anti-
Dummy law refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the
parties agreed to maintain, operate and distribute electric light and power under the
franchise belonging to Mrs. Buenaflor, we do not find the agreement to be illegal, or
contrary to law and public policy such as to make the contract of partnership, null and
void ab initio. The agreement could have been submitted to the Public Service Commission
if the rules of the latter require them to be so presented. But the fact of furnishing the
current to the holder of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership null and void from
the beginning and render the partnership entered into by the parties for the purpose also
void and non-existent. Under the circumstances, therefore, the court erred in declaring that
the contract was illegal from the beginning and that parties to the partnership are not
bound therefor, such that the contribution of the plaintiff to the partnership did not pass to it
as its property. It also follows that the claim of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is the proper remedy, not for each
contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the
court for the taking of the property into custody by the sheriff must be, as they hereby are
set aside and the case remanded to the court below for further proceedings in accordance
with law.


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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-45624 April 25, 1939
GEORGE LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
George E. Reich for appellant.
Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of Appeals in a case
originating from the Court of First Instance of Manila wherein the herein petitioner George
Litton was the plaintiff and the respondents Hill & Ceron, Robert Hill, Carlos Ceron and
Visayan Surety & Insurance Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain number of mining
claims, and by virtue of said transaction, the defendant Carlos Ceron delivered to the
plaintiff a document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for 5,000,
5,000 and 7,000 shares respectively total 17,000 shares of Big Wedge Mining
Company, which we have sold at P0.11 (eleven centavos) per share or P1,870.00 less 1/2
per cent brokerage.
HILL & CERON


By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and
unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The court, after trial,
ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership
Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On appeal to the
Court of Appeals, the latter affirmed the decision of the court on May 29, 1937, having
reached the conclusion that Ceron did not intend to represent and did not act for the firm
Hill & Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals as to
the question of fact just mentioned, namely, that Ceron individually entered into the
transaction with the plaintiff, but in view, however, of certain undisputed facts and of certain
regulations and provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law as effected by Hill
& Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he
and Ceron, during the partnership, had the same power to buy and sell; that in said
partnership Hill as well as Ceron made the transaction as partners in equal parts; that on
the date of the transaction, February 14, 1934, the partnership between Hill and Ceron was
in existence. After this date, or on February 19th, Hill & Ceron sold shares of the Big
Wedge; and when the transaction was entered into with Litton, it was neither published in
the newspapers nor stated in the commercial registry that the partnership Hill & Ceron had
been dissolved.
Hill testified that a few days before February 14th he had a conversation with the plaintiff in
the course of which he advised the latter not to deliver shares for sale or on commission to
Ceron because the partnership was about to be dissolved; but what importance can be
attached to said advice if the partnership was not in fact dissolved on February 14th, the
date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial
registry. (See also Cardell vs. Maeru, 14 Phil., 368.) The Supreme Court of Spain held
that the dissolution of a partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March 23, 1885.)
82 | P a g e

Aside from the aforecited legal provisions, the order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from buying and selling shares on their own account.
Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as
such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for purposes of
speculation and/or for manipulating the market, irrespective of whether the purchase or
sale is made from or to a private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the firm responsible to
him. According to the articles of copartnership of 'Hill & Ceron,' filed in the Bureau of
Commerce.
Sixth. That the management of the business affairs of the copartnership shall be entrusted
to both copartners who shall jointly administer the business affairs, transactions and
activities of the copartnership, shall jointly open a current account or any other kind of
account in any bank or banks, shall jointly sign all checks for the withdrawal of funds and
shall jointly or singly sign, in the latter case, with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be signed by one of the
partners if the other partner consented. Without the consent of one partner, the other
cannot bind the firm by a written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff (the plaintiff conceded that
the firm name was not mentioned at that time), the latter has failed to prove that Hill had
consented to such contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above
quoted that the management of the business of the partnership has been entrusted to both
partners thereof, but we dissent from the view of the Court of Appeals that for one of the
partners to bind the partnership the consent of the other is necessary. Third persons, like
the plaintiff, are not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is made has the consent of
the other partner. The public need not make inquires as to the agreements had between
the partners. Its knowledge, is enough that it is contracting with the partnership which is
represented by one of the managing partners.
There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle, 112 Pac., 617.)
The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its behalf and within the
scope of his authority. (Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads in part:
Second: That the purpose or object for which this copartnership is organized is to engage
in the business of brokerage in general, such as stock and bond brokers, real brokers,
investment security brokers, shipping brokers, and other activities pertaining to the
business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage being thus
determined, none of the two partners, under article 130 of the Code of Commerce, may
legally engage in the business of brokerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership. Ceron, therefore, could
not have entered into the contract of sale of shares with Litton as a private individual, but
as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the partners could not, in
his individual capacity, engage in a transaction similar to that in which the partnership is
engaged without binding the latter, nevertheless there is no law which prohibits a partner in
the stock brokerage business for engaging in other transactions different from those of the
partnership, as it happens in the present case, because the transaction made by Ceron is
a mere personal loan, and this argument, so it is said, is corroborated by the Court of
Appeals. We do not find this alleged corroboration because the only finding of fact made by
the Court of Appeals is to the effect that the transaction made by Ceron with the plaintiff
was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay to the plaintiff,
jointly and severally, the sum of P720, with legal interest, from the date of the filing of the
complaint, minus the commission of one-half per cent (%) from the original price of
P1,870, with the costs to the respondents. So ordered.
83 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22442 August 1, 1924
ANTONIO PARDO, petitioner,
vs.
THE HERCULES LUMBER CO., INC., and IGNACIO FERRER, respondents.
W.J. O'Donovan and M.H. de Joya for petitioner.
Sumulong and Lavides and Ross, Lawrence and Selph for respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one of
the respondents herein, seeks by this original proceeding in the Supreme Court to obtain a
writ of mandamus to compel the respondents to permit the plaintiff and his duly authorized
agent and representative to examine the records and business transactions of said
company. To this petition the respondents interposed an answer, in which, after admitting
certain allegations of the petition, the respondents set forth the facts upon which they
mainly rely as a defense to the petition. To this answer the petitioner in turn interposed a
demurrer, and the cause is now before us for determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in the
Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the petitioner or his agent to inspect
the records and business transactions of the said Hercules Lumber Company, Inc., at
times desired by the petitioner. No serious question is of course made as to the right of the
petitioner, by himself or proper representative, to exercise the right of inspection conferred
by section 51 of Act No. 1459. Said provision was under the consideration of this court in
the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), where we
held that the right of examination there conceded to the stockholder may be exercised
either by a stockholder in person or by any duly authorized agent or representative.
The main ground upon which the defense appears to be rested has reference to the time,
or times, within which the right of inspection may be exercised. In this connection the
answer asserts that in article 10 of the By-laws of the respondent corporation it is declared
that "Every shareholder may examine the books of the company and other documents
pertaining to the same upon the days which the board of directors shall annually fix." It is
further averred that at the directors' meeting of the respondent corporation held on
February 16, 1924, the board passed a resolution to the following effect:
The board also resolved to call the usual general (meeting of shareholders) for March 30 of
the present year, with notice to the shareholders that the books of the company are at their
disposition from the 15th to 25th of the same month for examination, in appropriate hours.
The contention for the respondent is that this resolution of the board constitutes a lawful
restriction on the right conferred by statute; and it is insisted that as the petitioner has not
availed himself of the permission to inspect the books and transactions of the company
within the ten days thus defined, his right to inspection and examination is lost, at least for
this year.
We are entirely unable to concur in this contention. The general right given by the statute
may not be lawfully abridged to the extent attempted in this resolution. It may be admitted
that the officials in charge of a corporation may deny inspection when sought at unusual
hours or under other improper conditions; but neither the executive officers nor the board
of directors have the power to deprive a stockholder of the right altogether. A by-law unduly
restricting the right of inspection is undoubtedly invalid. Authorities to this effect are too
numerous and direct to require extended comment. (14 C.J., 859; 7 R.C.L., 325; 4
Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs. Guthrie, 27 Utah, 248; 107
Am., St. Rep., 664. 681.) Under a statute similar to our own it has been held that the
statutory right of inspection is not affected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty days before an election.
(State vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised "at
reasonable hours." This means at reasonable hours on business days throughout the year,
and not merely during some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of the
respondents calls in question the motive which is supposed to prompt the petitioner to
make inspection; and in this connection it is alleged that the information which the
petitioner seeks is desired for ulterior purposes in connection with a competitive firm with
which the petitioner is alleged to be connected. It is also insisted that one of the purposes
84 | P a g e

of the petitioner is to obtain evidence preparatory to the institution of an action which he
means to bring against the corporation by reason of a contract of employment which once
existed between the corporation and himself. These suggestions are entirely apart from the
issue, as, generally speaking, the motive of the shareholder exercising the right is
immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the admissions of the
answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained; and the
writ of mandamus will issue as prayed, with the costs against the respondent. So ordered.





































85 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
CARSON, J.:
Plaintiff and defendant were members of a partnership doing business under the firm name
of Asencio y Cia. The business of the partnership did not prosper and it was dissolved by
mutual agreement of the members. The plaintiff brings this action to recover from the
defendant, who appears to have been left in charge of the books and the funds of the firm,
the amount of the capital which he had invested in the business. The defendant, alleging
that there had been considerable losses in the conduct of the business of the partnership,
denied that there was anything due the plaintiff as claimed, and filed a cross complaint
wherein he prayed for a judgment against the plaintiff for a certain amount which he
alleged to be due by the plaintiff under the articles of partnership on account of plaintiff's
share of these losses.
The trial court found that the evidence substantially sustains the claim of the defendant as
to the alleged losses in the business of the partnership and gave judgment in his favor.
The only question submitted on appeal is the competency and sufficiently of the evidence
on which the trial court based its findings as to the status of the accounts of the company.
Plaintiff and appellant makes the following assignment of errors:
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.
86 | P a g e

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.

































87 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP,
SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO.
ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H.
CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J.
ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES,
JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA, petitioners.
R E S O L U T I O N
MELENCIO-HERRERA, J.:+.wph!1
Two separate Petitions were filed before this Court 1) by the surviving partners of Atty.
Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty.
Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue
using, in the names of their firms, the names of partners who had passed away. In the
Court's Resolution of September 2, 1976, both Petitions were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business under a firm
name which includes the name of a deceased partner; in fact, Article 1840 of the Civil
Code explicitly sanctions the practice when it provides in the last paragraph
that: t.hqw
The use by the person or partnership continuing the business of the partnership name,
or the name of a deceased partner as part thereof, shall not of itself make the individual
property of the deceased partner liable for any debts contracted by such person or
partnership.
1

2. In regulating other professions, such as accountancy and engineering, the legislature
has authorized the adoption of firm names without any restriction as to the use, in such firm
name, of the name of a deceased partner;
2
the legislative authorization given to those
engaged in the practice of accountancy a profession requiring the same degree of trust
and confidence in respect of clients as that implicit in the relationship of attorney and client
to acquire and use a trade name, strongly indicates that there is no fundamental policy
that is offended by the continued use by a firm of professionals of a firm name which
includes the name of a deceased partner, at least where such firm name has acquired the
characteristics of a "trade name."
3

3. The Canons of Professional Ethics are not transgressed by the continued use of the
name of a deceased partner in the firm name of a law partnership because Canon 33 of
the Canons of Professional Ethics adopted by the American Bar Association declares
that: t.hqw
... The continued use of the name of a deceased or former partner when permissible by
local custom, is not unethical but care should be taken that no imposition or deception is
practiced through this use. ...
4

4. There is no possibility of imposition or deception because the deaths of their respective
deceased partners were well-publicized in all newspapers of general circulation for several
days; the stationeries now being used by them carry new letterheads indicating the years
when their respective deceased partners were connected with the firm; petitioners will
notify all leading national and international law directories of the fact of their respective
deceased partners' deaths.
5

5. No local custom prohibits the continued use of a deceased partner's name in a
professional firm's name;
6
there is no custom or usage in the Philippines, or at least in the
Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies
the individual members of the firm.
7

88 | P a g e

6. The continued use of a deceased partner's name in the firm name of law partnerships
has been consistently allowed by U.S. Courts and is an accepted practice in the legal
profession of most countries in the world.
8

The question involved in these Petitions first came under consideration by this Court in
1953 when a law firm in Cebu (the Deen case) continued its practice of including in its firm
name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court
advising the firm to desist from including in their firm designation the name of C. D.
Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964,
entitled Register of Deeds of Manila vs. China Banking Corporation. The law firm of
Perkins & Ponce Enrile moved to intervene asamicus curiae. Before acting thereon, the
Court, in a Resolution of April 15, 1957, stated that it "would like to be informed why the
name of Perkins is still being used although Atty. E. A. Perkins is already dead." In a
Manifestation dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising
substantially the same arguments as those now being raised by petitioners, prayed that the
continued use of the firm name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: t.hqw
After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and
Associates for their continued use of the name of the deceased E. G. Perkins, the Court
found no reason to depart from the policy it adopted in June 1953 when it required
Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from including in their
firm designation, the name of C. D. Johnston, deceased. The Court believes that, in view of
the personal and confidential nature of the relations between attorney and client, and the
high standards demanded in the canons of professional ethics, no practice should be
allowed which even in a remote degree could give rise to the possibility of deception. Said
attorneys are accordingly advised to drop the name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far enunciated by the
Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo,
De Leon, Mabanta and Reyes" are partnerships, the use in their partnership names of the
names of deceased partners will run counter to Article 1815 of the Civil Code which
provides: t.hqw
Art. 1815. Every partnership shall operate under a firm name, which may or may not
include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name,
shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership must
either be those of living partners and. in the case of non-partners, should be living persons
who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name under pain of assuming the liability of a
partner. The heirs of a deceased partner in a law firm cannot be held liable as the old
members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34
of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow
and heirs of a deceased lawyer of a percentage, either gross or net, of the fees received
from the future business of the deceased lawyer's clients, both because the recipients of
such division are not lawyers and because such payments will not represent service or
responsibility on the part of the recipient. " Accordingly, neither the widow nor the heirs can
be held liable for transactions entered into after the death of their lawyer-predecessor.
There being no benefits accruing, there ran be no corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by law firms of
the names of deceased partners. The public relations value of the use of an old firm name
can tend to create undue advantages and disadvantages in the practice of the profession.
An able lawyer without connections will have to make a name for himself starting from
scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's
reputation established by deceased partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX of the
Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption
from liability in cases of a dissolved partnership, of the individual property of the deceased
partner for debts contracted by the person or partnership which continues
the business using the partnership name or the name of the deceased partner as part
thereof. What the law contemplates therein is a hold-over situation preparatory to formal
reorganization.
89 | P a g e

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect
rather than of aprofessional partnership, with no saleable good will but whose reputation
depends on the personal qualifications of its individual members. Thus, it has been held
that a saleable goodwill can exist only in a commercial partnership and cannot arise in a
professional partnership consisting of lawyers.
9
t.hqw
As a general rule, upon the dissolution of a commercial partnership the succeeding
partners or parties have the right to carry on the business under the old name, in the
absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is a
partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p.
115) (Emphasis supplied)
On the other hand, t.hqw
... a professional partnership the reputation of which depends or; the individual skill of the
members, such as partnerships of attorneys or physicians, has no good win to be
distributed as a firm asset on its dissolution, however intrinsically valuable such skill and
reputation may be, especially where there is no provision in the partnership agreement
relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)
C. A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business. For one thing, the law on accountancy specifically allows the
use of a trade name in connection with the practice of accountancy.
10
t.hqw
A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. ... It is not a partnership formed for the purpose of
carrying on trade or business or of holding property."
11
Thus, it has been stated that "the
use of a nom de plume, assumed or trade name in law practice is improper.
12

The usual reason given for different standards of conduct being applicable to the practice
of law from those pertaining to business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of the Legal Profession,
(The Lawyer from Antiquity to Modern Times, p. 5) defines a profession as "a group of men
pursuing a learned art as a common calling in the spirit of public service, no less a
public service because it may incidentally be a means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from business are:
1. A duty of public service, of which the emolument is a byproduct, and in which one may
attain the highest eminence without making much money.
2. A relation as an "officer of court" to the administration of justice involving thorough
sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness
to resort to current business methods of advertising and encroachment on their practice, or
dealing directly with their clients.
13

"The right to practice law is not a natural or constitutional right but is in the nature of a
privilege or franchise.
14
It is limited to persons of good moral character with special
qualifications duly ascertained and certified.
15
The right does not only presuppose in its
possessor integrity, legal standing and attainment, but also the exercise of a special
privilege, highly personal and partaking of the nature of a public trust."
16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar
Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the name of a
deceased or former partner in the firm name of a law partnership when such a practice
is permissible by local custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more senior
members or partners of the law firm. A glimpse at the history of the firms of petitioners and
of other law firms in this country would show how their firm names have evolved and
changed from time to time as the composition of the partnership changed. t.hqw
The continued use of a firm name after the death of one or more of the partners designated
by it is proper only where sustained by local custom and not where by custom this purports
to Identify the active members. ...
90 | P a g e

There would seem to be a question, under the working of the Canon, as to the propriety of
adding the name of a new partner and at the same time retaining that of a deceased
partner who was never a partner with the new one. (H.S. Drinker, op. cit., supra, at pp.
207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the name of a
deceased partner continues to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished name appearing in a firm
title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a
deceased partner's name in the firm name of law partnerships. But that is so because it is
sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which
petitioners Salazar, et al. quoted in their memorandum, the New York Supreme Court
sustained the use of the firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was sanctioned by custom and
did not offend any statutory provision or legislative policy and was adopted by agreement
of the parties. The Court stated therein: t.hqw
The practice sought to be proscribed has the sanction of custom and offends no statutory
provision or legislative policy. Canon 33 of the Canons of Professional Ethics of both the
American Bar Association and the New York State Bar Association provides in part as
follows: "The continued use of the name of a deceased or former partner, when
permissible by local custom is not unethical, but care should be taken that no imposition or
deception is practiced through this use." There is no question as to local custom. Many
firms in the city use the names of deceased members with the approval of other attorneys,
bar associations and the courts. The Appellate Division of the First Department has
considered the matter and reached The conclusion that such practice should not be
prohibited. (Emphasis supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use
of the firm name herein is also sustainable by reason of agreement between the
partners.
18

Not so in this jurisdiction where there is no local custom that sanctions the practice.
Custom has been defined as a rule of conduct formed by repetition of acts, uniformly
observed (practiced) as a social rule, legally binding and obligatory.
19
Courts take no
judicial notice of custom. A custom must be proved as a fact, according to the rules of
evidence.
20
A local custom as a source of right cannot be considered by a court of justice
unless such custom is properly established by competent evidence like any other
fact.
21
We find such proof of the existence of a local custom, and of the elements requisite
to constitute the same, wanting herein. Merely because something is done as a matter of
practice does not mean that Courts can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated from social custom. The former
can supplement statutory law or be applied in the absence of such statute. Not so with the
latter.
Moreover, judicial decisions applying or interpreting the laws form part of the legal
system.
22
When the Supreme Court in the Deen and Perkins cases issued its Resolutions
directing lawyers to desist from including the names of deceased partners in their firm
designation, it laid down a legal rule against which no custom or practice to the contrary,
even if proven, can prevail. This is not to speak of our civil law which clearly ordains that a
partnership is dissolved by the death of any partner.
23
Custom which are contrary to law,
public order or public policy shall not be countenanced.
24

The practice of law is intimately and peculiarly related to the administration of justice and
should not be considered like an ordinary "money-making trade." t.hqw
... It is of the essence of a profession that it is practiced in a spirit of public service. A trade
... aims primarily at personal gain; a profession at the exercise of powers beneficial to
mankind. If, as in the era of wide free opportunity, we think of free competitive self
assertion as the highest good, lawyer and grocer and farmer may seem to be freely
competing with their fellows in their calling in order each to acquire as much of the world's
good as he may within the allowed him by law. But the member of a profession does not
regard himself as in competition with his professional brethren. He is not bartering his
services as is the artisan nor exchanging the products of his skill and learning as the
farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians'
strike. The best service of the professional man is often rendered for no equivalent or for a
trifling equivalent and it is his pride to do what he does in a way worthy of his profession
even if done with no expectation of reward, This spirit of public service in which the
profession of law is and ought to be exercised is a prerequisite of sound administration of
91 | P a g e

justice according to law. The other two elements of a profession, namely, organization and
pursuit of a learned art have their justification in that they secure and maintain that spirit.
25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public
must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the
names "SYCIP" and "OZAETA" from their respective firm names. Those names may,
however, be included in the listing of individuals who have been partners in their firms
indicating the years during which they served as such.
SO ORDERED.
Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur
Fernando, C.J. and Abad Santos, J., took no part.

Separate Opinions
FERNANDO, C.J., concurring:
The petitions are denied, as there are only four votes for granting them, seven of the
Justices being of the contrary view, as explained in the plurality opinion of Justice
Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate
in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano,
Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and
Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the
undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother-
in-law. For the record, the undersigned wishes to invite the attention of all concerned, and
not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-
Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of
individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez &
Castillo, in their petition of June 10, 1975, prayed for authority to continue the use of that
firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he
rest in peace). He was the founder of the firm which was originally known as the Sycip Law
Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon,
Mabanta & Reyes, in their petition of August 13, 1976, prayed that they be allowed to
continue using the said firm name notwithstanding the death of two partners, former
Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976,
respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office which was
established in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the
name Ozaeta has acquired an institutional and secondary connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a
deceased partner as part of the partnership name, is cited to justify the petitions. Also
invoked is the canon that the continued use by a law firm of the name of a deceased
partner, "when permissible by local custom, is not unethical" as long as "no imposition or
deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be indicated in
the letterheads of the two firms (as the case may be) that Alexander Sycip, former Justice
Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should
be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their
deceased founders is to retain the clients who had customarily sought the legal services of
Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of
those respected and esteemed law practitioners. That is a legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before the war
by the law firm of James Ross. Notwithstanding the death of Judge Ross the founder of the
law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained in the firm
name with an indication of the year when he died. No one complained that the retention of
the name of Judge Ross in the firm name was illegal or unethical.


92 | P a g e

# Separate Opinions
FERNANDO, C.J., concurring:
The petitions are denied, as there are only four votes for granting them, seven of the
Justices being of the contrary view, as explained in the plurality opinion of Justice
Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate
in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano,
Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and
Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the
undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother-
in-law. For the record, the undersigned wishes to invite the attention of all concerned, and
not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-
Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of
individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez &
Castillo, in their petition of June 10, 1975, prayed for authority to continue the use of that
firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he
rest in peace). He was the founder of the firm which was originally known as the Sycip Law
Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon,
Mabanta & Reyes, in their petition of August 13, 1976, prayed that they be allowed to
continue using the said firm name notwithstanding the death of two partners, former
Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976,
respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office which was
established in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the
name Ozaeta has acquired an institutional and secondary connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a
deceased partner as part of the partnership name, is cited to justify the petitions. Also
invoked is the canon that the continued use by a law firm of the name of a deceased
partner, "when permissible by local custom, is not unethical" as long as "no imposition or
deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be indicated in
the letterheads of the two firms (as the case may be) that Alexander Sycip, former Justice
Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should
be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their
deceased founders is to retain the clients who had customarily sought the legal services of
Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of
those respected and esteemed law practitioners. That is a legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before the war
by the law firm of James Ross. Notwithstanding the death of Judge Ross the founder of the
law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained in the firm
name with an indication of the year when he died. No one complained that the retention of
the name of Judge Ross in the firm name was illegal or unethical.











93 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
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 and Associates for defendants-appellees.
Jose C. Calayco for plaintiffs-appellants..
R E S O L U T I O N
REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of our main decision,
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(Executed in her dual capacity as Administratrix of the husband's estate and as partner in
lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the
following consideration:
Cash paid P37,000.00
Debts assumed by purchaser:

To Yutivo 62,415.91
To Sing Yee Cuan & Co., 54,310.13
T O T A L

P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insist 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 partnership; that the
testimony of her witness 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 to 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. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the
properties (as) she had no other means of income. Then I said, because I wanted to help
Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural
lands. I allowed her to take care of the properties in order to help her and because I believe
in God and wanted to help her.
Q So the answer to my question is you did not take any steps?
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A I did not.
Q And this conversation which you had with Mrs. Yu Eng Lai was few months after
1945?
A In the year 1945. (Emphasis 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 quiet a lot benefit from the 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, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigato is
about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When
I went there with Hernando Youngwe saw all the abaca destroyed. The place was
occupied by the Japanese Army. They planted camotes and vegetables to feed the
Japanese Army. Of course they never paid any money to Tan Sin An or his family. (Dep.,
Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to
manage the properties). Witnesses Lim and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact, given to the widow in 1945,after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out
no acts of management during the Japanese occupation (1942-1944) does not mean that
she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually
manifested his willingness that the widow should manage the partnership properties.
Whether or not she complied with this authority is a question between her and the
appellant, and is not here involved. But the authority was given, and she did have it when
she made the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article 1713
of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere
agent, because she had become a partner upon her husband's death, as expressly
provided by the articles of copartnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization
to manage the partnership property was proof that he considered and recognized her as
general partner, at least since 1945. The reason is plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant could not empower the widow, if she were only
a limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the interests of
the copartnership, not even in the capacity of agents of the managing partners. (Emphasis
supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the widow to manage
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partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would normally
prefer to avoid any liability in excess of the value of the estate inherited so as not to
jeopardize his personal assets. But this statutory limitation of responsibility being designed
to protect the heir, the latter may disregard it and instead elect to become a collective or
general partner, with all the rights and privileges of one, and answering for the debts of the
firm not only with the inheritance but also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the surviving partner.
It must be remember that the articles of co-partnership here involved expressly stipulated
that:
In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership (Art.
XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they expressly stipulated that in case of death of
either partner "the co-partnership ... will have to be continued" with the heirs or assigns. It
certainly could not be continued if it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a limited association would have
the heirs of the deceased partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs would becomegeneral
partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they
refuse to assume personal and unlimited responsibility for the obligations of the firm. The
heirs, in other words, can not be compelled to become general partners against their
wishes. But because they are not so compellable, it does not legitimately follow that they
may not voluntarily choose to become general partners, waiving the protective mantle of
the general laws of succession. And in the latter event, it is pointless to discuss the legality
of any conversion of a limited partner into a general one. The heir never was a limited
partner, but chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since no conversion
of status is involved, and the articles of co-partnership expressly contemplated the
admission of the partner's heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and
does not deal with the rights existing between partners Goquiolay and the widow of Tan
Sin An. The issues between the partners inter sewere expressly reserved in our main
decision. Now, in determining what kind of partner the widow of partner Tan Sin an Had
elected to become, strangers had to be guided by her conduct and actuations and those of
appellant Goquiolay. Knowing that by law a limited partner is barred from managing the
partnership business or property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence (or at least without
apparent opposition) of the surviving partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in negotiating with her as such a partner,
having authority to act for, and in behalf of the firm. This belief, be it noted, was shared
even by the probate court that approved the sale by the widow of the real property standing
in the partnership name. That belief was fostered by the very inaction of appellant
Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the
sale in 1949, there was more than ample time for Goquiolay to take up the management of
these properties, or at least ascertain how its affairs stood. For seven years Goquiolay
could have asserted his alleged rights, and by suitable notice in the commercial registry
could have warned strangers that they must deal with him alone, as sole general partner.
But he did nothing of the sort, because he was not interested (supra), and he did not even
take steps to pay, or settle the firm debts that were overdue since before the outbreak of
the last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the view that
the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's
properties apart from the presumption that a general partner dealing with partnership
property has to requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67
Phil. 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the other, undoubtedly
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creates on obligation between the two partners, which consists in asking the other's
consent before contracting for the partnership. This obligation of course is not imposed
upon a third person who contracts with the partnership. Neither it is necessary for the third
person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the
partner with whom he contracts has, in the ordinary and natural course of business, the
consent of his copartner; for otherwise he would not enter into the contract. The third
person would naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary is acting in
accordance therewith. And this finds support in the legal presumption that the ordinary
course of business has been followed (No. 18, section 334, Code of Civil Procedure), and
that the law has been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the parties. (Litton vs. Hill &
Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of
the firm. This argument is lamentably superficial because it fails to differentiate between
real estate acquired and held as stock-in-tradeand 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 enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio o a los productos de la fabrica para
explotacion de los cuales se ha constituido la Sociedad.Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella)
(Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal right to
sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample
power, as a general agent of the firm, to enter into an executory contract for the sale of real
estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate can not
bind the firm by purchases or sales of such property made in the regular course of
business, then they are incapable of exercising the essential rights and powers of general
partners and their association is not really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of
Copartnership), it can not be maintained that the sale was made in excess of her power as
general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its property
was insufficient to pay its debts, though it still had good credit, and was actively engaged in
the prosecution of its business. On that day, which was Saturday, the plaintiff caused to be
prepared, ready for execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters, shelving, and other
furnishings and fixtures necessary for, and used in carrying on, its business, and signed
the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner, of said firm, and Owen McCrath, individually, have hereunto
set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same
time, the plaintiff had prepared, ready for filing, the petitionfor the dissolution of the
partnership and appointment of a receiver which he subsequently filed, as hereinafter
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stated. On the day the mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was any intention to make
them. At the timenone of the claims secured by the mortgages were due, except, it may be,
a small part of one of them, andnone of the creditors to whom the mortgages were
made had requested security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of defiance, and contain a stipulation
authorizing the mortgagees to take immediate possession of the property, which they did
as soon as the mortgages were filed through the attorney who then represented them, as
well as the plaintiff; and the stores were at once closed, and possession delivered by them
to the receiver appointed upon the filing of the petition. The avowed purposes of the
plaintiff, in the course pursued by him, was to terminate the partnership, place its properly
beyond the control of the firm, and insure the preference of the mortgagees, all of which
was known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion
that the conveyances were made with intent to terminate the partnership, and that they
were not within the powers of McGrath as a partner. But there is no similarity between
those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale included
even the fixtures used in the business; in our case, the lands sold were those acquired to
be sold. In the McGrath case, none of the creditors were pressing for payment; in our case,
the creditors had been unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath case, the partnership received
nothing beyond the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to
the profit of the partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant point
out, as indicia thereof, the allegedly low price paid for the property, and the relationship
between the buyers, the creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed
by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan &
Co.) are not questioned; they were approved by the court, and its approval is now final.
The claims were, in fact, for the balance on the original purchase price of the land sold
(sue first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes,
redeemed by the two creditors-claimants. To show that the price was inadquate, appellant
relies on the testimony of the realtor Mata, who is 1955, six years after the sale in question,
asserted that the land was worth P312,000.00. Taking into account the continued rise of
real estate values since liberation, and the fact that the sale in question was practically a
forced sale because the partnership had no other means to pay its legitimate debts, this
evidence certainly does not show such "gross inadequacy" as to justify recission of the
sale. If at the time of the sale (1949) the price of P153,726.04 was really low, how is it that
appellant was not able to raise the amount, even if the creditor's representative, Yu Khe
Thai, had already warned him four years before (1945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge
the debts. But the lands were already mortgaged, and had been mortgaged since 1940,
first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that
other persons would loan money to the partnership when it was unable even to pay the
taxes on the property, and the interest on the principal since 1940? If it had been possible
to find lenders willing to take a chance on such a bad financial record, would not Goquiolay
have taken advantage of it? But the fact is clear on the record that since liberation until
1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled
now to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the Supreme Court
has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil.
243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There
is no evidence that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be willing to extend
credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these
buyers did not have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between
the Yutivo firm and their component members. But no proof is adduced. If he was such a
victim, he could have easily defeated the conspirators by raising money and paying off the
firm's debts between 1945 and 1949; but he did not; he did not even care to look for a
purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose
(as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him
to do so, it is certainly strange that the conspirators should wait 4 years, until 1949, to have
the sale effected by the widow of Tan Sin An, and that the sale should have been routed
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through the probate court taking cognizance of Tan Sin An's estate, all of which increased
the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan &
Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the
estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin
An & Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the
Banco Hipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and several with another debtor, the claim
shall be filed against the decedent as if he were the only debtor, without prejudice to the
right of the estate to recover contribution from the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense
that each and every parcel under mortgage answers for the totality of the debt (Civ. Code
of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud
at al, it can only be a fraud of creditorsthat gives rise to a rescission of the offending
contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code) "the action for rescission is subsidiary; it can not be instituted except when
the party suffering damage has no other legal means to obtain reparation for the same".
Since there is no allegation, or evidence, that Goquiolay can not obtain reparation from the
widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Regala, J., took no part.

Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the
complaint filed by Antonio C. Goquiolay, et al., seeking to annul the sale made Z. Sycip
and Betty Y. Lee on the ground that it was executed without proper authority and under
fraudulent circumstances. In a decision rendered on July 26, 1960 we affirmed this
decision although on grounds different from those on which the latter is predicted. The
case is once more before us on a motion for reconsideration filed by appellants raising
both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a
commercial partnership for a period of ten years with a capital of P30,000.00 of which
Goquiolay contributed P18,000.00 representing 60% while Tan Sin An P12,000.00
representing 40%. The business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership was duly registered, and
among the conditions agreed upon in the partnership agreement which are material to this
case are: (1) that Tan Sin An would be the exclusive managing partner, and (2) in the
event of the death of any of the partners the partnership would continue, the deceased to
be represented by his heirs. On May 31, 1940, Goquiolay executed a general power of
attorney in favor of Tan Sin An appointing the latter manager of the partnership and
conferring upon him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526,
441 and 521 of the cadastral survey of Davao, the only assets of the partnership, with the
capital orginally invested, financing the balance of the purchase price with a mortgage in
favor of "La Urbana Sociedad Mutua de Construccion Prestamos" in the amount of
P25,000.00, payable in ten years. On the same date, Tan Sin An, in his individual capacity,
acquired 46 parcels of land executing a mortgage thereon in favor of the same company
for the sum of P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin
An, in his individual capacity, and the partnership bound themselves to pay jointly and
severally the total amount of P52,282.80, with 8% annual interest thereon within a period of
eight years mortgaging in favor of said entity the 3 parcels of land belonging to the
partnership and the 46 parcels of land belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai
Pin, and four children, all of whom are minors of tender age. On March 18, 1944, Kong
Chai Pin, was appointed administratrix of the intestate estate of Tan Sin An. And on the
same date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining
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unpaid balance of the mortgage obligation of the partnership amounting to P46,116.75 in
Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and general
manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for
Goquiolay and the two had a conference in the office of the former during which he offered
to buy the interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent
her counsel, Atty. Dominador 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 and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate
proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91, respectively,
alleging that they represent obligations of both Tan Sin An and the partnership. After first
denying any knowledge of the claims, Kong Chai Pin, as administratrix, admitted later
without qualification the two claims in an amended answer she filed on February 28, 1947.
The admission was predicted on the ground that she and the creditors were closely related
by blood, affinity and business ties. In due course, these two claims were approved by the
court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin
filed a petition in the probate court to sell all the properties of the partnership as well as
some of the conjugal properties left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for authority to sell, Kong Chai Pin, in her
capacity as administratrix, and presuming to act as managing partner of the partnership,
executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the
partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the buyers of
the claims filed by Yutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose
favor the buyers executed a mortgage on the properties purchased. Betty Y. Lee and
Washington Z. Zycip subsequently executed a deed of sale of the same properties in favor
of their co-defendant Insular Development Company, Inc. It should be noted that these
transactions took place without the knowledge of Goquiolay and it is admitted that Betty
Lee and Washington Z. Sycip bought the properties on behalf of the ultimate buyer, the
Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in
the intestate proceedings a petition to set aside the order of the court approving the sale.
The court granted the petition. While the order was pending appeal in the Supreme Court,
Goquiolay filed the present case on January 15, 1953 seeking to nullify the sale as stated
in the early part of this decision. In the meantime, the Supreme Court remanded the
original case to the probate court for rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
partnership properties on the ground that she had no authority to sell because even
granting that she became a partner upon the death of Tan Sin An the power of attorney
granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she
succeeded to all the rights and prerogatives of Tan Sin an as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of
the articles of partnership allowing the heirs of the deceased partner to represent him in the
partnership after his death Kong Chai Pin became a managing partner, this being the
capacity held by Tan Sin an when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on
different grounds, among which the salient points are: (1) the power of attorney given by
Goquiloay to Tan Sin An as manager of the partnership expired after his death; (2) his
widow Kong Chai Pin did not inherit the management of the partnership, it being a personal
right; (3) as a general rule, the heirs of a deceased general partner come into the
partnership in the capacity only of limited partners; (4) Kong Chai Pin, however, became a
general partner because she exercised certain alleged acts of management; and (5) the
sale being necessary to pay the obligations of the partnership properties without the
consent of Goquiolay under the principle of estoppel the buyers having the right to rely on
her acts of management and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law are without
legal or factual basis, appellants have in due course filed a motion for reconsideration
which because of the importance of the issues therein raised has been the subject of
mature deliberation.
In support of said motion, appellants advanced the following arguments:
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1. If the conclusion of the Court is that heirs as a general rule enter the partnership as
limited partners only, therefore Kong Chai Pin, who must necessarily have entered the
partnership as a limited partner originally, could have not chosen to be a general partner by
exercising the alleged acts of management, because under Article 148 of the Code of
Commerce a limited partner cannot intervene in the management of the partnership, even
if given a power of attorney by the general partners. An Act prohibited by law cannot given
rise to any right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu
(Yutivo) family, the rest, members of the law firm which handles the Yutivo interests and
handled the papers of sale. They did not rely on the alleged acts of management they
believed (this was the opinion of their lawyers) that Kong Chai Pin succeeded her husband
as a managing partner and it was on this theory alone that they submitted the case in the
lower court.
3. The alleged acts of management were denied and repudiated by the very witnesses
presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient
to reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify
this conclusion, it is enough that we lay stress on the following points: (1) there is no
sufficient factual basis to conclude that Kong Chai Pin executed acts of management to
give her the character of general manager of the partnership, or to serve as basis for
estoppel that may benefit the purchasers of the partnership properties; (92) the alleged
acts of management, even if proven, could not give Kong Chai Pin the character of general
manager for the same contrary to law and well-known authorities; (3) even if Kong Chai Pin
acted as general manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to
pay the obligation of the partnership and if she did so it was merely to favor the purchasers
who were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management
imputed to her our ruling cannot be sustained. In making our aforesaid ruling we apparently
gave particular importance to the fact that it was Goquiolay himself who tried to prove the
acts of management. Appellants, however, have emphasized the fact, and with reason,
the appellees themselves are the ones who denied and refuted the so-called acts of
management imputed to Kong Chai Pin. To have a clear view of this factual situation, it
becomes necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation
with one Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin
"was attending to the properties and deriving some income therefrom and she had no other
means of livelihood except those properties and some rentals derived from the properties."
He went on to say by way of remark that she could continue doing this because he wanted
to help her. One point that he emphasized was that he was "no interested in agricultural
lands."
On the other hand, defendants presented Hernando Young, the same person referred to
by Goquiolay, who was a close friend of the family of Kong Chai Pin, for the purpose of
denying the testimony of Goquiolay. Young testified that in 1945 he was still in Davao, and
insisted no less than six times during his testimony that he was not in Manila in 1945, the
year when he allegedly gave the information to Goquiolay, stating that he arrived in Manila
for the first time in 1947. He testified further that he had visited the partnership properties
during the period covered by the alleged information given by him to Goquiolay and that he
found them "abandoned and underdeveloped," and that Kong Chai Pin was not deriving
any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the
partnership properties and corroborated the testimony of Hernando Young in all respects:
"the properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and
the family of Kong Chai Pin did not receive my income from the partnership properties." He
specifically rebutted the testimony of Goquiolay, in his deposition given on June 30, 1956
that Kong Chai Pin and her family were living in the partnership properties, and stated that
the "family never actually lived in the properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a
third person, Hernando Young he stressed this point twice. A careful analysis of the
substance of Goquiolay's testimony will show that he merely had no objection to allowing
Kong Chai Pin to continue attending to the properties in order to give her some means of
livelihood, because, according to the information given him by Hernando Young, which he
assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly he
made it very clear that he did not allow her to manage the partnership when he explained
101 | P a g e

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 his conformity was for her to attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that the period covered by the testimony
refers to the period of occupation when living condition was difficult and precarious. And
Atty. 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 resume, we may conclude that the sale of the partnership properties by Kong Chai Pin
cannot be upheld on the ground of estoppel, first, because the alleged acts of management
have not been clearly proven; second, because the record clearly shows that the
defendants, or the buyers, were not misled nor did they rely on the acts of management,
but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect
that she succeeded her husband in the partnership as managing partner by operation of
law; and third, because the defendants are themselves estopped to invoke a defense
which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true,
could such acts give as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and precedents. Garrigues, a
well-known commentator, is clearly of the opinion that mere acceptance of the inheritance
does not maked the heir of a general partner a general partner himself. He emphasized
that heir must declare that he is entering the partnership as a general partner unless the
deceased partner has made it an express condition in his will that the heir accepts the
condition of entering the partnership as a prerequisite of inheritance, in which case
acceptance of the inheritance is enough.
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 heirs, upon entering the partnership, must
make a declaration of his characters, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of the inheritance. And here Kong
Chai Pin did not make such declaration. Being then a limited partner upon the death of Tan
Sin An by operation of law, the peremptory prohibition contained in Article 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 authorized her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin
gave her the character of a general partner, could she sell the partnership properties
without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership
and the pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article
129 of the Code of Commerce says:
If the management of the general partnership has not been limited by special agreement to
any of the members, all shall have the power to take part in the direction and management
of the common business, and the members present shall come to an agreement for all
contracts or obligations which may concern the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing
partner or by his authorized agent, and it is expressly stipulated that the managing partner
may delegate the entire management of the affairs of the co-partnership by irrevocable
102 | P a g e

power of attorney to any person, firm or corporation he may select, upon such terms as
regards compensation as he may deem proper, and vest in such person, firm or
corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing partner
might do or cause to be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing partner are not defined either under
the provisions of the Code of Commerce or in the articles of partnership, a situation which,
under Article 2 of the same Code, renders applicable herein the provisions of the Civil
Code. And since, according to well-known authorities, the relationship between a
managing partner and the partnership is substantially the same as that of the agent and his
principal,
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 administrations, but with regard to the power
to compromise, sell mortgage, and other acts of strict ownership, an express power of
attorney is required.
5
Here Kong Chai Pin did not have such power when she sold the
properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express
power of attorney may perform acts affecting ownership if the same are necessary to
promote or accomplish a declared object of the partnership, but here the transaction is not
for this purpose. It was effected not to promote any avowed object of the
partnership.
6
Rather, the sale was affected to pay an obligation of the partnership by selling
its real properties which Kong Chai Pin could not do without express authority. The
authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio, o a los productos de la fabrica para
explotacion de los cauale se ha constituido la Sociedad. Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere necesario. Por el contrario el
generente no tiene attribuciones para vender las instalaciones del comercio, ni la fabrica,
ni las maquinarias, vehiculos de transporte, etc. que forman parte de la explotacion social.
En todos estas casos, equalmente que sisse tratase de la venta de una marca o
procedimiento mecanico o quimico, etc., siendo actos de disposicion, seria necesario
contar con la conformidad expresa de todos los socios. (R. Gay de Montella, id., pp. 223-
224; Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que
los 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 acuerdos segun el interest convenido de la Sociedad. Pueden contratar y despedir
a los empleados. tomar en arriendo almacenes y tiendas; expedir cambiales, girarlas,
avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y adquirir inmuebles
destinados a su explotacion o al empleo, estable de sus capitales. Pero no podran ejecutar
los actos que esten en contradiccion con la explotacion que les fue confiada; no podran
cambiar el objeto, el domicilio, la razon social; fundir a la Sociedad en otro; ceder la
accion, y por tanto, el uso de la firma social a otro, renunciar definitivamente el ejercicio de
uno de otro ramo comercio que se les haya confiado yenajenar o pignorar el taller o el
banco social, excepto que la venta o pignoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de Derecho
Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for the carrying one of its
business. If all that can be said of it was that it was convenient, or that it facilitated the
transaction of the business of the firm, that is not sufficient, in the absence of evidence of
sanction by other partners. Nor, it, seems, will necessity itself be sufficient if it be an
extraordinary necessity. What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While,
within this rule, one member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its
effects intended for sale, to a bona fidepurchaser of mortgagee, without the consent of the
other members of the firm, it is not within the scope of his implied authority to make a final
disposition of al of its effects, including those employed as the means of carrying on its
business, the object and effect of which is to immediately terminate the partnership, and
place its property beyond its control. Such a disposition, instead of being within the scope
of the partnership business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and contrary to the presumed
intention of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.E., 338,
343; Emphasis supplied).
103 | P a g e

Since Kong Chai Pin sold the partnership properties not in line with the business of the
partnership but to pay its obligation without first obtaining the consent of the other partners
the sale is invalid in excess of her authority.
4. Finally, the sale under consideration was effected in a suspicious manner as may be
gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated
in the City of Davao have an area of 200 hectares more or less, or 2,000,000 square
meters. These properties were purchased by the partnership for purposes of subdivision.
According to realtor Mata, who testified in court, these properties could command at the
time he testified a value of not less than P312,000.00, and according to Dalton Chen,
manager of the firm which took over the administration, since the date of sale no
improvement was ever made thereon precisely because of this litigation. And yet, for said
properties, aside from the sum of P37,000.00 which was paid for the properties of the
deceased and the partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid in Japanese
currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if
her purpose was only to pay the partnership obligation. She could have negotiated a loan if
she wanted to pay it by placing the properties as security, but preferred to sell them even
at such low price because of her close relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, as may be seen from the following
relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a grandaughter of Jose P. Yutivo, founder of the
defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO. and SING, YEE &
CUAN CO., INC., alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee &
Cuan are the three children of Jose). YU KHE THAI is a grandson of the same Jose P.
Yutivo, and president of the two alleged creditors. He is the acknowledged head of the Yu
families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana Yu, a
daughter of Yu Khe Thai. BETTY Y. LEE, the other original buyer is also a daughter of Yu
Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the
specific purpose of buying the partnership properties. Its incorporators were: Ana Yu and
Betty Y. Lee, Attys. Quisumbing and Salazar, the lawyers who studied the papers of the
sale and have been counsel for the Yutivo interests; Dalton Chen, a brother-in-law of Yu
Khe Thai and an executive of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an
executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the
Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of
Kong Chai Pin, have already conceived the idea of possessing the lands for purposes of
subdivision, excluding Goquilolay from their plan, and this is evident from the following
sequence of events;lawphil.net
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the
creditors of the partnership filed their claim against the partnership in the intestate
proceedings. The creditors studied ways and means of liquidating the obligation of the
partnership, leading to the formation of the defendant Insular Development Co., composed
of members of the Yutivo family and the counsel of record of the defendants, which
subsequently bought the properties of the partnership and assumed the obligation of the
latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee &
Cuan, also of the Yutivo family. The buyers took time to study the commercial potentialities
of the partnership properties and their lawyers carefully studied the document and other
papers involved in the transaction. All these steps led finally to the sale of the three
partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to grant the
motion for reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.







104 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.
REYES, J. B. L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that
on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general
commercial partnership under the partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by Tan
Sin An. The agreement lodge upon Tan Sin An the sole management of the partnership
affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), andAntonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the managing
and partner (sic) may delegate the entire management of the affairs of the co-partnership
by irrevocable power of attorney to any person, firm or corporation he may select upon
such terms as regards compensation as he may deem proper, and vest in such persons,
firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing
and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the affairs of
the co-partnership; but he may examine its accounts once every six (6) months at any time
during ordinary business hours, and in accordance with the provisions of the Code of
Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership (Art.
XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin
An should act as the Manager for said co-partnership for the full period of the term for
which said co-partnership was organized or until the whole period that the said capital of
P30,000.00 of the co-partnership should last, to carry on to the best advantage and interest
of the said co-partnership, to make and execute, sign, seal and deliver for the co-
partnership, and in its name, all bills, bonds, notes, specialties, and trust receipts or other
instruments or documents in writing whatsoever kind or nature which shall be necessary to
the proper conduction of the said businesses, including the power to mortgage and pledge
real and personal properties, to secure the obligation of the co-partnership, to buy real or
personal properties for cash or upon such terms as he may deem advisable, to sell
personal or real properties, such as lands and buildings of the co-partnership in any
manner he may deem advisable for the best interest of said co-partnership, to borrow
money on behalf of the co-partnership and to issue promissory notes for the repayment
thereof, to deposit the funds of the co-partnership in any local bank or elsewhere and to
draw checks against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three
(3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of
105 | P a g e

Davao, subject-matter of the instant litigation, assuming the payment of a mortgage
obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y
Prestamos" for a period of ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he assumed payment of a
mortgage debt thereon for P35,000.00 with interest. The downpayment and the
amortization were advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
covenantors bound themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin,
and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K.
Chuan. Defendant Kong Chai Pin was appointed administratrix of the intestate estate of
her deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on
the partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan,
Co., Inc., upon request of defendant Yutivo Sans Hardware Co., paid the remaining
balance of the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming
knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended
answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell
all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a
court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed of sale
1
of
the 49 parcels of land to the defendants Washington Sycip and Betty Lee in consideration
of P37,000.00 and of vendees' assuming payments of the claims filed by Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and
Betty Lee executed in favor of the Insular Development Co., Inc. a deed of transfer
covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on
or about July 25, 1949, a petition in the intestate proceedings seeking to set aside the
order of the probate court approving the sale in so far as his interest over the parcels of
land sold was concerned. In its order of December 29, 1949, the probate court annulled the
sale executed by the administratrix with respect to the 60% interest of Antonio Goquiolay
over the properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later
certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we
rendered decision setting aside the orders of the probate court complained of and
remanding the case for new trial, due to the non-inclusion of indispensableparties.
Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of Insular Development Co., Inc., in so far as the three (3) lots owned
by the plaintiff partnership are concerned. The answer averred the validity of the sale by
Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the
complaint was dismissed by the lower court in its decision dated October 30, 1956; hence,
this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that
I The lower court erred in holding that Kong Chai Pin became the managing partner of
the partnership upon the death of her husband, Tan Sin An, by virtue of the articles of
Partnership executed between Tan Sin An and Antonio Goquiolay, and the general power
of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as sole managing
partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act
as managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general power of
attorney granted to Tan Sin An in order to pay the partnership indebtedness.
106 | P a g e

V The lower court erred in finding that the partnership did not pay its obligation to the
Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
management of the partnership by Kong Chai Pin estops him now from attacking the
validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership properties acted in
good faith.
X The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary but beneficial to
the partnership.
XII The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay
to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow, Kong
Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the partnership,
upon the latter's death. While, as we previously stated in our narration of facts, the Articles
of Co-Partnership and the power of attorney executed by Antonio Goquiolay, conferred
upon Tan Sin An the exclusive management of the business, such power, premised as it is
upon trust and confidence, was a mere personal right that terminated upon Tan's demise.
The provision in the articles stating that "in the event of death of any one of the partners
within the 10-year term of the partnership, the deceased partner shall be represented by
his heirs", could not have referred to the managerial right given to Tan Sin An; more
appropriately, it related to the succession in the proprietary interest of each partner. The
covenant that Antonio Goquiolay shall have no voice or participation in the management of
the partnership, being a limitation upon his right as a general partner, must be held
coextensive only with Tan's right to manage the affairs, the contrary not being clearly
apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under the said provision in the
articles, became individual partners with Antonio Goquiolay upon Tan's demise. The
validity of like clauses in partnership agreements is expressly sanctioned under Article 222
of the Code of Commerce.
2

Minority of the heirs is not a bar to the application of that clause in the articles of co-
partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de
Droit Civil, English translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was
limited merely to the value of the share or estate left by the deceased Tan Sin An, they
became no more than limited partners and, as such, were disqualified from the
management of the business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the partnership,
3
it was not
so with respect to the widow Kong Chai Pin, who, by her affirmative actions, manifested
her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and
was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of
land in dispute in the name of the partnership, she was acting no less than as a managing
partner. Having thus preferred to act as such, she could be held liable for the partnership
debts and liabilities as a general partner, beyond what she might have derived only from
the estate of her deceased husband. By allowing her to retain control of the firm's property
from 1942 to 1949, plaintiff estopped himself to deny her legal representation of the
partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties to Washington Sycip and Betty
Lee. The answer is, we believe, in the negative. Strangers dealing with a partnership have
the right to assume, in the absence of restrictive clauses in the co-partnership agreement,
that every general partner has power to bind the partnership, specially those partners
acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the
two partners, to ascertain whether or not this partner with whom the transaction is made
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has the consent of the other partner. The public need not make inquiries as to the
agreements had between the partners. Its knowledge is enough that it is contracting with
the partnership which is represented by one of the managing partners.
"There is a general presumption that each individual partner is an agent for the firm and
that he has authority to bind the firm in carrying on the partnership transactions." [Mills vs.
Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of the members of the firm acting apparently in its behalf and within the
scope of his authority." [Le Royvs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill &
Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect
that
If the management of the general partnership has not been limited by special agreement to
any of the members, all shall have the power to take part in the direction and management
of the common business, and the members present shall come to an agreement for all
contracts or obligations which may concern the association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not
necessarily affect the validity of the acts of a partner, while acting within the scope of the
ordinary course of business of the partnership, as regards third persons without notice. The
latter may rightfully assume that the contracting partner was duly authorized to contract for
and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
of his co-partners. The regular course of business procedure does not require that each
time a third person contracts with one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain whether or not the other partners
had given their consent thereto. In fact, Article 130 of the same Code of Commerce
provides that even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its effects
without prejudice to the responsibility of the member or members who contracted it, for the
damages they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un
sistema eficaz que evite los inconvenientes. Pero, ante el silencio del contrato, debia quiza
el legislador privar de la administracion a uno de los socios en beneficio del otro? Seria
una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido
Administrador? El remedio seria peor que el mal. Debera, tal vez, pretender que todos los
socios concurran en todo acto de la Sociedad? Pero este concurso de todos habria
reducido a la impotencia la administracion, que es asunto d todos los dias y de todas
horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el Codigo, el
cual se confia al espiritu de reciproca confianza que deberia animar la colaboracion de los
socios, y en la ley inflexible de responsabilidad que implica comunidad en los intereses de
los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso de
una administracion culpable. Si debiera dar noticia, el beneficio de su simultania actividad,
frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a perder. Se
objetara el que de esta forma, el derecho de oposicion de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de oposicion concedido por la
ley como un remedio excepcional, debe subordinarse al derecho de ejercer el oficio de
Administrador, que el Codigo concede sin limite: "se presume que los socios se han
concedido reciprocamente la facultad de administrar uno para otro." Se haria precipitar
esta hipotesis en la otra de una administracion colectiva (art. 1,721, Codigo Civil) y se
acabaria con pedir el consentimiento, a lo menos tacito, de todos los socios lo que el
Codigo excluye ........, si se obligase al socio Administrador a dar noticia previa del negocio
a los otros, a fin de que pudieran oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-
148) opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del Codigo), no es bastante
que los actos y contratos hayan sido ejecutados por un socio o varios en nombre colectivo,
sino que es preciso el concurso de estos dos elementos, uno, que el socio o socios tengan
reconocida la facultad de administrar la Compaia, y otro, que el acto o contrato haya sido
ejecutado en nombre de la Sociedad y usando de su firma social. Asi se que toda
obligacion contraida bajo la razon social, se presume contraida por la Compaia. Esta
presunion es impuesta por motivos de necesidad practica. El tercero no puede cada vez
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que trata con la Compaia, inquirir si realmente el negocio concierne a la Sociedad. La
presuncion es juris tantum y no juris et de jure, de modo que si el gerente suscribe bajo la
razon social una obligacion que no interesa a la Sociedad, este podra rechazar la accion
del tercero probando que el acreedor conocia que la obligacion no tenia ninguna relacion
con ella. Si tales actos y contratos no comportasen la concurrencia de ambos elementos,
seria nulos y podria decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compaia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado sin
protesta y se trata de acto o contrato que ha producido beneficio social, tendria plena
validez, aun cuando le faltase algunos o ambos de aquellos requisitos antes sealados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la Compaia (art.
129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y manejo de
los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and, therefore,
to be governed by the Code of Commerce, the provisions of the old Civil Code may give us
some light on the right of one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others
before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of conveyance was executed and
approved by the probate court, and, consequently, his opposition came too late to be
effective.
Appellants assails the correctness of the amounts paid for the account of the partnership
as found by the trial court. This question, however, need not be resolved here, as in the
deed of conveyance executed by Kong Chai Pin, the purchasers Washington Sycip and
Betty Lee assumed, as part consideration of the purchase, the full claims of the two
creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the
ground that it, in effect, threw the partnership into dissolution, which requires consent of all
the partners. This view is untenable. That the partnership was left without the real property
it originally had will not work its dissolution, since the firm was not organized to exploit
these precise lots but to engage in buying and selling real estate, and "in general real
estate agency and brokerage business". Incidentally, it is to be noted that the payment of
the solidary obligation of both the partnership and the late Tan Sin An, leaves open the
question of accounting and contribution between the co-debtors, that should be ventilated
separately.
Lastly, appellants point out that the sale of the partnership properties was only a fraudulent
device by the appellees, with the connivance of Kong Chai Pin, to ease out Antonio
Goquiolay from the partnership. The "devise", according to the appellants, started way
back sometime in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the
possibility of selling his share in the partnership; and upon his refusal to sell, was followed
by the filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in
the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff
partnership (whose liability was alleged to be joint and several), Yutivo Sons Hardware Co.,
and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient
knowledge) negatives any conspiracy on her part in the alleged fraudulent scheme, even if
she subsequently decided to admit their validity after studying the claims and finding it best
to admit the same. It may not be amiss to remark that the probate court approved the
questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were
sold was unreasonably low, or in any way unfair, since appellants presented no evidence
of the market value of the lots as of the time of their sale to appellees Sycip and Lee. The
alleged value of P31,056.58 in May of 1955 is no proof of the market value in 1949,
specially because in the interval, the new owners appear to have converted the land into a
subdivision, which they could not do without opening roads and otherwise improving the
property at their own expense. Upon the other hand, Kong Chai Pin hardly had any choice
but to execute the questioned sale, as it appears that the partnership had neither cash nor
other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the
questioned transactions, leading to the conveyance of the lots in dispute to the appellee
Insular Development Co., Inc.
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Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with
costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and
Gutierrez David, JJ.,concur.
R E S O L U T I O N
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main decision,
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(executed in her dual capacity of Administratrix of her 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 paid P37,000.00
Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04
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 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
aspects of the case was expressly reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real estate business, either
by buying and sellingreal estate". The Article of co-partnership, in fact, expressly provided
that:
IV. The object and purpose of the co-partnership 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 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 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. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the
properties (as) she had no other means of income. Then I said, because I wanted to help
Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural
lands. I allowed her to take care of the properties in order to help her and because I believe
in God and I wanted to help her.
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai was few months after
1945?
A. In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page
8-9, wherein he sated:
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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 so to the development of these other properties of the partnership which
you saw during the occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is
about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When
I went there with Hernando Youngwe saw all the abaca destroyed. The place was
occupied by the Japanese Army. They planted camotes and vegetables to feed the
Japanese Army. Of course they never paid any money to Tan Sin An or his family. (Dep.,
Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i e., continue to
manage the properties. Witnesses Lim and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact, given to the widow in 1945,after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out
no acts of management during the Japanese occupation (1942-1944) does not mean that
she did not do so from 1945 to 1949.
We thus fine 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 has 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 co-partnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only a became the limited partner, Goquiolay's
authorization to manage the partnership property was proof that he considered and
recognized her has general partner, at least since 1945. The reason is plain: Under the law
(Article 148, last paragraph, Code of Commerce), appellant could not empower the widow,
if she were only a limited partner, to administer the properties of the firm, even as a mere
agent:
Limited partners may not perform any act of administration with respect to the interests of
the co-partnership, not even in the capacity agents of the managing partners.(Emphasis
supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as not
111 | P a g e

to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a
collective or general partner, with all the rights and privileges of one, and answering for the
debts of the firm not only with the inheritance bud 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 that 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 partner;
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 becomegeneral
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 heirs 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 arising between partners Goquiolay and the widow of Tan Sin
An. The issues between the partners inter se were expressly reversed 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 acquiescense (or at least without
apparent opposition) of the surviving partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in negotiating with her as such a partner,
having authority to act for, and in behalf of, the firm. This belief, be it noted, was shared
even by the probate court that approved the sale by the widow of the real property standing
in the partnership name. That belief was fostered by the very inaction of appellant
Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the
sale in 1949, there was more than ample time for Goquiolay to take up the management of
these properties, or at least ascertain how its affairs stood. For seven years Goquiolay
could have asserted his alleged rights, and by suitable notice in the commercial registry
could have warned strangers that they must deal with him alone, as sole general partner.
But he did nothing of the sort, because he was not interested (supra), and he did not even
take steps to pay, or settle, the firm debts that were overdue since before the outbreak of
the last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the view that
the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's
properties, apart from the presumption that a general partner dealing with partnership
property has 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 other, 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,
112 | P a g e

the consent of his co-partner; for otherwise he would not enter into the contract. The third
person would naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary, is acting in
accordance therewith. And this finds support in the legal presumption that the ordinary
course of business has been followed (No. 18, section 334, Code of Civil Procedure), and
that the law has been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the parties. (Litton vs. Hill &
Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of
the firm. This argument is lamentably superficial because it fails to differentiate between
real estate acquired and held as stock-in-tradeand real state 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 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. 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 enajenacion puede entrar en las facultades del gerente: cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comecio o a los productos de la fabrica para
explotacion de los cuales se ha constituido la Sociedad.Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella)
(Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal right to
sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample
power, as a general agent of the firm, to enter into an executory contract for the sale of real
estate.
And in Rovelsky 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 here-unto
set their hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath" At the same time,
the plaintiff had prepared, ready for filing, the petition for the dissolution of the partnership
and appointment of a receiver, which he subsequently filed, as hereinafter stated. On the
day the mortgages were signed, they were placed in the hands of the mortgagees, which
was the first intimation to them that there was any intention to make then. At that timenone
of the claims secured by the mortgages were due, except, it may be, a small part of one of
them, andnone 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
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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 partnership, place its property beyond the control of the firm,
and insure the preference of the mortgages, all of which was known to them at the time: ...
. (Cas cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio should draw the conclusion
that 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 similarly 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 to 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 Yee 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 (1946) 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 de Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers, Washington Sycip and Betty Lee, were
without independent means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least,
these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between
the Yutivo firm and their component members. But no proof is adduced. If he was such a
victim, he could have easily defeated the conspirators by raising money and paying off the
firm's debts between 1945 and 1949; but he did; 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
114 | P a g e

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. (Emphasis 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 in 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 creditorsthat gives rise to a rescission of the offending
contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code), "the action for rescission is subsidiary; it can not be instituted except
when the party suffering damage has no other legal means to obtain reparation for the
same". Since there is no allegation, or evidence, that Goquiolay can not obtain reparation
from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is
not maintenable, 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.

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 amount of
P25,000.00 payable in ten years. On the same date, Tan Sin An, in his individual capacity,
acquired 46 parcels of land executing a mortgage thereon in favor of the same company
for the sum of P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin
An, in his individual capacity, and the partnership bound themselves to pay jointly and
severally the total amount of P52,282.80, with 8% annual interest thereon within the period
of eight years mortgaging in favor of said entity the 3 parcels of land belonging to the
partnership 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
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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 and Cuan Co., Inc. filed in November, 1946 a claim each in the
intestate proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91,
respectively, alleging that they represent obligations of both Tan Sin An and the
partnership. After first denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two claims in an amended answer
she filed on February 28, 1947. The admission was predicated on the ground that she and
the creditors were closely related by blood, affinity and business ties. On due course, these
two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin
filed a petition in the probate court to sell all the properties of the partnership as well as
some of the conjugal properties left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for authority to sell, Kong Chai Pin, in her
capacity as administratrix, and presuming to act as managing partner of the partnership,
executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the
partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the buyers of
the claims filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose
favor the buyers executed a mortgage on the properties purchased. Betty Y. Lee and
Washington Z. Sycip subsequently executed a deed of sale of the same properties in favor
of their co-defendant Insular Development Company, Inc. It should be noted that these
transactions took place without the knowledge of Goquiolay and it is admitted that Betty Y.
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 hid 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 fact and conclusions of law are without
legal or factual basis, appellants have in due course filed a motion for reconsideration
which because of the importance of the issues therein raised has been the subject of
mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as
limited partners only, therefore Kong Chai Pin, who must necessarily have entered the
partnership as a limited partner originally, could have not chosen to be a general partner by
exercising the alleged acts of management, because under Article 148 of the Code of
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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 give
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 had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to
pay the obligation of the partnership and if she did so it was merely to favor the purchasers
who were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management
imputed to her our ruling 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, that 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. On 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 respects:
"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 of
livelihood, because, according to the information given him by Hernando Young, which he
assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly he
made it very clear that he did not allow her to manage the partnership when he explained
his reason for refusing to sign a general power of attorney for Kong Chai Pin which her
counsel, Atty. 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.
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Kong Chai Pin had already got that plantation for agricultural purposes, I said for
agricultural purposes she can use that plantation ... (T.s.n., p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating his opposition to
the management of the partnership by Kong Chai Pin and carefully made the distinction
that his conformity was for her to attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that the period covered by the testimony
refers to the period of occupation when living condition was difficult and precarious. And
Atty. 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 resume, we may conclude that the sale of the partnership properties by Kong Chai Pin
cannot be upheld on the ground of estoppel, first, because the alleged acts of management
have not been clearly proven; second, because the record clearly shows that the
defendants, or the buyers, were not misled nor did they rely on the acts of management,
but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect
that she succeeded her husband in the partnership as managing partner by operation of
law; and third, because the defendants are themselves estopped to invoke a defense
which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true,
could such acts give her the character of general manager of the partnership as we have
concluded in our decision?
Out 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
the 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 general
partner by exercising acts of management? We believe not, for, in consonance with out
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 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 co-partnership by irrevocable
power of attorney to any person, firm or corporation he may select, upon such terms as
regards compensation as he may deem proper, and vest in such person, firm or
corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing partner
might do or cause to be done. (Page 23, Record on Appeal)
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It would thus be seen that the powers of the managing partner are not defined either under
the provisions of the Code of Commerce or in the articles of partnership, a situation which,
under Article 2 of the same Code, renders applicable herein the provisions of the Civil
Code, And since, according to well-known authorities, the relationship between a
managing partner and the partnership is substantially the same as that of the agent and his
principal,
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 sold the
properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express
power of attorney, may perform acts affecting ownership if the same are necessary to
promote or accomplish a declared object of the partnership, but here the transaction is not
for this purpose. It was effected not to promote any avowed object of the
partnership.
6
Rather, the sale was 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 entrar en las facultades del gerente, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio, o 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 atribuciones para vender las instalaciones del comercio ni la fabrica, ni
las maquinarias, vehiculos de transporte, etc., que forman parte de la explotacion social.
En todos estas casos, igualmente que si tratase de la venta de una marca o procedimiento
mecanico o quimico, etc., siendo actos de disposicion seria necesario contar con la
conformidad expresa de todos los socios. (R. Gay de Montella, id., pp. 223-224, Emphasis
supplied)
Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que
los 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 acuerdos segun el interes convenido de la Sociedad. Pueden contratar y despedir
a los empleados, tomar en arriendo almacenas 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 estan 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 piqnorar el taller o el banco
social excepto que la venta o piqnoracion 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, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the carrying on 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
saction by other partners. Nor, it seems, will necessity itself be sufficient if it be an
extraordinary necessity. What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While,
within this rule, one member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its
effects intended for sale, to a bona fide purchaser or mortgage, 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 which is to immediately terminate the partnership, and
place its property beyond its control. Such a disposition, instead of being within the scope
of the partnership business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and contrary to the presumed
intention of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338,
343; Emphasis supplied)
Since Kong Chai Pin sold the partnership properties not in line with the business of the
partnership but to pay its obligation without first obtaining the consent of the other partners,
the sale is invalid being in excess of her authority.
4. Finally, the same under consideration was effected in a suspicious manner as may be
gleaned from the following circumstances:
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(a) The properties subject of the instant sale which consist of three parcels of land situated
in the City of Davao have an area of 200 hectares more or less, or 2,000,000 square
meters. These properties were purchased by the partnership for purposes of subdivision.
According to realtor Mata, who testified in court, these properties could command at the
time he testified a value of not less than P312,000.00, and according to Dalton Chen,
manager of the firm which took over the administration, since the date of sale no
improvement was ever made thereon precisely because of this litigation. And yet, for said
properties, aside from the sum of P37,000.00 which was paid for the properties of the
deceased and the partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid in Japanese
currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if
her purpose was only to pay the partnership's 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 prices 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 SIN 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 V. Lee, Atty. Quisumbing and Salazar the lawyers who studied the papers of sale
and have been counsel for the Yutivo interests; Dalton Chen a brother-in-law of Yu Khe
Thai and an executive of Sing Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an
executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the
Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of
Kong Chai Pin, have already conceived the idea of possessing the lands for purposes of
subdivision, excluding 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 motion for
reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.











120 | P a g e


FIRST DIVISION


J. TIOSEJO INVESTMENT CORP.,
Petitioner,
G.R. No. 174149





- versus -





SPOUSES BENJAMIN AND ELEANOR ANG,
Respondents.

Present:

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.


Promulgated:

September 8, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review
at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August 2006
issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841 which,
respectively, dismissed the petition for review of petitioner J. Tiosejo Investment Corp.
(JTIC) for having been filed out of time
[1]
and denied the motion for reconsideration of said
dismissal.
[2]


The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a residential condominium
project to be known as The Meditel on the formers 9,502 square meter property
along Samat St., Highway Hills, Mandaluyong City.
[3]
With petitioner contributing the same
property to the joint venture and PPGI undertaking to develop the condominium, the JVA
provided, among other terms and conditions, that the developed units shall be shared by
the former and the latter at a ratio of 17%-83%, respectively.
[4]
While both parties were
allowed, at their own individual responsibility, to pre-sell the units pertaining to
them,
[5]
PPGI further undertook to use all proceeds from the pre-selling of its saleable units
for the completion of the Condominium Project.
[6]


On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners.
[7]
By
virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses Benjamin
and Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit
121 | P a g e

denominated as Unit A-1006, for the agreed contract price of P52,597.88 per square
meter or a total P2,077,334.25.
[8]
On the same date PPGI and respondents also
executedContract to Sell No. 0214 over the 12.50 square meter parking space identified as
Parking Slot No. 0405, for the stipulated consideration of P26,400.00 square meters or a
total of P313,500.00.
[9]


On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB Case
No. REM 072199-10567. Contending that they were assured by petitioner and PPGI that
the subject condominium unit and parking space would be available for turn-over and
occupancy in December 1998, respondents averred, among other matters, that in view of
the non-completion of the project according to said representation, respondents instructed
petitioner and PPGI to stop depositing the post-dated checks they issued and to cancel
said Contracts to Sell; and, that despite several demands, petitioner and PPGI have failed
and refused to refund the P611,519.52 they already paid under the
circumstances. Together with the refund of said amount and interests thereon at the rate
of 12% per annum, respondents prayed for the grant of their claims for moral and
exemplary damages as well as attorneys fees and the costs.
[10]


Specifically denying the material allegations of the foregoing complaint, PPGI filed its
7 September 1999 answer alleging that the delay in the completion of the project was
attributable to the economic crisis which affected the country at the time; that the
unexpected and unforeseen inflation as well as increase in interest rates and cost of
building materials constitute force majeure and were beyond its control; that aware of its
responsibilities, it offered several alternatives to its buyers like respondents for a transfer of
their investment to its other feasible projects and for the amounts they already paid to be
considered as partial payment for the replacement unit/s; and, that the complaint was
prematurely filed in view of the on-going negotiations it is undertaking with its buyers and
prospective joint venture partners. Aside from the dismissal of the complaint, PPGI sought
the readjustment of the contract price and the grant of its counterclaims for attorneys fees
and litigation expenses.
[11]


Petitioner also specifically denied the material allegations of the complaint in
separate answer

dated 5 February 2002
[12]
which it amended on 20 May 2002. Calling
attention to the fact that its prestation under the JVA consisted in contributing the property
on which The Meditel was to be constructed, petitioner asseverated that, by the terms of
the JVA, each party was individually responsible for the marketing and sale of the units
pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the latter; and, that
without any contributory fault and negligence on its part, PPGI breached its undertakings
under the JVA by failing to complete the condominium project. In addition to the dismissal
of the complaint and the grant of its counterclaims for exemplary damages, attorneys fees,
litigation expenses and the costs, petitioner interposed a cross-claim against PPGI for full
reimbursement of any sum it may be adjudged liable to pay respondents.
[13]


Acting on the position papers and draft decisions subsequently submitted by the
parties,
[14]
Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render
the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and rescinded
on account of the non-completion of the condominium project. On the ground that the JVA
created a partnership liability on their part, petitioner and PPGI, as co-owners of the
condominium project, were ordered to pay: (a) respondents claim for refund of
the P611,519.52 they paid, with interest at the rate of 12% per annum from 5 February
1997; (b) damages in the sum of P75,000.00; (c) attorneys fees in the sum of P30,000.00;
(d) the costs; and, (e) an administrative fine in the sum of P10,000.00 for violation of Sec.
20 in relation to Sec. 38 of Presidential Decree No. 957.
[15]
Elevated to the HLURB Board
of Commissioners via the petition for review filed by petitioner,
[16]
the foregoing decision
was modified to grant the latters cross-claim in the 14 September 2004 decision rendered
by said administrative bodys Second Division in HLURB Case No. REM-A-031007-
0240,
[17]
to wit:

Wherefore, the petition for review of the respondent Corporation is
dismissed. However, the decision of the Office below dated July 30, 2003 is modified,
hence, its dispositive portion shall read:

122 | P a g e

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and
rescinded, and ordering the respondents to immediately pay the complainants the
following:
a. The amount of P611,519.52, with interest at the legal rate reckoned from February
5, 1997 until fully paid;
b. Damages of P75,000.00;
c. Attorneys fees equivalent to P30,000.00; and
d. The Cost of suit;
2. Ordering respondents to pay this Office administrative fine of P10,000.00 for violation
of Section 20 in relation to Section 38 of P.D. 957; and
3. Ordering respondent Primetown to reimburse the entire amount which the
respondent Corporation will be constrained to pay the complainants.
So ordered.
[18]


With the denial of its motion for reconsideration of the foregoing
decision,
[19]
petitioner filed a Notice of Appeal dated 28 February 2005 which was docketed
before the Office of the President (OP) as O.P. Case No. 05-B-072.
[20]
On 3 March 2005,
the OP issued an order directing petitioner to submit its appeal memorandum within 15
days from receipt thereof.
[21]
Acting on the motion therefor filed, the OP also issued
another order on the same date, granting petitioner a period of 15 days from 28 February
2005 or until 15 March 2005 within which to file its appeal memorandum.
[22]
In view of
petitioners filing of a second motion for extension dated 15 March 2005,
[23]
the OP issued
the 18 March 2005 order granting the former an additional 10 days from 15 March 2005 or
until 25 March 2005 within which to file its appeal memorandum, provided no further
extension shall be allowed.
[24]
Claiming to have received the aforesaid 3 March 2005
order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking
yet another extension of 10 days or until 10 April 2005 within which to file its appeal
memorandum.
[25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner
[26]
which eventually filed its appeal memorandum by registered mail
on 11 April 2005 in view of the fact that 10 April 2005 fell on a Sunday.
[27]
On 25 October
2005, the OP rendered a decision dismissing petitioners appeal on the ground that the
latters appeal memorandum was filed out of time and that the HLURB Board committed no
grave abuse of discretion in rendering the appealed decision.
[28]
Aggrieved by the denial of
its motion for reconsideration of the foregoing decision in the 3 March 2006 order issued by
the OP,
[29]
petitioner filed before the CA its 29 March 2006 motion for an extension of 15
days from 31 March 2006 or until 15 April 2006 within which to file its petition for
review.
[30]
Accordingly, a non-extendible period of 15 days to file its petition for review was
granted petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-
G.R, S No. 93841.
[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its
counsel from finalizing its petition for review, petitioner filed a motion on 17 April 2006,
seeking for an additional time of 10 days or until 27 April 2006 within which to file said
pleading.
[32]
Although petitioner filed by registered mail a motion to admit its attached
petition for review on 19 April 2006,
[33]
the CA issued the herein assailed 23 May 2006
resolution,
[34]
disposing of the formers pending motion for extension as well as the petition
itself in the following wise:
We resolve to DENY the second extension motion and rule to DISMISS the petition for
beig filed late.
Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs.
Natividad, 458 SCRA 441 [2005]). If the failure of the petitioners counsel to cope up with
heavy workload should be considered a valid justification to sidestep the reglementary
period, there would be no end to litigations so long as counsel had not been sufficiently
diligent or experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260
[2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for extension or postponement will
be granted the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).
SO ORDERED.
[35]

Petitioners motion for reconsideration of the foregoing resolution
[36]
was denied for lack of
merit in the CAs second assailed 9 August 2006 resolution,
[37]
hence, this petition.
The Issues
123 | P a g e

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:
I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE
TECHNICALITY;
II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION
ON THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENTS
DECISION (A) DISMISSING JTICS APPEAL ON A MERE TECHNICALITY; (B)
AFFIRMING THE HLURB BOARDS DECISION INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES,
ATTORNEYS FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE HLURB
BOARDS DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS
AGAINST SPOUSES ANG.
[38]

The Courts Ruling
We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly
frowned upon,
[39]
it bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just discard and
disregard at will.
[40]
Neither being a natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory privilege which may be exercised only
in the manner and in accordance with the provisions of the law.
[41]
The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only mandatory
but jurisdictional.
[42]
Considering that they are requirements which cannot be trifled with as
mere technicality to suit the interest of a party,
[43]
failure to perfect an appeal in the
prescribed manner has the effect of rendering the judgment final and executory.
[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit and
dismissing its petition for review for having been filed out of time. Acting on the 29 March
2006 motion filed for the purpose, after all, the CA had already granted petitioner an
inextendible period of 15 days from 31 March 2006 or until 15 April 2006 within which to file
its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil Procedureprovides as
follows:
Sec. 4. Period of appeal. The appeal shall be taken within fifteen (15) days from
notice of the award, judgment, final order or resolution, or from the date of its last
publication, if publication is required by law for its effectivity, or of the denial of petitioners
motion for new trial or reconsideration duly filed in accordance with the governing law of
the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon
proper motion and payment of the full amount of the docket fee before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen (15)
days only within which to file the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to exceed fifteen (15) days.
(Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in
its first motion, petitioner filed a second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for review, on the ground that
pressures of work and the demands posed by equally important cases prevented its
counsel from finalizing the same. As correctly ruled by the CA, however, heavy workload
cannot be considered as a valid justification to sidestep the reglementary period
[45]
since to
do so would only serve to encourage needless delays and interminable litigations. Indeed,
rules prescribing the time for doing specific acts or for taking certain proceedings are
considered absolutely indispensable to prevent needless delays and to orderly and
promptly discharge judicial business.
[46]
Corollary to the principle that the allowance or
denial of a motion for extension of time is addressed to the sound discretion of the
court,
[47]
moreover, lawyers cannot expect that their motions for extension or postponement
will be granted
[48]
as a matter of course.
Although technical rules of procedure are not ends in themselves, they are
necessary for an effective and expeditious administration of justice and cannot, for said
reason, be discarded with the mere expediency of claiming substantial merit.
[49]
This holds
particularly true in the case at bench where, prior to the filing of its petition for review
before the CA, petitioners appeal before the OP was likewise dismissed in view of its
failure to file its appeal memorandum within the extensions of time it had been granted by
said office. After being granted an initial extension of 15 days to do the same, the records
disclose that petitioner was granted by the OP a second extension of 10 days from 15
March 2005 or until 25 March 2005 within which to file its appeal memorandum, on the
condition that no further extensions shall be allowed. Aside from not heeding said proviso,
124 | P a g e

petitioner had, consequently, no more time to extend when it filed its 31 March 2005
motion seeking yet another extension of 10 days or until 10 April 2005 within which to file
its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedureagainst further extensions except for the most compelling reason, it was clearly
inexcusable for petitioner to expediently plead its counsels heavy workload as ground for
seeking an additional extension of 10 days within which to file its petition for review. To our
mind, petitioner would do well to remember that, rather than the low gate to which parties
are unreasonably required to stoop, procedural rules are designed for the orderly conduct
of proceedings and expeditious settlement of cases in the courts of law. Like all rules, they
are required to be followed
[50]
and utter disregard of the same cannot be expediently
rationalized by harping on the policy of liberal construction
[51]
which was never intended as
an unfettered license to disregard the letter of the law or, for that matter, a convenient
excuse to substitute substantial compliance for regular adherence thereto. When it comes
to compliance with time rules, the Court cannot afford inexcusable delay.
[52]

Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents
claims and the P10,000.00 administrative fine imposed pursuant to Section 20 in relation to
Section 38 of P.D. 957. By the express terms of the JVA, it appears that petitioner not
only retained ownership of the property pending completion of the condominium
project
[53]
but had also bound itself to answer liabilities proceeding from contracts entered
into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as
follows:
Sec. 1. Rescission and damages. Non-performance by either party of its
obligations under this Agreement shall be excused when the same is due to Force
Majeure. In such cases, the defaulting party must exercise due diligence to minimize the
breach and to remedy the same at the soonest possible time. In the event that either party
defaults or breaches any of the provisions of this Agreement other than by reason of Force
Majeure, the other party shall have the right to terminate this Agreement by giving notice to
the defaulting party, without prejudice to the filing of a civil case for damages arising from
the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the
Condominium Project, and such failure is directly and solely attributable to the Developer,
the Owner shall send written notice to the Developer to cause the completion of the
Condominium Project. If the developer fails to comply within One Hundred Eighty (180)
days from such notice or, within such time, indicates its incapacity to complete the Project,
the Owner shall have the right to take over the construction and cause the completion
thereof. If the Owner exercises its right to complete the Condominium Project under these
circumstances, this Agreement shall be automatically rescinded upon written notice to the
Developer and the latter shall hold the former free and harmless from any and all liabilities
to third persons arising from such rescission. In any case, the Owner shall respect and
strictly comply with any covenant entered into by the Developer and third parties with
respect to any of its units in the Condominium Project. To enable the owner to comply with
this contingent liability, the Developer shall furnish the Owner with a copy of its contracts
with the said buyers on a month-to-month basis. Finally, in case the Owner would be
constrained to assume the obligations of the Developer to its own buyers, the Developer
shall lose its right to ask for indemnity for whatever it may have spent in the Development
of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the
area intended for the Second Phase shall not be bound and/or subjected to the said
covenants and/or any other liability incurred by the Developer in connection with the
development of the first phase. (Underscoring supplied)


Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell executed by
PPGI and respondents. As correctly argued by the latter, moreover, a joint venture is
considered in this jurisdiction as a form of partnership and is, accordingly, governed by the
law of partnerships.
[54]
Under Article 1824 of the Civil Code of the Philippines, all partners
are solidarily liable with the partnership for everything chargeable to the partnership,
including loss or injury caused to a third person or penalties incurred due to any wrongful
act or omission of any partner acting in the ordinary course of the business of the
125 | P a g e

partnership or with the authority of his co-partners.
[55]
Whether innocent or guilty, all the
partners are solidarily liable with the partnership itself.
[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.
SO ORDERED.







































126 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the
Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction
Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum
until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc
are sentenced to pay the plaintiff in this case with the understanding that the judgment
against these individual defendants shall be enforced only if the defendant company has
no more leviable properties with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the
laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis
and for this purpose executed a promissory note for P9,440.00, payable in twelve (12)
equal monthly installments of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every month thereafter, until fully
paid, with the condition that failure to pay any of said installments as they fall due would
render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco,
Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included
as co-defendants in their capacity as general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default.
1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned.
2

When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-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.
127 | P a g e

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil
Code, the partners are not liable each for the whole debt of the partnership. The liability
is pro rata and in this case Pedro Yulo is responsible to plaintiff for only one-half of the
debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase
the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only
one-fifth (
1
/
5
) of the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff,
does not unmake the said Lumauig as a general partner in the defendant company. In so
moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability
to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without
pronouncement as to costs.
SO ORDERED.































128 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 142293 February 27, 2003
VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and
SBT
1
TRUCKING CORPORATION,petitioners,
vs.
HON. COURT OF APPEALS and JAIME SAHOT, respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for review seeks the reversal of the decision
2
of the Court of Appeals dated
February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision
3
of
the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR
CA No. 010526-96. Petitioners also pray for the reinstatement of the decision
4
of the Labor
Arbiter in NLRC NCR Case No. 00-09-06717-94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot
5
started working as a truck helper for
petitioners family-owned trucking business named Vicente Sy Trucking. In 1965, he
became a truck driver of the same family business, renamed T. Paulino Trucking Service,
later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking
Corporation since 1994. Throughout all these changes in names and for 36 years, private
respondent continuously served the trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he was
suffering from various ailments. Particularly causing him pain was his left thigh, which
greatly affected the performance of his task as a driver. He inquired about his medical and
retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered
that his premium payments had not been remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically
examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes "G-5"
and "G-3", pp. 48, 104, respectively),
6
HPM, UTI, Osteoarthritis (Annex "G-4", p. 105),
7
and
heart enlargement (Annex G, p. 107).
8
On said grounds, Belen Paulino of the SBT
Trucking Service management told him to file a formal request for extension of his leave.
At the end of his week-long absence, Sahot applied for extension of his leave for the whole
month of June, 1994. It was at this time when petitioners allegedly threatened to terminate
his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to
work, But he could not retire on pension because petitioners never paid his correct SSS
premiums. The fact remained he could no longer work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out their threat and dismissed him from work,
effective June 30, 1994. He ended up sick, jobless and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint
for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the
recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy,
Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT
Trucking, herein petitioners.
For their part, petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was not illegally
dismissed as a driver because he was in fact petitioners industrial partner. They add that it
was not until the year 1994, when SBT Trucking Corporation was established, and only
then did respondent Sahot become an employee of the company, with a monthly salary
that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and
was not able to report for work for almost seven days. On June 1, 1994, Sahot asked
permission to extend his leave of absence until June 30, 1994. It appeared that from the
expiration of his leave, private respondent never reported back to work nor did he file an
extension of his leave. Instead, he filed the complaint for illegal dismissal against the
trucking company and its owners.
Petitioners add that due to Sahots refusal to work after the expiration of his authorized
leave of absence, he should be deemed to have voluntarily resigned from his work. They
contended that Sahot had all the time to extend his leave or at least inform petitioners of
his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled "Manuelito
Jimenez et al. vs. T. Paulino Trucking Service," as a defense in view of the alleged
129 | P a g e

similarity in the factual milieu and issues of said case to that of Sahots, hence they are
in pari material and Sahots complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that
there was no illegal dismissal in Sahots case. Private respondent had failed to report to
work. Moreover, said the Labor Arbiter, petitioners and private respondent were industrial
partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay
"financial assistance" of P15,000 to Sahot for having served the company as a regular
employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the judgment of the Labor
Arbiter. It declared that private respondent was an employee, not an industrial partner,
since the start. Private respondent Sahot did not abandon his job but his employment was
terminated on account of his illness, pursuant to Article 284
9
of the Labor Code.
Accordingly, the NLRC ordered petitioners to pay private respondent separation pay in the
amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service.
Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision
dated February 29, 2000, the appellate court affirmed with modification the judgment of the
NLRC. It held that private respondent was indeed an employee of petitioners since 1958. It
also increased the amount of separation pay awarded to private respondent to P74,880,
computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It
decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB
Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of
SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and
for his separation pay.
10

Hence, the instant petition anchored on the following contentions:
I
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED]
DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR
RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT
NAUGHT ARTICLE 402 OF THE CIVIL CODE.
11

II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT
THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL
FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION
TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE
CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS
NATIONAL CAPITAL REGION (305 SCRA 233).
12

III
PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING
CORPORATION.
13

Three issues are to be resolved: (1) Whether or not an employer-employee relationship
existed between petitioners and respondent Sahot; (2) Whether or not there was valid
dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the first issue. Before a case for
illegal dismissal can prosper, an employer-employee relationship must first be
established.
14

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was in fact, petitioners industrial partner.
15
It is
contended that it was the Labor Arbiter who heard the case and had the opportunity to
observe the demeanor and deportment of the parties. The same conclusion, aver
petitioners, is supported by substantial evidence.
16
Moreover, it is argued that the findings
of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the
following pronouncement:
We agree with complainant that there was error committed by the Labor Arbiter when he
concluded that complainant was an industrial partner prior to 1994. A computation of the
age of complainant shows that he was only twenty-three (23) years when he started
working with respondent as truck helper. How can we entertain in our mind that a twenty-
three (23) year old man, working as a truck helper, be considered an industrial partner.
Hence we rule that complainant was only an employee, not a partner of respondents from
the time complainant started working for respondent.
17

Because the Court of Appeals also found that an employer-employee relationship existed,
petitioners aver that the appellate courts decision gives an "imprimatur" to the "illegal"
finding and conclusion of the NLRC.
130 | P a g e

Private respondent, for his part, denies that he was ever an industrial partner of petitioners.
There was no written agreement, no proof that he received a share in petitioners profits,
nor was there anything to show he had any participation with respect to the running of the
business.
18

The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employers power to control the employees conduct. The most
important element is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish it.
19

As found by the appellate court, petitioners owned and operated a trucking business since
the 1950s and by their own allegations, they determined private respondents wages and
rest day.
20
Records of the case show that private respondent actually engaged in work as
an employee. During the entire course of his employment he did not have the freedom to
determine where he would go, what he would do, and how he would do it. He merely
followed instructions of petitioners and was content to do so, as long as he was paid his
wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of
petitioners not for his own pleasure but under the latters control.
Article 1767
21
of the Civil Code states that in a contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves.
22
Not one of these circumstances is
present in this case. No written agreement exists to prove the partnership between the
parties. Private respondent did not contribute money, property or industry for the purpose
of engaging in the supposed business. There is no proof that he was receiving a share in
the profits as a matter of course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and the CA did not
err in reversing the finding of the Labor Arbiter that private respondent was an industrial
partner from 1958 to 1994.
On this point, we affirm the findings of the appellate court and the NLRC. Private
respondent Jaime Sahot was not an industrial partner but an employee of petitioners from
1958 to 1994. The existence of an employer-employee relationship is ultimately a question
of fact
23
and the findings thereon by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported by substantial evidence. Substantial
evidence is such amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.
24

Time and again this Court has said that "if doubt exists between the evidence presented by
the employer and the employee, the scales of justice must be tilted in favor of the
latter."
25
Here, we entertain no doubt. Private respondent since the beginning was an
employee of, not an industrial partner in, the trucking business.
Coming now to the second issue, was private respondent validly dismissed by petitioners?
Petitioners contend that it was private respondent who refused to go back to work. The
decision of the Labor Arbiter pointed out that during the conciliation proceedings,
petitioners requested respondent Sahot to report back for work. However, in the same
proceedings, Sahot stated that he was no longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a
driver anymore, then he could be given a job that was less strenuous, such as working as
a checker. However, Sahot declined that suggestion. Based on the foregoing recitals,
petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition
that he did not report for work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue working with
respondents despite his alleged illness, there is no direct evidence that will prove that
complainants illness prevents or incapacitates him from performing the function of a driver.
The fact remains that complainant suddenly stopped working due to boredom or otherwise
when he refused to work as a checker which certainly is a much less strenuous job than a
driver.
26

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court
of Appeals, held that:
While it was very obvious that complainant did not have any intention to report back to
work due to his illness which incapacitated him to perform his job, such intention cannot be
construed to be an abandonment. Instead, the same should have been considered as one
of those falling under the just causes of terminating an employment. The insistence of
respondent in making complainant work did not change the scenario.
131 | P a g e

It is worthy to note that respondent is engaged in the trucking business where physical
strength is of utmost requirement (sic). Complainant started working with respondent as
truck helper at age twenty-three (23), then as truck driver since 1965. Complainant was
already fifty-nine (59) when the complaint was filed and suffering from various illness
triggered by his work and age.
x x x
27

In termination cases, the burden is upon the employer to show by substantial evidence that
the termination was for lawful cause and validly made.
28
Article 277(b) of the Labor Code
puts the burden of proving that the dismissal of an employee was for a valid or authorized
cause on the employer, without distinction whether the employer admits or does not admit
the dismissal.
29
For an employees dismissal to be valid, (a) the dismissal must be for a
valid cause and (b) the employee must be afforded due process.
30

Article 284 of the Labor Code authorizes an employer to terminate an employee on the
ground of disease, viz:
Art. 284. Disease as a ground for termination- An employer may terminate the services of
an employee who has been found to be suffering from any disease and whose continued
employment is prohibited by law or prejudicial to his health as well as the health of his co-
employees: xxx
However, in order to validly terminate employment on this ground, Book VI, Rule I, Section
8 of the Omnibus Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and
his continued employment is prohibited by law or prejudicial to his health or to the health of
his co-employees, the employer shall not terminate his employment unless there is a
certification by competent public health authority that the disease is of such nature or at
such a stage that it cannot be cured within a period of six (6) months even with proper
medical treatment. If the disease or ailment can be cured within the period, the employer
shall not terminate the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon the restoration of his
normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,
31
the requirement
for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;
otherwise, it would sanction the unilateral and arbitrary determination by the employer of
the gravity or extent of the employees illness and thus defeat the public policy in the
protection of labor.
In the case at bar, the employer clearly did not comply with the medical certificate
requirement before Sahots dismissal was effected. In the same case of Sevillana vs. I.T.
(International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee rests on the
employer, the latter should likewise bear the burden of showing that the requisites for a
valid dismissal due to a disease have been complied with. In the absence of the required
certification by a competent public health authority, this Court has ruled against the validity
of the employees dismissal. It is therefore incumbent upon the private respondents to
prove by the quantum of evidence required by law that petitioner was not dismissed, or if
dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified.
This Court will not sanction a dismissal premised on mere conjectures and suspicions, the
evidence must be substantial and not arbitrary and must be founded on clearly established
facts sufficient to warrant his separation from work.
32

In addition, we must likewise determine if the procedural aspect of due process had been
complied with by the employer.
From the records, it clearly appears that procedural due process was not observed in the
separation of private respondent by the management of the trucking company. The
employer is required to furnish an employee with two written notices before the latter is
dismissed: (1) the notice to apprise the employee of the particular acts or omissions for
which his dismissal is sought, which is the equivalent of a charge; and (2) the notice
informing the employee of his dismissal, to be issued after the employee has been given
reasonable opportunity to answer and to be heard on his defense.
33
These, the petitioners
failed to do, even only for record purposes. What management did was to threaten the
employee with dismissal, then actually implement the threat when the occasion presented
itself because of private respondents painful left thigh.
All told, both the substantive and procedural aspects of due process were violated. Clearly,
therefore, Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to
separation pay. The law is clear on the matter. An employee who is terminated because of
disease is entitled to "separation pay equivalent to at least one month salary or to one-half
132 | P a g e

month salary for every year of service, whichever is greater xxx."
34
Following the formula
set in Art. 284 of the Labor Code, his separation pay was computed by the appellate court
at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the computation, after
noting that his last monthly salary was P4,160.00 so that one-half thereof is P2,080.00.
Finding no reversible error nor grave abuse of discretion on the part of appellate court, we
are constrained to sustain its decision. To avoid further delay in the payment due the
separated worker, whose claim was filed way back in 1994, this decision is immediately
executory. Otherwise, six percent (6%) interest per annum should be charged thereon, for
any delay, pursuant to provisions of the Civil Code.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his
separation pay for 36 years of service at the rate of one-half monthly pay for every year of
service, amounting to P74,880.00, with interest of six per centum (6%) per annum from
finality of this decision until fully paid.
Costs against petitioners.
SO ORDERED.

































133 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 110782 September 25, 1998
IRMA IDOS, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent Court of
Appeals
1
dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88
2
as follows:
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond reasonable doubt
and is hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay
a fine of P135,000.00 and to pay private complainant Eddie Alarilla the amount of the
check in question of P135,000.00 at 12% interest from the time of the filing of the
(i)nformation (August 10, 1988) until said amount has been fully paid.
Elevated from the Third Division
3
of this Court, the case was accepted for resolution en
banc on the initial impression that here, a constitutional question might be involved.
4
It was
opined that petitioner's sentence, particularly six months' imprisonment, might be in
violation of the constitutional guarantee against imprisonment for non-payment of a debt.
5

A careful consideration of the issues presented in the petition as well as the comments
thereon and the findings of fact by the courts below in the light of applicable laws and
precedents convinces us, however, that the constitutional dimension need not be reached
in order to resolve those issues adequately. For, as herein discussed, the merits of the
petition could be determined without delving into aspects of the cited constitutional
guarantee vis-a-vis provisions of the Bouncing Checks Law (Batas Pambansa Blg. 22).
There being no necessity therefor, we lay aside discussions of the constitutional challenge
to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant
Irma L. Idos for use in the latter's business of manufacturing leather. In 1985, he joined the
accused-appellant's business and formed with her a partnership under the style
"Tagumpay Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed to terminate
their partnership. Upon liquidation of the business the partnership had as of May 1986
receivables and stocks worth P1,800,000.00. The complainant's share of the assets was
P900,000.00 to pay for which the accused-appellant issued the following postdated
checks, all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but the third
check (Exh. A) which is the subject of this case, was dishonored on October 14, 1986 for
insufficiency of funds. The complainant demanded payment from the accused-appellant
but the latter failed to pay. Accordingly, on December 18, 1986, through counsel, he made
a formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the accused-
appellant denied liability. She claimed that the check had been given upon demand of
complainant in May 1986 only as "assurance" of his share in the assets of the partnership
and that it was not supposed to be deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which
on August 22, 1988 filed an information for violation of BP Blg. 22 against accused-
appellant.
134 | P a g e

Complainant danied that the checks issued to him by accused-appellant were subject to
the disposition of the stocks and the collection of receivables of the business. But the
accused-appellant insisted that the complainant had known that the checks were to be
funded from the proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did not want to
continue in the tannery business and had no use for a share of the stocks. (TSN, p. 7, April
14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id, p. 14, June 4,
1990).
On February 15, 1992, the trial court rendered judgment finding the accused-appellant
guilty of the crime charged. The accused-appellant's motion for annulment of the decision
and for reconsideration was denied by the trial court in its order dated April 12, 1991.
6

Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution
7
dated June 11, 1993. Petitioner has now appealed to
us by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions
8
dated August 30, 1993,
took note of the compromise agreement executed between the parties, regarding the civil
aspect of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement
9
filed on August 5, 1993. After submission of the Comment
10
by
the Solicitor General, and the Reply
11
by petitioner, this case was deemed submitted for
decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the innocence of the accused
based on mere probabilities which, on the contrary, should have warranted her acquittal on
reasonable doubt. Even then, the conclusion of the trial court is contrary to the evidence on
record, including private complainant's judicial admission that there was no consideration
for the check.
2 The Honorable Court of Appeals has confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership and on the basis of such
misconception of the law, disregarded the fact of absence of consideration of the check
and convicted the accused.
3 While this appeal was pending, the parties submitted for the approval of the Honorable
Court a compromise agreement on the civil liability. The accused humbly submits that this
supervening event, which by its terms puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration, should have a legal effect
favorable to the accused, considering that the dishonored check constitutes a private
transaction between partners which does not involve the public interest, and considering
further that the offense is not one involving moral turpitude.
4 The Honorable Court of Appeals failed to appreciate the fact that the accused had
warned private complainant that the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less rigid application of the
Bouncing Checks law.
12

For a thorough consideration of the merits of petitioner's appeal, we find pertinent and
decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a "buy-
out" of said complainant's interest in the partnership, and not merely as a commitment on
petitioner's part to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject
check knowing at the time of issue that she did not have sufficient funds in or credit with
the drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming
the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in favor
of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it
"must come clearly within both the spirit and the letter of the statue.
13
Otherwise, the act
has to be declared outside the law's ambit and a plea of innocence by the accused must be
sustained.
The relevant provisions of B.P. 22 state that:
135 | P a g e

Sec. 1. Checks without sufficient funds. Any person who makes or draws and issues
any check to apply on account or for value, knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the bank to stop payment, shall be punished
by imprisonment of not less than thirty days but not more than one (1) year or by a fine of
not less than but not more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion
of the court.
The same penalty shall be imposed upon any person who having sufficient funds in or
credit with the drawee bank when he makes or draws and issues a check, shall fail to keep
sufficient funds or to maintain a credit or to cover the full amount of the check if presented
within a period of ninety (90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer shall be liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance
of a check payment of which is refused by the drawee because of insufficient funds in or
credit with such bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless
such maker or drawer pays the holder thereof the amount due thereon or makes
arrangements for payment in full by the drawee of such check within five (5) banking days
after receiving notice that such check has not been paid by the drawee. (Emphasis
supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or for
value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such check in
full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
14

In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by
the partnership, and only when such collection and sale were realized.
15
Thus, there is
sufficient basis for the assertion that the petitioner issued the subject check (Metrobank
Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence
only complainant's share or interest in the partnership, or at best, to show her commitment
that when receivables are collected and goods are sold, she would give to private
complainant the net amount due him representing his interest in the partnership. It did not
involve a debt of or any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant;
only one (the third) was not. But eventually even this one was redeemed by petitioner.
Secondly, even private complainant admitted that there was no consideration whatsoever
for the issuance of the check, whose funding was dependent on future sales of goods and
receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioner and complainant had
agreed to dissolve the partnership, such ageement did not automatically put an end to the
partnership, since they still had to sell the goods on hand and collect the receivables from
debtors. In short, they were still in the process of "winding up" the affairs of the partnership,
when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-
up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused by any partner ceasing to
be associated in the carrying on of the business (Art. 1828). It is that point of time the time
the partners cease to carry on the business tonether. (Citation omitted).
(2) Winding Up Defined
Winding up is the process of settling business affairs of dissolution.
(NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets
previously demandable; even new business if needed to wind up, as the contracting with a
demolition company for the demolition of the garage used in a "used car" partnership.)
136 | P a g e

(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up.
16
[Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Art 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed. (Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. The check was thus issued by
the petitioner to complainant, as would a partner to another, and not as payment from a
debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to
evidence the complainant's share in the partnership property, or to assure the latter that he
would receive in time his due share therein. The alternative view that the check was in
consideration of a "buy out" is but a theory, favorable to the complainant, but lacking
support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggest that petitioner ever became
interested in acquiring, much less keeping, the shares of the complainant. What is very
clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods
and to collect the receivables of the partnership, in order to come up with the amount
necessary to satisfy the value of complainant's interest in the partnership at the dissolution
thereof. To go by accepted custom of the trade, we are more inclined to the view that the
subject check was issued merely to evidence complainant's interest in the partnership.
Thus, we are persuaded that the check was not intended to apply on account or for value;
rather it should be deemed as having been drawn without consideration at the time of
issue.
Absent the first element of the offense penalized under B.P. 22, which is "the making,
drawing and issuance of any check to apply on account or for value", petitioner's issuance
of the subject check was not an act contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing Checks
Law, the elements of deceit and damage are not essential or required to constitute a
violation thereof. In his view, the only essential element is the knowledge on the part of the
maker or drawer of the check of the insufficiency of his/her funds at the time of the
issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. "Malice or intent in issuing the worthless check is
immaterial, the offense being malum
prohibitum,"
17
so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to absurdity.
For if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd
to hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would
go against public policy and common sense.
Public respondents further contend that "since petitioner issued the check in favor of
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed
to make good the check, then petitioner is liable for violation of B.P. 22.
18
Again, this
matter could not be all that simple. For while "the maker's knowledge of the insufficiency of
funds is legally presumed from the dishonor of his checks for insufficiency of funds,
19
this
presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude the
presentation of contrary evidence.
20
In fact, such contrary evidence on two points could be
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds;
and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee
bank for the payment of a check upon its presentment is an essential element of the
offense.
21
It must be proved, particularly where the prima facie presumption of the
existence of this element has been rebutted. The prima facie presumption arising from the
fact of drawing, issuing or making a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
137 | P a g e

In the case of Nieva v. Court of Appeals,
22
it was held that the subsequent dishonor of the
subject check issued by accused merely engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not render the accused automatically guilty under
B.P. 22.
23

The prosecution has a duty to prove all the elements of the crime, including the acts that
give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut
the prima faciepresumption. Therefore, if such knowledge of insufficiency of funds is
proven to be actually absent or non-existent, the accused should not be held liable for the
offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense
charged is a malum prohibitum, the prosecution is not thereby excused from its
responsibility of proving beyond reasonable doubt all the elements of the offense, one of
which is knowledge of the insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the
check, be shown that he knows at the time of issue, that he does not have sufficient funds
in or credit with the drawee bank for the payment of such check in full upon its
presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment
of that share in the partnership was conditioned on the subsequent realization of profits
from the unsold goods and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually "encash" the check. The
reason for the condition is that petitioner has no independent means to satisfy or discharge
the complainant's share, other than by the future sale and collection of the partnership
assets. Thus, prior to the selling of the goods and collecting of the receivables, the
complainant could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid that
cash money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four checks
actually knowing that funds therefor would be insufficient at the time complainant would
present them to the drawee bank. For it was uncertain at the time of issuance of the
checks whether the unsold goods would have been sold, or whether the receivables would
have been collected by the time the checks would be encashed. As it turned out, three
were fully funded when presented to the bank; the remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of
funds, she could not be held liable under B.P. 22 when one was not honored right away.
For it is basic doctrine that penal statutes such as B.P. 22 "must be construed with such
strictness as to carefully safeguard the rights of the defendant . . ."
24
The element of
knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof,
petitioner could not be held criminally liable under that law. Moreover, the presumption
of prima facie knowledge of such insufficiency in this case was actually rebutted by
petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
subject check on petitioner's part, thus precluding any finding of prima facie evidence of
knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
sent by the complainant or by the drawee bank to the petitioner. On this point, the record is
bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by petitioner.
In addition, the terms of the parties' compromise agreement, entered into during the
pendency of this case, effectively invalidates the allegation of failure to pay or to make
arrangement for the payment of the check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by this Court in
prior cases:
Because no notice of dishonor was actually sent to and received by the petitioner,
the prima faciepresumption that she knew about the insufficiency of funds cannot apply.
Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of
drawing, making and issuing a bum check; there must also be a showing that, within five
banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the
holder of the check the amount due thereon or to make arrangement for its payment in full
by the drawee of such check.
25
[Emphasis supplied.]
The absence of a notice of dishonor necessarily deprives an accused an opportunity to
preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a
notice of dishonor be actually served on petitioner. Petitioner has a right to demand and
138 | P a g e

the basic postulates of fairness require that the notice of dishonor be actually sent to
and received by her to afford her the opportunity to avert prosecution under
B.P.
26

Further, what militates strongly against public respondents' stand is the fact that petitioner
repeatedly notified the complainant of the insufficiency of funds. Instructive is the following
pronouncement of this Court in Magno v. Court of Appeals:
Furthermore, the element of "knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for insufficiency
of funds or credit or would have been dishonored for the same reason . . ." is inversely
applied in this case. From the very beginning. petitioner never hid the fact that he did not
have the funds with which to put up the warranty deposit and as a matter of fact, he openly
intimated this to the vital conduit of the transaction, Joey Gomez, to whom petitioner was
introduced by Mrs. Teng. It would have been different if this predicament was not
communicated to all the parties he dealt with regarding the lease agreement the financing
or which was covered by L.S. Finance Management. "
27

In the instant case, petitioner intimated to private complainant the possibility that funds
might be insufficient to cover the subject check, due to the fact that the partnership's goods
were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of the banking
system and the legitimate public checking account user. It did not intend to shelter or favor
nor encourage users of the system to enrich themselves through manipulations and
circumvention of the noble purpose and objective of the law. Least should it be used also
as a means of jeopardizing honest-to-goodness transactions with some color of "get-rich"
scheme to the prejudice of well-meaning businessmen who are the pillars of society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment imposed upon the
accused, the objective of retribution of a wronged society, should be directed against the
"actual and potential wrongdoers". In the instant case, there is no doubt that petitioner's
four (4) checks were used to collateralize an accommodation, and not to cover the receipt
of an actual "account or credit for value" as this was absent, and therefore petitioner should
not be punished for mere issuance of the checks in question. Following the aforecited
theory, in petitioner's stead the "potential wrongdoer," whose operation could be a menace
to society, should not be glorified by convicting the petitioner.
28

Under the circumstances obtaining in this case, we find the petitioner to have issued the
check in good faith, with every intention of abiding by her commitment to return, as soon as
able, the investments of complainant in the partnership. Evidently, petitioner issued the
check with benign considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
for violation of B.P. 22 for the following reasons: (1) the subject check was not made,
drawn and issued by petitioner in exchange for value received as to qualify it as a check on
account or for value; (2) there is no sufficient basis to conclude that petitioner, at the time
of issue of the check, had actual knowledge of the insufficiency of funds; and (3) there was
no notice of dishonor of said check actually served on petitioner, thereby depriving her of
the opportunity to pay or make arrangements for the payment of the check, to avoid
criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no
longer need to pass upon the validity and legality or necessity of the purported compromise
agreement on civil liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER
ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960
is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-
M-88 is hereby SET ASIDE.
NO COSTS.
SO ORDERED.



139 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.:t.hqw
Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P.
Construction Company" and ordering the defendant Bartolome Puzon to pay the plaintiff
the amounts of: (1) P115,102.13, with legal interest thereon from the date of the filing of
the complaint until fully paid; (2) P200,000.00, as plaintiffs share in the unrealized profits of
the "U.P. Construction Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the
Philippines for the construction of the Ganyangan Bato Section of the Pagadian
Zamboanga City Road, province of Zamboanga del Sur
1
and of five (5) bridges in the
Malangas-Ganyangan Road.
2
Finding difficulty in accomplishing both projects, Bartolome
Puzon sought the financial assistance of the plaintiff, William Uy. As an inducement, Puzon
proposed the creation of a partnership between them which would be the sub-contractor of
the projects and the profits to be divided equally between them. William Uy inspected the
projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company"
3
which was
subsequently engaged as subcontractor of the construction projects.
4

The partners agreed that the capital of the partnership would be P100,000.00 of which
each partner shall contribute the amount of P50,000.00 in cash.
5
But, as heretofore stated,
Puzon was short of cash and he promised to contribute his share in the partnership capital
as soon as his application for a loan with the Philippine National Bank in the amount of
P150,000.00 shall have been approved. However, before his loan application could be
acted upon, he had to clear his collaterals of its incumbrances first. For this purpose, on
October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as
advance contribution of his share in the partnership to be organized between them under
the firm name U.P. CONSTRUCTION COMPANY which amount mentioned above will be
used by Puzon to pay his obligations with the Philippine National Bank to effect the release
of his mortgages with the said Bank.
6
On October 29, 1956, William Uy again gave Puzon
the amount of P30,000.00 as his partial contribution to the proposed partnership and which
the said Puzon was to use in payment of his obligation to the Rehabilitation Finance
Corporation.
7
Puzon promised William Uy that the amount of P150,000.00 would be given
to the partnership to be applied thusly: P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership.
8

Although the partnership agreement was signed by the parties on January 18, 1957,
9
work
on the projects was started by the partnership on October 1, 1956 in view of the insistence
of the Bureau of Public Highways to complete the project right away.
10
Since Puzon was
busy with his other projects, William Uy was entrusted with the management of the projects
and whatever expense the latter might incur, would be considered as part of his
contribution.
11
At the end of December, 1957, William Uy had contributed to the
partnership the amount of P115,453.39, including his capital.
12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and
he gave to William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the partnership which was used to clear the title to
Puzon's property, and the P20,000.00 as Puzon's contribution to the partnership capital.
13

To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the
knowledge and consent of William Uy,
14
assigned to the Philippine National Bank all the
payments to be received on account of the contracts with the Bureau of Public Highways
for the construction of the afore-mentioned projects.
15
By virtue of said assignment, the
Bureau of Public Highways paid the money due on the partial accomplishments on the
government projects in question to the Philippine National Bank which, in turn, applied
portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the
Bureau of Public Highways in payment of the partial work completed by the partnership on
140 | P a g e

the projects, the amount of P332,539.60 was applied in payment of Puzon's loan and only
the amount of P27,820.80 was deposited in the partnership funds,
16
which, for all practical
purposes, was also under Puzon's account since Puzon was the custodian of the common
funds.
As time passed and the financial demands of the projects increased, William Uy, who
supervised the said projects, found difficulty in obtaining the necessary funds with which to
pursue the construction projects. William Uy correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of their partnership agreement and to place, at
lest, his capital contribution at the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so.
17
Realizing that his verbal demands were to no avail,
William Uy consequently wrote Bartolome Puzon pormal letters of demand,
18
to which
Puzon replied that he is unable to put in additional capital to continue with the projects.
19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of
the construction projects, wrote the subcontractor, U.P. Construction Company, on
November 20, 1957, advising the partnership, of which he is also a partner, that unless
they presented an immediate solution and capacity to prosecute the work effectively, he
would be constrained to consider the sub-contract terminated and, thereafter, to assume all
responsibilities in the construction of the projects in accordance with his original contract
with the Bureau of Public Highways.
20
On November 27, 1957, Bartolome Puzon again
wrote the U.P.Construction Company finally terminating their subcontract agreement as of
December 1, 1957.
21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company
and his authority to deal with the Bureau of Public Highways in behalf of the partnership
was revoked by Bartolome Puzon who continued with the construction projects alone.
22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of
their partnership agreement, instituted an action in court, seeking, inter alia, the dissolution
of the partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming
that it was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for
the dissolution of the partnership and for the payment by the plaintiff of his, share in the
losses suffered by the partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the
terms of their partnership agreement, failed to contribute his share in the capital of the
partnership applied partnership funds to his personal use; ousted the plaintiff from the
management of the firm, and caused the failure of the partnership to realize the expected
profits of at least P400,000.00. As a consequence, the trial court dismissed the defendant's
counterclaim and ordered the dissolution of the partnership. The trial court further ordered
the defendant to pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the
appeal before this Court, the said Bartolome Puzon died, and was substituted by Franco
Puzon.
The appellant makes in his brief nineteen (19) assignment of errors, involving questions of
fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not
supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below,
justifying the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital
of the partnership is clear incontrovertible. The record shows that after the appellant's loan
the amount of P150,000.00 was approved by the Philippin National Bank in November,
1956, he gave the amount P60,000.00 to the appellee who was then managing the
construction projects. Of this amount, P40,000.00 was to be applied a reimbursement of
the appellee's contribution to the partnership which was used to clear the title to the
appellant's property, and th balance of P20,000.00, as Puzon's contribution to the
partnership.
23
Thereafter, the appellant failed to make any further contributions the
partnership funds as shown in his letters to the appellee wherein he confessed his inability
to put in additional capital to continue with the projects.
24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not
contributing his share in the partnership capital inasmuch as the amount of P40,000.00,
allegedly given to him in October, 1956 as partial contribution of the appellee is merely a
personal loan of the appellant which he had paid to the appellee, is plainly untenable. The
terms of the receipts signed by the appellant are clear and unequivocal that the sums of
141 | P a g e

money given by the appellee are appellee's partial contributions to the partnership capital.
Thus, in the receipt for P10,000.00 dated October 24, 1956,
25
the appellant
stated:+.wph!1
Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in Check
No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as advance
contribution of the share of said William Uy in the partnership to be organized between us
under the firm name U.P. CONSTRUCTION COMPANY which amount mentioned above
will be used by the undersigned to pay his obligations with the Philippine National Bank to
effect the release of his mortgages with the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956,
26
the appellant also
said:+.wph!1
Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in Check
No. SC423287, of the Equitable Banking Corporation, as partial contribution of the share of
the said William Uy to the U.P. CONSTRUCTION COMPANY for which the undersigned
will use the said amount in payment of his obligation to the Rehabilitation Finance
Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise,
sustained by competent evidence. It is of record that the appellant assigned to the
Philippine National Bank all the payments to be received on account of the contracts with
the Bureau of Public Highways for the construction of the aforementioned projects to
guarantee the repayment of the bank.
27
By virtue of the said appeflant's personal loan with
the said bank assignment, the Bureau of Public Highways paid the money due on the
partial accomplishments on the construction projects in question to the Philippine National
Bank who, in turn, applied portions of it in payment of the appellant's loan.
28

The appellant claims, however, that the said assignment was made with the consent of the
appellee and that the assignment not prejudice the partnership as it was reimbursed by the
appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank
was made without his prior knowledge and consent and that when he learned of said
assignment, he cal the attention of the appellant who assured him that the assignment was
only temporary as he would transfer the loan to the Rehabilitation Finance Corporation
within three (3) months time.
29

The question of whom to believe being a matter large dependent on the trier's discretion,
the findings of the trial court who had the better opportunity to examine and appraise the
fact issue, certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot
be denied. The record show that during the period from March, 1957 to September, 1959,
the appellant Bartolome Puzon received from the Bureau of Public highways, in payment of
the work accomplished on the construction projects, the amount of P1,047,181.01, which
amount rightfully and legally belongs to the partnership by virtue of the subcontract
agreements between the appellant and the U.P. Construction Company. In view of the
assignemt made by Puzon to the Philippine National Bank, the latter withheld and applied
the amount of P332,539,60 in payment of the appellant's personal loan with the said bank.
The balance was deposited in Puzon's current account and only the amount of P27,820.80
was deposited in the current account of the partnership.
30
For sure, if the appellant gave to
the partnership all that were eamed and due it under the subcontract agreements, the
money would have been used as a safe reserve for the discharge of all obligations of the
firm and the partnership would have been able to successfully and profitably prosecute the
projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in connection
with the construction projects, the amount of P952,839.77.
31
Since the appellant received
from the Bureau of Public Highways the sum of P1,047,181.01, the appellant has a deficit
balance of P94,342.24. The appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the management of
the partnership is also based upon persuasive evidence. The appellee testified that after
he had demanded from the appellant payment of the latter's contribution to the partnership
capital, the said appellant did not allow him to hold office in the U.P. Construction
Company and his authority to deal with the Bureau of Public Highways was revoked by the
appellant.
32

As the record stands, We cannot say, therefore, that the decis of the trial court is not
sustained by the evidence of record as warrant its reverw.
142 | P a g e

Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse
the plaintiff-appellee whatever amount latter had invested in or spent for the partnership on
account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of
P50,000.00 cash
33
the partners of the U.P. Construction Company did contribute their
agreed share in the capitalization of the enterprise in lump sums of P50,000.00 each.
Aside from the initial amount P40,000.00 put up by the appellee in October, 1956,
34
the
partners' investments took, the form of cash advances coveting expenses of the
construction projects as they were incurred. Since the determination of the amount of the
disbursements which each of them had made for the construction projects require an
examination of the books of account, the trial court appointed two commissioners,
designated by the parties, "to examine the books of account of the defendant regarding the
U.P. Construction Company and his personal account with particular reference to the
Public Works contract for the construction of the Ganyangan-Bato Section, Pagadian-
Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan Road, including the
payments received by defendant from the Bureau of Public Highways by virtue of the two
projects above mentioned, the disbursements or disposition made by defendant of the
portion thereof released to him by the Philippine National Bank and in whose account
these funds are deposited .
35

In due time, the loners so appointed,
36
submitted their report
37
they indicated the items
wherein they are in agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed under Credits; the money
received from the firm, under Debits; and the resulting monthly investment standings of the
partners, under Balances. The commissioners are agreed that at the end of December,
1957, the appellee had a balance of P8,242.39.
38
It is in their respective adjustments of
the capital account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant,
39
and encashed by the
appellee or his brother, Uy Han so that the appellee would owe the partnership the amount
of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the
following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and charged
to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll
remittances from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder
adopting the findings of the trial which we find to be in accord with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he presented
checks allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to
11. However, defendant admitted that said cheeks were not entered nor record their books
of account, as expenses for and in behalf of partnership or its affairs. On the other hand,
Uy Han testified that of the cheeks he received were exchange for cash, while other used
in the purchase of spare parts requisitioned by defendant. This testimony was not refuted
to the satisfaction of the Court, considering that Han's explanation thereof is the more
plausible because if they were employed in the prosecution of the partners projects, the
corresponding disbursements would have certainly been recorded in its books, which is not
the case. Taking into account defendant is the custodian of the books of account, his
failure to so enter therein the alleged disbursements, accentuates the falsity of his claim on
this point.
40

Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in
view of his proclivity to favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of the partnership unlike Mr.
Tayag's report which inspires faith and credence.
41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the
appellee out of his personal funds which not been entered in the books of the partnership
but which been recognized and conceded to by the auditor designated by the appellant
who included the said amount under Expenses.
42

The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise
clear and convincing.
43

143 | P a g e

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid
in connection withe the projects and not entered in the books of the partnership since all
vouchers and receipts were sent to the Manila office which were under the control of the
appellant. However, officer which were under the control of the appellant. However, a list of
these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
+.wph!1
Undisputed balance as of Dec. 1967

Add: Items omitted from the books but P 8,242.
recognized and charged to Miscellaneous
Expenses by Mr. Ablaza 7,497.80
Add: Payrolls paid by the appellee P128,103.77
Less: Payroll remittances received 63,000.00 65,103.77
Add: Other expenses incurred at the
site (Exhs, ZZ, ZZ-1 to ZZ-4) 26,027.04
TOTAL P106,871.00
At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00
which he also advanced for the construction projects but which were not included in the
Commissioner's Report.
44

Appellee's total investments in the partnership would, therefore, be:
Appellee's total credits P106,871.00
Add: unrecorded balances for the month of Dec.
1957 (Exhs. KKK, KK-1 to KKK_19, KKK-22)
3,917,39
Add: Payments to Munoz, as subcontractor of
five,(5) Bridges (p. 264 tsn; Exhs. KKK-20, KKK-
21)
4,665.00
Total Investments Pl 15,453.39
Regarding the award of P200,000.00 as his share in the unrealized profits of the
partnership, the appellant contends that the findings of the trial court that the amount of
P400,000.00 as reasonable profits of the partnership venture is without any basis and is
not supported by the evidence. The appemnt maintains that the lower court, in making its
determination, did not take into consideration the great risks involved in business
operations involving as it does the completion of the projects within a definite period of
time, in the face of adverse and often unpredictable circumstances, as well as the fact that
the appellee, who was in charge of the projects in the field, contributed in a large measure
to the failure of the partnership to realize such profits by his field management.
This argument must be overruled in the light of the law and evidence on the matter. Under
Article 2200 of the Civil Code, indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee failed to obtain. In
other words lucrum cessans is also a basis for indemnification.
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one and that the U.P.
Construction Company derived some profits from' co io oa ects its sub ntracts in the
construction of the road and bridges projects its deficient working capital and the juggling
of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits during the period
from July 2, 1956 to December 31, 1957. If the Profit and Loss Statement
45
showed a net
144 | P a g e

loss of P134,019.43, this was primarily due to the confusing accounting method employed
by the auditor who intermixed h and accthe cas ruamethod of accounting and the
erroneous inclusion of certain items, like personal expenses of the appellant and afteged
extraordinary losses due to an accidental plane crash, in the operating expenses of the
partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership admittedly
made a net profit of P52,943.89.
46

Besides, as We have heretofore pointed out, the appellant received from the Bureau of
Public Highways, in payment of the zonstruction projects in question, the amount of
P1,047,181.01
47
and disbursed the amount of P952,839.77,
48
leaving an unaccounted
balance of P94,342.24. Obviously, this amount is also part of the profits of the partnership.
During the trial of this case, it was discovered that the appellant had money and credits
receivable froin the projects in question, in the custody of the Bureau of Public Highways,
in the amount of P128,669.75, representing the 10% retention of said projects.
49
After the
trial of this case, it was shown that the total retentions Wucted from the appemnt amounted
to P145,358.00.
50
Surely, these retained amounts also form part of the profits of the
partnership.
Had the appellant not been remiss in his obligations as partner and as prime contractor of
the construction projects in question as he was bound to perform pursuant to the
partnership and subcontract agreements, and considering the fact that the total contract
amount of these two projects is P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the P334,255.61 We have hereinabove
indicated. The award, therefore, made by the trial court of the amount of P200,000.00, as
compensatory damages, is not speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby
affirmed with costs against the appellant, it being understood that the liability mentioned
herein shall be home by the estate of the deceased Bartolome Puzon, represented in this
instance by the administrator thereof, Franco Puzon.
SO ORDERED.























145 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-23842 March 13, 1975
ALEJANDRO A. LICHAUCO, petitioner-appellant,
vs.
HON. COURT OF APPEALS, HON. LUIS B. REYES, Judge of the CFI of Manila,
FEDERICO V. CEREZO and CIPRIANO SANTOS, respondents-appellees.
Vicente J. Francisco for petitioner-appellant.
Sabino Padilla, Jr., Teodoro Pea and Eduardo Sinense for respondents-appellees.

ESGUERRA, J.:+.wph!1
Petition for review on Certiorari of the decision of the Court of Appeals dated September
30, 1964, denying for lack of merit the petition for certiorari of Alejandro Lichauco, in CA-
G.R. No. 32023-R, against an order of the Court of First Instance of Manila granting the
motions of Federico Cerezo and Cipriano Santos to intervene in Civil Case No. 43537 of
the latter court.
The factual background of the case is as follows:
On July 5, 1960, herein petitioner Alejandro Lichauco filed with the Court of First Instance
of Manila a derivative suit on behalf of the Republic Resources Development Corporation
(REDECO for short) and himself in his capacity as a stockholder of REDECO, against Jose
Tiong, et al., directors and controlling stockholders of REDECO, for the annulment of the
stock options and grants of perpetual oil royalties which they had voted in their favor and of
the other defendants at the expense of the corporation. The case was docketed as Civil
Case No. 43537.
All the defendants, except the nominal defendant REDECO, filed their respective answers
and alleged that the stock options and oil royalties voted in their favor were valid and
binding upon the corporation and its stockholders. The REDECO was impleaded as a
nominal defendant because its consent to the suit could not be obtained, it being under the
control and domination of the main defendants. The Padilla Law Offices represented
REDECO in the suit.
Upon motion of nominal defendant REDECO thru Atty. Teodoro Padilla, the Manila Court
of First Instance ordered on September 7, 1960, that a notice of the pendency of the suit
be made by publication apprising all interested parties, particularly the corporate
stockholders of REDECO, of the subject-matter of the case and informing them that they
may apply for intervention therein on or before October 3, 1960.
On September 23, 1960, Francisco Lopez, a REDECO stockholder, intervened and joined
Alejandro Lichauco in the latter's derivative suit. One Mrs. Elizabeth Newbold Taylor
likewise intervened but later on withdrew her intervention upon amicable settlement with
the parties.
On November 28, 1960, all the parties, except Austin G. Taylor, submitted to the lower
court a Joint Motion Submitting Compromise to Judgment setting forth therein the
compromise agreement reached to settle the case amicably. The compromise agreement
provides as follows:
It.hqw
On plaintiffs First Cause of Action for the nullification of Article Eleventh of REDECO's
Amended Articles of Incorporation and All Unexercised Options Thereunder.
1. Defendants irrevocably waive all their option rights, under Article Eleventh relating to any
future increase of REDECO'S capital stock.
2. Defendants shall retain all their unexercised option rights, in the proportion established
among them under Article Eleventh, relating to the increase of REDECO'S capital stock
from P2,000,000.00 to P15,000,000.00, it being understood that these unexercised option
rights pertain to and cover 257,500,000 shares of REDECO'S unissued capital stock,
exercisable on or before August 20, 1961, at the par value of P0.01 per share. Defendants,
however, shall retain these options subject to the following terms and conditions:
146 | P a g e

(a) Defendants shall exercise at least twenty percent (20%) of their unexercised options
under Article Eleventh not later than ninety (90) days from the signing of this settlement by
making full and immediate payment of the purchase price of the same to REDECO,
Provided, however, that if judicial approval of this settlement is rendered after the
expiration of the said 90 days period, then said options shall be exercised not later than 15
days from the date of such Court approval;
(b) Any defendant who fails to exercise at least twenty percent (20%) of the unexercised
option corresponding to him/her under Article Eleventh within the period and under the
conditions stipulated in the subsection immediately preceding shall be deemed to have
waived and forfeited the entire balance of his/her unexercised option;
(c) Shares purchased by defendants from REDECO under their options shall not be sold,
transferred or assigned within a period of sixty (60) days following the date of purchase
and REDECO shall not make, accept or recognize any transfer in its books in violation of
this clause, Provided, however, that the limitation contained herein shall not apply to the
shams purchased by defendants from REDECO pursuant to subsection (a) of this
paragraph.
Defendants shall exercise their option by making full and immediate payment to REDECO
of the purchase price of the shares.
IIt.hqw
On plaintiffs Second Cause of Action for the nullification of defendant's overriding royalty
rights equivalent to 3-1/8% of the value of all oil, gas and other minerals saved and
recovered from REDECO'S petroleum concessions.
1. Said royalty rights are hereby cancelled and nullified ab initio.
III
Plaintiffs Attorney's Feest.hqw
1. In recognition of the substantial benefit conferred upon REDECO by virtue of plaintiffs
action, as well as of his efforts, since January 1960 to relieve REDECO of the obligations
subject matter of his letter of protest, marked Annex "C" of his Complaint, and
subsequently of the First and Second Causes of Action thereof, REDECO hereby
stipulates and agrees, consistent with law and applicable jurisprudence governing
attorney's fees in derivative suits, to pay plaintiff compensation by way of attorney's fees in
such amount as the court shall fix and determine.
IV
Effectivity of Agreementt.hqw
1. The terms of this compromise shall not be binding upon the parties hereto except and
until after the same shall have been approved by the court and judgment rendered thereon.
V
Overriding Motive for Compromiset.hqw
In arriving at the terms of this compromise, the parties have given guided principally by the
overriding objective of expeditiously settling their controversy for the benefit of the nominal
defendant, on behalf of whose corporate interest the present derivative action was
instituted. (Pp. 5-7, Brief for Petitioner-Appellant; pp. 8-11, Joint Brief for the Respondents)
On November 30, 1960, Lichauco filed "Plaintiff's Manifestation Stating His Reasons for
Submitting the Above-entitled Case to Judgment on a Compromise", after which, REDECO
on December 16, 1960, filed a Manifestation in answer pointing out the fact that plaintiff
Lichauco was misconstruing the stipulation on attorney's fees in the Compromise
Agreement to mean compensation for his personal services, as distinguished from his
expenses for his lawyer; and the fact that under the law and applicable jurisprudence
governing attorney's fees in derivative suits, plaintiff was in no way entitled to
compensation for personal services in the suit but only to compensation for the attorney's
fees and litigation expenses he had incurred.
On January 10, 1961 Lichauco filed a Manifestation citing authorities in support of his claim
to compensation for his own personal services, as distinguished from attorney's fees he
had to pay to his lawyer who filed a Manifestation later maintaining tile fact that his client,
Alejandro Lichauco, is entitled to compensation for his personal services.
On February 17, 1961, the trial court rendered its decision on the compromise agreement
the dispositive portion of which is s follows:t.hqw
WHEREFORE , the Joint Motion Submitting Compromise to Judgment is granted, the
compromise approved, and judgment is hereby rendered in accordance therewith. The
parties are enjoined to comply with the terms and conditions of the compromise. ... .
147 | P a g e

As regards plaintiff's attorney's fees, the Court finds it necessary to determine the same
after a hearing and, therefore, it is not advisable to include in this decision the amount of
plaintiff's compensation by way of attorney's fees.
Before the final determination of Mr. Lichauco's attorney's fees by the trial court, the
petitioner (Alejandro Lichauco's) filed on July 10, 1961, a manifestation withdrawing his
claim for attorneys fees on the ground that a settlement thereof had been reached. On July
10, 1961, REDECO file its rejoinder manifesting before the trial court the fact that petitioner
Lichauco had been paid by REDECO the sum of P27,500.00 in full settlement of his claim
for attorney's fees, so as to avoid an extended or protracted trial of the case.
On July 10, 1961, the same date when REDECO filed its manifestation about the
P27,500.00 payment of Attorney's fees to Atty. Lichauco, Mr. Federico V. Cerezo filed his
Urgent Motion to Intervene, alleging among other that it is only the court that can determine
the amount of attorney's fees to be paid to Atty. Lichauco in the derivative suit as stipulated
in the compromise agreement submitted in court. Again on July 14, 1961, Mr. Cipriano
Santos, another REDECO stockholder, filed another Urgent Motion to Intervene, alleging
therein that Atty. Lichauco had been paid with REDECO funds in the amount of
P27,500.00 in violation of the compromise agreement of November 28, 1960, and that the
receipt of said amount by Atty. Lichauco was an illegal attempt to deprive the trial court of
its jurisdiction to protect the corporation and constituted a violation by REDECO'S Board of
Directors of its fiduciary obligations to its stockholders.
On July 22, 1961, the trial court, in view of the filing-of the urgent motions to intervene,
issued the following order, to wit:t.hqw
An urgent motion to intervene having been filed in this case by Federico Cerezo and
Cipriano Santos through their respective counsel, plaintiff Alejandro A. Lichauco, in his
capacity as stockholder of REDECO, is hereby given five (5) days, from receipt of a copy of
this Order, to show cause why the motions to intervene should not be granted.
On August 10 and 11, 1961, Messrs. Federico Cerezo and Cipriano Santos filed their
respective motions informing the trial court that despite the service upon Mr. Lichauco of
the order of July 22, 1961, Mr. Lichauco had not filed any opposition thereto, and therein
reiterated their prayer to be allowed to intervene. On August 12, 1961, the trial court
granted their motions to intervene.
Likewise, on August 12, 1961, the trial court issued an order giving herein petitioner,
Alejandro Lichauco, a period of five (5) days from receipt of a copy of the Order to show
cause, if any he has, why the sum of P27,500.00 he received from REDECO should not be
deposited with the Court.
On August 15, 1961, however, the Padilla Law Offices withdrew its appearance as counsel
for REDECO and reiterated its stand that Atty. Alejandro Lichauco is not entitled to any
amount as attorney's fees for himself for personal services legally rendered or for legal
services personally rendered in his derivative suit.
On August 22, 1961, Atty. Alejandro Lichauco filed his Manifestation and Motion in
compliance with the order of the trial court dated August 12, 1961, and averred as
follows:t.hqw
1) The motions filed by movants Cerezo and Santos do not state or allege any cause of
action against plaintiff. Therefore, the prayer of movants for an order compelling plaintiff to
deposit the sum of P27,500.00 which he accepted in settlement from REDECO is
premature.
To compel plaintiff at this stage to deposit in court what he has received in legitimate and
bona fide settlement from REDECO, when movants have not even stated a cause of action
against him, much less filed a formal complaint, would arbitrarily deprive plaintiff of
property, without just cause and without due process of law.
2) Any discussion on the merits of the allegations contained in the motions filed by
movants Cerezo and Santos would only lead to a multiplicity of pleadings. Plaintiff
therefore, reserves his right to file such responsive pleading as may be necessary at the
appropriate time, and will do so only when movants Cerezo and Santos shall have filed a
formal complaint, paid the requisite filing fee and shall have alleged such cause or causes
of action, if any, that they may have against plaintiff.
3) To plaintiff's information and belief movants Cerezo and Santos are not the same
Cerezo and Santos who appear or might appear as stockholders of record of REDECO;
movants in fact being fictitious persons, not stockholders of REDECO, who have filed the
subject motions to intervene simply and exclusively for the purpose of instituting a
malicious and frivolous proceeding.
4) The settlement entered into between plaintiff and REDECO was made in the full
exercise of their civil and constitutional rights. No court in the Philippines has the power to
148 | P a g e

prohibit litigants from settling their differences, much less to prevent and prohibit a party
claimant from withdrawing his claim in court on the basis of a settlement.
On August 26, 1961, herein respondents Cerezo and Santos filed an Opposition and
Motion to the above-cited pleading of Lichauco and on the same date they filed their
Complaint-in-Intervention.
On August 30, 1961, the trial court denied the prayer for the deposit of the attorney's fees
of P27,500.00. However, the court stated:t.hqw
The Manifestation Withdrawing Plaintiff's clam to Attorney fees has not been acted upon by
the Court, in view of the Manifestation of counsel for the REDECO and the urgent motions
to intervene of Federico Cerezo and Cipriano Santos.
On September 29, 1961 and October 2 and 4, 1961, the defendants-in-intervention,
namely, Lichauco and the REDECO Directors, filed their respective answers and
counterclaims. The plaintiffs-in-intervention, on the other hand, filed their reply and
answers to counterclaims. Thereafter, the trial court set the case for trial on March 28,
1961.
On the date set for trial, the plaintiffs-in-intervention presented their first witness, Federico
Cerezo, whose testimony was not finished on that date, March 28, 1962, for lack of
material time. During the trial on that date, the appearance of Atty. Sabino Padilla, Jr., a
partner in the Padilla Law Offices, as collaborating counsel for the plaintiffs-in-intervention,
was questioned to the extent of asking the court for his disqualification.
On June 19, 1962, (one day before the scheduled trial of June 20, 1962) herein petitioner
Lichauco moved for the dismissal of the case on the grounds that: (1) his right to the
attorney's fees is now res judicata and no longer within the jurisdiction of the trial court, and
(2) the complaint-in-intervention should not be given due course as the amount of
attorney's fees has already been settled and paid in compromise.
On June 30, 1962, plaintiffs-in-intervention filed their opposition to the motion to dismiss on
the grounds that: (1) the compromise on attorney's fees is illegal since it does not have the
approval of the trial court; (2) the motion to dismiss is improper, because it presumes that
the second compromise on attorney's fees is valid and legal; (3) the defense of res
judicata is no longer available as the same was not pleaded as an affirmative defense in
the answer; and (4) res judicata can be waived.
On September 20, 1962, after the filing of the reply, the trial court denied the motion to
dismiss filed by Lichauco.
It was only on December 11, 1962, one day before the resumption of the scheduled trial
that Lichauco filed his motion for reconsideration of the order of September 20, 1962,
which was, November, denied by the trial court on January 23, 1963.
On March 8, 1963, Lichauco filed a motion far indefinite postponement of the trial of the
case on the ground that he would be filing a petition for certiorari with the Court of Appeal
which was granted by the trial court.
On March 22, 1963, Mr. Lichauco filed his petition for certiorari with the Court of Appeals,
alleging that the respondent Judge, Hon. Luis B. Reyes, acted without or in excess of his
jurisdiction when he allowed and admitted the intervention of private respondents Cerezo
and Santos. The petition was denied by the appellate Court on September 30, 1964, the
dispositive portion of the denial reading as follows:t.hqw
WHEREFORE, the instant petition is hereby denied for lack of merit, with costs against
petitioner.
A motion for reconsideration filed by Lichauco, having been also denied, this petition
for certiorari was filed with this Court.
The issue here presented is whether the intervention of Federico V. Cerezo and Cipriano
Santos in Civil Case No. 43547 of the Court of First Instance of Manila was properly
allowed by the trial court.
Petitioner maintains that the joint intervention of Cerezo and Santos was erroneously
allowed by the trial court, said intervention having been filed beyond the October 3, 1960,
deadline set by the trial court and after the rendition on February 17, 1961, by the trial court
of its decision on the main derivative suit by approving the compromise agreement of the
parties dated November 28, 1960. Besides, it is further argued that the complaint-in-
intervention is only questioning the legality of the payment of attorney's fees which is an
issue entirely different and distinct from and not germane to, the issues in the main
derivative suit.
The pertinent provision of law on the matter is found in action 2, Rule 12, of the revised
Rules of Court, which, among others, provides as follows:t.hqw
149 | P a g e

A person may, before or during a trial, be permitted by the court, in its discretion, to
intervene in an action, if he has legal interest in the matter in litigation, or in the success of
either of the parties, or an interest against both, or when he is so situated as to be
adversely affected by a distribution or other disposition of property in the custody of the
court or of an officer thereof.
This provision of law is very explicit in that intervention may only be allowed at the
discretion of the court before or during the trial of the case. This simply means anytime
before the rendition of final judgment.
The situation here is clear. A reservation of the determination of attorney's fees was
expressly provided by the trial court when it issued its order of February 17, 1961,
approving the compromise agreement of the parties, thereby subjecting the issue on
attorney's fees to further hearing and trial on the merits as previously agreed upon by the
parties themselves. It was at this juncture that the intervention was sought and allowed
when the "second compromise" on attorney's fees was pending consideration by the trial
court.
The herein petitioner even joined cause with the intervenors and even went to the extent of
entering into the trial of the case in intervention, on March 28, 1962. With more reason,
therefore, that the petitioner cannot now raise the objection that the intervention was late
and, therefore, was erroneously permitted, We do not perceive any indication of grave
abuse of discretion on the part of the trial court and of the appellate court.
Pertinent hereto is Our ruling, relative to intervention on attorney's fees, in Otto Gmur, Inc.
vs. Eulogio P. Revilla, et al., 55 Phil. 627, where we held:t.hqw
Upon the point whether the petitioners should be permitted to intervene in the matter of the
determination of the fee to be paid to the attorney ... , it is clear upon fundamental
principles governing procedure that such intervention should be
permitted. ... .
... that an attorney's fee cannot be determined until after the main litigation has been
decided and the subject of the recovery is at the disposition of the court. The issue over the
attorney's fee only arises when something has been recovered from which the fee is to be
paid. (Otto Gmur Inc. vs. Revilla, et al., 55 Phil. 627, 630, 632).
This explains why private respondents Cerezo and Santos could not have earlier
intervened an or before October 3, 1960, or on or before February 17, 1961, when
judgment on the derivative suit was rendered, because their cause of action accrued only
when petitioner Lichauco obtained the amount of P27,500.00 as attorney's fee from the
funds of the REDECO. The intervention was, therefore, timely.
WHEREFORE, the judgment appealed from is affirmed and the instant appeal
by certiorari is hereby denied.
Costs against the petitioner.
SO ORDERED.
Makalintal, C.J., Castro and Makasiar, JJ., concur.1wph1.t
Separate Opinions
TEEHANKEE, J., concurring:
Concurs on the ground that despite due notice, petitioner failed to oppose respondents'
late intervention and in fact filed his answer with counterclaim to their complaint-in-
intervention. It was too late after trial had commenced for him in turn to challenge belatedly
the intervention.
Separate Opinions
TEEHANKEE, J., concurring:
Concurs on the ground that despite due notice, petitioner failed to oppose respondents'
late intervention and in fact filed his answer with counterclaim to their complaint-in-
intervention. It was too late after trial had commenced for him in turn to challenge belatedly
the intervention.






150 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.
Josue Soncuya in his own behalf.
Conrado V. Sanchez and Jesus de Veyra for appellee.
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of
Manila and amended complaint against Carmen de Luna in her own name and as co-
administratrix of the intestate estate, of Librada Avelino, in which, upon the facts therein
alleged, he prayed that defendant be sentenced to pay him the sum of P700,432 as
damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer
based on the following grounds: (1) That the complaint does not contain facts sufficient to
constitute a cause of action; and (2) that the complaint is ambiguous, unintelligible and
vague.
Trial on the demurrer having been held and the parties heard, the court found the same
well-founded and sustained it, ordering the plaintiff to amend his complaint within a period
of ten days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the
attorney for the defendant, Carmen de Luna, filed a motion praying that the amended
complaint be dismissed with costs against the plaintiff. Said motion was granted by The
Court of First Instance of Manila which ordered the dismissal of the aforesaid amended
complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors
committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff having
been sustained on the grounds that the facts alleged in said complaint are not sufficient to
constitute a cause of action and that the complaint is ambiguous, unintelligible and vague,
the only questions which may be raised and considered in the present appeal are those
which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result of the administration, said to be
fraudulent, of he partnership, "Centro Escolar de Seoritas", of which plaintiff, defendant
and the deceased Librada Avelino were members. For the purpose of adjudicating to
plaintiff damages which he alleges to have suffered as a partner by reason of the
supposed fraudulent management of he partnership referred to, it is first necessary that a
liquidation of the business thereof be made to the end that the profits and losses may be
known and the causes of the latter and the responsibility of the defendant as well as the
damages which each partner may have suffered, may be determined. It is not alleged in
the complaint that such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the action for damages
which he claims from the managing partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka
Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member of the partnership "Centro
Escolar de Seoritas" to collect damages from defendant as managing partner thereof,
without a previous liquidation, we do not deem it necessary to discuss the remaining
question of whether or not the complaint is ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a partner
to be able to claim from another partner who manages the general copartnership, damages
allegedly suffered by him by reason of the fraudulent administration of the latter, a previous
liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts,
with costs against the appellant. So ordered.



151 | P a g e


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 124535 September 28, 2001
THE RURAL BANK OF LIPA CITY, INC., THE OFFICERS AND DIRECTORS,
BERNARDO BAUTISTA, JAIME CUSTODIO, OCTAVIO KATIGBAK, FRANCISCO
CUSTODIO, and JUANITA BAUTISTA OF THE RURAL BANK OF LIPA CITY,
INC., petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE COMMISSION EN BANC,
SECURITIES AND EXCHANGE COMMISSION, HONORABLE ENRIQUE L. FLORES,
JR., in his capacity as Hearing Officer, REYNALDO VILLANUEVA, SR, AVELINA M.
VILLANUEVA, CATALINO VILLANUEVA, ANDRES GONZALES, AURORA LACERNA,
CELSO LAYGO, EDGARDO REYES, ALEJANDRA TONOGAN and ELENA
USI, respondents.
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals
dated February 27, 1996, as well as the Resolution dated March 29, 1996, in CA-G.R. SP
No. 38861.
The instant controversy arose from a dispute between the Rural Bank of Lipa City,
Incorporated (hereinafter referred to as the Bank), represented by its officers and members
of its Board of Directors, and certain stockholders of the said bank. The records reveal the
following antecedent facts:
Private respondent Reynaldo Villanueva, Sr., a stockholder of the Rural Bank of Lipa City,
executed a Deed of Assignment,
1
wherein he assigned his shares, as well as those of eight
(8) other shareholders under his control with a total of 10,467 shares, in favor of the
stockholders of the Bank represented by its directors Bernardo Bautista, Jaime Custodio
and Octavio Katigbak. Sometime thereafter, Reynaldo Villanueva, Sr. and his wife, Avelina,
executed an Agreement
2
wherein they acknowledged their indebtedness to the Bank in the
amount of Four Million Pesos (P4,000,000.00), and stipulated that said debt will be paid
out of the proceeds of the sale of their real property described in the Agreement.
At a meeting of the Board of Directors of the Bank on November 15, 1993, the Villanueva
spouses assured the Board that their debt would be paid on or before December 31 of that
same year; otherwise, the Bank would be entitled to liquidate their shareholdings, including
those under their control. In such an event, should the proceeds of the sale of said shares
fail to satisfy in full the obligation, the unpaid balance shall be secured by other collateral
sufficient therefor.
When the Villanueva spouses failed to settle their obligation to the Bank on the due date,
the Board sent them a letter
3
demanding: (1) the surrender of all the stock certificates
issued to them; and (2) the delivery of sufficient collateral to secure the balance of their
debt amounting to P3,346,898.54. The Villanuevas ignored the bank's demands,
whereupon their shares of stock were converted into Treasury Stocks. Later, the
Villanuevas, through their counsel, questioned the legality of the conversion of their
shares.
4

On January 15, 1994, the stockholders of the Bank met to elect the new directors and set
of officers for the year 1994. The Villanuevas were not notified of said meeting. In a letter
dated January 19, 1994, Atty. Amado Ignacio, counsel for the Villanueva spouses,
questioned the legality of the said stockholders' meeting and the validity of all the
proceedings therein. In reply, the new set of officers of the Bank informed Atty. Ignacio that
the Villanuevas were no longer entitled to notice of the said meeting since they had
relinquished their rights as stockholders in favor of the Bank.
Consequently, the Villanueva spouses filed with the Securities and Exchange Commission
(SEC), a petition for annulment of the stockholders' meeting and election of directors and
officers on January 15, 1994, with damages and prayer for preliminary injunction
5
,
docketed as SEC Case No. 02-94-4683. Joining them as co-petitioners were Catalino
Villanueva, Andres Gonzales, Aurora Lacerna, Celso Laygo, Edgardo Reyes, Alejandro
Tonogan, and Elena Usi. Named respondents were the newly-elected officers and directors
of the Rural Bank, namely: Bernardo Bautista, Jaime Custodio, Octavio Katigbak,
Francisco Custodio and Juanita Bautista.
The Villanuevas' main contention was that the stockholders' meeting and election of
officers and directors held on January 15, 1994 were invalid because: (1) they were
conducted in violation of the by-laws of the Rural Bank; (2) they were not given due notice
152 | P a g e

of said meeting and election notwithstanding the fact that they had not waived their right to
notice; (3) they were deprived of their right to vote despite their being holders of common
stock with corresponding voting rights; (4) their names were irregularly excluded from the
list of stockholders; and (5) the candidacy of petitioner Avelina Villanueva for directorship
was arbitrarily disregarded by respondent Bernardo Bautista and company during the said
meeting
On February 16, 1994, the SEC issued a temporary restraining order enjoining the
respondents, petitioners herein, from acting as directors and officers of the Bank, and from
performing their duties and functions as such.
6

In their joint Answer,
7
the respondents therein raised the following defenses:
1) The petitioners have no legal capacity to sue;
2) The petition states no cause of action;
3) The complaint is insufficient;
4) The petitioners' claims had already been paid, waived, abandoned, or otherwise
extinguished;
5) The petitioners are estopped from challenging the conversion of their shares.
Petitioners, respondents therein, thus moved for the lifting of the temporary restraining
order and the dismissal of the petition for lack of merit, and for the upholding of the validity
of the stockholders' meeting and election of directors and officers held on January 15,
1994. By way of counterclaim, petitioners prayed for actual, moral and exemplary
damages.
On April 6, 1994, the Villanuevas' application for the issuance of a writ of preliminary
injunction was denied by the SEC Hearing Officer on the ground of lack of sufficient basis
for the issuance thereof. However, a motion for reconsideration
8
was granted on December
16, 1994, upon finding that since the Villanuevas' have not disposed of their shares,
whether voluntarily or involuntarily, they were still stockholders entitled to notice of the
annual stockholders' meeting was sustained by the SEC. Accordingly, a writ of preliminary
injunction was issued enjoining the petitioners from acting as directors and officers of the
bank.
9

Thereafter, petitioners filed an urgent motion to quash the writ of preliminary
injunction,
10
challenging the propriety of the said writ considering that they had not yet
received a copy of the order granting the application for the writ of preliminary injunction.
With the impending 1995 annual stockholders' meeting only nine (9) days away, the
Villanuevas filed an Omnibus Motion
11
praying that the said meeting and election of officers
scheduled on January 14, 1995 be suspended or held in abeyance, and that the 1993
Board of Directors be allowed, in the meantime, to act as such. One (1) day before the
scheduled stockholders meeting, the SEC Hearing Officer granted the Omnibus Motion by
issuing a temporary restraining order preventing petitioners from holding the stockholders
meeting and electing the board of directors and officers of the Bank.
12

A petition for Certiorari and Annulment with Damages was filed by the Rural Bank, its
directors and officers before the SEC en banc,
13
naming as respondents therein SEC
Hearing Officer Enrique L. Flores, Jr., and the Villanuevas, erstwhile petitioners in SEC
Case No. 02-94-4683. The said petition alleged that the orders dated December 16, 1994
and January 13, 1995, which allowed the issuance of the writ of preliminary injunction and
prevented the bank from holding its 1995 annual stockholders' meeting, respectively, were
issued by the SEC Hearing Officer with grave abuse of discretion amounting to lack or
excess of jurisdiction. Corollarily, the Bank, its directors and its officers questioned the SEC
Hearing Officer's right to restrain the stockholders' meeting and election of officers and
directors considering that the Villanueva spouses and the other petitioners in SEC Case
No. 02-94-4683 were no longer stockholders with voting rights, having already assigned all
their shares to the Bank.
In their Comment/Opposition, the Villanuevas and other private respondents argued that
the filing of the petition for certiorari was premature and there was no grave abuse of
discretion on the part of the SEC Hearing Officer, nor did he act without or in excess of his
jurisdiction.
On June 7, 1995, the SEC en banc denied the petition for certiorari in an Order,
14
which
stated:
In the case now before us, petitioners could not show any proof of despotic or arbitrary
exercise of discretion committed by the hearing officer in issuing the assailed orders save
and except the allegation that the private respondents have already transferred their
stockholdings in favor of the stockholders of the Bank. This, however, is the very issue of
the controversy in the case a quo and which, to our mind, should rightfully be litigated and
153 | P a g e

proven before the hearing officer. This is so because of the undisputed fact the (sic) private
respondents are still in possession of the stock certificates evidencing their stockholdings
and as held by the Supreme Court in Embassy Farms, Inc. v. Court of Appeals, et al., 188
SCRA 492, citingNava v. Peers Marketing Corp., the non-delivery of the stock certificate
does not make the transfer of the shares of stock effective. For an effective transfer of
stock, the mode of transfer as prescribed by law must be followed.
We likewise find that the provision of the Corporation Code cited by the herein petitioner,
particularly Section 83 thereof, to support the claim that the private respondents are no
longer stockholders of the Bank is misplaced. The said law applies to acquisition of shares
of stock by the corporation in the exercise of a stockholder's right of appraisal or when the
said stockholder opts to dissent on a specific corporate act in those instances provided by
law and demands the payment of the fair value of his shares. It does not contemplate a
"transfer" whereby the stockholder, in the exercise of his right to dispose of his shares (jus
disponendi) sells or assigns his stockholdings in favor of another person where the
provisions of Section 63 of the same Code should be complied with.
The hearing officer, therefore, had a basis in issuing the questioned orders since the
private respondents' rights as stockholders may be prejudiced should the writ of injunction
not be issued. The private respondents are presumably stockholders of the Bank in view of
the fact that they have in their possession the stock certificates evidencing their
stockholdings. Until proven otherwise, they remain to be such and the hearing officer,
being the one directly confronted with the facts and pieces of evidence in the case, may
issue such orders and resolutions which may be necessary or reasonable relative thereto
to protect their rights and interest in the meantime that the said case is still pending trial on
the merits.
A subsequent motion for reconsideration
15
was likewise denied by the SEC en banc in a
Resolution
16
dated September 29, 1995.
A petition for review was thus filed before the Court of Appeals, which was docketed as
CA-G.R. SP No. 38861, assailing the Order dated June 7, 1995 and the Resolution dated
September 29, 1995 of the SEC en banc in SEC EB No. 440. The ultimate issue raised
before the Court of Appeals was whether or not the SEC en banc erred in finding:
1. That the Hon. Hearing Officer in SEC Case No. 02-94-4683 did not commit any grave
abuse of discretion that would warrant the filing of a petition for certiorari;
2. That the private respondents are still stockholders of the subject bank and further stated
that "it does not contemplate a transfer" whereby the stockholders, in the exercise of his
right to dispose of his shares (Jus Disponendi) sells or assigns his stockholdings in favor of
another person where the provisions of Sec. 63 of the same Code should be complied
with; and
3. That the private respondents are presumably stockholders of the bank in view of the fact
that they have in their possession the stock certificates evidencing their stockholdings.
On February 27, 1996, the Court of Appeals rendered the assailed Decision
17
dismissing
the petition for review for lack of merit. The appellate court found that:
The public respondent is correct in holding that the Hearing Officer did not commit grave
abuse of discretion. The officer, in exercising his judicial functions, did not exercise his
judgment in a capricious, whimsical, arbitrary or despotic manner. The questioned Orders
issued by the Hearing Officer were based on pertinent law and the facts of the case.
Section 63 of the Corporation Code states: "x x x Shares of stock so issued are personal
property and may be transferred by delivery of the certificate or certificates indorsed by the
owner x x x. No transfer, however, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation so as to show the names of the parties
to the transaction, the date of the transfer, the number of the certificate or certificates and
the number of shares transferred."
In the case at bench, when private respondents executed a deed of assignment of their
shares of stocks in favor of the Stockholders of the Rural Bank of Lipa City, represented by
Bernardo Bautista, Jaime Custodio and Octavio Katigbak, title to such shares will not be
effective unless the duly indorsed certificate of stock is delivered to them. For an effective
transfer of shares of stock, the mode and manner of transfer as prescribed by law should
be followed. Private respondents are still presumed to be the owners of the shares and to
be stockholders of the Rural Bank.
We find no reversible error in the questioned orders.
Petitioners' motion for reconsideration was likewise denied by the Court of Appeals in an
Order
18
dated March 29, 1996.
Hence, the instant petition for review seeking to annul the Court of Appeals' decision dated
February 27, 1996 and the resolution dated March 29, 1996. In particular, the decision is
154 | P a g e

challenged for its ruling that notwithstanding the execution of the deed of assignment in
favor of the petitioners, transfer of title to such shares is ineffective until and unless the
duly indorsed certificate of stock is delivered to them. Moreover, petitioners faulted the
Court of Appeals for not taking into consideration the acts of disloyalty committed by the
Villanueva spouses against the Bank.
We find no merit in the instant petition.
The Court of Appeals did not err or abuse its discretion in affirming the order of the SEC en
banc, which in turn upheld the order of the SEC Hearing Officer, for the said rulings were in
accordance with law and jurisprudence.
The Corporation Code specifically provides:
SECTION 63. Certificate of stock and transfer of shares. The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stocks so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to show the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (Emphasis ours)
Petitioners argue that by virtue of the Deed of Assignment,
19
private respondents had
relinquished to them any and all rights they may have had as stockholders of the Bank.
While it may be true that there was an assignment of private respondents' shares to the
petitioners, said assignment was not sufficient to effect the transfer of shares since there
was no endorsement of the certificates of stock by the owners, their attorneys-in-fact or
any other person legally authorized to make the transfer. Moreover, petitioners admit that
the assignment of shares was not coupled with delivery, the absence of which is a fatal
defect. The rule is that the delivery of the stock certificate duly endorsed by the owner is
the operative act of transfer of shares from the lawful owner to the transferee.
20
Thus, title
may be vested in the transferee only by delivery of the duly indorsed certificate of stock.
21

We have uniformly held that for a valid transfer of stocks, there must be strict compliance
with the mode of transfer prescribed by law.
22
The requirements are: (a) There must be
delivery of the stock certificate: (b) The certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to make the transfer; and (c) To be valid
against third parties, the transfer must be recorded in the books of the corporation. As it is,
compliance with any of these requisites has not been clearly and sufficiently shown.
It may be argued that despite non-compliance with the requisite endorsement and delivery,
the assignment was valid between the parties, meaning the private respondents as
assignors and the petitioners as assignees. While the assignment may be valid and
binding on the petitioners and private respondents, it does not necessarily make the
transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the
status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends,
insofar as the assigned shares are concerned Parenthetically, the private respondents
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is resolved with finality.
There being no showing that any of the requisites mandated by law
23
was complied with,
the SEC Hearing Officer did not abuse his discretion in granting the issuance of the
preliminary injunction prayed for by petitioners in SEC Case No. 02-94-4683 (herein private
respondents). Accordingly, the order of the SEC en banc affirming the ruling of the SEC
Hearing Officer, and the Court of Appeals decision upholding the SEC en banc order, are
valid and in accordance with law and jurisprudence, thus warranting the denial of the
instant petition for review.
To enable the shareholders of the Rural Bank of Lipa City, Inc. to meet and elect their
directors, the temporary restraining order issued by the SEC Hearing Officer on January
13, 1995 must be lifted. However, private respondents shall be notified of the meeting and
be allowed to exercise their rights as stockholders thereat.
While this case was pending, Republic Act No. 8799
24
was enacted, transferring to the
courts of general jurisdiction or the appropriate Regional Trial Court the SEC's jurisdiction
over all cases enumerated under Section 5 of Presidential Decree No. 902-A.
25
One of
those cases enumerated is any controversy "arising out of intra-corporate or partnership
relations, between and among stockholders, members, or associates, between any and/or
all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or
155 | P a g e

association and the state insofar as it concerns their individual franchise or right to exist as
such entity." The instant controversy clearly falls under this category of cases which are
now cognizable by the Regional Trial Court.
Pursuant to Section 5.2 of R.A. No. 8799, this Court designated specific branches of the
Regional Trial Courts to try and decide cases formerly cognizable by the SEC. For the
Fourth Judicial Region, specifically in the Province of Batangas, the RTC of Batangas City,
Branch 32 is the designated court.
26

WHEREFORE, in view of all the foregoing, the instant petition for review on certiorari is
DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 38861
are hereby AFFIRMED. The case is ordered REMANDED to the Regional Trial Court of
Batangas City, Branch 32, for proper disposition. The temporary restraining order issued by
the SEC Hearing Officer dated January 13, 1995 is ordered LIFTED.
SO ORDERED.



































156 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.
Montinola, Montinola & Hontiveros for appellee.
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a
partnership for the purpose of exploiting a fish pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to contribute
to the payment of the expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been doing until the
death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez,
the herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in
question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery
of the part of the fish pond belonging to his decedent, Perpetua, and delivery having been
refused, Domingo Bearneza brought this action to recover said part of the fish pond
belonging to his decedent, Perpetua, and delivery having been refused, Domingo
Bearneza brought this action recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from the year 1913 to 1919, as damages (the
amended complaint was filed on April 12, 1920), amounting, according to plaintiff, to the
sum of thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the
complaint, and alleges, as special defense, that "the formation of the supposed partnership
between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was
not carried into effect, on account of the plaintiff having refused to defray the expenses of
reconstruction and exploitation of said fish pond." As another special defense, the
defendant alleges "that in the event that the court should hold the plaintiff to be entitled to
the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has
prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the
plaintiff owner of one-half of the fish pond, which was composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the damages claimed by him,
the same not having been proven, in the opinion of the court, and ordering the defendant to
pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages; hence
the only question we are called upon to decide is whether or not the plaintiff has any right
to maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of
which the proof contained in the record is conclusive and there is no dispute, was of a civil
nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having
had for its subject-matter a specified thing, to with, the exploitation of the aforementioned
fish pond. Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish
pond," this reference cannot be held to include the land on which the said fish pond was
built. It has not been proven that Perpetua Bearneza participated in the ownership of said
land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said
land belongs to the State. The conclusion, therefore, from the evidence is that the land on
which the fish pond was constructed did not constitute a part of the subject- matter of the
aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto
(article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and
falls under the provisions of article 1700, subsection 3, of the same Code, and not under
the exception established in the last paragraph of said article 1700 of the Civil Code.
157 | P a g e

Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been
made by her and the defendant, pursuant to the provisions of article 1704 of the Code last
cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent
legal status was that of a partnership in liquidation, and the only rights inherited by her
testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor
of the deceased partner, and nothing more. Before this liquidation is made, which up to the
present has not been effected, it is impossible to determine what rights or interests, if any,
the deceased had, the partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property existed between the
plaintiff and the defendant, it not being known whether the deceased still had any interest
in the partnership property which could have been transmitted by will to the plaintiff. There
being no community of property, article 395 of the Civil Code cited by the plaintiff in support
of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the
defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to the
payment of the expenses of exploitation of the aforesaid fishing industry was an attempt to
continue the partnership, but it is also true that neither the said heirs collectively, nor the
plaintiff individually, took any action in response to that requirement, nor made any promise
to that effect, and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.


























158 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28920 October 24, 1928
MAXIMO GUIDOTE, plaintiff-appellant,
vs.
ROMANA BORJA, as administratrix of the estate of Narciso Santos,
deceased, defendant-appellee.
Francisco, Lualhati and Lopez for appellant.
M. G. Goyena for appellee.

OSTRAND, J.:
On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of
Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to
be the net profits due the plaintiff in a partnership business conducted under the name of
"Taller Sinukuan," in which the deceased was the capitalist partner and the plaintiff the
industrial partner, the rest of the sum consisting of advances alleged to have been made to
said partnership by the plaintiff. The defendant in her answer admitted the existence of the
partnership and in a cross-complaint and counter-claim prayed that the plaintiff be ordered
to render an accounting of the partnership business and to pay to the estate of the
deceased the sum of P25,000 as net profits, credits, and property pertaining to said
deceased.
In the first trial of the case the plaintiff called several witnesses and introduced a so-called
accounting and a mass of documentary evidence consisting of books, bills, and alleged
vouchers, which documentary evidence was so hopelessly and inextricably confused that
the court, as stated in its decision, could not consider it of much probative value. It was,
however, fund as facts that the aforesaid partnership had been formed, on or about June
15, 1918; that Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving
partner; and that plaintiff failed to liquidate the affairs of the partnership and to render an
account thereof to the administratrix of Santos' estate. The court, therefore, dismissed the
plaintiff's complaint and absolved the defendant therefrom, and ordered the plaintiff to
render a full and complete accounting, verified by vouchers, of the partnership business
from June 15, 1918, until September 1, 1922. To this decision and order the plaintiff duly
excepted.
The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public
accountant. Numerous objections to said account were presented by the defendant, and
the court, upon hearing, disapproved the account and ordered that the defendant submit to
the court an accounting of the partnership business from the date of the commencement of
the partnership, June 15, 1918, up to the time the business was closed. 1awph!l.net
On January 25, 1924, the defendant presented an account and liquidation prepared by a
public accountant, Santiago A. Lindaya, showing a balance of P29,088.95 in favor of the
defendant. The account was set down for hearing upon the question of its approval or
disapproval by the court, at which hearing the defendant introduced the public accountant
Jose Turiano Santiago to testify as to the results of an audit made by him of the accounts
of the partnership. Santiago testified that he had been a public accountant for over 20
years, having appeared in court as such on several occasions; that he had examined the
exhibits offered in evidence of the case by both parties; that he had prepared a separate
accounting or liquidation similar in results to that prepared by Lindaya, but with a few
differences in the sums total; and that according to his examination, the financial status of
the partnership was as follows:
Narciso Santos is a creditor of the Taller Sinukuan in the sum
of P26,020.89 consisting as follows:
<br<
td=""></br<>
For his capital .................................. P12,588.53
For his credit ................................... 10,348.30
For his share of the profits ............ 3,068.06
Total ...................................................

26,020.89
159 | P a g e

Maximo Guidote is a debtor to the Taller Sinukuan in the sum
of P20,020.89, consisting as follows:

For his debt (debito) ......................... P29,088.95
Less his share of the profits ........... 3,068.06
Total balance ......................................

26.020.89
In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff
presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in his favor. In
regard to the character of the testimony of these witnesses, His Honor, the trial judge,
says:
The testimony of these two witnesses is so unreliable that the court can place no reliance
thereon. Mr. Tomas Alfonso is the same public accountant who filed the liquidation Exhibit
O on behalf of the plaintiff, in relation to the partnership business, which liquidation was
disapproved by this court in its decision of August 20, 1923. It is also to be noted that Mr.
Alfonso would have this court believe the proposition that the plaintiff, a mere industrial
partner, notwithstanding his having received the sum of P21,649.61 on the various jobs
and contracts of the "Taller Sinukuan," had actually expended and paid out the sum of
P63,360.27, of P44,710.66 in excess of the gross receipts of the business. This proposition
is not only improbable on its face, but it materially contradicts the allegations of plaintiff's
complaint to the effect that the advances made by the plaintiff only the amount to
P2,017.50.
Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct
liquidation for the same partnership business all of which were repeated by the court in its
decisions of September 1, 1922 and the court finds that the testimony given by him at the
last hearing is confusing, contradictory and unreliable.1awph!l.net
As to the other witnesses for the plaintiff His Honor further says:
The testimony of the other witnesses for the plaintiff deserves but scant consideration as
evidence to overcome the testimony of Mr. Santiago, as a whole particularly that of the
witness Chua Chak, who, after identifying and testifying as to a certain exhibit shown him
by counsel for plaintiff, showed that he could neither read nor write English, Spanish, or
Tagalog, and that of the witness Mr. Claro Reyes, who, after positively assuring the court
that a certain exhibit tendered him for identification was an original document, was forced
to admit that it was but a mere copy.
The court therefore, found that the conclusions reached by Santiago A. Lindaya as
modified by Jose Turinao Santiago were just and correct and ordered the plaintiff to pay
the defendant the sum of P26,020.89, Philippine currency, with legal interest thereon from
April 2, 1921, the date of the defendant's answer, and to pay the costs. From this judgment
the plaintiff appealed to this court and presents the following assignments of error:
(1) That the court erred in dismissing the plaintiff's complaint and ordering him to present a
liquidation of the operations and accounts of the partnership formed with the deceased
Narciso Santos, from the beginning of the partnership until September 1, 1922.
(2) That the court erred in approving the liquidation made by the public accountant
Santiago A. Lindaya, with the modification introduced by the witness Jose Turiano
Santiago.
(3) That the court erred in ordering the plaintiff and appellant to pay to the defendant and
appellee the sum of P26,020.89.
As to the first assignment of error there may be some merit in the appellant's contention
that the dismissal of his complaint was premature. The better practise would, perhaps,
have been to let the complaint stand until the result of the liquidation of the partnership
affairs was known. But under the circumstances of this case no harm was done by the
dismissal of the complaint, and the error, if any there be, is not reversible.
Under the same assignment of error the plaintiff argues that as the deceased up to the
time of his death generally took care of the payments and collections of the partnership, his
legal representatives were under the obligation to render accounts of the operations of the
partnership, notwithstanding the fact that the plaintiff was in charge of the business
subsequent to the death of Santos. This argument is without merit. In the case of Wahl vs.
Donaldson Sim & Co. (5 Phil., 11, 14), it was held that the death of one of the partners
dissolves the partnership, but that the liquidation of its affairs is by law intrusted, not to the
executors of the deceased partner, but to the surviving partners or the liquidators
appointed by them (citing article 229 of the Code of Commerce and secs. 664 and 665 of
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the Code of Civil Procedure). The same rule is laid down by the Supreme Court of Spain in
sentence of October 12, 1870.
The other assignments of error have reference only to questions of fact in regard to which
the findings of the court below seem to be as nearly correct as possible upon the evidence
presented. There may be errors in the interpretation of the accounts, and it is possible that
the amount of P26,020.89 charged against the plaintiff is excessive, but the evidence
presented by him is so confusing and unreliable as to be practically of no weight and
cannot serve as a basis for a readjustment of the accounts prepared by the accountant
Lindaya and the apparently reliable witness, Jose Turiano Santiago.
We should, perhaps, have been more inclined to question the conclusions of Lindaya and
Santiago if the plaintiff had shown a disposition to render an honest account of the
business and to effect a fair liquidation of the partnership but instead of doing so, he has by
means of very questionable, and apparently false, evidence sought to mulct his deceased
partner's estate to the extent of over P9,000. The rule for the conduct of a surviving partner
is thus stated in 20 R. C. L., 1003:
In equity surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a consequence of
this trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of
accountability required of and incident to the position of one occupying a confidential
relation. It is the duty of surviving partners to render an account of the performance of their
trust to the personal representatives of the deceased partner, and to pay over to them the
share of such deceased member in the surplus of firm property, whether it consists of real
or personal assets.
The appellant has completely failed to observe the rule quoted, and he is not in position to
complain if his testimony and that of his witnesses is discredited.
The appealed judgment is affirmed with the costs against the appellant. So ordered.

























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Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., plaintiffs-appellants,
vs.
NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
BAUTISTA, ANGELO, J.:
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian King
and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels
of land situated in the City of Iloilo which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had sold
four of those parcels of land to Jose C. Tayengco and the other three parcels to Julian Go,
and for that reason these two were included as party defendants. As the original plaintiffs
sold their rights, title and interest in said partnership to Ng Be Chuat and Ng Feng Tuan,
the latter two were allowed to intervene as plaintiffs. Since Jose C. Tayengco had
mortgaged three of the lands which he purchased from C. N. Hodges in favor of the Bank
of the Philippine Islands, the complaint was amended so as to include the Bank also as
party defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs
were order to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and
Jose C. Tayengco answered the complaint separately setting up certain special defenses
and counterclaims. In substance, they refuted the allegations set forth in the complaint and
prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the
pleadings thus simplifying the trial of the case while at the same time they introduced
additional evidence in amplification of the fact stipulated, Thereupon, the trial court, after a
thorough evaluation of the evidence, rendered decision dismissing the complaint with
costs. Plaintiffs interposed the present appeal on purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be
Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into
a contract of general co-partnership under the name NG CHIN BENG HERMANOS. The
partnership was to exist for a period of 10 years from May 23, 1925 and Ng Diong was
named as managing partner. On May 10, 1935, the articles of co-partnership were
amended by extending its life to 16 years more to be counted from May 23, 1925, or up to
May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and Investment
Board a loan in the amount of P30,000.00, and to guarantee its payment it executed in its
favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo.
On the same date, the partnership also obtained from the same entity another loan in the
amount of P50,000.00 to secure which it also executed in its favor a mortgage on Lots
Nos. 386, 829 and 237 of the same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in,
Special Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino
Melocoton was elected as assignee. As a consequence, on June 21, 1939, the titles to the
seven parcels of land abovementioned were issued in his name as assignee. In due time,
the creditors filed their claims in said proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and
the partners of the firm, acting thru counsel, entered into a composition agreement
whereby it was agreed that said creditors would receive 20% of the amount of their claims
in full payment thereof. Prior to this agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the insolvent whose total claims amounted to
P139,323.10. Said composition agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the
National Loan and Investment Board assigned its rights and interests in the loans obtained
from it by the partnership in the aggregate amount of P80,000.00 in favor of C.N. Hodges,
together with the right and interest in the mortgage executed to secure the loans. Since
said loans became due and no payment was forthcoming, Hodges asked permission from
the insolvency court to file a complaint against the assignee to foreclose he mortgage
executed to secure the same in a separate proceeding, and permission having been
granted, Hodges filed a complaint for that purpose on May 13, 1941. In his complaint,
Hodges prayed that the assignee be ordered to pay him the sum of P75,622.90, with
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interest at 8% per annum thereon from March 6, 1941, plus P8,000.00 attorney's fees,
exclusive of costs and charges. Meanwhile, war broke out and nothing appears to have
been done in the insolvency proceedings. The court records were destroyed. However,
they were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of
the claims of the creditors, filed a petition with the insolvency court praying at the
insolvency proceedings be closed or terminated cause the composition agreement the
creditors had submitted relative to the settlement of the claims had already been approved
on October 10, 1940. And on October 6, 1946, the court, acting favorably on the petition,
ordered, closure of the proceedings directing the assignee to turn and reconvey all the
properties of the partnership back to the latter as required by law. In accordance with this
order of the court, the assignee executed a deed of reconveyance of the properties to the
partnership on April 2, 1946 and by virtue thereof, the register of deeds cancelled the titles
issued in the name of the assignee and issued new ones in lieu thereof in the name of the
partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which
was the subject of the foreclosure proceedings in a separate case was P103,883.34. In
order to pay off the same and raise necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng Diong, who continued to be the
manager of the partnership, to sell all its properties mortgaged to Hodges in order that the
excess may be applied to the Payment of said other obligations, and to that effect Ng
Diong executed on April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of
P124,580.00. Out of this price; the sum of P103,883.34 was applied to the payment of the
debt of the partnership to Hodges and the balance was paid to the other creditors of the
partnership. On the same date, Hodges executed another contract giving the partnership
the right to repurchase Lots Nos. 237, 386 and 829 in installments for the sum of
P26,000.00 within three years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he
amount of P24,864.62 under the composition agreement, nor did it have any money to
repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the partnership,
transferred the right of the latter to repurchase the same from Hodges to Julian Go in full
payment of the partnership's indebtedness to him. And having Julian Go exercised the
option January 6, 1948, Hodges executed a deed of sale of the properties in his favor, and
pursuant thereto the register of deeds issued new titles' in his name covering said lots. On
May 29, 1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B,
233 and 540 for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31,
1948, Tayengco mortgaged said lots, together with three other lots of his, to the Bank of
the Philippine Islands to secure a loan of P126,000.00 to be used in the construction of a
commercial building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to bare essentials,
may be boiled down to the following points: (1) the sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N.
Hodges on April 2, 1946 is null and void because at that time said parcels were still in the
custody of the assignee of the insolvency proceedings, or in custodia legis, and, hence, the
same is null and void; (2) said sale is also null and void "because of the disparity,
irrationality and unreasonableness between the consideration and the real value of the
properties when sold"; and (3) the lower court erred in not finding that the two deeds of
mortgage executed by he partnership in favor of the National Loan and Investment Board
which were later assigned to C. N. Hodges can no longer be enforced because the action
to foreclose the same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of clarification: It
should be recalled that on August 8, 1940 the majority of the creditors of the partnership,
as well as the representatives of the latter, submitted to the court taking cognizance of the
insolvency proceedings a composition agreement whereby it was agreed that said
creditors would receive 20% of the amount of their claims in full payment thereof. This
agreement was approved on October 10, 1940 which, in contemplation of law, has the
effect of putting an end to the insolvency proceedings. However, no further step was taken
thereon because of the outbreak of the war. Later, the record of the case was reconstituted
and the parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an order
declaring the proceedings terminated and ordering the assignee to return and reconvey the
properties the partnership. The actual reconveyance was done by a assignee on April 2,
1946.
It would, therefore, appear that for legal and practical purposes the insolvency ended on
said date. Since then partnership became, restored to its status quo. It again reacquired its
personality as such with Ng Diong as its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is obvious that when Ng Diong as
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manager of the partnership sold the seven parcels of land to C. N. Hodges on April 2, 1946
by virtue of a deed of sale acknowledged before a notary public on April 6, 1946, the
properties were already was at liberty to do what it may deem convenient and proper to
protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the
power granted to him by the partnership in its articles of co-partnership. We do not,
therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the question
may be fixed: Who shall wind up it business affairs? May its manager still execute the sale
of its properties to C. N. Hodges as was done by Ng Diong? The answer to this question
cannot but be in the affirmative because Ng Diong was still the managing partner of the
partnership and he had the necessary authority to liquidate its affairs under its articles of
co-partnership. And considering that war had intervened and the affairs of the partnership
were placed under receivership up to October 6, 1945, we are of the opinion that Ng Diong
could still exercise his power as liquidator when he executed the sale in question in favor of
C. N. Hodges. This is sanctioned by Article 228 of the Code of Commerce which was the
law in force at the time.
1

With regard to the second issue, it is contended that the trial court should have declared
the sale of the lots made to C. N. Hodges null and void "because of the disparity,
irrationality and unreasonableness between the consideration and real value of the
properties when sold." In stressing his point, counsel contends that the lands in question,
which are located in a commercial section of the City of Iloilo, were frittered away only for a
"pittance of P124,580.00" when, borrowing his words they could have been sold like hot
cakes to any resident of the city of regular financial standing upon proper approaches and
representations, because at that time those properties were fairly worth one-half of a
million pesos."
This claim may be true, but the same is unsupported. Appellants have failed to introduce
any evidence to show that they could have secured better offers for the properties if given
a chance to do so and that they advance now is a mere speculation or conjecture which
had no place in our judicial system. Since every claim must be substantiated by sufficient
evidence, and this appellants have failed to do, their pretense cannot be entertained.
Neither can we give any value to the claim that the action for the foreclosure of the
mortgage executed by the partnership in favor of C. N. Hodges has already prescribed not
only because the same is immaterial but because it is an issue that appellants are raising
for the first time in this appeal. Such issue has never been raised in their pleadings, nor in
the trial court. Verily, this claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is
that the trial court failed to adjudicate to the partnership the properties which were bought
by Julian Go from C. N. Hodges, suffice it to say that the same could not be done, firstly,
because no such claim was made by them in their pleadings in the trial court, and,
secondly, because the evidence shows that said properties were bought by Julian Go by
virtue of the option given to him by the partnership for a valuable consideration in full
payment of the credits assigned to him by a good number of creditors of said partnership.
There is no evidence that he promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.