EN BANC

[G.R. No. L-7991. May 21, 1956.]

PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF
NEW YORK,Respondent.
DECISION
PARAS, J.:
This is an appeal by certiorari from the decision of the Court of Appeals from
which we are reproducing the following basic findings of
fact:chanroblesvirtuallawlibrary
STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard,
San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da Costa, Jr., William
Kusik and Emma Badong Gavino. This partnership was denied registration in
the Securities and Exchange Commission, and while it is confusing to see in this
case that the CARDINAL RATTAN, sometimes called the CARDINAL RATTAN
FACTORY, is treated as a copartnership, of which Defendants Gorcey and da
Costa are considered general partners, we are satisfied that, as alleged in
various instruments appearing of record, said Cardinal Rattan is merely the
business name or style used by the partnership Stasikinocey.
Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with
The National City Bank of New York, a foreign banking association duly licensed
to do business in the Philippines. On June 3, 1949, the overdraft showed a
balance of P6,134.92 against theDefendant Stasikinocey or the Cardinal Rattan
(Exhibit D), which account, due to the failure of the partnership to make the
required payment, was converted into an ordinary loan for which the
corresponding promissory joint note non-negotiable was executed on June 3,
1949, by Louis F. da Costa for and in the name of the Cardinal Rattan, Louis F. da
Costa and Alan Gorcey (Exhibit D). This promissory note was secured on June 7,
1949, by a chattel mortgage executed by Louis F. da Costa, Jr., General Partner
for and in the name of Stasikinocey, alleged to be a duly registered Philippine
partnership, doing business under the name and style of Cardinal Rattan, with
principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The chattels
mortgaged were the following motor vehicles:chanroblesvirtuallawlibrary
(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with
plate No. T-7333 (1949);
(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718
and with plate No. 10372; chan roblesvirtualawlibraryand
(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949).

The mortgage deed was fully registered by the mortgagee on June 11, 1949, in
the Office of the Register of Deeds for the province of Rizal, at Pasig, (Exhibit A),
and
among
other
provisions
it
contained
the
following:chanroblesvirtuallawlibrary
(a) That the mortgagor shall not sell or otherwise dispose of the said chattels
without the mortgagees written consent; chan roblesvirtualawlibraryand
(b) That the mortgagee may foreclose the mortgage at any time, after breach
of any condition thereof, the mortgagor waiving the 30- day notice of
foreclosure.
On June 7, 1949, the same day of the execution of the chattel mortgage
aforementioned, Gorcey and Da Costa executed an agreement purporting to
convey and transfer all their rights, title and participation
in Defendant partnership to Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed by them
and Defendant partnership to the latter (Exhibit J), which transaction is said to
be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
While the said loan was still unpaid and the chattel mortgage
subsisting, Defendantpartnership, through Defendants Gorcey and Da Costa
transferred to Defendant McDonald the Fargo truck and Plymouth sedan on June
24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949, by
William Shaeffer to Paul McDonald.
On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiffs existing
mortgage lien, in turn transferred the Fargo truck and the Plymouth sedan to
Benjamin Gonzales.
The National City Bank of New York, Respondent herein, upon learning of the
transfers made by the partnership Stasikinocey to William Shaeffer, from the
latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales, of the
vehicles previously pledged by Stasikinocey to the Respondent, filed an action
against Stasikinocey and its alleged partners Gorcey and Da Costa, as well as
Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose the
corresponding chattel mortgage. McDonald and Gonzales were
made Defendants because they claimed to have a better right over the pledged
vehicle.
After trial the Court of First Instance of Manila rendered judgment in favor of
the Respondent, annulling the sale of the vehicles in question to Benjamin
Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to pay to
the Respondent jointly and severally the sum of P6,134.92, with legal interest
from
the
debt
of
the
promissory
note
involved; chan
roblesvirtualawlibrarysentencing the Petitioner Gonzales to deliver the vehicles
in question to the Respondent for sale at public auction if Da Costa and Gorcey
should fail to pay the money judgment; chan roblesvirtualawlibraryand

sentencing Da Costa, Gorcey and Shaeffers to pay to the Respondent jointly and
severally any deficiency that may remain unpaid should the proceeds of the sale
not be sufficient; chan roblesvirtualawlibraryand sentencing Gorcey, Da Costa,
McDonald and Shaeffer to pay the costs. Only Paul McDonald and Benjamin
Gonzales appealed to the Court of Appeals which rendered a decision the
dispositive part of which reads as follows:chanroblesvirtuallawlibrary

INNOCENT PURCHASERS FOR VALUE; chan roblesvirtualawlibraryAND, AS A

CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO
WHERE THE DEED WAS IN FACT EXECUTED, DESPITEAPPELLANTS RAISING
THAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A
RULING THEREON.
IV

WHEREFORE, the decision appealed from is hereby modified,

relieving Appellant William Shaeffer of the obligation of paying, jointly and
severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency
that may remain unpaid after applying the proceeds of the sale of the said motor
vehicles which shall be undertaken upon the lapse of 90 days from the date this
decision becomes final, if by then Defendants Louis F. da Costa, Jr., and Alan W.
Gorcey had not paid the amount of the judgment debt. With this modification
the decision appealed from is in all other respects affirmed, with costs
against Appellants. This decision is without prejudice to whatever action Louis
F. da Costa, Jr., and Alan W. Gorcey may take against their co-partners in the
Stasikinocey unregistered partnership.

IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN

UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO MAKE ALL OFFICIAL
AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEW
YORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE
TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS, WAS SUFFICIENT
AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN
ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING OVERDRAFT,
GRANTED WITHOUT SECURITY. WHICH THE BANK HAD CONVERTED INTO A
DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL
MORTGAGE WAS EXECUTED.

This appeal by certiorari was taken by Paul McDonald and Benjamin

Gonzales, Petitionersherein,
who
have
assigned
the
following
errors:chanroblesvirtuallawlibrary

This
is
the
first
question
propounded
by
the Petitioners:chanroblesvirtuallawlibrary Since an unregistered commercial
partnership unquestionably has no juridical personality, can it have a domicile
so that the registration of a chattel mortgage therein is notice to the world?.

I
IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A
DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT
DOMICILE WOULD BIND THIRD PERSONS WHO ARE INNOCENT PURCHASERS
FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF
THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT
NEED NOT BE REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS
WHO EXECUTED SAME; chan roblesvirtualawlibraryAND, AS A CONSEQUENCE
THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO THE ACTUAL
RESIDENCE OF SAID CHATTEL MORTGAGOR, DESPITEAPPELLANTS RAISING
THAT QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE
TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND
THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE

While an unregistered commercial partnership has no juridical personality,

nevertheless, where two or more persons attempt to create a partnership failing
to comply with all the legal formalities, the law considers them as partners and
the association is a partnership in so far as it is a favorable to third persons, by
reason of the equitable principle of estoppel. In Jo Chung Chang vs. Pacific
Commercial Co., 45 Phil., 145, it was held that although the partnership with
the firm name of Teck Seing and Co. Ltd., could not be regarded as a
partnership de jure, yet with respect to third persons it will be considered a
partnership with all the consequent obligations for the purpose of enforcing the
rights of such third persons. Da Costa and Gorcey cannot deny that they are
partners of the partnership Stasikinocey, because in all their transactions with
the Respondent they represented themselves as such. Petitioner McDonald
cannot disclaim knowledge of the partnership Stasikinocey because he dealt
with said entity in purchasing two of the vehicles in question through Gorcey
and Da Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a
partnership not duly organized has been recognized as such in its dealings with
certain persons, it shall be considered as partnership by estoppel and the
persons dealing with it are estopped from denying its partnership existence.
The sale of the vehicles in question being void as to Petitioner McDonald, the
transfer from the latter to Petitioner Benjamin Gonzales is also void, as the
buyer cannot have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as de
facto as far as third persons are concerned, for purposes of its de facto existence

it should have such attribute of a partnership as domicile. In Hung-Man Yoc vs.

Kieng-Chiong-Seng, 6 Phil., 498, it was held that although it has no legal
standing, it is a partnership de facto and the general provisions of the Code
applicable to all partnerships apply to it. The registration of the chattel
mortgage in question with the Office of the Register of Deeds of Rizal, the
residence or place of business of the partnership Stasikinocey being San Juan,
Rizal, was therefore in accordance with section 4 of the Chattel Mortgage Law.
The
second
question
propounded
by
the Petitioners is:chanroblesvirtuallawlibrary If not, is a chattel mortgage
executed by only one of the partners of an unregistered commercial
partnership validly registered so as to constitute notice to the world if it is not
registered at the place where the aforesaid partner actually resides but only in
the place where the deed states that he resides, which is not his real residence?
And the third question is as follows:chanroblesvirtuallawlibrary If the actual
residence of the chattel mortgagor not the residence stated in the deed of
chattel mortgage is controlling, may the Court of Appeals refuse to make a
finding of fact as to where the mortgagor resided despite your Petitioners
having properly raised that question before it and expressly requested a ruling
thereon?
These two questions have become academic by reason of the answer to the first
question, namely, that as a de facto partnership, Stasikinocey had its domicile in
San Juan, Rizal.
The
fourth
question
asked
by
the Petitioners is
as
follows:chanroblesvirtuallawlibrary Is a chattel mortgage executed by only one
of the partners of an unregistered commercial partnership valid as to third
persons when that partner executed the affidavit of good faith in Quezon City
before a notary public whose appointment is only for the City of Manila? If not,
may the Court of Appeals refuse to make a finding of fact as to where the deed
was executed, despite yourPetitioners having properly raised that issue before
it and expressly requested a ruling thereon?
It is noteworthy that the chattel mortgage in question is in the form required by
law, and there is therefore the presumption of its due execution which cannot
be easily destroyed by the biased testimony of the one who executed it. The
interested version of Da Costa that the affidavit of good faith appearing in the
chattel mortgage was executed in Quezon City before a notary public for and in
the City of Manila was correctly rejected by the trial court and the Court of
Appeals. Indeed, cumbersome legal formalities are imposed to prevent fraud. As
aptly pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased and
interested testimony of a grantor and the vague and uncertain testimony of his
son are deemed sufficient to overcome a public instrument drawn up with all
the formalities prescribed by the law then there will have been established a
very dangerous doctrine which would throw wide open the doors to fraud.

The
last
question
raised
by
the Petitioners is
as
follows:chanroblesvirtuallawlibrary Does only one of several partners of an
unregistered commercial partnership have authority, by himself alone, to
execute a valid chattel mortgage over property owned by the unregistered
commercial partnership in order to guarantee a pre-existing overdraft
previously granted, without guaranty, by the bank?
In view of the conclusion that Stasikinocey is a de facto partnership, and Da
Costa appears as a co-manager in the letter of Gorcey to the Respondent and in
the promissory note executed by Da Costa, and that even the partners
considered him as such, as stated in the affidavit of April 21, 1948, to the effect
that That we as the majority partners hereby agree to appoint Louis da Costa
co-managing partner of Alan W. Gorcey, duly approved managing partner of the
said firm, the partner who executed the chattel mortgage in question must be
deemed to be so fully authorized. Section 6 of the Chattel Mortgage Law
provides that when a partnership is a party to the mortgage, the affidavit may
be made and subscribed by one member thereof. In this case the affidavit was
executed and subscribed by Da Costa, not only as a partner but as a managing
partner.
There is no merit in Petitioners pretense that the motor vehicles in question are
the common property of Da Costa and Gorcey. Petitioners invoke article 24 of
the Code of Commerce in arguing that an unregistered commercial partnership
has no juridical personality and cannot execute any act that would adversely
affect innocent third persons. Petitioners forget that theRespondent is a third
person with respect to the partnership, and the chattel mortgage executed by
Da Costa cannot therefore be impugned by Gorcey on the ground that there is
no partnership between them and that the vehicles in question belonged to
them in common. As a matter of fact, the Respondent and the Petitioners are all
third
persons
as
regards
the
partnership
Stasikinocey; chan
roblesvirtualawlibraryand even assuming that the Petitioners are purchasers in
good faith and for value, the Respondent having transacted with Stasikinocey
earlier than thePetitioners, it should enjoy and be given priority.
Wherefore, the appealed decision of the Court of Appeals is affirmed with costs
against thePetitioners.
Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador,
Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

currency. The defendant moved for a new trial, which was denied, and he has
G.R. No. 2715, Behn, Meyer and Co. v. Rosatzin, 5 Phil. 660

brought the case here by bill of exceptions.

Republic of the Philippines

SUPREME COURT

Objection was made in the court below to the admission of some of the books of

Manila

the partnership in evidence on the ground that they were not kept as required

EN BANC

by the Code of Commerce. We do not find it necessary to decide this question.

The ledger which contained the account above mentioned in the handwriting of

February 27, 1906

the defendant was certainly properly received in evidence, being an admission

by him of this indebtedness. The fact that the book was not kept in accordance

G.R. No. 2715

with the provisions of the Code of Commerce could not detract from the force of

BEHN, MEYER & CO., plaintiffs-appellees,

this admission. This book alone was sufficient evidence to prove the cause of

vs.

action, and the reception in evidence of the other books, if it were error, was

F. ROSATZIN, defendant-appellant.

error without prejudice.

Hartigan, Marple, Rohde and Gutierrez for appellant.

Pillsbury and Sutro for appellees.

It was proved that the defendant continued in the employ of the partnership

WILLARD, J.:

during the years 1902 and 1903, and was paid for those years his regular

The defendant and appellant was employed by the partnership of Behn, Meyer

monthly salary, and it is claimed by the appellant that this indicates that he

& Co. as a bookkeeper during the years 1901, 1902, and 1903. He left their

must have paid the balance due from him for the year 1901. This contention can

employ in the last-named year, and the partnership brought this action to

not be sustained.

recover a balance of 686.24 pesos claimed to be due it from the defendant. The
ledger for the partnership for the year 1901 contained a page devoted to the

The plaintiff offered no evidence to show that this balance had not been paid,

account-current of the defendant with the partnership. That account for that

and it is claimed by the appellant that the judgment must be reversed for that

year showed a balance in favor of the partnership and against the defendant of

reason. The plaintiff having proved the existence of the obligation, the burden of

686.24 pesos. This account was kept by the defendant himself, and all the

proof was upon the defendant to show that it had been discharged. This was the

entries therein are in his handwriting. The defendant introduced no evidence in

law in force during the Spanish domination. (Art. 1214, Civil Code.) This rule has

relation to the account or its payment, and judgment was entered against him

not been changed by section 297 of the present Code of Procedure, which

for P571.87 in Philippine currency, the equivalent of 686.24 pesos in Mexican

section is as follows:

Party must prove his affirmative allegations. Each party must prove his own

entered in accordance herewith and the case remanded to the lower court for

affirmative allegations. Evidence need not be given in support of a negative

execution thereof. So ordered.

allegation except when such negative allegation is an essential part of the

statement of the right or title on which the cause of action of defense is founded,

Torres, Mapa, Johnson, and Carson, JJ., concur.

nor even in such case when the allegation is a denial of the existence of a
document, the custody of which belongs to the opposite party.
It is also claimed by the appellant that the existence of the plaintiff partnership

G.R. No. 5236, Martinez v. Ong Pong Co and Ong Lay

was not proved that is, that there was no proof to show that the partnership

Republic

had been organized in accordance with the Code of Commerce. There was

SUPREME

evidence presented by the defendant in the case that a partnership known as

Manila

Behn, Meyer & Co. existed in 1900. The defendant contracted with the

EN BANC

of

the

Philippines
COURT

partnership in 1901 and subsequent years, and is now estopped to say that it
was not a partnership.

January 10, 1910

The appellant also attempted to prove that there had been a change in the

G.R.

partners constituting the firm after 1901, and prior to the commencement of the

PEDRO

action, and that the partnership which brought this suit was not the partnership

vs.

with which the defendant contracted. He however, failed in his attempt, because

ONG

the witness whom he called to make the proof testified that the new partner,

ONG PONG CO., appellant.

Dittmar, become a member of the firm in 1900.

Fernando

No.

5236
MARTINEZ, plaintiff-appellee,

PONG

de

CO

la

and

Cantera

ONG

LAY, defendants.

for

appellant.

O'Brien and DeWitt for appellee.

It is finally claimed by the defendant that the court erred in entering judgment

ARELLANO, C.J.:

against him for the amount of the debt payable in Philippine currency. This

On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the

contention has already been decided adversely to the appellant in the case

defendants who, in a private document, acknowledged that they had received

of Gaspar vs. Molina,[[1]] No. 2206, November 2, 1905 (3 Off. Gaz., 651).

the same with the agreement, as stated by them, "that we are to invest the

The judgment of the court below is affirmed, with the costs of this instance

amount in a store, the profits or losses of which we are to divide with the

against the appellant. After the expiration of twenty days let judgment be

former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order to compel the

4. For having applied article 1138 of the Civil Code.

defendants to render him an accounting of the partnership as agreed to, or else

to refund him the P1,500 that he had given them for the said purpose. Ong Pong

5. and 6. For holding that the capital ought to have yielded profits, and that the

Co alone appeared to answer the complaint; he admitted the fact of the

latter should be calculated 12 per cent per annum; and

agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose
aforesaid, but he alleged that Ong Lay, who was then deceased, was the one who
had managed the business, and that nothing had resulted therefrom save the
loss of the capital of P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the case
ordered Ong Pong Co to return to the plaintiff one-half of the said capital of
P1,500 which, together with Ong Lay, he had received from the plaintiff, to wit,
P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per
annum for the six months that the store was supposed to have been open, both
sums in Philippine currency, making a total of P840, with legal interest thereon
at the rate of 6 per cent per annum, from the 12th of June, 1901, when the
business terminated and on which date he ought to have returned the said
amount to the plaintiff, until the full payment thereof with costs.

7. The findings of the ejectment.

As to the first assignment of error, the fact that the store was closed by virtue of
ejectment proceedings is of no importance for the effects of the suit. The whole
action is based upon the fact that the defendants received certain capital from
the plaintiff for the purpose of organizing a company; they, according to the
agreement, were to handle the said money and invest it in a store which was the
object of the association; they, in the absence of a special agreement vesting in
one sole person the management of the business, were the actual
administrators thereof; as such administrators they were the agent of the
company and incurred the liabilities peculiar to every agent, among which is
that of rendering account to the principal of their transactions, and paying him
everything they may have received by virtue of the mandatum. (Arts. 1695 and
1720, Civil Code.) Neither of them has rendered such account nor proven the

From this judgment Ong Pong Co appealed to this court, and assigned the

losses referred to by Ong Pong Co; they are therefore obliged to refund the

following errors:

money that they received for the purpose of establishing the said store the
object of the association. This was the principal pronouncement of the

1. For not having taken into consideration the fact that the reason for the closing

judgment.

of the store was the ejectment from the premises occupied by it.

With regard to the second and third assignments of error, this court, like the
court below, finds no evidence that the entire capital or any part thereof was

2. For not having considered the fact that there were losses.

lost. It is no evidence of such loss to aver, without proof, that the effects of the
store were ejected. Even though this were proven, it could not be inferred

3. For holding that there should have been profits.

therefrom that the ejectment was due to the fact that no rents were paid, and

that the rent was not paid on account of the loss of the capital belonging to the

received from their principal. Therefore, the other errors assigned have not

enterprise.

been committed.

With regard to the possible profits, the finding of the court below are based on

In view of the foregoing judgment appealed from is hereby affirmed, provided,

the statements of the defendant Ong Pong Co, to the effect that "there were

however, that the defendant Ong Pong Co shall only pay the plaintiff the sum of

some profits, but not large ones." This court, however, does not find that the

P750 with the legal interest thereon at the rate of 6 per cent per annum from

amount thereof has been proven, nor deem it possible to estimate them to be a

the time of the filing of the complaint, and the costs, without special ruling as to

certain sum, and for a given period of time; hence, it can not admit the estimate,

the costs of this instance. So ordered.

made in the judgment, of 12 per cent per annum for the period of six months.
Torres, Johnson, Carson, and Moreland, JJ., concur.
Inasmuch as in this case nothing appears other than the failure to fulfill an
obligation on the part of a partner who acted as agent in receiving money for a

[G.R.

given purpose, for which he has rendered no accounting, such agent is

CARMEN LIWANAG, Petitioner, v. THE HON. COURT OF APPEALS and THE

PEOPLE OF THE PHILIPPINES, represented by the Solicitor
General, Respondents.

responsible only for the losses which, by a violation of the provisions of the law,
he incurred. This being an obligation to pay in cash, there are no other losses
than the legal interest, which interest is not due except from the time of the
judicial demand, or, in the present case, from the filing of the complaint. (Arts.
1108 and 1100, Civil Code.) We do not consider that article 1688 is applicable in
this case, in so far as it provides "that the partnership is liable to every partner
for the amounts he may have disbursed on account of the same and for the
proper interest," for the reason that no other money than that contributed as is
involved.
As in the partnership there were two administrators or agents liable for the
above-named amount, article 1138 of the Civil Code has been invoked; this
latter deals with debts of a partnership where the obligation is not a joint one,
as is likewise provided by article 1723 of said code with respect to the liability
of two or more agents with respect to the return of the money that they

Efren

No.

114398.

L.

October

Liwanag

24,

1997.]

for Petitioner.

The Solicitor General for Respondents.

SYLLABUS
1. CRIMINAL LAW; REVISED PENAL CODE; ESTAFA; ELEMENTS THEREOF.
Estafa is a crime committed by a person who defrauds another causing him to
suffer damages, by means of unfaithfulness or abuse of confidence, or of false
pretenses of fraudulent acts. From the foregoing, the elements of estafa are
present, as follows: (1) that the accused defrauded another by abuse of
confidence or deceit, and (2) that damage or prejudice capable of pecuniary
estimation is caused to the offended party or third party, and it is essential that
there be a fiduciary relation between them either in the form of a trust,
commission
or
administration.
2. ID.; ID.; ID.; WHEN MONEY OR PROPERTY HAVE BEEN RECEIVED BY A
PARTNER FOR A SPECIFIC PURPOSE, AND HE LATER MISAPPROPRIATED IT,
SUCH PARTNER IS GUILTY OF ESTAFA. Even assuming that a contract of

partnership was indeed entered into by and between the parties, we have ruled
that when money or property have been received by a partner for a specific
purpose (such as that obtaining in the instant case) and he later
misappropriated
it,
such
partner
is
guilty
of
estafa.
3. CIVIL LAW; LOANS; THE TRANSACTION IN THE CASE AT BAR CANNOT BE
CONSIDERED A LOAN, SINCE IN A CONTRACT OF LOAN ONCE THE MONEY IS
RECEIVED BY THE DEBTOR, OWNERSHIP OVER THE SAME IS TRANSFERRED.
Neither can the transaction be considered a loan, since in a contract of loan
once the money is received by a debtor, ownership over the same is transferred.
Being the owner, the borrower can dispose of it for whatever purpose he may
deem proper. In the instant petition, however, it is evident that Liwanag could
not dispose of the money as she pleased because it was only delivered to her for
a single purpose, namely, for the purchase of cigarettes, and if this was not
possible then to return the money to Rosales. Since in this case there was no
transfer of ownership of the money delivered, Liwanag is liable for conversion
under Art. 315, par. 1 (b) of the Revised Penal Code.
DECISION
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court
(RTC), Branch 93, Quezon City, in an information which reads as
follows:jgc:chanrobles.com.ph
"That on or between the month of May 19, 1988 and August, 1988 in Quezon
City, Philippines and within the jurisdiction of this Honorable Court, the said
accused, with intent of gain, with unfaithfulness, and abuse of confidence, did
then and there, willfully, unlawfully and feloniously defraud one ISIDORA
ROSALES, in the following manner, to wit: on the date and in the place
aforementioned, said accused received in trust from the offended party cash
money amounting to P536,650.00, Philippine Currency, with the express
obligation involving the duty to act as complainants agent in purchasing local
cigarettes (Philip Morris and Marlboro cigarettes), to resell them to several
stores, to give her commission corresponding to 40% of the profits; and to
return the aforesaid amount of offended party, but said accused, far from
complying her aforesaid obligation, and once in possession thereof, misapplied,
misappropriated and converted the same to her personal use and benefit,
despite repeated demands made upon her, Accused failed and refused and still
fails and refuses to deliver and/or return the same to the damage and prejudice
of the said ISIDORA ROSALES, in the aforementioned amount and in such other
amount as may be awarded under the provision of the Civil Code.

CONTRARY

TO

LAW."cralaw

virtua1aw

library

The antecedent facts are as follows:chanrob1es virtual 1aw library

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to
the house of complainant Isidora Rosales (Rosales) and asked her to join them
in the business of buying and selling cigarettes. Convinced of the feasibility of
the venture, Rosales readily agreed. Under their agreement, Rosales would give
the money needed to buy the cigarettes while Liwanag and Tabligan would act
as her agents, with a corresponding 40% commission to her if the goods are
sold; otherwise the money would be returned to Rosales. Consequently, Rosales
gave several cash advances to Liwanag and Tabligan amounting to
P633,650.00.chanroblesvirtuallawlibrary:red
During the first two months, Liwanag and Tabligan made periodic visits to
Rosales to report on the progress of the transactions. The visits, however,
suddenly stopped, and all efforts by Rosales to obtain information regarding
their
business
proved
futile.
Alarmed by this development and believing that the amounts she advanced
were being misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9,
1991, finding Liwanag guilty as charged. The dispositive portion of the decision
reads
thus:jgc:chanrobles.com.ph
"WHEREFORE, the Court holds, that the prosecution has established the guilt of
the accused, beyond reasonable doubt, and therefore, imposes upon the
accused, Carmen Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT
(8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO
FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION MAYOR AS
MAXIMUM,
AND
TO
PAY
THE
COSTS.
The accused is likewise ordered to reimburse complainant the sum of
P526,650.00, without subsidiary imprisonment, in case of insolvency.
SO

ORDERED."cralaw

virtua1aw

library

Said decision was affirmed with modification by the Court of Appeals in a

decision dated November 29, 1993, the decretal portion of which
reads:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, the judgment appealed from is hereby
affirmed with the correction of the nomenclature of the penalty which should
be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision

mayor, as minimum, to FOURTEEN (14) YEARS and EIGHT (8) MONTHS of

reclusion temporal, as maximum. In all other respects, the decision is
AFFIRMED.
SO

ORDERED."cralaw

virtua1aw

library

Her motion for reconsideration having been denied in the resolution of March
16, 1994, Liwanag filed the instant petition, submitting the following
assignment
of
errors:jgc:chanrobles.com.ph

"May

19,

1988

Quezon

City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine
Currency, to purchase cigarrets (sic) (Philip & Marlboro) to be sold to
customers. In the event the said cigarrets (sic) are not sold, the proceeds of the
sale or the said products (shall) be returned to said Mrs. Isidora P. Rosales the
said amount of P526,650.00 or the said items on or before August 30, 1988.

"1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE

CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA,
WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSEDPETITIONER AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR
THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF
THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT
CRIMINAL.

(SGD

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING

THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY
APPLYING
THE
EQUIPOISE
RULE."cralaw
virtua1aw
library

Signed

Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she
would buy and sell the cigarettes, and later divide the profits between them. 1
She also argues that the transaction can also be interpreted as a simple loan,
with Rosales lending to her the amount stated on an installment basis. 2

The language of the receipt could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of
cigarettes, and in the event the cigarettes cannot be sold, the money must be
returned
to
Rosales.

The

Court

of

Appeals

correctly

rejected

these

pretenses.

While factual findings of the Court of Appeals are conclusive on the parties and
not reviewable by the Supreme Court, and carry more weight when these affirm
the factual findings of the trial court, 3 we deem it more expedient to resolve the
instant
petition
on
its
merits.
Estafa is a crime committed by a person who defrauds another causing him to
suffer damages, by means of unfaithfulness or abuse of confidence, or of false
pretenses
or
fraudulent
acts.
4

&

Thumbedmarked)

(sic)

CARMEN

LIWANAG

26

H.

Kaliraya

St.

Quezon

(Sgd)

City
in

the
Illegible

presence
(Sgd)

of:chanrob1es
Doming

virtual
Z.

1aw

library
Baligad"

Thus, even assuming that a contract of partnership was indeed entered into by
and between the parties, we have ruled that when money or property have been
received by a partner for a specific purpose (such as that obtaining in the
instant case) and he later misappropriated it, such partner is guilty of estafa.
7chanroblesvirtualawlibrary
Neither can the transaction be considered a loan, since in a contract of loan once
the money is received by the debtor, ownership over the same is transferred. 8
Being the owner, the borrower can dispose of it for whatever purpose he may
deem
proper.

From the foregoing, the elements of estafa are present, as follows: (1) that the
accused defrauded another by abuse of confidence or deceit; and (2) that
damage or prejudice capable of pecuniary estimation is caused to the offended
party or third party, 5 and it is essential that there be a fiduciary relation
between them either in the form of a trust, commission or administration. 6

In the instant petition, however, it is evident that Liwanag could not dispose of
the money as she pleased because it was only delivered to her for a single
purpose, namely, for the purchase of cigarettes, and if this was not possible then
to return the money to Rosales. Since in this case there was no transfer of
ownership of the money delivered, Liwanag is liable for conversion under Art.
315,
par.
1(b)
of
the
Revised
Penal
Code.

The

WHEREFORE, in view of the foregoing, the appealed decision of the Court of

receipt

signed

by

Liwanag

states

thus:jgc:chanrobles.com.ph

Appeals dated November 29, 1993, is AFFIRMED. Costs against petitioner.

SO

ORDERED.

Melo,

Francisco

and

Panganiban, JJ.,

concur.

Narvasa, C.J., on leave.

Republic
SUPREME
Manila

HILL

&

CERON

By: (Sgd.) CARLOS CERON

of

the

Philippines
COURT

EN BANC
G.R. No. L-45624

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.

April 25, 1939

GEORGE
LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
George
E.
Reich
Roy
and
De
Guzman
Espeleta, Quijano and Liwag for appellee Hill.

for
for

appellant.
appellees.

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

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.)
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.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one of the defendants
sentenced in our decision to pay to the plaintiff the amount claimed in his
complaint. It is asked that we reconsider our decision, the said defendant
insisting that the appellant had not established that Carlos Ceron, another of the
defendants, had the consent of his copartner, the movant, to enter with the
appellant into the contract whose breach gave rise to the complaint. It is argued
that, it being stipulated in the articles of partnership that Hill and Ceron, only
partners of the firm Hill & Ceron, would, as managers, have the management of
the business of the partnership, and that either may contract and sign for the
partnership with the consent of the other; the parties of partnership having
been, so it is said, recorded in the commercial registry, the appellant could not
ignore the fact that the consent of the movant was necessary for the validity of
the contract which he had with the other partner and defendant, Ceron, and
there being no evidence that said consent had been obtained, the complaint to
compel compliance with the said contract had to be, as it must be in fact, a
procedural failure.
Although this question has already been considered and settled in our decision,
we nevertheless take cognizance of the motion in order to enlarge upon our
views on the matter.
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, 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.
Wherefore, unless the contrary is shown, namely, that one of the partners did
not consent to his copartner entering into a contract with a third person, and
that the latter with knowledge thereof entered into said contract, the aforesaid
presumption with all its force and legal effects should be taken into account.
There is nothing in the case at bar which destroys this presumption; the only
thing appearing in he findings of fact of the Court of Appeals is that the plaintiff
"has failed to prove that Hill had consented to such contract". According to this,
it seems that the Court of Appeals is of the opinion that the two partners should
give their consent to the contract and that the plaintiff should prove it. The
clause of the articles of partnership should not be thus understood, for it means
that one of the two partners should have the consent of the other to contract for
the partnership, which is different; because it is possible that one of the
partners may not see any prospect in a transaction, but he may nevertheless
consent to the realization thereof by his copartner in reliance upon his skill and
ability or otherwise. And here we have to hold once again that it is not the
plaintiff who, under the articles of partnership, should obtain and prove the
consent of Hill, but the latter's partner, Ceron, should he file a complaint against
the partnership for compliance with the contract; but in the present case, it is a
third person, the plaintiff, who asks for it. While the said presumption stands,
the plaintiff has nothing to prove.
Passing now to another aspect of the case, had Ceron in any way stated to the
appellant at the time of the execution of the contract, or if it could be inferred by
his conduct, that he had the consent of Hill, and should it turn out later that he
did not have such consent, this alone would not annul the contract judging from
the provisions of article 130 of the Code of Commerce reading as follows:
No new obligation shall be contracted against the will of one of the
managing partners, should he have expressly stated it; but if, however,
it should be contracted it shall not be annulled for this reason, and shall
have its effects without prejudice to the liability of the partner or
partners who contracted it to reimburse the firm for any loss
occasioned by reason thereof. (Emphasis supplied.)

Under the aforequoted provisions, when, not only without the consent but
against the will of any of the managing partners, a contract is entered into with
a third person who acts in good faith, and the transaction is of the kind of
business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty
partner.
The reason or purpose behind these legal provisions is no other than to protect
a third person who contracts with one of the managing partners of the
partnership, thus avoiding fraud and deceit to which he may easily fall a victim
without this protection which the Code of Commerce wisely provides.
If we are to interpret the articles of partnership in question by holding that it is
the obligation of the third person to inquire whether the managing copartner of
the one with whom he contracts has given his consent to said contract, which is
practically casting upon him the obligation to get such consent, this
interpretation would, in similar cases, operate to hinder effectively the
transactions, a thing not desirable and contrary to the nature of business which
requires promptness and dispatch one the basis of good faith and honesty
which are always presumed.

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

Jose C. Calayco for plaintiffs-appellants..
RESOLUTION
REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow
of the managing partner, Tan Sin An (Executed in her dual capacity as
Administratrix of the husband's estate and as partner in lieu of the husband), in
favor of the buyers Washington Sycip and Betty Lee for the following
consideration:
Cash paid

P37,000.00

Debts assumed by purchaser:

To Yutivo

62,415.91

In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.

To Sing Yee Cuan & Co.,

54,310.13

Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

TOTAL

P153,726.04

Republic
SUPREME
Manila

of

the

Philippines
COURT

Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:

EN BANC
G.R. No. L-11840

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.

December 10, 1963

ANTONIO
C.
GOQUIOLAY,
ET
AL., plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

(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 copartnership, 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?
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 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 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
Montella1 , in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es
conforme a los fines sociales. Pero esta facultad de enajenar limitada a
las ventas conforme a los fines sociales, viene limitada a los objetos de
comercio o a los productos de la fabrica para explotacion de los cuales
se ha constituido la Sociedad.Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso
el gerente estaria facultado para otorgar las ventas que fuere necesario.
(Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner
has the legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner
has ample power, as a general agent of the firm, to enter into an executory
contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling
real estate can not bind the firm by purchases or sales of such property

made in the regular course of business, then they are incapable of

exercising the essential rights and powers of general partners and their
association is not really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles
of Copartnership), it can not be maintained that the sale was made in excess of
her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of
Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are
vastly different from the one before us. In the McGrath case, the Court expressly
found that:
The firm was then, and for some time had been, insolvent, in the sense
that its property was insufficient to pay its debts, though it still had
good credit, and was actively engaged in the prosecution of its business.
On that day, which was Saturday, the plaintiff caused to be prepared,
ready for execution, the four chattel mortgages in question, which cover
all the tangible property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures necessary for, and
used in carrying on, its business, and signed the same in this form: "In
witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath,
surviving partner, of said firm, and Owen McCrath, individually, have
hereunto set their hands, this 20th day of May, A.D. 1893. Cowen &
Mcgrath, by Owen McGrath. Owen McGrath, Surviving partner of Cowen
& McGrath. Owen McGrath." At the same time, the plaintiff had
prepared, ready for filing, the petitionfor the dissolution of the
partnership and appointment of a receiver which he subsequently filed,
as hereinafter stated. On the day the mortgages were signed, they were
placed in the hands of the mortgagees, which was the first intimation to
them that there was any intention to make them. At the 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 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,
Regala, J., took no part.

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 Z. Sycip and Betty Y. Lee on the ground that it was executed
without proper authority and under fraudulent circumstances. In a decision
rendered on July 26, 1960 we affirmed this decision although on grounds
different from those on which the latter is predicted. The case is once more
before us on a motion for reconsideration filed by appellants raising both
questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a
commercial partnership for a period of ten years with a capital of P30,000.00 of
which Goquiolay contributed P18,000.00 representing 60% while Tan Sin An
P12,000.00 representing 40%. The business of the partnership was to engage in
buying real estate properties for subdivision, resale and lease. The partnership
was duly registered, and among the conditions agreed upon in the partnership
agreement which are material to this case are: (1) that Tan Sin An would be the

exclusive managing partner, and (2) in the event of the death of any of the
partners the partnership would continue, the deceased to be represented by his
heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor
of Tan Sin An appointing the latter manager of the partnership and conferring
upon him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots
Nos. 526, 441 and 521 of the cadastral survey of Davao, the only assets of the
partnership, with the capital orginally invested, financing the balance of the
purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00, payable in ten years. On
the same date, Tan Sin An, in his individual capacity, acquired 46 parcels of land
executing a mortgage thereon in favor of the same company for the sum of
P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a
result Tan Sin An, in his individual capacity, and the partnership bound
themselves to pay jointly and severally the total amount of P52,282.80, with 8%
annual interest thereon within a period of eight years mortgaging in favor of
said entity the 3 parcels of land belonging to the partnership and the 46 parcels
of land belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant
Kong Chai Pin, and four children, all of whom are minors of tender age. On
March 18, 1944, Kong Chai Pin, was appointed administratrix of the intestate
estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to
the Banco Hipotecario the remaining unpaid balance of the mortgage obligation
of the partnership amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and
general manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.,
called for Goquiolay and the two had a conference in the office of the former
during which he offered to buy the interest of Goquiolay in the partnership. In
1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador 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:
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."

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.

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:

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?

... 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

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
1482 of the Code of Commerce became binding upon her and as a result she
could not change her status by violating its provisions not only under the
general principle that prohibited acts cannot produce any legal effect, but also
because under the provisions of Article 1473 of the same Code she was
precluded from acquiring more rights than those pertaining to her as a limited
partner. The alleged acts of management, therefore, did not give Kong Chai Pin
the character of general manager to authorized her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong
Chai Pin gave her the character of a general partner, could she sell the
partnership properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of
partnership and the pertinent provisions of the Code of Commerce and the Civil
Code. Thus, Article 129 of the Code of Commerce says:

If the management of the general partnership has not been limited by

special agreement to any of the members, all shall have the power to
take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts
or obligations which may concern the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by
the managing partner or by his authorized agent, and it is expressly
stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power
of attorney to any person, firm or corporation he may select, upon such
terms as regards compensation as he may deem proper, and vest in
such person, firm or corporation full power and authority, as the agent
of the co-partnership and in his name, place and stead to do anything
for it or on his behalf which he as such managing partner might do or
cause to be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing partner are not defined
either under the provisions of the Code of Commerce or in the articles of
partnership, a situation which, under Article 2 of the same Code, renders
applicable herein the provisions of the Civil Code. And since, according to wellknown authorities, the relationship between a managing partner and the
partnership is substantially the same as that of the agent and his principal,4the
extent of the power of Kong Chai Pin must, therefore, be determined under the
general principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administrations, but with
regard to the power to compromise, sell mortgage, and other acts of strict
ownership, an express power of attorney is required.5 Here Kong Chai Pin did
not have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without
express power of attorney may perform acts affecting ownership if the same are
necessary to promote or accomplish a declared object of the partnership, but
here the transaction is not for this purpose. It was effected not to promote any
avowed object of the partnership.6 Rather, the sale was affected to pay an
obligation of the partnership by selling its real properties which Kong Chai Pin
could not do without express authority. The authorities supporting this view are
overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es
conforme a los fines sociales. Pero esta facultad de enajenar limitada a
las ventas conforme a los fines sociales, viene limitada a los objetos de
comercio, o a los productos de la fabrica para explotacion de los cauale

se ha constituido la Sociedad. Ocurrira una cosa parecida cuando el

objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. Por el contrario el generente no tiene attribuciones para
vender las instalaciones del comercio, ni la fabrica, ni las maquinarias,
vehiculos de transporte, etc. que forman parte de la explotacion social. En
todos estas casos, equalmente que sisse tratase de la venta de una
marca o procedimiento mecanico o quimico, etc., siendo actos de
disposicion, seria necesario contar con la conformidad expresa de todos
los socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio del
contrato otros limites que los 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).
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.

Republic
SUPREME
Manila

of

FIRST DIVISION
G.R. No. L-39780 November 11, 1985

the

Philippines
COURT

ELMO
vs.
COURT OF APPEALS,CELESTINO GALAN
COMPANY and RAMON PONS,respondents.

MUASQUE, petitioner,
TROPICAL

COMMERCIAL

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and holding
both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the
partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and
damages against respondents Celestino Galan, Tropical Commercial, Co., Inc.
(Tropical) and Ramon Pons, alleging that the petitioner entered into a contract
with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner in
the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical,
under the terms of the contract, agreed to give petitioner the amount of
P7,000.00 soon after the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to make a total sum of
P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for
P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who
succeeded in getting petitioner's indorsement on the same check persuading
the latter that the same be deposited in a joint account; that on January 26, 1967
when the second check for P6,000.00 was due, petitioner refused to indorse
said cheek presented to him by Galan but through later manipulations,

respondent Pons succeeded in changing the payee's name from Elmo Muasque
to Galan and Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials, the
payment of which should have been made from the P13,000.00 received by
Galan; that petitioner undertook the construction at his own expense
completing it prior to the March 16, 1967 deadline;that because of the
unauthorized disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying some and admitting some
of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the
issues to be resolved are:
(1) Whether or not there existed a partners between Celestino
Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part
of respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass
Palace were allowed to intervene, both having legal interest in the matter in
litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay
jointly and severally the intervenors Cebu and Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan
Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay
jointly and severally the intervenors Cebu Southern Hardware
Company and Blue Diamond Glass Palace the amount of
P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor
Cebu Southern Hardware Company and Tan Siu jointly and
severally interest at 12% per annum of the sum of P6,229.34
until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to Intervenor
Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the
sole modification that the liability imposed in the dispositive part of the
decision on the credit of Cebu Southern Hardware and Blue Diamond Glass
Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the
partnership of "Galan and Muasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the contract
for the entire services of the Contractor. The terms of payment were as follows:
thirty percent (30%) of the whole amount upon the signing of the contract and
the balance thereof divided into three equal installments at the lute of Six
Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check
in favor of respondent Galan to enable the latter to deposit it in the bank and
pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00 came
and Galan asked the petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu
branch of Tropical that there was a"misunderstanding" between him and
petitioner, respondent Tropical changed the name of the payee in the second
check from Muasque to "Galan and Associates" which was the duly registered
name of the partnership between Galan and petitioner and under which name a
permit to do construction business was issued by the mayor of Cebu City. This
enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his
sole efforts. He stated that he borrowed some P12,000.00 from his friend, Mr.
Espina and although the expenses had reached the amount of P29,000.00
because of the failure of Galan to pay what was partly due the laborers and
partly due for the materials, the construction work was finished ahead of
schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently
given to the petitioner alone with the last check being given pursuant to a court
order.
As stated earlier, the petitioner filed a complaint for payment of sum of money
and damages against the respondents,seeking to recover the following: the
amounts covered by the first and second checks which fell into the hands of
respondent Galan, the additional expenses that the petitioner incurred in the
construction, moral and exemplary damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and
its Cebu Manager, Pons, from any liability but they also held the petitioner
together with respondent Galan, hable to the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the credit which the
intervenors extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership existed
between petitioner and respondent Galan. (2) Assuming that there was such a
partnership, whether or not the court erred in not finding Galan guilty of

malversing the P13,000.00 covered by the first and second checks and
therefore, accountable to the petitioner for the said amount; and (3) Whether or
not the court committed grave abuse of discretion in holding that the payment
made by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham and a
perfidious partner who misappropriated the amount of P13,000.00 due to the
petitioner.Petitioner also contends that the appellate court committed grave
abuse of discretion in holding that the payment made by Tropical to Galan was
"good" payment when the same gave occasion for the latter to misappropriate
the proceeds of such payment.

persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan and the
petitioner. Since the two were partners when the debts were incurred, they, are
also both liable to third persons who extended credit to their partnership. In the
case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
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 Pan, 617).

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical
for the renovation of the latter's building on behalf of the partnership of "Galan
and Muasque." This is readily seen in the first paragraph of the contract where
it states:
This agreement made this 20th day of December in the year
1966 by Galan and Muasque hereinafter called the Contractor,
and Tropical Commercial Co., Inc., hereinafter called the owner
do hereby for and in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by
the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the partnership
into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount
of P7,000.00 with a check made out in his name, he indorsed the check in favor
of Galan. Respondent Tropical therefore, had every right to presume that the
petitioner and Galan were true partners. If they were not partners as petitioner
claims, then he has only himself to blame for making the relationship appear
otherwise, not only to Tropical but to their other creditors as well. The
payments made to the partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had
acted in good faith, the appellees also acted in good faith in
extending credit to the partnership. Where one of two innocent

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.)
Petitioner also maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed" to
the prejudice of the petitioner. He adds that although this was not one of the
issues agreed upon by the parties during the pretrial, he, nevertheless, alleged
the same in his amended complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner made
allegations as to the alleged malversations of Galan, these were the same
allegations in his original complaint. The malversation by one partner was not
an issue actually raised in the amended complaint but the alleged connivance of
Pons with Galan as a means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues
contained in the trial court's order issued on the very day the
pre-trial conference was held. Such an order controls the
subsequent course of the action, unless modified before trial to
prevent manifest injustice.In the case at bar, modification of

the pre-trial order was never sought at the instance of any

party.
Petitioner could have asked at least for a modification of the issues if he really
wanted to include the determination of Galan's personal liability to their
partnership but he chose not to do so, as he vehemently denied the existence of
the partnership. At any rate, the issue raised in this petition is the contention of
Muasque that the amounts payable to the intervenors should be shouldered
exclusively by Galan. We note that the petitioner is not solely burdened by the
obligations of their illstarred partnership. The records show that there is an
existing judgment against respondent Galan, holding him liable for the total
amount of P7,000.00 in favor of Eden Hardware which extended credit to the
partnership aside from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial
court's ordering petitioner and Galan to pay the credits of Blue Diamond and
Cebu Southern Hardware"jointly and severally" is plain error since the liability
of partners under the law to third persons for contracts executed inconnection
with partnership business is only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including
industrial ones, shall be liable prorate with all their property and after all the
partnership assets have been exhausted, for the contracts which may be entered
into the name and fm the account cd the partnership, under its signature and by
a person authorized to act for the partner-ship. ...". this provision should be
construed together with Article 1824 which provides that: "All partners are
liable solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823." In short, while the liability of the
partners are merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners solidarily
liable for the whole obligation if the case of the third person falls under Articles
1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partner-ship or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting
to act.
Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and t he money
or property so received is misapplied by any partner while it is
in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. That
is why under Article 1824 of the Civil Code all partners, whether innocent or
guilty, as well as the legal entity which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error can
be imputed against it for making payments to "Galan and Associates" and
delivering the same to Galan because as far as it was concerned, Galan was a
true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit to
the partnership. Thus, it is but fair that the consequences of any wrongful act
committed by any of the partners therein should be answered solidarily by all
the partners and the partnership as a whole
However. as between the partners Muasque and Galan,justice also dictates that
Muasque be reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his dealings with
Muasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to be
joint and solidary. Petitioner may recover from respondent Galan any amount
that he pays, in his capacity as a partner, to the above intervenors,
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ., concur.
Plana, J., took no part.
Relova, J., is on leave.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-3704 December 12, 1907
LA
COMPAIA
MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUOZ, ET AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.

WILLARD, J.:
The plaintiff brought this action in the Court of First Instance of Manila against
the partnership of Franciso Muoz & Sons, and against Francisco Muoz de
Bustillo, Emilio Muoz de Bustillo, and Rafael Naval to recover the sum of
P26,828.30, with interest and costs. Judgment was rendered in the court below
acquitting Emilio Muoz de Bustillo and Rafael Naval of the complaint, and in
favor of the plaintiff and against the defendant partnership, Francisco Muoz &
Sons, and Francisco Muoz de Bustillo form the sum of P26,828.30 with interest
at the rate of 8 per cent per annum from the 31st day of March, 1905, and costs.
From this judgment the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muoz, Emilio Muoz,
and Rafael Naval formed on ordinary general mercantile partnership under the
name of Francisco Muoz & Sons for the purpose of carrying on the mercantile
business in the Province of Albay which had formerly been carried on by
Francisco Muoz. Francisco Muoz was a capitalist partner and Emilio Muoz
and Rafael Naval were industrial partners.
It is said in the decision of the court below that in the articles of partnership it
was called an ordinary, general mercantile partnership, but that from the article
it does not appear to be such a partnership. In the brief of the appellees it is also
claimed that it is not an ordinary, general commercial partnership. We see

nothing in the case to support either the statement of the court below in its
decision or the claim of the appellees in their brief. In the articles of partnership
signed by the partners it is expressly stated that they have agreed to form, and
do form, an ordinary, general mercantile partnership. The object of the
partnership, as stated in the fourth paragraph of the articles, is a purely
mercantile one and all the requirements of the Code of Commerce in reference
to such partnership were complied with. The articles of partnership were
recorded in the mercantile registry in the Province of Albay. If it should be held
that the contract made in this case did not create an ordinary, general
mercantile partnership we do not see how one could be created.
The claim of the appellees that Emilio Muoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He
contributed as much as did the other industrial partner, Rafael Naval, the
difference between the two being that Rafael Naval was entitled by the articles
of agreement to a fixed salary of P2,500 as long as he was in charge of the
branch office established at Ligao. If he had left that branch office soon after the
partnership was organized, he would have been in the same condition then that
Emilio Muoz was from the beginning. Such a change would have deprived him
of the salary P2,500, but would not have affected in any way the partnership nor
have produced the effect of relieving him from liability as a partner. The
argument of the appellees seems to be that, because no yearly or monthly salary
was assigned to Emilio Muoz, he contributed nothing to the partnership and
received nothing from it. By the articles themselves he was to receive at the end
of five years one-eighth of the profits. It can not be said, therefore, that he
received nothing from the partnership. The fact that the receipt of this money
was postponed for five years is not important. If the contention of the appellees
were sound, it would result that, where the articles of partnership provided for
a distribution of profits at the end of each year, but did not assign any specific
salary to an industrial partner during that time, he would not be a member of
the partnership. Industrial partners, by signing the articles, agree to contribute
their work to the partnership and article 138 of the Code of Commerce prohibits
them from engaging in other work except by the express consent of the
partnership. With reference to civil partnerships, section 1683 of the Civil Code
relates to the same manner.
It is also said in the brief of the appellees that Emilio Muoz was entirely
excluded from the management of the business. It rather should be said that he
excluded himself from such management, for he signed the articles of
partnership by the terms of which the management was expressly conferred by
him and the others upon the persons therein named. That partners in their
articles can do this, admits of no doubt. Article 125 of the Code of Commerce
requires them to state the partners to whom the management is intrusted. This
right is recognized also in article 132. In the case of Reyes vs. The Compania
Maritima (3 Phil. Rep., 519) the articles of association provided that the

directors for the first eight years should be certain persons named therein. This
court not only held that such provision was valid but also held that those
directors could not be removed from office during the eight years, even by a
majority vote of all the stockholders of the company.
Emilio Muoz was, therefore, a general partner, and the important question in
the case is whether, as such general partner, he is liable to third persons for the
obligations contracted by the partnership, or whether he relieved from such
liability, either because he is an industrial partner or because he was so relieved
by the express terms of the articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as
well as such as may be obtained from the sale of property and other
assets which constitute the corporate capital, shall be distributed, on
completion of the term of five years agreed to for the continuation of
the partnership, in the following manner: Three-fourths thereof for the
capitalist partner Francisco Muoz de Bustillo and one-eighth thereof
for the industrial partner Emilio Muoz de Bustillo y Carpiso, and the
remaining one-eighth thereof for the partner Rafael Naval y Garcia. If,
in lieu of profits, losses should result in the winding up of the
partnership, the same shall be for the sole and exclusive account of the
capitalist partner Francisco Muoz de Bustillo, without either of the
two industrial partners participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each partner,
said profits shall be divided pro rata, in accordance with the interest
each one has on the copartnership, partners who have not contributed
any capital, but giving their services, receiving in the distribution the
same amount as the partner who contributed the smallest capital.
ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who
have not, unless by special agreement the latter have been constituted
as participants therein.
A comparison of these articles with the twelfth paragraph above quoted will
show that the latter is simply a statement of the rule laid down in the former.
The article do not, therefore, change the rights of the industrial partners as they
are declared by the code, and the question may be reduced to the very simple

one namely, Is an industrial partner in an ordinary, general mercantile

partnership liable to third persons for the debts and obligations contracted by
the partnership?
In limited partnership the Code of Commerce recognizes a difference between
general and special partners, but in a general partnership there is no such
distinction-- all the members are general partners. The fact that some may be
industrial and some capitalist partners does not make the members of either of
these classes alone such general partners. There is nothing in the code which
says that the industrial partners shall be the only general partners, nor is there
anything which says that the capitalist partners shall be the only general
partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in
solidum with all their property for the results of the transactions made
in the name and for the account of the partnership, under the signature
of the latter, and by a person authorized to make use thereof.
Do the words "all the partners" found in this article include industrial partners?
The same expression is found in other articles of the code. In article 129 it is
said that, if the management of the partnership has not been limited by special
act to one of the partners, all shall have the right to participate in the
management. Does this mean that the capitalist partners are the only ones who
have that right, or does it include also industrial partners? Article 132 provides
that, when in the articles of partnership the management has been intrusted to
a particular person, he can not be deprived of such management, but that in
certain cases the remaining partners may appoint a comanager. Does the phrase
"remaining partners" include industrial partners, or is it limited to capitalist
partners, and do industrial partners have no right to participate in the selection
of the comanager? Article 133 provides that all the partners shall have the right
to examine the books of the partnership. Under this article are the capitalist
partners the only ones who have such right? Article 135 provides that the
partners can not use the firm name in their private business. Does this
limitation apply only to capitalist partners or does it extend also to industrial
partners? Article 222 provides that a general partnership shall be dissolve by
the death of one of the general partners unless it is otherwise provided in the
articles. Would such a partnership continue if all the industrial partners should
die? Article 229 provides that upon a dissolution of a general partnership it
shall be liquidated by the former managers, but, if all the partners do not agree
to this, a general meeting shall be called, which shall determine to whom the
settlement of the affairs shall be intrusted. Does this phrase "all the partners"
include industrial partners, or are the capitalist partners the only ones who

have a voice in the selection of a manager during a period of liquidation? Article

237 provides that the private property of the general partners shall not be
taken in payment of the obligations of the partnership until its property has
been exhausted. Does the phrase "the general partners" include industrial
partners?
In all of these articles the industrial partners must be included. It can not have
been intended that, in such a partnership as the one in question, where there
were two industrial and only one capitalist partner, the industrial partners
should have no voice in the management of the business when the articles of
partnership were silent on that subject; that when the manager appointed
mismanages the business the industrial partners should have no right to
appoint a comanager; that they should have no right to examine the books; that
they might use the firm name in their private business; or that they have no
voice in the liquidation of the business after dissolution. To give a person who
contributed no more than, say, P500, these rights and to take them away from a
person who contributed his services, worth, perhaps, infinitely more than P500,
would be discriminate unfairly against industrial partners.
If the phrase "all the partners" as found in the articles other than article 127
includes industrial partners, then article 127 must include them and they are
liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be
noticed in the first place that this article does not say that they shall not
be liable for losses. Article 140 declares how the profits shall be
divided amongthe partners. This article simply declares how the losses shall be
divided among the partners. The use of the words se imputaran is significant.
The verb means abonar una partida a alguno en su cuenta o deducirla de su
debito. Article 141 says nothing about third persons and nothing about
the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of the
code, where it is clearly intended to impose the liability to third persons, it is
not considered sufficient, but the word "obligations" is added. Thus article 148,
in speaking of the liability of limited partners, uses the phrase las obligaciones y
perdidas. There is the same use of the two same words in article 153, relating to
anonymous partnership. In article 237 the word "obligations" is used and not
the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the
industrial partners to third persons for the obligations of the company. If it
does, then it also fixes the liability of the capitalist partners to the same persons
for the same obligations. If this article says that industrial partners are not liable
for the debts of the concern, it also says that the capitalist partners shall be only

liable for such debts in proportion to the amount of the money which they have
contributed to the partnership; that is to say, that if there are only two capitalist
partners, one of whom has contributed two-thirds of the capital and the other
one-third, the latter is liable to a creditor of the company for only one-third of
the debt and the former for only two-thirds. It is apparent that, when given this
construction, article 141 is directly in conflict with article 127. It is not disputed
by the appellees that by the terms of article 127 each one of the capitalist
partners is liable for all of the debts, regardless of the amount of his
contribution, but the construction which they put upon article 141 makes such
capitalist partners liable for only a proportionate part of the debts.
There is no injustice in imposing this liability upon the industrial partners. They
have a voice in the management of the business, if no manager has been named
in the articles; they share in the profits and as to third persons it is no more
than right that they should share in the obligations. It is admitted that if in this
case there had been a capitalist partner who had contributed only P100 he
would be liable for this entire debt of P26,000.
Our construction of the article is that it relates exclusively to the settlement of
the partnership affairs among the partners themselves and has nothing to do
with the liability of the partners to third persons; that each one of the industrial
partners is liable to third persons for the debts of the firm; that if he has paid
such debts out of his private property during the life of the partnership, when
its affairs are settled he is entitled to credit for the amount so paid, and if it
results that there is not enough property in the partnership to pay him, then the
capitalist partners must pay him. In this particular case that view is
strengthened by the provisions of article 12, above quoted. There it is stated
that if, when the affairs of the partnership are liquidated that is, at the end of
five years it turns out that there had been losses instead of gains, then the
capitalist partner, Francisco Muoz, shall pay such losses that is, pay them to
the industrial partners if they have been compelled to disburse their own
money in payment of the debts of the partnership.
While this is a commercial partnership and must be governed therefore by the
rules of the Code of Commerce, yet an examination of the provisions of the Civil
Code in reference to partnerships may throw some light upon the question here
to be resolved. Articles 1689 and 1691 contain, in substance, the provisions of
articles 140 and 141 of the Code of Commerce. It is to be noticed that these
articles are found in section 1 of Chapter II [Title VIII] of Book IV. That section
treats of the obligations of the partners between themselves. The liability of the
partners as to third persons is treated in a distinct section, namely, section 2,
comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third
persons for the debts of the firm, then industrial partners in civil partnerships

are not. Waiving the question as to whether there can be a commercial

partnership composed entirely of industrial partners, it seems clear that there
can be such civil partnership, for article 1678 of the Civil Code provides as
follows:
A particular partnership has for its object specified things only, their
use of profits, or a specified undertaking, or the exercise of a profession
or art.
It might very easily happen, therefor, that a civil partnership could be composed
entirely of industrial partners. If it were, according to the claim of the appellees,
there would be no personal responsibility whatever for the debts of the
partnership. Creditors could rely only upon the property which the partnership
had, which in the case of a partnership organized for the practice of any art or
profession would be practically nothing. In the case of Agustin vs.
Inocencio, 1 just decided by this court, it was alleged in the complaint, and
admitted by the answer
That is partnership has been formed without articles of association or
capital other than the personal work of each one of the partners, whose
profits are to be equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may acquire
by their by their industry or work during the continuation of the
partnership.
Personal or real property which each of the partners may possess at the
time of the celebration of the agreement shall continue to be their
private property, the usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of the partners
would have any private property and that if they did the usufruct thereof would
be inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two persons,
each with a large amount of private property, to form and carry on a
partnership and, upon the bankruptcy of the latter, to say to its creditors that
they contributed no capital to the company but only their services, and that
their private property is not, therefore, liable for its debts.

But little light is thrown upon this question by the authorities. No judgment of
the supreme court of Spain has been called to our attention, and we have been
able to find none which refers in any way to this question. There is, therefore,
no authority from the tribunal for saying that an industrial partner is not liable
to third persons for the debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil)
it is said that industrial partners are not liable for debts. The author, at page
127, divides general partnership into ordinary and irregular. The irregular
partnership are those which include one or more industrial partners. It may be
said in passing that his views can not apply to this case because the articles of
partnership directly state that it is an ordinary partnership and do not state that
it is an irregular one. But his view of the law seems to be derived from
something other than the Code of Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the characters of a
regular collective partnership (since it says nothing conclusive in
reference to the irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not because
the writer entirely overlooked the fact that there might exist industrial
partners who did not contribute with capital in money, credits, or
goods, which partners generally participate in the profits but not in the
losses, and whose position must also be determined in the articles of
copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that it
has been forgotten that in collective partnerships there are industrial
partners who, not being jointly liable for the obligations of the
copartnership, should not include their names in that of the firm. (p.
129.)
As a logical result of his theory he says that an industrial partner has no right to
participate in the administration of the partnership and that his name can not
appear in the firm name. In this last respect his view is opposed to that of
Manresa, who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his
industry to the concern can also confer upon it the name or the
corporate name under which such industry should be carried on. In this

case, so long as the copartnership lasts, it can enjoy the credit,

reputation, and name or corporate name under which such industry is
carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same, and
he alone is entitled to use it, because such a name or style is an
accessory to the work of industrial partner, and upon recovering his
work or his industry he also recovers his name or the style under which
he exercised his activity. It has thus been decided by the French court of
cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are found two
kinds of partners, one with unlimited responsibility and the other with limited
responsibility, but adopting his view as to industrial partners, it should be said
that there are three kinds of partners, one with unlimited responsibility,
another with limited responsibility, and the third, the industrial partner, with
no responsibility at all. In Estasen's recent publication on mercantile
partnerships (Tratado de las Sociedades Mercantiles) he quotes from the work of
Benito, but we do not understand that he commits himself to the doctrines
therein laid down. In fact, in his former treatise, Instituciones de Derecho
Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes the existence of
these irregular general partnerships, or the exemption from the liability to third
persons of the industrial partners. He says in his latter work (p. 186) that
according to Dr. Benito the irregular general partner originated from the desire
of the partnership to associate with itself some old clerk or employee as a
reward for his services and the interest which he had shown in the affairs of the
partnership, giving him in place of a fixed salary a proportionate part of the
profits of the business. Article 269 of the Code of Commerce of 1829 relates to
this subject and apparently provides that such partners shall not be liable for
debts. If this article was the basis for Dr. Benito's view, it can be so no longer, for
it does not appear in the present code. We held in the case of Fortis vs. Gutirrez
Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not make
the employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil Code,
and of Blanco's Mercantile Law, will shows that no one of these mentions in any
way the irregular general partnership spoken of by Dr. Benito, nor is there
anything found in any one of these commentaries which in any way indicates
that an industrial partner is not liable to third persons for the debts of the
partnership. An examination of the French law will also show that no distinction
of that kind is therein anywhere made and nothing can be found therein which
indicates that the industrial partners are not liable for the debts of the
partnership. (Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361,
510, and 512.)

Our conclusion is upon this branch of the case that neither on principle nor on
authority can the industrial partner be relieved from liability to third persons
for the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not be
maintained against the partnership and the individual partners, this claim being
based upon the provisions of article 237 of the Code of Commerce which
provides that the private property of the partners shall not be taken until the
partnership property has been exhausted. But this article furnishes to argument
in support of the appellee's claim. An action can be maintained against the
partnership and partners, but the judgment should recognize the rights of the
individual partners which are secured by said article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered against all
of the defendants for the sum of P26,828.30, with interest thereon at the rate of
8 per cent per annum since the 31st day of March, 1905, and for the cost of this
action. Execution of such judgment shall not issue against the private property
of the defendants Francisco Muoz, Emilio Muoz, or Rafael Naval until the
property of the defendant Francisco Muoz & Sons is exhausted. No costs will
be allowed to their party in this court. So ordered.
Torres, Johnson and Tracey, JJ., concur.

Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is entirely in accordance with the
law.lawphil.net
The question set up in the majority decision, "In a regular collective commercial
company, is an industrial partner liable as to third persons by reason of the
debts and obligations contracted by the copartnership?" I decide in a negative
sense; he is not; by express provision of the law he can not be held to be liable,
save, of course, and agreement to the contrary, which in such case would be a
special law, and would set aside the general law.

The basis for the contrary opinion and decision is article 127 of the Code of
Commerce:
All the members of the general copartnership, be they or be they not
managing partners of the same, are personally and in solidum liable
with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of the
latter, and by a person authorized to ake use thereof.
Now, do the words "all the members" found in this article include the industrial
partners?
At first it would appear that they do. In order to complete such reasoning the
following premise will be sufficient: That the industrial partners from the
collective partnership; therefore the industrial partners are personally and
jointly liable with all their property for the results of the transactions made in
the name and for account of the partnership.
But they form the collective partnership in the manner in which our laws allows
the same to be formed that is, by contributing with their industry, not with
property.
And the word all, in reference to property, which is common with the three
classes of partnership defined by the code, to wit, collective, limited
copartnership (comanditaria), and corporation (anonima), gives the rule for
such personal and joint liability, which is the purpose of the provision in the
above-quoted article.
The above three classes of partnership agree in that property must in each of
them be contributed. "The articles of general copartnership must state . . . the
capital which each partner contributes in cash, credits, or property, stating the
value given the latter or the basis on which their appraisal is to be made." (Art.
125.) "The same statements shall be included in articles of limited
copartnerships (compaias en comandita) which are required for those of
general copartnerships" that is, among other things, the capital which each
partner contributes. (Art. 145.) "The articles of incorporation (of corporations)
must include . . . the corporate capital, stating the value at which property, not
cash, contributed has been appraised, or the basis on which the appraisal is to
be made; and the number of shares into which the corporate capital is divided
and represented." (Art. 151.)
Now, then, "The liability of the members of a corporation for the obligations and
losses of the same shall be limited to the funds they contributed or bound
themselves to contribute to the corporate capital." (Art. 153.) "The liability of

special partners for the obligations and losses of the copartnership shall be
limited to the funds which they contributed or bound themselves to contribute
to the limited copartnership, with the exception of the sense mentioned in
article 147" that is, if any of them include his name or permit its conclusion in
the firm name. (Art. 148, par. 3.) However, in a collective partnership the
liability is not limited to the funds or property contributed, but extends
to all the property which partners may own within or without the
copartnership.
In every mercantile copartnership it is the corporate capital that responds for
the obligations of the same; this is elemental. The members of a joint stock, a
limited, or a collective company respond with their capital for the obligations of
the association; in the joint stock concerns, with their shares; in the limited
class, with the amount contributed; in the collective, with their constituted
capital. An industrial partner, with what principal sum, share, or quota in the
corporate capital does he or can he respond for the obligations of the collective
partnership? Evidently with none whatever.
If the capital of the association is exhausted, the extreme case of losses incurred
by the company arises, and third persons can not recover the amount of the
obligations of the company from the corporate capital, because the latter is
sufficient to recover them. Shareholders in the case of a joint stock company,
beyond the value of their stock, have no longer to think of any ulterior
subsidiary responsibility. Neither do the partners of a limited company. In
either case the partners are only liable to the extent of their corporate capital.
Collective partners have to respond not only with their corporate capital but
also with the whole of their property outside of the association. And it is desired
that the industrial partner who, in a collective copartnership, did not primarily
respond with his corporate capital, because he had none, shall subsidiary
respond with such property as he may have outside of the company, and with
which nobody, either within or without the copartnership, had counted upon,
since both inside and outside of the company his industry or work only had
been reckoned with. Therefore, the word all, of article 127 cited above, simply
denoted the extent of the ulterior or subsidiary responsibility, and that which
does not appear, which does not materially exist, can hardly be made to apply.
An industrial partner can not engage in transactions of any class whatever,
otherwise he would be subject to serious consequences (art. 138), while a
capitalist partner, as a rule, may so engage without extending profits or
liabilities to the company (arts. 134 and 136); an industrial partner, as regards
profits, can only receive in the distribution the same amount as the partner who
contributed the smallest amount of capital (art. 140); in the case at bar, oneeighth goes to each of the two industrial partners, three-fourths being for the
capitalist, and even at the expiration of the copartnership they run the risk of
having the one-eighth of the profits earned in former years absorbed by a total

loss incurred during the last year of the contract of copartnership; and it is
claimed that such industrial partner, so much delayed with regard to profits,
who has not the same rights, shall be under the sameobligations as regards
obligations because he is a collective partner? This seems neither just nor
logical.
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital, without
including" the industrial partners (since they have not the same rights), and
they should not be included therein nor in the corporation of the partner who
contributed the smallest capital, simply for the reason that the industrial
partner has nothing to lose, he not having contributed anything which the
company may lose when the losses of the copartnership are considered, either
among the partners thereof or with regard to third persons.
There need be no distinction made between obligations and losses. During the
existence of a company the gains or the losses are set off the one against the
other, and the difference is either in favor of or against the concern. As to the
industrial partner, in connection with the question submitted, it is not a matter
of striking a balance from time to time, but one of the final adjustment of assets
and liabilities, because the matter under discussion refers only to his private
property, which has nothing to do with the company nor with losses in
liquidating the same. Article 127 is affected by article 237: "The private
property of the general partners which is not included in the assets of the
copartnership when it is established can not be seized for the payment of the
obligations contracted by the copartnership until after the common assets have
been attached." And such condition is stated in the majority decision. As long as
there is property belonging to the company, obligations in favor of third
persons are covered by the primary and direct responsibility of the company;
the question arises when the assets of the company are exhausted and it
becomes necessary to appeal to the ulterior or subsidiary liability of the private
property of the partners; in this case such obligations constitute the extreme
losses in the liquidation of the company.
The case at bar could only thus be set forth: Should an industrial partner be
responsible for such losses, for such obligations in favor of third persons?
Article 141 expressly states that he shall not. In order to state the contrary it
would be necessary to appeal to discriminations in the wording of said article;
and this is neither permitted where the law does not make them nor would they
lead to anything after all. In the aforesaid article 237 the corroboration of the
word all of article 127 may be found: "The private property of the general
partners which is not included in the assets of the copartnership," differing from
such as were included, can not seized for the payment of obligations contracted
by the copartnership, until after the common assets have been attached; after
such attachment all the assets, according to article 127, such as were included,

and those that were not included, in this order, shall be subject to the results of
the transactions of the copartnership. An industrial partner has not contributed
any property whatever; he therefore offers no subject for the principal and
direct seizure when the assets of the copartnership are attached. How is it
possible to conceive any ulterior, subsidiary, indirect responsibility over the
property which it was not even thought to be included, since he only
contributed to the company his industry and work, not property of any class
whatever? It seems very anomalous that one who has not obligated himself in
the least should be responsible or the greater part, that he who is not
comprehended within the explicit terms should be included by implication, and
that he who pledge nothing should be held to respond with his property.
As to the nature of the defendant company in this action, I take it to
be:lawphil.net
1. That the defendant company is really a collective one such as is described in
the Code of Commerce; the firm of "F. Muoz & Sons" and the terms of the
articles of association prove it so beyond all doubt.
2. That it is a regular collective company; the word regular means, as employed
in the Code of Commerce, that the collective company is the rule, the standard in
all commercial associations, the one combining all the effects which are
consequent upon this form of convention; and the limited and the joint-stock
companies are the exception.
3. That it is not irrelevant in view of the manner in which the present Code of
Commerce, like the former one of 1829, has defined the collective company, that
such a distinguished professor of law as Doctor Lorenzo de Benito should have
established in his "Lessons on Mercantile Law" a difference between the regular
collective associations and irregular collective companies; "regular are those
wherein, as article 122 reads, all the members in a collective name and under a
firm name bind themselves to participate in the proportion which they may
establish with the same rights and obligations." "And irregular, those wherein
one or more members who, though not contributing toward the company with
anything but their industry, participate in the profits in the manner agreed to in
the articles of association or as determined by law, and ordinarily do not share in
the losses which the copartnership may sustain. Such members are called
industrial partners, and the collective copartnership having a member of said
class is also sometimes called an association of capital and industry.
This is what the law says (he continues), but it has not been very
fortunate in sketching the characters of a regular collective partnership
(since in conclusion it says nothing in reference to the irregular
partnership), because precisely the collective name and the corporate
name are applicable to both the collective and the limited companies;

and as to the covenant entered into by the partners to participate in the

proportion which they may establish with the same rights and
obligations, this is inherent to all partnerships without distinction as to
class. What characterizes this partnership is that all the members, "with
the exception of the industrial partners," are jointly responsible and with
all their property for the corporate obligations.
4. That the code in force, by means of three articles, 138, 140, and 141, among
those which regulate collective partnerships, has involved this association of
capital and industry; whence irregularity necessarily arises; the irregularity of
such an irregular system is that in a collective partnership wherein, besides the
element property, common or generic to the three aforesaid classes, there
appears this one, to wit, industry, a special features only in collective
partnerships, according to the system of the code.
Had the system adopted by the codes of Portugal, Brazil, and the Argentine
Republic been followed, a different classification would have been made of the
association of capital and industry which, according to the last of the codes
cited, is properly characterized by means of the following articles:
435. Habilitacion or association of capital and industry is the name
given to the partnership formed on the one part by one or more
persons who furnish funds for a general business, or for some
particular commercial transaction, and on the other part by one or
more individuals who join the copartnership with their industry alone.
438. The obligation of the partners who furnished capital is in solidum,
and extends beyond the capital contributed by them to the concern.
439. The articles of association, besides the requirements contained in
article 395, must specify the obligations of the industrial partner or
partners and the share in the profits to which they are entitled in the
apportionment.
In the absence of such declaration, the industrial partner shall draw
from the profits a share equal to those of the partner who furnished the
smallest capital.
440. An industrial partner can not contract on behalf of the partnership
nor is he obligated with his own property toward the creditors of the
company.
Nevertheless, if besides his industry he should contribute some capital
toward the company either in money or thing of value, the association

shall then be considered as a collective one, and the industrial partner,

whatever might have been stipulated, shall respond in solidum.
In my opinion it can not be denied that there is no substantial difference
between the three articles of our code and those transcribed from that of the
Argentine Republic as regards the rights and obligations of industrial partners
in conjunction with partners who furnish capital; there is no difference except
in the system, the code of the Argentine Republic dealing with this class of
association of capital and industry separately from the only three defined in our
code, all of them of capital only or essentially of partners who furnish capital.
Therefore, as said code has an article almost literally identical with article 127
of our code, this question can not possibly arise in that country. That code
contains article 454, which reads: "All those who form a collective commercial
company, whether managing the corporate funds or not, are obligated in
solidum (with all their property, as our code would state) for the results of the
transactions made in the name and for account of the partnership," etc. To the
question, Do the words "all the partners" found in said article include the
industrial partners? undoubtedly the answer would be no.
And it would not suffice to say that the above article of the code of the Argentine
Republic, namely, "on collective copartnership," involves no section which may
refer to industrial partners, and that, therefore, there can be no question as to
the words "all the members;" it is because, by reason of the nature thereof,
whether under one system or another, the provisions and the principles being
identical, the conclusions can not otherwise than identical. In a copartnership,
and as the result of the obligations thereunder, an industrial partner can not
lose except what he has actually contributed thereto for a limited or an
unlimited purpose, subject ultimately to company or personal obligations; this
is all that law and logic may demand of him; anything else would not come
under the law, but may be demanded of him by reason of his express covenant,
because he has consented to something beyond the character and the effects of
the contract of partnership of capital and industry entered into by him, called
collective; nothing else has been the subject of his consent and obligation.
Manuel Duran y Bas, a former professor of the University of Barcelona, in his
addition to the work of Marti de Eixala, which is so generally and specially
consulted in that eminently commercial and industrial city, has offered no
remarks to the original text of said work which establish as an elemental
doctrine that "When the copartnership is purely a collective one, each of its
members is jointly obligated for the result of the transactions which should be
charged to the copartnership . . . . From the general rule which we have just set
up the industrial partners who contract no obligation to secure the liabilities of
the company should be excepted, unless there be an express covenant to the
contrary." (Art. 319 of the code of 1829, identical with art. 141 of the code now
in force.)

During almost half a century no obligation has been raised by the professors of
law, the press, or the bar, to this doctrine regarding the exemption, not merely
with respect to losses but to company obligations of the industrial partner, on
the suppositions, which I do not admit, as already shown, that it may be possible
to discriminate between losses and obligations in connection with an industrial
partner, for whom there are none but the final losses, such as absorb the assets
of the company, which can not be otherwise than outstanding obligations in
favor of third parties inasmuch as, so long as there are company assets, no
recourse can be held to the private property of any partner.
Republic
SUPREME
Manila

of

the

Philippines
COURT

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. 4Hence, 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:

Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
Art. 1816. All partners including industrial ones, shall be
liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of
the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a partnership
contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the
operation of a sugar estate in Negros. It was, therefore, a civil
partnership as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles
l698 and 1137 of the Civil Code, the partners are not liable
each for the whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible to plaintiff for
only one-half of the debt. The fact that the other partner, Jaime
Palacios, had left the country cannot increase the liability of
Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory
note in question was executed for and in behalf of the partnership. Since the
liability of the partners is pro rata, the liability of the appellant Benjamin C.
Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig
was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig
as a general partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig's individual liability to the
plaintiff.

G.R. No. L-21438

September 28, 1966

AIR
vs.
RAFAEL
CARRASCOSO
APPEALS, respondents.

FRANCE, petitioner,
and

the

HONORABLE

Lichauco,
Picazo
and
Agcaoili
for
Bengzon Villegas and Zarraga for respondent R. Carrascoso.

COURT

OF

petitioner.

SANCHEZ, J.:
The Court of First Instance of Manila 1 sentenced petitioner to pay respondent
Rafael Carrascoso P25,000.00 by way of moral damages; P10,000.00 as
exemplary damages; P393.20 representing the difference in fare between first
class and tourist class for the portion of the trip Bangkok-Rome, these various
amounts with interest at the legal rate, from the date of the filing of the
complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.
On appeal,2 the Court of Appeals slightly reduced the amount of refund on
Carrascoso's plane ticket from P393.20 to P383.10, and voted to affirm the
appealed decision "in all other respects", with costs against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as " fully supported by the evidence
of record", are:

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED,

without pronouncement as to costs.

Plaintiff, a civil engineer, was a member of a group of 48 Filipino

pilgrims that left Manila for Lourdes on March 30, 1958.

SO ORDERED.

On March 28, 1958, the defendant, Air France, through its authorized
agent, Philippine Air Lines, Inc., issued to plaintiff a "first class" round

trip airplane ticket from Manila to Rome. From Manila to Bangkok,

plaintiff travelled in "first class", but at Bangkok, the Manager of the
defendant airline forced plaintiff to vacate the "first class" seat that he
was occupying because, in the words of the witness Ernesto G. Cuento,
there was a "white man", who, the Manager alleged, had a "better right"
to the seat. When asked to vacate his "first class" seat, the plaintiff, as
was to be expected, refused, and told defendant's Manager that his seat
would be taken over his dead body; a commotion ensued, and,
according to said Ernesto G. Cuento, "many of the Filipino passengers
got nervous in the tourist class; when they found out that Mr.
Carrascoso was having a hot discussion with the white man [manager],
they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to
give his seat to the white man" (Transcript, p. 12, Hearing of May 26,
1959); and plaintiff reluctantly gave his "first class" seat in the plane.3
1. The trust of the relief petitioner now seeks is that we review "all the
findings" 4 of respondent Court of Appeals. Petitioner charges that respondent
court failed to make complete findings of fact on all the issues properly laid
before it. We are asked to consider facts favorable to petitioner, and then, to
overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be
rendered by any court of record without expressing therein clearly and
distinctly the facts and the law on which it is based". 5 This is echoed in the
statutory demand that a judgment determining the merits of the case shall state
"clearly and distinctly the facts and the law on which it is based"; 6 and that
"Every decision of the Court of Appeals shall contain complete findings of fact
on all issues properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to direct
attack. 8 The law, however, solely insists that a decision state the "essential
ultimate facts" upon which the court's conclusion is drawn. 9 A court of justice is
not hidebound to write in its decision every bit and piece of
evidence 10 presented by one party and the other upon the issues raised.
Neither is it to be burdened with the obligation "to specify in the sentence the
facts"which a party "considered as proved". 11 This is but a part of the mental
process from which the Court draws the essential ultimate facts. A decision is
not to be so clogged with details such that prolixity, if not confusion, may result.
So long as the decision of the Court of Appeals contains the necessary facts to
warrant its conclusions, it is no error for said court to withhold therefrom "any
specific finding of facts with respect to the evidence for the defense". Because as
this Court well observed, "There is no law that so requires". 12 Indeed, "the mere
failure to specify (in the decision) the contentions of the appellant and the
reasons for refusing to believe them is not sufficient to hold the same contrary
to the requirements of the provisions of law and the Constitution". It is in this

setting that in Manigque, it was held that the mere fact that the findings "were
based entirely on the evidence for the prosecution without taking into
consideration or even mentioning the appellant's side in the controversy as
shown by his own testimony", would not vitiate the judgment. 13 If the court did
not recite in the decision the testimony of each witness for, or each item of
evidence presented by, the defeated party, it does not mean that the court has
overlooked such testimony or such item of evidence. 14 At any rate, the legal
presumptions are that official duty has been regularly performed, and that all
the matters within an issue in a case were laid before the court and passed upon
by it. 15
Findings of fact, which the Court of Appeals is required to make, maybe defined
as "the written statement of the ultimate facts as found by the court ... and
essential to support the decision and judgment rendered thereon". 16They
consist of the court's "conclusions" with respect to the determinative facts in
issue". 17 A question of law, upon the other hand, has been declared as "one
which does not call for an examination of the probative value of the evidence
presented by the parties." 18
2. By statute, "only questions of law may be raised" in an appeal by certiorari
from a judgment of the Court of Appeals. 19 That judgment is conclusive as to the
facts. It is not appropriately the business of this Court to alter the facts or to
review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact
of the Court of Appeals support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received
from petitioner a first class ticket. But petitioner asserts that said ticket did not
represent the true and complete intent and agreement of the parties; that said
respondent knew that he did not have confirmed reservations for first class on
any specific flight, although he had tourist class protection; that, accordingly, the
issuance of a first class ticket was no guarantee that he would have a first class
ride, but that such would depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and discussed in
its brief before the Court of Appeals under its third assignment of error, which
reads: "The trial court erred in finding that plaintiff had confirmed reservations
for, and a right to, first class seats on the "definite" segments of his journey,
particularly that from Saigon to Beirut". 21
And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a

first-class ticket was no guarantee that the passenger to whom the
same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make
arrangements upon arrival at every station for the necessary first-class
reservation. We are not impressed by such a reasoning. We cannot
understand how a reputable firm like defendant airplane company
could have the indiscretion to give out tickets it never meant to honor
at all. It received the corresponding amount in payment of first-class
tickets and yet it allowed the passenger to be at the mercy of its
employees. It is more in keeping with the ordinary course of business
that the company should know whether or riot the tickets it issues are
to be honored or not.22
Not that the Court of Appeals is alone. The trial court similarly disposed of
petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket, there can
be no question. Apart from his testimony, see plaintiff's Exhibits "A", "A-1", "B",
"B-1," "B-2", "C" and "C-1", and defendant's own witness, Rafael Altonaga,
confirmed plaintiff's testimony and testified as follows:
Q. In these tickets there are marks "O.K." From what you know, what
does this OK mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
xxx

xxx

xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and
Rafael Altonaga that although plaintiff paid for, and was issued a "first class"
airplane ticket, the ticket was subject to confirmation in Hongkong. The court
cannot give credit to the testimony of said witnesses. Oral evidence cannot
prevail over written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C"
and "C-1" belie the testimony of said witnesses, and clearly show that the
plaintiff was issued, and paid for, a first class ticket without any reservation
whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga
testified that the reservation for a "first class" accommodation for the plaintiff

was confirmed. The court cannot believe that after such confirmation defendant
had a verbal understanding with plaintiff that the "first class" ticket issued to
him by defendant would be subject to confirmation in Hongkong. 23
We have heretofore adverted to the fact that except for a slight difference of a
few pesos in the amount refunded on Carrascoso's ticket, the decision of the
Court of First Instance was affirmed by the Court of Appeals in all other respects.
We hold the view that such a judgment of affirmance has merged the judgment
of the lower court. 24Implicit in that affirmance is a determination by the Court
of Appeals that the proceeding in the Court of First Instance was free from
prejudicial error and "all questions raised by the assignments of error and all
questions that might have been raised are to be regarded as finally adjudicated
against the appellant". So also, the judgment affirmed "must be regarded as free
from all error". 25 We reached this policy construction because nothing in the
decision of the Court of Appeals on this point would suggest that its findings of
fact are in any way at war with those of the trial court. Nor was said affirmance
by the Court of Appeals upon a ground or grounds different from those which
were made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first
class seat, notwithstanding the fact that seat availability in specific flights is
therein confirmed, then an air passenger is placed in the hollow of the hands of
an airline. What security then can a passenger have? It will always be an easy
matter for an airline aided by its employees, to strike out the very stipulations
in the ticket, and say that there was a verbal agreement to the contrary. What if
the passenger had a schedule to fulfill? We have long learned that, as a rule, a
written document speaks a uniform language; that spoken word could be
notoriously unreliable. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable. Such is
the case here. The lower courts refused to believe the oral evidence intended to
defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there
are facts upon which the Court of Appeals predicated the finding that
respondent Carrascoso had a first class ticket and was entitled to a first class
seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the
flight. 27 We perceive no "welter of distortions by the Court of Appeals of
petitioner's statement of its position", as charged by petitioner. 28 Nor do we
subscribe to petitioner's accusation that respondent Carrascoso "surreptitiously
took a first class seat to provoke an issue". 29 And this because, as petitioner
states, Carrascoso went to see the Manager at his office in Bangkok "to confirm
my seat and because from Saigon I was told again to see the Manager". 30 Why,
then, was he allowed to take a first class seat in the plane at Bangkok, if he had
no seat? Or, if another had a better right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's

trenchant claim is that Carrascoso's action is planted upon breach of contract;
that to authorize an award for moral damages there must be an averment of
fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a
finding of bad faith. The pivotal allegations in the complaint bearing on this
issue are:
3. That ... plaintiff entered into a contract of air carriage with the
Philippine Air Lines for a valuable consideration, the latter acting as
general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish
plaintiff, First Class passage on defendant's plane during the entire
duration of plaintiff's tour of Europe with Hongkong as starting point
up to and until plaintiff's return trip to Manila, ... .
4. That, during the first two legs of the trip from Hongkong to Saigon
and from Saigon to Bangkok, defendant furnished to the plaintiff First
Class accommodation but only after protestations, arguments and/or
insistence were made by the plaintiff with defendant's employees.
5. That finally, defendant failed to provide First Class passage, but
instead furnished plaintiff only TouristClass accommodations from
Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelled by defendant's employees to leave the First Class
accommodation berths at Bangkok after he was already seated.
6. That consequently, the plaintiff, desiring no repetition of the
inconvenience and embarrassments brought by defendant's breach of
contract was forced to take a Pan American World Airways plane on his
return trip from Madrid to Manila.32
xxx

xxx

xxx

2. That likewise, as a result of defendant's failure to furnish First Class

accommodations aforesaid, plaintiff suffered inconveniences, embarrassments,
and humiliations, thereby causing plaintiff mental anguish, serious anxiety,
wounded feelings, social humiliation, and the like injury, resulting in moral
damages in the amount of P30,000.00. 33
xxx

xxx

xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract
to furnish plaintiff a first class passage covering, amongst others, the BangkokTeheran leg; Second, That said contract was breached when petitioner failed to

furnish first class transportation at Bangkok; and Third, that there was bad faith
when petitioner's employee compelled Carrascoso to leave his first class
accommodation berth "after he was already, seated" and to take a seat in the
tourist class, by reason of which he suffered inconvenience, embarrassments
and humiliations, thereby causing him mental anguish, serious anxiety,
wounded feelings and social humiliation, resulting in moral damages. It is true
that there is no specific mention of the term bad faith in the complaint. But, the
inference of bad faith is there, it may be drawn from the facts and circumstances
set forth therein. 34 The contract was averred to establish the relation between
the parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the trial, respondent's
counsel placed petitioner on guard on what Carrascoso intended to prove: That
while sitting in the plane in Bangkok, Carrascoso was oustedby petitioner's
manager who gave his seat to a white man; 35 and (b) evidence of bad faith in
the fulfillment of the contract was presented without objection on the part of
the petitioner. It is, therefore, unnecessary to inquire as to whether or not there
is sufficient averment in the complaint to justify an award for moral damages.
Deficiency in the complaint, if any, was cured by the evidence. An amendment
thereof to conform to the evidence is not even required. 36 On the question of
bad faith, the Court of Appeals declared:
That the plaintiff was forced out of his seat in the first class
compartment of the plane belonging to the defendant Air France while
at Bangkok, and was transferred to the tourist class not only without
his consent but against his will, has been sufficiently established by
plaintiff in his testimony before the court, corroborated by the
corresponding entry made by the purser of the plane in his notebook
which notation reads as follows:
"First-class passenger was forced to go to the tourist class
against his will, and that the captain refused to intervene",
and by the testimony of an eye-witness, Ernesto G. Cuento, who was a
co-passenger. The captain of the plane who was asked by the manager
of defendant company at Bangkok to intervene even refused to do so. It
is noteworthy that no one on behalf of defendant ever contradicted or
denied this evidence for the plaintiff. It could have been easy for
defendant to present its manager at Bangkok to testify at the trial of the
case, or yet to secure his disposition; but defendant did neither. 37
The Court of appeals further stated

Neither is there evidence as to whether or not a prior reservation was

made by the white man. Hence, if the employees of the defendant at
Bangkok sold a first-class ticket to him when all the seats had already
been taken, surely the plaintiff should not have been picked out as the
one to suffer the consequences and to be subjected to the humiliation
and indignity of being ejected from his seat in the presence of others.
Instead of explaining to the white man the improvidence committed by
defendant's employees, the manager adopted the more drastic step of
ousting the plaintiff who was then safely ensconsced in his rightful seat.
We are strengthened in our belief that this probably was what
happened there, by the testimony of defendant's witness Rafael
Altonaga who, when asked to explain the meaning of the letters "O.K."
appearing on the tickets of plaintiff, said "that the space is confirmed
for first class. Likewise, Zenaida Faustino, another witness for
defendant, who was the chief of the Reservation Office of defendant,
testified as follows:
"Q How does the person in the ticket-issuing office know what
reservation the passenger has arranged with you?
A They call us up by phone and ask for the confirmation."
(t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge has said
on this point:
Why did the, using the words of witness Ernesto G. Cuento,
"white man" have a "better right" to the seat occupied by Mr.
Carrascoso? The record is silent. The defendant airline did not
prove "any better", nay, any right on the part of the "white
man" to the "First class" seat that the plaintiff was occupying
and for which he paid and was issued a corresponding "first
class" ticket.
If there was a justified reason for the action of the defendant's
Manager in Bangkok, the defendant could have easily proven it
by having taken the testimony of the said Manager by
deposition, but defendant did not do so; the presumption is
that evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and, under the
circumstances, the Court is constrained to find, as it does find,
that the Manager of the defendant airline in Bangkok not
merely asked but threatened the plaintiff to throw him out of
the plane if he did not give up his "first class" seat because the

said Manager wanted to accommodate, using the words of the

witness Ernesto G. Cuento, the "white man".38
It is really correct to say that the Court of Appeals in the quoted portion
first transcribed did not use the term "bad faith". But can it be doubted
that the recital of facts therein points to bad faith? The manager not
only prevented Carrascoso from enjoying his right to a first class seat;
worse, he imposed his arbitrary will; he forcibly ejected him from his
seat, made him suffer the humiliation of having to go to the tourist class
compartment - just to give way to another passenger whose right
thereto has not been established. Certainly, this is bad faith. Unless, of
course, bad faith has assumed a meaning different from what is
understood in law. For, "bad faith" contemplates a "state of mind
affirmatively operating with furtive design or with some motive of selfinterest or will or for ulterior purpose." 39
And if the foregoing were not yet sufficient, there is the express finding
of bad faith in the judgment of the Court of First Instance, thus:
The evidence shows that the defendant violated its contract of
transportation with plaintiff in bad faith, with the aggravating
circumstances that defendant's Manager in Bangkok went to
the extent of threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane to give the
"first class" seat that he was occupying to, again using the
words of the witness Ernesto G. Cuento, a "white man" whom
he (defendant's Manager) wished to accommodate, and the
defendant has not proven that this "white man" had any
"better right" to occupy the "first class" seat that the plaintiff
was occupying, duly paid for, and for which the corresponding
"first class" ticket was issued by the defendant to him.40
5. The responsibility of an employer for the tortious act of its employees need
not be essayed. It is well settled in law. 41 For the willful malevolent act of
petitioner's manager, petitioner, his employer, must answer. Article 21 of the
Civil Code says:
ART. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
In parallel circumstances, we applied the foregoing legal precept; and, we held
that upon the provisions of Article 2219 (10), Civil Code, moral damages are
recoverable. 42

6. A contract to transport passengers is quite different in kind and degree from

any other contractual relation. 43And this, because of the relation which an aircarrier sustains with the public. Its business is mainly with the travelling public.
It invites people to avail of the comforts and advantages it offers. The contract of
air carriage, therefore, generates a relation attended with a public duty. Neglect
or malfeasance of the carrier's employees, naturally, could give ground for an
action for damages.
Passengers do not contract merely for transportation. They have a right to be
treated by the carrier's employees with kindness, respect, courtesy and due
consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that
any rule or discourteous conduct on the part of employees towards a passenger
gives the latter an action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was
a breach of contract and a tort, giving a right of action for its agent in the
presence of third persons to falsely notify her that the check was worthless and
demand payment under threat of ejection, though the language used was not
insulting and she was not ejected." 46 And this, because, although the relation of
passenger and carrier is "contractual both in origin and nature" nevertheless
"the act that breaks the contract may be also a tort". 47 And in another case,
"Where a passenger on a railroad train, when the conductor came to collect his
fare tendered him the cash fare to a point where the train was scheduled not to
stop, and told him that as soon as the train reached such point he would pay the
cash fare from that point to destination, there was nothing in the conduct of the
passenger which justified the conductor in using insulting language to him, as
by calling him a lunatic," 48 and the Supreme Court of South Carolina there held
the carrier liable for the mental suffering of said passenger.1awphl.nt
Petitioner's contract with Carrascoso is one attended with public duty. The
stress of Carrascoso's action as we have said, is placed upon his wrongful
expulsion. This is a violation of public duty by the petitioner air carrier a case
of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus
Q You mentioned about an attendant. Who is that attendant and
purser?
A When we left already that was already in the trip I could not
help it. So one of the flight attendants approached me and requested
from me my ticket and I said, What for? and she said, "We will note that
you transferred to the tourist class". I said, "Nothing of that kind. That is

tantamount to accepting my transfer." And I also said, "You are not

going to note anything there because I am protesting to this transfer".
Q Was she able to note it?
A No, because I did not give my ticket.
Q About that purser?
A Well, the seats there are so close that you feel uncomfortable and you
don't have enough leg room, I stood up and I went to the pantry that
was next to me and the purser was there. He told me, "I have recorded
the incident in my notebook." He read it and translated it to me
because it was recorded in French "First class passenger was forced
to go to the tourist class against his will, and that the captain refused to
intervene."
Mr. VALTE
I move to strike out the last part of the testimony of the witness
because the best evidence would be the notes. Your Honor.
COURT
I will allow that as part of his testimony. 49
Petitioner charges that the finding of the Court of Appeals that the purser made
an entry in his notebook reading "First class passenger was forced to go to the
tourist class against his will, and that the captain refused to intervene" is
predicated upon evidence [Carrascoso's testimony above] which is
incompetent. We do not think so. The subject of inquiry is not the entry, but the
ouster incident. Testimony on the entry does not come within the proscription
of the best evidence rule. Such testimony is admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue
happened, the impact of the startling occurrence was still fresh and continued
to be felt. The excitement had not as yet died down. Statements then, in this
environment, are admissible as part of the res gestae. 50 For, they grow "out of
the nervous excitement and mental and physical condition of the
declarant". 51 The utterance of the purser regarding his entry in the notebook
was spontaneous, and related to the circumstances of the ouster incident. Its
trustworthiness has been guaranteed. 52 It thus escapes the operation of the
hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee
of petitioner. It would have been an easy matter for petitioner to have
contradicted Carrascoso's testimony. If it were really true that no such entry
was made, the deposition of the purser could have cleared up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible
in evidence.

BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,

vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees.
J.
de
Guia
Estanislao R. Bayot for appellees.

for

appellants.

ENDENCIA, J.:
8. Exemplary damages are well awarded. The Civil Code gives the court ample
power to grant exemplary damages in contracts and quasi- contracts. The
only condition is that defendant should have "acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner." 53 The manner of ejectment of
respondent Carrascoso from his first class seat fits into this legal precept. And
this, in addition to moral damages.54
9. The right to attorney's fees is fully established. The grant of exemplary
damages justifies a similar judgment for attorneys' fees. The least that can be
said is that the courts below felt that it is but just and equitable that attorneys'
fees be given. 55 We do not intend to break faith with the tradition that
discretion well exercised as it was here should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and
the Court of Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of
exemplary damages, and P3,000.00 as attorneys' fees. The task of fixing these
amounts is primarily with the trial court. 56 The Court of Appeals did not
interfere with the same. The dictates of good sense suggest that we give our
imprimatur thereto. Because, the facts and circumstances point to the
reasonableness thereof.57
On balance, we say that the judgment of the Court of Appeals does not suffer
from reversible error. We accordingly vote to affirm the same. Costs against
petitioner. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and
Castro,
JJ.,
concur.
Bengzon, J.P., J., took no part.
Republic
SUPREME
Manila

of

EN BANC
G.R. No. L-12164

May 22, 1959

the

Philippines
COURT

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag
Auto Supply, a commercial guard who while in line of duty, was skilled by
criminal hands. His widow Ciriaca Vda. de Balderama and minor children
Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim
for compensation with the Workmen's Compensation Commission, which was
granted in an award worded as follows:
WHEREFORE, the order of the referee under consideration should be,
as it is hereby, affirmed and respondents Benito Liwanag and Maria
Liwanag Reyes, ordered.
1. To pay jointly and severally the amount of three thousand Four
Hundred Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in
lump sum; and
To pay to the Workmen's Compensation Funds the sum of P4.00
(including P5.00 for this review) as fees, pursuant to Section 55 of the
Act.
In appealing the case to this Tribunal, appellants do not question the right of
appellees to compensation nor the amount awarded. They only claim that,
under the Workmen's Compensation Act, the compensation is divisible, hence
the commission erred in ordering appellants to pay jointly and severally the
amount awarded. They argue that there is nothing in the compensation Act
which provides that the obligation of an employer arising from compensable
injury or death of an employee should be solidary obligation, the same should
have been specifically provided, and that, in absence of such clear provision, the
responsibility of appellants should not be solidary but merely joint.
At first blush appellants' contention would seem to be well, for ordinarily, the
liability of the partners in a partnership is not solidary; but the law governing
the liability of partners is not applicable to the case at bar wherein a claim for
compensation by dependents of an employee who died in line of duty is
involved. And although the Workmen's Compensation Act does not contain any
provision expressly declaring solidary obligation of business partners like the

herein appellants, there are other provisions of law from which it could be
gathered that their liability must be solidary. Arts. 1711 and 1712 of the new
Civil Code provide:
ART. 1711. Owners of enterprises and other employers are obliged to
pay compensation for the death of or injuries to their laborers,
workmen, mechanics or other employees, even though the event may
have been purely accidental or entirely due to a fortuitous cause, if the
death or personal injury arose out of and in the course of the
employment. . . . .

Since the Workmen's Compensation Act was enacted to give full protection to
the employee, reason demands that the nature of the obligation of the
employers to pay compensation to the heirs of their employee who died in line
of duty, should be solidary; otherwise, the purpose of the law could not be
attained.
Wherefore, finding no error in the award appealed from, the same is hereby
affirmed, with costs against appellants.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and
Concepcion, JJ., concur.

ART. 1712. If the death or injury is due to the negligence of a fellowworker, the latter and the employer shall be solidarily liable for
compensation. . . . .
And section 2 of the Workmen's Compensation Act, as amended reads in part as
follows:
. . . The right to compensation as provided in this Act shall not be
defeated or impaired on the ground that the death, injury or disease was
due to the negligence of a fellow servant or employee, without
prejudice to the right of the employer to proceed against the negligence
party.
The provisions of the new Civil Code above quoted taken together with those of
Section 2 of the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners, like appellants, should be
solidary; otherwise, the right of the employee may be defeated, or at least
crippled. If the responsibility of appellants were to be merely joint and solidary,
and one of them happens to be insolvent, the amount awarded to the appellees
would only be partially satisfied, which is evidently contrary to the intent and
purposes of the Act. In the previous cases we have already held that the
Workmen's Compensation Act should be construed fairly, reasonably and
liberally in favor of and for the benefit of the employee and his dependents; that
all doubts as to the right of compensation resolved in his favor; and that it
should be interpreted to promote its purpose. Accordingly, the present
controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation
requires solidarity.

Separate Opinions
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere coowners, their liability for the indemnity due their deceased employee would not
be solidary but only pro rata (Arts. 485 and 1815, new Civil Code). The
Workmen's Compensation Act does not change the nature of that liability either
expressly or by intendment. To hold that it does, is to read into the Act
something that is not there. For this Court, therefore, to declare that under the
said Act the defendants herein are liable solidarily is to play the role of
legislator.
The injustice of the rule sought to be established in the majority opinion may
readily be made obvious with an example. Suppose that one of two co-partners
or co-owners owns 99 percent of the business while his co-partner or coowners own only 1 percent. To hold that in such case the latter's liability may
run up to 100 percent although his interest is only 1 percent would not only be
illogical but also inequitable.
For the foregoing reasons, I have no choice but to dissent.
Republic
SUPREME
Manila
EN BANC

of

the

Philippines
COURT

G.R. No. L-26937

October 5, 1927

PHILIPPINE
NATIONAL
BANK, plaintiff-appellee,
vs.
SEVERO
EUGENIO
LO,
ET
AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Jose
Lopez
Roman Lacson for appellee.

Vito

for

appellants.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling,
the latter represented by M. Pineda Tayenko, executed a power of attorney in
favor of Sy Tit by virtue of which Sy Tit, representing "Tai Sing & Co., obtained a
credit of P20,000 from plaintiff bank on January 7, 1921, executing a chattel
mortgage on certain personal property belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the
plaintiff bank, from the year 1918, to May 22, 1921, and the debit balance of this
account, with interest to December 31, 1924, is as follows:
TAI SING & CO.

VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling,
together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng
Peng formed a commercial partnership under the name of "Tai Sing and Co.,"
with a capital of P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the partnership was to last for five
years from after the date of its organization, and that its purpose was to do
business in the City of Iloilo, Province of Iloilo, or in any other part of the
Philippine Islands the partners might desire, under the name of "Tai Sing & Co.,"
for the purchase and sale of merchandise, goods, and native, as well as Chinese
and Japanese, products, and to carry on such business and speculations as they
might consider profitable. One of the partners, J. A. Say Lian Ping was appointed
general manager of the partnership, with the appointed general manager of the
partnership, with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney
(Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as
manager and administrator of "Tai Sing & Co.," on July 26, 1918, for, and
obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C).
As security for said loan, he mortgaged certain personal property of "Tai Sing &
Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as
attorney-in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of
plaintiff bank as security for a loan of P20,000 with interest (Exhibit D). This
mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-infact of "Tai Sing & Co., executed another chattel mortgage for the said sum of
P20,000 in favor of plaintiff bank. (Exhibit E.) According to this mortgage
contract, the P20,000 loan was to earn 9 per cent interest per annum.

To your outstanding account (C. O. D.) with us on June 30, 1922

P16,518.74

Interest on same from June 30, 1922 to December 31,1924, at 9

per cent per annum
3,720.86
Total

20, 239.00
=========

This total is the sum claimed in the complaint, together with interest on the
P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until fully paid,
with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not
a general partnership, and that the commercial credit in current account which
"Tai Sing & Co. obtained from the plaintiff bank had not been authorized by the
board of directors of the company, nor was the person who subscribed said
contract authorized to make the same, under the article of copartnership. The
other defendants, Yap Sing and Ng Khey Ling, answered the complaint denying
each and every one of the allegations contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng
Peng indebted to plaintiff Philippine National Bank in sum of
P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the
balance on account of the partnership "Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31, 1926,
and from the date, P4.14 daily interest on the principal; and

(3) The defendants are furthermore ordered to pay the costs of the
action.1awph!l.net
Defendants appealed, making the following assignments of error:
I. The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.
II. The trial court erred in finding that the partnership agreement of
"Tai Sing & Co., (Exhibit A), is in accordance with the requirements of
article 125 of the Code of Commerce for the organization of a regular
partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's death in
China in November, 1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian Ping
cannot extinguish the defendants' obligation to the plaintiff bank,
because the last debt incurred by the commercial partnership "Tai Sing
& Co., was that evidence by Exhibit F, signed by Sy Tit as attorney-infact of the members of "Tai Sing & Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able to
collect its credit from the goods of "Tai Sing & Co., given as security
therefor through its own fault and negligence; and that the action
brought by plaintiff is a manifest violation of article 237 of the present
Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai Sing
& Co. with plaintiff bank shows a debit balance of P16,518.74, which in
addition to interest at 9 per cent per annum from July 29, 1926, amount
to P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74.

the mercantile register of the Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm name the names of all of
the partners, of several of them, or only one of them, to be followed in the last
two cases, by the words "and to be followed in the last two cases, by the words
"and company" the partners agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. KiengChiong-Seng, cited by appellants, this court held that, as the company formed by
defendants had existed in fact, though not in law due to the fact that it was not
recorded in the register, and having operated and contracted debts in favor of
the plaintiff, the same must be paid by someone. This applies more strongly to
the obligations contracted by the defendants, for they formed a partnership
which was registered in the mercantile register, and carried on business
contracting debts with the plaintiff bank. The anomalous adoption of the firm
name above noted does not affect the liability of the general partners to third
parties under article 127 of the Code of Commerce. And the Supreme Court so
held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in
which it said that the object of article 126 of the Code of Commerce in requiring
a general partnership to transact business under the name of all its members, of
several of them, or of one only, is to protect the public from imposition and
fraud; and that the provision of said article 126 is for the protection of the
creditors rather than of the partners themselves. And consequently the doctrine
was enunciated that the law must be unlawful and unenforceable only as
between the partners and at the instance of the violating party, but not in the
sense of depriving innocent parties of their rights who may have dealt with the
offenders in ignorance of the latter having violated the law; and that contracts
entered into by commercial associations defectively organized are valid when
voluntarily executed by the parties, and the only question is whether or not they
complied with the agreement. Therefore, the defendants cannot invoke in their
defense the anomaly in the firm name which they themselves adopted.

VIII. The trial court erred in denying the motion for a new trial filed by
defendants-appellants.

As to the alleged death of the manager of the company, Say Lian Ping, before the
attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did
not find this fact proven at the hearing. But even supposing that the court had
erred, such an error would not justify the reversal of the judgment, for two
reasons at least: (1) Because Ou Yong Kelam was a partner who contracted in
the name of the partnership, without any objection of the other partners; and
(2) because it appears in the record that the appellant-partners Severo Eugenio
Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and he obtained
from the plaintiff bank the credit in current account, the debit balance of which
is sought to be recovered in this action.

Appellants admit, and it appears from the context of Exhibit A, that the
defendant association formed by the defendants is a general partnership, as
defined in article 126 of the Code Commerce. This partnership was registered in

Appellants allege that such of their property as is not included in the

partnership assets cannot-be seized for the payment of the debts contracted by
the partnership until after the partnership property has been exhausted. The

VII. The trial court erred in ordering the defendants appellants to pay
jointly and severally to the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and interest on P16,518.74 from
that date until fully paid, with the costs of the action.

court found that the partnership property described in the mortgage Exhibit F
no loner existed at the time of the filing of the herein complaint nor has its
existence been proven, nor was it offered to the plaintiff for sale. We find no just
reason to reverse this conclusion of the trial court, and this being so, it follows
that article 237 of the Code of Commerce, invoked by the appellant, can in no
way have any application here.
Appellants also assign error to the action of the trial court in ordering them to
pay plaintiff, jointly and severally, the sums claimed with 9 per cent interest on
P16,518.74, owing from them.
The judgment against the appellants is in accordance with article 127 of the
Code of Commerce which provides that all the members of a general
partnership, be they managing partners thereof or not, shall be personally and
solidarily liable with all their property, for the results of the transactions made
in the name and for the account of the partnership, under the signature of the
latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the credit in current
account sued on in this case as been renewed by the parties in such a way that
while it appears in the mortgage Exhibit D executed on March 25, 1919 by the
attorney-in-fact Ou Yong Kelam that the P20,000 credit would earn 8 per cent
interest annually, yet from that executed on April 16, 1920, Exhibit E, it appears
that the P20,000 would earn 9 per cent interest per annum. The credit was
renewed in January, 1921, and in the deed of pledge, Exhibit F, executed by "Tai
Sing & Co., represented by the attorney-in-fact Sy Tit, it appears that this
security is for the payment of the sums received by the partnership, not to
exceed P20,000 with interest and collection fees. There can be no doubt that the
parties agreed upon the rate of interest fixed in the document Exhibit E, namely
9 per cent per annum.
The judgment appealed from is in accordance with the law, and must therefore
be, as it is hereby, affirmed with costs against the appellants. So ordered.
Avancea, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.
Republic
SUPREME
Manila

of

EN BANC
G.R. No. L-4776

March 18, 1909

the

Philippines
COURT

MANUEL ORMACHEA TIN-CONGCO, deceased, represented by the

Chinaman Tiu Tusay, judicial administrator of his estate, plaintiff-appellee,
vs.
SANTIAGO TRILLANA, defendant-appellant.
A.
Velarde,
and
T. L. McGirr for appellee.

E.

Paguia

for

appellant.

TORRES, J.:
On the 15th of January, 1904, Manuel Ormachea Tin-Congco, a Chinaman,
presented an amended complaint against Santiago Trillana, alleging that the
plaintiff Ormachea and Luis Vizmanos Ong Queco were engaged in business in
the pueblos of Hagonoy, Malolos, and other places in the Province of Bulacan,
and that in the course thereof the defendant purchased from them merchandise
to the value of 4,000 pesos, local currency; that two years prior to that date, a
little more or less, the partnership was dissolved and the business was divided
up between the partners, all accounts and debts of the defendant were alloted
to the plaintiff, and became the individual property of Ormachea Tin-Congco;
the indebtedness is proven by the documents signed by the defendant or his
agents in favor of Ormachea or of Vizmanos Ong Queco or their agent named
Lawa in charge of the business, The documents of indebtedness are inserted in
the complaint and duly numbered. They aggregate 135 documents, some of
which are written in Tagalog with corresponding translations; that the legal
interest on the said 4,000 pesos is 1,500 pesos which makes the total debt
amount to 5,500 pesos, and the same has not been paid by the defendant.
Therefore, the plaintiff prays that judgment be entered ordering the defendant,
Santiago Trillana, to pay the said 5,500 pesos with costs.
The defendant filed a written answer on November 15, 1904, setting forth: That
he admitted the first statement of the complaint, but had no knowledge as to the
second as it appears therein; that he did not admit the same, nor the other
allegations in the complaint in the sense in which they are set out; that as a
special defense, the defendant alleges that he had already settled his accounts
and obligations contracted in the business to which the complaint refers, by
means of periodical payments in tuba or the liquor of the nipa palm, and that if
any accounts are still pending, the same should, owing to their character and the
manner in which they were constituted, be paid in kind and not in money as the
plaintiff claims in his complaint, and should be paid at the time and under the
circumstances which, as is customary in Hagonoy, such class of obligations are
settled; he therefore asked the court below to enter judgment absolving the
defendant of the complaint, with the costs against the plaintiff.
After hearing the evidence presented by the parties, the trial judge, on February
27, 1907, rendered judgment ordering the defendant, Santiago Trillana, to pay

to the Chinaman Florentino Tiu Tusay, the judicial administrator of the estate of
the deceased plaintiff, Ormachea Tin-Congco, the sum of P2,832.22, in tuba,
under the same conditions stipulated between the debtor and the copartnership
for the working of the distillery of Luis Vizmanos and the late Chinaman Manuel
Ormachea, with costs.
The representative of the defendant excepted to the above judgment, and
announced his intention to appeal by means of a bill of exceptions; and by a
writing dated March 22, 1907, he prayed the lower court to revoke or amend its
former decision of the 27th of February, and to order a new trial as the evidence
adduced at the hearing was not sufficient to justify said decision, because
the vale No. 88 is subscribed by another person who is not the defendant, and
for said reason its value can not be demanded from him; that vales numbered
31, 87, 91, 93, 94, 96, and 97 are in the same condition; that the vales Nos. 5, 6,
7, 32, 33, 35, 40, 41, 44, 48, 54, 63, 104, 105, 127, 132, and 133 offered by the
plaintiff in evidence and signed by the defendant, clearly express on whose
account they were issued, and for said reason the obligations contained in
said vales are not those of the defendant, Santiago Trillana, and can not stand as
evidence against him; that the vales Nos. 109, 112, 113, 115, 116, 118, 12, and
15 by themselves do not prove, nor can they prove that the amount of money
which they represent should form part of the defendant's debt, because it does
not appear that there was ever a lawful transfer, cession or indorsement made
between the person in whose favor they are made out and the so-called
creditor, nor between said person and the successor of the said entity, that is to
say, the representative of the plaintiff; that vale No. 113 is made out as a mere
recommendation of the defendant, and for account of a third person;
that vale No. 1 does not state the year, and No. 135 bears no date at all,
therefore, they do not constitute sufficient proof to justify the condemnatory
judgment with respect to the amount which they represent because the time
when said respective obligations were contracted is not determined; that
the vales which are date previously to vale No. 98 are invalidated by the note of
general liquidation between the creditor Manuel Ormachea, and the debtor
Santiago Trillana written on the back of the said vale No. 98 in Chinese
characters and explained by the witness Jose R. Lopez Lawa, and,
notwithstanding said liquidation, the said vales are reputed as unpaid; and
finally, that if the debt is payable in tuba, unless it is shown and it does not so
appear that the defendant refused to pay it in that manner or has failed to
comply with his obligations, there is no reason to compel him to pay, therefore
he should not be ordered to do so, much less to pay the costs.
At the hearing, the trial judge, on the 7th of May, 1907, overruled the motion to
modify his former decision as far as it referred to the amount of the
indebtedness found against the defendant and the said judgment was modified
by adding the provision that the defendant should make payment in tuba which
he should deliver at the plaintiff's distillery in the town of Hagonoy within the

term of six months, but that, if said term should expire without such payment,
whatever might be the cause, he should be obliged to pay his debt in cash.
The defendant requested a decision in his motion for a new trial in which he
contended that the evidence was not sufficient to justify the judgment of
February 27, and on the 12th of November the court below held that, by its
order of May 7, last, the motion for a new trial was denied, and said denial was
reproduced as explanation of the ruling of May 7. The defendant excepted to the
foregoing decision and presented the corresponding amended bill of exceptions;
when approving the bill of exceptions, the court below ordered the suspension
of the execution providing that the defendant furnish bond in the sum of P4,000.
As Manuel Ormachea Tin-Congco claimed from Santiago Trillana the payment of
the sum which, as capital and interest thereon, he owed the former for amounts
in cash and in goods which he took from the creditor and his partner, Luis
Vizmanos Ong Queco, as shown by the 135 vales which are attached to the
complaint and which were admitted as authentic by the defendant, with the
exception of eight of them signed by the other persons, aggregating P173, the
court below, in view of the evidence, found that the debt which could be claimed
from the defendant, after deducting the said P173, amounted only to P2,832.22
4/8.
The record shows that the amounts advanced to the debtor, Santiago Trillana,
and to the others by means of the said vales, and most of which were addressed
to Lopez Lawa, and some to other persons, were delivered by the said Lopez
Lawa who, from the years 1894 or by 1895 to 1901, was the manager of the
distillery situated in the barrio of San Sebastian, municipality of Hagonoy,
Bulacan, and owned in partnership by Ormachea and Vizmanos, but the money
furnished by the manager to Trillana and to the others on account of the tuba or
liquor of the nipapalm which the defendant had engaged to supply to said
distillery belonged to the two owners of the same, not to the manager, Jose
Lopez Lawa.
It has also been fully proven that, when in June or July, 1901, the aforesaid
Ormachea Tin-Congco and Vizmanos Ong Queco withdrew from the business,
Lawa ceased to act as manager of the distillery, and then, among other things
that belonged to the two partners, they divided between them the credits that
they held against third persons, those that stood against Santiago Trillana as
evidenced by the said 135 vales, having gone to Manuel Ormachea Tin-Congco.
This is affirmed by Luis Vizmanos Ong Queco, Syo Bunchad, by Jose R. Lopez
Lawa himself, and, as stipulated between the parties, by Tiu Langco, a Chinaman
who was at the time employed as mixer in said distillery. It should be noted
that, while this litigation was pending, the plaintiff, Manuel Ormachea, died, and
Florentino Tiu Tusay was appointed administrator of his estate; letters of

administration in favor of the latter were issued on the 9th of October, 1905.
(Folio 56.)
As has been seen, the defendant stated that he had already paid his accounts
and obligations contracted in favor of the said Ormachea and Vizmanos by
means of periodical deliveries of tuba or liquor of the nipa palm, and alleged
that, if any amount was still pending payment, it should be paid not in money
but in tuba, at such time and under such circumstances as are customary in the
town of Hagonoy. In evidence of this, while testifying under oath, he introduced
the following document marked "A" which appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare that D.
Santiago Trillana has no outstanding debt whatever with the distillery
situated in the barrio of San Sebastian in this town, which in past times
was under my management. What I have stated is the truth.
Hagonoy, November 19, 1903. Jose R. Lopez.
The debtor explained how and in what manner he obtained the foregoing
document from Lawa, and stated: That in November, 1903, he received a letter
from Mr. McGirr, the plaintiff's attorney, requesting him to settle his account
with Lawa, for which reason he called on the latter and asked him whether he
still owed him anything on account of the distillery in San Sebastian; Lawa
replied that he no longer owed anything; thereupon the requested Lawa to issue
the said document, and under Lawa's direction the debtor wrote out the
document, and the former, upon being informed of its contents, signed it; for
said reason the witness believed that he no longer owed anything.
However, Lopez Lawa affirms that he gave the said document marked as Exhibit
A" to the debtor, Santiago Trillana, because the latter was indebted to him but to
Manuel Ormachea, to whom the credits standing against Trillana were
transferred when Ormachea withdrew from the above-mentioned partnership
with Vizmanos Ong Queco. When drawing up the preinserted document, it was
not his intention to annul and set aside the vales which represented the
indebtedness of the defendant, Trillana.
If the business jointly carried on by Ormachea and Vizmanos was dissolved, and
its transactions ceased in 1901 Jose Lopez Lawa, who managed the distillery on
behalf of the owners of the same, also ceased to act as such manager in said
year, and for said reason the document Exhibit A, which he issued to the debtor
on the 19th of November, 1903, two years after ceasing to be manager, can not
serve to relieve the debtor from paying what he owed by virtue of the
documents or vales that he had issued in order to obtain money from the
owners of the said distillery; that is to say, as agreed upon by them, the right to
recover the debts of the defendant still belonged to Ormachea when the
business was dissolved, as Lawa was not authorized by Ormachea to deliver to

the debtor an acquittance releasing him from the obligations that he had
contracted, to the prejudice of the real creditor, the only person entitled to
condone a debt in the event of waiving the right to recover the same.
If the document marked "A" had been issued by Jose Lopez Lawa while still at
the head of the business of the distillery, as representative of the owners
thereof, the aforesaid Ormachea and Vizmanos, prior to their withdrawal from
business, perhaps it might have served as a foundation for the debtor to allege
that his obligations evidenced by said vales had been settled, although, if such
was the case, the said vales should have been returned to him by Lawa, or by the
owners of the distillery; but, as the document was made out and issued two
years afterwards, without a previous payment of the amounts secured on the
said vales, when the business no longer existed, when the owners had entirely
withdrawn from it, and when Lawa, who then acted as manager of the distillery,
had no express authority to issue such a document, with the further
circumstance of its being written in Spanish, a language with which the
Chinaman who signed it was probably not well acquainted and the fact that it
was written by the defendant, Santiago Trillana himself; it is not proper nor
lawful to admit the said document as possessing a force and effect that would
fully exempt the defendant from the payment of his obligation, and with greater
reason if it is considered that it has not been shown that Lawa was authorized
to liquidate accounts, or issue an acquittance releasing the debtor from the
payment of his debt. (Arts. 1714 and 1719, Civil Code.)
Article 1162 of said code reads:
Payment must be made to the person in whose favor an obligation is
constituted, or to another authorized to receive it in his name.
After the close of the business of the distillery owned by Ormachea and
Vizmanos, and after Lawa had ceased for two years to act in the administration
and management thereof, he was not authorized to sign the document marked
"A," made out by the debtor, by which the credit of Ormachea should be
considered as settled, and the obligation contracted by Santiago Trillana, as
shown by the vales which appear in the record, extinguished.
Since the vales existed, and were in the possession of the creditor, it was
because the amounts they called for had not presumed to have been fulfilled
when the proofs of its existence have been returned to the debtor. (Sec. 334,
par. 8, Code of Civil Procedure.) Seeing that the amounts stated in
the vales acknowledged by the debtor were advanced to him in part payment of
the price of certain quantities of tuba or liquor of the nipa palm which he had
contracted to deliver at the distillery, and as long as he is able to comply with
these stipulations within a reasonable time, the defendant can not be compelled
to pay his debt in cash. The amounts stated in the valeswere advanced under the

condition that the same would be paid or satisfied with the value of
the tuba received by the distillery; therefore, the decision of the court below,
which moreover appears to have been acquiesced in by the appellee for the
reason that it was undoubtedly so stipulated, is in accordance with the law. (Art.
1278, Civil Code.)

to twenty-two percent (22%) of the annual profits derived from the operation
of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

In view of the forgoing, and accepting the conclusions contained in the

judgment of February 27, 1907, appealed from, it is our opinion that the same
should be affirmed, and we hereby affirm it, with the addition made in the order
of May 7 of the same year, with the costs against the appellant. So ordered.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta.
Cruz, Manila, was established sometime in October, 1955. It was registered as a
single proprietorship and its licenses and permits were issued to and in favor of
petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show that Sun Wah Panciteria was
actually a partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment.

Arellano, C. J., Mapa, Johnson, Carson, and Willard, JJ., concur.

The private respondents evidence is summarized as follows:

Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN
FUE
LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then
Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring
private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the
then Court of First Instance of Manila, Branch II to recover the sum equivalent

About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by affixing his signature thereto.
The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate its
contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents')
presence. Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present when the
receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he
himself received from the petitioner a similar receipt (Exhibit D) evidencing
delivery of his own investment in another amount of P4,000.00 An examination
was conducted by the PC Crime Laboratory on orders of the trial court granting
the private respondents motion for examination of certain documentary
exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount
of P12,000.00 covered by the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the restaurant for the year
1974. Witness Teodulo Diaz, Chief of the Savings Department of the China
Banking Corporation testified that said check (Exhibit B) was deposited by and
duly credited to the private respondents savings account with the bank after it
was cleared by the drawee bank, the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking Corporation testified that the
check in question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and indicated

in the petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and pursuant to
normal banking procedure, said check was returned to the petitioner as the
maker thereof.
The petitioner denied having received from the private respondent the amount
of P4,000.00. He contested and impugned the genuineness of the receipt
(Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun
Wah Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting
to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To
bolster his contention that he was the sole owner of the restaurant, the
petitioner presented various government licenses and permits showing the Sun
Wah Panciteria was and still is a single proprietorship solely owned and
operated by himself alone. Fue Leung also flatly denied having issued to the
private respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence
to that of the plaintiffs. Hence, the court ruled in favor of the private respondent.
The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter to
deliver and pay to the former, the sum equivalent to 22% of
the annual profit derived from the operation of Sun Wah
Panciteria from October, 1955, until fully paid, and attorney's
fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature
of a motion for new trial and, as supplement to the said motion, he requested
that the decision rendered should include the net profit of the Sun Wah
Panciteria which was not specified in the decision, and allow private respondent
to adduce evidence so that the said decision will be comprehensively adequate
and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the
trial court rendered an amended decision, the dispositive portion of which
reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier

by the Court, is hereby reiterated and the decision rendered by

this Court on September 30, 1980, is hereby amended. The
dispositive portion of said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the
plaintiff (sic) and against the defendant, ordering the latter to
pay the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until fully
paid, plus the sum of P5,000.00 as and for attorney's fees and
costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified by
the appellate court. The dispositive portion of the appellate court's decision
reads:
WHEREFORE, the decision appealed from is modified, the
dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00 a day
from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of
the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed
in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the
lower court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former
the sum equivalent to 22% of the net profit of P8,000.00 per
day from the time of judicial demand, until fully paid, plus the
sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date
of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was
denied.
Both the trial court and the appellate court found that the private respondent is
a partner of the petitioner in the setting up and operations of the panciteria.
While the dispositive portions merely ordered the payment of the respondents
share, there is no question from the factual findings that the respondent
invested in the business as a partner. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the restaurant.
The petitioner, however, claims that this factual finding is erroneous. Thus, the
petitioner argues: "The complaint avers that private respondent extended
'financial assistance' to herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private respondent allegedly will receive
a share in the profits of the restaurant. The same complaint did not claim that
private respondent is a partner of the business. It was, therefore, a serious error
for the lower court and the Hon. Intermediate Appellate Court to grant a relief
not called for by the complaint. It was also error for the Hon. Intermediate
Appellate Court to interpret or construe 'financial assistance' to mean the
contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for
such financial assistance. plaintiff would be entitled to twentytwo percentum (22%) of the annual profit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant
the sum of four thousand pesos (P4,000.00), Philippine
Currency, of which copy for the receipt of such amount, duly
acknowledged by the defendant is attached hereto as Annex
"A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he
would be entitled to twenty-two percent (22%) of the annual profit derived

from the operation of the said panciteria. These allegations, which were proved,
make the private respondent and the petitioner partners in the establishment of
Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the
contract of partnership two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing
the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the petitioner
in the establishment of the Sun Wah Panciteria, notwithstanding the use of the
term financial assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary meaning, financial assistance
is the giving out of money to another without the expectation of any returns
therefrom'. It connotes an ex gratia dole out in favor of someone driven into a
state of destitution. But this circumstance under which the P4,000.00 was given
to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint
explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual
profit derived from the operation of the said panciteria.' (p. 107, Rollo) The
well-settled doctrine is that the '"... nature of the action filed in court is
determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the petitioner in
the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving
probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground
that the alleged standards or specimens used by the PC Crime Laboratory in
arriving at the conclusion were never testified to by any witness nor has any
witness identified the handwriting in the standards or specimens belonging to
the petitioner. The supposed standards or specimens of handwriting were
marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private
respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court
examined the signatures in the two receipts issued separately by the petitioner
to the private respondent and So Sia (Exhibits "A" and "D") and compared the
signatures on them with the signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings (Exhibit

J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D")
were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H24") were presented by the private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have these exhibits
together with the two receipts examined by the PC Crime Laboratory despite
due notice to him. Likewise, no explanation has been offered for his silence nor
was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt is dated October 1, 1955
and the complaint was filed only on July 13, 1978 or after the lapse of twentytwo (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to
July 13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they
are filed before the court, when there is a written extra-judicial
demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund; and
2) intention on the part of the partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a partner shares not only in profits but
also in the losses of the firm. If excellent relations exist among the partners at
the start of business and all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment of sharing in the profits is
perfectly plausible. It would be incorrect to state that if a partner does not
assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is
premised upon the failure of the petitioner to give him the agreed profits in the
operation of Sun Wah Panciteria. In effect the private respondent was asking for
an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding up
partners or the surviving partners or the person or
partnership continuing the business, at the date of dissolution,
in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final
accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of
the private respondent for being excessive and unconscionable and above the
claim of private respondent as embodied in his complaint and testimonial
evidence presented by said private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to
testify on the income of the restaurant.
Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs.

Licup).

Q What about the catering service, will you

please tell the Honorable Court how many
times a week were there catering services?

Q Mrs. Witness, you stated that among your

duties was that you were in charge of the
custody of the cashier's box, of the money,
being the cashier, is that correct?

A Sometimes three times a month; sometimes

two times a month or more.
xxx xxx xxx

A Yes, sir.
Q Now more or less, do you know the cost of
the catering service?

Q So that every time there is a customer who

pays, you were the one who accepted the
money and you gave the change, if any, is that
correct?

A Yes, because I am the one who receives the

payment also of the catering.

A Yes.

Q How much is that?

Q Now, after 11:30 (P.M.) which is the closing

time as you said, what do you do with the
money?

A That ranges from two thousand to six

thousand pesos, sir.
Q Per service?

A We balance it with the manager, Mr. Dan

Fue Leung.

A Per service, Per catering.

ATTY. HIPOLITO:

Q So in other words, Mrs. witness, for your

shift alone in a single day from 3:30 P.M. to
11:30 P.M. in the evening the restaurant
grosses an income of P7,000.00 in a regular
day?

I see.
Q So, in other words, after your job, you
huddle or confer together?

A Yes.

A Yes, count it all. I total it. We sum it up.

Q And ten thousand pesos during pay day.?

Q Now, Mrs. Witness, in an average day, more
or less, will you please tell us, how much is the
gross income of the restaurant?
A For regular days, I received around
P7,000.00 a day during my shift alone and
during pay days I receive more than
P10,000.00. That is excluding the catering
outside the place.

A Yes.
(TSN, pp. 53 to 59, inclusive, November
15,1978)
xxx xxx xxx
COURT:

Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p.
65, November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's
counsel waive the cross-examination on the matter of income but he failed to
comply with his promise to produce pertinent records. When a subpoenaduces
tecum was issued to the petitioner for the production of their records of sale, his
counsel voluntarily offered to bring them to court. He asked for sufficient time
prompting the court to cancel all hearings for January, 1981 and reset them to
the later part of the following month. The petitioner's counsel never produced
any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah
were registered or recorded in the daily sales book. ledgers,
journals and for this purpose, employed a bookkeeper. This
inspired the Court to ask counsel for the defendant to bring
said records and counsel for the defendant promised to bring
those that were available. Seemingly, that was the reason why
this case dragged for quite sometime. To bemuddle the issue,
defendant instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court
gave warning to the defendant's counsel that if he failed to
produce the books, the same will be considered a waiver on the
part of the defendant to produce the said books inimitably
showing decisive records on the income of the eatery pursuant
to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process
to the petitioner.
The defendant was given all the chance to present all
conceivable witnesses, after the plaintiff has rested his case on
February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will present
the defendant as his last witness. Notably there were several
postponement asked by counsel for the defendant and the last

one was on October 1, 1981 when he asked that this case be

postponed for 45 days because said defendant was then in
Hongkong and he (defendant) will be back after said period.
The Court acting with great concern and understanding reset
the hearing to November 17, 1981. On said date, the counsel
for the defendant who again failed to present the defendant
asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date
that if the defendant cannot be presented, counsel is deemed to
have waived the presentation of said witness and will submit
his case for decision.
On November 24, 1981, there being a typhoon prevailing in
Manila said date was declared a partial non-working holiday,
so much so, the hearing was reset to December 7 and 22, 1981.
On December 7, 1981, on motion of defendant's counsel, the
same was again reset to December 22, 1981 as previously
scheduled which hearing was understood as intransferable in
character. Again on December 22, 1981, the defendant's
counsel asked for postponement on the ground that the
defendant was sick. the Court, after much tolerance and
judicial magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence on
record and gave the parties 30 days from December 23, 1981,
within which to file their simultaneous memoranda. (Rollo, pp.
148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front
of the Republic Supermarket. It is near the corner of Claro M. Recto Street.
According to the trial court, it is in the heart of Chinatown where people who
buy and sell jewelries, businessmen, brokers, manager, bank employees, and
people from all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the
trial court and the appellate court. If the respondent court awarded damages
only from judicial demand in 1978 and not from the opening of the restaurant in
1955, it is because of the petitioner's contentions that all profits were being
plowed back into the expansion of the business. There is no basis in the records
to sustain the petitioners contention that the damages awarded are excessive.
Even if the Court is minded to modify the factual findings of both the trial court
and the appellate court, it cannot refer to any portion of the records for such
modification. There is no basis in the records for this Court to change or set
aside the factual findings of the trial court and the appellate court. The

petitioner was given every opportunity to refute or rebut the respondent's

submissions but, after promising to do so, it deliberately failed to present its
books and other evidence.

EN BANC

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

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,

vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of
Leyte and OLEGARIO LASTRILLA, respondents.

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

Filomeno
Montejo
Sulpicio
V.
Cea
Olegario Lastrilla in his own behalf.

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

decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as
indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

G.R. No. L-5963

May 20, 1953

in

for
his

own

petitioners.
behalf.

BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary Injunction" this petition
prays for the additional writ ofmandamus to compel the respondent judge to
give due course to petitioners' appeal from his order taxing costs. However,
inasmuch as according to the answer, petitioners through their attorney
withdrew their cash appeal bond of P60 after the record on appeal bond of P60
after the record on appeal had been rejected, the matter ofmandamus may be
summarily be dropped without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for
damages by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and
Raymond Tomassi against the Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership hereinafter called FELCO), Arnold Hall,
Fred Brown and Jean Roxas, judgment against defendants jointly and severally
for the amount of P31,589.14 plus costs was rendered on October 29, 1948. The
Court of Appeals confirmed the award in November 1950, minus P2,000
representing attorney's fees mistakenly included. The decision having become
final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito
Asturias "all the rights, interests, titles and participation" of the defendants in
certain buildings and properties described in the certificate, for a total price of
eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla
filed in the case a motion, wherein he claimed to be the owner by purchase on
September 29, 1949, of all the "shares and interests" of defendant Fred Brown
in the FELCO, and requested "under the law of preference of credits" that the
sheriff be required to retain in his possession so much of the deeds of the
auction sale as may be necessary "to pay his right". Over the plaintiffs' objection
the judge in his order of June 13, 1951, granted Lastrilla's motion by requiring
the sheriff to retain 17 per cent of the money "for delivery to the assignee,

administrator or receiver" of the FELCO. And on motion of Lastrilla, the court on

August 14, 1951, modified its order of delivery and merely declared that
Lastrilla was entitled to 17 per cent of the properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han respetado los derechos del
Sr. Lastrilla en lo que se refiere a su adquiscicion de las acciones de C.
Arnold Hall (Fred Brown) en la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido incluidas en la subasta.
Es vedad que las acciones adquiridas por el Sr. Lastilla representan el
17 por ciento del capital de la sociedad "Far Eastern Lumber &
Commercial Co., Inc., et al." pero esto no quiere decir que su vlor no esta
sujeto a las fluctuaciones del negocio donde las invirtio.
Se vendieron propiedades de la corporacion "Far Eastern Lumber & Co.
Inc.," y de la venta solamente se obtuvo la cantidad de P8,100.
"En su virtud, se declara que el 17 por ciento de las propiedades
vendidas en publica subasta pretenece al Sr. O Lastrilla y este tiene
derecho a dicha porcion pero con la obligacion de pagar el 17 por
ciento de los gastos for la conservacion de dichas propriedades por
parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to enforce it 1 that the
petitioners seek relief by certiorari, their position being the such orders were
null and void for lack of jurisdiction. At their request a writ of preliminary
injunction was issued here.
The record is not very clear, but there are indications, and we shall assume for
the moment, that Fred Brown (like Arnold Hall and Jean Roxas) was a partner of
the FELCO, was defendant in Civil Case No. 193 as such partner,and that the
properties sold at auction actually belonged to the FELCO partnership and the
partners. We shall also assume that the sale made to Lastrilla on September 29,
1949, of all the shares of Fred Brown in the FELCO was valid. (Remember that
judgment in this case was entered in the court of first instance a year before.)
The result then, is that on June 9, 1951 when the sale was effected of the
properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was already a
partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was
a creditor of the FELCO, perhaps or maybe. But he was no. The partner of a
partnership is not a creditor of such partnership for the amount of his shares.
That is too elementary to need elaboration.

Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had
acquired the shares of Brown is September, 1949, i.e., before the auction sale
and he was not a party to the litigation, such shares could not have been
transferred to Dorfe and Austrilla.
Granting arguendo that the auction sale and not included the interest or portion
of the FELCO properties corresponding to the shares of Lastrilla in the same
partnership (17%), the resulting situation would be at most that the
purchasers Dorfe and Austrias will have to recognized dominion of Lastrillas
over 17 per cent of the properties awarded to them.2 So Lastrilla acquired no
right to demand any part of the money paid by Dorfe and Austrias to he sheriff
any part of the money paid by Dorfe and Austrias to the sheriff for the benefit of
FELCO and Tomassi, the plaintiffs in that case, for the reason that, as he says, his
shares (acquired from Brown) could not have been and were not auctioned off
to Dorfe and Austrias.
Supposing however that Lastrillas shares have been actually (but unlawfully)
sold by the sheriff (at the instance of plaintiffs) to Dorfe and Austrias, what is
his remedy? Section 15, Rule 39 furnishes the answer.
Precisely, respondents argue, Lastrilla vindicated his claim by proper
action, i.e., motion in the case. We ruled once that "action" in this section means
action as defined in section 1, Rule 2.3 Anyway his remedy is to claim "the
property", not the proceeds of the sale, which the sheriff is directed by section
14, Rule 39 to deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold may not voluntarily
come to court, and insist, "I approve the sale, therefore give me the proceeds
because I am the owner". The reason is that the sale was made for the judgment
creditor (who paid for the fees and notices), and not for anybody else.
On this score the respondent judge's action on Lastrilla's motion should be
declared as in excess of jurisdiction, which even amounted to want of
jurisdiction, which even amounted to want of jurisdiction, considering specially
that Dorfe and Austrias, and the defendants themselves, had undoubtedly the
right to be heardbut they were not notified.4
Why was it necessary to hear them on the merits of Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to recognized the validity of
Lastrilla's purchase, or, if valid, they may want him not to forsake the
partnership that might have some obligations in connection with the
partnership properties. And what is more important, if the motion is granted,

when the time for redemptioner seventeen per cent (178%) less than
amount they had paid for the same properties.

For as the former Chief Justice Dr. Moran has summarized in his Comments,
1952 ed. Vol. II, p. 168

The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial assets,
might also oppose the substitution by Lastrilla of Fred Brown, the judgment
against them being joint and several. They might entertain misgivings about
Brown's slipping out of their common predicament through the disposal of his
shares.

. . . And in those instances wherein the lower court has acted without
jurisdiction over the subject-matter, or where the order or judgment
complained of is a patent nullity, courts have gone even as far as to
disregard completely the questions of petitioner's fault, the reason
being, undoubtedly, that acts performed with absolute want of
jurisdiction over the subject-matter are void ab initio and cannot be
validated by consent, express or implied, of the parties. Thus, the
Supreme Court granted a petition for certiorari and set aside an order
reopening a cadastral case five years after the judgment rendered
therein had become final. In another case, the Court set aside an order
amending a judgment acquired a definitive character. And still in
another case, an order granting a review of a decree of registration
issued more than a year ago had been declared null void. In all these
case the existence of the right to appeal has been recitals was rendered
without any trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its own recitals a
patent nullity, which should be set aside though an appeal was
available but was not availed of. . . .

Lastly, all the defendants would have reasonable motives to object to the
delivery of 17 per cent of the proceeds to Lustrial, because it is so much money
deducted, and for which the plaintiffs might as another levy on their other
holdings or resources. Supposing of course, there was no fraudulent collusion
among them.
Now, these varied interest of necessity make Dorfe, Asturias and the
defendants indispensable parties to the motion of Lastrilla granting it was
step allowable under our regulations on execution. Yet these parties were not
notified, and obviously took no part in the proceedings on the motion.
A valid judgment cannot be rendered where there is a want of
necessary parties, and a court cannot properly adjudicate matters
involved in a suit when necessary and indispensable parties to the
proceedings are not before it. (49 C.J.S., 67.)
Indispensable parties are those without whom the action cannot be
finally determined. In a case for recovery of real property, the
defendant alleged in his answer that he was occupying the property as
a tenant of a third person. This third person is an indispensable party,
for, without him, any judgment which the plaintiff might obtain against
the tenant would have no effectiveness, for it would not be binding upon,
and cannot be executed against, the defendant's landlord, against
whom the plaintiff has to file another action if he desires to recover the
property effectively. In an action for partition of property, each coowner is an indispensable party. (Moran, Comments, 1952 ed. Vol. I, p.
56.) (Emphasis supplied.)
Wherefore, the orders of the court recognizing Lastrilla's right and ordering
payment to him of a part of the proceeds were patently erroneous, because
promulgated in excess or outside of its jurisdiction. For this reason the
respondents' argument resting on plaintiffs' failure to appeal from the orders on
time, although ordinarily decisive, carries no persuasive force in this instance.

Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil., 144),
wherein we applied the theory of laches to petitioners' 3-years delay in
requesting certiorari, respondents point out that whereas the orders
complained of herein were issued in June 13, 1951 and August 14, 1951 this
special civil action was not filed until August 1952. It should be observed that
the order of June 13 was superseded by that of August 14, 1951. The last order
merely declared "que el 17 por ciento de la propiedades vendidas en publica
subasta pertenece at Sr. Lastrilla y este tiene derecho a dicha porcion." This
does not necessarily mean that 17 per cent of the money had to be delivered to
him. It could mean, as hereinbefore indicated, that the purchasers of the
property (Dorfe and Asturias) had to recognize Lastrilla's ownership. It was
only on April 16, 1952 (Annex N) that the court issued an order directing the
sheriff "to tun over" to Lastrilla "17 per cent of the total proceeds of the auction
sale". There is the order that actually prejudiced the petitioners herein, and they
fought it until the last order of July 10,. 1952 (Annex Q). Surely a month's delay
may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so hold, that all orders of the
respondents judge requiring delivery of 17 per cent of the proceeds of the
auction sale to respondent Olegario Lastrilla are null and void; and the costs of
this suit shall be taxed against the latter. The preliminary injunction heretofore
issued is made permanent. So ordered.

Paras, C.J., Feria, Pablo, Tuason, Montemayor, Reyes, Jugo, Bautista Angelo and
Labrador, JJ., concur.