G.R. No. 97212 June 30, 1993 damages and attorney's fees, against Jade Mountain, Mr.
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
BENJAMIN YU, vs. NATIONAL LABOR RELATIONS COMMISSION
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of
"Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in
Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal
and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also
sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel
Zapanta and himself, private respondent Willy Co acquired the great bulk of the
partnership interest. The partnership now constituted solely by Willy Co and Emmanuel
Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into
with the Cruz spouses in February of 1988. 2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in
the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati
to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and
there met private respondent Willy Co for the first time. Petitioner was informed by Willy
Co that the latter had bought the business from the original partners and that it was for
him to decide whether or not he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in
the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new partnership.
4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and
awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the
Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November
1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General Manager, and that there
was no law requiring the new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any other position.
Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted
against the original members of the preceding partnership, but these though impleaded
had, apparently, not been served with summons in the proceedings before the Labor
Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims, notwithstanding
changes in the identities of the partners. Consequently, the employment contract between
Benjamin Yu and the partnership Jade Mountain could not have been affected by changes
in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner
Yu could nonetheless assert his rights under his employment contract as against the new
partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the
legal effect of the changes in the membership of the partnership was the dissolution of the
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is
found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code
provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished
from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the original
partnership interest. The acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists
for the limited purpose of winding up and closing of the affairs of the partnership. In the
case at bar, it is important to underscore the fact that the business of the old partnership
was simply continued by the new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its business affairs. In other words, the
new partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most
of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the
retiring and the incoming partners. It is not, however, necessary to inquire into such
matters.
What is important for present purposes is that, under the above described situation, not
only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership. 9 The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840
of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns) his
rights in partnership property to two or more of the partners, or to one or more of the
partners and one or more third persons, if the business is continued without liquidation
of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner, who
continues the business without liquidation of partnership affairs, either alone or with
others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment of
his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who continue
the business of the dissolved partnership;
 (5) When any partner wrongfully causes a dissolution and remaining partners continue
the business under the provisions of article 1837, second paragraph, No. 2, either
alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued under any conditions
set forth in this article the creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the person or
partnership continuing the business on account of the retired or deceased partner's
interest in the dissolved partnership or on account of any consideration promised for
such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment
on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu
in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any
retired or previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine under which one or
mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts
on record are not detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to
enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to appoint a top manager of its
own choice and confidence. The non-retention of Benjamin Yu as Assistant General
Manager did not therefore constitute unlawful termination, or termination without just or
authorized cause. We think that the precise authorized cause for termination in the case at
bar was redundancy. 10 The new partnership had its own new General Manager, apparently
Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade
Mountain. Benjamin Yu's old position as Assistant General Manager thus became
superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation
pay at the rate of one month's pay for each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
employ, we consider that Benjamin Yu was very shabbily treated by the new partnership.
The old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
previously ran the whole marble quarrying, processing and exporting enterprise. His work
constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
not try to suggest that there was any cause consisting of some blameworthy act or
omission on the part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati
to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment
(including the refusal to honor his claim for unpaid wages) accorded to Assistant General
Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith
treatment, for which the new Jade Mountain may legitimately be required to respond by
paying moral damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in the amount of
P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate
of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay,
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the
total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for
Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and
SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain
Products Company Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to
December 1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three
(3) years of service or a total of P12,000.00;
 (c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent
Jade Mountain.
Costs against private respondents. SO ORDERED.
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION vs.MA. CLARITA T.
LAZATIN-MAGAT
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its
Resolution2 denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President and
Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and
Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels
of land, with a combined area of 30,000 square meters, located in Tagaytay City and
covered by Transfer Certificate of Title (TCT) No. T-108484 of the Register of Deeds of
Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement5 (JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels
of land as their share in the joint venture. For its part, Primelink undertook to contribute
money, labor, personnel, machineries, equipment, contractors pool, marketing activities,
managerial expertise and other needed resources to develop the property and construct
therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs,
structural and architectural plans, site development plans, and such other need plans
in accordance with existing laws and the rules and regulations of appropriate
government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land
in preparation for the construction and sale of the different types of units (single-
detached, duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force
majeure or fortuitous event or by competent authority, or other unavoidable
circumstances beyond the DEVELOPERS control, not to exceed three years from the
date of the signing of this Joint Venture Agreement, except the installation of the
electrical facilities which is solely MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers,
support personnel and marketing staff, to handle all services related to land and
housing development (administrative and construction) and marketing (sales,
advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can
draw allowances or make advances not exceeding a total of twenty percent (20%) of
the net revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER
and forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net
revenue for the first two years, in order to have sufficient reserves or funds to protect
and/or guarantee the construction and completion of the different types of units
mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),
respectively, of the total net revenue or income of the sale of the units. 7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or
income of the Joint Venture project, after deducting all expenses incurred in connection
with the land development (such as administrative management and construction
expenses), and marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned
expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
 SALES-INCOME-COST PROJECTION Total Projected Income (incl. income from interest earn.) P307,769,740.00

lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME less: 132,224,000.00

CLUSTER: Total Expenses P175,545,740.009

A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00

The parties agreed that any unsettled or unresolved misunderstanding or conflicting
TWIN: opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00 Voluntary Arbitration in accordance with the Arbitration Law.10
SINGLE:
The Lazatins agreed to subject the title over the subject property to an escrow agreement.
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00 Conformably with the escrow agreement, the owners duplicate of the title was deposited
with the China Banking Corporation.11 However, Primelink failed to immediately secure a
ROW-TYPE TOWNHOMES: Development Permit from Tagaytay City, and applied the permit only on August 30, 1995.
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00 On October 12, 1995, the City issued a Development Permit to Primelink. 12

(GROSS) Total Cash Price (A1+B1+C1+D1)
Total Building Expense (A2+B2+C2+D2)
COMPUTATION OF ADDL. INCOME ON INTEREST
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink
P138,720,000.00 comply with its obligations under the JVA, otherwise the appropriate action would be filed
against it to protect their rights and interests. This impelled the officers of Primelink to
= P231,200,000.00 meet with the Lazatins and enabled the latter to review its business records/papers. In
= 92,480,000.00 another Letter14 dated October 22, 1997, the Lazatins informed Primelink that they had
decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins
demanded that Primelink cease and desist from further developing the property.

TCP x 30% D/P = P 69,360,000 P 69,360,000.00

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of
Balance = 70% = 161,840,000 Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with prayer
for temporary restraining order and/or preliminary injunction against Primelink and Lopez.
x .03069 x 48 = P238,409,740 238,409,740.00 The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
despite the lapse of almost four (4) years from the execution of the JVA and the delivery of
Total Amount (TCP + int. earn.) P307,769,740.00 the title and possession of the land to defendants, the land development aspect of the
EXPENSES: project had not yet been completed, and the construction of the housing units had not yet
made any headway, based on the following facts, namely: (a) of the 50 housing units
less: A Building expenses P 92,480,000.00 programmed for Phase I, only the following types of houses appear on the site in these
condition: (aa) single detached, one completed and two units uncompleted; (bb) cluster
B Commission (8% of TCP) 18,496,000.00 houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
done by the defendants was to grade the area; the units so far constructed had been the
D Advertising & Promo exp. (2% of TCP) 4,624,000.00 object of numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the projects
E Building expenses for the open marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
spaces and Amenities (Development completely disregarded previously agreed accounting and auditing procedures, checks and
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00 balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They
averred that they sent a letter through counsel, demanding compliance of what was
TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00 agreed upon under the agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a letter on October
RECONCILIATION OF INCOME VS. EXPENSES 22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by
defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net
share in the joint venture project; to date, however, after almost four (4) years and despite
the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net revenue
during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs which by
conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining
order be forthwith issued enjoining the defendants to immediately stop their land
development, construction and marketing of the housing units in the aforesaid project;
after due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting
said land development, construction and marketing of housing units, pending the
disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as
expenses incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
Two Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
equivalent to ten percent (10%) of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for. 16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that
plaintiffs complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules
of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the
arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or
writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for. 17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsels heavy workload, prayed for a 15-day
extension18 within which to file their answer. The additional time prayed for was granted by
the RTC.19 However, instead of filing their answer, defendants prayed for a series of 15-day
extensions in eight (8) successive motions for extensions on the same justification. 20 The
RTC again granted the additional time prayed for, but in granting the last extension, it
warned against further extension.21 Despite the admonition, defendants again moved for
another 15-day extension,22 which, this time, the RTC denied. No answer having been filed,
plaintiffs moved to declare the defendants in default, 23 which the RTC granted in its Order24
dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim
and Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction." 25 On July
8, 1998, defendants filed a Motion to Set Aside the Order of Default. 26 This was opposed by
plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied defendants motion to set
aside the order of default and ordered the reception of plaintiffs evidence ex parte.
Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order, which the RTC
denied in its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in
default, as well as the Order denying their motion to set aside the order of default, alleging
that these were contrary to facts of the case, the law and jurisprudence. 31 On September
16, 1999, the appellate court issued a Resolution32 dismissing the appeal on the ground
that the Orders appealed from were interlocutory in character and, therefore, not
appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence.
On April 17, 2000, the RTC rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return possession, including all improvements therein, of
the real estate property belonging to the plaintiffs which is described in, and covered
by Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City,
and located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have
been executed, prepared and retained in connection with any contract to sell or deed
of sale of all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing
their share of the net income of the P2,603,810.64 as of September 30, 1995, as
stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount of
P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant) undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to those
made against the plaintiffs alone as it appears that some of the unit buyers themselves
have their own separate gripes against the defendants as typified by the letters (Exhibits
"G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp.
60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
income generated from sales of housing units by defendants, has been established. Exhibit
"P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project
earned a net income of about P2,603,810.64. This amount, however, was drastically
reduced in a subsequent financial report submitted by the defendants to P1,954,216.39.
Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss of
P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum of P1,041,524.26 representing their 40% share under paragraph II and V
of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as indicated above, the defendants closed the chance altogether by declaring a net loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the
defendants treated the JVA and the manner by which they handled the project itself vis--
vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter
repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x 34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging
defendants dilatory tactics for its allowance. This was opposed by defendants. 36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of
plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending
appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I. THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED
VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE
DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II. THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN
THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND
DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III. THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE
WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION,
ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS
RELATED TO EXECUTION.
IV. THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE TO PRESENT SUFFICIENT
EVIDENCE JUSTIFYING THE SAID RESCISSION.
V. THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE
OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING
IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS
NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE
EX PARTE HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET VALUE OF
APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE
PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD
SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification,
the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of
Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is
hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for
return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation, 41
the appellate court ruled that, under Philippine law, a joint venture is a form of partnership
and is to be governed by the laws of partnership. The aggrieved parties filed a motion for
reconsideration,42 which the CA denied in its Resolution 43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL
ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE
RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT
ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF
ALL EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE
ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS FROM THE
PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND
VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT,
UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL
RESTITUTION, NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO
ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards
to respondents "all improvements" on the project without requiring them to pay the value
thereof or to reimburse Primelink for all expenses incurred therefore is inherently and
essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets
of good human relations, and will allow respondents to unjustly enrich themselves at
Primelinks expense. At the time respondents contributed the two parcels of land,
consisting of 30,000 square meters to the joint venture project when the JVA was signed on
March 10, 1994, the said properties were worth not more than P500.00 per square meter,
the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had
already been substantially developed as improvements had already been introduced
thereon; petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared
the owners and entitled to the possession of the improvements made by petitioner
Primelink on the property; neither did they adduce evidence to prove their entitlement to
said improvements. It follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to
the extent necessary to cover the damages caused and that, under Article 1385 of the
same Code, rescission creates the obligation to return the things which were not object of
the contract, together with their fruits, and the price with its interest; consequently, it can
be effected only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner Primelink in the
status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their
original positions as nearly as possible upon the rescission of a contract. In the event that
restoration to the status quo is impossible, rescission may be granted if the Court can
balance the equities and fashion an appropriate remedy that would be equitable to both
parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim
for reimbursement because "[w]hat matters is that the improvements exist and they
cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach v.
Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did
not specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said relief
as a necessary consequence of the ruling of the trial court ordering the rescission of the
JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838
of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as
found by the RTC and the CA, it was petitioner Primelink that enriched itself at the expense
of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and
did not pray that they are and should be entitled to take over the development of the
project, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesos be awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that the
parcels of land they contributed to the project be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was
prayed for by the LAZATINs. The order to return the property with all the improvements
thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation,
the Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v.
Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116
Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates
v. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of
partnership and should thus be governed by the laws of partnership. The Supreme Court
has, however, recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may, however,
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954];
Campos and Lopez Campos Comments, Notes and Selected Cases, Corporation Code
1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of
the court a quo, was a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or
right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advance contributed by him. In the instant case,
the joint venture still has outstanding liabilities to third parties or the buyers of the
property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between Primelink
Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should also be
returned to the LAZATINs as a necessary consequence of the order of rescission of
contract. The reason for the existence of the Escrow Agreement has ceased to exist when
the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the property
and the sale of the land were to be deducted from the value of the improvements, plus
administrative and marketing expenses in the total amount of P40,000,000.00. Petitioners
will still be entitled to an accounting from respondents. Respondents cannot deny the
existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such other remedies as
are just and equitable in the premises." However, the trial court was not precluded from
awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify
the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief
may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant.50 The court shall grant relief warranted by the allegations and the
proof even if no such relief is prayed for.51 The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not otherwise specifically
prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of
land and the improvements on the said parcels of land. It bears stressing that the parcels
of land, as well as the improvements made thereon, were contributed by the parties to the
joint venture under the JVA, hence, formed part of the assets of the joint venture. 53 The trial
court declared that respondents were entitled to the possession not only of the parcels of
land but also of the improvements thereon as a consequence of its finding that petitioners
breached their agreement and defrauded respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents
entered into a joint venture as evidenced by their JVA which, under the Courts ruling in
Aurbach, is a form of partnership, and as such is to be governed by the laws on
partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.54 With the rescission of the JVA on account of
petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55 On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed. 56
Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and the
partition and distribution of the net partnership assets as provided by law. 57 After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their
JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors and
of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839
of the New Civil Code, absent any agreement of the parties in their JVA to the contrary. 58
Until the partnership accounts are determined, it cannot be ascertained how much any of
the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for
the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is
caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond approved
by the court, or pay to any partner who has caused the dissolution wrongfully, the value
of his interest in the partnership at the dissolution, less any damages recoverable under
the second paragraph, No. 1(b) of this article, and in like manner indemnify him against
all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph,
No. 2, all the rights of a partner under the first paragraph, subject to liability for
damages in the second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article,
the right as against his co-partners and all claiming through them in respect of
their interests in the partnership, to have the value of his interest in the
partnership, less any damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment secured by a bond approved
by the court, and to be released from all existing liabilities of the partnership; but
in ascertaining the value of the partners interest the value of the good-will of the
business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him
for the purchase of an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article
1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to
the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall
have the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of
lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against
his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they
conform to this Decision of the Court.
Costs against petitioners. SO ORDERED.
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle, vs. BALBINO DEQUILLA, defendant-appellant.
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a
partnership for the purpose of exploiting a fish pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to contribute
to the payment of the expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been doing until the
death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the
herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in
question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of
the part of the fish pond belonging to his decedent, Perpetua, and delivery having been
refused, Domingo Bearneza brought this action to recover said part of the fish pond
belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza
brought this action recover said part of the fish pond and one-half of the profits received by
the defendant from the fish pond from the year 1913 to 1919, as damages (the amended
complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of
thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the
complaint, and alleges, as special defense, that "the formation of the supposed partnership
between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was
not carried into effect, on account of the plaintiff having refused to defray the expenses of
reconstruction and exploitation of said fish pond." As another special defense, the
defendant alleges "that in the event that the court should hold the plaintiff to be entitled to
the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has
prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the
plaintiff owner of one-half of the fish pond, which was composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the damages claimed by him,
the same not having been proven, in the opinion of the court, and ordering the defendant
to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages;
hence the only question we are called upon to decide is whether or not the plaintiff has
any right to maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of
which the proof contained in the record is conclusive and there is no dispute, was of a civil
nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having
had for its subject-matter a specified thing, to with, the exploitation of the aforementioned
fish pond. Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish
pond," this reference cannot be held to include the land on which the said fish pond was
built. It has not been proven that Perpetua Bearneza participated in the ownership of said
land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said
land belongs to the State. The conclusion, therefore, from the evidence is that the land on
which the fish pond was constructed did not constitute a part of the subject- matter of the
aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto
(article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and
falls under the provisions of article 1700, subsection 3, of the same Code, and not under
the exception established in the last paragraph of said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been
made by her and the defendant, pursuant to the provisions of article 1704 of the Code last
cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent
legal status was that of a partnership in liquidation, and the only rights inherited by her
testamentary heir, the herein plaintiff, were those resulting from the said liquidation in
favor of the deceased partner, and nothing more. Before this liquidation is made, which up
to the present has not been effected, it is impossible to determine what rights or interests,
if any, the deceased had, the partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property existed between the
plaintiff and the defendant, it not being known whether the deceased still had any interest
in the partnership property which could have been transmitted by will to the plaintiff. There
being no community of property, article 395 of the Civil Code cited by the plaintiff in
support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the
defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to
the payment of the expenses of exploitation of the aforesaid fishing industry was an
attempt to continue the partnership, but it is also true that neither the said heirs
collectively, nor the plaintiff individually, took any action in response to that requirement,
nor made any promise to that effect, and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
[G.R. No. 126334. November 23, 2001]
EMILIO EMNACE, vs. COURT OF APPEALS,
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they
decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto Divinagracias
withdrawal from the partnership. [1] Among the assets to be distributed were five (5)
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and Talisay,
Negros Occidental, and cash deposits in the local branches of the Bank of the Philippine
Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanaos untimely
demise in 1994, petitioner failed to submit to Tabanaos heirs any statement of assets and
liabilities of the partnership, and to render an accounting of the partnerships finances.
Petitioner also reneged on his promise to turn over to Tabanaos heirs the deceaseds 1/3
share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof. [2]
Consequently, Tabanaos heirs, respondents herein, filed against petitioner an action for
accounting, payment of shares, division of assets and damages. [3] In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and
liabilities of the partnership at bar; and
I.
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s),
fishing vessels, trucks, motor vehicles, and other forms and substance of treasures which
belong and/or should belong, had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire share/amount/award
which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every
appearance in court. [4]
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack
of jurisdiction over the nature of the action or suit, and lack of capacity of the estate of
Tabanao to sue. [5] On August 30, 1994, the trial court denied the motion to dismiss. It
held that venue was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability; hence, the action
is not only a personal action but also an action in personam. As regards petitioners
argument of lack of jurisdiction over the action because the prescribed docket fee was not
paid considering the huge amount involved in the claim, the trial court noted that a
request for accounting was made in order that the exact value of the partnership may be
ascertained and, thus, the correct docket fee may be paid. Finally, the trial court held that
the heirs of Tabanao had a right to sue in their own names, in view of the provision of
Article 777 of the Civil Code, which states that the rights to the succession are transmitted
from the moment of the death of the decedent. [6]
The following day, respondents filed an amended complaint, [7] incorporating the
additional prayer that petitioner be ordered to sell all (the partnerships) assets and
thereafter pay/remit/deliver/surrender/yield to the plaintiffs their corresponding share in
the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss,
[8] arguing that the trial court did not acquire jurisdiction over the case due to the plaintiffs
failure to pay the proper docket fees. Further, in a supplement to his motion to dismiss, [9]
petitioner also raised prescription as an additional ground warranting the outright dismissal
of the complaint.
On June 15, 1995, the trial court issued an Order, [10] denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, [11] raising the
following issues:
Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in taking cognizance of a case despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in insisting to try the case which involve (sic) a parcel of land situated outside of
its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in allowing the estate of the deceased to appear as party plaintiff, when there is
no intestate case and filed by one who was never appointed by the court as administratrix
of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision, [12] dismissing
the petition for certiorari, upon a finding that no grave abuse of discretion amounting to
lack or excess of jurisdiction was committed by the trial court in issuing the questioned
orders denying petitioners motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside the said
courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate objective in instituting the
action below was to recover the decedents 1/3 share in the partnerships assets. While they
ask for an accounting of the partnerships assets and finances, what they are actually
asking is for the trial court to compel petitioner to pay and turn over their share, or the
equivalent value thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of the
partnerships assets, as well as their corresponding share therein, cannot be ascertained.
Consequently, they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnerships assets, for respondents themselves voluntarily pegged
the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is
really not beyond pecuniary estimation, but rather partakes of the nature of a simple
collection case where the value of the subject assets or amount demanded is pecuniarily
determinable. [13] While it is true that the exact value of the partnerships total assets
cannot be shown with certainty at the time of filing, respondents can and must ascertain,
through informed and practical estimation, the amount they expect to collect from the
partnership, particularly from petitioner, in order to determine the proper amount of docket
and other fees. [14] It is thus imperative for respondents to pay the corresponding docket
fees in order that the trial court may acquire jurisdiction over the action. [15]
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,
[16] where there was clearly an effort to defraud the government in avoiding to pay the
correct docket fees, we see no attempt to cheat the courts on the part of respondents. In
fact, the lower courts have noted their expressed desire to remit to the court any payable
balance or lien on whatever award which the Honorable Court may grant them in this case
should there be any deficiency in the payment of the docket fees to be computed by the
Clerk of Court. [17] There is evident willingness to pay, and the fact that the docket fee
paid so far is inadequate is not an indication that they are trying to avoid paying the
required amount, but may simply be due to an inability to pay at the time of filing. This
consideration may have moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning
the non-payment of the proper legal fees and in allowing the same to become a lien on the
monetary or property judgment that may be rendered in favor of respondents. There is
merit in petitioners assertion. The third paragraph of Section 16, Rule 141 of the Rules of
Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-
litigant.
Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents are
litigating as paupers, and as such are exempted from the payment of court fees. [18]
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court,
which defines the two kinds of claims as: (1) those which are immediately ascertainable;
and (2) those which cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded or paid
as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, [19] this Court pronounced
that the above-quoted provision clearly contemplates an initial payment of the filing fees
corresponding to the estimated amount of the claim subject to adjustment as to what later
may be proved. [20] Moreover, we reiterated therein the principle that the payment of
filing fees cannot be made contingent or dependent on the result of the case. Thus, an
initial payment of the docket fees based on an estimated amount must be paid
simultaneous with the filing of the complaint. Otherwise, the court would stand to lose the
filing fees should the judgment later turn out to be adverse to any claim of the respondent
heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to
defray court expenses in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government as well, the payment of docket
fees cannot be made dependent on the outcome of the case, except when the claimant is
a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the value of all the
partnership assets but they did not allege a specific amount. They did, however, estimate
the partnerships total assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter
[21] addressed to petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the records of this
case. They cannot avoid paying the initial docket fees by conveniently omitting the said
amount in their amended complaint. This estimate can be made the basis for the initial
docket fees that respondents should pay. Even if it were later established that the amount
proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of
the Rules of Court specifically provides that the court may refund the excess or exact
additional fees should the initial payment be insufficient. It is clear that it is only the
difference between the amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion, [22] this
Court held that when the specific claim has been left for the determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee. Clearly, the rules and jurisprudence contemplate the
initial payment of filing and docket fees based on the estimated claims of the plaintiff, and
it is only when there is a deficiency that a lien may be constituted on the judgment award
until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright
despite their failure to pay the proper docket fees. Nevertheless, as in other procedural
rules, it may be liberally construed in certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment of the docket fee in the proper
amount should be adhered to, there are certain exceptions which must be strictly
construed. [23]
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
allowing the plaintiff to pay the proper docket fees within a reasonable time before the
expiration of the applicable prescriptive or reglementary period. [24]
In the recent case of National Steel Corp. v. Court of Appeals, [25] this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory pleading is
accompanied by the payment of the requisite fees, or, if the fees are not paid at the time
of the filing of the pleading, as of the time of full payment of the fees within such
reasonable time as the court may grant, unless, of course, prescription has set in the
meantime.
It does not follow, however, that the trial court should have dismissed the complaint for
failure of private respondent to pay the correct amount of docket fees. Although the
payment of the proper docket fees is a jurisdictional requirement, the trial court may allow
the plaintiff in an action to pay the same within a reasonable time before the expiration of
the applicable prescriptive or reglementary period. If the plaintiff fails to comply within this
requirement, the defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate docket fees
and the amount actually paid by the plaintiff will be considered a lien or any award he may
obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee based
on the estimated amount that respondents seek to collect from petitioner, and direct them
to pay the same within a reasonable time, provided the applicable prescriptive or
reglementary period has not yet expired. Failure to comply therewith, and upon motion by
petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the
Court of Appeals in holding that the case below is a personal action which, under the Rules,
may be commenced and tried where the defendant resides or may be found, or where the
plaintiffs reside, at the election of the latter. [26]
Petitioner, however, insists that venue was improperly laid since the action is a real action
involving a parcel of land that is located outside the territorial jurisdiction of the court a
quo. This contention is not well-taken. The records indubitably show that respondents are
asking that the assets of the partnership be accounted for, sold and distributed according
to the agreement of the partners. The fact that two of the assets of the partnership are
parcels of land does not materially change the nature of the action. It is an action in
personam because it is an action against a person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the action is against the thing itself
instead of against the person. [27] Furthermore, there is no showing that the parcels of
land involved in this case are being disputed. In fact, it is only incidental that part of the
assets of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al., [28] settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including the
fishpond in question, did not change the nature or character of the action, such sale being
merely a necessary incident of the liquidation of the partnership, which should precede
and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks the
enforcement of, and petitioners compliance with, the contract that the partners executed
to formalize the partnerships dissolution, as well as to implement the liquidation and
partition of the partnerships assets. Clearly, it is a personal action that, in effect, claims a
debt from petitioner and seeks the performance of a personal duty on his part. [29] In
fine, respondents complaint seeking the liquidation and partition of the assets of the
partnership with damages is a personal action which may be filed in the proper court
where any of the parties reside. [30] Besides, venue has nothing to do with jurisdiction for
venue touches more upon the substance or merits of the case. [31] As it is, venue in this
case was properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
legal capacity to sue since she was never appointed as administratrix or executrix of his
estate. Petitioners objection in this regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of the estate before she can file the
action. She and her children are complainants in their own right as successors of Vicente
Tabanao. From the very moment of Vicente Tabanaos death, his rights insofar as the
partnership was concerned were transmitted to his heirs, for rights to the succession are
transmitted from the moment of death of the decedent. [32]
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are transmitted. [33] Moreover,
respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died. [34]
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as
executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity to
sue. As successors who stepped into the shoes of their decedent upon his death, they can
commence any action originally pertaining to the decedent. [35] From the moment of his
death, his rights as a partner and to demand fulfillment of petitioners obligations as
outlined in their dissolution agreement were transmitted to respondents. They, therefore,
had the capacity to sue and seek the courts intervention to compel petitioner to fulfill his
obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on the
ground of prescription, arguing that respondents action prescribed four (4) years after it
accrued in 1986. The trial court and the Court of Appeals gave scant consideration to
petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination. [36] The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the partners. [37] For as
long as the partnership exists, any of the partners may demand an accounting of the
partnerships business. Prescription of the said right starts to run only upon the dissolution
of the partnership when the final accounting is done. [38]
Contrary to petitioners protestations that respondents right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of a final accounting. Article 1842 of
the Civil Code provides:
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 of any
agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the
above-cited provision states that the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary. When a final accounting is
made, it is only then that prescription begins to run. In the case at bar, no final accounting
has been made, and that is precisely what respondents are seeking in their action before
the trial court, since petitioner has failed or refused to render an accounting of the
partnerships business and assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioners
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
upholding the trial courts orders. Precious time has been lost just to settle this preliminary
issue, with petitioner resurrecting the very same arguments from the trial court all the way
up to the Supreme Court. The litigation of the merits and substantial issues of this
controversy is now long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit,
and the case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is
ORDERED to determine the proper docket fee based on the estimated amount that
plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in
Civil Case No. 416-C.
Costs against petitioner. SO ORDERED.
G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-
appellees.
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that
on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general commercial
partnership under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the
purpose in dealing in real state. The partnership had a capital of P30,000.00, P18,000.00 of
which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement lodge
upon Tan Sin An the sole management of the partnership affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire management of the affairs of the
co-partnership by irrevocable power of attorney to any person, firm or corporation he
may select upon such terms as regards compensation as he may deem proper, and
vest in such persons, firm or corporation full power and authority, as the agent of the
co-partnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the affairs
of the co-partnership; but he may examine its accounts once every six (6) months at
any time during ordinary business hours, and in accordance with the provisions of the
Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan
Sin An should act as the Manager for said co-partnership for the full period of the term
for which said co-partnership was organized or until the whole period that the said
capital of P30,000.00 of the co-partnership should last, to carry on to the best
 advantage and interest of the said co-partnership, to make and execute, sign, seal and
deliver for the co-partnership, and in its name, all bills, bonds, notes, specialties, and
trust receipts or other instruments or documents in writing whatsoever kind or nature
which shall be necessary to the proper conduction of the said businesses, including the
power to mortgage and pledge real and personal properties, to secure the obligation of
the co-partnership, to buy real or personal properties for cash or upon such terms as
he may deem advisable, to sell personal or real properties, such as lands and buildings
of the co-partnership in any manner he may deem advisable for the best interest of
said co-partnership, to borrow money on behalf of the co-partnership and to issue
promissory notes for the repayment thereof, to deposit the funds of the co-partnership
in any local bank or elsewhere and to draw checks against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three
(3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a
period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased
by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt
thereon for P35,000.00 with interest. The downpayment and the amortization were
advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
covenantors bound themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and
four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan.
Defendant Kong Chai Pin was appointed administratrix of the intestate estate of her
deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on
the partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co.,
Inc., upon request of defendant Yutivo Sans Hardware Co., paid the remaining balance of
the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims
in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as
alleged obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin
An, for advances, interest and taxes paid in amortizing and discharging their obligations to
"La Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at first,
Kong Chai Pin later admitted the claims in her amended answer and they were accordingly
approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to
sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a
court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed of sale 1 of
the 49 parcels of land to the defendants Washington Sycip and Betty Lee in consideration
of P37,000.00 and of vendees' assuming payments of the claims filed by Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and
Betty Lee executed in favor of the Insular Development Co., Inc. a deed of transfer
covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on
or about July 25, 1949, a petition in the intestate proceedings seeking to set aside the
order of the probate court approving the sale in so far as his interest over the parcels of
land sold was concerned. In its order of December 29, 1949, the probate court annulled the
sale executed by the administratrix with respect to the 60% interest of Antonio Goquiolay
over the properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later
certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we
rendered decision setting aside the orders of the probate court complained of and
remanding the case for new trial, due to the non-inclusion of indispensable parties.
Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of Insular Development Co., Inc., in so far as the three (3) lots owned
by the plaintiff partnership are concerned. The answer averred the validity of the sale by
Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the
complaint was dismissed by the lower court in its decision dated October 30, 1956; hence,
this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that
I The lower court erred in holding that Kong Chai Pin became the managing partner
of the partnership upon the death of her husband, Tan Sin An, by virtue of the articles
of Partnership executed between Tan Sin An and Antonio Goquiolay, and the general
power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as sole
managing partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir qualified to
act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general power of
attorney granted to Tan Sin An in order to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not pay its obligation to
the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.
 VII The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose
the management of the partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership properties
acted in good faith.
X The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow,
Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the
partnership, upon the latter's death. While, as we previously stated in our narration of
facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business, such
power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in the event of
death of any one of the partners within the 10-year term of the partnership, the deceased
partner shall be represented by his heirs", could not have referred to the managerial right
given to Tan Sin An; more appropriately, it related to the succession in the proprietary
interest of each partner. The covenant that Antonio Goquiolay shall have no voice or
participation in the management of the partnership, being a limitation upon his right as a
general partner, must be held coextensive only with Tan's right to manage the affairs, the
contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under the said provision in the
articles, became individual partners with Antonio Goquiolay upon Tan's demise. The
validity of like clauses in partnership agreements is expressly sanctioned under Article 222
of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of co-
partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de
Droit Civil, English translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was
limited merely to the value of the share or estate left by the deceased Tan Sin An, they
became no more than limited partners and, as such, were disqualified from the
management of the business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the partnership, 3 it was
not so with respect to the widow Kong Chai Pin, who, by her affirmative actions, manifested
her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and was
admittedly deriving income therefrom up to and until the same were sold to Washington
Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in dispute
in the name of the partnership, she was acting no less than as a managing partner. Having
thus preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she might have derived only from the estate
of her deceased husband. By allowing her to retain control of the firm's property from 1942
to 1949, plaintiff estopped himself to deny her legal representation of the partnership, with
the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties to Washington Sycip and Betty
Lee. The answer is, we believe, in the negative. Strangers dealing with a partnership have
the right to assume, in the absence of restrictive clauses in the co-partnership agreement,
that every general partner has power to bind the partnership, specially those partners
acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any
of the two partners, to ascertain whether or not this partner with whom the transaction
is made has the consent of the other partner. The public need not make inquiries as to
the agreements had between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of the managing
partners.
"There is a general presumption that each individual partner is an agent for the firm
and that he has authority to bind the firm in carrying on the partnership transactions."
[Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently in its
behalf and within the scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391]
(George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect
that
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the direction
and management of the common business, and the members present shall come to an
agreement for all contracts or obligations which may concern the association.
(Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not
necessarily affect the validity of the acts of a partner, while acting within the scope of the
ordinary course of business of the partnership, as regards third persons without notice. The
latter may rightfully assume that the contracting partner was duly authorized to contract
for and in behalf of the firm and that, furthermore, he would not ordinarily act to the
prejudice of his co-partners. The regular course of business procedure does not require
that each time a third person contracts with one of the managing partners, he should
inquire as to the latter's authority to do so, or that he should first ascertain whether or not
the other partners had given their consent thereto. In fact, Article 130 of the same Code of
Commerce provides that even if a new obligation was contracted against the express will
of one of the managing partners, "it shall not be annulled for such reason, and it shall
produce its effects without prejudice to the responsibility of the member or members who
contracted it, for the damages they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar
corresponde a cada socio personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece
un sistema eficaz que evite los inconvenientes. Pero, ante el silencio del contrato, debia
quiza el legislador privar de la administracion a uno de los socios en beneficio del otro?
Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido
Administrador? El remedio seria peor que el mal. Debera, tal vez, pretender que todos
los socios concurran en todo acto de la Sociedad? Pero este concurso de todos habria
reducido a la impotencia la administracion, que es asunto d todos los dias y de todas
horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el Codigo, el
cual se confia al espiritu de reciproca confianza que deberia animar la colaboracion de
los socios, y en la ley inflexible de responsabilidad que implica comunidad en los
intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso de
una administracion culpable. Si debiera dar noticia, el beneficio de su simultania
actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a
perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de los
socios puede quedar frustrado. Pero se puede contestar que este derecho de oposicion
concedido por la ley como un remedio excepcional, debe subordinarse al derecho de
ejercer el oficio de Administrador, que el Codigo concede sin limite: "se presume que los
socios se han concedido reciprocamente la facultad de administrar uno para otro." Se
haria precipitar esta hipotesis en la otra de una administracion colectiva (art. 1,721,
Codigo Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de todos los
socios lo que el Codigo excluye ........, si se obligase al socio Administrador a dar
noticia previa del negocio a los otros, a fin de que pudieran oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148)
opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del Codigo), no es bastante
que los actos y contratos hayan sido ejecutados por un socio o varios en nombre
colectivo, sino que es preciso el concurso de estos dos elementos, uno, que el socio o
socios tengan reconocida la facultad de administrar la Compaia, y otro, que el acto o
contrato haya sido ejecutado en nombre de la Sociedad y usando de su firma social. Asi
se que toda obligacion contraida bajo la razon social, se presume contraida por la
Compaia. Esta presunion es impuesta por motivos de necesidad practica. El tercero no
puede cada vez que trata con la Compaia, inquirir si realmente el negocio concierne a
la Sociedad. La presuncion es juris tantum y no juris et de jure, de modo que si el
gerente suscribe bajo la razon social una obligacion que no interesa a la Sociedad, este
podra rechazar la accion del tercero probando que el acreedor conocia que la obligacion
no tenia ninguna relacion con ella. Si tales actos y contratos no comportasen la
concurrencia de ambos elementos, seria nulos y podria decretarse la responsabilidad
civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compaia, o contabilizados en sus libros, si el acto o contrato ha sido convalidado sin
protesta y se trata de acto o contrato que ha producido beneficio social, tendria plena
validez, aun cuando le faltase algunos o ambos de aquellos requisitos antes sealados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la Compaia
(art. 129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y
manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and, therefore,
to be governed by the Code of Commerce, the provisions of the old Civil Code may give us
some light on the right of one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others
before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that
he (Goquiolay) only interposed his objections after the deed of conveyance was executed
and approved by the probate court, and, consequently, his opposition came too late to be
effective.
Appellants assails the correctness of the amounts paid for the account of the partnership
as found by the trial court. This question, however, need not be resolved here, as in the
deed of conveyance executed by Kong Chai Pin, the purchasers Washington Sycip and
Betty Lee assumed, as part consideration of the purchase, the full claims of the two
creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the
ground that it, in effect, threw the partnership into dissolution, which requires consent of
all the partners. This view is untenable. That the partnership was left without the real
property it originally had will not work its dissolution, since the firm was not organized to
exploit these precise lots but to engage in buying and selling real estate, and "in general
real estate agency and brokerage business". Incidentally, it is to be noted that the
payment of the solidary obligation of both the partnership and the late Tan Sin An, leaves
open the question of accounting and contribution between the co-debtors, that should be
ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a
fraudulent device by the appellees, with the connivance of Kong Chai Pin, to ease out
Antonio Goquiolay from the partnership. The "devise", according to the appellants, started
way back sometime in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the
possibility of selling his share in the partnership; and upon his refusal to sell, was followed
by the filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in
the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff
partnership (whose liability was alleged to be joint and several), Yutivo Sons Hardware Co.,
and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate proceedings.
The denial of the claims at first by Kong Chai Pin ( for lack of sufficient knowledge)
negatives any conspiracy on her part in the alleged fraudulent scheme, even if she
subsequently decided to admit their validity after studying the claims and finding it best to
admit the same. It may not be amiss to remark that the probate court approved the
questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were
sold was unreasonably low, or in any way unfair, since appellants presented no evidence of
the market value of the lots as of the time of their sale to appellees Sycip and Lee. The
alleged value of P31,056.58 in May of 1955 is no proof of the market value in 1949,
specially because in the interval, the new owners appear to have converted the land into a
subdivision, which they could not do without opening roads and otherwise improving the
property at their own expense. Upon the other hand, Kong Chai Pin hardly had any choice
but to execute the questioned sale, as it appears that the partnership had neither cash nor
other properties with which to pay its obligations. Anyway, we cannot consider seriously
the inferences freely indulged in by the appellants as allegedly indicating fraud in the
questioned transactions, leading to the conveyance of the lots in dispute to the appellee
Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with
costs against appellant Antonio Goquiolay.