Art 1767GREGORIO F. ORTEGA, TOMAS O. DEL "5.
"5. Order the respondents to pay petitioner moral
CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON. COURT OF
APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L.
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several
subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . .
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO
& MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December
1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners
with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as
junior partners.
On February 17, 1988, petitioner-appellant wrote the
respondents-appellees a letter stating: I am
withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make
the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote
respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have
a meeting with all of you with regard to the mechanics
of liquidation, and more particularly, my interest in the
two floors of this building. I would like to have this
resolved soon because it has to do with my own
plans."
On 19 February 1988, petitioner-appellant wrote
respondents-appellees another letter stating:
"The partnership has ceased to be mutually
satisfactory because of the working conditions of our
employees including the assistant attorneys. All my
efforts to ameliorate the below subsistence level of the
pay scale of our employees have been thwarted by the
other partners. Not only have they refused to give
meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in
a manner that deprived them of their self-respect. The
result of such policies is the formation of the union,
including the assistant attorneys."
On 30 June 1988, petitioner filed with this
Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the
immediate liquidation of (the partnership of) Bito, Misa
& Lozada;
"2. Order the respondents to deliver or pay for
petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of
Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages
for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and
which the Commission may deem just and equitable
under the premises but in no case less than ten (10%)
per cent of the value of the shares of petitioner or
P100,000.00;
In this petition for review under Rule 45 of the Rules of
damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their
opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the
Opposition.
On 31 March 1989, the hearing officer rendered a
decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest."1
On appeal, the SEC en banc reversed the decision of
the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm
could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith
or bad faith, since no partner can be forced to continue
in the partnership against his will. In its decision, dated
17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed
order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination
of the respective rights and obligations of the parties.2
The parties sought a reconsideration of the above
decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of
the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent
SEC issued an order denying reconsideration, as well
as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate
appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of
Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991
and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in
the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No.
24648). He expressed concern over the need to
preserve and care for the partnership assets. The
other partners opposed the prayer.
The Court of Appeals, finding no reversible error on
the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from
the partnership had changed the relation of the parties
and inevitably caused the dissolution of the
partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the
partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d)
that the case should be remanded to the SEC Hearing
Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was
unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such
danger of being lost, removed or materially impaired.
Court, petitioners confine themselves to the following
issues:
1. Whether or not the Court of Appeals has erred in
holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership
at will;
2. Whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or
bad faith; and
3. Whether or not the Court of Appeals has erred in
holding that private respondent's demand for the
dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad
faith;
to which matters we shall, accordingly, likewise limit
ourselves.
A partnership that does not fix its term is a partnership
at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored. We
quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19
August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long
as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners."
The hearing officer however opined that the
partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of
any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and
to appear for and represent their principals and client
in all courts of justice and government departments
and offices in the Philippines, and elsewhere when
legally authorized to do so."
The "purpose" of the partnership is not the specific
undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite
undertaking. There would therefore be no need to
provide for articles on partnership at will as none
would so exist. Apparently what the law contemplates,
is a specific undertaking or "project" which has a
definite or definable period of completion.3
The birth and life of a partnership at will is predicated
on the mutual desire and consent of the partners. The
right to choose with whom a person wishes to
associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will.
He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of
the partnership4 but that it can result in a liability for
damages.5
In passing, neither would the presence of a period for
its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among
partners,7 mutual agency arises and the doctrine
of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be
distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership
continues and its legal personality is retained until the
complete winding up of its business culminating in its
termination.9
The liquidation of the assets of the partnership
following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement
of the partners, like any other contract, is binding
among them and normally takes precedence to the
extent applicable over the Code's general provisions.
We here take note of paragraph 8 of the "Amendment
to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any
partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing
agreements and his partnership participation shall
revert to the Senior Partners for allocation as the
Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office
condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death
or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or the
heirs of a deceased partner, as the case may be. In
the event of any disagreement between the said
appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring
or deceased partner in the aforementioned two (2)
floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of
the new Junior Partner. 11
The term "retirement" must have been used in the
articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves
it.
On the third and final issue, we accord due respect to
the appellate court and respondent Commission on
their common factual finding, i.e., that Attorney Misa
did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity;
certainly, not against their will. 12 Indeed, for as long as
the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose
of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize
the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
WHEREFORE, the decision appealed from is
AFFIRMED. No pronouncement on costs.
PANG LIM and BENITO GALVEZ, plaintiffs-
appellees, vs.LO SENG, defendant-appellant.
For several years prior to June 1, 1916, two of the
litigating parties herein, namely, Lo Seng and Pang
Lim, Chinese residents of the City of Manila, were
partners, under the firm name of Lo Seng and Co., in
the business of running a distillery, known as "El
Progreso," in the Municipality of Paombong, in the
Province of Bulacan. The land on which said distillery
is located as well as the buildings and improvements
originally used in the business were, at the time to
which reference is now made, the property of another
Chinaman, who resides in Hongkong, named Lo Yao,
who, in September, 1911, leased the same to the firm
of Lo Seng and Co. for the term of three years.
Upon the expiration of this lease a new written
contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact,
became effective whereby the lease was extended for
fifteen years. The reason why the contract was made
for so long a period of time appears to have been that
the Bureau of Internal Revenue had required sundry
expensive improvements to be made in the distillery,
and it was agreed that these improvements should be
effected at the expense of the lessees. In conformity
with this understanding many thousands of pesos
were expended by Lo Seng and Co., and later by Lo
Seng alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note
the following:
Know all men by these presents:
1. That I, Lo Shui, as attorney in fact in charge of the
properties of Mr. Lo Yao of Hongkong, cede by way of
lease for fifteen years more said distillery "El Progreso"
to Messrs. Pang Lim and Lo Seng (doing business
under the firm name of Lo Seng and Co.), after the
termination of the previous contract, because of the
fact that they are required, by the Bureau of Internal
Revenue, to rearrange, alter and clean up the
distillery.
2. That all the improvements and betterments which
they may introduce, such as machinery, apparatus,
tanks, pumps, boilers and buildings which the
business may require, shall be, after the termination of
the fifteen years of lease, for the benefit of Mr. Lo Yao,
my principal, the buildings being considered as
improvements.
3. That the monthly rent of said distillery is P200, as
agreed upon in the previous contract of September 11,
1911, acknowledged before the notary public D.
Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs.
Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said
distillery "El Progreso," which we are at present
conducting, hereby accept this contract in each and all
its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the
agreement extending the same was inscribed in the
property registry, for the reason that the estate which
is the subject of the lease has never at any time been
so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the
distillery to his partner Lo Seng, thus placing the latter
in the position of sole owner; and on June 28, 1918, Lo
Shui, again acting as attorney in fact of Lo Yao,
executed and acknowledged before a notary public a
deed purporting to convey to Pang Lim and another
Chinaman named Benito Galvez, the entire distillery
plant including the land used in connection therewith.
As in case of the lease this document also was never
recorded in the registry of property. Thereafter Pang
Lim and Benito Galvez demanded possession from Lo
Seng, but the latter refused to yield; and the present
action of unlawful detainer was thereupon initiated by
Pang Lim and Benito Galvez in the court of the justice
of the peace of Paombong to recover possession of
the premises. From the decision of the justice of the
peace the case was appealed to the Court of First
Instance, where judgment was rendered for the
plaintiffs; and the defendant thereupon appealed to the
Supreme Court.
The case for the plaintiffs is rested exclusively on the
provisions of article 1571 of the Civil Code, which
reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be
entitled to terminate any lease in force at the time of
making the sale, unless the contrary is stipulated, and
subject to the provisions of the Mortgage Law.
In considering this provision it may be premised that a
contract of lease is personally binding on all who
participate in it regardless of whether it is recorded or
not, though of course the unrecorded lease creates no
real charge upon the land to which it relates. The
Mortgage Law was devised for the protection of third
parties, or those who have not participated in the
contracts which are by that law required to be
registered; and none of its provisions with reference to
leases interpose any obstacle whatever to the giving of
full effect to the personal obligations incident to such
contracts, so far as concerns the immediate parties
thereto. This is rudimentary, and the law appears to be
so understood by all commentators, there being, so far
as we are aware, no authority suggesting the contrary.
Thus, in the commentaries of the authors Galindo and
Escosura, on the Mortgage Law, we find the following
pertinent observation: "The Mortgage Law is enacted
in aid of and in respect to third persons only; it does
not affect the relations between the contracting parties,
nor their capacity to contract. Any question affecting
the former will be determined by the dispositions of the
special law [i.e., the Mortgage Law], while any
question affecting the latter will be determined by the
general law." (Galindo y Escosura, Comentarios a la
Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage
Law, as regards the personal obligations expressed
therein, the lease in question was from the beginning,
and has remained, binding upon all the parties thereto
among whom is to be numbered Pang Lim, then a
member of the firm of Lo Seng and Co. this does
not really solve the problem now before us, which is,
whether the plaintiffs herein, as purchasers of the
estate, are at liberty to terminate the lease, assuming
that it was originally binding upon all parties
participating in it.
Upon this point the plaintiffs are undoubtedly
supported, prima facie, by the letter of article 1571 of
the Civil Code; and the position of the defendant
derives no assistance from the mere circumstance that
the lease was admittedly binding as between the
parties thereto.
The words "subject to the provisions of the Mortgage
Law," contained in article 1571, express a qualification
which evidently has reference to the familiar
proposition that recorded instruments are effective
against third persons from the date of registration (Co-
Tiongco vs. Co-Guia, 1 Phil., 210); from whence it
follows that a recorded lease must be respected by
any purchaser of the estate whomsoever. But there is
nothing in the Mortgage Law which, so far as we now
see, would prevent a purchaser from exercising the
precise power conferred in article 1571 of the Civil
Code, namely, of terminating any lease which is
unrecorded; nothing in that law that can be considered
as arresting the force of article 1571 as applied to the
lease now before us.
Article 1549 of the Civil Code has also been cited by
the attorneys for the appellant as supplying authority
for the proposition that the lease in question cannot be
terminated by one who, like Pang Lim, has taken part
in the contract. That provision is practically identical in
terms with the first paragraph of article 23 of the
Mortgage Law, being to the effect that unrecorded
leases shall be of no effect as against third persons;
and the same observation will suffice to dispose of it
that was made by us above in discussing the
Mortgage Law, namely, that while it recognizes the
fact that an unrecorded lease is binding on all persons
who participate therein, this does not determine the
question whether, admitting the lease to be so binding,
it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which
arise in relation with the Mortgage Law, as well as
article 1549 of the Civil Coded all of which, as we
have seen, are undecisive we are brought to
consider the aspect of the case which seems to us
conclusive. This is found in the circumstance that the
plaintiff Pang Lim has occupied a double role in the
transactions which gave rise to this litigation, namely,
first, as one of the lessees; and secondly, as one of
the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and
incompatible. Every competent person is by law bond
to maintain in all good faith the integrity of his own
obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed
in his own shoes as regards any contract previously
entered into by himself.
While yet a partner in the firm of Lo Seng and Co.,
Pang Lim participated in the creation of this lease, and
when he sold out his interest in that firm to Lo Seng
this operated as a transfer to Lo Seng of Pang Lim's
interest in the firm assets, including the lease; and
Pang Lim cannot now be permitted, in the guise of a
purchaser of the estate, to destroy an interest derived
from himself, and for which he has received full value.
The bad faith of the plaintiffs in seeking to deprive the
defendant of this lease is strikingly revealed in the
circumstance that prior to the acquisition of this
property Pang Lim had been partner with Lo Seng and
Benito Galvez an employee. Both therefore had been
in relations of confidence with Lo Seng and in that
position had acquired knowledge of the possibilities of
the property and possibly an experience which would
have enabled them, in case they had acquired
possession, to exploit the distillery with profit. On
account of his status as partner in the firm of Lo Seng
and Co., Pang Lim knew that the original lease had
been extended for fifteen years; and he knew the
extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellant's brief,
it would be shocking to the moral sense if the condition
of the law were found to be such that Pang Lim, after
profiting by the sale of his interest in a business,
worthless without the lease, could intervene as
purchaser of the property and confiscate for his own
benefit the property which he had sold for a valuable
consideration to Lo Seng. The sense of justice recoils
before the mere possibility of such eventuality.
Above all other persons in business relations, partners
are required to exhibit towards each other the highest
degree of good faith. In fact the relation between
partners is essentially fiduciary, each being considered
in law, as he is in fact, the confidential agent of the
other. It is therefore accepted as fundamental in equity
jurisprudence that one partner cannot, to the detriment
of another, apply exclusively to his own benefit the
results of the knowledge and information gained in the
character of partner. Thus, it has been held that if one
partner obtains in his own name and for his own
benefit the renewal of a lease on property used by the
firm, to commence at a date subsequent to the
expiration of the firm's lease, the partner obtaining the
renewal is held to be a constructive trustee of the firm
as to such lease. (20 R. C. L., 878-882.) And this rule
has even been applied to a renewal taken in the name
of one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906;
Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869;
Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)
An additional consideration showing that the position
of the plaintiff Pang Lim in this case is untenable is
deducible from articles 1461 and 1474 of the Civil
Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-
matter of the sale and is responsible to the vendee for
the legal and lawful possession of the thing sold. The
pertinence of these provisions to the case now under
consideration is undeniable, for among the assets of
the partnership which Pang Lim transferred to Lo
Seng, upon selling out his interest in the firm to the
latter, was this very lease; and while it cannot be
supposed that the obligation to warrant recognized in
the articles cited would nullify article 1571, if the latter
article had actually conferred on the plaintiffs the right
to terminate this lease, nevertheless said articles
(1461, 1474), in relation with other considerations,
reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as
purchaser of the estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus
applied is analogous to the doctrine recognized in
courts of common law under the head of estoppel by
deed, in accordance with which it is held that if a
person, having no title to land, conveys the same to
another by some one or another of the recognized
modes of conveyance at common law, any title
afterwards acquired by the vendor will pass to the
purchaser; and the vendor is estopped as against such
purchaser from asserting such after-acquired title. The
indenture of lease, it may be further noted, was
recognized as one of the modes of conveyance at
common law which created this estoppel. (8 R. C. L.,
1058, 1059.)
From what has been said it is clear that Pang Lim,
having been a participant in the contract of lease now
in question, is not in a position to terminate it: and this
is a fatal obstacle to the maintenance of the action of
unlawful detainer by him. Moreover, it is fatal to the
maintenance of the action brought jointly by Pang Lim
and Benito Galvez. The reason is that in the action of
unlawful detainer, under section 80 of the Code of Civil
Procedure, the only question that can be adjudicated
is the right to possession; and in order to maintain the
action, in the form in which it is here presented, the
proof must show that occupant's possession is
unlawful, i. e., that he is unlawfully withholding
possession after the determination of the right to hold
possession. In the case before us quite the contrary
appears; for, even admitting that Pang Lim and Benito
Galvez have purchased the estate from Lo Yao, the
original landlord, they are, as between themselves, in
the position of tenants in common or owners pro
indiviso, according to the proportion of their respective
contribution to the purchase price. But it is well
recognized that one tenant in common cannot
maintain a possessory action against his cotenant,
since one is as much entitled to have possession as
the other. The remedy is ordinarily by an action for
partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows
that as Lo Seng is vested with the possessory right as
against Pang Lim, he cannot be ousted either by Pang
Lim or Benito Galvez. Having lawful possession as
against one cotenant, he is entitled to retain it against
both. Furthermore, it is obvious that partition
proceedings could not be maintained at the instance of
Benito Galvez as against Lo Seng, since partition can
only be effected where the partitioners are cotenants,
that is, have an interest of an identical character as
among themselves. (30 Cyc., 178-180.) The practical
result is that both Pang Lim and Benito Galvez are
bound to respect Lo Seng's lease, at least in so far as
the present action is concerned.
We have assumed in the course of the preceding
discussion that the deed of sale under which the
plaintiffs acquired the right of Lo Yao, the owner of the
fee, is competent proof in behalf of the plaintiffs. It is,
however, earnestly insisted by the attorney for Lo
Seng that this document, having never been recorded
in the property registry, cannot under article 389 of the
Mortgage Law, be used in court against him because
as to said instrument he is a third party. The important
question thus raised is not absolutely necessary to the
decision of this case, and we are inclined to pass it
without decision, not only because the question does
not seem to have been ventilated in the Court of First
Instance but for the further reason that we have not
had the benefit of any written brief in this case in
behalf of the appellees.
The judgment appealed from will be reversed, and the
defendant will be absolved from the complaint. It is so
ordered, without express adjudication as to costs.
ROSARIO U. YULO, assisted by her husband JOSE
C. YULO, Plaintiffs-Appellants, vs. YANG CHIAO
SENG, Appeal from the judgment of the Court of First
Instance of Manila, Hon. Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well as defendant's
counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant
Yang Chiao Seng wrote a letter to the palintiff Mrs.
Rosario U. Yulo, proposing the formation of a
partnership between them to run and operate a theatre
on the premises occupied by former Cine Oro at Plaza
Sta. Cruz, Manila. The principal conditions of the offer
are (1) that Yang Chiao Seng guarantees Mrs. Yulo a
monthly participation of P3,000 payable quarterly in
advance within the first 15 days of each quarter, (2)
that the partnership shall be for a period of two years
and six months, starting from July 1, 1945 to
December 31, 1947, with the condition that if the land
is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent
building thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall be
terminated even if the period for which the partnership
was agreed to be established has not yet expired; (3)
that Mrs. Yulo is authorized personally to conduct such
business in the lobby of the building as is ordinarily
carried on in lobbies of theatres in operation, provided
the said business may not obstruct the free ingress
and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the
partnership shall belong to Mrs. Yulo, but if the
partnership agreement is terminated before the lapse
of one and a half years period under any of the causes
mentioned in paragraph (2), then Yang Chiao Seng
shall have the right to remove and take away all
improvements that the partnership may place in the
premises.
Pursuant to the above offer, which plaintiff evidently
accepted, the parties executed a partnership
agreement establishing the "Yang & Company,
Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and
carry on the business of operating a theatre for the
exhibition of motion and talking pictures. The capital is
fixed at P100,000, P80,000 of which is to be furnished
by Yang Chiao Seng and P20,000, by Mrs. Yulo. All
gains and profits are to be distributed among the
partners in the same proportion as their capital
contribution and the liability of Mrs. Yulo, in case of
loss, shall be limited to her capital contribution
In June , 1946, they executed a supplementary
agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December
31, 1950. The benefits are to be divided between them
at the rate of 50-50 and after December 31, 1950, the
showhouse building shall belong exclusively to the
second party, Mrs. Yulo. The land on which the theatre
was constructed was leased by plaintiff Mrs. Yulo from
Emilia Carrion Santa Marina and Maria Carrion Santa
Marina. In the contract of lease it was stipulated that
the lease shall continue for an indefinite period of time,
but that after one year the lease may be cancelled by
either party by written notice to the other party at least
90 days before the date of cancellation. The last
contract was executed between the owners and Mrs.
Yulo on April 5, 1948. But on April 12, 1949, the
attorney for the owners notified Mrs. Yulo of the
owner's desire to cancel the contract of lease on July
31, 1949. In view of the above notice, Mrs. Yulo and
her husband brought a civil action to the Court of First
Instance of Manila on July 3, 1949 to declare the lease
of the premises. On February 9, 1950, the Municipal
Court of Manila rendered judgment ordering the
ejectment of Mrs. Yulo and Mr. Yang. The judgment
was appealed. In the Court of First Instance, the two
cases were afterwards heard jointly, and judgment
was rendered dismissing the complaint of Mrs. Yulo
and her husband, and declaring the contract of lease
of the premises terminated as of July 31, 1949, and
fixing the reasonable monthly rentals of said premises
at P100. Both parties appealed from said decision and
the Court of Appeals, on April 30, 1955, affirmed the
judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang
Chiao Seng her share in the profits of the business.
Yang answered the letter saying that upon the advice
of his counsel he had to suspend the payment (of the
rentals) because of the pendency of the ejectment suit
by the owners of the land against Mrs. Yulo. In this
letter Yang alleges that inasmuch as he is a sublessee
and inasmuch as Mrs. Yulo has not paid to the lessors
the rentals from August, 1949, he was retaining the
rentals to make good to the landowners the rentals
due from Mrs. Yulo in arrears (Exh. "E"). In view of the
refusal of Yang to pay her the amount agreed upon,
Mrs. Yulo instituted this action on May 26, 1954,
alleging the existence of a partnership between them
and that the defendant Yang Chiao Seng has refused
to pay her share from December, 1949 to December,
1950; that after December 31, 1950 the partnership
between Mrs. Yulo and Yang terminated, as a result of
which, plaintiff became the absolute owner of the
building occupied by the Cine Astor; that the
reasonable rental that the defendant should pay
therefor from January, 1951 is P5,000; that the
defendant has acted maliciously and refuses to pay
the participation of the plaintiff in the profits of the
business amounting to P35,000 from November, 1949
to October, 1950, and that as a result of such bad faith
and malice on the part of the defendant, Mrs. Yulo has
suffered damages in the amount of P160,000 and
exemplary damages to the extent of P5,000. The
prayer includes a demand for the payment of the
above sums plus the sum of P10,000 for the attorney's
fees.
In answer to the complaint, defendant alleges that the
real agreement between the plaintiff and the defendant
was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around
the prohibition contained in the contract of lease
between the owners and the plaintiff against the
sublease of the said property. As to the other claims,
he denies the same and alleges that the fair rental
value of the land is only P1,100. By way of
counterclaim he alleges that by reason of an
attachment issued against the properties of the
defendant the latter has suffered damages amounting
to P100,000. The first hearing was had on April 19,
1955, at which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the absence of
the defendant and thereafter rendered judgment
ordering the defendant to pay to the plaintiff P41,000
for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and
occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use
and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision,
however, was set aside on a motion for
reconsideration. In said motion it is claimed that
defendant failed to appear at the hearing because of
his honest belief that a joint petition for postponement
filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the
decision of the Court of Appeals in two previous cases
between the owners of the land and the plaintiff
Rosario Yulo, the plaintiff has no right to claim the
alleged participation in the profit of the business, etc.
The court, finding the above motion, well-founded, set
aside its decision and a new trial was held. After trial
the court rendered the decision making the following
findings: that it is not true that a partnership was
created between the plaintiff and the defendant
because defendant has not actually contributed the
sum mentioned in the Articles of Partnership, or any
other amount; that the real agreement between the
plaintiff and the defendant is not of the partnership but
one of the lease for the reason that under the
agreement the plaintiff did not share either in the
profits or in the losses of the business as required by
Article 1769 of the Civil Code; and that the fact that
plaintiff was granted a "guaranteed participation" in the
profits also belies the supposed existence of a
partnership between them. It. therefore, denied
plaintiff's claim for damages or supposed participation
in the profits.
As to her claim for damages for the refusal of the
defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that
the said lobby was very narrow space leading to the
balcony of the theatre which could not be used for
business purposes under existing ordinances of the
City of Manila because it would constitute a hazard
and danger to the patrons of the theatre. The court,
therefore, dismissed the complaint; so did it dismiss
the defendant's counterclaim, on the ground that the
defendant failed to present sufficient evidence to
sustain the same. It is against this decision that the
appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court
is its order setting aside its former decision and
allowing a new trial. This assignment of error is without
merit. As that parties agreed to postpone the trial
because of a probable amicable settlement, the
plaintiff could not take advantage of defendant's
absence at the time fixed for the hearing. The lower
court, therefore, did not err in setting aside its former
judgment. The final result of the hearing shown by the
decision indicates that the setting aside of the previous
decision was in the interest of justice.
In the second assignment of error plaintiff-appellant
claims that the lower court erred in not striking out the
evidence offered by the defendant-appellee to prove
that the relation between him and the plaintiff is one of
the sublease and not of partnership. The action of the
lower court in admitting evidence is justified by the
express allegation in the defendant's answer that the
agreement set forth in the complaint was one of lease
and not of partnership, and that the partnership formed
was adopted in view of a prohibition contained in
plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that
contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the
written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of
partnership. We have gone over the evidence and we
fully agree with the conclusion of the trial court that the
agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or
more persons who bind themselves to contribute
money, property, or industry to a common fund; (2)
intention on the part of the partners to divide the profits
among themselves. (Art. 1767, Civil Code.). In the first
place, plaintiff did not furnish the supposed P20,000
capital. In the second place, she did not furnish any
help or intervention in the management of the theatre.
In the third place, it does not appear that she has ever
demanded from defendant any accounting of the
expenses and earnings of the business. Were she
really a partner, her first concern should have been to
find out how the business was progressing, whether
the expenses were legitimate, whether the earnings
were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have
done; all that she did was to receive her share of
P3,000 a month, which can not be interpreted in any
manner than a payment for the use of the premises
which she had leased from the owners. Clearly,
plaintiff had always acted in accordance with the
original letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer as
the real contract between them.
Plaintiff claims the sum of P41,000 as representing her
share or participation in the business from December,
1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the
plaintiff and the defendant was to end upon the
termination of the right of the plaintiff to the lease.
Plaintiff's right having terminated in July, 1949 as
found by the Court of Appeals, the partnership
agreement or the agreement for her to receive a
participation of P3,000 automatically ceased as of said
date. We find no error in the judgment of the court
below and we affirm it in toto, with costs against
plaintiff-appellant.
VICENTE SY, TRINIDAD PAULINO,
TRUCKING,CORPORATION, petitioners, v HON.
COURT OF APPEALS and JAIME SAHOT, .
This petition for review seeks the reversal of the
decision[2] of the Court of Appeals dated February 29,
2000, in CA-G.R. SP No. 52671, affirming with
modification the decision[3] of the National Labor
Relations Commission promulgated on June 20, 1996
in NLRC NCR CA No. 010526-96. Petitioners also
pray for the reinstatement of the decision[4] of the
Labor Arbiter in NLRC NCR Case No. 00-09-06717-
94.
Culled from the records are the following facts
of this case:
Sometime in 1958, private respondent Jaime
Sahot[5] started working as a truck helper for
petitioners family-owned trucking business named
Vicente Sy Trucking. In 1965, he became a truck
driver of the same family business, renamed T.
Paulino Trucking Service, later 6Bs Trucking
Corporation in 1985, and thereafter known as SBT
Trucking Corporation since 1994. Throughout all these
changes in names and for 36 years, private
respondent continuously served the trucking business
of petitioners.
In April 1994, Sahot was already 59 years
old. He had been incurring absences as he was
suffering from various ailments. Particularly causing
him pain was his left thigh, which greatly affected the
performance of his task as a driver. He inquired about
his medical and retirement benefits with the Social
Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave sometime in
May 1994. On May 27th, he was medically examined
and treated for EOR, presleyopia, hypertensive
retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4,
p. 105),[7] and heart enlargement (Annex G, p.
107).[8] On said grounds, Belen Paulino of the SBT
Trucking Service management told him to file a formal
request for extension of his leave. At the end of his
week-long absence, Sahot applied for extension of his
leave for the whole month of June, 1994. It was at this
time when petitioners allegedly threatened to terminate
his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma.
He was facing dismissal if he refused to work, But he
could not retire on pension because petitioners never
paid his correct SSS premiums. The fact remained he
could no longer work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out their
threat and dismissed him from work, effective June 30,
1994. He ended up sick, jobless and penniless.
On September 13, 1994, Sahot filed with the
NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-
06717-94. He prayed for the recovery of separation
pay and attorneys fees against Vicente Sy and
Trinidad Paulino-Sy, Belen Paulino, Vicente Sy
Trucking, T. Paulino Trucking Service, 6Bs Trucking
and SBT Trucking, herein petitioners.
For their part, petitioners admitted they had a
trucking business in the 1950s but denied employing
helpers and drivers. They contend that private
respondent was not illegally dismissed as a driver
because he was in fact petitioners industrial
partner. They add that it was not until the year 1994,
when SBT Trucking Corporation was established, and
only then did respondent Sahot become an employee
of the company, with a monthly salary that reached
P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior
to June 1, 1994, Sahot went on leave and was not
able to report for work for almost seven days. On June
1, 1994, Sahot asked permission to extend his leave of
absence until June 30, 1994. It appeared that from the
expiration of his leave, private respondent never
reported back to work nor did he file an extension of
his leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its
owners.
Petitioners add that due to Sahots refusal to
work after the expiration of his authorized leave of
absence, he should be deemed to have voluntarily
resigned from his work. They contended that Sahot
had all the time to extend his leave or at least inform
petitioners of his health condition. Lastly, they cited
NLRC Case No. RE-4997-76, entitled Manuelito
Jimenez et al. vs. T. Paulino Trucking Service, as a
defense in view of the alleged similarity in the factual
milieu and issues of said case to that of Sahots, hence
they are in pari material and Sahots complaint ought
also to be dismissed.
The NLRC NCR Arbitration Branch, through
Labor Arbiter Ariel Cadiente Santos, ruled that there
was no illegal dismissal in Sahots case. Private
respondent had failed to report to work. Moreover, said
the Labor Arbiter, petitioners and private respondent
were industrial partners before January 1994. The
Labor Arbiter concluded by ordering petitioners to pay
financial assistance of P15,000 to Sahot for having
served the company as a regular employee since
January 1994 only.
On appeal, the National Labor Relations
Commission modified the judgment of the Labor
Arbiter. It declared that private respondent was an
employee, not an industrial partner, since the start.
Private respondent Sahot did not abandon his job but
his employment was terminated on account of his
illness, pursuant to Article 284[9] of the Labor Code.
Accordingly, the NLRC ordered petitioners to pay
private respondent separation pay in the amount of
P60,320.00, at the rate of P2,080.00 per year for 29
years of service.
Petitioners assailed the decision of the NLRC
before the Court of Appeals. In its decision dated
February 29, 2000, the appellate court affirmed with
modification the judgment of the NLRC. It held that
private respondent was indeed an employee of
petitioners since 1958. It also increased the amount of
separation pay awarded to private respondent to
P74,880, computed at the rate of P2,080 per year for
36 years of service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby
AFFIRMED with MODIFICATION. SB Trucking
Corporation is hereby directed to pay complainant
Jaime Sahot the sum of SEVENTY-FOUR
THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00)
PESOS as and for his separation pay.[10]
Hence, the instant petition anchored on the
following contentions:
IRESPONDENT COURT OF APPEALS IN
PROMULGATING THE QUESTION[ED] DECISION
AFFIRMING WITH MODIFICATION THE DECISION
OF NATIONAL LABOR RELATIONS COMMISSION
DECIDED NOT IN ACCORD WITH LAW AND PUT AT
NAUGHT ARTICLE 402 OF THE CIVIL CODE.[11]
IIRESPONDENT COURT OF APPEALS VIOLATED
SUPREME COURT RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION IS BOUND BY
THE FACTUAL FINDINGS OF THE LABOR ARBITER
AS THE LATTER WAS IN A BETTER POSITION TO
OBSERVE THE DEMEANOR AND DEPORTMENT
OF THE WITNESSES IN THE CASE OF
ASSOCIATION OF INDEPENDENT UNIONS IN THE
PHILIPPINES VERSUS NATIONAL CAPITAL
REGION (305 SCRA 233).[12]
IIIPRIVATE RESPONDENT WAS NOT DISMISS[ED]
BY RESPONDENT SBT TRUCKING
CORPORATION.[13]
Three issues are to be resolved: (1) Whether or
not an employer-employee relationship existed
between petitioners and respondent Sahot; (2)
Whether or not there was valid dismissal; and (3)
Whether or not respondent Sahot is entitled to
separation pay.
Crucial to the resolution of this case is the
determination of the first issue. Before a case for
illegal dismissal can prosper, an employer-employee
relationship must first be established.[14]
Petitioners invoke the decision of the Labor
Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was in
fact, petitioners industrial partner.[15] It is contended
that it was the Labor Arbiter who heard the case and
had the opportunity to observe the demeanor and
deportment of the parties. The same conclusion, aver
petitioners, is supported by substantial
evidence.[16] Moreover, it is argued that the findings of
fact of the Labor Arbiter was wrongly overturned by the
NLRC when the latter made the following
pronouncement:
We agree with complainant that there was error
committed by the Labor Arbiter when he concluded
that complainant was an industrial partner prior to
1994. A computation of the age of complainant shows
that he was only twenty-three (23) years when he
started working with respondent as truck helper. How
can we entertain in our mind that a twenty-three (23)
year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant
was only an employee, not a partner of respondents
from the time complainant started working for
respondent.[17]
Because the Court of Appeals also found that
an employer-employee relationship existed, petitioners
aver that the appellate courts decision gives an
imprimatur to the illegal finding and conclusion of the
NLRC.
Private respondent, for his part, denies that he
was ever an industrial partner of petitioners. There
was no written agreement, no proof that he received a
share in petitioners profits, nor was there anything to
show he had any participation with respect to the
running of the business.[18]
The elements to determine the existence of an
employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct.
The most important element is the employers control
of the employees conduct, not only as to the result of
the work to be done, but also as to the means and
methods to accomplish it.[19]
As found by the appellate court, petitioners
owned and operated a trucking business since the
1950s and by their own allegations, they determined
private respondents wages and rest day.[20] Records of
the case show that private respondent actually
engaged in work as an employee. During the entire
course of his employment he did not have the freedom
to determine where he would go, what he would do,
and how he would do it. He merely followed
instructions of petitioners and was content to do so, as
long as he was paid his wages. Indeed, said the CA,
private respondent had worked as a truck helper and
driver of petitioners not for his own pleasure but under
the latters control.
Article 1767[21] of the Civil Code states that in a
contract of partnership two or more persons bind
themselves to contribute money, property or industry
to a common fund, with the intention of dividing the
profits among themselves.[22] Not one of these
circumstances is present in this case. No written
agreement exists to prove the partnership between the
parties. Private respondent did not contribute money,
property or industry for the purpose of engaging in the
supposed business. There is no proof that he was
receiving a share in the profits as a matter of course,
during the period when the trucking business was
under operation. Neither is there any proof that he had
actively participated in the management,
administration and adoption of policies of the
business. Thus, the NLRC and the CA did not err in
reversing the finding of the Labor Arbiter that private
respondent was an industrial partner from 1958 to
1994.
On this point, we affirm the findings of the
appellate court and the NLRC. Private respondent
Jaime Sahot was not an industrial partner but an
employee of petitioners from 1958 to 1994. The
existence of an employer-employee relationship is
ultimately a question of fact[23] and the findings thereon
by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported
by substantial evidence. Substantial evidence is such
amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion.[24]
Time and again this Court has said that if doubt
exists between the evidence presented by the
employer and the employee, the scales of justice must
be tilted in favor of the latter.[25] Here, we entertain no
doubt. Private respondent since the beginning was an
employee of, not an industrial partner in, the trucking
business.
Coming now to the second issue, was private
respondent validly dismissed by petitioners?
Petitioners contend that it was private
respondent who refused to go back to work. The
decision of the Labor Arbiter pointed out that during
the conciliation proceedings, petitioners requested
respondent Sahot to report back for work. However, in
the same proceedings, Sahot stated that he was no
longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted
that if Sahot did not like to work as a driver anymore,
then he could be given a job that was less strenuous,
such as working as a checker. However, Sahot
declined that suggestion. Based on the foregoing
recitals, petitioners assert that it is clear that Sahot
was not dismissed but it was of his own volition that he
did not report for work anymore.
In his decision, the Labor Arbiter concluded
that:
While it may be true that respondents insisted that
complainant continue working with respondents
despite his alleged illness, there is no direct evidence
that will prove that complainants illness prevents or
incapacitates him from performing the function of a
driver. The fact remains that complainant suddenly
stopped working due to boredom or otherwise when
he refused to work as a checker which certainly is a
much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on this
score the NLRC, concurred in by the Court of Appeals,
held that:
While it was very obvious that complainant did not
have any intention to report back to work due to his
illness which incapacitated him to perform his job,
such intention cannot be construed to be an
abandonment. Instead, the same should have been
considered as one of those falling under the just
causes of terminating an employment. The insistence
of respondent in making complainant work did not
change the scenario.
It is worthy to note that respondent is engaged in the
trucking business where physical strength is of utmost
requirement (sic). Complainant started working with
respondent as truck helper at age twenty-three (23),
then as truck driver since 1965. Complainant was
already fifty-nine (59) when the complaint was filed
and suffering from various illness triggered by his work
and age.
x x x[27]
In termination cases, the burden is upon the
employer to show by substantial evidence that the
termination was for lawful cause and validly
made.[28] Article 277(b) of the Labor Code puts the
burden of proving that the dismissal of an employee
was for a valid or authorized cause on the employer,
without distinction whether the employer admits or
does not admit the dismissal.[29] For an employees
dismissal to be valid, (a) the dismissal must be for a
valid cause and (b) the employee must be afforded
due process.[30]
Article 284 of the Labor Code authorizes an
employer to terminate an employee on the ground of
disease, viz:
Art. 284. Disease as a ground for termination- An
employer may terminate the services of an employee
who has been found to be suffering from any disease
and whose continued employment is prohibited by law
or prejudicial to his health as well as the health of his
co-employees: xxx
However, in order to validly terminate
employment on this ground, Book VI, Rule I, Section 8
of the Omnibus Implementing Rules of the Labor Code
requires:
Sec. 8. Disease as a ground for dismissal- Where the
employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his
health or to the health of his co-employees, the
employer shall not terminate his employment unless
there is a certification by competent public health
authority that the disease is of such nature or at such a
stage that it cannot be cured within a period of six (6)
months even with proper medical treatment. If the
disease or ailment can be cured within the period, the
employer shall not terminate the employee but shall
ask the employee to take a leave. The employer shall
reinstate such employee to his former position
immediately upon the restoration of his normal
health. (Italics supplied).
As this Court stated in Triple Eight integrated
Services, Inc. vs. NLRC,[31] the requirement for a
medical certificate under Article 284 of the Labor Code
cannot be dispensed with; otherwise, it would sanction
the unilateral and arbitrary determination by the
employer of the gravity or extent of the employees
illness and thus defeat the public policy in the
protection of labor.
In the case at bar, the employer clearly did not
comply with the medical certificate requirement before
Sahots dismissal was effected. In the same case
of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the
dismissal of the employee rests on the employer, the
latter should likewise bear the burden of showing that
the requisites for a valid dismissal due to a disease
have been complied with. In the absence of the
required certification by a competent public health
authority, this Court has ruled against the validity of
the employees dismissal. It is therefore incumbent
upon the private respondents to prove by the quantum
of evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal was not
illegal; otherwise, the dismissal would be unjustified.
This Court will not sanction a dismissal premised on
mere conjectures and suspicions, the evidence must
be substantial and not arbitrary and must be founded
on clearly established facts sufficient to warrant his
separation from work.[32]
In addition, we must likewise determine if the
procedural aspect of due process had been complied
with by the employer.
From the records, it clearly appears that
procedural due process was not observed in the
separation of private respondent by the management
of the trucking company. The employer is required to
furnish an employee with two written notices before
the latter is dismissed: (1) the notice to apprise the
employee of the particular acts or omissions for which
his dismissal is sought, which is the equivalent of a
charge; and (2) the notice informing the employee of
his dismissal, to be issued after the employee has
been given reasonable opportunity to answer and to
be heard on his defense.[33] These, the petitioners
failed to do, even only for record purposes. What
management did was to threaten the employee with
dismissal, then actually implement the threat when the
occasion presented itself because of private
respondents painful left thigh.
All told, both the substantive and procedural
aspects of due process were violated. Clearly,
therefore, Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of
Appeals, respondent Jaime Sahot is entitled to
separation pay. The law is clear on the matter. An
employee who is terminated because of disease is
entitled to separation pay equivalent to at least one
month salary or to one-half month salary for every year
of service, whichever is greater xxx.[34] Following the
formula set in Art. 284 of the Labor Code, his
separation pay was computed by the appellate court at
P2,080 times 36 years (1958 to 1994) or P74,880. We
agree with the computation, after noting that his last
monthly salary was P4,160.00 so that one-half thereof
is P2,080.00. Finding no reversible error nor grave
abuse of discretion on the part of appellate court, we
are constrained to sustain its decision. To avoid further
delay in the payment due the separated worker, whose
claim was filed way back in 1994, this decision is
immediately executory. Otherwise, six percent (6%)
interest per annum should be charged thereon, for any
delay, pursuant to provisions of the Civil Code.
WHEREFORE, the petition is DENIED and the
decision of the Court of Appeals dated February 29,
2000 is AFFIRMED. Petitioners must pay private
respondent Jaime Sahot his separation pay for 36
years of service at the rate of one-half monthly pay for
every year of service, amounting to P74,880.00, with
interest of six per centum (6%) per annum from finality
of this decision until fully paid.
Costs against petitioners.
LOURDES NAVARRO AND MENARDO
NAVARRO, petitioners, vs.COURT OF APPEALS,
JUDGE BETHEL KATALBAS-MOSCARDON,
Presiding Judge, Regional Trial Court of Bacolod
City, Branch 52, Sixth Judicial Region and
Spouses OLIVIA V. YANSON AND RICARDO B.
YANSON,
Assailed and sought to be set aside by the petition
before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for
annulment of judgment filed by the Spouses Lourdes
and Menardo Navarro, thusly:
The instant petition for annulment of decision is
DISMISSED.
1. Judgments may be annulled only on the ground of
extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA
160, 170). No such ground is alleged in the petition.
2. Even if the judgment rendered by the respondent
Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it
cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment
enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows: On
July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes
Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application
for a writ of replevin. The complaint was later docketed
as Civil Case No. 716 (12562) of the then Court of
First Instance of Bacolod (Branch 55) and was
subsequently amended to include private respondent's
husband, Ricardo B. Yanson, as co-plaintiff, and
petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R.
Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved
private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978
affirmed receipt by private respondents of all pieces of
personal property sought to be recovered from
petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-
Moscardon rendered a decision, disposing as follows :
Accordingly, in the light of the aforegoing findings, all
chattels already recovered by plaintiff by virtue of the
Writ of Replevin and as listed in the complaint are
hereby sustained to belong to plaintiff being the owner
of these properties; the motor vehicle, particularly that
Ford Fiera Jeep registered in and which had remain in
the possession of the defendant is likewise declared to
belong to her, however, said defendant is hereby
ordered to reimburse plaintiff the sum of P6,500.00
representing the amount advanced to pay part of the
price therefor; and said defendant is likewise hereby
ordered to return to plaintiff such other equipment[s] as
were brought by the latter to and during the operation
of their business as were listed in the complaint and
not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.) Petitioner received a copy of
the decision on January 10, 1991 (almost 9 months
after its rendition) and filed on January 16, 1991 a
"Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18,
1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas
Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])
proscribing the filing of any motion for extension of
time to file a motion for a new trial or reconsideration.
The trial judge vacated the order dated January 18,
1991 and declared the decision of April 30, 1990 as
final and executory. (Petitioners' motion for
reconsideration was subsequently filed on February 1,
1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial court issued a writ of
execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared
that the writ was "duly served and satisfied". A receipt
for the amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent
court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring
the non-existence of a partnership, contrary to the
evidence on record.
The appellate court, as aforesaid, outrightly dismissed
the petition due to absence of extrinsic or collateral
fraud, observing further that an appeal was the proper
remedy.
In the petition before us, petitioners claim that the trial
judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually
formed a verbal partnership engaged in the business
of Air Freight Service Agency in Bacolod"; and that the
decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually
belong to any of the parties until the final disposition
and winding up of the partnership" (p. 15, Rollo).
These issues, however, were extensively discussed by
the trial judge in her 16-page, single-spaced decision
We agree with respondents that the decision in this
case has become final. In fact a writ of execution had
been issued and was promptly satisfied by the
payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to
annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly
thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to
warrant the setting aside of the trial court's decision.
We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review.
However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners'
arguments are all directed against the decision of the
regional trial court; not a word is said in regard to the
appellate's court disposition of their petition for
annulment of judgment. Verily, petitioners keeps on
pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the
factual premises of the trial court were more than
enough to suppress and negate petitioners
submissions along this line:
To be resolved by this Court factually involved in the
issue of whether there was a partnership that existed
between the parties based on their verbal contention;
whether the properties that were commonly used in
the operation of Allied Air Freight belonged to the
alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On
the other hand, the legal issues revolves on the
dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the
properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code
defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in
determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771
and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where considered all entries in the Audit Report as totally
immovables or any rights is constituted. Likewise, if reliable to be sustained insofar as the operation of the
the partnership involves a capitalization of P3,000.00 business is concerned, nevertheless, with this
or more in money or property, the same must appear admission of the defendant and the fact that as borne
in a public instrument which must be recorded in the out in said Report there has been disbursed and paid
Office of the Securities and Exchange Commission. for in this vehicle out of the business funds in the total
Failure to comply with these requirements shall only sum of P6,500.00, it is only fitting and proper that
affect liability of the partners to third persons. validity of these disbursements must be sustained as
true (Exhs. M-1 to M-3, p. 180, Records). In this
In consideration of the above, it is undeniable that both connection and taking into account the earlier
the plaintiff and the defendant-wife made admission to agreement that only profits were to be shared equally,
have entered into an agreement of operating this Allied the plaintiff must be reimbursed of this cost if only to
Air Freight Agency of which the plaintiff personally allow the defendant continuous possession of the
constituted with the Manila Office in a sense that the vehicle in question. It is a fundamental moral, moral
plaintiff did supply the necessary equipments and and civil injunction that no one shall enrich himself at
money while her brother Atty. Rodolfo Villaflores was the expense of another. (pp. 71-75, Rollo.)
the Manager and the defendant the Cashier. It was Withal, the appellate court acted properly in dismissing
also admitted that part of this agreement was an equal the petition for annulment of judgment, the issue
sharing of whatever proceeds realized. Consequently, raised therein having been directly litigated in, and
the plaintiff brought into this transaction certain passed upon by, the trial court.
chattels in compliance with her obligation. The same WHEREFORE, the petition is DISMISSED. The
has been done by the herein brother and the herein Resolution of the Court of Appeals dated June 20,
defendant who started to work in the business. A 1991 is AFFIRMED in all respects.
cursory examination of the evidences presented no No special pronouncement is made as to costs.
proof that a partnership, whether oral or written had 6. Lim Tong Lim vs Phil Fishing Gear Industries GR
been constituted at the inception of this transaction. 136448
True it is that even up to the filing of this complaint
those movables brought by the plaintiff for the use in LIM TONG LIM, petitioner, vs. PHILIPPINE
the operation of the business remain registered in her FISHING GEAR INDUSTRIES,
name. A partnership may be deemed to exist among
parties who agree to borrow money to pursue a
While there may have been co-ownership or co- business and to divide the profits or losses that may
possession of some items and/or any sharing of arise therefrom, even if it is shown that they have not
proceeds by way of advances received by both plaintiff contributed any capital of their own to a "common
and the defendant, these are not indicative and fund." Their contribution may be in the form of credit or
supportive of the existence of any partnership between industry, not necessarily cash or fixed assets. Being
them. Article 1769 of the New Civil Code is explicit. partners, they are all liable for debts incurred by or on
Even the books and records retrieved by the behalf of the partnership. The liability for a contract
Commissioner appointed by the Court did not show entered into on behalf of an unincorporated
proof of the existence of a partnership as association or ostensible corporation may lie in a
conceptualized by law. Such that if assuming that person who may not have directly transacted on its
there were profits realized in 1975 after the two-year behalf, but reaped benefits from that contract.
deficits were compensated, this could only be subject The Case
to an equal sharing consonant to the agreement to In the Petition for Review on Certiorari before us, Lim
equally divide any profit realized. However, this Court Tong Lim assails the November 26, 1998 Decision of
cannot overlook the fact that the Audit Report of the the Court of Appeals in CA-GR CV 41477,[1] which
appointed Commissioner was not highly reliable in the disposed as follows:
sense that it was more of his personal estimate of WHEREFORE, [there being] no reversible error in the
what is available on hand. Besides, the alleged profits appealed decision, the same is hereby affirmed.[2]
was a difference found after valuating the assets and The decretal portion of the Quezon City
not arising from the real operation of the business. In Regional Trial Court (RTC) ruling, which was affirmed
accounting procedures, strictly, this could not be profit by the CA, reads as follows:
but a net worth. WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary
In view of the above factual findings of the Court it attachment issued by this Court on September 20,
follows inevitably therefore that there being no 1990;
partnership that existed, any dissolution, liquidation or 2. That defendants are jointly liable to plaintiff for the
winding up is beside the point. The plaintiff himself had following amounts, subject to the modifications as
summarily ceased from her contract of agency and it is hereinafter made by reason of the special and unique
a personal prerogative to desist. On the other hand, facts and circumstances and the proceedings that
the assumption by the defendant in negotiating for transpired during the trial of this case;
herself the continuance of the Agency with the a. P532,045.00 representing [the] unpaid purchase
principal in Manila is comparable to plaintiff's. Any price of the fishing nets covered by the Agreement
account of plaintiff with the principal as alleged, bore plus P68,000.00 representing the unpaid price of the
no evidence as no collection was ever demanded of floats not covered by said Agreement;
from her. The alleged P20,000.00 assumption b. 12% interest per annum counted from date of
specifically, as would have been testified to by the plaintiffs invoices and computed on their respective
defendant's husband remain a mere allegation. amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407
As to the properties sought to be recovered, the Court for P385,377.80 dated February 9, 1990;
sustains the possession by plaintiff of all equipments ii. Accrued interest of P27,904.02 on Invoice No.
and chattels recovered by virtue of the Writ of 14413 for P146,868.00 dated February 13, 1990;
Replevin. Considering the other vehicle which iii. Accrued interest of P12,920.00 on Invoice No.
appeared registered in the name of the defendant, and 14426 for P68,000.00 dated February 19, 1990;
to which even she admitted that part of the purchase c. P50,000.00 as and for attorneys fees,
price came from the business claimed mutually plus P8,500.00 representing P500.00 per appearance
operated, although the Court have not as much in court;
d. P65,000.00 representing P5,000.00 monthly rental
for storage charges on the nets counted from
September 20, 1990 (date of attachment) to
September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the
principal obligation or for the unpaid price of nets and
floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00,
this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor
of the plaintiff but, upon agreement of the parties, and,
to avoid further deterioration of the nets during the
pendency of this case, it was ordered sold at public
auction for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder. The
proceeds of the sale paid for by plaintiff was deposited
in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment
that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats
awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as
stipulated in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this reason
also that this Court earlier ordered the attachment
bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00
cash bidded and paid for by plaintiff to serve as its
bond in favor of defendants.
From the foregoing, it would appear therefore that
whatever judgment the plaintiff may be entitled to in
this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached
nets and floats. Considering, however, that the total
judgment obligation as computed above would amount
to only P840,216.92, it would be inequitable, unfair
and unjust to award the excess to the defendants who
are not entitled to damages and who did not put up a
single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the
nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from
the monetary judgment obligation enumerated above
and for plaintiff to retain possession and ownership of
the nets and floats and for the reimbursement of
the P900,000.00 deposited by it with the Clerk of
Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao entered
into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in
a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The
total price of the nets amounted to P532,045. Four
hundred pieces of floats worth P68,000 were also sold
to the Corporation.[4]
The buyers, however, failed to pay for the
fishing nets and the floats; hence, private respondent
filed a collection suit against Chua, Yao and Petitioner
Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in
their capacities as general partners, on the allegation
that Ocean Quest Fishing Corporation was a
nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission.[5] On
September 20, 1990, the lower court issued a Writ of
Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which
was then docked at the Fisheries Port, Navotas, Metro
Manila.
Instead of answering the Complaint, Chua filed
a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned
over to respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he
was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an
Answer with Counterclaim and Crossclaim and moved
for the lifting of the Writ of Attachment.[6] The trial court
maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a
public auction. Philippine Fishing Gear Industries won
the bidding and deposited with the said court the sales
proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered
its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and
that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.[8]
The trial court ruled that a partnership among
Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three[9] in
Civil Case No. 1492-MN which Chua and Yao had
brought against Lim in the RTC of Malabon, Branch
72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an
injunction and (e) damages.[10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to
have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full
payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be
sold at a higher price than P5,750,000.00 whatever will
be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less
than P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3
Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise
Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed
from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA)
which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that
petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the
fishing nets and floats purchased by and for the use of
the partnership. The appellate court ruled:
The evidence establishes that all the defendants
including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for
commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits
among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or
more persons bind themselves to contribute money,
property or industry to a common fund with the
intention of dividing the profits among themselves
(Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before
this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this
Court to reverse the assailed Decision on the following
grounds:
I THE COURT OF APPEALS ERRED IN HOLDING,
BASED ON A COMPROMISE AGREEMENT THAT
CHUA, YAO AND PETITIONER LIM ENTERED INTO
IN A SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED
THAT HE WAS ACTING FOR OCEAN QUEST
FISHING CORPORATION WHEN HE BOUGHT THE
NETS FROM PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED
THE SEIZURE AND ATTACHMENT OF PETITIONER
LIMS GOODS.
In determining whether petitioner may be held
liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao could
be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for
the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts
that the CA based its finding on the Compromise
Agreement alone. Furthermore, he disclaims any
direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and
Yao only, and that he has not even met the
representatives of the respondent company.Petitioner
further argues that he was a lessor, not a partner, of
Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased
to the two the main asset of the purported partnership
-- the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
We are not persuaded by the arguments of
petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among
Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:
Article 1767 - By the contract of partnership, two or
more persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a
partnership among the three existed based on the
following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao
who was engaged in commercial fishing to join him,
while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua,
and Yao verbally agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for the sum of
P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim
only to serve as security for the loan extended by
Jesus Lim;
(5) That Lim, Chua and Yao agreed that the
refurbishing , re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by
Chua and Yao;
(6) That because of the unavailability of funds, Jesus
Lim again extended a loan to the partnership in the
amount of P1 million secured by a check, because of
which, Yao and Chua entrusted the ownership papers
of two other boats, Chuas FB Lady Anne Mel and
Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement,
Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was
filed in the Malabon RTC, Branch 72 by Antonio Chua
and Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the
parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it
is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother.In
their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the
purchase and the repair of which were financed with
borrowed money, fell under the term common fund
under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats
would be divided equally among them also shows that
they had indeed formed a partnership.
Moreover, it is clear that the partnership
extended not only to the purchase of the boat, but also
to that of the nets and the floats. The fishing nets and
the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have
been inconceivable for Lim to involve himself so much
in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could
not have proceeded.
Given the preceding facts, it is clear that there
was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the
boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from
the sales and operations thereof would be divided
among them.
We stress that under Rule 45, a petition for
review like the present case should involve only
questions of law. Thus, the foregoing factual findings
of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. [16] In
assailing the factual findings of the two lower courts,
petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole
basis for assuming the existence of a partnership was
the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting
rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of
the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants rights
mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have
done so and have found, correctly, a preexisting
partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of
document alone, petitioner fails to appreciate that the
CA and the RTC delved into the history of the
document and explored all the possible consequential
combinations in harmony with law, logic and
fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that
the existence of a partnership was based only on the represented itself to be a corporation, will be estopped
Compromise Agreement. from denying its corporate capacity in a suit against it
Petitioner Was a Partner, Not a Lessor by a third person who relied in good faith on such
We are not convinced by petitioners argument representation. It cannot allege lack of personality to
that he was merely the lessor of the boats to Chua and be sued to evade its responsibility for a contract it
Yao, not a partner in the fishing venture. His argument entered into and by virtue of which it received
allegedly finds support in the Contract of Lease and advantages and benefits.
the registration papers showing that he was the owner On the other hand, a third party who, knowing
of the boats, including F/B Lourdes where the nets an association to be unincorporated, nonetheless
were found. treated it as a corporation and received benefits from
His allegation defies logic. In effect, he would it, may be barred from denying its corporate existence
like this Court to believe that he consented to the sale in a suit brought against the alleged corporation. In
of his own boats to pay a debt of Chua and Yao, with such case, all those who benefited from the
the excess of the proceeds to be divided among the transaction made by the ostensible corporation,
three of them. No lessor would do what petitioner despite knowledge of its legal defects, may be held
did. Indeed, his consent to the sale proved that there liable for contracts they impliedly assented to or took
was a preexisting partnership among all three. advantage of.
Verily, as found by the lower courts, petitioner There is no dispute that the respondent,
entered into a business agreement with Chua and Philippine Fishing Gear Industries, is entitled to be
Yao, in which debts were undertaken in order to paid for the nets it sold. The only question here is
finance the acquisition and the upgrading of the whether petitioner should be held jointly[18] liable with
vessels which would be used in their fishing Chua and Yao. Petitioner contests such liability,
business. The sale of the boats, as well as the division insisting that only those who dealt in the name of the
among the three of the balance remaining after the ostensible corporation should be held liable. Since his
payment of their loans, proves beyond cavil that F/B name does not appear on any of the contracts and
Lourdes, though registered in his name, was not his since he never directly transacted with the respondent
own property but an asset of the partnership. It is not corporation, ergo, he cannot be held liable.
uncommon to register the properties acquired from a Unquestionably, petitioner benefited from the
loan in the name of the person the lender trusts, who use of the nets found inside F/B Lourdes, the boat
in this case is the petitioner himself. After all, he is the which has earlier been proven to be an asset of the
brother of the creditor, Jesus Lim. partnership. He in fact questions the attachment of the
We stress that it is unreasonable indeed, it is nets, because the Writ has effectively stopped his use
absurd -- for petitioner to sell his property to pay a debt of the fishing vessel.
he did not incur, if the relationship among the three of It is difficult to disagree with the RTC and the
them was merely that of lessor-lessee, instead of CA that Lim, Chua and Yao decided to form a
partners. corporation. Although it was never legally formed for
Corporation by Estoppel unknown reasons, this fact alone does not preclude
Petitioner argues that under the doctrine of the liabilities of the three as contracting parties in
corporation by estoppel, liability can be imputed only to representation of it. Clearly, under the law on estoppel,
Chua and Yao, and not to him. Again, we disagree. those acting on behalf of a corporation and those
Section 21 of the Corporation Code of the benefited by it, knowing it to be without valid existence,
Philippines provides: are held liable as general partners.
Sec. 21. Corporation by estoppel. - All persons who Technically, it is true that petitioner did
assume to act as a corporation knowing it to be not directly act on behalf of the corporation. However,
without authority to do so shall be liable as general having reaped the benefits of the contract entered into
partners for all debts, liabilities and damages incurred by persons with whom he previously had an existing
or arising as a result thereof: Provided however, That relationship, he is deemed to be part of said
when any such ostensible corporation is sued on any association and is covered by the scope of the
transaction entered by it as a corporation or on any tort doctrine of corporation by estoppel. We reiterate the
committed by it as such, it shall not be allowed to use ruling of the Court in Alonso v. Villamor:[19]
as a defense its lack of corporate personality. A litigation is not a game of technicalities in which one,
One who assumes an obligation to an ostensible more deeply schooled and skilled in the subtle art of
corporation as such, cannot resist performance thereof movement and position , entraps and destroys the
on the ground that there was in fact no corporation. other. It is, rather, a contest in which each contending
Thus, even if the ostensible corporate entity is party fully and fairly lays before the court the facts in
proven to be legally nonexistent, a party may be issue and then, brushing aside as wholly trivial and
estopped from denying its corporate existence. The indecisive all imperfections of form and technicalities
reason behind this doctrine is obvious - an of procedure, asks that justice be done upon the
unincorporated association has no personality and merits. Lawsuits, unlike duels, are not to be won by a
would be incompetent to act and appropriate for itself rapiers thrust. Technicality, when it deserts its proper
the power and attributes of a corporation as provided office as an aid to justice and becomes its great
by law; it cannot create agents or confer authority on hindrance and chief enemy, deserves scant
another to act in its behalf; thus, those who act or consideration from courts. There should be no vested
purport to act as its representatives or agents do so rights in technicalities.
without authority and at their own risk. And as it is an Third Issue: Validity of Attachment
elementary principle of law that a person who acts as Finally, petitioner claims that the Writ of
an agent without authority or without a principal is Attachment was improperly issued against the
himself regarded as the principal, possessed of all the nets. We agree with the Court of Appeals that this
right and subject to all the liabilities of a principal, a issue is now moot and academic. As previously
person acting or purporting to act on behalf of a discussed, F/B Lourdes was an asset of the
corporation which has no valid existence assumes partnership and that it was placed in the name of
such privileges and obligations and becomes petitioner, only to assure payment of the debt he and
personally liable for contracts entered into or for other his partners owed. The nets and the floats were
acts performed as such agent.[17] specifically manufactured and tailor-made according to
The doctrine of corporation by estoppel may their own design, and were bought and used in the
apply to the alleged corporation and to a third party. In fishing venture they agreed upon. Hence, the issuance
the first instance, an unincorporated association, which of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by
specific agreement, ownership of the nets remained
with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the
assailed Decision AFFIRMED. Costs against
petitioner.
FERNANDOSANTOS, petitioner, vs. Spoues
ARSENIO and NIEVES
As a general rule, the factual findings of the
Court of Appeals affirming those of the trial court are
binding on the Supreme Court. However, there are
several exceptions to this principle. In the present
case, we find occasion to apply both the rule and one
of the exceptions.
The Case
Before us is a Petition for Review on Certiorari
assailing the November 28, 1997 Decision,[1] as well
as the August 17, 1998 and the October 9, 1998
Resolutions,[2] issued by the Court of Appeals (CA) in
CA-GR CV No. 34742. The Assailed Decision
disposed as follows:
WHEREFORE, the decision appealed from is
AFFIRMED save as for the counterclaim which is
hereby DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for
Reconsideration, the August 17, 1998 Resolution ruled
as follows:
WHEREFORE, [respondents] motion for
reconsideration is GRANTED. Accordingly, the courts
decision dated November 28, 1997 is hereby
MODIFIED in that the decision appealed from is
AFFIRMED in toto, with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack
of merit petitioners Motion for Reconsideration of the
August 17, 1998 Resolution.[5]
The Facts
The events that led to this case are
summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos
and [Respondent] Nieves Reyes were introduced to
each other by one Meliton Zabat regarding a lending
business venture proposed by Nieves. It was verbally
agreed that [petitioner would] act as financier while
[Nieves] and Zabat [would] take charge of solicitation
of members and collection of loan payments. The
venture was launched on June 13, 1986, with the
understanding that [petitioner] would receive 70% of
the profits while x x x Nieves and Zabat would earn
15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera
to [petitioner]. Gragera, as chairman of the Monte
Maria Development Corporation[6] (Monte Maria, for
brevity), sought short-term loans for members of the
corporation. [Petitioner] and Gragera executed an
agreement providing funds for Monte Marias
members. Under the agreement, Monte Maria,
represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner]
(Exh. A). x x x Nieves kept the books as representative
of [petitioner] while [Respondent] Arsenio, husband of
Nieves, acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and
Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their
partner Zabat engaged in the same lending business
in competition with their partnership[.] Zabat was
thereby expelled from the partnership. The operations
with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for
recovery of sum of money and damages. [Petitioner]
charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated
funds intended for Gragera for the period July 8, 1986
up to March 31, 1987. Upon Grageras complaint that
his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to
be given to Gragera. x x x Nieves allegedly failed to
account for the amount. [Petitioner] asserted that after
examination of the records, he found that of the total
amount of P4,623,201.90 entrusted to [respondents],
only P3,068,133.20 was remitted to Gragera, thereby
leaving the balance of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were
partners and not mere employees of [petitioner]. The
complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the
profits of the partnership.
x x x Arsenio alleged that he was enticed by
[petitioner] to take the place of Zabat after [petitioner]
learned of Zabats activities.Arsenio resigned from his
job at the Asian Development Bank to join the
partnership.
For her part, x x x Nieves claimed that she participated
in the business as a partner, as the lending activity
with Monte Maria originated from her initiative. Except
for the limited period of July 8, 1986 through August
20, 1986, she did not handle sums intended for
Gragera. Collections were turned over to Gragera
because he guaranteed 100% payment of all sums
loaned by Monte Maria. Entries she made on
worksheets were based on this assumptive 100%
collection of all loans. The loan releases were made
less Grageras agreed commission. Because of this
arrangement, she neither received payments from
borrowers nor remitted any amount to Gragera. Her
job was merely to make worksheets (Exhs. 15 to 15-
DDDDDDDDDD) to convey to [petitioner] how much
he would earn if all the sums guaranteed by Gragera
were collected.
[Petitioner] on the other hand insisted that
[respondents] were his mere employees and not
partners with respect to the agreement with
Gragera. He claimed that after he discovered Zabats
activities, he ceased infusing funds, thereby causing
the extinguishment of the partnership. The agreement
with Gragera was a distinct partnership [from] that of
[respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with
respect to the partnership between [petitioner] and
Gragera.
[Petitioner] further asserted that in Nieves capacity as
bookkeeper, she received all payments from which
Nieves deducted Grageras commission. The
commission would then be remitted to Gragera. She
likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to
the following points: whether [respondents] were
employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for
delivery to Gragera, whether the P1,555,068.70
claimed under the complaint was actually remitted to
Gragera and whether [respondents] were entitled to
their counterclaim for share in the profits.[7]
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court
held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera
was only a commission agent of petitioner, not his
partner. Petitioner moreover failed to prove that he had
entrusted any money to Nieves. Thus, respondents
counterclaim for their share in the partnership and for
damages was granted. The trial court disposed as
follows:
WHEREFORE, the Court hereby renders
judgment as follows:
THE SECOND AMENDED COMPLAINT dated
July 26, 1989 is DISMISSED.
The [Petitioner] FERNANDO J. SANTOS is
ordered to pay the [Respondent] NIEVES S.
REYES, the following:
.00 - The 15 percent share of the [respondent]
NIEVES S. REYES in the profits of her joint
venture with the [petitioner]. 39.2.2. Six (6)
percent of - As damages from P3,064,428.00
August 3, 1987 until the P3,064,428.00 is fully
paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS
is ordered to pay the [respondent] ARSENIO
REYES, the following: 39.3.1. P2,899,739.50 -
The balance of the 15 percent share of the
[respondent] ARSENIO REYES in the profits
of his joint venture with the [petitioner].
39.3.2. Six (6) percent of - As damages
from P2,899,739.50 August 3, 1987 until
the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS
is ordered to pay the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and
39.4.2 The cost of the suit.[8]
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was
upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for
Reconsideration, however, the trial courts Decision
was reinstated in toto. Subsequently, petitioners own
Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.
The CA ruled that the following circumstances
indicated the existence of a partnership among the
parties: (1) it was Nieves who broached to petitioner
the idea of starting a money-lending business and
introduced him to Gragera; (2) Arsenio received
dividends or profit-shares covering the period July 15
to August 7, 1986 (Exh. 6); and (3) the partnership
contract was executed after the Agreement with
Gragera and petitioner and thus showed the parties
intention to consider it as a transaction of the
partnership. In their common venture, petitioner
invested capital while respondents contributed industry
or services, with the intention of sharing in the profits
of the business.
The CA disbelieved petitioners claim that
Nieves had misappropriated a total of P200,000 which
was supposed to be delivered to Gragera to cover
unpaid commissions. It was his task to collect the
amounts due, while hers was merely to prepare the
daily cash flow reports (Exhs. 15-15DDDDDDDDDD)
to keep track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following
issues:[10]
Whether or not espondent Court of Appeals acted with
grave abuse of discretion tantamount to excess or lack
of jurisdiction in:
Holding that private respondents were
partners/joint venturers and not employees of
Santos in connection with the agreement
between Santos and Monte Maria/Gragera;
Affirming the findings of the trial court that the
phrase Received by on documents signed by
Nieves Reyes signified receipt of copies of the
documents and not of the sums shown thereon;
Affirming that the signature of Nieves Reyes on
Exhibit E was a forgery;
Finding that Exhibit H [did] not establish receipt
by Nieves Reyes of P200,000.00 for delivery to
Gragera;
 Affirming the dismissal of Santos [Second]
Amended Complaint;
Affirming the decision of the trial court,
upholding private respondents counterclaim;
Denying Santos motion for reconsideration
dated September 11, 1998.
Succinctly put, the following were the issues
raised by petitioner: (1) whether the parties
relationship was one of partnership or of employer-
employee; (2) whether Nieves misappropriated the
sums of money allegedly entrusted to her for delivery
to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as
determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the
services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and
Arsenio as credit investigator. That Nieves introduced
Gragera to Santos did not make her a partner.She was
only a witness to the Agreement between the
two. Separate from the partnership between petitioner
and Gragera was that which existed among petitioner,
Nieves and Zabat, a partnership that was dissolved
when Zabat was expelled.
On the other hand, both the CA and the trial
court rejected petitioners contentions and ruled that
the business relationship was one of partnership. We
quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x
x x Nieves herself provided the initiative in the lending
activities with Monte Maria. In consonance with the
agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of
sharing in the profits of the partnership. [Respondents]
provided services without which the partnership would
not have [had] the wherewithal to carry on the purpose
for which it was organized and as such [were]
considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between
[petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the
remaining partners simply continued the business of
the partnership without undergoing the procedure
relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was
therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,]
Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one
of the incidents of which was the lending operations
with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The
money-lending activities undertaken with Monte Maria
was done in pursuit of the business for which the
partnership between [petitioner], Nieves and Zabat
(later Arsenio) was organized. Gragera who
represented Monte Maria was merely paid
commissions in exchange for the collection of
loans. The commissions were fixed on gross returns,
regardless of the expenses incurred in the operation of
the business. The sharing of gross returns does not in
itself establish a partnership.[11]
We agree with both courts on this point. By the
contract of partnership, two or more persons bind
themselves to contribute money, property or industry
to a common fund, with the intention of dividing the
profits among themselves.[12] The Articles of
Agreement stipulated that the signatories shall share
the profits of the business in a 70-15-15 manner, with
petitioner getting the lions share.[13] This stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the
lower courts that the partnership continued lending
money to the members of the Monte Maria Community
Development Group, Inc., which later on changed its
business name to Private Association for Community
Development, Inc. (PACDI). Nieves was not merely
petitioners employee. She discharged her
bookkeeping duties in accordance with paragraphs 2
and 3 of the Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall
handle the solicitation and screening of prospective
borrowers, and shall x x x each be responsible in
handling the collection of the loan payments of the
borrowers that they each solicited.
3. That the bookkeeping and daily balancing of
account of the business operation shall be handled by
the SECOND PARTY.[14]
The Second Party named in the Agreement
was none other than Nieves Reyes. On the other
hand, Arsenios duties as credit investigator are
subsumed under the phrase screening of prospective
borrowers. Because of this Agreement and the
disbursement of monthly allowances and profit shares
or dividends (Exh. 6) to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the
partnership.
Indeed, the partnership was established to
engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of
Agreement had been signed by petitioner and
Gragera. Contrary to petitioners contention, there is no
evidence to show that a different business venture is
referred to in this Agreement, which was executed on
August 6, 1986, or about a month after the
Memorandum had been signed by petitioner and
Gragera on July 14, 1986. The Agreement itself attests
to this fact:
WHEREAS, the parties have decided to formalize the
terms of their business relationship in order that their
respective interests may be properly defined and
established for their mutual benefit and
understanding.[15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid
Commission
Petitioner faults the CA finding that Nieves did
not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his
daily collection to Nieves. This is shown by Exhibit B
(the Schedule of Daily Payments), which bears her
signature under the words received by. For the period
July 1986 to March 1987, Gragera should have earned
a total commission of P4,282,429.30. However,
only P3,068,133.20 was received by him. Thus,
petitioner infers that she misappropriated the
difference of P1,214,296.10, which represented the
unpaid commissions. Exhibit H is an untitled tabulation
which, according to him, shows that Gragera was also
entitled to a commission of P200,000, an amount that
was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E
and H did not show that Nieves received for delivery to
Gragera any amount from which the P1,214,296.10
unpaid commission was supposed to come, and that
such exhibits were insufficient proof that she had
embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as
members ledger does not clearly establish that Nieves
received amounts from Monte Marias members. The
document does not clearly state what amounts the
entries thereon represent. More importantly, Nieves
made the entries for the limited period of January 11,
1987 to February 17, 1987 only while the rest were
made by Grageras own staff.
Neither can we give probative value to Exhibit E which
allegedly shows acknowledgment of the remittance of
commissions to Verona Gonzales. The document is a
private one and its due execution and authenticity
have not been duly proved as required in [S]ection 20,
Rule 132 of the Rules of Court which states:
Sec. 20. Proof of Private Document Before any private
document offered as authentic is received in evidence,
its due execution and authenticity must be proved
either:
(a) By anyone who saw the document executed or
written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as
that which it is claimed to be.
The court a quo even ruled that the signature thereon
was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her
signature; she claimed that it is a forgery. The initial
stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures
of NIEVES (Exhs. A-3, B-1, F-1, among others) starts
from below and goes upward. This difference in the
start of the initial stroke of the signatures Exhs. E-1
and of the genuine signatures lends credence to
Nieves claim that the signature Exh. E-1 is a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily payment
(Exhs. B and F) were based on the predetermined
100% collection as guaranteed by Gragera is credible
and clearly in accord with the evidence. A perusal of
Exhs. B and F as well as Exhs. 15 to 15-
DDDDDDDDDD reveal that the entries were indeed
based on the 100% assumptive collection guaranteed
by Gragera. Thus, the total amount recorded on Exh.
B is exactly the number of borrowers multiplied by the
projected collection of P150.00 per borrower. This
holds true for Exh. F.
Corollarily, Nieves explanation that the documents
were pro forma and that she signed them not to signify
that she collected the amounts but that she received
the documents themselves is more believable than
[petitioners] assertion that she actually handled the
amounts.
Contrary to [petitioners] assertion, Exhibit H does not
unequivocally establish that x x x Nieves
received P200,000.00 as commission for Gragera. As
correctly stated by the court a quo, the document
showed a liquidation of P240,000.00 and
not P200,000.00.
Accordingly, we find Nieves testimony that after
August 20, 1986, all collections were made by Gragera
believable and worthy of credence. Since Gragera
guaranteed a daily 100% payment of the loans, he
took charge of the collections. As [petitioners]
representative, Nieves merely prepared the daily cash
flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable
[petitioner] to keep track of Grageras
operations. Gragera on the other hand devised the
schedule of daily payment (Exhs. B and F) to record
the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and
NIEVES on how the commissions of GRAGERA [were]
paid to him[,] that of NIEVES is more logical and
practical and therefore, more believable. SANTOS
version would have given rise to this improbable
situation: GRAGERA would collect the daily
amortizations and then give them to NIEVES; NIEVES
would get GRAGERAs commissions from the
amortizations and then give such commission to
GRAGERA.[17]
These findings are in harmony with the trial
courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to
NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth
column ADDITIONAL CASH that the additional cash
was P240,000.00. If Exh. H were the liquidation of
the P200,000.00 as alleged by SANTOS, then his
claim is not true. This is so because it is a liquidation
of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES
failure to give the P200,000.00 to GRAGERA when he
received the latters letter complaining of its delayed
release. Assuming as true SANTOS claim that he
gave P200,000.00 to GRAGERA, there is no
competent evidence that NIEVES did not give it to
GRAGERA. The only proof that NIEVES did not give it
is the letter. But SANTOS did not even present the
letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions
of the money-lending business of SANTOS were
covered by petty cash vouchers. It is therefore strange
why SANTOS did not present any voucher or receipt
covering the P200,000.00.[18]
In sum, the lower courts found it unbelievable
that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to
Gragera, because he had deducted his commissions
before remitting his collections. Exhibits B and F are
merely computations of what Gragera should collect
for the day; they do not show that Nieves received the
amounts stated therein. Neither is there sufficient proof
that she misappropriated P200,000, because Exhibit H
does not indicate that such amount was received by
her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why
a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the
Court of Appeals affirming those of the trial court are
binding and conclusive on the Supreme
Court.[19] Although there are exceptions to this rule,
petitioner has not satisfactorily shown that any of them
is applicable to this issue.
Third Issue:Accounting of Partnership
Petitioner refuses any liability for respondents
claims on the profits of the partnership. He maintains
that both business propositions were flops, as his
investments were consumed and eaten up by the
commissions orchestrated to be due Gragera a
situation that could not have been rendered possible
without complicity between Nieves and Gragera.
Respondent spouses, on the other hand,
postulate that petitioner instituted the action below to
avoid payment of the demands of Nieves, because
sometime in March 1987, she signified to petitioner
that it was about time to get her share of the profits
which had already accumulated to some P3 million.
Respondents add that while the partnership has not
declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the
counterclaim of Nieves, the spouses show that from
June 13, 1986 up to April 19, 1987, the profit
totaled P20,429,520 (Exhs. 10 et seq. and 15 et
seq.). Based on that income, her 15 percent share
under the joint venture amounts to P3,064,428 (Exh.
10-I-3); and Arsenios, P2,026,000 minus the P30,000
which was already advanced to him (Petty Cash
Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents
counterclaim was premature, pending an accounting of
the partnership. However, in its assailed Resolution of
August 17, 1998, it turned volte face. Affirming the trial
courts ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an
accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective
shares of the partners. Upon a further review of the
records of this case, however, there appears to be
sufficient basis to determine the amount of shares of
the parties and damages incurred by
[respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated
August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is
quoted below:
27. The defendants counterclaim for the payment of
their share in the profits of their joint venture with
SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the
profits is based on the agreement (Exhs. 5, 5-A and 5-
B). The profits are shown in the working papers (Exhs.
10 to 10-I, inclusive) which she prepared. Exhs. 10 to
10-I (inclusive) were based on the daily cash flow
reports of which Exh. 3 is a sample. The originals of
the daily cash flow reports (Exhs. 3 and 15 to 15-D
(10) were given to SANTOS. The joint venture had a
net profit of P20,429,520.00 (Exh. 10-I-1), from its
operations from June 13, 1986 to April 19, 1987 (Exh.
1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that
the money-lending business he was engaged in netted
a profit and that the originals of the daily case flow
reports were furnished to him. SANTOS however
alleged that the money-lending operation of his joint
venture with NIEVES and ZABAT resulted in a loss of
about half a million pesos to him. But such loss, even if
true, does not negate NIEVES claim that overall, the
joint venture among them SANTOS, NIEVES and
ARSENIO netted a profit. There is no reason for the
Court to doubt the veracity of [the testimony of]
NIEVES.
27.2 The P26,260.50 which ARSENIO received as
part of his share in the profits (Exhs. 6, 6-A and 6-B)
should be deducted from his total share.[21]
After a close examination of respondents
exhibits, we find reason to disagree with the
CA. Exhibit 10-I[22] shows that the partnership earned a
total income of P20,429,520 for the period June 13,
1986 until April 19, 1987. This entry is derived from the
sum of the amounts under the following column
headings: 2-Day Advance Collection, Service Fee,
Notarial Fee, Application Fee, Net Interest Income and
Interest Income on Investment. Such entries represent
the collections of the money-lending business or its
gross income.
The total income shown on Exhibit 10-I did not
consider the expenses sustained by the
partnership. For instance, it did not factor in the gross
loan releases representing the money loaned to
clients. Since the business is money-lending, such
releases are comparable with the inventory or supplies
in other business enterprises.
Noticeably missing from the computation of the
total income is the deduction of the weekly allowance
disbursed to respondents. Exhibits I et seq. and J et
seq.[23] show that Arsenio received allowances from
July 19, 1986 to March 27, 1987 in the aggregate
amount of P25,500; and Nieves, from July 12, 1986 to
March 27, 1987 in the total amount of P25,600. These
allowances are different from the profit already
received by Arsenio. They represent expenses that
should have been deducted from the business
profits. The point is that all expenses incurred by the
money-lending enterprise of the parties must first be
deducted from the total income in order to arrive at the
net profit of the partnership. The share of each one of
them should be based on this net profit and not from
the gross income or total income reflected in Exhibit
10-I, which the two courts invariably referred to as
cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the
Daily Cashflow Reports, do not reflect the business
expenses incurred by the parties, because they show
only the daily cash collections. Contrary to the rulings
of both the trial and the appellate courts, respondents
exhibits do not reflect the complete financial condition
of the money-lending business. The lower courts
obviously labored over a mistaken notion that Exhibit
10-I-1 represented the net profits earned by the
partnership.
For the purpose of determining the profit that
should go to an industrial partner (who shares in the
profits but is not liable for the losses), the gross
income from all the transactions carried on by the firm
must be added together, and from this sum must be
subtracted the expenses or the losses sustained in the
business. Only in the difference representing the net
profits does the industrial partner share. But if, on the
contrary, the losses exceed the income, the industrial
partner does not share in the losses.[25]
When the judgment of the CA is premised on a
misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different
conclusion, as in this particular issue, a review of its
factual findings may be conducted, as an exception to
the general rule applied to the first two issues.[26]
The trial court has the advantage of observing
the witnesses while they are testifying, an opportunity
not available to appellate courts. Thus, its assessment
of the credibility of witnesses and their testimonies are
accorded great weight, even finality, when supported
by substantial evidence; more so when such
assessment is affirmed by the CA. But when the issue
involves the evaluation of exhibits or documents that
are attached to the case records, as in the third issue,
the rule may be relaxed. Under that situation, this
Court has a similar opportunity to inspect, examine
and evaluate those records, independently of the lower
courts.Hence, we deem the award of the partnership
share, as computed by the trial court and adopted by
the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is
partly GRANTED. The assailed November 28, 1997
Decision is AFFIRMED, but the challenged
Resolutions dated August 17, 1998 and October 9,
1998 are REVERSED and SET ASIDE. No costs.
8. Tocao vs CA 365 SCRA 463 2001
MARJORIE TOCAO and WILLIAM T.
BELO, petitioners, vs. COURT OF
APPEALS and NENITA A.
ANAY, respondents.
The inherent powers of a Court to amend and
control its processes and orders so as to make them
conformable to law and justice includes the right to
reverse itself, especially when in its honest opinion it
has committed an error or mistake in judgment, and
that to adhere to its decision will cause injustice to a
party litigant.[1]
On November 14, 2001, petitioners Marjorie
Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4,
2000. They maintain that there was no partnership
bettween petitioner Belo, on the one hand, and
respondent Nenita A. Anay, on the other hand; and
that the latter being merely an employee of petitioner
Tocao.
After a careful review of the evidence
presented, we are convinced that, indeed, petitioner
Belo acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by
respondents own witness, Elizabeth Bantilan, during
her cross-examination. Furthermore, Bantilan testified
that it was Peter Lo who was the companys
financier. Thus:
Q You mentioned a while ago the name William
Belo. Now, what is the role of William Belo with
Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he
was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody defendant's consent to the agreement, Exhibit A, was
who is Peter Lo and he acts as guarantor for us. We On November 29, 1947, the plaintiff entered on a secured by the representation of plaintiff that he was
can borrow money from him. written agreement, Exhibit A, with the defendant, the the owner, or was about to become owner of an
Q You mentioned a certain Peter Lo. Who is this Peter
most important provisions of which are (1) that they exclusive bottling franchise, which representation was
Lo? shall organize a partnership for the bottling and false, and plaintiff did not secure the franchise, but
A Peter Lo is based in Singapore. distribution of Mision soft drinks, plaintiff to act as was given to defendant himself; (2) that defendant did
Q What is the role of Peter Lo in the industrial partner or manager, and the defendant as a not fail to carry out his undertakings, but that it was
Geminesse Enterprise? capitalist, furnishing the capital necessary therefor; (2) plaintiff who failed; (3) that plaintiff agreed to contribute
A He is the one fixing our orders that open that the defendant was to decide matters of general the exclusive franchise to the partnership, but plaintiff
the L/C. policy regarding the business, while the plaintiff was to failed to do so. He also presented a counter-claim for
Q You mean Peter Lo is the financier? attend to the operation and development of the bottling P200,000 as damages. On these issues the parties
A Yes, he is the financier. plant; (3) that the plaintiff was to secure the Mission went to trial, and thereafter the Court of First Instance
Q And the defendant William Belo is merely Soft Drinks franchise for and in behalf of the proposed rendered judgment ordering defendant to render an
the guarantor of Geminesse Enterprise, am partnership; and (4) that the plaintiff was to receive 30 accounting of the profits of the bottling and distribution
I correct? per cent of the net profits of the business. The above business, subject of the action, and to pay plaintiff 15
A Yes, sir.[2] agreement was arrived at after various conferences percent thereof. it held that the execution of the
The foregoing was neither refuted nor and consultations by and between them, with the contract of partnership could not be enforced upon the
contradicted by respondents evidence. It should be assistance of their respective attorneys. Prior to parties, but it also held that the defense of fraud was
recalled that the business relationship created entering into this agreement, plaintiff had informed the not proved. Against this judgment both parties have
between petitioner Tocao and respondent Anay was Mission Dry Corporation of Los Angeles, California, appealed.
an informal partnership, which was not even recordedU.S.A., manufacturers of the bases and ingridients of The most important question of fact to be determined
with the Securities and Exchange Commission. As the beverages bearing its name, that he had interested is whether defendant had falsely represented that he
such, it was understandable that Belo, who was aftera prominent financier (defendant herein) in the had an exclusive franchise to bottle Mission
all petitioner Tocaos good friend and confidante, would
business, who was willing to invest half a million beverages, and whether this false representation or
occasionally participate in the affairs of the business,
dollars in the bottling and distribution of the said fraud, if it existed, annuls the agreement to form the
although never in a formal or official capacity.[3] Again,
beverages, and requested, in order that he may close partnership. The trial court found that it is improbable
respondents witness, Elizabeth Bantilan, confirmed the deal with him, that the right to bottle and distribute that defendant was never shown the letter, Exhibit J,
that petitioner Belos presence in Geminesse be granted him for a limited time under the condition granting plaintiff had; that the drafts of the contract
Enterprises meetings was merely as guarantor of the that it will finally be transferred to the corporation prior to the final one can not be considered for the
company and to help petitioner Tocao.[4] (Exhibit H). Pursuant for this request, plaintiff was purpose of determining the issue, as they are
Furthermore, no evidence was presented to given "a thirty-days" option on exclusive bottling and presumed to have been already integrated into the
show that petitioner Belo participated in the profits of
distribution rights for the Philippines" (Exhibit J). final agreement; that fraud is never presumed and
the business enterprise.Respondent herself professedFormal negotiations between plaintiff and defendant must be proved; that the parties were represented by
lack of knowledge that petitioner Belo received any began at a meeting on November 27, 1947, at the attorneys, and that if any party thereto got the worse
share in the net income of the partnership.[5]On theManila Hotel, with their lawyers attending. Before this part of the bargain, this fact alone would not invalidate
other hand, petitioner Tocao declared that petitioner
meeting plaintiff's lawyer had prepared the draft of the the agreement. On this appeal the defendant, as
Belo was not entitled to any share in the profits ofagreement, Exhibit II or OO, but this was not appellant, insists that plaintiff did represent to the
Geminesse Enterprise.[6] With no participation in the
satisfactory because a partnership, instead of a defendant that he had an exclusive franchise, when as
profits, petitioner Belo cannot be deemed a partner corporation, was desired. Defendant's lawyer prepared a matter of fact, at the time of its execution, he no
since the essence of a partnership is that the partners
after the meeting his own draft, Exhibit HH. This last longer had it as the same had expired, and that,
share in the profits and losses.[7] draft appears to be the main basis of the agreement, therefore, the consent of the defendant to the contract
Consequently, inasmuch as petitioner Belo was
Exhibit A. was vitiated by fraud and it is, consequently, null and
not a partner in Geminesse Enterprise, respondent The contract was finally signed by plaintiff on void.
had no cause of action against him and her complaintDecember 3, 1947. Plaintiff did not like to go to the Our study of the record and a consideration of all the
against him should accordingly be dismissed. United States without the agreement being not first surrounding circumstances lead us to believe that
As regards the award of damages, petitioners
signed. On that day plaintiff and defendant went to the defendant's contention is not without merit. Plaintiff's
argue that respondent should be deemed in bad faith United States, and on December 10, 1947, a franchise attorney, Mr. Laurea, testified that Woodhouse
for failing to account for stocks of Geminesse agreement (Exhibit V) was entered into the Mission presented himself as being the exclusive grantee of a
Enterprise amounting to P208,250.00 and that, Dry Corporation and Fortunato F. Halili and/or Charles franchise, thus:
accordingly, her claim for damages should be barred F. Woodhouse, granted defendant the exclusive right,
to that extent. We do not agree. Given the license, and authority to produce, bottle, distribute, and A. I don't recall any discussion about that matter. I took
circumstances surrounding private respondents sell Mision beverages in the Philippines. The plaintiff along with me the file of the office with regards to this
sudden ouster from the partnership by petitioner and the defendant thereafter returned to the matter. I notice from the first draft of the document
Tocao, her act of withholding whatever stocks were in
Philippines. Plaintiff reported for duty in January, 1948, which I prepared which calls for the organization of a
her possession and control was justified, if only tobut operations were not begun until the first week of corporation, that the manager, that is, Mr. Woodhouse,
serve as security for her claims against the February, 1948. In January plaintiff was given as is represented as being the exclusive grantee of a
partnership. However, while we do not agree that theadvance, on account of profits, the sum of P2,000, franchise from the Mission Dry Corporation. . . . (t.s.n.,
same renders private respondent in bad faith and besides the use of a car; in February, 1948, also p.518)
should bar her claim for damages, we find that the said
P2,000, and in March only P1,000. The car was As a matter of fact, the first draft that Mr. Laurea
sum of P208,250.00 should be deducted from withdrawn from plaintiff on March 9, 1948. prepared, which was made before the Manila Hotel
whatever amount is finally adjudged in her favor on the
When the bottling plant was already on operation, conference on November 27th, expressly states that
basis of the formal account of the partnership affairs to
plaintiff demanded of defendant that the partnership plaintiff had the exclusive franchise. Thus, the first
be submitted to the Regional Trial Court. papers be executed. At first defendant executed paragraph states:
WHEREFORE, based on the foregoing, the himself, saying there was no hurry. Then he promised
Motion for Reconsideration of petitioners is to do so after the sales of the product had been Whereas, the manager is the exclusive grantee of a
PARTIALLY GRANTED. The Regional Trial Court of increased to P50,000. As nothing definite was franchise from the Mission Dry Corporation San
Makati is hereby ordered to DISMISS the complaint, forthcoming, after this condition was attained, and as Francisco, California, for the bottling of Mission
docketed as Civil Case No. 88-509, as against defendant refused to give further allowances to products and their sale to the public throughout the
petitioner William T. Belo only. The sum of plaintiff, the latter caused his attorneys to take up the Philippines; . . . .
P208,250.00 shall be deducted from whatever amount matter with the defendant with a view to a possible
petitioner Marjorie Tocao shall be held liable to pay
settlement. as none could be arrived at, the present 3. The manager, upon the organization of the said
respondent after the formal accounting of the action was instituted. corporation, shall forthwith transfer to the said
partnership affairs. In his complaint plaintiff asks for the execution of the corporation his exclusive right to bottle Mission
contract of partnership, an accounting of the profits, products and to sell them throughout the Philippines. .
9. Woodhouse vs Halili 83 Phil 526 1953 and a share thereof of 30 per cent, as well as ...
CHARLES F. WOODHOUSE, plaintiff- damages in the amount of P200,000. In his answer The trial court did not consider this draft on the
appellant, vs.FORTUNATO F. HALILI, defendant- defendant alleges by way of defense (1) that principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of
considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the
parties thereto and the circumstances surrounding the
execution of the contract. The issue of fact is: Did
plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to
the determination of said issue. The act or statement
of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to
prove how he induced the defendant to enter into it
to prove the representations or inducements, or fraud,
with which or by which he secured the other party's
consent thereto. These are expressly excluded from
the parol evidence rule. (Bough and Bough vs.
Cantiveros and Hanopol, 40 Phil., 209; port Banga
Lumber Co. vs. Export & Import Lumber Co., 26 Phil.,
602; III Moran 221,1952 rev. ed.) Fraud and false
representation are an incident to the creation of a jural
act, not to its integration, and are not governed by the
rules on integration. Were parties prohibited from
proving said representations or inducements, on the
ground that the agreement had already been entered
into, it would be impossible to prove misrepresentation
or fraud. Furthermore, the parol evidence rule
expressly allows the evidence to be introduced when
the validity of an instrument is put in issue by the
pleadings (section 22, par. (a), Rule 123, Rules of
Court),as in this case.
That plaintiff did make the representation can also be
easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:.
. . . He told me to come back to him when I was able to
speak with authority so that we could come to terms as
far as he and I were concerned. That is the reason
why the cable was sent. Without this authority, I am in
a poor bargaining position. . .
I would propose that you grant me the exclusive
bottling and distributing rights for a limited period of
time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling
was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to
bargain with defendant and close the deal with him, he
must have used his said option for the above-indicated
purpose, especially as it appears that he was able to
secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation
he had with defendant is to the effect that when
plaintiff called on the latter, the latter answered, "Well,
come back to me when you have the authority to
operate. I am definitely interested in the bottling
business." (t. s. n., pp. 60-61.) When after the
elections of 1949 plaintiff went to see the defendant
(and at that time he had already the option), he must
have exultantly told defendant that he had the
authority already. It is improbable and incredible for
him to have disclosed the fact that he had only an
option to the exclusive franchise, which was to last
thirty days only, and still more improbable for him to
have disclosed that, at the time of the signing of the
formal agreement, his option had already expired. Had
he done so, he would have destroyed all his
bargaining power and authority, and in all probability
lost the deal itself.
The trial court reasoned, and the plaintiff on this
appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for
and in behalf of the proposed partnership." The
existence of this provision in the final agreement does
not militate against plaintiff having represented that he
had the exclusive franchise; it rather strengthens belief
that he did actually make the representation. How
could plaintiff assure defendant that he would get the
franchise for the latter if he had not actually obtained it
for himself? Defendant would not have gone into the
business unless the franchise was raised in his name,
or at least in the name of the partnership. Plaintiff
assured defendant he could get the franchise. Thus, in
the draft prepared by defendant's attorney, Exhibit HH,
the above provision is inserted, with the difference that
instead of securing the franchise for the defendant,
plaintiff was to secure it for the partnership. To show
that the insertion of the above provision does not
eliminate the probability of plaintiff representing
himself as the exclusive grantee of the franchise, the
final agreement contains in its third paragraph the
following:
. . . and the manager is ready and willing to allow the
capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the
partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that
defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise.
Thus it is that it was also agreed upon that the
franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the
plaintiff.
Again, the immediate reaction of defendant, when in
California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself
testified, plaintiff's participation in the net profits to one
half of that agreed upon. He could not have had such
a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the
franchise.
The learned trial judge reasons in his decision that the
assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the
alleged representation took place before the
conferences were had, in other words, plaintiff had
already represented to defendant, and the latter had
already believed in, the existence of plaintiff's
exclusive franchise before the formal negotiations, and
they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that he
had the exclusive franchise; and defendant's lawyer
testified that plaintiff explained to him, upon being
asked for the franchise, that he had left the papers
evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did
actually represent to defendant that he was the holder
of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps
have gone to California and incurred expenses for the
trip, unless he believed that plaintiff did have that
exclusive privilege, and that the latter would be able to
get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his
(plaintiff's) exclusive franchise, as he induced him to
that belief, and he may not be allowed to deny that
defendant was induced by that belief. (IX Wigmore,
sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false
representation. Does it amount to a fraud that would
vitiate the contract? It must be noted that fraud is
manifested in illimitable number of degrees or
gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious
machinations and representations that the law
punishes as a crime. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be a ground for the
annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for
damages. This Court had held that in order that fraud
may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante),
inducement to the making of the contract. (Article
1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil.
160.) The record abounds with circumstances
indicative that the fact that the principal consideration,
the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability
of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The
original draft prepared by defendant's counsel was to
the effect that plaintiff obligated himself to secure a
franchise for the defendant. Correction appears in this
same original draft, but the change is made not as to
the said obligation but as to the grantee. In the
corrected draft the word "capitalist"(grantee) is
changed to "partnership." The contract in its final form
retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff
had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The
plaintiff no longer had the exclusive franchise, or the
option thereto, at the time the contract was perfected.
But while he had already lost his option thereto (when
the contract was entered into), the principal obligation
that he assumed or undertook was to secure said
franchise for the partnership, as the bottler and
distributor for the Mission Dry Corporation. We
declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration,
or the principal inducement, that led plaintiff to enter
into the partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or
price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the
partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the
partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the
said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission
products and to sell them throughout the
Philippines. As a consideration for such transfer, the
CAPITALIST shall transfer to the Manager fully paid
non assessable shares of the said corporation . . .
twenty-five per centum of the capital stock of the said
corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he
never had experience in the production or distribution
of beverages. As a matter of fact, when the bottling
plant being built, all that he suggested was about the
toilet facilities for the laborers.
We conclude from the above that while the
representation that plaintiff had the exclusive franchise
did not vitiate defendant's consent to the contract, it
was used by plaintiff to get from defendant a share of
30 per cent of the net profits; in other words, by
pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the
consent of the latter to give him (plaintiff) a big slice in
the net profits. This is the dolo incidente defined in
article 1270 of the Spanish Civil Code, because it was
used to get the other party's consent to a big share in
the profits, an incidental matter in the agreement.
Having arrived at the conclusion that the agreement
may not be declared null and void, the question that
next comes before us is, May the agreement be
carried out or executed? We find no merit in the claim
of plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant, as
it is evident from the very language of the agreement
that the parties intended that the execution of the
agreement to form a partnership was to be carried out
at a later date. They expressly agreed that they shall
form a partnership. (Par. No. 1, Exhibit A.) As a matter
of fact, from the time that the franchise from the
Mission Dry Corporation was obtained in California,
plaintiff himself had been demanding that defendant
comply with the agreement. And plaintiff's present
action seeks the enforcement of this agreement.
Plaintiff's claim, therefore, is both inconsistent with
their intention and incompatible with his own conduct
and suit.
As the trial court correctly concluded, the defendant
may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under
the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the
individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls
within what Spanish commentators call a very
personal act (acto personalismo), of which courts may
not compel compliance, as it is considered an act of
violence to do so.
The last question for us to decide is that of
damages,damages that plaintiff is entitled to receive
because of defendant's refusal to form the partnership,
and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation.
(Article 1101, Spanish Civil Code.) Under article 1106
of the Spanish Civil Code the measure of damages is
the actual loss suffered and the profits reasonably
expected to be received, embraced in the terms dao
emergente and lucro cesante. Plaintiff is entitled under
the terms of the agreement to 30 per cent of the net
profits of the business. Against this amount of
damages, we must set off the damage defendant
suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits.
We can do no better than follow the appraisal that the
parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff
did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer
to the partnership, his spontaneous reaction was to
reduce plaintiff's share form 30 per cent to 15 per cent
only, to which reduction defendant appears to have
readily given his assent. It was under this
understanding, which amounts to a virtual modification
of the contract, that the bottling plant was established
and plaintiff worked as Manager for the first three
months. If the contract may not be considered
modified as to plaintiff's share in the profits, by the
decision of defendant to reduce the same to one-half
and the assent thereto of plaintiff, then we may
consider the said amount as a fair estimate of the
damages plaintiff is entitled to under the principle
enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's decision
to reduce plaintiff's share and plaintiff's consent
thereto amount to an admission on the part of each of
the reasonableness of this amount as plaintiff's share.
This same amount was fixed by the trial court. The
agreement contains the stipulation that upon the
termination of the partnership, defendant was to
convey the franchise back to plaintiff (Par. 11, Exhibit
A). The judgment of the trial court does not fix the
period within which these damages shall be paid to
plaintiff. In view of paragraph 11 of Exhibit A, we
declare that plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses
the franchise from the Mission Dry Corporation.
10. Jarantilla vs Jarantila 636 Scra 299 2010
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.ANTONIETA JARANTILLA, BUENAVENTURA
REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and
TOMASJARANTILLA,
This petition for review on certiorari1 seeks to modify
the Decision2 of the Court of Appeals dated July 30,
2002 in CA-G.R. CV No. 40887, which set aside the
Decision3 dated December 18, 1992 of the Regional
Trial Court (RTC) of Quezon City, Branch 98 in Civil
Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were
survived by eight children: Federico, Delfin, Benjamin,
Conchita, Rosita, Pacita, Rafael and
Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son
Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo
and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint
before the RTC while Antonieta Jarantilla, his aunt,
was the plaintiff therein. His co-respondents before he
joined his aunt Antonieta in her complaint, were his
late aunt Conchita Jarantillas husband Buenaventura
Remotigue, who died during the pendency of the case,
his cousin Cynthia Remotigue, the adopted daughter
of Conchita Jarantilla and Buenaventura Remotigue,
and his brothers Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned
amongst themselves the real properties of their
deceased parents.7 With the exception of the real
property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties
for the years 1947-1949 for the studies of Rafael and
Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and
Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and Conchita
Jarantilla to provide mutual assistance to each other
by way of financial support to any commercial and
agricultural activity on a joint business arrangement.
This business relationship proved to be successful as
they were able to establish a manufacturing and
trading business, acquire real properties, and
construct buildings, among other things.9 This
partnership ended in 1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely
dissolve their "joint business
relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and
Conchita Remotigue executed a document wherein
they acknowledged that while registered only in
Buenaventura Remotigues name, they were not the
only owners of the capital of the businesses Manila
Athletic Supply (712 Raon Street, Manila), Remotigue
Trading (Calle Real, Iloilo City) and Remotigue Trading
(Cotabato City). In this same "Acknowledgement of
Participating Capital," they stated the participating
capital of their co-owners as of the year 1952, with
Antonieta Jarantillas stated as eight thousand pesos
(8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (5,000.00).12
The present case stems from the amended
complaint13 dated April 22, 1987 filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia
Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla
and Tomas Jarantilla, for the accounting of the assets
and income of the co-ownership, for its partition and
the delivery of her share corresponding to eight
percent (8%), and for damages. Antonieta claimed that
in 1946, she had entered into an agreement with
Conchita and Buenaventura Remotigue, Rafael
Jarantilla, and Rosita and Vivencio Deocampo to
engage in business. Antonieta alleged that the initial
contribution of property and money came from the
heirs inheritance, and her subsequent annual
investment of seven thousand five hundred pesos
(7,500.00) as additional capital came from the
proceeds of her farm. Antonieta also alleged that from
1946-1969, she had helped in the management of the
business they co-owned without receiving any salary.
Her salary was supposedly rolled back into the
business as additional investments in her behalf.
Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of
the defendants since the only way the defendants
could have purchased these properties were through
the partnership as they had no other source of income.
The respondents, including petitioner herein, in their
Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no
position to do so as she was still in school at that time.
In fact, the proceeds of the lands they partitioned were
devoted to her studies. They also averred that while
she may have helped in the businesses that her older
sister Conchita had formed with Buenaventura
Remotigue, she was paid her due salary. They did not
deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact
used this as evidence to support their claim that
Antonietas 8% share was limited to the businesses
enumerated therein. With regard to Antonietas claim
in their other corporations and businesses, the
respondents said these should also be limited to the
number of her shares as specified in the respective
articles of incorporation. The respondents denied
using the partnerships income to purchase the subject
real properties and said that the certificates of title
should be binding on her.16
During the course of the trial at the RTC, petitioner
Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise
agreement17 with Antonieta Jarantilla wherein he
supported Antonietas claims and asserted that he too
was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was. He
prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in
plaintiffs prayer for an accounting from the other
defendants, and the partition of the properties of the
co-ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share
of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992,
approved the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in
favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court
renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue,
Doroteo Jarantilla and Tomas Jarantilla ordering the
latter:
1. to deliver to the plaintiff her 8% share or its
equivalent amount on the real properties covered by
TCT Nos. 35655, 338398, 338399 & 335395, all of the
Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the
Registry of Deeds of Rizal; and TCT No. T-6309 of the
Registry of Deeds of Cotabato based on their present
market value;
2. to deliver to the plaintiff her 8% share or its
equivalent amount on the Remotigue Agro-Industrial
Corporation, Manila Athletic Supply, Inc., MAS Rubber
Products, Inc. and Buendia Recapping Corporation
based on the shares of stocks present book value;
3. to account for the assets and income of the co-
ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of
50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of 50,000.00
as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this
decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a
complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of
the properties."22
While the Court of Appeals agreed to some of the
RTCs factual findings, it also established that
Antonieta Jarantilla was not part of the partnership
formed in 1946, and that her 8% share was limited to
the businesses enumerated in the Acknowledgement
of Participating Capital. On July 30, 2002, the Court of
Appeals rendered the herein challenged decision
setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18
December 1992 is SET ASIDE and a new one is
hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be
given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr.
be given his share of 6% of the assets and profits of
the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the
following corporations to the extent stated in their
Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion
for Partial Reconsideration but the Court of Appeals
denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own
petition for review on certiorari25 dated September 16,
2002, assailing the Court of Appeals decision on
"similar grounds and similar assignments of errors as
this present case"26 but it was dismissed on November
20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance
with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the
sole ground that:
THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN NOT RULING THAT
PETITIONER FEDERICO JARANTILLA, JR. IS
ENTITLED TO A SIX PER CENTUM (6%) SHARE OF
THE OWNERSHIP OF THE REAL PROPERTIES
ACQUIRED BY THE OTHER DEFENDANTS USING
COMMON FUNDS FROM THE BUSINESSES
WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the
Remotigue spouses, the Deocampo spouses, Rosita
Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and
Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends
that from this partnership, several other corporations
and businesses were established and several real
properties were acquired. In this petition, he is
essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and
Antonieta Jarantillas testimony to support this
contention.
The core issue is whether or not the partnership
subject of the Acknowledgement of Participating
Capital funded the subject real properties. In other
words, what is the petitioners right over these real
properties?
It is a settled rule that in a petition for review
on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the
parties and passed upon by this Court.29
A question of law arises when there is doubt as to
what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the
truth or falsity of the alleged facts. For a question to be
one of law, the same must not involve an examination
of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue
must rest solely on what the law provides on the given
set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the
question posed is one of fact. Thus, the test of whether
a question is one of law or of fact is not the appellation
given to such question by the party raising the same;
rather, it is whether the appellate court can determine
the issue raised without reviewing or evaluating the
evidence, in which case, it is a question of law;
otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the
factual findings of the RTC, this Court, in resolving the
questions of law that are now in issue, shall look into
the facts only in so far as the two courts a quo differed
in their appreciation thereof.
The RTC found that an unregistered partnership
existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating
Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three
businesses listed therein and in the other businesses
and real properties of the respondents as they had
supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with
the RTC as to Antonietas 8% share in the business
enumerated in the Acknowledgement of Participating
Capital, but not as to her share in the other
corporations and real properties. The Court of Appeals
ruled that Antonietas claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to
pattern her share in the other corporations from her
share in the partnerships businesses. The Court of
Appeals also said that her claim in the respondents
real properties was more "precarious" as these were
all covered by certificates of title which served as the
best evidence as to all the matters contained
therein.32 Since petitioners claim was essentially the
same as Antonietas, the Court of Appeals also ruled
that petitioner be given his 6% share in the same
businesses listed in the Acknowledgement of
Participating Capital.
Factual findings of the trial court, when confirmed by
the Court of Appeals, are final and conclusive except
in the following cases: (1) when the inference made is
manifestly mistaken, absurd or impossible; (2) when
there is a grave abuse of discretion; (3) when the
finding is grounded entirely on speculations, surmises
or conjectures; (4) when the judgment of the Court of
Appeals is based on misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly
considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals
are premised on the absence of evidence and are
contradicted by the evidence on record.33
In this case, we find no error in the ruling of the Court
of Appeals.
Both the petitioner and Antonieta Jarantilla
characterize their relationship with the respondents as
a co-ownership, but in the same breath, assert that a
verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating
Capital.
There is a co-ownership when an undivided thing or
right belongs to different persons.34 It is a partnership
when two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves.35 The Court, in Pascual v. The
Commissioner of Internal Revenue,36 quoted the
concurring opinion of Mr. Justice Angelo Bautista in
Evangelista v. The Collector of Internal Revenue37 to
further elucidate on the distinctions between a co-
ownership and a partnership, to wit:
I wish however to make the following observation:
Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed
a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
From the above it appears that the fact that those who
agree to form a co- ownership share or do not share
any profits made by the use of the property held in
common does not convert their venture into a
partnership. Or the sharing of the gross returns does
not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right
or interest in the property. This only means that, aside
from the circumstance of profit, the presence of other
elements constituting partnership is necessary, such
as the clear intent to form a partnership, the existence
of a juridical personality different from that of the
individual partners, and the freedom to transfer or
assign any interest in the property by one with the
consent of the others.
It is evident that an isolated transaction whereby two
or more persons contribute funds to buy certain real
estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a
common enterprise and agree to share the gross
returns of that enterprise in proportion to their
contribution, but who severally retain the title to their
respective contribution, are not thereby rendered
partners. They have no common stock or capital, and
no community of interest as principal proprietors in the
business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a
co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale
of land create a partnership; the parties are only
tenants in common.
Where plaintiff, his brother, and another agreed to
become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of
disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no
partnership existed as between the three parties,
whatever their relation may have been as to third
parties.
In order to constitute a partnership inter sese there
must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a
community of interest, as far as third persons are
concerned as enables each party to make contract,
manage the business, and dispose of the whole
property. x x x.
The common ownership of property does not itself
create a partnership between the owners, though they
may use it for the purpose of making gains; and they
may, without becoming partners, agree among
themselves as to the management, and use of such
property and the application of the proceeds
therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two
essential elements in a contract of partnership: (a) an
agreement to contribute money, property or industry to
a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly,
all the parties in this case have agreed to, and did,
contribute money and property to a common
fund. Hence, the issue narrows down to their intent in
acting as they did.39 It is not denied that all the parties
in this case have agreed to contribute capital to a
common fund to be able to later on share its profits.
They have admitted this fact, agreed to its veracity,
and even submitted one common documentary
evidence to prove such partnership - the
Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the
Acknowledgement of Participating Capital, it would be
instructive to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and
Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City,
P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila,
the Remotigue Trading of Calle Real, Iloilo City and
the Remotigue Trading, Cotabato Branch, Cotabato,
P.I., all dealing in athletic goods and equipments, and
general merchandise are recorded in their respective
books with Buenaventura Remotigue as the registered
owner and are being operated by them as such:
That they are not the only owners of the capital of the
three establishments and their participation in the
capital of the three establishments together with the
other co-owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue (TWENTY-FIVE
THOUSAND)25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE
THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND)
15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND)
15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND)..
8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ...
6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND)..
5,000.00
8. Quintin Vismanos (TWO THOUSAND)...
2,000.00
That aside from the persons mentioned in the next
preceding paragraph, no other person has any interest
in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in
the City of Manila, P.I., this 29th day of April, 1957.
[Sgd.] BUENAVENTURA REMOTIGUE
[Sgd.] CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a
duly notarized document voluntarily executed by
Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his
participation in the partnership. Article 1797 of the Civil
Code provides:
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
proportion.
In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also
receive a share in the profits in proportion to his
capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled
only to his share as agreed upon, or in the absence of
any such stipulations, then to his share in proportion to
his contribution to the partnership. The petitioner
himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically
enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that
the capital the partners contributed went to the three
businesses, then there is no reason to deviate from
OF such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err
in limiting petitioners share to the assets of the
businesses enumerated in the Acknowledgement of
Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a
partnership is a separate juridical entity, the shares to
be paid out to the partners is necessarily limited only
to its total resources, to wit:
Since it is the partnership, as a separate and distinct
entity, that must refund the shares of the partners, the
amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it
has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares,
the creditors of the partnership must first be
compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes
available for the payment of the partners shares.42
There is no evidence that the subject real properties
were assets of the partnership referred to in the
Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to
respondents properties based on the concept of trust.
He claims that since the subject real properties were
purchased using funds of the partnership, wherein he
has a 6% share, then "law and equity mandates that
he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v.
Rabanillo,44 this Court explained the concept of trusts, ownership cannot be based simply on the testimonies
to wit:
Express trusts are created by the intention of the
trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of
an intention to create a trust as a matter of law or
through the imposition of the trust irrespective of, and
even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine
that valuable consideration and not legal title
determines the equitable title or interest and are
presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of
the consideration involved in a transaction whereby
one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the
benefit of another.45
On proving the existence of a trust, this Court held
that:
Respondent has presented only bare assertions that a
trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a
trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the
existence of the trust and its elements. While implied
trusts may be proved by oral evidence, the evidence
must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy
evidence is required because oral evidence can easily
be fabricated." 46
The petitioner has failed to prove that there exists a
trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the
respondents used the partnerships money to
purchase the said properties. Even assuming
arguendo that some partnership income was used to
acquire these properties, the petitioner should have
successfully shown that these funds came from his
share in the partnership profits. After all, by his own
admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in
the partnership.
In essence, the petitioner is claiming his 6% share in
the subject real properties, by relying on his own self-
serving testimony and the equally biased testimony of
Antonieta Jarantilla. Petitioner has not presented
evidence, other than these unsubstantiated
testimonies, to prove that the respondents did not
have the means to fund their other businesses and
real properties without the partnerships income. On
the other hand, the respondents have not only, by
testimonial evidence, proven their case against the
petitioner, but have also presented sufficient
documentary evidence to substantiate their claims,
allegations and defenses. They presented
preponderant proof on how they acquired and funded
such properties in addition to tax receipts and tax
declarations.47 It has been held that "while tax
declarations and realty tax receipts do not conclusively
prove ownership, they may constitute strong evidence
of ownership when accompanied by possession for a
period sufficient for prescription."48 Moreover, it is a
rule in this jurisdiction that testimonial evidence cannot
prevail over documentary evidence.49 This Court had
on several occasions, expressed our disapproval on
using mere self-serving testimonies to support ones
claim. In Ocampo v. Ocampo,50 a case on partition of a
co-ownership, we held that:
Petitioners assert that their claim of co-ownership of
the property was sufficiently proved by their witnesses
-- Luisa Ocampo-Llorin and Melita Ocampo. We
disagree. Their testimonies cannot prevail over the
array of documents presented by Belen. A claim of
of witnesses; much less on those of interested parties,
self-serving as they are.51
It is true that a certificate of title is merely an evidence
of ownership or title over the particular property
described therein. Registration in the Torrens system
does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot
deprive an aggrieved party of a remedy in
law.52 However, petitioner asserts ownership over
portions of the subject real properties on the strength
of his own admissions and on the testimony of
Antonieta Jarantilla.1avvphi1 As held by this Court in
Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence
of ownership of the land referred to therein, and a
strong presumption exists that a Torrens title was
regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria,
of other title existing prior to the issuance thereof not
annotated on the Torrens title. Moreover, persons
dealing with property covered by a Torrens certificate
of title are not required to go beyond what appears on
its face.54
As we have settled that this action never really was for Espiritu, as follows: "AMENDED COMPLAINT these receipts plaintiff was entitled to minimum
partition of a co-ownership, to permit petitioners claim payments of P3,711.13 pursuant to Exhibit C; but
on these properties is to allow a collateral, indirect "Plaintiff, by his undersigned counsel, alleges "As First again defendant wantonly, fraudulently, oppressively,
attack on respondents admitted titles. In the words of Cause of Action and in evident bad faith paid plaintiff only the sum of
the Court of Appeals, "such evidence cannot "1. Plaintiff and defendants are residents of Malabon, P6,204.13 or P2,507.00 short of what plaintiff should
overpower the conclusiveness of these certificates of Rizal. have received during the period.
title, more so since plaintiffs [petitioners] claims "2. Defendants Lucina Biglangawa and Lucia Espiritu
amount to a collateral attack, which is prohibited under were or have been the owners of a parcel of land in "11. Upon gaining information of the breach of the
Section 48 of Presidential Decree No. 1529, the Marulas, Polo, Bulacan, more particularly described in contract by defendants about the end of March, 1953
Property Registration Decree."55 "Transfer Certificate of Title No. 5459 as follows: . . . and verifying the existence of such breach, plaintiff
SEC. 48. Certificate not subject to collateral attack. A "3. On January 14, 1950, defendant Lucina immediately demanded of defendants the difference
certificate of title shall not be subject to collateral Biglangawa, with the consent of her co-owner Lucia between the amounts due to him under the contract
attack. It cannot be altered, modified, or cancelled Espiritu, appointed plaintiff their exclusive agent to Exhibit C and those actually paid by them, but
except in a direct proceeding in accordance with law. develop the area described in paragraph 2 into defendants wantonly, fraudulently, and without cause
This Court has deemed an action or proceeding to be subdivision lots and to sell them to prospective refused to make the necessary settlement.
"an attack on a title when its objective is to nullify the homeowners; and as compensation for his services, x x x
title, thereby challenging the judgment pursuant to defendants promised to pay him a commission of 20% "13. The balance of plaintiffs commissions remaining
which the title was decreed."56 In Aguilar v. on the gross sales and a fee of 10% on the collections unpaid as of the filing of this complaint, excluding the
Alfaro,57 this Court further distinguished between a made by him payable from the first collections underpayments from November, 1951 to March, 1953,
direct and an indirect or collateral attack, as follows: received from the purchasers in respect to each lot is P39,534.62.
A collateral attack transpires when, in another action to sold. . . .
obtain a different relief and as an incident to the "As to Second Cause of Action
present action, an attack is made against the judgment "4. The power thus conferred by Lucina Biglangawa to "1. Plaintiff reproduces paragraphs 1 to 13 of the first
granting the title. This manner of attack is to be plaintiff was confirmed in a notarial document cause of action.
distinguished from a direct attack against a judgment executed on March 3, 1950 by her and her co- "2. For defendants gross and evident bad faith in
granting the title, through an action whose main defendants, who are husband and wife, with the added refusing plaintiffs valid, just, and demandable claim
objective is to annul, set aside, or enjoin the stipulation that they could not revoke the contract of against them, plaintiff was forced to prosecute the
enforcement of such judgment if not yet implemented, agency without plaintiffs consent. . . . present case against them, and became liable for
or to seek recovery if the property titled under the attorneys fees in the sum of P7,000.00.
judgment had been disposed of. x x x. "5. Advancing all the expenses incurred in the
Petitioners only piece of documentary evidence is the development and administration of the project, plaintiff "WHEREFORE, plaintiff prays for judgment
Acknowledgement of Participating Capital, which as caused the subdivision of said property into 203 lots
discussed above, failed to prove that the real and advertised them for sale under the name BBB "(a) Ordering defendants to pay plaintiff the sum of
properties he is claiming co-ownership of were MARULAS SUBDIVISION No. 3; and up to October, P2,507.00 which is defendants underpayments from
acquired out of the proceeds of the businesses 1951 plaintiff had disposed of more than half of the November, 1951 to March, 1953, with interest at the
covered by such document. Therefore, petitioners entire area at P10.00 and P12.00 per square meter. legal rate;
theory has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the "6. Although under the express terms of the contract of "(b) Declaring defendants to have lost the right to pay
Decision of the Court of Appeals in CA-G.R. CV No. January 14, 1950 (Exhibit A) the commissions of plaintiff in monthly installments and requiring them to
40887, dated July 30, 2002 is AFFIRMED. plaintiff for making those sales and his collection fees pay plaintiff at once the balance of his commissions
of 10% were to be paid to him from the first collections and fees in the amount of P89,543.62, with interest at
11. Binglawlaw vs COnstantino 109 Phil 168 1960 received from the purchasers in respect to each lot the legal rate from the filing of this complaint;
LUCINA BIGLANGAWA and LUCIA sold, Defendants, in contravention of that agreement,
ESPIRITU, Petitioners-Appellees, v. PASTOR. B. oppressively and in bad faith adopted the practice of "(c) Ordering defendants to pay plaintiff moral
CONSTANTINO, ET AL., Respondents. PASTOR B. paying the latters compensation out of 30% only of the damages in the sum of P40,000.00, exemplary
CONSTANTINO, Respondent-Appellant. gross monthly collections from the sales, such that, as damages in the sum of P30,000.00, and attorneys
of October 15, 1951 when a liquidation was made, fees in the sum of P7,000.00.
1. COMPLAINTS; PRAYER; PURPOSE OF ACTION there was still a balance on plaintiffs commissions in
INDICATED BY PRAYER. Although the prayer in a the amount of P43,899.20. "(d) Granting costs and such other reliefs as this court
complaint does not determine the nature of the action, may deem just and equitable in the premises."
it not being a material part of the cause of action, it 7. "Later, in October, 1951, defendants wantonly,
logically indicates the purpose of the action. oppressively, and in evident bad faith terminated the To this complaint, petitioners filed their answer on
agency contracts Exhibits A and B depriving plaintiff August 25, 1953.
2. ID.; NOTICE OF LIS PENDENS; COMPLAINT AS of his rights to commission fees of 20% on the sale of
BASIS FOR ANNOTATION OF NOTICE. The the remaining lots and 10% fee on the cash receipts of While said Civil Case No. 2138 was pending in said
amended complaint in the instant case, not being "an the business every month. court, respondent, on April 5, 1955, filed with the
action affecting the title or the right of possession of Office of the Register of Deeds of Bulacan, the
real property" (Sec. 24, Rule 7, Rules of Court), nor "8. Defendants nevertheless, expressly acknowledged following notice of lis pendens:jgc:
one "to recover possession of real estate, or to quiet their liability to plaintiff in the sum of P48,899.20 for
title thereto, or to remove clouds upon the title thereof, unpaid commissions as of October 16, 1951; and they "Please make of record the pendency of a complaint
or for partition or other proceeding of any kind in court promised to pay said indebtedness to plaintiff in involving, among other things, rights and interest and
affecting the title to real estate or the use or successive monthly installments beginning November, claims for services and damages on the following
occupation thereof or the buildings thereon" (Sec. 79, 1951, as follows: . . . described property, which has been converted into a
Land Registration Act), can not be the basis for subdivision as shown by the plan Psd-29964, situated
annotating a notice of lis pendens on the title of the "9. Plaintiff consented to the settlement of the balance in Marulas, Polo, Bulacan, to wit: (Technical
defendants. of his commission in monthly installments after the description of the real property mentioned in the
termination of the agency in consideration of complaint) which property is more particularly
DECISION defendants promises that they would compute and described in Transfer Certificate of Title No. 5459 of
The only issue, which is of law, involved in this appeal, faithfully pay the percentage of monthly installments the Register of Deeds of Bulacan. A copy of the
is the legality of the annotation of lis pendens on the basis of their monthly gross collections from the complaint and amended complaint, marked
predicated on the complaint of respondent-appellant operation of BBB MARULAS SUBDIVISION No. 3, as Appendices A and A-1, are attached hereto and made
Pastor B. Constantino. stipulated in Exhibit C, and shall follow that procedure integral part hereof."cralaw virtua1aw library
until their total indebtedness is fully settled.
On June 25, 1953, respondent Pastor B. Constantino On April 6, 1955, the Register of Deeds of Bulacan
filed with the Court of First Instance of Rizal an "10. From October 16, 1951 to March 31, 1953, requested petitioners to surrender their owners copy
amended complaint (docketed as Civil Case No. 2138) defendants made a total monthly gross collection of of Transfer Certificate of Title No. 5459 for annotation
against petitioners Lucina Biglangawa and Lucia around P52,849.63 from the business, and out of of said notice of lis pendens, but petitioners refused to
do so. However, on May 17, 1955, when petitioners
registered the absolute deed of sale in favor of
Carmelita L. Santos covering some of the lots of the
subdivision, said official, without their knowledge and
consent, made the annotation of the lis pendens on
petitioners aforementioned title, as well as on the title
issued to Carmelita L. Santos.
Petitioners, therefore, on June 11, 1955, filed with the
Court of First Instance of Bulacan, a petition praying
for the cancellation of said notice of lis pendens. To
this petition, respondent filed his answer on June 17,
1955, to which, petitioners filed their reply on June 23,
1955. On June 24, 1955, respondent filed a rejoinder
to said reply.
Acting on said petition, the court issued an order on
July 19, 1955, which reads:
"ORDER "Upon consideration of the petition filed by
Lucina Biglangawa and Lucia Espiritu dated June 11,
1955 and the answer thereto, and it appearing from
the amended complaint of Pastor B. Constantino,
plaintiff in Civil Case No. 2138 of the Court of First
Instance of Rizal (respondent herein) that said action
is purely and clearly a claim for money judgment which
does not affect the title or the right of possession of
real property covered by Transfer Certificate of Title
No. T-5459 and it being a settled rule in this
jurisdiction that a notice of lis pendens may be invoked
as a remedy in cases where the very lis mota of the
pending litigation concerns directly the possession of,
or title to a specific real property;
"Wherefore, as prayed for, the Register of Deeds of
Bulacan is hereby ordered to cancel Entry No. 28176
for lis pendens on Transfer Certificate of Title No. T-
5459 of the petitioners as well as the annotation of the
same on Transfer Certificate of Title No. T-014480 of
Carmelita L. Santos.
"So ordered."cralaw virtua1aw library
Respondent, on August 8, 1955, filed a motion for
reconsideration of the above order, but the same was
denied by the court on September 30, 1955. Hence,
this appeal.
Respondent-appellant claims that the lower court erred
in holding that his pending action (Civil Case No.
2138) in the Court of First Instance of Rizal, is purely a
claim for money judgment which does not affect the
title or right of possession of petitioners real property,
covered by Transfer Certificate of Title No. T-5459.
Instead, he contends that the agreement whereby he
was to be paid a commission of 20% on the gross
sales and a fee of 10% on the collections made by
him, converted him into a partner and gave him 1/5
participation in the property itself. Hence, he argues,
his suit is one for the settlement and adjustment of
partnership interest or a partition action or proceeding.
Appellants theory is neither supported by the
allegations of his complaint, nor borne out by the
purpose of his action. There is no word or expression
in the various paragraphs of his amended complaint
that suggests any idea of partnership. On the contrary,
appellant expressly averred that petitioners "appointed
plaintiff (appellant) their exclusive agent to develop the
area described in paragraph 2 into subdivision lots and
to sell them to prospective homeowners; and as
compensation for his services defendants (appellees)
promised to pay him a commission of 20% on the
gross sales and a fee of 10% on the collections made
by him . . ." (See paragraph 3 of amended complaint.)
Categorically, appellant referred to himself as an
agent, not a partner; entitled to compensation, not
participation, in the form of commission or fee, not a Services."5 Villareal was appointed general manager
share. and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a
It is true that in paragraph 5 of the amended complaint partner in the business on September 5, 1984. His
(supra) appellant claims to have made advances for capital contribution of P250,000 was paid by his
the expenses incurred in the development and parents, Respondents Cesar and Carmelita Ramirez.6
administration of the property. But again he never After Jesus Jose withdrew from the partnership in
considered these as contributions to the business as January 1987, his capital contribution of P250,000 was
to make him a partner; otherwise, he would have so refunded to him in cash by agreement of the partners.7
stated it in his complaint. In fact, after a liquidation of In the same month, without prior knowledge of
these advances and the commissions due to appellant respondents, petitioners closed down the restaurant,
at the time of the termination of the agency, the whole allegedly because of increased rental. The restaurant
balance was considered as appellees indebtedness furniture and equipment were deposited in the
which appellant consented to be settled in monthly respondents' house for storage.8
installments (see paragraphs 6, 8, and 9 of the On March 1, 1987, respondent spouses wrote
amended complaint). petitioners, saying that they were no longer interested
in continuing their partnership or in reopening the
While it is true again that the prayer in a complaint restaurant, and that they were accepting the latter's
does not determine the nature of the action, it not offer to return their capital contribution.9
being a material part of the cause of action, still it On October 13, 1987, Carmelita Ramirez wrote
logically indicates, as it does in this case, the purpose another letter informing petitioners of the deterioration
of the actor. The four paragraphs of the prayer seeks of the restaurant furniture and equipment stored in
the recovery of fixed amounts of underpayments and their house. She also reiterated the request for the
commissions and fees; not liquidation or accounting or return of their one-third share in the equity of the
partition as now insisted upon by Appellant. partnership. The repeated oral and written requests
were, however, left unheeded.10
Appellants amended complaint, not being "an action Before the Regional Trial Court (RTC) of Makati,
affecting the title or the right of possession of real Branch 59, respondents subsequently filed a
property", 1 nor one "to recover possession of real Complaint11 dated November 10, 1987, for the
estate, or to quiet title thereto, or to remove clouds collection of a sum of money from petitioners.
upon the title thereof, or for partition or other In their Answer, petitioners contended that
proceeding of any kind in court affecting the title to real respondents had expressed a desire to withdraw from
estate or the use or occupation thereof or the buildings the partnership and had called for its dissolution under
thereon . . .", 2 the same can not be the basis for Articles 1830 and 1831 of the Civil Code; that
annotating a notice of lis pendens on the title of respondents had been paid, upon the turnover to them
the Petitioners-Appellees. of furniture and equipment worth over P400,000; and
that the latter had no right to demand a return of their
Having reached the above conclusion, this Court finds equity because their share, together with the rest of
it unnecessary to decide the incidental matters raised the capital of the partnership, had been spent as a
by the parties during the pendency of this appeal. result of irreversible business losses.12
In their Reply, respondents alleged that they did not
Wherefore, finding no error in the appealed order of know of any loan encumbrance on the restaurant.
the court a quo, the same is hereby affirmed, with According to them, if such allegation were true, then
costs against the respondent- appellant. So ordered. the loans incurred by petitioners should be regarded
as purely personal and, as such, not chargeable to the
Art 1768 partnership. The former further averred that they had
LUZVIMINDA J. VILLAREAL, DIOGENES not received any regular report or accounting from the
VILLAREAL and CARMELITO JOSE, latter, who had solely managed the business.
vs.DONALDO EFREN C. RAMIREZ and Spouses Respondents also alleged that they expected the
CESAR G. RAMIREZ JR. and CARMELITA C. equipment and the furniture stored in their house to be
RAMIREZ,respondents. removed by petitioners as soon as the latter found a
PANGANIBAN, J.: better location for the restaurant.13
A share in a partnership can be returned only after the Respondents filed an Urgent Motion for Leave to Sell
completion of the latter's dissolution, liquidation and or Otherwise Dispose of Restaurant Furniture and
winding up of the business. Equipment14 on July 8, 1988. The furniture and the
The Case equipment stored in their house were inventoried and
The Petition for Review on Certiorari before us appraised at P29,000.15 The display freezer was sold
challenges the March 23, 2000 Decision1 and the July for P5,000 and the proceeds were paid to them.16
26, 2000 Resolution2 of the Court of Appeals3 (CA) in After trial, the RTC 17 ruled that the parties had
CA-GR CV No. 41026. The assailed Decision voluntarily entered into a partnership, which could be
disposed as follows: dissolved at any time. Petitioners clearly intended to
"WHEREFORE, foregoing premises considered, the dissolve it when they stopped operating the restaurant.
Decision dated July 21, 1992 rendered by the Hence, the trial court, in its July 21, 1992 Decision,
Regional Trial Court, Branch 148, Makati City is held there liable as follows:18
hereby SET ASIDE and NULLIFIED and in lieu thereof "WHEREFORE, judgment is hereby rendered in favor
a new decision is rendered ordering the [petitioners] of [respondents] and against the [petitioners] ordering
jointly and severally to pay and reimburse to the [petitioners] to pay jointly and severally the
[respondents] the amount of P253,114.00. No following:
pronouncement as to costs."4 (a) Actual damages in the amount of P250,000.00
Reconsideration was denied in the impugned (b) Attorney's fee in the amount of P30,000.00
Resolution. (c) Costs of suit."
The Facts On July 25, 1984, Luzviminda J. Villareal, The CA Ruling
Carmelito Jose and Jesus Jose formed a partnership The CA held that, although respondents had no right
with a capital of P750,000 for the operation of a to demand the return of their capital contribution, the
restaurant and catering business under the name partnership was nonetheless dissolved when
"Aquarius Food House and Catering petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a
proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the
CA. computed their liability as follows:
"Consequently, since what has been proven is only the
outstanding obligation of the partnership in the amount
of P240,658.00, although contracted by the
partnership before [respondents'] have joined the
partnership but in accordance with Article 1826 of the
New Civil Code, they are liable which must have to be
deducted from the remaining capitalization of the said
partnership which is in the amount of P1,000,000.00
resulting in the amount of P759,342.00, and in order to
get the share of [respondents], this amount of
P759,342.00 must be divided into three (3) shares or
in the amount of P253,114.00 for each share and
which is the only amount which [petitioner] will return
to [respondents'] representing the contribution to the
partnership minus the outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the
following issues for our consideration:
"9.1. Whether the Honorable Court of Appeals'
decision ordering the distribution of the capital
contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in
accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals'
decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [P]253,114.00 is
supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was
correct in making [n]o pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1)
whether petitioners are liable to respondents for the
latter's share in the partnership; (2) whether the CA's
computation of P253,114 as respondents' share is
correct; and (3) whether the CA was likewise correct in
not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue: Share in Partnership
Both the trial and the appellate courts found that a
partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed
petitioners of the intention to discontinue it because of
the former's dissatisfaction with, and loss of trust in,
the latter's management of the partnership affairs.
These findings were amply supported by the evidence
on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand
from petitioners the return of their equity share. Except
as managers of the partnership, petitioners did not
personally hold its equity or assets. "The partnership
has a juridical personality separate and distinct from
that of each of the partners."23 Since the capital was
contributed to the partnership, not to petitioners, it is
the partnership that must refund the equity of the
retiring partners.24
Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct
entity, that must refund the shares of the partners, the
amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it
has in its coffers, which consists of all its assets.
However, before the partners can be paid their shares,
the creditors of the partnership must first be
compensated.25 After all the creditors have been paid,
whatever is left of the partnership assets becomes
available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of
refund equivalent to respondents' one-third share in
the partnership cannot be determined until all the
partnership assets will have been liquidated in other
words, sold and converted to cash and all
partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to
respondents as their share was thus erroneous.
First, it seems that the appellate court was under the
misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the
partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available
for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or
legal support.
Generally, in the pursuit of a partnership business, its
capital is either increased by profits earned or
decreased by losses sustained. It does not remain
static and unaffected by the changing fortunes of the
business. In the present case, the financial statements
presented before the trial court showed that the
business had made meager profits.26However, notable
therefrom is the omission of any provision for the
depreciation27 of the furniture and the equipment. The
amortization of the goodwill28 (initially valued at
P500,000) is not reflected either. Properly taking these
non-cash items into account will show that the
partnership was actually sustaining substantial losses,
which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in
fact recognized the decrease of the partnership assets
to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an
outstanding obligation in the amount of P240,658 was
not supported by evidence. We sustain the contrary
finding of the RTC, which had rejected the contention
that the obligation belonged to the partnership for the
following reason:
"x x x [E]vidence on record failed to show the exact
loan owed by the partnership to its creditors. The
balance sheet (Exh. '4') does not reveal the total loan.
The Agreement (Exh. 'A') par. 6 shows an outstanding
obligation of P240,055.00 which the partnership owes
to different creditors, while the Certification issued by
Mercator Finance (Exh. '8') shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the
former being the nominal party defendant in the instant
case, who obtained a loan of P355,000.00 on Oct.
1983, when the original partnership was not yet
formed."
Third, the CA failed to reduce the capitalization by
P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the
partnership capital was actually reduced. When
petitioners and respondents ventured into business
together, they should have prepared for the fact that
their investment would either grow or shrink. In the
present case, the investment of respondents
substantially dwindled. The original amount of
P250,000 which they had invested could no longer be
returned to them, because one third of the partnership
properties at the time of dissolution did not amount to
that much.
It is a long established doctrine that the law does not
relieve parties from the effects of unwise, foolish or
disastrous contracts they have entered into with all the
required formalities and with full awareness of what
they were doing. Courts have no power to relieve them
from obligations they have voluntarily assumed, simply
because their contracts turn out to be disastrous deals
or unwise investments.29
Petitioners further argue that respondents acted
negligently by permitting the partnership assets in their
custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership
and considered the proceeds as payment of their net
capital. Hence, petitioners argue that the turnover of
the remaining partnership assets to respondents was
precisely the manner of liquidating the partnership and
fully settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and
equipment to private respondents was for the purpose
of storage. They were unaware that the restaurant
would no longer be reopened by petitioners. Hence,
the former cannot be faulted for not disposing of the
stored items to recover their capital investment.
Third Issue:Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit.
Unless otherwise provided in these rules, costs shall
be allowed to the prevailing party as a matter of
course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the
costs of an action, or that the same be divided, as may
be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided
by law."
Although, as a rule, costs are adjudged against the
losing party, courts have discretion, "for special
reasons," to decree otherwise. When a lower court is
reversed, the higher court normally does not award
costs, because the losing party relied on the lower
court's judgment which is presumed to have been
issued in good faith, even if found later on to be
erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the
assailed Decision and Resolution SET ASIDE. This
disposition is without prejudice to proper proceedings
for the accounting, the liquidation and the distribution
of the remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA
& CO., S. en C., appellee,
vs.PACIFIC COMMERCIAL CO., ASIATIC
PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION
The record of this proceeding having been transmitted
to this court by virtue of an appeal taken herein, a
motion was presented by the appellants praying this
court that this case be considered purely a moot
question now, for the reason that subsequent to the
decision appealed from, the partnership Campos
Rueda & Co., voluntarily filed an application for a
judicial decree adjudging itself insolvent, which is just
what the herein petitioners and appellants tried to
obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby,
denied even under the facts stated by the appellants in
their motion aforesaid. The question raised in this case
is not purely moot one; the fact that a man was
insolvent on a certain day does not justify an inference
that he was some time prior thereto.
Proof that a man was insolvent on a certain day does
not justify an inference that he was on a day some
time prior thereto. Many contingencies, such as
unwise investments, losing contracts, misfortune, or
accident, might happen to reduce a person from a
state of solvency within a short space of time. (Kimball
vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it
is issued. It is one thing to adjudge Campos Rueda &
Co. insolvent in December, 1921, as prayed for in this
case, and another to declare it insolvent in July, 1922,
as stated in the motion.
Turning to the merits of this appeal, we find that this
limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than
P1,000, payable in the Philippines, which were not
paid more than thirty days prior to the date of the filing
by the petitioners of the application for involuntary
insolvency now before us. These facts were sufficient
established by the evidence.
The trial court denied the petition on the ground that it
was not proven, nor alleged, that the members of the
aforesaid firm were insolvent at the time the
application was filed; and that was said partners are
personally and solidarily liable for the consequence of
the transactions of the partnership, it cannot be
adjudged insolvent so long as the partners are not
alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the
ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for
decision is whether or not a limited partnership, such
as the appellee, which has failed to pay its obligation
with three creditors for more than thirty days, may be
held to have committed an act of insolvency, and
thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes
consider a limited partnership as a juridical entity for all
intents and purposes, which personality is recognized
in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality
of a limited partnership being different from that of its
members, it must, on general principle, answer for,
and suffer, the consequence of its acts as such an
entity capable of being the subject of rights and
obligations. If, as in the instant case, the limited
partnership of Campos Rueda & Co. Failed to pay its
obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our
Insolvency Law, one of the acts of bankruptcy upon
which an adjudication of involuntary insolvency can be
predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged
insolvent. We are not unmindful of the fact that some
courts of the United States have held that a
partnership may not be adjudged insolvent in an
involuntary insolvency proceeding unless all of its
members are insolvent, while others have maintained
a contrary view. But it must be borne in mind that
under the American common law, partnerships have
no juridical personality independent from that of its
members; and if now they have such personality for
the purpose of the insolvency law, it is only by virtue of
general law enacted by the Congress of the United
States on July 1, 1898, section 5, paragraph (h), of
which reads thus:
In the event of one or more but not all of the members
of a partnership being adjudged bankrupt, the
partnership property shall not be administered in
bankruptcy, unless by consent of the partner or
partners not adjudged bankrupt; but such partner or
partners not adjudged bankrupt shall settle the
partnership business as expeditiously as its nature will
permit, and account for the interest of the partner or
partners adjudged bankrupt.
The general consideration that these partnership had
no juridical personality and the limitations prescribed in
subsection (h) above set forth gave rise to the conflict
noted in American decisions, as stated in the case
of In reSamuels (215 Fed., 845), which mentions the
two apparently conflicting doctrines, citing one from In
re Bertenshaw (157 Fed., 363), and the other from
Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such
provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto,
and the juridical personality of limited partnership
being recognized by our statutes from their formation
in all their acts and contracts the decision of American
courts on this point can have no application in this
jurisdiction, nor we see any reason why these
partnerships cannot be adjudged bankrupt irrespective
of the solvency or insolvency of their members,
provided the partnership has, as such, committed
some of the acts of insolvency provided in our law.
Under this view it is unnecessary to discuss the other
points raised by the parties, although in the particular
case under consideration it can be added that the
liability of the limited partners for the obligations and
losses of the partnership is limited to the amounts paid
or promised to be paid into the common fund except
when a limited partner should have included his name
or consented to its inclusion in the firm name (arts. 147
and 148, Code of Commerce).
Therefore, it having been proven that the partnership
Campos Rueda & Co. failed for more than thirty days
to pay its obligations to the petitioners the Pacific
Commercial Co. the Asiatic Petroleum Co. and the
International Banking Corporation, the case comes
under paragraph 11 of section 20 of Act No. 1956, and
consequently the petitioners have the right to a judicial
decree declaring the involuntary insolvency of said
partnership.
Wherefore, the judgment appealed from is reversed,
and it is adjudged that the limited partnership Campos
Rueda & Co. is and was on December 28, 1921,
insolvent and liable for having failed for more than
thirty days to meet its obligations with the three
petitioners herein, and it is ordered that this
proceeding be remanded to the Court of First Instance
of Manila with instruction to said court to issue the
proper decrees under section 24 of Act No. 1956, and
proceed therewith until its final disposition.
It is so ordered without special finding as to costs.
NGO TIAN TEK and NGO
HAY, petitioner, vs.PHILIPPINE EDUCATION CO.,
INC., respondent.
The plaintiff, Philippine Education Co., Inc., instituted
in the Court of First Instance of Manila an action
against the defendants, Vicente Tan alias Chan Sy
and the partnership of Ngo Tian Tek and Ngo Hay, for
the recovery of some P16,070.14, unpaid cost of
merchandise purchased by Lee Guan Box Factory
from the plaintiff and five other corporate entities
which, though not parties to the action, had previously
assigned their credits to the plaintiff, together with
attorney's fees, interest and costs. /by agreement of
the parties, the case was heard before a referee,
Attorney Francisco Dalupan, who in due time
submitted his report holding the defendants jointly and
severally liable to the plaintiff for the sum of
P16,070.14 plus attorney's fees and interest at the
rates specified in the report. On March 6, 1939, the
Court of First Instance of Manila rendered judgment
was affirmed by the Court of Appeals in its decision of
January 31, 1941, now the subject of our review at the
instance of the partnership Ngo Tian Tek and Ngo
Hay, petitioner herein.
"It appears that," quoting from the decision of the Court
of Appeals whose findings of fact are conclusive, "as
far back as the year 1925, the Modern Box Factory
was established at 603 Magdalena Street, Manila. It
was at first owned by Ngo Hay, who three years later
was joined by Ngo Tian Tek as a junior partner. The
modern Box Factory dealt in pare and similar
merchandise and purchased goods from the plaintiff
and its assignors in the names of the Modern Box
Factory, Ngo Hay and Co., Go Hay Box Factory, or Go
Hay. Then about the year 1930, the Lee Guan Box
Factory was established a few meters from the Modern
Box Factory, under the management of Vicente Tan.
When that concern, through Vicente Tan, sought credit
with the plaintiff and its assignors, Ngo Hay, in
conversations and interviews with their officers and
employees, represented that he was the principal
owner of such factory, that the Lee Guan Box Factory
and the Modern Box Factory belonged to the same
owner, and that the Lee Guan Box Factory was a
subsidiary of the Modern Box Factory. There is
evidence that many goods purchased in the name of
the Lee Guan Box Factory were delivered to the
Modern Box Factory by the employees of the plaintiff
and its assignors upon the express direction of Vicente
Tan. There is also evidence that the collectors of the
sellers were requested by Vicente Tan to collect
and did collect from the Modern Box Factory the
bills against the Lee Guan Box Factory. In the fact the
record shows many checks signed by Ngo Hay or Ngo
Tian Tek in payment of accounts of the Lee Guan Box
Factory. Furthermore, and this seems to be
conclusive-Ngo Hay, testifying for the defense,
admitted that 'he' was the owner of the Lee Guan Box
Factory in and before the year 1934, but that in
January, 1935, 'he' sold it, by the contract of sale
Exhibit 7, to Vicente Tan, who had been his manager
of the business. Tan declared also that before
January, 1935, the Lee Guan Box Factory pertained to
Ngo Hay and Ngo Tian Tek. The contract Exhibit 7
was found by the referee, to be untrue and simulated,
for various convincing reasons that need no repetition
here. And the quoted statements serve effectively to
confirm the evidence for the plaintiff that it was Ngo
Hay's representations of ownership of, and
responsibility for, Lee Guan Box Factory that induced
them to open credit for that concern. It must be stated
that in this connection to answer appellant's fitting
observation that the plaintiff and the assignors have
considered Ngo Hay, the Modern Box Factory and
Ngo Hay and Co. as one and the same, through the
acts of the partners themselves, and that the proof as
to Ngo Hay's statements regarding the ownership of
Lee Guan Box Factory must be taken in that view. Ngo
Hay was wont to say 'he' owned the Modern Box
Factory, meaning that he was the principal owner, his
other partner being Ngo Tian Tek. Now, it needs no
demonstration for appellant does not deny it that
the obligations of the Lee Guan Box Factory must rest
upon its known owner. And that owner in Ngo Tian Tek
and Ngo Hay."
We must overrule petitioner's contention that the Court
of Appeals erred in holding that Lee Guan Box Factory
was a subsidiary of the Modern Box Factory and in
disregarding the fact that the contracts evidencing the
debts in question were signed by Vicente
Tan alias Chan Sy, without any indication that tended
to involve the Modern Box Factory or the petitioner. In
the first place, we are concluded by the finding of the
Court of Appeals regarding the ownership by the
petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in
his own name cannot save the petitioner, in view of
said ownership, and because contracts entered into by
a factor of a commercial establishment known to
belong to a well known enterprise or association, shall
be understood as made for the account of the owner of
such enterprise or association, even when the factor
has not so stated at the time of executing the same,
provided that such contracts involve objects comprised
in the line and business of the establishment. (Article
286, Code of Commerce.) The fact that Vicente Tan
did not have any recorded power of attorney executed
by the petitioner will not operate to prejudice third
persons, like the respondent Philippine Education Co.,
Inc., and its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to
the transactions which gave rise to this suit, Vicente
Tan had purchased Lee Guan Box Factory from Ngo
Hay under the contract, Exhibit 7; and the petitioner
assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is
simulated. This contention is purely factual and must
also be overruled.
The petitioner questions the right of the respondent
Philippine Education Co., Inc., to sue for the credits
assigned by the five entities with which Lee Guan Box
Factory originally contracted, it being argued that the
assignment, intended only for purposes of collection,
did not make said respondent the real party in interest.
The petitioner has cited 5 Corpus Juris, section 144,
page 958, which points out that "under statutes
authorizing only a bona fide assignee of choses in
action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own
name."
The finding of the Court of Appeals that there is
nothing "simulated in the assignment," precludes us
from ruling that respondent company is not a bona
fide assignee. Even assuming, however, that said
assignment was only for collection, we are not
prepared to say that, under section 114 of the Code of
Civil Procedure, in force at the time this action was
instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of
legal assignment, is assigned absolutely to one, but
the assignment is made for purpose of collection, the
legal title thereto vests in the assignee, and it is no
concern of the debtor that the equitable title is in
another, and payment to the assignee discharges the
debtor." (5 C. J., section 144, p. 958.) No substantial
right of the petitioner could indeed be prejudiced by
such assignment, because section 114 of the Code of
Civil Procedure reserves to it "'any set-off or other
defense existing at the time of or before notice of the
assignment.'"
Petitioner's allegation that "fraud in the inception of the
debt is personal to the contracting parties and does
not follow assignment," and that the contracts
assigned to the respondent company "are immoral and
against public policy and therefore void," constitute
defenses on the merits, but do not affect the efficacy of
the assignment. It is obvious that, apart from the fact
that the petitioner can not invoke fraud of its
authorship to evade liability, the appealed decision is
founded on an obligation arising, not from fraud, but
from the very contracts under which merchandise had
been purchased by Lee Guan Box Factory.
The fourth and fifth assignments of error relate to the
refusal of the Court of Appeals to hold that the writ of
attachment is issued at the commencement of this
action by the Court of First Instance is illegal, and to
award in favor of the petitioner damages for such
wrongful attachment. For us to sustain petitioner's
contention will amount to an unauthorized reversal of
the following conclusion of fact of the Court of
Appeals: "The stereotyped manner in which
defendants obtained goods on credit from the six
companies, Vicente Tan's sudden disappearance, the
execution of the fake sale Exhibit 7 to throw the whole
responsibility upon the absent or otherwise insolvent
Tan, defendant's mercurial and unbelievable theories
as to the ownership of the Modern Box Factory and
Lee Guan Box Factory obviously adopted in a vain
effort to meet or explain away the evidentiary force of
plaintiff's documentary evidence are much too
significant to permit a declaration that the attachment
was not justified."
Regarding the suggestion in petitioner's memorandum
that this case should be dismissed because of the
death of Ngo Hay, it is sufficient to state that the
petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any
of the partners.
The appealed decision is affirmed, with costs against
the petitioner. So ordered.
Moran, C.J., Pablo, Perfecto, Hilado, Briones,
Hontiveros, and Tuason, JJ., concur.
Separate Opinions
FERIA, J., concurring and dissenting:
I concur in the majority except that portion thereof
which deals with the question whether an assignee for
collection merely is entitled to sue in his own name,
which need not be discussed, in view of the finding of of the majority decision is misleading; because it
the Court of Appeals that there is nothing "simulated in apparently lays down the ruling that an assignee
the assignment" which according to the very opinion of not bona fide to whom a credit was assigned, not
the majority "precludes us from ruling that the absolutely, but for collection merely may sue in his
respondent company is not a bona fide assignee;" own name (a debatable question which has not yet
because such being the conclusion of fact of the Court been passed upon squarely by this Court [ Annotation;
of Appeals, this Supreme Court can not modify or 64 L. R. A., 585]), but the premise on which the
reverse that conclusion and find that respondent majority's conclusion or ruling is predicated in said
Philippine Education Co. was not a bona portion of the Corpus Juris quoted in the opinion,
fide assignee, and the assignment was not absolute, which is a wrong premise laid down, not by the
but made merely for collection in order that said petitioner, but by the writer himself of the majority
respondent may sue in its own name. opinion.
But I dissent from the majority opinion when it further
says: Art 1769 PHILEX MININGv
CORPORATION, petitioner, vs. COMMISSIONER OF
Even assuming, however, that said assignment was INTERNAL
only for collection, we are not prepared to say that,
under section 114 of the Code of Civil Procedure, in This is a petition for review on certiorari of the June 30,
force at the time this action was instituted, ours is not 2000 Decision1 of the Court of Appeals in CA-G.R. SP
one of those jurisdictions following the rule that "when No. 49385, which affirmed the Decision2 of the Court
a choose, capable of legal assignment, is assigned of Tax Appeals in C.T.A. Case No. 5200. Also assailed
absolutely to one, but the assignment is made for is the April 3, 2001 Resolution3 denying the motion for
purpose of collection, the legal title thereto vests in the reconsideration.
assignee, and it is no concern of the debtor that the The facts of the case are as follows:
equitable title is in another, and payment to the On April 16, 1971, petitioner Philex Mining Corporation
assignee discharges the debtor." (5 C. J., section 114, (Philex Mining), entered into an agreement4 with
p. 958.) No substantial right of the petitioner could Baguio Gold Mining Company ("Baguio Gold") for the
indeed be prejudiced by such assignment, because former to manage and operate the latters mining
section 114 of the Code of Civil Procedure reserves to claim, known as the Sto. Nino mine, located in Atok
it "any set-off or other defense exiting at the time of or and Tublay, Benguet Province. The parties agreement
before notice of the assignment." was denominated as "Power of Attorney" and provided
The reason for my dissenting is that, after quoting the for the following terms:
finding of the Court of Appeals and stating that said 4. Within three (3) years from date thereof, the
conclusion precludes this Court "from ruling that the PRINCIPAL (Baguio Gold) shall make available to the
respondent company is not a bona fide assignee," the MANAGERS (Philex Mining) up to ELEVEN MILLION
majority should have stopped then and there. But PESOS (P11,000,000.00), in such amounts as from
having preferred to adduce an additional ratio time to time may be required by the MANAGERS
decidendi, and assume that the assignment was for within the said 3-year period, for use in the
collection only and not an absolute and bona fide one, MANAGEMENT of the STO. NINO MINE. The said
in order to meet the latter's argument, because the ELEVEN MILLION PESOS (P11,000,000.00) shall be
Court of Appeals' conclusion is that the assignment deemed, for internal audit purposes, as the owners
was not simulated, that is, absolute and bona fide, the account in the Sto. Nino PROJECT. Any part of any
majority should have quoted and discussed the income of the PRINCIPAL from the STO. NINO MINE,
second and third sentences of paragraph 144, page which is left with the Sto. Nino PROJECT, shall be
958, of the Corpus Juris, quoted and relied on by the added to such owners account.
petitioner, which refers to an assignment that is not 5. Whenever the MANAGERS shall deem it necessary
absolutely and bona fide made. However the majority and convenient in connection with the MANAGEMENT
opinion did not do so, and quotes and bases its of the STO. NINO MINE, they may transfer their own
conclusion to the contrary on the first sentence of said funds or property to the Sto. Nino PROJECT, in
paragraph, not relied on by the petitioner, and which accordance with the following arrangements:
deals with absolute and bona fide assignment, and to (a) The properties shall be appraised and, together
the provision of section 114 of the Code of Civil with the cash, shall be carried by the Sto. Nino
Procedure on set-off and defenses which defendant PROJECT as a special fund to be known as the
may set up to an action instituted by a bona fide MANAGERS account.
assignee. (b) The total of the MANAGERS account shall not
To clearly show the error, we transcribe below section exceed P11,000,000.00, except with prior approval of
144, page 958, of Corpus Juris quoted and underlined the PRINCIPAL; provided, however, that if the
by the petitioner in his brief: compensation of the MANAGERS as herein provided
cannot be paid in cash from the Sto. Nino PROJECT,
144. G. Assignments for Collection. When a chose, the amount not so paid in cash shall be added to the
capable of legal assignment, is assigned absolutely to MANAGERS account.
one, but the assignment is made for purpose of (c) The cash and property shall not thereafter be
collection, the legal title thereto vests in the assignee, withdrawn from the Sto. Nino PROJECT until
and it is no concern of the debtor that the equitable termination of this Agency.
title is in another, and payment to the assignee (d) The MANAGERS account shall not accrue interest.
discharges the debtor. Under the statutes of most Since it is the desire of the PRINCIPAL to extend to
jurisdictions, the assignee may prosecute an action the MANAGERS the benefit of subsequent
thereon in his own name as the real party in interest or appreciation of property, upon a projected termination
as a trustee of an express trust; but, under statutes of this Agency, the ratio which the MANAGERS
authorizing only a bona fide assignee of choses in account has to the owners account will be determined,
action to sue thereon in his own name, an assignee for and the corresponding proportion of the entire assets
collection merely is not entitled to sue in his own of the STO. NINO MINE, excluding the claims, shall be
name. An assignment merely for collection does not transferred to the MANAGERS, except that such
transfer the beneficial ownership to the assignee. transferred assets shall not include mine development,
It is not only convenient but necessary to point this roads, buildings, and similar property which will be
error in the present concurring and dissenting opinion, valueless, or of slight value, to the MANAGERS. The
for the conclusion set forth in the above quoted portion MANAGERS can, on the other hand, require at their
option that property originally transferred by them to
the Sto. Nino PROJECT be re-transferred to them.
Until such assets are transferred to the MANAGERS,
this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty
per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the
MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income
tax on the net profit of the Sto. Nino PROJECT after
deduction therefrom of the MANAGERS
compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation
in favor of the MANAGERS and, in the future, may
incur other obligations in favor of the MANAGERS.
This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations
of the PRINCIPAL in favor of the MANAGERS and as
a means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is outstanding,
inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the
MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon
36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding
between the PRINCIPAL and the MANAGERS to the
contrary, the MANAGERS may withdraw from this
Agency by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be held
liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be operative in
case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project,
Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement.
However, the mine suffered continuing losses over the
years which resulted to petitioners withdrawal as
manager of the mine on January 28, 1982 and in the
eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties
executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Golds tangible
assets to petitioner, transferring to the latter Baguio
Golds equitable title in its Philodrill assets and finally
settling the remaining liability through properties that
Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an
"Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio
Golds indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to
long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America
NT & SA and Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two segments by first
assigning its tangible assets for P127,838,051.00 and
then transferring its equitable title in its Philodrill assets
for P16,302,426.00. The parties then ascertained that
Baguio Gold had a remaining outstanding
indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of
account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner
deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal
Revenue (BIR) disallowed the amount as deduction for
bad debt and assessed petitioner a deficiency income
tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the
deduction must be allowed since all requisites for a
bad debt deduction were satisfied, to wit: (a) there was
a valid and existing debt; (b) the debt was ascertained
to be worthless; and (c) it was charged off within the
taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a
valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances
made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds
"pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio
Golds long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds
irreversible losses, it became evident that it would not
be able to recover the advances and payments it had
made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was
neither required to institute a judicial action for
collection against the debtor nor to sell or dispose of
collateral assets in satisfaction of the debt. It is enough
that a taxpayer exerted diligent efforts to enforce
collection and exhausted all reasonable means to
collect.
On October 28, 1994, the BIR denied petitioners
protest for lack of legal and factual basis. It held that
the alleged debt was not ascertained to be worthless
since Baguio Gold remained existing and had not filed
a petition for bankruptcy; and that the deduction did
not consist of a valid and subsisting debt considering
that, under the management contract, petitioner was to
be paid fifty percent (50%) of the projects net profit.10
Petitioner appealed before the Court of Tax Appeals
(CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant
Petition for Review is hereby DENIED for lack of merit.
The assessment in question, viz: FAS-1-82-88-003067
for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation
is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date
after the 20-day grace period given by the respondent
within which petitioner has to pay the deficiency
amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the
advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the advances
as petitioners investment in a partnership with Baguio
Gold for the development and exploitation of the Sto.
Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount
partook of the nature of an investment, it could not be
deducted as a bad debt from petitioners gross
income.
The CTA likewise held that the amount paid by
petitioner for the long-term loan obligations of Baguio
Gold could not be allowed as a bad debt deduction. At
the time the payments were made, Baguio Gold was
not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the
loans as evidenced by the notice sent by Bank of
America showing that it was merely demanding
payment of the installment and interests due.
Moreover, Citibank imposed and collected a "pre-
termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the
CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under
Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the
advances made by Philex in the management of the
Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the 50%-50%
sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the
development of the Sto. Nino Mine notwithstanding the
clear absence of any intent on the part of Philex and
Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the
Power of Attorney and in completely disregarding the
Compromise Agreement and the Amended
Compromise Agreement when it construed the nature
of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon
the issue of the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its
business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the
subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that
the parties executed in 1982. These documents,
allegedly evinced the parties intent to treat the
advances and payments as a loan and establish a
creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of
Attorney" is the instrument that is material in
determining the true nature of the business
relationship between petitioner and Baguio Gold.
Before resort may be had to the two compromise
agreements, the parties contractual intent must first
be discovered from the expressed language of the
primary contract under which the parties business
relations were founded. It should be noted that the
compromise agreements were mere collateral
documents executed by the parties pursuant to the
termination of their business relationship created
under the "Power of Attorney". On the other hand, it is
the latter which established the juridical relation of the
parties and defined the parameters of their dealings
with one another.
The execution of the two compromise agreements can
hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties
true intent. The compromise agreements were
executed eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it
made under the "Power of Attorney". The parties
entered into the compromise agreements as a
consequence of the dissolution of their business
relationship. It did not define that relationship or
indicate its real character.
An examination of the "Power of Attorney" reveals that
a partnership or joint venture was indeed intended by
the parties. Under a contract of partnership, two or
more persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among
themselves.15 While a corporation, like petitioner,
cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin
to a particular 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. x x x It is in fact hardly
distinguishable from the partnership, since their
elements are similar community of interest in the
business, sharing of profits and losses, and a mutual
right of control. x x x 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. x x x 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. x x x It would seem
therefore that under Philippine law, a joint venture is a
form of partnership and should be governed by the law
of partnerships. 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. x x x (Citations
omitted) 16
Perusal of the agreement denominated as the "Power
of Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for
the purpose. They also had a joint interest in the
profits of the business as shown by a 50-50 sharing in
the income of the mine.
Under the "Power of Attorney", petitioner and Baguio
Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio
mine.17 In this regard, we note that there is a
substantive equivalence in the respective contributions
of the parties to the development and operation of the
mine. Pursuant to paragraphs 4 and 5 of the
agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under
their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of
its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioners
contribution would consist of its expertise in the
management and operation of mines, as well as the
managers account which is comprised of P11M in
funds and property and
petitioners "compensation" as manager that cannot
be paid in cash.
However, petitioner asserts that it could not have
entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or
property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to
transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary
and convenient in connection with the MANAGEMENT
of the STO. NIO MINE."18
The wording of the parties agreement as to
petitioners contribution to the common fund does not
detract from the fact that petitioner transferred its
funds and property to the project as specified in
paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c)
which prohibits petitioner from withdrawing the
advances until termination of the parties business
relations. As can be seen, petitioner became bound by
its contributions once the transfers were made. The
contributions acquired an obligatory nature as soon as
petitioner had chosen to exercise its option under
paragraph 5.
There is no merit to petitioners claim that the
prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that
the stipulation only showed that what the parties
entered into was actually a contract of agency coupled
with an interest which is not revocable at will and not a
partnership.
In an agency coupled with interest, it is
the agency that cannot be revoked or withdrawn by
the principal due to an interest of a third party that
depends upon it, or the mutual interest of both
principal and agent.19 In this case, the non-revocation
or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly
the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the
parties relation under the agreement is one of agency
coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken
as an indication that the relationship of the parties was
one of agency and not a partnership. Although the said
provision states that "this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the
MANAGERS account," it does not necessarily follow
that the parties entered into an agency contract
coupled with an interest that cannot be withdrawn by
Baguio Gold.
It should be stressed that the main object of the
"Power of Attorney" was not to confer a power in favor
of petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the
former was to manage and operate the latters mine
through the parties mutual contribution of material
resources and industry. The essence of an agency,
even one that is coupled with interest, is the agents
ability to represent his principal and bring about
business relations between the latter and third
persons.20 Where representation for and in behalf of
the principal is merely incidental or necessary for the
proper discharge of ones paramount undertaking
under a contract, the latter may not necessarily be a
contract of agency, but some other agreement
depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the
stipulations in the parties agreement indubitably lead
to the conclusion that a partnership was formed
between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was
unconditionally obligated to return the advances made
by petitioner under the agreement. Paragraph 5 (d)
thereof provides that upon termination of the parties
business relations, "the ratio which the MANAGERS
account has to the owners account will be determined,
and the corresponding proportion of the entire assets
of the STO. NINO MINE, excluding the claims" shall be
transferred to petitioner.22 As pointed out by the Court
of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon
dissolution of the parties business relations. There
was nothing in the agreement that would require
Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of
obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the
agreement provided for a distribution of assets of the
Sto. Nio mine upon termination, a provision that is
more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a
contract of loan, a person who receives a loan or
money or any fungible thing acquires ownership
thereof and is bound to pay the creditor an equal
amount of the same kind and quality.23 In this case,
however, there was no stipulation for Baguio Gold to
actually repay petitioner the cash and property that it
had advanced, but only the return of an amount
pegged at a ratio which the managers account had to
the owners account.
In this connection, we find no contractual basis for the
execution of the two compromise agreements in which
Baguio Gold recognized a debt in favor of petitioner,
which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The
"Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate
share of the mine assets to be computed at a ratio that
the managers account had to the owners account.
Except to provide a basis for claiming the advances as
a bad debt deduction, there is no reason for Baguio
Gold to hold itself liable to petitioner under the
compromise agreements, for any amount over and
above the proportion agreed upon in the "Power of
Attorney".
Next, the tax court correctly observed that it was
unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither
security, or collateral, nor a specific deed evidencing
the terms and conditions of such loans. The parties
also did not provide a specific maturity date for the
advances to become due and demandable, and the
manner of payment was unclear. All these point to the
inevitable conclusion that the advances were not loans
but capital contributions to a partnership.
The strongest indication that petitioner was a partner
in the Sto Nio mine is the fact that it would receive
50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the
parties contractual stipulations simply leads to no
other conclusion than that petitioners "compensation"
is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides
that the "receipt by a person of a share in the profits of
a business is prima facie evidence that he is a partner
in the business." Petitioner asserts, however, that no
such inference can be drawn against it since its share
in the profits of the Sto Nio project was in the nature
of compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that
petitioner was not an employee of Baguio Gold who
will be paid "wages" pursuant to an employer-
employee relationship. To begin with, petitioner was
the manager of the project and had put substantial
sums into the venture in order to ensure its viability
and profitability. By pegging its compensation to
profits, petitioner also stood not to be remunerated in
case the mine had no income. It is hard to believe that
petitioner would take the risk of not being paid at all for
its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation"
under paragraph 12 of the agreement actually
constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to
an equal share in the income of the mine if it were just
an employee of Baguio Gold.25 It is not surprising that
petitioner was to receive a 50% share in the net
profits, considering that the "Power of Attorney" also
provided for an almost equal contribution of the parties
to the St. Nino mine. The "compensation" agreed upon
only serves to reinforce the notion that the parties
relations were indeed of partners and not employer-
employee.
All told, the lower courts did not err in treating
petitioners advances as investments in a partnership
known as the Sto. Nino mine. The advances were not
"debts" of Baguio Gold to petitioner inasmuch as the
latter was under no unconditional obligation to return
the same to the former under the "Power of Attorney".
As for the amounts that petitioner paid as guarantor to
Baguio Golds creditors, we find no reason to depart
from the tax courts factual finding that Baguio Golds
debts were not yet due and demandable at the time
that petitioner paid the same. Verily, petitioner pre-paid
Baguio Golds outstanding loans to its bank creditors
and this conclusion is supported by the evidence on
record.26
In sum, petitioner cannot claim the advances as a bad
debt deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax
exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that
he is entitled to the deduction claimed.27 In this case,
petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that
could be deducted from its gross income.
Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of
the Court of Appeals in CA-G.R. SP No. 49385 dated
June 30, 2000, which affirmed the decision of the
Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation
is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20%
delinquency interest computed from February 10,
1995, which is the due date given for the payment of
the deficiency income tax, up to the actual date of
payment
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners, vs.THE COMMISSIONER OF
INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
The distinction between co-ownership and an
unregistered partnership or joint venture for income tax
purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels
of land from Santiago Bernardino, et al. and on May
28, 1966, they bought another three (3) parcels of land
from Juan Roque. The first two parcels of land were
sold by petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land were sold
by petitioners to Erlinda Reyes and Maria Samson on
March 19,1970. Petitioners realized a net profit in the
sale made in 1968 in the amount of P165,224.70,
while they realized a net profit of P60,000.00 in the
sale made in 1970. The corresponding capital gains
taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then
Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of
June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, respondent
Commissioner informed petitioners that in the years
1968 and 1970, petitioners as co-owners in the real
estate transactions formed an unregistered partnership
or joint venture taxable as a corporation under Section
20(b) and its income was subject to the taxes
prescribed under Section 24, both of the National
Internal Revenue Code 1 that the unregistered
partnership was subject to corporate income tax as
distinguished from profits derived from the partnership
by them which is subject to individual income tax; and
that the availment of tax amnesty under P.D. No. 23,
as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them
from the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the
deficiency income tax assessed.
Petitioners filed a petition for review with the
respondent Court of Tax Appeals docketed as CTA
Case No. 3045. In due course, the respondent court
by a majority decision of March 30, 1987, 2 affirmed
the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated
in Evangelista 3 an unregistered partnership was in
fact formed by petitioners which like a corporation was
subject to corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate Judge
Constante Roaquin stated that considering the
circumstances of this case, although there might in
fact be a co-ownership between the petitioners, there
was no adequate basis for the conclusion that they
thereby formed an unregistered partnership which
made "hem liable for corporate income tax under the
Tax Code.
Hence, this petition wherein petitioners invoke as basis
thereof the following alleged errors of the respondent
court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT
THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT
PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE
INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO
RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS
OF ISOLATED SALE TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY
LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A February 2, 1943, they bought a lot for P100,000.00.
PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS
SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE
THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT
RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY
SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent
court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money
from their father which together with their own
personal funds they used in buying several real
properties. They appointed their brother to manage
their properties with full power to lease, collect, rent,
issue receipts, etc. They had the real properties rented
or leased to various tenants for several years and they
gained net profits from the rental income. Thus, the
Collector of Internal Revenue demanded the payment
of income tax on a corporation, among others, from
them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are
subject to the tax on corporations provided for in
section 24 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real
estate dealers' fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the
terms corporation and partnership as used in sections
24 and 84 of said Code, the pertinent parts of which
read:
Sec. 24. Rate of the tax on corporations.There shall
be levied, assessed, collected, and paid annually upon
the total net income received in the preceding taxable
year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no
matter how created or organized but not including duly
registered general co-partnerships (companies
collectives), a tax upon such income equal to the sum
of the following: ...
Sec. 84(b). The term "corporation" includes
partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en
participation), associations or insurance companies,
but does not include duly registered general co-
partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines
provides:
By the contract of partnership two or more persons
bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
Pursuant to this article, the essential elements of a
partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon
consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for
monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found
already in existence. It was not a property inherited by
them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion
thereof in order to establish said common fund.
2. They invested the same, not merely in one
transaction, but in a series of transactions. On
On April 3, 1944, they purchased 21 lots for
P18,000.00. This was soon followed, on April 23,
1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they
got a fourth lot for P237,234.14. The number of lots
(24) acquired and transcations undertaken, as well as
the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern
or common design that was not limited to the
conservation and preservation of the aforementioned
common fund or even of the property acquired by
petitioners in February, 1943. In other words, one
cannot but perceive a character of habituality peculiar
to business transactions engaged in for purposes of
gain.
3. The aforesaid lots were not devoted to residential
purposes or to other personal uses, of petitioners
herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners
do not even suggest that there has been any change
in the utilization thereof.
Since August, 1945, the properties have been under
the management of one person, namely, Simeon
Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and
contracts, and to indorse and deposit notes and
checks. Thus, the affairs relative to said properties
have been handled as if the same belonged to a
corporation or business enterprise operated for profit.
The foregoing conditions have existed for more than
ten (10) years, or, to be exact, over fifteen (15) years,
since the first property was acquired, and over twelve
(12) years, since Simeon Evangelists became the
manager.
Petitioners have not testified or introduced any
evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation
therefor.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
partnership, the collective effect of these
circumstances is such as to leave no room for doubt
on the existence of said intent in petitioners herein.
Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein,
and, hence, those cases are not in point. 5
In the present case, there is no evidence that
petitioners entered into an agreement to contribute
money, property or industry to a common fund, and
that they intended to divide the profits among
themselves. Respondent commissioner and/ or his
representative just assumed these conditions to be
present on the basis of the fact that petitioners
purchased certain parcels of land and became co-
owners thereof.
In Evangelists, there was a series of transactions
where petitioners purchased twenty-four (24)
lots showing that the purpose was not limited to the
conservation or preservation of the common fund or
even the properties acquired by them. The character
of habituality peculiar to business transactions
engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels
of land in 1965. They did not sell the same nor make
any improvements thereon. In 1966, they bought
another three (3) parcels of land from one seller. It was
only 1968 when they sold the two (2) parcels of land
after which they did not make any additional or new
purchase. The remaining three (3) parcels were sold
by them in 1970. The transactions were isolated. The
character of habituality peculiar to business
transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to
tenants for several years. The business was under the
management of one of the partners. Such condition
existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-
ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista he said:
I wish however to make the following observation
Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed
a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
From the above it appears that the fact that those who
agree to form a co- ownership share or do not share
any profits made by the use of the property held in
common does not convert their venture into a
partnership. Or the sharing of the gross returns does
not of itself establish a partnership whether or not the
persons sharing therein have a joint or common right
or interest in the property. This only means that, aside
from the circumstance of profit, the presence of other
elements constituting partnership is necessary, such
as the clear intent to form a partnership, the existence
of a juridical personality different from that of the
individual partners, and the freedom to transfer or
assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two
or more persons contribute funds to buy certain real
estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a
common enterprise and agree to share the gross
returns of that enterprise in proportion to their
contribution, but who severally retain the title to their
respective contribution, are not thereby rendered
partners. They have no common stock or capital, and
no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements Presiding Judge, Regional Trial Court of Bacolod
of the Law of Partnership by Flord D. Mechem 2nd City, Branch 52, Sixth Judicial Region and
Ed., section 83, p. 74.) Spouses OLIVIA V. YANSON AND RICARDO B.
A joint purchase of land, by two, does not constitute a YANSON
co-partnership in respect thereto; nor does an Assailed and sought to be set aside by the petition
agreement to share the profits and losses on the sale before us is the Resolution of the Court of Appeals
of land create a partnership; the parties are only dated June 20, 1991 which dismissed the petition for
tenants in common. (Clark vs. Sideway, 142 U.S. annulment of judgment filed by the Spouses Lourdes
682,12 Ct. 327, 35 L. Ed., 1157.) and Menardo Navarro, thusly:
Where plaintiff, his brother, and another agreed to
become owners of a single tract of realty, holding as
The instant petition for annulment of decision is
tenants in common, and to divide the profits of
DISMISSED.
disposing of it, the brother and the other not being
1. Judgments may be annulled only on the ground of
entitled to share in plaintiffs commission, no
extrinsic or collateral fraud, as distinguished from
partnership existed as between the three parties,
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA
whatever their relation may have been as to third
160, 170). No such ground is alleged in the petition.
parties. (Magee vs. Magee 123 N.E. 673, 233 Mass.
2. Even if the judgment rendered by the respondent
341.) Court were erroneous, it is not necessarily void
In order to constitute a partnership inter sese there
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it
must be: (a) An intent to form the same; (b) generally
cannot be annulled by the proceeding sought to be
participating in both profits and losses; (c) and such a
commenced by the petitioners.
community of interest, as far as third persons are
3. The petitioners' remedy against the judgment
concerned as enables each party to make contract,
enforcement of which is sought to be stopped should
manage the business, and dispose of the whole
have been appeal.
property.-Municipal Paving Co. vs. Herring 150 P.
SO ORDERED. (pp. 24-25, Rollo.)
1067, 50 III 470.) The antecedent facts of the case are as follows: On
The common ownership of property does not itself
July 23, 1976, herein private respondent Olivia V.
create a partnership between the owners, though they
Yanson filed a complaint against petitioner Lourdes
may use it for the purpose of making gains; and they
Navarro for "Delivery of Personal Properties With
may, without becoming partners, agree among Damages". The complaint incorporated an application
themselves as to the management, and use of such
for a writ of replevin. The complaint was later docketed
property and the application of the proceedsas Civil Case No. 716 (12562) of the then Court of
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No.
First Instance of Bacolod (Branch 55) and was
App. 14.) 6 subsequently amended to include private respondent's
The sharing of returns does not in itself establish a
husband, Ricardo B. Yanson, as co-plaintiff, and
partnership whether or not the persons sharing therein
petitioner's husband, as co-defendant.
have a joint or common right or interest in the property.
On July 27, 1976, then Executive Judge Oscar R.
There must be a clear intent to form a partnership, the
Victoriano (later to be promoted and to retire as
existence of a juridical personality different from the
Presiding Justice of the Court of Appeals) approved
individual partners, and the freedom of each party to
private respondents' application for a writ of replevin.
transfer or assign the whole property. The Sheriff's Return of Service dated March 3, 1978
In the present case, there is clear evidence of co-
affirmed receipt by private respondents of all pieces of
ownership between the petitioners. There is no
personal property sought to be recovered from
adequate basis to support the proposition that they
petitioners.
thereby formed an unregistered partnership. The two
On April 30, 1990, Presiding Judge Bethel Katalbas-
isolated transactions whereby they purchasedMoscardon rendered a decision, disposing as follows :
properties and sold the same a few years thereafter
Accordingly, in the light of the aforegoing findings, all
did not thereby make them partners. They shared in
chattels already recovered by plaintiff by virtue of the
the gross profits as co- owners and paid their capital
Writ of Replevin and as listed in the complaint are
gains taxes on their net profits and availed of the tax
hereby sustained to belong to plaintiff being the owner
amnesty thereby. Under the circumstances, they
of these properties; the motor vehicle, particularly that
cannot be considered to have formed an unregistered
Ford Fiera Jeep registered in and which had remain in
partnership which is thereby liable for corporate
the possession of the defendant is likewise declared to
income tax, as the respondent commissioner belong to her, however, said defendant is hereby
proposes. ordered to reimburse plaintiff the sum of P6,500.00
And even assuming for the sake of argument that such
representing the amount advanced to pay part of the
unregistered partnership appears to have been
price therefor; and said defendant is likewise hereby
formed, since there is no such existing unregistered
ordered to return to plaintiff such other equipment[s] as
partnership with a distinct personality nor with assets
were brought by the latter to and during the operation
that can be held liable for said deficiency corporate
of their business as were listed in the complaint and
income tax, then petitioners can be held individually
not recovered as yet by virtue of the previous Writ of
liable as partners for this unpaid obligation of the
Replevin. (p. 12, Rollo.) Petitioner received a copy of
partnership p. 7 However, as petitioners have availed
the decision on January 10, 1991 (almost 9 months
of the benefits of tax amnesty as individual taxpayers
after its rendition) and filed on January 16, 1991 a
in these transactions, they are thereby relieved of any
"Motion for Extension of Time To File a Motion for
further tax liability arising therefrom. Reconsideration". This was granted on January 18,
WHEREFROM, the petition is hereby GRANTED and
1991. Private respondents filed their
the decision of the respondent Court of Tax Appeals of
opposition, citing the ruling in the case of Habaluyas
March 30, 1987 is hereby REVERSED and SET Enterprises, Inc. vs. Japson (142 SCRA 208 [1986])
ASIDE and another decision is hereby rendered
proscribing the filing of any motion for extension of
relieving petitioners of the corporate income tax liability
time to file a motion for a new trial or reconsideration.
in this case, without pronouncement as to costs.
The trial judge vacated the order dated January 18,
1991 and declared the decision of April 30, 1990 as
G.R. No. 101847 May 27, 1993 final and executory. (Petitioners' motion for
LOURDES NAVARRO AND MENARDO reconsideration was subsequently filed on February 1,
NAVARRO, petitioners, vs.COURT OF APPEALS, 1991 or 22 days after the receipt of the decision). On
JUDGE BETHEL KATALBAS-MOSCARDON, February 4, 1991, the trial court issued a writ of
execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared
that the writ was "duly served and satisfied". A receipt
for the amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff (Annex "7", p. 83, Rollo). On
June 26, 1991, petitioners filed with respondent court a
petition for annulment of the trial court's decision,
claiming that the trial judge erred in declaring the non-
existence of a partnership, contrary to the evidence on
record. The appellate court, as aforesaid, outrightly
dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was
the proper remedy.
In the petition before us, petitioners claim that the trial
judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually
formed a verbal partnership engaged in the business
of Air Freight Service Agency in Bacolod"; and that the
decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually
belong to any of the parties until the final disposition
and winding up of the partnership" (p. 15, Rollo).
These issues, however, were extensively discussed by
the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this
case has become final. In fact a writ of execution had
been issued and was promptly satisfied by the
payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to
annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly
thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to
warrant the setting aside of the trial court's decision.
We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review.
However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners'
arguments are all directed against the decision of the
regional trial court; not a word is said in regard to the
appellate's court disposition of their petition for
annulment of judgment. Verily, petitioners keeps on
pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the
factual premises of the trial court were more than
enough to suppress and negate petitioners
submissions along this line:
To be resolved by this Court factually involved in the
issue of whether there was a partnership that existed
between the parties based on their verbal contention;
whether the properties that were commonly used in
the operation of Allied Air Freight belonged to the
alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On
the other hand, the legal issues revolves on the
dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the
properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code
defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in
determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771
and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where
immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00
or more in money or property, the same must appear
in a public instrument which must be recorded in the
Office of the Securities and Exchange Commission. true (Exhs. M-1 to M-3, p. 180, Records). In this
Failure to comply with these requirements shall only connection and taking into account the earlier
affect liability of the partners to third persons. agreement that only profits were to be shared equally,
the plaintiff must be reimbursed of this cost if only to
In consideration of the above, it is undeniable that both allow the defendant continuous possession of the
the plaintiff and the defendant-wife made admission to vehicle in question. It is a fundamental moral, moral
have entered into an agreement of operating this Allied and civil injunction that no one shall enrich himself at
Air Freight Agency of which the plaintiff personally the expense of another. (pp. 71-75, Rollo.) Withal, the
constituted with the Manila Office in a sense that the appellate court acted properly in dismissing the
plaintiff did supply the necessary equipments and petition for annulment of judgment, the issue raised
money while her brother Atty. Rodolfo Villaflores was therein having been directly litigated in, and passed
the Manager and the defendant the Cashier. It was upon by, the trial court.
also admitted that part of this agreement was an equal WHEREFORE, the petition is DISMISSED. The
sharing of whatever proceeds realized. Consequently, Resolution of the Court of Appeals dated June 20,
the plaintiff brought into this transaction certain 1991 is AFFIRMED in all respects.
chattels in compliance with her obligation. The same No special pronouncement is made as to costs.
has been done by the herein brother and the herein
defendant who started to work in the business. A 4. Obillos vs CIR 139 SCRA 436 1985
cursory examination of the evidences presented no JOSE P. OBILLOS, JR., SARAH P. OBILLOS,
proof that a partnership, whether oral or written had ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
been constituted at the inception of this transaction. brothers andsisters, petitioners vs.COMMISSIONER
True it is that even up to the filing of this complaint OF INTERNAL REVENUE and COURT OF TAX
those movables brought by the plaintiff for the use in APPEALS,
the operation of the business remain registered in her
name. While there may have been co-ownership or co- This case is about the income tax liability of four
possession of some items and/or any sharing of brothers and sisters who sold two parcels of land
proceeds by way of advances received by both plaintiff which they had acquired from their father.
and the defendant, these are not indicative and On March 2, 1973 Jose Obillos, Sr. completed
supportive of the existence of any partnership between payment to Ortigas & Co., Ltd. on two lots with areas
them. Article 1769 of the New Civil Code is explicit. of 1,124 and 963 square meters located at Greenhills,
Even the books and records retrieved by the San Juan, Rizal. The next day he transferred his rights
Commissioner appointed by the Court did not show to his four children, the petitioners, to enable them to
proof of the existence of a partnership as build their residences. The company sold the two lots
conceptualized by law. Such that if assuming that to petitioners for P178,708.12 on March 13 (Exh. A
there were profits realized in 1975 after the two-year and B, p. 44, Rollo). Presumably, the Torrens titles
deficits were compensated, this could only be subject issued to them would show that they were co-owners
to an equal sharing consonant to the agreement to of the two lots.
equally divide any profit realized. However, this Court In 1974, or after having held the two lots for more than
cannot overlook the fact that the Audit Report of the a year, the petitioners resold them to the Walled City
appointed Commissioner was not highly reliable in the Securities Corporation and Olga Cruz Canda for the
sense that it was more of his personal estimate of total sum of P313,050 (Exh. C and D). They derived
what is available on hand. Besides, the alleged profits from the sale a total profit of P134,341.88 or P33,584
was a difference found after valuating the assets and for each of them. They treated the profit as a capital
not arising from the real operation of the business. In gain and paid an income tax on one-half thereof or of
accounting procedures, strictly, this could not be profit P16,792.
but a net worth. In April, 1980, or one day before the expiration of the
five-year prescriptive period, the Commissioner of
In view of the above factual findings of the Court it Internal Revenue required the four petitioners to
follows inevitably therefore that there being no pay corporate income tax on the total profit of
partnership that existed, any dissolution, liquidation or P134,336 in addition to individual income tax on their
winding up is beside the point. The plaintiff himself had shares thereof He assessed P37,018 as corporate
summarily ceased from her contract of agency and it is income tax, P18,509 as 50% fraud surcharge and
a personal prerogative to desist. On the other hand, P15,547.56 as 42% accumulated interest, or a total
the assumption by the defendant in negotiating for of P71,074.56.
herself the continuance of the Agency with the Not only that. He considered the share of the profits of
principal in Manila is comparable to plaintiff's. Any each petitioner in the sum of P33,584 as a " taxable in
account of plaintiff with the principal as alleged, bore full (not a mere capital gain of which is taxable) and
no evidence as no collection was ever demanded of required them to pay deficiency income taxes
from her. The alleged P20,000.00 assumption aggregating P56,707.20 including the 50% fraud
specifically, as would have been testified to by the surcharge and the accumulated interest.
defendant's husband remain a mere allegation. Thus, the petitioners are being held liable for
As to the properties sought to be recovered, the Court deficiency income taxes and penalties totalling
sustains the possession by plaintiff of all equipments P127,781.76 on their profit of P134,336, in addition to
and chattels recovered by virtue of the Writ of the tax on capital gains already paid by them.
Replevin. Considering the other vehicle which The Commissioner acted on the theory that the four
appeared registered in the name of the defendant, and petitioners had formed an unregistered partnership or
to which even she admitted that part of the purchase joint venture within the meaning of sections 24(a) and
price came from the business claimed mutually 84(b) of the Tax Code (Collector of Internal Revenue
operated, although the Court have not as much vs. Batangas Trans. Co., 102 Phil. 822).
considered all entries in the Audit Report as totally The petitioners contested the assessments. Two
reliable to be sustained insofar as the operation of the Judges of the Tax Court sustained the same. Judge
business is concerned, nevertheless, with this Roaquin dissented. Hence, the instant appeal.
admission of the defendant and the fact that as borne We hold that it is error to consider the petitioners as
out in said Report there has been disbursed and paid having formed a partnership under article 1767 of the
for in this vehicle out of the business funds in the total Civil Code simply because they allegedly contributed
sum of P6,500.00, it is only fitting and proper that P178,708.12 to buy the two lots, resold the same and
validity of these disbursements must be sustained as divided the profit among themselves.
To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should
be obviated.
As testified by Jose Obillos, Jr., they had no such
intention. They were co-owners pure and simple. To
consider them as partners would obliterate the
distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture
by reason of that isolated transaction.
Their original purpose was to divide the lots for
residential purposes. If later on they found it not
feasible to build their residences on the lots because
of the high cost of construction, then they had no
choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which
was in the nature of things a temporary state. It had to
be terminated sooner or later. Castan Tobeas says:
Article 1769(3) of the Civil Code provides that "the
sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint
venture.* Such intent was present in Gatchalian vs.
Collector of Internal Revenue, 67 Phil. 666, where 15
persons contributed small amounts to purchase a two-
peso sweepstakes ticket with the agreement that they
would divide the prize The ticket won the third prize of
P50,000. The 15 persons were held liable for income
tax as an unregistered partnership.
The instant case is distinguishable from the cases
where the parties engaged in joint ventures for profit.
Thus, in Oa vs.
** This view is supported by the following rulings of
respondent Commissioner:
Co-owership distinguished from partnership.We find
that the case at bar is fundamentally similar to the De
Leon case. Thus, like the De Leon heirs, the Longa
heirs inherited the 'hacienda' in question pro
indiviso from their deceased parents; they did not
contribute or invest additional ' capital to increase or
expand the inherited properties; they merely continued
dedicating the property to the use to which it had been
put by their forebears; they individually reported in
their tax returns their corresponding shares in the
income and expenses of the 'hacienda', and they
continued for many years the status of co-ownership in
order, as conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de
Bais for milling purposes. Longa vs. Aranas, CTA
Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered
pratnership.Co-Ownership who own properties
which produce income should not automatically be
considered partners of an unregistered partnership,or
a corporation, within the purview of the income tax law.
To hold otherwise, would be to subject the income
of all co-ownerships of inherited properties to the tax
on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of
income tax, whether the income tax on individuals or
the income tax on corporation. (De Leon vs. CI R, CTA
Case No. 738, September 11, 1961, cited in Araas,
1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-
78). Commissioner of Internal Revenue, L-19342, May
25, 1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the
incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they
were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of
Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the
administration of the building to an administrator and
divided equally the net income, and from Evangelista
vs. Collector of Internal Revenue, 102 Phil. 140, where
the three Evangelista sisters bought four pieces of real
property which they leased to various tenants and
derived rentals therefrom. Clearly, the petitioners in
these two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner should
have investigated was whether the father donated the
two lots to the petitioners and whether he paid the
donor's tax (See Art. 1448, Civil Code). We are not
prejudging this matter. It might have already
prescribed.
WHEREFORE, the judgment of the Tax Court is
reversed and set aside. The assessments are
cancelled. No costs.
5. Ona vs CIR 45 SCRA 74 1972
LORENZO T. OA and HEIRS OF JULIA BUALES,
namely: RODOLFO B. OA, MARIANO B. OA,
LUZ B. OA, VIRGINIA B. OA and LORENZO B.
OA, JR., vs. THE COMMISSIONER OF INTERNAL
REVENUE,
Petition for review of the decision of the Court of Tax
Appeals in CTA Case No. 617, similarly entitled as
above, holding that petitioners have constituted an
unregistered partnership and are, therefore, subject to
the payment of the deficiency corporate income taxes
assessed against them by respondent Commissioner
of Internal Revenue for the years 1955 and 1956 in the
total sum of P21,891.00, plus 5% surcharge and 1%
monthly interest from December 15, 1958, subject to
the provisions of Section 51 (e) (2) of the Internal
Revenue Code, as amended by Section 8 of Republic
Act No. 2343 and the costs of the suit,1 as well as the
resolution of said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax Court as
follows: Julia Buales died on March 23, 1944, leaving
as heirs her surviving spouse, Lorenzo T. Oa and her
five children. In 1948, Civil Case No. 4519 was
instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oa the
surviving spouse was appointed administrator of the
estate of said deceased (Exhibit 3, pp. 34-41, BIR
rec.). On April 14, 1949, the administrator submitted
the project of partition, which was approved by the
Court on May 16, 1949 (See Exhibit K). Because three
of the heirs, namely Luz, Virginia and Lorenzo, Jr., all
surnamed Oa, were still minors when the project of
partition was approved, Lorenzo T. Oa, their father
and administrator of the estate, filed a petition in Civil
Case No. 9637 of the Court of First Instance of Manila
for appointment as guardian of said minors. On
November 14, 1949, the Court appointed him guardian
of the persons and property of the aforenamed minors
(See p. 3, BIR rec.). The project of partition (Exhibit K;
see also pp. 77-70, BIR rec.) shows that the heirs
have undivided one-half (1/2) interest in ten parcels of
land with a total assessed value of P87,860.00, six
houses with a total assessed value of P17,590.00 and
an undetermined amount to be collected from the War
Damage Commission. Later, they received from said
Commission the amount of P50,000.00, more or less.
This amount was not divided among them but was
used in the rehabilitation of properties owned by them
in common (t.s.n., p. 46). Of the ten parcels of land
aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine
Trust Company in the amount of P72,173.00 (t.s.n., p.
24; Exhibit 3, pp. 31-34 BIR rec.).
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-
104) From said investments and properties petitioners
derived such incomes as profits from installment sales
of subdivided lots, profits from sales of stocks,
dividends, rentals and interests (see p. 3 of Exhibit 3;
p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes
are recorded in the books of account kept by Lorenzo
T. Oa where the corresponding shares of the
petitioners in the net income for the year are also
known. Every year, petitioners returned for income tax
purposes their shares in the net income derived from
said properties and securities and/or from transactions
involving them (Exhibit 3, supra; t.s.n., pp. 25-26).
However, petitioners did not actually receive their
shares in the yearly income. (t.s.n., pp. 25-26, 40, 98,
100). The income was always left in the hands of
Lorenzo T. Oa who, as heretofore pointed out,
invested them in real properties and securities. (See
Exhibit 3, t.s.n., pp. 50, 102-104)
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of
the Tax Code. Accordingly, he assessed against the
petitioners the amounts of P8,092.00 and P13,899.00
as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17,
pp. 50 and 86, BIR rec.). Petitioners protested against
the assessment and asked for reconsideration of the
ruling of respondent that they have formed an
unregistered partnership. Finding no merit in
petitioners' request, respondent denied it (See Exhibit
17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
The original assessment was as follows:
1955 Net income as per investigation..... P40,209.89
Income tax due thereon ................... 8,042.00
25% surcharge .......................... 2,010.50
Compromise for non-filing ............. 50.00
Total ..................................... P10,102.50
1956
Net income as per investigation ... P69,245.23
Income tax due thereon ............. 13,849.00
25% surcharge .......................... 3,462.25
Compromise for non-filing .............. 50.00
Total .............................................. P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25%
surcharge was eliminated in line with the ruling of the
Supreme Court in Collector v. Batangas
Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the
income tax proper for the years 1955 and 1956 and
the "Compromise for non filing," the latter item
obviously referring to the compromise in lieu of the
criminal liability for failure of petitioners to file the
corporate income tax returns for said years. (See Exh.
17, page 86, BIR records). (Pp. 1-3, Annex C to
Petition)
Petitioners have assigned the following as alleged
errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN
HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT
HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND
(THE) PROFITS DERIVED FROM TRANSACTIONS
THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN
HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956
AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS
CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS
ERRED IN NOT HOLDING THAT THE PETITIONERS
WERE AN UNREGISTERED PARTNERSHIP TO THE
EXTENT ONLY THAT THEY INVESTED THE
PROFITS FROM THE PROPERTIES OWNED IN
COMMON AND THE LOANS RECEIVED USING THE
INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN
UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE
VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR
RESPECTIVE SHARES OF THE PROFITS
ACCRUING FROM THE PROPERTIES OWNED IN
COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the
following questions: (1) Under the facts found by the
Court of Tax Appeals, should petitioners be
considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits
derived from transactions involving the same, or, must
they be deemed to have formed an unregistered
partnership subject to tax under Sections 24 and 84(b)
of the National Internal Revenue Code? (2) Assuming
they have formed an unregistered partnership, should
this not be only in the sense that they invested as a
common fund the profits earned by the properties
owned by them in common and the loans granted to
them upon the security of the said properties, with the
result that as far as their respective shares in the
inheritance are concerned, the total income thereof
should be considered as that of co-owners and not of
the unregistered partnership? And (3) assuming again
that they are taxable as an unregistered partnership,
should not the various amounts already paid by them
for the same years 1955 and 1956 as individual
income taxes on their respective shares of the profits
accruing from the properties they owned in common
be deducted from the deficiency corporate taxes,
herein involved, assessed against such unregistered
partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has
struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23,
1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and
presumably petitioners have been holding their
respective shares in their inheritance since those
dates admittedly under the administration or
management of the head of the family, the widower
and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We
believe this point to be important because, apparently,
at the start, or in the years 1944 to 1954, the
respondent Commissioner of Internal Revenue did
treat petitioners as co-owners, not liable to corporate
tax, and it was only from 1955 that he considered them
as having formed an unregistered partnership. At
least, there is nothing in the record indicating that an
earlier assessment had already been made. Such
being the case, and We see no reason how it could be
otherwise, it is easily understandable why petitioners'
position that they are co-owners and not unregistered
co-partners, for the purposes of the impugned
assessment, cannot be upheld. Truth to tell, petitioners
should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal
Revenue.
The Tax Court found that instead of actually
distributing the estate of the deceased among
themselves pursuant to the project of partition
approved in 1949, "the properties remained under the
management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the
proceed from the sales thereof in real properties and
securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00
in "land account" and P17,590.00 in "building account"
in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in
"building account" in 1956. And all these became
possible because, admittedly, petitioners never
actually received any share of the income or profits
from Lorenzo T. Oa and instead, they allowed him to
continue using said shares as part of the common fund
for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of
the profits of their common business as reported by
the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is
admitted that during the material years herein
involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and
sale of corporate securities. It is likewise admitted that
all the profits from these ventures were divided among
petitioners proportionately in accordance with their
respective shares in the inheritance. In these
circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from
their respective shares of the inheritance but even the
inherited properties themselves to be used by Lorenzo
T. Oa as a common fund in undertaking several
transactions or in business, with the intention of
deriving profit to be shared by them proportionally,
such act was tantamonut to actually contributing such
incomes to a common fund and, in effect, they thereby
formed an unregistered partnership within the purview
of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there
should be a period when the heirs can be considered
as co-owners rather than unregistered co-partners
within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of
the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously,
without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is
actually and physically distributed among the heirs, for
it is easily conceivable that after knowing their
respective shares in the partition, they might decide to
continue holding said shares under the common
management of the administrator or executor or of
anyone chosen by them and engage in business on
that basis. Withal, if this were to be allowed, it would
be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and
84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil.
140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for
tax purposes, that their common fund "was not
something they found already in existence" and that "it
was not a property inherited by them pro indiviso," but
it is certainly far fetched to argue therefrom, as
petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can
be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or
intestate proceeding. The reason for this is simple.
From the moment of such partition, the heirs are
entitled already to their respective definite shares of
the estate and the incomes thereof, for each of them to
manage and dispose of as exclusively his own without
the intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single
management to be used with the intent of making
profit thereby in proportion to his share, there can be
no doubt that, even if no document or instrument were
executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly
what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769,
paragraph (3), of the Civil Code, providing that: "The
sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived," and, for that
matter, on any other provision of said code on
partnerships is unavailing. In Evangelista, supra, this
Court clearly differentiated the concept of partnerships
under the Civil Code from that of unregistered
partnerships which are considered as "corporations"
under Sections 24 and 84(b) of the National Internal
Revenue Code. Mr. Justice Roberto Concepcion, now
Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal
Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly
registered general partnerships," which constitute
precisely one of the most typical forms of partnerships
in this jurisdiction. Likewise, as defined in section 84(b)
of said Code, "the term corporation includes
partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard
forms, or in confirmity with the usual requirements of
the law on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the
term "corporation" includes, among others, "joint
accounts,(cuentas en participacion)" and
"associations", none of which has a legal personality of
its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded
that personality as a condition essential to the
existence of the partnerships therein referred to. In
fact, as above stated, "duly registered general co-
partnerships" which are possessed of the
aforementioned personality have been expressly
excluded by law (sections 24 and 84[b]) from the
connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
provides its own concept of a partnership. Underthe
term "partnership" it includes not only a partnership as
known in common law but, as well, a syndicate, group,
pool, joint venture, or other unincorporated
organization which carries on any business, financial
operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation.
... . (7A Merten's Law of Federal Incoe Taxation, p.
789; emphasis ours.)
The term "partnership" includes a syndicate,
group,pool, joint venture or other unincorporated
organization, through or by means of which any
business, financial operat on, or venture is carried on.
... . (8 Merten's Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National
Internal Revenue Code includes these partnerships
with the exception only of duly registered general
copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income
tax for corporations.
We reiterated this view, thru Mr. Justice Fernando,
in Reyes vs. Commissioner of Internal Revenue, G. R.
Nos. L-24020-21, July 29, 1968, 24 SCRA 198,
wherein the Court ruled against a theory of co-
ownership pursued by appellants therein.
As regards the second question rai
sed by petitioners about the segregation, for the
purposes of the corporate taxes in question, of their
inherited properties from those acquired by them
subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion
for reconsideration: In connection with the second
ground, it is alleged that, if there was an unregistered
partnership, the holding should be limited to the
business engaged in apart from the properties
inherited by petitioners. In other words, the taxable
income of the partnership should be limited to the
income derived from the acquisition and sale of real
properties and corporate securities and should not
include the income derived from the inherited
properties. It is admitted that the inherited properties
and the income derived therefrom were used in the
business of buying and selling other real properties
and corporate securities. Accordingly, the partnership
income must include not only the income derived from
the purchase and sale of other properties but also the
income of the inherited properties.
Besides, as already observed earlier, the income
derived from inherited properties may be considered
as individual income of the respective heirs only so
long as the inheritance or estate is not distributed or,
at least, partitioned, but the moment their respective
known shares are used as part of the common assets
of the heirs to be used in making profits, it is but
proper that the income of such shares should be
considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear
intent of the law.
Likewise, the third question of petitioners appears to
have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion
for reconsideration of the decision of said court.
Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners
alleges:
Even if we were to yield to the decision of this
Honoable Court that the herein petitioners have
formed an unregistered partnership and, there ore,
have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns
reported their shares of the profits of the unregistered
partn rship. We think it only fair and equitable that the
various amounts paid by the individual petiti ners as
income tax on their respective shares of the
unregistered partnership should be deducted from the
deficiency income tax found by this Honorable Court
against the unreg stered partnership. (page 7, Mem
randum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the
taxable income of the partnership must be reduced by
the amounts of income tax paid by each petitioner on
his share of partnership profits. This is not correct;
rather, itshould be the other way around. The
partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts
of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in
question, but the income tax due from the partnership
has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in
this proceeding, it is not proper for the Court to pass
upon the same. Petitioners insist that it was error for
the Tax Court to so rule that whatever excess they
might have paid as individual income tax cannot be
credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the
Tax Court is to oblige petitioners to pay double income
tax on the same income, and, worse, considering the
time that has lapsed since they paid their individual
income taxes, they may already be barred by
prescription from recovering their overpayments in a
separate action. We do not agree. As We see it, the
case of petitioners as regards the point under
discussion is simply that of a taxpayer who has paid
the wrong tax, assuming that the failure to pay the
corporate taxes in question was not deliberate. Of
course, such taxpayer has the right to be reimbursed
what he has erroneously paid, but the law is very clear
that the claim and action for such reimbursement are
subject to the bar of prescription. And since the period
for the recovery of the excess income taxes in the
case of herein petitioners has already lapsed, it would
not seem right to virtually disregard prescription merely
upon the ground that the reason for the delay is
precisely because the taxpayers failed to make the
proper return and payment of the corporate taxes
legally due from them. In principle, it is but proper not
to allow any relaxation of the tax laws in favor of
persons who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of
the Court of Tax Appeals appealed from is affirm with
costs against petitioners.
6. Gatchalian vs CIR 67 Phil 666 1939
JOSE GATCHALIAN, ET AL., plaintiffs-
appellants, vs.THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee.
The plaintiff brought this action to recover from the
defendant Collector of Internal Revenue the sum of
P1,863.44, with legal interest thereon, which they paid
under protest by way of income tax. They appealed
from the decision rendered in the case on October 23,
1936 by the Court of First Instance of the City of
Manila, which dismissed the action with the costs
against them.
The case was submitted for decision upon the
following stipulation of facts:
Come now the parties to the above-mentioned case,
through their respective undersigned attorneys, and
hereby agree to respectfully submit to this Honorable
Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of
Pulilan, Bulacan, and that defendant is the Collector of
Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order
to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor
the amounts as follows:
1. Jose Gatchalian P0.18
2. Gregoria Cristobal. .18
3. Saturnina Silva .08
4. Guillermo Tapia .13
5. Jesus Legaspi .15
6. Jose Silva .07
7. Tomasa Mercado. .08
8. Julio Gatchalian .13
9. Emiliana Santiago .13
10. Maria C. Legaspi .16
11. Francisco Cabral .13
12. Gonzalo Javier .14
13. Maria Santiago .17
14. Buenaventura Guzman .13
15. Mariano Santos .14
Total 2.00
3. That immediately thereafter but prior to December
15, 1934, plaintiffs purchased, in the ordinary course
of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and
that the said ticket was registered in the name of Jose
Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes
on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the
amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was
drawn by the National Charity Sweepstakes Office in
favor of Jose Gatchalian & Company against the
Philippine National Bank, which check was cashed
during the latter part of December, 1934 by Jose
Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was
required by income tax examiner Alfredo David to file
the corresponding income tax return covering the prize
won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by
Jose Gatchalian, a copy of which return is enclosed as
Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an
assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving
to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is
enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through
their attorney, sent to defendant a reply, a copy of
which marked Exhibit C is attached and made a part
hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen
(15) separate individual income tax returns filed
separately by each one of the plaintiffs, copies of
which returns are attached and marked Exhibit D-1 to
D-15, respectively, in order of their names listed in the
caption of this case and made parts hereof; a
statement of sale signed by Jose Gatchalian showing
the amount put up by each of the plaintiffs to cover up
the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and
marked Exhibit F and made part thereof;

That the defendant in his letter dated January 28,
1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for
exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935
within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the
amount of tax demanded by the defendant,
notwithstanding subsequent demand made by
defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is
enclosed, defendant on May 13, 1935 issued a
warrant of distraint and levy against the property of the
plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;
10. That to avoid embarrassment arising from the
embargo of the property of the plaintiffs, the said
plaintiffs on June 15, 1935, through Gregoria Cristobal,
Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and
penalties to the municipal treasurer of Pulilan,
Bulacan, as evidenced by official receipt No. 7454879
which is attached and marked Exhibit J and made a
part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax
and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax
and penalties was granted by defendant subject to the
condition that plaintiffs file the usual bond secured by
two solvent persons to guarantee prompt payment of
each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy
of which marked Exhibit K is enclosed and made a
part hereof, to guarantee the payment of the balance
of the alleged tax liability by monthly installments at
the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally
protested against the payment of the sum of P602.51,
a copy of which protest is attached and marked Exhibit
L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund
of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay
the monthly installments in accordance with the terms
and conditions of bond filed by them, the defendant in
his letter dated July 23, 1935, copy of which is
attached and marked Exhibit M, ordered the municipal
treasurer of Pulilan, Bulacan to execute within five
days the warrant of distraint and levy issued against
the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and
embarrassment arising from the levy of their property,
the plaintiffs on August 28, 1936, through Jose
Gatchalian, Guillermo Tapia, Maria Santiago and
Emiliano Santiago, paid under protest to the municipal
treasurer of Pulilan, Bulacan the sum of P1,260.93
representing the unpaid balance of the income tax and
penalties demanded by defendant as evidenced by
income tax receipt No. 35811 which is attached and
marked Exhibit N and made a part hereof; and that on
September 3, 1936, the plaintiffs formally protested to
the defendant against the payment of said amount and
requested the refund thereof, copy of which is
attached and marked Exhibit O and made part hereof;
but that on September 4, 1936, the defendant
overruled the protest and denied the refund thereof;
copy of which is attached and marked Exhibit P and
made a part hereof; and
16. That plaintiffs demanded upon defendant the
refund of the total sum of one thousand eight hundred
and sixty three pesos and forty-four centavos
(P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said
amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present
other and additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following
tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan,
married, of age, hereby certify, that on the 11th day of
August, 1934, I sold parts of my shares on ticket No.
178637 to the persons and for the amount indicated
below and the part of may share remaining is also
shown to wit: ticket; and that, therefore, the persons
named above are entitled to the parts of whatever
prize that might be won by said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in
the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME
TAX RETURNS FOR 1934 ALL DATED JANUARY 19,
1935 SUBMITTED TO THE COLLECTOR OF
INTERNAL REVENUE.
The legal questions raised in plaintiffs-appellants' five
assigned errors may properly be reduced to the two
following: (1) Whether the plaintiffs formed a
partnership, or merely a community of property without
a personality of its own; in the first case it is admitted
that the partnership thus formed is liable for the
payment of income tax, whereas if there was merely a
community of property, they are exempt from such
payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated
among them and paid individually.
The Collector of Internal Revenue collected the tax
under section 10 of Act No. 2833, as last amended by
section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed,
collected, and paid annually upon the total net income
received in the preceding calendar year from all
sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion),
association or insurance company, organized in the
Philippine Islands, no matter how created or
organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three
per centum upon such income; and a like tax shall be
levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar
year from all sources within the Philippine Islands by
every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association, or
insurance company organized, authorized, or existing
under the laws of any foreign country, including
interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or
otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of
the income derived from dividends or net profits on
which the normal tax has been paid.
The gain derived or loss sustained from the sale or
other disposition by a corporation, joint-stock
company, partnership, joint account (cuenta en
participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained
in accordance with subsections (c) and (d) of section
two of Act Numbered Two thousand eight hundred and
thirty-three, as amended by Act Numbered Twenty-
nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income
received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en
participacion), association, or insurance company in
the calendar year nineteen hundred and twenty and in
each year thereafter.
There is no doubt that if the plaintiffs merely formed a
community of property the latter is exempt from the
payment of income tax under the law. But according to
the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put
up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may
win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only
formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such
collection the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and company,
and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea
that the plaintiffs organized and formed a community
of property only.
Having organized and constituted a partnership of a
civil nature, the said entity is the one bound to pay the
income tax which the defendant collected under the
aforesaid section 10 (a) of Act No. 2833, as amended
by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated
among them and paid individually, resulting in their
exemption from the tax.
In view of the foregoing, the appealed decision is
affirmed, with the costs of this instance to the plaintiffs
appellants. So ordered.
7. Sardane vs CA 167 SCRA 524 1988
NOBIO SARDANE, , vs.THE COURT OF APPEALS
and ROMEO J. ACOJEDO,
The extensive discussion and exhaustive disquisition
in the decision 1 of the respondent Court 2 should
have written finis to this case without further recourse
to Us. The assignment of errors and arguments raised
in the respondent Court by herein private respondent,
as the petitioner therein, having been correctly and
justifiedly sustained by said court without any
reversible error in its conclusions, the present petition
must fail.
The assailed decision details the facts and
proceedings which spawned the present controversy
as follows:
Petitioner brought an action in the City Court of
Dipolog for collection of a sum of P5,217.25 based on
promissory notes executed by the herein private
respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on
Exhibits B, C, D, E, F, and G executed on different
dates and signed by private respondent Nobio
Sardane. Exhibit B is a printed promissory note
involving Pl,117.25 and dated May 13, 1972. Exhibit C
is likewise a printed promissory note and denotes on
its face that the sum loaned was Pl,400.00. Exhibit D
is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is
commonly known to the layman as 'vale' which reads:
'Good for: two hundred pesos (Sgd) Nobio Sardane'.
Exhibit F is stated in the following tenor: 'Received
from Mr. Romeo Acojedo the sum Pesos: Two
Thousand Two Hundred (P2,200.00) ONLY, to be paid
on or before December 25, 1975. (Sgd) Nobio
Sardane.' Exhibit G and H are both vales' involving the
same amount of one hundred pesos, and dated
August 25, 1972 and September 12, 1972
respectively.
It has been established in the trial court that on many
occasions, the petitioner demanded the payment of
the total amount of P5,217.25. The failure of the
private respondent to pay the said amount prompted
the petitioner to seek the services of lawyer who made
a letter (Exhibit 1) formally demanding the return of the
sum loaned. Because of the failure of the private
respondent to heed the demands extrajudicially made
by the petitioner, the latter was constrained to bring an
action for collection of sum of money.
During the scheduled day for trial, private respondent
failed to appear and to file an answer. On motion by
the petitioner, the City Court of Dipolog issued an
order dated May 18, 1976 declaring the private
respondent in default and allowed the petitioner to
present his evidence ex-parte. Based on petitioner's
evidence, the City Court of Dipolog rendered judgment
by default in favor of the petitioner.
Private respondent filed a motion to lift the order of
default which was granted by the City Court in an
order dated May 24, 1976, taking into consideration
that the answer was filed within two hours after the
hearing of the evidence presented ex-parte by the
petitioner.
After the trial on the merits, the City Court of Dipolog
rendered its decision on September 14, 1976, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered in favor of the plaintiff and against the
defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the
sum of Five Thousand Two Hundred Seventeen Pesos
and Twenty-five centavos (P5,217.25) plus legal
interest to commence from April 23, 1976 when this
case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum
of P200.00 as attorney's fee and to pay the cost of this
proceeding. 3
Therein defendant Sardane appealed to the Court of
First Instance of Zamboanga del Norte which reversed
the decision of the lower court by dismissing the
complaint and ordered the plaintiff-appellee Acojedo to
pay said defendant-appellant P500.00 each for actual
damages, moral damages, exemplary damages and
attorney's fees, as well as the costs of suit. Plaintiff-
appellee then sought the review of said decision by
petition to the respondent Court.
The assignment of errors in said petition for review can
be capsulized into two decisive issues, firstly, whether
the oral testimony for the therein private respondent
Sardane that a partnership existed between him and
therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes;
and, secondly, whether because of the failure of
therein petitioner to cross-examine therein private
respondent on his sur-rebuttal testimony, there was a
waiver of the presumption accorded in favor of said
petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held
that "the pleadings of the parties herein put in issue
the imperfection or ambiguity of the documents in
question", hence "the appellant can avail of the parol
evidence rule to prove his side of the case, that is, the
said amount taken by him from appellee is or was not
his personal debt to appellee, but expenses of the
partnership between him and appellee."
Consequently, said trial court concluded that the
promissory notes involved were merely receipts for the
contributions to said partnership and, therefore, upheld
the claim that there was ambiguity in the promissory
notes, hence parol evidence was allowable to vary or
contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the
terms of an agreement have been reduced to writing, it
is to be considered as containing all such terms, and,
therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the
agreement other than the contents of the writing
except in the following cases:
(a) Where a mistake or imperfection of the writing or its
failure to express the the true intent and agreement of
the parties, or the validity of the agreement is put in
issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the
exceptions to the rule do not apply in this case as
there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed
promissory notes containing a promise to pay a sum
certain in money, payable on demand and the promise
to bear the costs of litigation in the event of the private
respondent's failure to pay the amount loaned when
demanded extrajudicially. Likewise, the vales denote
that the private respondent is obliged to return the sum
loaned to him by the petitioner. On their face, nothing
appears to be vague or ambigous, for the terms of the
promissory notes clearly show that it was incumbent
upon the private respondent to pay the amount
involved in the promissory notes if and when the
petitioner demands the same. It was clearly the intent
of the parties to enter into a contract of loan for how
could an educated man like the private respondent be
deceived to sign a promissory note yet intending to
make such a writing to be mere receipts of the
petitioner's supposed contribution to the alleged
partnership existing between the parties?
It has been established in the trial court that, the
private respondent has been engaged in business for
quite a long period of time--as owner of the Sardane
Trucking Service, entering into contracts with the
government for the construction of wharfs and seawall;
and a member of the City Council of Dapitan (TSN,
July 20, 1976, pp. 57-58 indeed puzzles us how the
private respondent could have been misled into
signing a document containing terms which he did not
mean them to be. ...
The private respondent admitted during the cross-
examination made by petitioner's counsel that he was
the one who was responsible for the printing of
Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How
could he purportedly rely on such a flimsy pretext that
the promissory notes were receipts of the petitioner's
contribution? 4
The Court of Appeals held, and We agree, that even if
evidence aliunde other than the promissory notes may
be admitted to alter the meaning conveyed thereby,
still the evidence is insufficient to prove that a
partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some
degree of control over the operations and maintenance
thereof had to be exercised by herein petitioner. The
fact that he had received 50% of the net profits does
not conclusively establish that he was a partner of the
private respondent herein. Article 1769(4) of the Civil
Code is explicit that while the receipt by a person of a
share of the profits of a business is prima
facie evidence that he is a partner in the business, no
such inference shall be drawn if such profits were
received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar
facts, this Court in the early case of Fortis vs.
Gutierrez Hermanos, 5 in denying the claim of the
plaintiff therein that he was a partner in the business of
the defendant, declared:
This contention cannot be sustained. It was a mere
contract of employment. The plaintiff had no voice nor
vote in the management of the affairs of the company.
The fact that the compensation received by him was to
be determined with reference to the profits made by
the defendant in their business did not in any sense
make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi &
Co., Inc., et al. 6 which involved the same factual and
legal milieu.
There are other considerations noted by respondent
Court which negate herein petitioner's pretension that
he was a partner and not a mere employee indebted to
the present private respondent. Thus, in an action for
damages filed by herein private respondent against
the North Zamboanga Timber Co., Inc. arising from the
operations of the business, herein petitioner did not
ask to be joined as a party plaintiff. Also, although he
contends that herein private respondent is the
treasurer of the alleged partnership, yet it is the latter
who is demanding an accounting. The advertence of
the Court of First Instance to the fact that the casco
bears the name of herein petitioner disregards the
finding of the respondent Court that it was just a
concession since it was he who obtained the engine
used in the Sardaco from the Department of Local
Government and Community Development. Further,
the use by the parties of the pronoun "our" in referring
to "our basnig, our catch", "our deposit", or "our
boseros" was merely indicative of the camaraderie and
not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further
claim that the aforesaid promissory notes do not
express the true intent and agreement of the parties,
are binding on Us since there is no showing that they
fall within the exceptions to the rule limiting the scope
of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable
documents in Rule 8, for ready reference, reads:
Sec. 8. How to contest genuineness of such
documents.When an action or defense is founded
upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding
section, the genuineness and due execution of the
instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this
provision does not apply when the adverse party does
not appear to be a party to the instrument or when
compliance with an order for the inspection of the
original instrument is refused.
The record shows that herein petitioner did not deny
under oath in his answer the authenticity and due
execution of the promissory notes which had been
duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even
in the trial court, he did not at all question the fact that
he signed said promissory notes and that the same
were genuine. Instead, he presented parol evidence to
vary the import of the promissory notes by alleging that
they were mere receipts of his contribution to the
alleged partnership.
His arguments on this score reflect a misapprehension
of the rule on parol evidence as distinguished from the
rule on actionable documents. As the respondent
Court correctly explained to herein petitioner, what he
presented in the trial Court was testimonial evidence
that the promissory notes were receipts of his
supposed contributions to the alleged partnership
which testimony, in the light of Section 7, Rule 130,
could not be admitted to vary or alter the explicit
meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due
execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since
such aspects were not at all questioned but, on the
contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et
al. vs. Kong Li Po, 7 which was reiterated in Central
Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does
not sustain his thesis that the herein private
respondent had "waived the mantle of protection given
him by Rule 8, Sec. 8". It is true that such implied
admission of genuineness and due execution may be
waived by a party but only if he acts in a manner
indicative of either an express or tacit waiver thereof.
Petitioner, however, either overlooked or ignored the
fact that, as held in Yu Chuck, and the same is true in
other cases of Identical factual settings, such a finding
of waiver is proper where a case has been tried in
complete disregard of the rule and the plaintiff having
pleaded a document by copy, presents oral evidence
to prove the due execution of the document and no
objections are made to the defendant's evidence in
refutation. This situation does not obtain in the present
case hence said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to
cross-examine herein petitioner on the latter's sur-
rebuttal testimony constitute a waiver of the aforesaid
implied admission. As found by the respondent Court,
said sur-rebuttal testimony consisted solely of the
denial of the testimony of herein private respondent
and no new or additional matter was introduced in that
sur-rebuttal testimony to exonerate herein petitioner
from his obligations under the aforesaid promissory
notes.
On the foregoing premises and considerations, the
respondent Court correctly reversed and set aside the
appealed decision of the Court of First Instance of
Zamboanga del Norte and affirmed in full the decision
of the City Court of Dipolog City in Civil Case No. A-
1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said
decision of the respondent Court, herein petitioner, as
the private respondent therein, raised a third
unresolved issue that the petition for review therein
should have been dismissed for lack of jurisdiction
since the lower Court's decision did not affirm in full
the judgment of the City Court of Dipolog, and which
he claimed was a sine qua non for such a petition
under the law then in force. He raises the same point
in his present appeal and We will waive the procedural
technicalities in order to put this issue at rest.
Parenthetically, in that same motion for
reconsideration he had sought affirmative relief from
the respondent Court praying that it sustain the
decision of the trial Court, thereby invoking and
submitting to its jurisdiction which he would now assail.
Furthermore, the objection that he raises is actually
not one of jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his
said objection on the provisions of Section 29,
Republic Act 296 as amended by Republic Act 5433
effective September 9, 1968. Subsequently, the
procedure for appeal to the Court of Appeals from
decisions of the then courts of first instance in the
exercise of their appellate jurisdiction over cases
originating from the municipal courts was provided for
by Republic Act 6031, amending Section 45 of the
Judiciary Act effective August 4, 1969. The
requirement for affirmance in full of the inferior court's
decision was not adopted or reproduced in Republic
Act 6031. Also, since Republic Act 6031 failed to
provide for the procedure or mode of appeal in the
cases therein contemplated, the Court of Appeals en
banc provided thereof in its Resolution of August 12,
1971, by requiring a petition for review but which also
did not require for its availability that the judgment of
the court of first instance had affirmed in full that of the
lower court. Said mode of appeal and the procedural
requirements thereof governed the appeal taken in this
case from the aforesaid Court of First Instance to the
Court of Appeals in 1977. 10 Herein petitioner's plaint
on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court
of Appeals is AFFIRMED, with costs against herein
petitioner.
8. Fortis vs Gutierrez Hermanos 6 Phil 188
JOHN FORTIS, plaintiff-appellee, vs. GUTIERREZ
HERMANOS, defendants-
Plaintiff, an employee of defendants during the years
1900, 1901, and 1902, brought this action to recover a
balance due him as salary for the year 1902. He
alleged that he was entitled, as salary, to 5 per cent of
the net profits of the business of the defendants for
said year. The complaint also contained a cause of
action for the sum of 600 pesos, money expended by
plaintiff for the defendants during the year 1903. The
court below, in its judgment, found that the contract
had been made as claimed by the plaintiff; that 5 per
cent of the net profits of the business for the year 1902
amounted to 26,378.68 pesos, Mexican currency; that
the plaintiff had received on account of such salary
12,811.75 pesos, Mexican currency, and ordered
judgment against the defendants for the sum
13,566.93 pesos, Mexican currency, with interest
thereon from December 31, 1904. The court also
ordered judgment against the defendants for the 600
pesos mentioned in the complaint, and intereat
thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to
Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied,
and they have brought the case here by bill of
exceptions.
(1) The evidence is sufifcient to support the finding of
the court below to the effect that the plaintiff worked for
the defendants during the year 1902 under a contract
by which he was to receive as compensation 5 per
cent of the net profits of the business. The contract
was made on the part of the defendants by Miguel
Alonzo Gutierrez. By the provisions of the articles of
partnership he was made one of the managers of the
company, with full power to transact all of the business
thereof. As such manager he had authority to make a
contract of employment with the plaintiff.
(2) Before answering in the court below, the
defendants presented a motion that the complaint be
made more definite and certain. This motion was
denied. To the order denying it the defendants
excepted, and they have assigned as error such ruling
of the court below. There is nothing in the record to
show that the defendants were in any way prejudiced
by this ruling of the court below. If it were error it was
error without prejudice, and not ground for reversal.
(Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract
alleged in the complaint made the plaintiff a copartner
of the defendants in the business which they were
carrying on. This contention can not bo sustained. It
was a mere contract of employnent. The plaintiff had
no voice nor vote in the management of the affairs of
the company. The fact that the compensation received
by him was to be determined with reference to the
profits made by the defendants in their business did
not in any sense make by a partner therein. The
articles of partnership between the defendants
provided that the profits should be divided among the
partners named in a certain proportion. The contract
made between the plaintiff and the then manager of
the defendant partnership did not in any way vary or
modify this provision of the articles of partnership. The
profits of the business could not be determined until all
of the expenses had been paid. A part of the expenses
to be paid for the year 1902 was the salary of the
plaintiff. That salary had to be deducted before the net
profits of the business, which were to be divided
among the partners, could be ascertained. It was
undoubtedly necessary in order to determine what the
salary of the plaintiff was, to determine what the profits
of the business were, after paying all of the expenses
except his, but that determination was not the final
determination of the net profits of the business. It was
made for the purpose of fixing the basis upon which
his compensation should be determined.
(4) It was no necessary that the contract between the
plaintiff and the defendants should be made in writing.
(Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818,
October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with
whom the plaintiff had made the contract, had died
prior to the trial of the action, and the defendants claim
that by reasons of the provisions of section 383,
paragraph 7, of the Code of Civil Procedure, plaintiff
could not be a witness at the trial. That paragraph
provides that parties to an action against an executor
or aministrator upon a claim or demand against the
estate of a deceased person can not testify as to any
matter of fact occurring before the death of such
deceased person. This action was not brought against
the administrator of Miguel Alonzo, nor was it brought
upon a claim against his estate. It was brought against
a partnership which was in existence at the time of the
trial of the action, and which was juridical person. The
fact that Miguel Alonzo had been a partner in this
company, and that his interest therein might be
affected by the result of this suit, is not sufficient to
bring the case within the provisions of the section
above cited.
(6) The plaintiff was allowed to testify against the
objection and exception of the defendants, that he had
been paid as salary for the year 1900 a part of the
profits of the business. This evidence was competent
for the purpose of corroborating the testimony of the
plaintiff as to the existence of the contract set out in
the complaint.
(7) The plaintiff was allowed to testify as to the
contents of a certain letter written by Miguel Glutierrez,
one of the partners in the defendant company, to
Miguel Alonzo Gutierrez, another partner, which letter
was read to plaintiff by Miguel Alonzo. It is not
necessary to inquire whether the court committed an
error in admitting this evidence. The case already
made by the plaintiff was in itself sufficient to prove the
contract without reference to this letter. The error, if
any there were, was not prejudicial, and is not ground
for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the
defendants were for the year 1902, the plaintiff
presented in evidence the ledger of defendants, which
contained an entry made on the 31st of December,
1902, as follows:
Perdidas y Ganancias........ a Varios Ps. 527,573.66
Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos
establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject
of profits Miguel Gutierrez, one of the defendants, who
testiffied, among other things, that there were no
profits during the year 1902, but, on the contrary, that
the company suffered considerable loss during that
year. We do not think the evidence of this witnees
sufficiently definite and certain to overcome the
positive evidence furnished by the books of the
defendants themselves.
(9) In reference to the cause of action relating to the
600 pesos, it appears that the plaintiff left the employ
of the defendants on the 19th of Macrh, 1903; that at
their request he went to Hongkong, and was there for
about two months looking after the business of the
defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the
plaintiff is entitled to no compensation for his services
thus rendered, because by the provisions of article
1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is
supposed to be gratuitous. That article i not applicable
to this case, because the amount of 600 pesos not
claimed as compensation for services but as a
reimbursment for money expended by the plaintiff in
the business of the defendants. The article of the code it is impossible to ascertain, even after the examination
that is applicable is article 1728. of the books of the business, due to the defendants'
The judgment of the court below is affirmed, with the refusal to furnish all the books and data required for
costs, of this instance against the appellants. After the the purpose, and the constant obstacles they have
expiration of twenty days from the date of this decision placed in the way of the examination of the books of
let final judgment be entered herein, and ten days account and vouchers;
thereafter let the case be remanded to the lower court VI
for execution. So ordered. That when the plaintiff received the information
mentioned in the preceding paragraph, he demanded
FRANCISCO BASTIDA, plaintiff-appellee, that the defendants permit him to examine the books
vs. MENZI & Co., INC., J.M. MENZI and P.C. and vouchers of the business, which were in their
SCHLOBOHM, defendants. possession, in order to ascertain the truth of the
MENZI & CO., appellant. alleged false entries in the books and balance sheets
This is an appeal by Menzi & Co., Inc., one of the submitted for his approval, but the defendants refused,
defendants, from a decision of the Court of First and did not consent to the examination until after the
Instance of Manila. The case was tried on the original complaint was filed in this case; but up to this
amended complaint dated May 26, 1928 and time they have refused to furnish all the books, data,
defendants' amended answer thereto of September 1, and vouchers necessary for a complete and accurate
1928. For the sake of clearness, we shall incorporate examination of all the partnership's accounts; and
herein the principal allegations of the parties. VII
FIRST CAUSE OF ACTION That as a result of the partial examination of the books
Plaintiff alleged: of account of the business, the plaintiff has, through
I his accountants, discovered that the defendants,
That the defendant J.M. Menzi, together with his wife conspiring and confederating together, presented to
and daughter, owns ninety-nine per cent (99%) of the the plaintiff during the period covered by the
capital stock of the defendant Menzi & Co., Inc., that partnership contract false and incorrect accounts,
the plaintiff has been informed and therefore believes (a) For having included therein undue interest;
that the defendant J.M. Menzi, his wife and daughter, (b) For having entered, as a charge to fertilizers,
together with the defendant P.C. Schlobohm and one salaries and wages which should have been paid and
Juan Seiboth, constitute the board of directors of the were in fact paid by the defendant Menzi & Co., Inc.;
defendant, Menzi & Co., Inc.; (c) For having collected from the partnership the
II income tax which should have been paid for its own
That on April 27, 1922, the defendant Menzi & Co., account by Menzi & Co., Inc.;
Inc. through its president and general manager, J.M. (d) For having collected, to the damage and prejudice
Menzi, under the authority of the board of directors, of the plaintiff, commissions on the purchase of
entered into a contract with the plaintiff to engage in materials for the manufacture of fertilizers;
the business of exploiting prepared fertilizers, as (e) For having appropriated, to the damage and
evidenced by the contract marked Exhibit A, attached prejudice of the plaintiff, the profits obtained from the
to the original complaint as a part thereof, and likewise sale of fertilizers belonging to the partnership and
made a part of the amended complaint, as if it were bought with its own funds; and
here copied verbatim; (f) For having appropriated to themselves all rebates
III for freight insurance, taxes, etc., upon materials for
That in pursuance of said contract, plaintiff and fertilizer bought abroad, no entries of said rebates
defendant Menzi & Co., Inc., began to manufacture having been made on the books to the credit of the
prepared fertilizers, the former superintending the work partnership.
of actual preparation, and the latter, through Upon the strength of the facts set out in this first cause
defendants J.M. Menzi and P. C. Schlobohm, of action, the plaintiff prays the court:
managing the business and opening an account 1. To prohibit the defendants, each and every one of
entitled "FERTILIZERS" on the books of the defendant them, from destroying and concealing the books and
Menzi & Co., Inc., where all the accounts of the papers of the partnership constituted between the
partnership business were supposed to be kept; the defendant Menzi & Co., Inc., and the plaintiff;
plaintiff had no participation in the making of these 2. To summon each and every defendant to appear
entries, which were wholly in the defendants' charge, and give a true account of all facts relating to the
under whose orders every entry was made; partnership between the plaintiff and the defendant
IV That according to paragraph 7 of the contract Menzi & Co., Inc., and of each and every act and
Exhibit A, the defendant Menzi & Co., Inc., was transaction connected with the business of said
obliged to render annual balance sheets to be plaintiff partnership from the beginning to April 27, 1927, and a
upon the 30th day of June of each year; that the true statement of all merchandise of whatever
plaintiff had no intervention in the preparation of these description, purchased for said partnership, and of all
yearly balances, nor was he permitted to have any the expenditures and sale of every kind, together with
access to the books of account; and when the balance the true amount thereof, besides the sums received by
sheets were shown him, he, believing in good faith that the partnership from every source together with their
they contained the true statement of the partnership exact nature, and a true and complete account of the
business, and relying upon the good faith of the vouchers for all sums paid by the partnership, and of
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. the salaries paid to its employees;
Schlobohm, accepted and signed them, the last 3. To declare null and void the yearly balances
balance sheet having been rendered in the year 1926; submitted by the defendants to the plaintiff from 1922
V That by reason of the foregoing facts and especially to 1926, both inclusive;
those set forth in the preceding paragraph, the plaintiff 4. To order the defendants to give a true statement of
was kept in ignorance of the defendants' acts relating all receipts and disbursements of the partnership
to the management of the partnership funds, and the during the period of its existence, besides granting the
keeping of accounts, until he was informed and so plaintiff any other remedy that the court may deem just
believes and alleges, that the defendants had and equitable.
conspired to conceal from him the true status of the EXHIBIT A
business, and to his damage and prejudice made false CONTRATO
entries in the books of account and in the yearly que se celebra entre los Sres. Menzi y Compaia, de
balance sheets, the exact nature and amount of which Manila, como Primera Parte, y D. Francisco Bastada,
tambien de Manila, como Segunda Parte, bajo las
siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del
negocio de Abonos o Fertilizantes Preparados, para
diversas aplicaciones agricolas;
2. La duracion de este contrato sera de cinco aos, a
contrar desde la fecha de su firma;
3. La Primera Parte se compromete a facilitar la
ayuda financiera necesaria para el negocio;
4. La Segunda Parte se compromete a poner su
entero tiempo y toda su experiencia a la disposicion
del negocio;
5. La Segunda Parte no podra, directa o
indirectamente, dedicarse por si sola ni en sociedad
con otras personas, o de manera alguna que no sea
con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique
comunmente a la fertilizacion de suelos y plantas,
durante la vigencia de este contrato, a menos que
obtenga autorizacion expresa de la Primera Parte para
ello;
6. La Primera Parte no podra dedicarse, por si sola ni
en sociedad o combinacion con otras personas o
entidades, ni de otro modo que en sociedad con la
Segunda Parte, al negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados, ya preparados
en las Islas Fllipinas; tampoco podra dedicarse a la
venta o negocio de materias o productos que tengan
aplicacion como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si ellos son
productos de suelo de la manufactura filipinos,
pudiendo sin embargo vender o negociar en materim
fertilizantes simples importados de los Estados Unidos
o del Extranjero;
7. La Primera Parte se obliga a ceder y a hacer
efectivo a la Segunda Parte el 35 por ciento (treinta y
cinco por ciento) de las utilidades netas del negocio de
abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda,
mensualmente, la cantidad de P300 (trescientos
pesos), a cuenta de su parte de beneficios.
9. Durante el ao 1923 la Parte concedera a la
Segunda permiso para que este se ausente de
Filipinas por un periodo de tiempo que no exceda de
un ao, sin menoscabo para derechos de la Segunda
Parte con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la
Ciudad de Manila, I. F., a veintisiete de abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended
complaint, except the formal allegations as to the
parties, and as a special defense to the first cause of
action alleged:
1. That the defendant corporation, Menzi & Co., Inc.,
has been engaged in the general merchandise
business in the Philippine Islands since its
organization in October, 1921, including the
importation and sale of all kinds of goods, wares, and
merchandise, and especially simple fertilizer and
fertilizer ingredients, and as a part of that business, it
has been engaged since its organization in the
manufacture and sale of prepared fertilizers for
agricultural purposes, and has used for that purpose
trade-marks belonging to it;
2. That on or about November, 1921, the defendant,
Menzi & CO., Inc., made and entered into an
employment agreement with the plaintiff, who
represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the
ingredients in the manufacture of prepared fertilizers in
its fertilizer department and to obtain orders for such
prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it
might derive from the sale of the fertilizers prepared by
him, and that said Francisco Bastida worked under
said agreement until April 27, 1922, and received the
compensation agreed upon for his services; that on
the said 27th of April, 1922, the said Menzi & Co., Inc.,
and the said Francisco Bastida made and entered into
the written agreement, which is marked Exhibit A, and
made a part of the amended complaint in this case,
whereby they mutually agreed that the employment of
the said Francisco Bastida by the said Menzi & Co.,
Inc., in the capacity stated, should be for a definite
period of five years from that date and under the other
terms and conditions stated therein, but with the
understanding and agreement that the said Francisco
Bastida should receive as compensation for his said
services only 35 per cent of the net profits derived
from the sale of the fertilizers prepared by him during
the period of the contract instead of 50 per cent of
such profits, as provided in his former agreement; that
the said Francisco Bastida was found to be
incompetent to do anything in relation to its said
fertilizer business with the exception of over-seeing the
mixing of the ingredients in the manufacture of the
same, and on or about the month of December, 1922,
the defendant, Menzi & Inc., in order to make said
business successful, was obliged to and actually did
assume the full management and direction of said
business;
3. That the accounts of the business of the said
fertilizer department of Menzi & Co., Inc., were duly
kept in the regular books of its general business, in the
ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period
of said agreement, for the purpose of convenience in
determining the amount of compensation due to the
plaintiff under his agreement, separate books of
account for its said fertilizer business were duly, kept
in the name of 'Menzi & Co., Inc., Fertilizer', and used
exclusively for that purpose and it was mutually agreed
between the said Francisco Bastida and the said
Menzi & Co., Inc., that the yearly balances for the
determination of the net profits of said business due to
the said plaintiff as compensation for his services
under said agreement would be made as of December
31st, instead of June 30th, of each year, during the
period of said agreement; that the accounts of the
business of its said fertilizer department, as recorded
in its said books, and the vouchers and records
supporting the same, for each year of said business
have been duly audited by Messrs. White, Page & Co.,
certified public accountants, of Manila, who, shortly
after the close of business at the end of each year up
to and including the year 1926, have prepared
therefrom a manufacturing and profit and loss account
and balance sheet, showing the status of said
business and the share of the net profits pertaining to
the plaintiff as his compensation under said
agreement; that after the said manufacturing and profit
and the loss account and balance sheet for each year
of the business of its said fertilizer department up to
and including the year 1926, had been prepared by the
said auditors and certified by them, they were shown
to and examined by the plaintiff, and duly accepted,
and approved by him, with full knowledge of their
contents, and as evidence of such approval, he signed
his name on each of them, as shown on the copies of
said manufacturing and profit and loss account and
balance sheet for each year up to and including the
year 1926, which are attached to the record of this
case, and which are hereby referred to and made a
part of this amended answer, and in accordance
therewith, the said plaintiff has actually received the
portion of the net profits of its said business for those
years pertaining to him for his services under said
agreement; that at no time during the course of said
fertilizer business and the liquidation thereof has the
plaintiff been in any way denied access to the books
and records pertaining thereto, but on the contrary,
said books and records have been subject to his
inspection and examination at any time during
business hours, and even since the commencement of
this action, the plaintiff and his accountants, Messrs.
Haskins & Sells, of Manila, have been going over and
examining said books and records for months and the
defendant, Menzi & Co. Inc., through its officers, have
turned over to said plaintiff and his accountant the
books and records of said business and even
furnished them suitable accommodations in its own
office to examine the same;
4. That prior to the termination of the said agreement,
Exhibit A, the defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not under any
conditions renew his said agreement or continue his
said employment with it after its expiration, and after
the termination of said agreement of April 27, 1927,
the said Menzi & Co., Inc., had the certified public
accountants, White, Page & Co., audit the accounts of
the business of its said fertilizer department for the
four months of 1927 covered by plaintiff's agreement
and prepare a manufacturing and profit and loss
account and balance sheet of said business showing
the status of said business at the termination of said
agreement, a copy of which was shown to and
explained to the plaintiff; that at that time there were
accounts receivable to be collected for business
covered by said agreement of over P100,000, and
there was guano, ashes, fine tobacco and other
fertilizer ingredients on hand of over P75,000, which
had to be disposed of by Menzi & Co., Inc., or valued
by the parties, before the net profits of said business
for the period of the agreement could be determined;
that Menzi & Co., Inc., offered to take the face value of
said accounts and the cost value of the other
properties for the purpose of determining the profits of
said business for that period, and to pay to the plaintiff
at that time his proportion of such profits on that basis,
which the plaintiff refused to accept, and being
disgruntled because the said Menzi & Co., Inc., would
not continue him in its service, the said plaintiff
commenced this action, including therein not only
Menzi & Co. Inc., but also it managers J.M. Menzi and
P.C. Schlobohm, wherein he knowingly make various
false and malicious allegations against the defendants;
that since that time the said Menzi & Co., Inc., has
been collecting the accounts receivable and disposing
of the stocks on hand, and there is still on hand old
stock of approximately P25,000, which it has been
unable to dispose of up to this time; that as soon as
possible a final liquidation and amounting of the net
profits of the business covered by said agreement for
the last four months thereof will be made and the
share thereof appertaining to the plaintiff will be paid to
him; that the plaintiff has been informed from time to
time as to the status of the disposition of such
properties, and he and his auditors have fully
examined the books and records of said business in
relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II,
III, IV, and V of the first cause of action.
II. That the examination made by the plaintiff's auditors
of some of the books of the partnership that were
furnished by the defendants disclosed the fact that
said defendants had charged to "purchases" of the
business, undue interest, the amount of which the
plaintiff is unable to determine, as he has never had at
his disposal the books and vouchers necessary for
that purpose, and especially, owning to the fact that
the partnership constituted between the plaintiff and
the defendant Menzi & Co., Inc., never kept its own
cash book, but that its funds were maliciously included
in the private funds of the defendant entity, neither was
there a separate BANK ACCOUNT of the partnership,
such account being included in the defendant's bank
account.
III. That from the examination of the partnership books
as aforesaid, the plaintiff estimates that the partnership
between himself and the defendant Menzi & Co., Inc.,
has been defrauded by the defendants by way of
interest in an amount of approximately P184,432.51, of
which 35 per cent, or P64,551.38, belongs to the
plaintiff exclusively.
Wherefore, the plaintiff prays the court to render
judgment ordering the defendants jointly and severally
to pay him the sum of P64,551.38, or any amount
which may finally appear to be due and owing from the
defendants to the plaintiff upon this ground, with legal
interest from the filing of the original complaint until
payment.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer;
2. That under the contract of employment, Exhibit A, of
the amended complaint, the defendant, Menzi & Co.,
Inc., only undertook and agreed to facilitate financial
aid in carrying on the said fertilizer business, as it had
been doing before the plaintiff was employed under
the said agreement; that the said defendant, Menzi &
Co., Inc., in the course of the said business of its
fertilizer department, opened letters of credit through
the banks of Manila, accepted and paid drafts drawn
upon it under said letters of credit, and obtained loans
and advances of moneys for the purchase of materials
to be used in mixing and manufacturing its fertilizers
and in paying the expenses of said business; that such
drafts and loans naturally provided for interest at the
banking rate from the dates thereof until paid, as is the
case in all, such business enterprises, and that such
payments of interest as were actually made on such
drafts, loans and advances during the period of the
said employment agreement constituted legitimate
expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV,
and V of the first cause of action.
II. That under the terms of the contract Exhibit A,
neither the defendants J.M. Menzi and P.C.
Schlobohm, nor the defendant Menzi & Co., Inc., had
a right to collect for itself or themselves any amount
whatsoever by way of salary for services rendered to
the partnership between the plaintiff and the
defendant, inasmuch as such services were
compensated with the 65% of the net profits of the
business constituting their share.
III. That the plaintiff has, on his on account and with
his own money, paid all the employees he has placed
in the service of the partnership, having expended for
their account, during the period of the contract, over
P88,000, without ever having made any claim upon
the defendants for this sum because it was included in
the compensation of 35 per cent which he was to
receive in accordance with the contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C.
Schlobohm, not satisfied with collecting undue and
excessive salaries for themselves, have made the
partnership, or the fertilizer business, pay the salaries
of a number of the employees of the defendant Menzi
& Co., Inc.
V. That under this item of undue salaries the
defendants have appropriated P43,920 of the
partnership funds, of which 35 per cent, or P15,372
belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render
judgment ordering the defendants to pay jointly and
severally to the plaintiff the amount of P15,372, with
legal interest from the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4 of the special
defense the first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc., through its
manager, exclusively managed and conducted its said
fertilizer business, in which the plaintiff was to receive
35 percent of the net profits as compensation for this
services, as hereinbefore alleged, from on or about
January 1, 1923, when its other departments had
special experienced Europeans in charge thereof, who
received not only salaries but also a percentage of the
net profits of such departments; that its said fertilizer
business, after its manager took charge of it, became
very successful, and owing to the large volume of
business transacted, said business required great deal
of time and attention, and actually consumed at least
one-half of the time of the manager and certain
employees of Menzi & Co., Inc., in carrying it on; that
the said Menzi & Co., furnished office space,
stationery and other incidentals, for said business, and
had its employees perform the duties of cashiers,
accountants, clerks, messengers, etc., for the same,
and for that reason the said Menzi & Co., Inc., charged
each year, from and after 1922, as expenses of said
business, which pertained to the fertilizer department,
as certain amount as salaries and wages to cover the
proportional part of the overhead expenses of Menzi &
Co., Inc.; that the same method is followed in each of
the several departments of the business of Menzi &
Co., Inc., that each and every year from and after
1922, a just proportion of said overhead expenses
were charged to said fertilizer departments and
entered on the books thereof, with the knowledge and
consent of the plaintiff, and included in the auditors'
reports, which were examined, accepted and approved
by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of
said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV,
and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the
defendant J. M.Menzi and P. C. Schlobohm, has paid,
with the funds of the partnership between the
defendant entity and the plaintiff, the income tax due
from said defendant entity for the fertilizer business,
thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively
to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the
contract, paid with his own money the income tax
corresponding to his share which consists in 35 per
cent of the profits of the fertilizer business, expending
about P5,000 without ever having made any claim for
reimbursement against the partnership, inasmuch as it
has always been understood among the partners that
each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the
defendants jointly and severally to pay the plaintiff the
sum of P3,362.60, with legal interest from the date of
the filing of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer;
2. That under the Income Tax Law Menzi & Co., Inc.,
was obliged to and did make return to the Government
of the Philippine Islands each year during the period of
the agreement, Exhibit A, of the income of its whole
business, including its fertilizer department; that the
proportional share of such income taxes found to be
due on the business of the fertilizer department was
charged as a proper and legitimate expense of that
department, in the same manner as was done in the
other departments of its business; that inasmuch as
the agreement with the plaintiff was an employment
agreement, he was required to make his own return
under the Income Tax Law and to pay his own income
taxes, instead of having them paid at the source, as
might be done under the law, so that he would be
entitled to the personal exemptions allowed by the law;
that the income taxes paid by the said Menzi & Co.,
Inc., pertaining to the business, were duly entered on
the books of that department, and included in the
auditors' reports hereinbefore referred to, which
reports were examined, accepted and approved by the
plaintiff, with full knowledge of their contents, and he is
now estopped from saying that such taxes are not a
legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and
V of the first cause of action.
II. That the plaintiff has discovered that the defendants
Menzi & Co., Inc., had been receiving, during the
period of the contract Exhibit A, from foreign firms
selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the
purchases of fertilizing material made by the
partnership constituted between the plaintiff and the
defendant Menzi Co., Inc., and that said 5 per cent
commission was not entered by the defendants in the
books of the business, to the credit and benefit of the
partnership constituted between the plaintiff and the
defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate
amount of the fraud thus suffered by the plaintiff
cannot be determined, because the entries referring to
these items do not appear in the partnership books,
although the plaintiff believes and alleges that they do
appear in the private books of the defendant Menzi &
Co., Inc., which the latter has refused to furnish,
notwithstanding the demands made therefore by the
auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases
of some fertilizing material made by the partnership
during the first four years of the contract Exhibit A, the
plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the
damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively
to the plaintiff.
Wherefore, the plaintiff prays the court to order the
defendants to pay jointly and severally to the plaintiff
the amount of P44,581.52, or the exact amount owed
upon this ground, after both parties have adduced their
evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraph 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc., did have
during the period of said agreement, Exhibit A, and
has now what is called a "Propaganda Agency
Agreement" which the Deutsches Kalesyndikat,
G.M.B., of Berlin, which is a manufacturer of potash,
by virtue of which said Menzi & Co., Inc., was to
receive for its propaganda work in advertising and
bringing about sales of its potash a commission of 5
per cent on all orders of potash received by it from the
Philippine Islands; that during the period of said
agreement, Exhibit A, orders were sent to said
concern for potash, through C. Andre & Co., of
Hamburg, as the agent of the said Menzi & Co., Inc.,
upon which the said Menzi & Co., Inc., received a 5
per cent commission, amounting in all to P2,222.32 for
the propaganda work which it did for said firm in the
Philippine Islands; that said commissioners were not in
any sense discounts on the purchase price of said
potash, and have no relation to the fertilizer business
of which the plaintiff was to receive a share of the net
profits for his services, and consequently were not
credited to that department;
3. That in going over the books of Menzi Co., Inc., it
has been found that there are only two items of
commissions, which were received from the United
Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on
the books of the fertilizer department of Menzi & Co.,
Inc., but due allowance has now been given to the
department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and
V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with
and through the defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has tampered with the
books of the business making fictitious transfers in
favor of the defendant Menzi & Co., Inc., of
merchandise belonging to the partnership, purchased
with the latter's money, and deposited in its
warehouses, and then sold by Menzi & Co., Inc., to
third persons, thereby appropriating to itself the profits
obtained from such resale.
III. That it is impossible to ascertain the amount of the
fraud suffered by the plaintiff in this respect as the real
amount obtained from such sales can only be
ascertained from the examination of the private books
of the defendant entity, which the latter has refused to
permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff,
and no basis of computation can be established, even
approximately, to ascertain the extent of the fraud
sustained by the plaintiff in this respect, by merely
examining the partnership books.
Wherefore, the plaintiff prays the court to order the
defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to all the profits received from
the sale to third persons of the fertilizers pertaining to
the partnership, and the profits they have
appropriated, ordering them jointly and severally to
pay 35 per cent of the net amount, with legal interest
from the filing of the original complaint until the
payment thereof.
Defendant alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer:
2. That under the express terms of the employment
agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., had the right to import into the Philippine Islands
in the course of its fertilizer business and sell fro its
exclusive account and benefit simple fertilizer
ingredients; that the only materials imported by it and
sold during the period of said agreement were simple
fertilizer ingredients, which had nothing whatever to do
with the business of mixed fertilizers, of which the
plaintiff was to receive a share of the net profits as a
part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV,
and V of the first cause of action.
II. That during the existence of the contract Exhibit A,
the defendant Menzi & Co., Inc., for the account of the
partnership constituted between itself and the plaintiff,
and with the latter's money, purchased from a several
foreign firms various simple fertilizing material for the
use of the partnership.
III. That in the paid invoices for such purchases there
are charged, besides the cost price of the
merchandise, other amounts for freight, insurance,
duty, etc., some of which were not entirely thus spent
and were later credited by the selling firms to the
defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and
in collusion with the defendants J.M. Menzi and P.C.
Schlobohm upon receipt of the credit notes remitted by
the selling firms of fertilizing material, for rebates upon
freight, insurance, duty, etc., charged in the invoice but
not all expended, did not enter them upon the books to
the credit of the partnership constituted between the
defendant and the plaintiff, but entered or had them
entered to the credit on Menzi & Co., Inc., thereby
defrauding the plaintiff of 35 per cent of the value of
such reductions.
V. That the total amount, or even the approximate
amount of this fraud cannot be ascertained without an
examination of the private books of Menzi & Co., Inc.,
which the latter has refused to permit notwithstanding
the demand to this effect made upon them by the
auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the
defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to the total amount of such
rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net
amount. Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer:
2. That during the period of said employment
agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., received from its agent, C. Andre & Co., of
Hamburg, certain credits pertaining to the fertilizer
business in the profits of which the plaintiff was
interested, by way of refunds of German Export Taxes,
in the total sum of P1,402.54; that all of department as
received, but it has just recently been discovered that
through error an additional sum of P216.22 was
credited to said department, which does not pertain to
said business in the profits of which the plaintiff is
interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV
and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the
expiration of the contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc., acting as manager of
the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with
the Compaia General de Tabacos de Filipinas for the
sale of said entity of three thousand tons of fertilizers
of the trade mark "Corona No. 1", at the rate of P111
per ton, f. o. b. Bais, Oriental Negros, to be delivered,
as they were delivered, according to information
received by the plaintiff, during the months of
November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the
benefits derived therefrom, which the plaintiff
estimates at P90,000, Philippine currency, belongs to
the fertilizer business constituted between the plaintiff
and the defendant, of which 35 per cent, or P31,500,
belongs to said plaintiff.
IV. That notwithstanding the expiration of the
partnership contract Exhibit A, on April 27, 1927, the
defendants have not rendered a true accounting of the
profits obtained by the business during the last four
months thereof, as the purposed balance submitted to
the plaintiff was incorrect with regard to the inventory
of merchandise, transportation equipment, and the
value of the trade marks, for which reason such
proposed balance did not represent the true status of
the business of the partnership on April 30, 1927.
V. That the proposed balance submitted to the plaintiff
with reference to the partnership operations during the
last four months of its existence, was likewise
incorrect, inasmuch as it did not include the profit
realized or to be realized from the contract entered into
with the Compaia General de Tabacos de Filipinas,
notwithstanding the fact that this contract was
negotiated during the existence of the partnership, and
while the defendant Menzi & Co., Inc., was the
manager thereof.
VI. That the defendant entity now contends that the
contract entered into with the Compaia General de
Tabacos de Filipinas belongs to it exclusively, and
refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to
order the defendants to render a true and detailed
account of the business during the last four months of
the existence of the partnership, i. e., from January 1,
1927 to April 27, 1927, and to sentence them likewise
to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer;
2. That the said order for 3,000 tons of mixed fertilizer,
received by Menzi & Co., Inc., from the Compaia
General de Tabacos Filipinas on April 21, 1927, was
taken by it in the
regular course of its fertilizer business, and was
to be manufactured and delivered in December, 1927,
and up to April, 1928; that the employment agreement
of the plaintiff expired by its own terms on April 27,
1927, and he has not been in any way in the service of
the defendant, Menzi & Co., Inc., since that time, and
he cannot possibly have any interest in the fertilizers
manufactured and delivered by the said Menzi & Co.,
Inc., after the expiration of his contract for any service
rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV,
and V of the first cause of action.
II. That during the period of the contract Exhibit A, the
partnership constituted thereby registered in the
Bureau of Commerce and
Industry the trade marks "CORONA NO. 1",
CORONA NO. 2", "ARADO", and "HOZ", the plaintiff
and the defendant having by their efforts succeeded in
making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly,
have succeeded in making the fertilizing
business a prosperous concern to such an extent that
the profits obtained from the business during the five
years it has existed, amount to approximately
P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks
of a business of this nature amounts to at least
P1,000,000, of which sum 35 per cent belongs to the
plaintiff, or, P350,000.
V. That at the time of the expiration of the contract
Exhibit A, the defendant entity, notwithstanding and in
spite of the plaintiff's
insistent opposition, has assumed the charge of
liquidating the fertilizing business, without having
rendered a monthly account of the state of the
liquidation, as required by law, thereby causing the
plaintiff damages.
VI. That the damages sustained by the plaintiff,
as well as the amount of his share in the remaining
property of the plaintiff, and may only e truly and
correctly ascertained by compelling the defendants J.
M. Menzi and P. C.
Schlobohm to declare under oath and explain to the
court in detail the sums obtained from the sale of the
remaining merchandise, after the expiration of the
partnership contract.
VII. That after the contract Exhibit A had expired, the
defendant continued to use for its own benefit the
good-will and trade marks belonging to the
partnership, as well as its
ransportation equipment and other machinery, thereby
indicating its intention to retain such
good-will, trade marks, transportation
equipment and machinery, for the manufacture of
fertilizers, by virtue of which the defendant is bound to
pay the plaintiff 35 per cent of the value of said
property.
VIII. That the true value of the transportation
equipment and machinery employed in the preparation
of the fertilizers amounts
of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the
defendant entity render a true and detailed account of
the state of the liquidation of the partnership business,
but said
defendants has ignored such demands, so that
the plaintiff does not, and this date, know whether the
liquidation of the business has been finished, or what
the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C.
Schlobohm to render a true and detailed account of
the status of business in liquidation, that is, from April
28, 1927, until it is finished, ordering all the defendants
to pay the plaintiff jointly and severally 35 per cent of
the net amount.
2. To order the defendants to pay the plaintiff jointly
and severally the amount of P350,000, which is 35 per
cent of the value of the goodwill and the trade marks of
the fertilizer business;
3. To order the defendants to pay the plaintiff jointly
and severally the amount of P7,000 which is 35 per
cent of the value of the transportation equipment and
machinery of the business; and
4. To order the defendants to pay the costs of this trial,
and further, to grant any other remedy that this
Honorable Court may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special
defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended
answer;
2. That the good-will, if any, of said fertilizer business
of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest
therein of any nature under his said employment
agreement; that the trade-marks mentioned by the
plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said
Menzi & Co., Inc., in its fertilizer business from and
since its organization, and the plaintiff can have no
rights to or interest therein under his said employment
agreement; that the transportation equipment pertains
to the fertilizer department of Menzi & Co., Inc., and
whenever it has been used by the said Menzi & Co.,
Inc., in its own business, due and reasonable
compensation for its use has been allowed to said
business; that the machinery pertaining to the said
fertilizer business was destroyed by fire in October,
1926, and the value thereof in the sum of P20,000 was
collected from the Insurance Company, and the
plaintiff has been given credit for 35 per cent of that
amount; that the present machinery used by Menzi &
Co., Inc., was constructed by it, and the costs thereof
was not charged to the fertilizer department, and the
plaintiff has no right to have it taken into consideration
in arriving at the net profits due to him under his said
employment agreement.
The dispositive part of the decision of the trial court is
as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the
parties, evidenced by Exhibit A, as a contract of
general regular commercial partnership, wherein
Menzi & Co., Inc., was the capitalist, and the plaintiff,
the industrial partner;
(b) Holding the plaintiff, by the mere fact of having
signed and approved the balance sheets, Exhibits C to
C-8, is not estopped from questioning the statements
of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second
ground of action, to pay the plaintiff the sum of P
60,385.67 with legal interest from the date of the filing
of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause
of action, to pay the plaintiff the sum of P3,821.41, with
legal interest from the date of the filing of the original
until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the
eighth cause of action, to pay the plaintiff the sum of
P6,578.38 with legal interest from January 1, 1929, the
date of the liquidation of the fertilizer business, until
paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of
action to pay the plaintiff the sum of P196,709.20 with
legal interest from the date of the filing of the original
complaint until paid;
(k) Ordering the said defendant corporation, in view of
the plaintiff's share of the profits of the business
accruing from January 1, 1927 to December 31, 1928,
to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the
item of P2,410 for income tax, and any other sum
charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection
with the final liquidation set in Exhibit 52 and 52-A, to
pay the plaintiff the sum of P17,463.54 with legal
interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other
defendants, J. M. Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the
contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant
corporation, Menzi & Co., Inc., and the plaintiff,
FranciscoBastida, and not a contract of employment.
II. The trial court erred in finding and holding that the
defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of
P10,918.33 as income taxes partners' balances,
foreign drafts, local drafts, and on other credit
balances in the sum of P172,530.49, and that 35 per
cent thereof, or the sum of P60,358.67, with legal
interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the
defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of
P10,918.33 as income taxes for the years 1923, 1924,
1925 and 1926, and that the plaintiff is entitled to 35
per cent thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his complaint,
and in disallowing the item of P2,410 charged as
income tax in the liquidation in Exhibits 51 and 51 A for
the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold
under the evidence in this case that the contract,
Exhibit A was daring the whole period thereof
considered by the parties and
performed by them as a contract of employment in
relation to the fertilizer business of the defendant, and
thatthe accounts of said business were kept by the
defendant, Menzi & Co., Inc., on that theory with
theknowledge and consent of the plaintiff, and that at
the end of each year for five years a balance sheet
and profit and loss statement of saidbusiness were
prepared from the books of account of said business
on the same theory and submitted to the plaintiff, and
that each year said balance sheet and profit and
lossstatement were examined, approved and signed
by said contract in accordance therewith with
fullknowledge of the manner in which said business
was conducted and the charges for interest and
income taxes made against the same andthat by
reason of such facts, the plaintiff is now estopped from
raising any question as to the nature of said contract
or the propriety of such charges.
V. The trial court erred in finding and holding that the
plaintiff, Francisco Bastida, is entitled to 35 per cent of
the net profits in the sum of P18,795.38 received by
the defendant, Menzi & Co., Inc., from its contract with
the Compaia General de Tabacos de Filipinas, or the
sum of P6.578.38, with legal interest thereon from
January 1, 1929, the date upon which the liquidation of
said business was terminated.
VI. The trial court erred in finding and holding that the
value of the good-will of the fertilizer business in
question was P562,312, and that the plaintiff,
Francisco Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with legal
interest thereon from the date of filing his complaint.
2281598
VII. The trial court erred in rendering judgment in favor
of the plaintiff and against defendant, Menzi & Co.,
Inc., (a) on the second cause of action, for the sum of
P60,385.67, with legal interest thereon from the date
of filing the complaint; (b) on the fourth cause of
action, for the sum of P3,821.41, with legal interest
thereon from the date of filing the complaint; (c) on the
eight cause of action, for the sum of P6,578.38, with
legal interest thereon from January 1, 1929; and (d) on
the ninth cause of action, for the sum of P196,709.20,
with legal interest thereon from the date of filing the
original complaint; and (e) for the costs of the action,
and in not approving the final liquidation of said
business, Exhibits 51 and 51-A and 52 and 52-A, as
true and correct, and entering judgment against said
defendant only for the amounts admitted therein as
due the plaintiff with legal interest, with the costs
against the plaintiff.
VIII. The trial court erred in overruling the defendants'
motion for a new trial.
It appears from the evidence that the defendants
corporation was organized in 1921 for purpose of
importing and selling general merchandise, including
fertilizers and fertilizer ingredients. It appears through
John Bordman and the Menzi-Bordman Co. the good-
will, trade-marks, business, and other assets of the old
German firm of Behn, Meyer & Co., Ltd., including its
fertilizer business with its stocks and trade-marks.
Behn, Meyer & Co., Ltd., had owned and carried on
this fertilizer business from 1910 until that firm was
taken over the Alien Property Custodian in 1917.
Among the trade-marks thus acquired by the appellant
were those known as the "ARADO", "HOZ", and
"CORONA". They were registered in the Bureau of
Commerce and Industry in the name of Menzi & Co.
The trade marks "ARADO" and "HOZ" had been used
by Behn, Meyer & Co., Ltd., in the sale of its mixed
fertilizers, and the trade mark "CORONA" had been
used in its other business. The "HOZ" trade-mark was
used by John Bordman and the Menzi-Bordman Co. in
the continuation of the fertilizer business that had
belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into
several different departments, each of which was in
charge of a manager, who received a fixed salary and
a percentage of the profits. The corporation had to
borrow money or obtain credits from time to time and
to pay interest thereon. The amount paid for interest
was charged against the department concerned, and
the interest charges were taken into account in
determining the net profits of each department. The
practice of the corporation was to debit or credit each
department with interest at the bank rate on its daily
balance. The fertilizer business of Menzi & Co., Inc.,
was carried on in accordance with this practice under
the "Sundries Department" until July, 1923, and after
that as a separate department.
In November, 1921, the plaintiff, who had had some
experience in mixing and selling fertilizer, went to see
Toehl, the manager of the sundries department of
Menzi & Co., Inc., and told him that he had a written
contract with the Philippine Sugar Centrals Agency for
1,250 tons of mixed fertilizers, and that he could obtain
other contracts, including one from the Calamba Sugar
Estates for 450 tons, but the he did not have the
money to buy the ingredients to fill the order and carry
on the on the business. He offered to assign to Menzi
& Co., Inc., his contract with the Philippine Sugar
Centrals Agency and to supervise the mixing of the
fertilizer and to obtain other orders for fifty per cent of
the net profits that Menzi & Co., might derive
therefrom. J.M. Menzi, the general manager of Menzi
& Co., accepted plaintiff's offer. Plaintiff assigned to
Menzi & Co., Inc., his contract with the Sugar Centrals
Agency, and the defendant corporation proceeded to
fill the order. Plaintiff supervised the mixing of the
fertilizer.
On January 10, 1922 the defendant corporation at
plaintiff's request gave him the following letter, Exhibit
B:
MANILA, 10 de enero de 1922 Sr. FRANCISCO
BASTIDA Manila MUY SR. NUESTRO: Interin
formalizamos el contrato que, en principio, tenemos
convenido para la explotacion del negocio de abono y
fertilizantes, por la presente venimos en confirmar su
derecho de 50 por ciento de las untilidades que se
deriven del contrato obtenido por Vd. de la Philippine
Sugar Centrals (por 1250 tonel.) y del contrato con la
Calamba Sugar Estates, asi como de cuantos
contratos se cierren con definitiva de nuestro contrato
mutuo, lo que formalizacion definitiva de nuestro
contrato mutuo, lo que hacemos para garantia y
seguridad de Vd.
MENZI & CO., Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer
business under this arrangement with the plaintiff. It
ordered ingredients from the United States and other
countries, and the interest on the drafts for the
purchase of these materials was changed to the
business as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co., Inc.,
between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one
bank account for its whole business. The fertilizer
business had no separate capital. A fertilizer account
was opened in the general ledger, and interest at the
rate charged by the Bank of the Philippine Islands was
debited or credited to that account on the daily
balances of the fertilizer business. This was in
accordance with appellant's established practice, to
which the plaintiff assented.
On or about April 24, 1922 the net profits of the
business carried on under the oral agreement were
determined by Menzi & Co., Inc., after deducting
interest charges, proportional part of warehouse rent
and salaries and wages, and the other expenses of
said business, and the plaintiff was paid some twenty
thousand pesos in full satisfaction of his share of the
profits.
Pursuant to the aforementioned verbal agreement,
confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract
with the plaintiff, marked Exhibit A, which is the basis
of the present action.
The fertilizer business was carried on by Menzi & Co.,
Inc., after the execution of Exhibit A in practically the
same manner as it was prior thereto. The intervention
of the plaintiff was limited to supervising the mixing of
the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were
registered in the Bureau of Commerce & Industry in
the name of Menzi & Co., Inc., and the fees were paid
by that company. They were not changed to the
fertilizer business, in which the plaintiff was interested.
Only the fees for registering the formulas in the Bureau
of Science were charged to the fertilizer business, and
the total amount thereof was credited to this business
in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with
Menzi & Co., Inc., to furnish it all the stems and scraps
to tobacco that it might need for its fertilizer business
either in the Philippine Islands or for export to other
countries. This contract is rendered to in the record as
the "Vastago Contract". Menzi & Co., Inc., advanced
the plaintiff, paying the salaries of his employees, and
other expenses in performing his contract.
White, Page & Co., certified public accountants,
audited the books of Menzi & Co., Inc., every month,
and at the end of each year they prepared a balance
sheet and a profit and loss statement of the fertilizer
business. These statements were delivered to the
plaintiff for examination, and after he had had an
opportunity of verifying them he approved them
without objection and returned them to Menzi & Co.,
Inc.
Plaintiff collected from Menzi Co., Inc., as his share or
35 per cent of the net profits of the fertilizer business
the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
Total . . . . . . . . . . . . . . . . . . . . P196,483.92
To this amount must be added plaintiff's share of the
net profits from January 1 to April 27, 1927, amounting
to P34,766.87, making a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the
manager of Menzi & Co. Inc., notified the plaintiff that
the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the
fertilizer department of Menzi & Co., Inc., had on hand
materials and ingredients and two Ford trucks of the
book value of approximately P75,000, and accounts
receivable amounting to P103,000. There were claims
outstanding and bills to pay. Before the net profits
could be finally determined, it was necessary to
dispose of the materials and equipment, collect the
outstanding accounts for Menzi & Co., Inc., prepared a
balance sheet and a profit and loss statement for the
period from January 1 to April 27, 1927 as a basis of
settlement, but the plaintiff refused to accept it, and
filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer
business in question. In October, 1927 it proposed to
the plaintiff that the old and damaged stocks on hand
having a book value of P40,000, which the defendant
corporation had been unable to dispose of, be sold at
public or private sale, or divided between the parties.
The plaintiff refused to agree to this. The defendant
corporation then applied to the trial court for an order
for the sale of the remaining property at public auction,
but apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc.,
and the final liquidation of the fertilizer business was
completed in December, 1928 and a final balance
sheet and a profit and loss statement were submitted
to the plaintiff during the trial. During the liquidation the
books of Menzi & Co., Inc., for the whole period of the
contract in question were reaudited by White, Page &
Co.., certain errors of bookkeeping were discovered by
them. After making the corrections they found the
balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant,
Vernon Thompson, to examine the books and
vouchers of Menzi & Co. Thompson assumed the
plaintiff and Menzi & Co., Inc., to be partners, and that
Menzi & Co., Inc., was obliged to furnish free of charge
all the capital the partnership should need. He
naturally reached very different conclusions from those
of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's
assignment of error. After considering the evidence
and the arguments of counsel, we are unanimously of
the opinion that under the facts of this case the
relationship established between Menzi & Co. and by
the plaintiff was to receive 35 per cent of the net profits
of the fertilizer business of Menzi & Co., Inc., in
compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the
contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it
was a contract of copartnership. Exhibit A, as appears
from the statement of facts, was in effect a
continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by
the corporation from certain fertilizer contracts. Plaintiff
was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the
same items of expense which he now protests. Plaintiff
never made any objection to defendant's manner of
keeping the accounts or to the charges. The business
was continued in the same manner under the written
agreement, Exhibit A, and for four years the plaintiff
never made any objection. On the contrary he
approved and signed every year the balance sheet
and the profit and loss statement. It was only when
plaintiff's contract was about to expire and the
defendant corporation had notified him that it would
not renew it that the plaintiff began to make objections.
The trial court relied on article 116 of the Code of
Commerce, which provides that articles of association
by which two or more persons obligate themselves to
place in a common fund any property, industry, or any
of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided
it has been established in accordance with the
provisions of this Code; but in the case at bar there
was no common fund, that is, a fund belonging to the
parties as joint owners or partners. The business
belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of receiving a
fixed salary or a fixed salary and a small percentage of
the net profits, he was to receive 35 per cent of the net
profits as compensation for his services. Menzi & Co.,
Inc., was to advanced him P300 a month on account
of his participation in the profits. It will be noted that no
provision was made for reimbursing Menzi & Co., Inc.,
in case there should be no net profits at the end of the
year. It is now well settled that the old rule that sharing
profits as profits made one a partner is overthrown.
(Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were
establishing a partnership or intended to become
partners. Great stress in laid by the trial judge and
plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is
used in providing that defendant corporation not
engage in the business of prepared fertilizers except in
association with the plaintiff (en sociedad con). The
fact is that en sociedad con as there used merely
means en reunion con or in association with, and does
not carry the meaning of "in partnership with".
The trial judge found that the defendant corporation
had not always regarded the contract in question as an
employment agreement, because in its answer to the
original complaint it stated that before the expiration of
Exhibit A it notified the plaintiff that it would not
continue associated with him in said business. The
trial judge concluded that the phrase "associated with",
used by the defendant corporation, indicated that it
regarded the contract, Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and answer having
been superseded by the amended complaint and the
answer thereto, and the answer to the original
complaint not having been presented in evidence as
an exhibit, the trial court was not authorized to take it
into account. "Where amended pleadings have been
filed, allegations in the original pleadings are held
admissible, but in such case the original pleadings can
have no effect, unless formally offered in evidence."
(Jones on Evidence, sec. 273; Lucido vs. Calupitan,
27 Phil., 148.)
In the second place, although the word "associated"
may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common
acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby
the defendant corporation obligated itself to pay to the
plaintiff 35 per cent of the net profits of the fertilizer
business, to advance to him P300 a month on account
of his share of the profits, and to grant him permission
during 1923 to absent himself from the Philippines for
not more than one year are utterly incompatible with
the claim that it was the intention of the parties to form
a copartnership. Various other reasons for holding that
the parties were not partners are advanced in
appellant's brief. We do not deem it necessary to
discuss them here. We merely wish to add that in the
Vastago contract, Exhibit A, the plaintiff clearly
recognized Menzi & Co., Inc., as the owners of the
fertilizer business in question.
As to the various items of the expense rejected by the
trial judge, they were in our opinion proper charges
and erroneously disallowed, and this would true even if
the parties had been partners. Although Menzi & Co.,
Inc., agreed to furnish the necessary financial aid for
the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its
own expense the cost of securing the necessary
credit. Some of the contentions of the plaintiff and his
expert witness Thompson are so obviously without
merit as not to merit serious consideration. For
instance, they objected to the interest charges on draft
for materials purchased abroad. Their contention is
that the corporation should have furnished the money
to purchase these materials for cash, overlooking the
fact that the interest was added to the cost price, and
that the plaintiff was not prejudiced by the practice
complained of. It was also urged, and this seems to us
the height of absurdity, that the defendant corporation
should have furnished free of charge such financial
assistance as would have made it unnecessary to
discount customers' notes, thereby enabling the
business to reap the interest. In other words, the
defendant corporation should have enabled the
fertilizer department to do business on a credit instead
of a cash basis.
The charges now complained of, as we have already
stated, are the same as those made under the verbal
agreement, upon the termination of which the parties
made a settlement; the charges in question were
acquiesced in by the plaintiff for years, and it is now
too late for him to contest them. The decision of this
court in the case of Kriedt vs. E.C. McCullough & Co.
(37 Phil., 474), is in point. A portion of the syllabus of
that case reads as follows:
CONTRACTS; INTERPRETATION;
CONTEMPORANEOUS ACTS OF PARTIES. Acts
done by the
parties to a contract in the course of its performance
are admissible in evidence upon the question of its
meaning, as being their own contemporaneous
interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR
CONTRACT. In an action upon a contract
containing a provision a doubtful application it
appeared that under a similar prior contract the parties
had, upon the termination of said contract, adjusted
their rights and made a settlement in which the
doubtful clause had been given effect in conformity
with the interpretation placed thereon by one of the
parties. Held: That this action of the parties under the
prior contract could properly be considered upon the
question of the interpretation of the same clause in the
later contract.
3. ID.; ID.; ACQUIESCENCE. Where one of the
parties to a contract acquiesces in the interpretation
placed by the other upon a provision of doubtful
application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a
contract, being aware at the time of the execution
thereof that the other placed a certain interpretation
upon a provision of doubtful application, nevertheless
proceeded, without raising any question upon the
point, to perform the services which he was bound to
render under the contract. Upon the termination of the
contract by mutual consent a question was raised as
to the proper interpretation of the doubtful
provision. Held: That the party raising such question
had acquiesced in the interpretation placed upon the
contract by the other party and was bound thereby.
The trial court held that the plaintiff was entitled to
P6,578.38 or 35 per cent of the net profits derived by
Menzi & Co., Inc., from its contract for fertilizers with
the Tabacalera. This finding in our opinion is not
justified by the evidence. This contract was obtained
by Menzi & Co., Inc., shortly before plaintiff's contract
with the defendant corporation expired. Plaintiff tried to
get the Tabacalera contract for himself. When this
contract was filled, plaintiff had ceased to work for
Menzi & Co., Inc., and he has no right to participate in
the profits derived therefrom.
Appellant's sixth assignment of error is that the trial
court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that
the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court
unfortunately relied on the opinion of the accountant,
Vernon Thompson, who assumed, erroneously as we
have seen, that the plaintiff and Menzi & Co., Inc.,
were partners; but even if they had been partners
there would have been no good-will to dispose of. The
defendant corporation had a fertilizer business before
it entered into any agreement with the plaintiff;
plaintiff's agreement was for a fixed period, five years,
and during that time the business was carried on in the
name of Menzi & Co., Inc., and in Menzi & Co.'s
warehouses and after the expiration of plaintiff's
contract Menzi & Co., Inc., continued its fertilizer
business, as it had a perfect right to do. There was
really nothing to which any good-will could attach.
Plaintiff maintains, however, that the trade-marks used
in the fertilizer business during the time that he was
connected with it acquired great value, and that they
have been appropriated by the appellant to its own
use. That seems to be the only basis of the alleged
good-will, to which a fabulous valuation was given. As
we have seen, the trade- marks were not new. They
had been used by Behn, Meyer & Co. in its business
for other goods and one of them for fertilizer. They
belonged to Menzi & Co., Inc., and were registered in
its name; only the expense of registering the formulas
in the Bureau of Science was charged to the business
in which the plaintiff was interested. These trade-
marks remained the exclusive property of Menzi & Co.,
and the plaintiff had no interest therein on the
expiration of his contract.
The balance due the plaintiff, as appears from Exhibit
52, is P21,633.20. We are satisfied by the evidence
that said balance is correct.
For the foregoing reasons, the decision appealed from
is modified and the defendant corporation is sentenced
to pay the plaintiff twenty-one thousand, six hundred
and thirty-three pesos and twenty centavos
(P21,633.20), with legal interest thereon from the date
of the filing of the complaint on June 17, 1927, without
a special finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.
Justice Hull participated in this case, but on account of
his absence on leave at the time of the promulgation of
the decision he authorized the undersigned to certify
that he voted to modify the decision of the trial court as
appears in the foregoing decision of this court.
VILLAMOR, J., Presiding.
10. Heirs of Jose Lim vs Juliet Villa Lim GR 172690
HEIRS OF JOSE LIM, represented by ELENITO
LIM, Petitioners, vs.JULIET VILLA LIM, Respondent.
Before this Court is a Petition for Review on
Certiorari1 under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA)
Decision2 dated June 29, 2005, which reversed and
set aside the decision3 of the Regional Trial Court
(RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose),
namely: Jose's widow Cresencia Palad (Cresencia);
and their children Elenito, Evelia, Imelda, Edelyna and
Edison, all surnamed Lim (petitioners), represented by
Elenito Lim (Elenito). They filed a Complaint4 for
Partition, Accounting and Damages against
respondent Juliet Villa Lim (respondent), widow of the
late Elfledo Lim (Elfledo), who was the eldest son of
Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Cagsiay, Mauban, Quezon.
Sometime in 1980, Jose, together with his friends
Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed
a partnership to engage in the trucking business.
Initially, with a contribution of 50,000.00 each, they
purchased a truck to be used in the hauling and
transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on
August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business
under the management of Elfledo. The shares in the
partnership profits and income that formed part of the
estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or
acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a
fresh commerce graduate serving as his fathers driver
in the trucking business. He was never a partner or an
investor in the business and merely supervised the
purchase of additional trucks using the income from
the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all
registered in Elfledo's name. Petitioners asseverated
that it was also through Elfledos management of the
partnership that he was able to purchase numerous
real properties by using the profits derived therefrom,
all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also
acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as
his sole surviving heir. Petitioners claimed that
respondent took over the administration of the
aforementioned properties, which belonged to the
estate of Jose, without their consent and approval.
Claiming that they are co-owners of the properties,
petitioners required respondent to submit an
accounting of all income, profits and rentals received
from the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the
filing of this case.
Respondent traversed petitioners' allegations and
claimed that Elfledo was himself a partner of Norberto
and Jimmy. Respondent also claimed that per
testimony of Cresencia, sometime in 1980, Jose gave
Elfledo 50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo
and respondent got married in 1981, the partnership
only had one truck; but through the efforts of Elfledo,
the business flourished. Other than this trucking
business, Elfledo, together with respondent, engaged
in other business ventures. Thus, they were able to
buy real properties and to put up their own car
assembly and repair business. When Norberto was
ambushed and killed on July 16, 1993, the trucking
business started to falter. When Elfledo died on May
18, 1995 due to a heart attack, respondent talked to
Jimmy and to the heirs of Norberto, as she could no
longer run the business. Jimmy suggested that three
out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was
not interested in the vehicles. Thus, she sold the same
to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981,
he left no known assets, and the partnership with
Jimmy and Norberto ceased upon his demise.
Respondent also stressed that Jose left no properties
that Elfledo could have held in trust. Respondent
maintained that all the properties involved in this case
were purchased and acquired through her and her
husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from
Jose. Respondent submitted that these are conjugal
partnership properties; and thus, she had the right to
refuse to render an accounting for the income or
profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC
rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is
hereby rendered:
1) Ordering the partition of the above-mentioned
properties equally between the plaintiffs and heirs of
Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of
all incomes, profits and rentals received by her from
said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the
RTC's decision, dismissing petitioners' complaint for
lack of merit. Undaunted, petitioners filed their Motion
for Reconsideration,5 which the CA, however, denied
in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE
EVIDENCE SUBMITTED BY THE PARTIES, CAN
THE TESTIMONY OF ONE OF THE PETITIONERS
BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE
IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the
testimony of Jimmy, the sole surviving partner, Elfledo
was not a partner; and that he and Norberto entered
into a partnership with Jose. Thus, the CA erred in not
giving that testimony greater weight than that of
Cresencia, who was merely the spouse of Jose and
not a party to the partnership.8
Respondent counters that the issue raised by
petitioners is not proper in a petition for review on
certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation,
calibration, and re-weighing of the factual findings of
the CA. Moreover, respondent invokes the rationale of
the CA decision that, in light of the admissions of
Cresencia and Edison and the testimony of
respondent, the testimony of Jimmy was effectively
refuted; accordingly, the CA's reversal of the RTC's
findings was fully justified.9
We resolve first the procedural matter regarding the
propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence
necessarily involves consideration of factual issues
an exercise that is not appropriate for a petition for
review on certiorari under Rule 45. This rule provides
that the parties may raise only questions of law,
because the Supreme Court is not a trier of facts.
Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by
the tribunals below.10 When supported by substantial
evidence, the findings of fact of the CA are conclusive
and binding on the parties and are not reviewable by
this Court, unless the case falls under any of the
following recognized exceptions:
(1) When the conclusion is a finding grounded entirely
on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken,
absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension
of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is
contrary to the admissions of both appellant and
appellee;
(7) When the findings are contrary to those of the trial
court;
(8) When the findings of fact are conclusions without
citation of specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in
the petitioners' main and reply briefs are not disputed
by the respondents; and
(10) When the findings of fact of the Court of Appeals
are premised on the supposed absence of evidence
and contradicted by the evidence on record.11
We note, however, that the findings of fact of the RTC
are contrary to those of the CA. Thus, our review of
such findings is warranted.
On the merits of the case, we find that the instant
Petition is bereft of merit.
A partnership exists when two or more persons agree
to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that
there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is
defined by the Civil Code as one where two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves.12
Undoubtedly, the best evidence would have been the
contract of partnership or the articles of partnership.
Unfortunately, there is none in this case, because the
alleged partnership was never formally organized.
Nonetheless, we are asked to determine who between
Jose and Elfledo was the "partner" in the trucking
business.
A careful review of the records persuades us to affirm
the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required
to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo
and respondent form part of the estate of Jose, having
been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that
testimony is just one piece of evidence against
respondent. It must be considered and weighed along
with petitioners' other evidence vis--vis respondent's
contrary evidence. In civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. "Preponderance of
evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually
considered synonymous with the term "greater weight
of the evidence" or "greater weight of the credible
evidence." "Preponderance of evidence" is a phrase
that, in the last analysis, means probability of the truth.
It is evidence that is more convincing to the court as
worthy of belief than that which is offered in opposition
thereto.13 Rule 133, Section 1 of the Rules of Court
provides the guidelines in determining preponderance
of evidence, thus:
SECTION I. Preponderance of evidence, how
determined. In civil cases, the party having burden of
proof must establish his case by a preponderance of
evidence. In determining where the preponderance or
superior weight of evidence on the issues involved
lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and
opportunity of knowing the facts to which they are
testifying, the nature of the facts to which they testify,
the probability or improbability of their testimony, their
interest or want of interest, and also their personal
credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number
of witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v.
Court of Appeals14 is enlightening. Therein, we cited
Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by Article 1825, persons who
are not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of
a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.
Applying the legal provision to the facts of this case,
the following circumstances tend to prove that Elfledo
was himself the partner of Jimmy and Norberto: 1)
Cresencia testified that Jose gave Elfledo 50,000.00,
as share in the partnership, on a date that coincided
with the payment of the initial capital in the
partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and
authority, without any intervention or opposition
whatsoever from any of petitioners herein;16 (3) all of
the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or
salaries from the partnership, indicating that what he
actually received were shares of the profits of the
business;17 and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng Kee,18 a
demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence
to show that the real and personal properties acquired
and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived
from Jose's alleged partnership with Jimmy and
Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses.
Edison even admitted that Elfledo also sold Interwood
lumber as a sideline.19 Petitioners could not offer any
credible evidence other than their bare assertions.
Thus, we apply the basic rule of evidence that
between documentary and oral evidence, the former
carries more weight.20
Finally, we agree with the judicious findings of the CA,
to wit:
The above testimonies prove that Elfledo was not just
a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs
from day one until this ceased operations upon his
demise. The extent of his control, administration and
management of the partnership and its business, the
fact that its properties were placed in his name, and
that he was not paid salary or other compensation by
the partners, are indicative of the fact that Elfledo was
a partner and a controlling one at that. It is apparent
that the other partners only contributed in the initial
capital but had no say thereafter on how the business
was ran. Evidently it was through Elfredos efforts and
hard work that the partnership was able to acquire
more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting
as the bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the
partnership was barely a year old, and the partnership
and its business not only continued but also flourished.
If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership
should have been dissolved and its assets liquidated.
On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and
without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had
acquired, this was through their own concerted efforts
and hard work. Elfledo did not limit himself to the
business of their partnership but engaged in other
lines of businesses as well.
In sum, we find no cogent reason to disturb the
findings and the ruling of the CA as they are amply
supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The
assailed Court of Appeals Decision dated June 29,
2005 is AFFIRMED. Costs against petitioners.
Art 1770
1. Arbes vs Polistico 53 Phil 489 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees, vs.
VICENTE POLISTICO, ET AL., defendants-.
This is an action to bring about liquidation of the funds
and property of the association called "Turnuhan
Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said
association.
It is well to remember that this case is now brought
before the consideration of this court for the second
time. The first one was when the same plaintiffs
appeared from the order of the court below sustaining
the defendant's demurrer, and requiring the former to
amend their complaint within a period, so as to include
all the members of "Turnuhan Polistico & Co.," either
as plaintiffs or as a defendants. This court held then
that in an action against the officers of a voluntary
association to wind up its affairs and enforce an
accounting for money and property in their
possessions, it is not necessary that all members of
the association be made parties to the action. (Borlasa
vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend,
respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo
R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents,
and accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence the parties might desire to
present.
The commissioner rendered his report, which is
attached to the record, with the following resume:
The defendants objected to the commissioner's report,
but the trial court, having examined the reasons for the
objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered
judgment, holding that the association "Turnuhan
Polistico & Co." is unlawful, and sentencing the
defendants jointly and severally to return the amount
of P24,607.80, as well as the documents showing the
uncollected credits of the association, to the plaintiffs
in this case, and to the rest of the members of the said
association represented by said plaintiffs, with costs
against the defendants.
The defendants assigned several errors as grounds for
their appeal, but we believe they can all be reduced to
two points, to wit: (1) That not all persons having an
interest in this association are included as plaintiffs or
defendants; (2) that the objection to the
commissioner's report should have been admitted by
the court below.
As to the first point, the decision on the case of
Borlasa vs. Polistico, supra, must be followed.
With regard to the second point, despite the
praiseworthy efforts of the attorney of the defendants,
we are of opinion that, the trial court having examined
all the evidence touching the grounds for the objection
and having found that they had been explained away
in the commissioner's report, the conclusion reached
by the court below, accepting and adopting the
findings of fact contained in said report, and especially
those referring to the disposition of the association's
money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5
Phil., 516), it was held that the findings of facts made
by a referee appointed under the provisions of section
135 of the Code of Civil Procedure stand upon the
same basis, when approved by the Court, as findings
made by the judge himself. And in Kriedt vs. E. C.
McCullogh & Co.(37 Phil., 474), the court held: "Under
section 140 of the Code of Civil Procedure it is made
the duty of the court to render judgment in accordance
with the report of the referee unless the court shall
unless for cause shown set aside the report or
recommit it to the referee. This provision places upon
the litigant parties of the duty of discovering and
exhibiting to the court any error that may be contained
therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the
commissioner's report, and accepted the findings of
fact made in the report. We find no convincing
arguments on the appellant's brief to justify a reversal
of the trial court's conclusion admitting the
commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is
an unlawful partnership (U.S. vs. Baguio, 39 Phil.,
962), but the appellants allege that because it is so,
some charitable institution to whom the partnership
funds may be ordered to be turned over, should be
included, as a party defendant. The appellants refer to
article 1666 of the Civil Code, which provides:
A partnership must have a lawful object, and must be
established for the common benefit of the partners.
When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in
default of such, to those of the province.
Appellant's contention on this point is untenable.
According to said article, no charitable institution is a
necessary party in the present case of determination
of the rights of the parties. The action which may arise
from said article, in the case of unlawful partnership, is
that for the recovery of the amounts paid by the
member from those in charge of the administration of
said partnership, and it is not necessary for the said
parties to base their action to the existence of the
partnership, but on the fact that of having contributed
some money to the partnership capital. And hence, the
charitable institution of the domicile of the partnership,
and in the default thereof, those of the province are not
necessary parties in this case. The article cited above
permits no action for the purpose of obtaining the
earnings made by the unlawful partnership, during its
existence as result of the business in which it was
engaged, because for the purpose, as Manresa
remarks, the partner will have to base his action upon
the partnership contract, which is to annul and without
legal existence by reason of its unlawful object; and it
is self evident that what does not exist cannot be a
cause of action. Hence, paragraph 2 of the same
article provides that when the dissolution of the
unlawful partnership is decreed, the profits cannot
inure to the benefit of the partners, but must be given
to some charitable institution.
We deem in pertinent to quote Manresa's
commentaries on article 1666 at length, as a clear
explanation of the scope and spirit of the provision of
the Civil Code which we are concerned. Commenting
on said article Manresa, among other things says:
When the subscriptions of the members have been
paid to the management of the partnership, and
employed by the latter in transactions consistent with
the purposes of the partnership may the former
demand
the return of the reimbursement thereof from the
manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no
valid existence, if it is considered juridically non-
existent, the contract entered into can have no legal
effect; and in that case, how can it give rise to an
action in favor of the partners to judicially demand from
the manager or the administrator of the partnership
capital, each one's contribution?
The authors discuss this point at great length, but Ricci
decides the matter quite clearly, dispelling all doubts
thereon. He holds that the partner who limits himself to
demanding only the amount contributed by him need
not resort to the partnership contract on which to base
his action. And he adds in explanation that the partner
makes his contribution, which passes to the managing
partner for the purpose of carrying on the business or
industry which is the object of the partnership; or in
other words, to breathe the breath of life into a
partnership contract with an objection forbidden by
law. And as said contrast does not exist in the eyes of
the law, the purpose from which the contribution was
made has not come into
existence, and the administrator of the
partnership holding said contribution retains what
belongs to others, without any consideration; for which
reason he is not bound to return it and he who has
paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in
the course of the partnership, because they do not
constitute or represent the partner's contribution but
are the result of the industry, business or speculation
which is the object of the partnership,
and therefor, in order to demand the proportional part
of the said profits, the partner would have to base his
action on the contract which is null and void, since this
partition or distribution of the profits is one of the
juridical effects thereof. Wherefore considering this
contract as non-existent, by reason of its illicit object, it
cannot give rise to the necessary action, which must
be the basis of the judicial complaint. Furthermore, it
would be immoral and unjust for the law to permit a
profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of
this article of this Code, providing that the profits
obtained by unlawful means shall not enrich the
partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of
the domicile of the partnership, or, in default of such,
to those of the province.
This is a new rule, unprecedented by our law,
introduced to supply an obvious deficiency of the
former law, which did not describe the purpose to
which those profits denied the partners were to be
applied, nor state what to be done with them.
The profits are so applied, and not the contributions,
because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in
such a case, for depriving the partner of the portion of
the capital that he contributed, the circumstances of
the two cases being entirely different.
Our Code does not state whether, upon the dissolution
of the unlawful partnership, the amounts contributed
are to be returned by the partners, because it only
deals with the disposition of the profits; but the fact
that said contributions are not
included in the disposal prescribed profits, shows that
in consequences of said exclusion, the general law
must be followed, and hence the partners should
reimburse the amount of their respective contributions.
Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the
manager or administrator who has refused to return
them, by denying to the partners the action to demand
them. (Manresa, Commentaries on the Spanish Civil
Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance
with law, should be, as it is hereby, affirmed with costs
against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of
P24,607.80 from the date of the decision of the court,
and provided, further, that the defendants shall deposit
this sum of money and other documents evidencing
uncollected credits in the office of the clerk of the trial
court, in order that said court may distribute them
among the members of said association, upon being
duly identified in the manner that it may deem proper.
So ordered.
Art 1771 to 1773Fernandez vs Dela Rosa 1 Phil 671
1903 JOSE FERNANDEZ, plaintiff-appellant,
vs.FRANCISCO DE LA ROSA, defendant-
The object of this action is to obtain from the court a
declaration that a partnership exists between the
parties, that the plaintiff has a consequent interested in
certain cascoes which are alleged to be partnership
property, and that the defendant is bound to render an
account of his administration of the cascoes and the
business carried on with them.
Judgment was rendered for the defendant in the court
below and the plaintiff appealed.
The respective claims of the parties as to the facts, so
far as it is necessary to state them in order to indicate
the point in dispute, may be briefly summarized. The
plaintiff alleges that in January, 1900, he entered into a
verbal agreement with the defendant to form a
partnership for the purchase of cascoes and the
carrying on of the business of letting the same for hire
in Manila, the defendant to buy the cascoes and each
partner to furnish for that purpose such amount of
money as he could, the profits to be divided
proportionately; that in the same January the plaintiff
furnished the defendant 300 pesos to purchase a
casco designated as No. 1515, which the defendant
did purchase for 500 pesos of Doa Isabel Vales,
taking the title in his own name; that the plaintiff
furnished further sums aggregating about 300 pesos
for repairs on this casco; that on the fifth of the
following March he furnished the defendant 825 pesos
to purchase another casco designated as No. 2089,
which the defendant did purchase for 1,000 pesos of
Luis R. Yangco, taking the title to this casco also in his
own name; that in April the parties undertook to draw
up articles of partnership for the purpose of embodying
the same in an authentic document, but that the
defendant having proposed a draft of such articles
which differed materially from the terms of the earlier
verbal agreement, and being unwillingly to include
casco No. 2089 in the partnership, they were unable to
come to any understanding and no written agreement
was executed; that the defendant having in the
meantime had the control and management of the two
cascoes, the plaintiff made a demand for an
accounting upon him, which the defendant refused to
render, denying the existence of the partnership
altogether.
The defendant admits that the project of forming a
partnership in the casco business in which he was
already engaged to some extent individually was
discussed between himself and the plaintiff in January,
1900, and earlier, one Marcos Angulo, who was a
partner of the plaintiff in a bakery business, being also
a party to the negotiations, but he denies that any
agreement was ever consummated. He denies that the
plaintiff furnished any money in January, 1900, for the
purchase of casco No. 1515, or for repairs on the
same, but claims that he borrowed 300 pesos on his
individual account in January from the bakery firm,
consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received
from the plaintiff March 5, he claims was for the
purchase of casco No. 1515, which he alleged was
bought March 12, and he alleges that he never
received anything from the defendant toward the
purchase of casco No. 2089. He claims to have paid,
exclusive of repairs, 1,200 pesos for the first casco
and 2,000 pesos for the second one.
The case comes to this court under the old procedure,
and it is therefore necessary for us the review the
evidence and pass upon the facts. Our general
conclusions may be stated as follows:
(1) Doa Isabel Vales, from whom the defendant
bought casco No. 1515, testifies that the sale was
made and the casco delivered in January, although the
public document of sale was not executed till some
time afterwards. This witness is apparently
disinterested, and we think it is safe to rely upon the
truth of her testimony, especially as the defendant,
while asserting that the sale was in March, admits that
he had the casco taken to the ways for repairs in
January.
It is true that the public document of sale was
executed March 10, and that the vendor declares
therein that she is the owner of the casco, but such
declaration does not exclude proof as to the actual
date of the sale, at least as against the plaintiff, who
was not a party to the instrument. (Civil Code, sec.
1218.) It often happens, of course, in such cases, that
the actual sale precedes by a considerable time the
execution of the formal instrument of transfer, and this
is what we think occurred here.
(2) The plaintiff presented in evidence the following
receipt: "I have this day received from D. Jose
Fernandez eight hundred and twenty-five pesos for the
cost of a casco which we are to purchase in company.
Manila, March 5, 1900. Francisco de la Rosa." The
authenticity of this receipt is admitted by the
defendant. If casco No. 1515 was bought, as we think
it was, in January, the casco referred to in the receipt
which the parties "are to purchase in company" must
be casco No. 2089, which was bought March 22. We
find this to be the fact, and that the plaintiff furnished
and the defendant received 825 pesos toward the
purchase of this casco, with the understanding that it
was to be purchased on joint account.
(3) Antonio Fernandez testifies that in the early part of
January, 1900, he saw Antonio Angulo give the
defendant, in the name of the plaintiff, a sum of
money, the amount of which he is unable to state, for
the purchase of a casco to be used in the plaintiff's
and defendant's business. Antonio Angulo also
testifies, but the defendant claims that the fact that
Angulo was a partner of the plaintiff rendered him
incompetent as a witness under the provisions of
article 643 of the then Code of Civil Procedure, and
without deciding whether this point is well taken, we
have discarded his testimony altogether in considering
the case. The defendant admits the receipt of 300
pesos from Antonio Angulo in January, claiming, as
has been stated, that it was a loan from the firm. Yet
he sets up the claim that the 825 pesos which he
received from the plaintiff in March were furnished
toward the purchase of casco No. 1515, thereby
virtually admitting that casco was purchased in
company with the plaintiff. We discover nothing in the
evidence to support the claim that the 300 pesos
received in January was a loan, unless it may be the
fact that the defendant had on previous occasions
borrowed money from the bakery firm. We think all the
probabilities of the case point to the truth of the
evidence of Antonio Fernandez as to this transaction,
and we find the fact to be that the sum in question was
furnished by the plaintiff toward the purchase for joint
ownership of casco No. 1515, and that the defendant
received it with the understanding that it was to be
used for this purposed. We also find that the plaintiff
furnished some further sums of money for the repair of
casco.
(4) The balance of the purchase price of each of the
two cascoes over and above the amount contributed
by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us
that there was any specific verbal agreement of
partnership, except such as may be implied from the
fact as to the purchase of the casco.
(6) Although the evidence is somewhat unsatisfactory
upon this point, we think it more probable than
otherwise that no attempt was made to agree upon
articles of partnership till about the middle of the April
following the purchase of the cascoes.
(7) At some time subsequently to the failure of the
attempt to agree upon partnership articles and after
the defendant had been operating the cascoes for
some time, the defendant returned to the plaintiff 1,125
pesos, in two different sums, one of 300 and one of
825 pesos. The only evidence in the record as to the
circumstances under which the plaintiff received these
sums is contained in his answer to the interrogatories
proposed to him by the defendant, and the whole of
his statement on this point may properly be considered
in determining the fact as being in the nature of an
indivisible admission. He states that both sums were
received with an express reservation on his part of all
his rights as a partner. We find this to be the fact.
Two questions of law are raised by the foregoing facts:
(1) Did a partnership exist between the parties? (2) If
such partnership existed, was it terminated as a result
of the act of the defendant in receiving back the 1,125
pesos?
(1) "Partnership is a contract by which two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves."
(Civil Code, art. 1665.)
The essential points upon which the minds of the
parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock,
and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation
results, and the law itself fixes the incidents of this
relation if the parties fail to do so. (Civil Code, secs.
1689, 1695.)
We have found as a fact that money was furnished by
the plaintiff and received by the defendant with the
understanding that it was to be used for the purchase
of the cascoes in question. This establishes the first
element of the contract, namely, mutual contribution to
a common stock. The second element, namely, the
intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase of
the cascoes in common, in the absence of any other
explanation of the object of the parties in making the
purchase in that form, and, it may be added, in view of
the admitted fact that prior to the purchase of the first
casco the formation of a partnership had been a
subject of negotiation between them.
Under other circumstances the relation of joint
ownership, a relation distinct though perhaps not
essentially different in its practical consequence from
that of partnership, might have been the result of the
joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had
been to make a more favorable bargain for the two
cascoes that they could have done by purchasing
them separately, and that they had no ulterior object
except to effect a division of the common property
when once they had acquired it, the affectio
societatiswould be lacking and the parties would have
become joint tenants only; but, as nothing of this sort
appears in the case, we must assume that the object
of the purchase was active use and profit and not
mere passive ownership in common.
It is thus apparent that a complete and perfect contract
of partnership was entered into by the parties. This
contract, it is true, might have been subject to a
suspensive condition, postponing its operation until an
agreement was reached as to the respective
participation of the partners in the profits, the character
of the partnership as collective or en comandita, and
other details, but although it is asserted by counsel for
the defendant that such was the case, there is little or
nothing in the record to support this claim, and that
fact that the defendant did actually go on and
purchase the boat, as it would seem, before any
attempt had been made to formulate partnership
articles, strongly discountenances the theory.
The execution of a written agreement was not
necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the
contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil
Code, art. 1667.) The special provision cited, requiring
the execution of a public writing in the single case
mentioned and dispensing with all formal requirements
in other cases, renders inapplicable to this species of
contract the general provisions of article 1280 of the
Civil Code.
(2) The remaining question is as to the legal effect of
the acceptance by the plaintiff of the money returned
to him by the defendant after the definitive failure of
the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of
that which the plaintiff had contributed to the capital of
the partnership, since it did not include the sum which
he had furnished for the repairs of casco No. 1515.
Moreover, it is quite possible, as claimed by the
plaintiff, that a profit may have been realized from the
business during the period in which the defendant
have been administering it prior to the return of the
money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the
money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by
counsel for the defendant.
Did the defendant waive his right to such interest as
remained to him in the partnership property by
receiving the money? Did he by so doing waive his
right to an accounting of the profits already realized, if
any, and a participation in them in proportion to the
amount he had originally contributed to the common
fund? Was the partnership dissolved by the "will or
withdrawal of one of the partners" under article 1705 of
the Civil Code? We think these questions must be
answered in the negative.
There was no intention on the part of the plaintiff in
accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that
he said or by anything that he omitted to say he gave
the defendant any ground whatever to believe that he
intended to relinquish them. On the contrary he
notified the defendant that he waived none of his rights
in the partnership. Nor was the acceptance of the
money an act which was in itself inconsistent with the
continuance of the partnership relation, as would have
been the case had the plaintiff withdrawn his entire
interest in the partnership. There is, therefore, nothing
upon which a waiver, either express or implied, can be
predicated. The defendant might have himself
terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right
in the partnership property and in the profits. Having
failed to do this he can not be permitted to force a
dissolution upon his co-partner upon terms which the
latter is unwilling to accept. We see nothing in the case
which can give the transaction in question any other
aspect than that of the withdrawal by one partner with
the consent of the other of a portion of the common
capital.
The result is that we hold and declare that a
partnership was formed between the parties in
January, 1900, the existence of which the defendant is
bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is
entitled to an accounting of the defendant's
administration of such property, and of the profits
derived therefrom. This declaration does not involve
an adjudication as to any disputed items of the
partnersip account.
The judgment of the court below will be reversed
without costs, and the record returned for the
execution of the judgment now rendered. So ordered.
ON MOTION FOR A REHEARING. MAPA, J.:
This case has been decided on appeal in favor of the
plaintiff, and the defendant has moved for a rehearing
upon the following grounds:
1. Because that part of the decision which refers to the
existence of the partnership which is the object of the
complaint is not based upon clear and decisive legal
grounds; and
2. Because, upon the supposition of the existence of
the partnership, the decision does not clearly
determine whether the juridical relation between the
partners suffered any modification in consequence of
the withdrawal by the plaintiff of the sum of 1,125
pesos from the funds of the partnership, or if it
continued as before, the parties being thereby
deprived, he alleges, of one of the principal bases for
determining with exactness the amount due to each.
With respect to the first point, the appellant cites the
fifth conclusion of the decision, which is as follows:
"We are unable to find from the evidence before us
that there was any specific verbal agreement of
partnership, except such as may be implied from the
facts as to the purchase of the cascoes."
Discussing this part of the decision, the defendant
says that, in the judgment of the court, if on the one
hand there is no direct evidence of a contract, on the
other its existence can only be inferred from certain
facts, and the defendant adds that the possibility of an
inference is not sufficient ground upon which to
consider as existing what may be inferred to exist, and
still less as sufficient ground for declaring its efficacy to
produce legal effects.
This reasoning rests upon a false basis. We have not
taken into consideration the mere possibility of an
inference, as the appellant gratuitously stated, for the
purpose of arriving at a conclusion that a contract of
partnership was entered into between him and the
plaintiff, but have considered the proof which is
derived from the facts connected with the purchase of
the cascoes. It is stated in the decision that with the
exception of this evidence we find no other which
shows the making of the contract. But this does not
mean (for it says exactly the contrary) that this fact is
not absolutely proven, as the defendant erroneously
appears to think. From this data we infer a fact which
to our mind is certain and positive, and not a mere
possibility; we infer not that it is possible that the
contract may have existed, but that it actually did exist.
The proofs constituted by the facts referred to,
although it is the only evidence, and in spite of the fact
that it is not direct, we consider, however, sufficient to
produce such a conviction, which may certainly be
founded upon any of the various classes of evidence
which the law admits. There is all the more reason for
its being so in this case, because a civil partnership
may be constituted in any form, according to article
1667 of the Civil Code, unless real property or real
rights are contributed to it the only case of
exception in which it is necessary that the agreement
be recorded in a public instrument.
It is of no importance that the parties have failed to
reach an agreement with respect to the minor details
of contract. These details pertain to the accidental and
not to the essential part of the contract. We have
already stated in the opinion what are the essential
requisites of a contract of partnership, according to the
definition of article 1665. Considering as a whole the
probatory facts which appears from the record, we
have reached the conclusion that the plaintiff and the
defendant agreed to the essential parts of that
contract, and did in fact constitute a partnership, with
the funds of which were purchased the cascoes with
which this litigation deals, although it is true that they
did not take the precaution to precisely establish and
determine from the beginning the conditions with
respect to the participation of each partner in the
profits or losses of the partnership. The disagreements
subsequently arising between them, when
endeavoring to fix these conditions, should not and
can not produce the effect of destroying that which has
been done, to the prejudice of one of the partners, nor
could it divest his rights under the partnership which
had accrued by the actual contribution of capital which
followed the agreement to enter into a partnership,
together with the transactions effected with partnership
funds. The law has foreseen the possibility of the
constitution of a partnership without an express
stipulation by the partners upon those conditions, and
has established rules which may serve as a basis for
the distribution of profits and losses among the
partners. (Art. 1689 of the Civil Code. ) We consider
that the partnership entered into by the plaintiff and the
defendant falls within the provisions of this article.
With respect to the second point, it is obvious that
upon declaring the existence of a partnership and the
right of the plaintiff to demand from the defendant an
itemized accounting of his management thereof, it was
impossible at the same time to determine the effects
which might have been produced with respect to the
interest of the partnership by the withdrawal by the
plaintiff of the sum of 1,125 pesos. This could only be
determined after a liquidation of the partnership. Then,
and only then, can it be known if this sum is to be
charged to the capital contributed by the plaintiff, or to
his share of the profits, or to both. It might well be that
the partnership has earned profits, and that the
plaintiff's participation therein is equivalent to or
exceeds the sum mentioned. In this case it is evident
that, notwithstanding that payment, his interest in the
partnership would still continue. This is one case. It
would be easy to imagine many others, as the possible
results of a liquidation are innumerable. The liquidation
will finally determine the condition of the legal relations
of the partners inter se at the time of the withdrawal of
the sum mentioned. It was not, nor is it possible to
determine this status a priori without prejudging the
result, as yet unknown, of the litigation. Therefore it is
that in the decision no direct statement has been made
upon this point. It is for the same reason that it was
expressly stated in the decision that it "does not
involve an adjudication as to any disputed item of the
partnership account."
The contentions advanced by the moving party are so
evidently unfounded that we can not see the necessity
or convenience of granting the rehearing prayed for,
and the motion is therefore denied.
2. Estanislao vs CA 160 SCRA 830 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.THE HONORABLE COURT OF APPEALS,
REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.
By this petition for certiorari the Court is asked to
determine if a partnership exists between members of
the same family arising from their joint ownership of
certain properties.
Petitioner and private respondents are brothers and
sisters who are co-owners of certain lots at the corner
of Annapolis and Aurora Blvd., QuezonCity which were
then being leased to the Shell Company of the
Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as
Estanislao Shell Service Station with an initial
investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL for the
occupancy of the said lots owned in common by them.
A joint affidavit was executed by them on April 11,
1966 which was prepared byAtty. Democrito
Angeles 1 They agreed to help their brother, petitioner
herein, by allowing him to operate and manage the
gasoline service station of the family. They negotiated
with SHELL. For practical purposes and in order not to
run counter to the company's policy of appointing only
one dealer, it was agreed that petitioner would apply
for the dealership. Respondent Remedios helped in
managing the bussiness with petitioner from May 3,
1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an
Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00 advance
rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso
that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-
owners." 2
For sometime, the petitioner submitted financial
statements regarding the operation of the business to
private respondents, but therafter petitioner failed to
render subsequent accounting. Hence through Atty.
Angeles, a demand was made on petitioner to render
an accounting of the profits.
The financial report of December 31, 1968 shows that
the business was able to make a profit of P 87,293.79
and that by the year ending 1969, a profit of P
150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a
complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be
ordered:
to execute a public document embodying all the
provisions of the partnership agreement entered into
between plaintiffs and defendant as provided in Article
1771 of the New Civil Code;
2. to render a formal accounting of the business
operation covering the period from May 6, 1966 up to
December 21, 1968 and from January 1, 1969 up to
the time the order is issued and that the same be
subject to proper audit;
3. to pay the plaintiffs their lawful shares and
participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest at
the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business;
and
4. to pay the plaintiffs the amount of P 10,000.00 as
attorney's fees and costs of the suit (pp. 13-14 Record
on Appeal.)
After trial on the merits, on October 15, 1975, Hon.
Lino Anover who was then the temporary presiding
judge of Branch IV of the trial court, rendered
judgment dismissing the complaint and counterclaim
and ordering private respondents to pay petitioner P
3,000.00 attorney's fee and costs. Private respondent
filed a motion for reconsideration of the decision. On
December 10, 1975, Hon. Ricardo Tensuan who was
the newly appointed presiding judge of the same
branch, set aside the aforesaid derision and rendered
another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated
October 14, 1975 is hereby reconsidered and a
new judgment is hereby
rendered in favor of the plaintiffs and as against
the defendant:
Ordering the defendant to execute a public
instrument embodying all the provisions of the
partnership agreement entered into between plaintiffs
and defendant as provided for in Article 1771, Civil
Code of the Philippines;
(2) Ordering the defendant to render a formal
accounting of the business operation from April 1969
up to the time this order is issued, the same to be
subject to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful
shares and participation in the net profits of the
business in the amount of P 150,000.00, with interest
thereon at the rate of One (1%) Per Cent per month
from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum
of P 5,000.00 by way of attorney's fees of plaintiffs'
counsel; as well as the costs of suit. (pp. 161-162.
Record on Appeal).
Petitioner then interposed an appeal to the Court of
Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision
was rendered by the Court of Appeals on November
28,1978 affirming in toto the decision of the lower court
with costs against petitioner. *
A motion for reconsideration of said decision filed by
petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this
court by way of this petition for certiorari alleging that
the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit
(Exh. 'A') vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by
and among the petitioner and the private respondents
as regards the ownership and or operation of the
gasoline service station business.
Petitioner relies heavily on the provisions of the Joint
Affidavit of April 11, 1966 (Exhibit A) and the Additional
Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully
describe in Transfer Certificates of Title Nos. 45071
and 71244 of the Register of Deeds of Quezon City, in
favor of the LESSEE - SHELL COMPANY OF THE
PHILIPPINES LIMITED a corporation duly licensed to
do business in the Philippines;
(2) That we have requested the said SHELL
COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND
PESOS (P l5,000.00) Philippine Currency, so that we
can use the said amount to augment our capital
investment in the operation of that gasoline station
constructed ,by the said company on our two lots
aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company;
(3) That the and SHELL COMPANY OF THE
PHILIPPINE LIMITED out of its benevolence and
desire to help us in aumenting our capital investment
in the operation of the said gasoline station, has
agreed to give us the said amount of P 15,000.00,
which amount will partake the nature of ADVANCED
RENTALS;
(4) That we have freely and voluntarily agreed that
upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL
COMPANY OF THE PHILIPPINES LIMITED, the said
sum as ADVANCED RENTALS to us be applied as
monthly rentals for the sai two lots under our Lease
Agreement starting on the 25th of May, 1966 until such
time that the said of P 15,000.00 be applicable, which
time to our estimate and one-half months from May 25,
1966 or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among ourselves
that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign
embodying our conformity that the said amount that it
will generously grant us as requested be applied as
ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May
20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th
November, 1963 (identified as doc. Nos. 491 & 1407,
Page Nos. 99 & 66, Book Nos. V & III, Series of 1963
in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in
favour of SHELL by the herein CO-OWNERS and
another Lease Agreement dated 19th March 1964 . . .
also executed in favour of SHELL by CO-OWNERS
Remedios and MARIA ESTANISLAO for the lease of
adjoining portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO OWNERS
RECEIVE a total monthly rental of PESOS THREE
THOUSAND THREE HUNDRED EIGHTY TWO AND
29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the
Dealer of the Shell Station constructed on the leased
land, and as Dealer under the Cash Pledge
Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN
THOUSAND (P 10,000), Philippine Currency, to
secure his purchase on credit of Shell petroleum
products; . . .
WHEREAS, said DEALER, in his desire, to be granted
an increased the limit up to P 25,000, has secured the
conformity of his CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all of them to
accumulate the equivalent amount of P 15,000,
commencing 24th May 1966, this P 15,000 shall be
treated as additional cash deposit to SHELL under the
same terms and conditions of the aforementioned
Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the
foregoing premises,and the mutual covenants among
the CO-OWNERS herein and SHELL, said parties
have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of
DEALER the monthly rentals due to all CO-OWNERS,
collectively, under the above describe two Lease
Agreements, one dated 13th November 1963 and the
other dated 19th March 1964 to enable DEALER to
increase his existing cash deposit to SHELL, from P
10,000 to P 25,000, for such purpose, the SHELL CO-
OWNERS and DEALER hereby irrevocably assign to
SHELL the monthly rental of P 3,382.29 payable to
them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the
monthly rentals accumulated, shall be equal to P
l5,000.
2. The above stated monthly rentals accumulated shall
be treated as additional cash deposit by DEALER to
SHELL, thereby in increasing his credit limit from P
10,000 to P 25,000. This agreement, therefore,
cancels and supersedes the Joint affidavit dated 11
April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL
agrees to allowDEALER to purchase from SHELL
petroleum products, on credit, up to the amount of P
25,000.
4. This increase in the credit shall also be subject to
the same terms and conditions of the above-
mentioned Cash Pledge Agreement dated llth May
1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit
A), it is clearly stipulated by the parties that the P
15,000.00 advance rental due to them from SHELL
shall augment their "capital investment" in the
operation of the gasoline station, which advance
rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October
1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash
Pledge Agreement" above reproduced (Exhibit 6), the
private respondents and petitioners assigned to
SHELL the monthly rentals due them commencing the
24th of May 1966 until such time that the monthly
rentals accumulated equal P 15,000.00 which private
respondents agree to be a cash deposit of petitioner in
favor of SHELL to increase his credit limit as dealer.
As above-stated it provided therein that "This
agreement, therefore, cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the
CO-OWNERS."
Petitioner contends that because of the said stipulation
cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in
said previous agreement had thereby been abrogated.
We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks
of P 15,000.00 advance rentals starting May 25, 1966
while the latter agreement also refers to advance
rentals of the same amount starting May 24, 1966.
There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the
subsequent document that it "cancels and supersedes"
the previous one. True it is that in the latter document,
it is silent as to the statement in the Joint Affidavit that
the P 15,000.00 represents the "capital investment" of
the parties in the gasoline station business and it
speaks of petitioner as the sole dealer, but this is as it
should be for in the latter document SHELL was a
signatory and it would be against its policy if in the
agreement it should be stated that the business is a
partnership with private respondents and not a sole
proprietorship of petitioner.
Moreover other evidence in the record shows that
there was in fact such partnership agreement between
the parties. This is attested by the testimonies of
private respondent Remedies Estanislao and Atty.
Angeles. Petitioner submitted to private respondents
periodic accounting of the business. 4 Petitioner gave a
written authority to private respondent Remedies
Estanislao, his sister, to examine and audit the books
of their "common business' aming
negosyo). 5 Respondent Remedios assisted in the
running of the business. There is no doubt that the
parties hereto formed a partnership when they bound
themselves to contribute money to a common fund
with the intention of dividing the profits among
themselves.6 The sole dealership by the petitioner and
the issuance of all government permits and licenses in
the name of petitioner was in compliance with the
afore-stated policy of SHELL and the understanding of
the parties of having only one dealer of the SHELL
products.
Further, the findings of facts of the respondent court
are conclusive in this proceeding, and its conclusion
based on the said facts are in accordancewith the
applicable law.
WHEREFORE, the judgment appealed from is
AFFIRMED in toto with costs against petitioner. This
decision is immediately executory and no motion for
extension of time to file a motion for reconsideration
shag beentertained.
3. Lourdes Navarro vs CA GR 101847 May 27 1993
LOURDES NAVARRO AND MENARDO
NAVARRO, petitioners,
vs.COURT OF APPEALS, JUDGE BETHEL
KATALBAS-MOSCARDON, Presiding Judge,
Regional Trial Court of Bacolod City, Branch 52,
Sixth Judicial Region and Spouses OLIVIA V.
YANSON AND RICARDO B. YANSON, respondents.
Assailed and sought to be set aside by the petition
before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for
annulment of judgment filed by the Spouses Lourdes
and Menardo Navarro, thusly:
The instant petition for annulment of decision is
DISMISSED.
1. Judgments may be annulled only on the ground of
extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA
160, 170). No such ground is alleged in the petition.
2. Even if the judgment rendered by the respondent
Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it
cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment
enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:
On July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes
Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application
for a writ of replevin. The complaint was later docketed
as Civil Case No. 716 (12562) of the then Court of
First Instance of Bacolod (Branch 55) and was
subsequently amended to include private respondent's
husband, Ricardo B. Yanson, as co-plaintiff, and
petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R.
Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved
private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978
affirmed receipt by private respondents of all pieces of
personal property sought to be recovered from
petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-
Moscardon rendered a decision, disposing as follows :
Accordingly, in the light of the aforegoing findings, all
chattels already recovered by plaintiff by virtue of the
Writ of Replevin and as listed in the complaint are
hereby sustained to belong to plaintiff being the owner
of these properties; the motor vehicle, particularly that
Ford Fiera Jeep registered in and which had remain in
the possession of the defendant is likewise declared to
belong to her, however, said defendant is hereby
ordered to reimburse plaintiff the sum of P6,500.00
representing the amount advanced to pay part of the
price therefor; and said defendant is likewise hereby
ordered to return to plaintiff such other equipment[s] as
were brought by the latter to and during the operation
of their business as were listed in the complaint and
not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January
10, 1991 (almost 9 months after its rendition) and filed
on January 16, 1991 a "Motion for Extension of Time
To File a Motion for Reconsideration". This was
granted on January 18, 1991. Private respondents
filed their opposition, citing the ruling in the case
of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA
208 [1986]) proscribing the filing of any motion for
extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order
dated January 18, 1991 and declared the decision of
April 30, 1990 as final and executory. (Petitioners'
motion for reconsideration was subsequently filed on
February 1, 1991 or 22 days after the receipt of the
decision).
On February 4, 1991, the trial court issued a writ of
execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared
that the writ was "duly served and satisfied". A receipt
for the amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent
court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring
the non-existence of a partnership, contrary to the
evidence on record.
The appellate court, as aforesaid, outrightly dismissed
the petition due to absence of extrinsic or collateral
fraud, observing further that an appeal was the proper
remedy.
In the petition before us, petitioners claim that the trial
judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually
formed a verbal partnership engaged in the business
of Air Freight Service Agency in Bacolod"; and that the
decision sustaining the writ of replevin is void since the
properties belonging to the partnership do not actually
belong to any of the parties until the final disposition
and winding up of the partnership" (p. 15, Rollo).
These issues, however, were extensively discussed by
the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this
case has become final. In fact a writ of execution had
been issued and was promptly satisfied by the
payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to
annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly
thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to
warrant the setting aside of the trial court's decision.
We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review.
However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners'
arguments are all directed against the decision of the
regional trial court; not a word is said in regard to the
appellate's court disposition of their petition for
annulment of judgment. Verily, petitioners keeps on
pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the
factual premises of the trial court were more than
enough to suppress and negate petitioners
submissions along this line:
To be resolved by this Court factually involved in the
issue of whether there was a partnership that existed
between the parties based on their verbal contention;
whether the properties that were commonly used in
the operation of Allied Air Freight belonged to the
alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On
the other hand, the legal issues revolves on the
dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the
properties subject matter of recovery.\ As a premise,
Article 1767 of the New Civil Code defines the contract
of partnership to quote:
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in
determining whether a partnership exist as so provided
under Article 1769, to wit:
Furthermore, the Code provides under Article 1771
and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where
immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00
or more in money or property, the same must appear
in a public instrument which must be recorded in the
Office of the Securities and Exchange Commission.
Failure to comply with these requirements shall only
affect liability of the partners to third persons.
In consideration of the above, it is undeniable that both
the plaintiff and the defendant-wife made admission to
have entered into an agreement of operating this Allied
Air Freight Agency of which the plaintiff personally
constituted with the Manila Office in a sense that the
plaintiff did supply the necessary equipments and
money while her brother Atty. Rodolfo Villaflores was
the Manager and the defendant the Cashier. It was
also admitted that part of this agreement was an equal
sharing of whatever proceeds realized. Consequently,
the plaintiff brought into this transaction certain
chattels in compliance with her obligation. The same
has been done by the herein brother and the herein
defendant who started to work in the business. A
cursory examination of the evidences presented no
proof that a partnership, whether oral or written had
been constituted at the inception of this transaction.
True it is that even up to the filing of this complaint
those movables brought by the plaintiff for the use in
the operation of the business remain registered in her
name.
While there may have been co-ownership or co-
possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff
and the defendant, these are not indicative and
supportive of the existence of any partnership between
them. Article 1769 of the New Civil Code is explicit.
Even the books and records retrieved by the
Commissioner appointed by the Court did not show
proof of the existence of a partnership as
conceptualized by law. Such that if assuming that
there were profits realized in 1975 after the two-year
deficits were compensated, this could only be subject
to an equal sharing consonant to the agreement to
equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the
appointed Commissioner was not highly reliable in the
sense that it was more of his personal estimate of
what is available on hand. Besides, the alleged profits
was a difference found after valuating the assets and
not arising from the real operation of the business. In
accounting procedures, strictly, this could not be profit
but a net worth.
In view of the above factual findings of the Court it
follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or
winding up is beside the point. The plaintiff himself had
summarily ceased from her contract of agency and it is
a personal prerogative to desist. On the other hand,
the assumption by the defendant in negotiating for
herself the continuance of the Agency with the
principal in Manila is comparable to plaintiff's. Any
account of plaintiff with the principal as alleged, bore
no evidence as no collection was ever demanded of
from her. The alleged P20,000.00 assumption
specifically, as would have been testified to by the
defendant's husband remain a mere allegation.
As to the properties sought to be recovered, the Court
sustains the possession by plaintiff of all equipments
and chattels recovered by virtue of the Writ of
Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and
to which even she admitted that part of the purchase
price came from the business claimed mutually
operated, although the Court have not as much
considered all entries in the Audit Report as totally
reliable to be sustained insofar as the operation of the
business is concerned, nevertheless, with this
admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid
for in this vehicle out of the business funds in the total
sum of P6,500.00, it is only fitting and proper that
validity of these disbursements must be sustained as
true (Exhs. M-1 to M-3, p. 180, Records). In this
connection and taking into account the earlier
agreement that only profits were to be shared equally,
the plaintiff must be reimbursed of this cost if only to
allow the defendant continuous possession of the
vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at
the expense of another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing
the petition for annulment of judgment, the issue
raised therein having been directly litigated in, and
passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The
Resolution of the Court of Appeals dated June 20,
1991 is AFFIRMED in all respects.
4. Marjorie Tocao and William Belo vs CA GR 127405
Oct 4 2000 MARJORIE TOCAO and WILLIAM T.
BELO, petitioners, vs.COURT OF APPEALS and
NENITA A. ANAY, respondents.
This is a petition for review of the Decision of the Court
of Appeals in CA-G.R. CV No. 41616,1 affirming the
Decision of the Regional Trial Court of Makati, Branch
140, in Civil Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux
in Bangkok, Thailand, private respondent Nenita A.
Anay met petitioner William T. Belo, then the vice-
president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with
her for the importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint
venture and assigned to Anay the job of marketing the
product considering her experience and established
relationship with West Bend Company, a manufacturer
of kitchen wares in Wisconsin, U.S.A. Under the joint
venture, Belo acted as capitalist, Tocao as president
and general manager, and Anay as head of the
marketing department and later, vice-president for
sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the
employees, and assigned them to different branches.
The parties agreed that Belos name should not
appear in any documents relating to their transactions
with West Bend Company. Instead, they agreed to use
Anays name in securing distributorship of cookware
from that company. The parties agreed further that
Anay would be entitled to: (1) ten percent (10%) of the
annual net profits of the business; (2) overriding
commission of six percent (6%) of the overall weekly
production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her
demonstration services. The agreement was not
reduced to writing on the strength of Belos
assurances that he was sincere, dependable and
honest when it came to financial commitments.
Anay having secured the distributorship of cookware
products from the West Bend Company and organized
the administrative staff and the sales force, the
cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocaos
name, with office at 712 Rufino Building, Ayala
Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to
the distributor/dealer meeting in West Bend,
Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach,
California, U.S.A., from July 25-26, 1987. Anay
accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing
and supporting West Bend Co. for twenty (20) years
now, acquired the distributorship of Royal Queen
cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of
our company, will attend in response to the invitation."
(Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and
immediately undertook the task of saving the business
on account of the unsatisfactory sales record in the
Makati and Cubao offices. On August 31, 1987, she
received a plaque of appreciation from the
administrative and sales people through Marjorie
Tocao4 for her excellent job performance. On October
7, 1987, in the presence of Anay, Belo signed a
memo5 entitling her to a thirty-seven percent (37%)
commission for her personal sales "up Dec 31/87."
Belo explained to her that said commission was apart
from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-
president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz,
marketing manager, that Marjorie Tocao had barred
her from holding office and conducting demonstrations
in both Makati and Cubao offices.7 Anay attempted to
contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8,
1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
When her letters were not answered, Anay consulted
her lawyer, who, in turn, wrote Belo a letter. Still, that
letter was not answered.
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year,
1988, she did not receive the same commission
although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No.
88-509, a complaint for sum of money with
damages8 against Marjorie D. Tocao and William Belo
before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be
ordered to pay her, jointly and severally, the following:
(1) P32,00.00 as unpaid overriding commission from
January 8, 1988 to February 5, 1988; (2) P100,000.00
as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception
of its business operation until she was "illegally
dismissed" to determine her ten percent (10%) share
in the net profits. She further prayed that she be paid
the five percent (5%) "overriding commission" on the
remaining 150 West Bend cookware sets before her
"dismissal."
In their answer,9 Marjorie Tocao and Belo asserted that
the "alleged agreement" with Anay that was "neither
reduced in writing, nor ratified," was "either
unenforceable or void or inexistent." As far as Belo
was concerned, his only role was to introduce Anay to
Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as
marketing demonstrator of Geminesse Enterprise for
an agreed remuneration, and her complaint referred to
either her compensation or dismissal, such complaint
should have been lodged with the Department of
Labor and not with the regular court.
Petitioners (defendants therein) further alleged that
Anay filed the complaint on account of "ill-will and
resentment" because Marjorie Tocao did not allow her
to "lord it over in the Geminesse Enterprise." Anay had
acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the
ones who suffered actual damages "including
unreturned and unaccounted stocks of Geminesse
Enterprise," and "serious anxiety, besmirched
reputation in the business world, and various damages
not less than P500,000.00." They also alleged that, to
"vindicate their names," they had to hire counsel for a
fee of P23,000.00.
At the pre-trial conference, the issues were limited to:
(a) whether or not the plaintiff was an employee or
partner of Marjorie Tocao and Belo, and (b) whether or
not the parties are entitled to damages.10
In their defense, Belo denied that Anay was supposed
to receive a share in the profit of the business. He,
however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in
the gross sales of the cookware. He denied
contributing capital to the business or receiving a
share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He
attended and/or presided over business meetings of
the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he
wrote the memo granting the plaintiff thirty-seven
percent (37%) commission upon her dismissal from
the business venture at the request of Tocao, because
Anay had no other income.
For her part, Marjorie Tocao denied having entered
into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant
her the following commissions: thirty-seven percent
(37%) on personal sales; five percent (5%) on gross
sales; two percent (2%) on product demonstrations,
and two percent (2%) for recruitment of personnel.
Marjorie denied that they agreed on a ten percent
(10%) commission on the net profits. Marjorie claimed
that she got the capital for the business out of the sale
of the sewing machines used in her garments
business and from Peter Lo, a Singaporean friend-
financier who loaned her the funds with interest.
Because she treated Anay as her "co-equal," Marjorie
received the same amounts of commissions as her.
However, Anay failed to account for stocks valued at
P200,000.00.
On April 22, 1993, the trial court rendered a decision
the dispositive part of which is as follows:
"WHEREFORE, in view of the foregoing, judgment is
hereby rendered:
1. Ordering defendants to submit to the Court a formal
account as to the partnership affairs for the years 1987
and 1988 pursuant to Art. 1809 of the Civil Code in
order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%)
overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when
plaintiff was wrongfully excluded from the partnership
by defendants;
3. Ordering defendants to pay plaintiff overriding
commission on the total production which for the
period covering January 8, 1988 to February 5, 1988
amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral
damages and P100,000.00 as exemplary damages,
and
5. Ordering defendants to pay P50,000.00 as
attorneys fees and P20,000.00 as costs of suit.
SO ORDERED."
The trial court held that there was indeed an "oral
partnership agreement between the plaintiff and the
defendants," based on the following: (a) there was an
intention to create a partnership; (b) a common fund
was established through contributions consisting of
money and industry, and (c) there was a joint interest
in the profits. The testimony of Elizabeth Bantilan,
Anays cousin and the administrative officer of
Geminesse Enterprise from August 21, 1986 until it
was absorbed by Royal International, Inc., buttressed
the fact that a partnership existed between the parties.
The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to
Anay and Marjorie Tocao because he was convinced
that with Marjories financial contribution and Anays
experience, the combination of the two would be
invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a
"guarantor" has no basis since there was no written
evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or
presiding over meetings of Geminesse Enterprise plus
his issuance of a memo giving Anay 37% commission
on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the
business.
The trial court further held that the payment of
commissions did not preclude the existence of the
partnership inasmuch as such practice is often
resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was
not in writing because Article 1771 of the Civil Code
provides that a partnership may be "constituted in any
form." The fact that Geminesse Enterprise was
registered in Marjorie Tocaos name is not
determinative of whether or not the business was
managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or
style of Geminesse Enterprise.
The trial court finally held that a partner who is
excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his
due upon the dissolution of the partnership as well as
damages or share in the profits "realized from the
appropriation of the partnership business and
goodwill." An innocent partner thus possesses
"pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership
and assets at the time he was wrongfully expelled."
Petitioners appeal to the Court of Appeals11 was
dismissed, but the amount of damages awarded by the
trial court were reduced to P50,000.00 for moral
damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the
Court of Appeals for lack of merit.12 Petitioners Belo
and Marjorie Tocao are now before this Court on a
petition for review on certiorari, asserting that there
was no business partnership between them and herein
private respondent Nenita A. Anay who is, therefore,
not entitled to the damages awarded to her by the
Court of Appeals.
Petitioners Tocao and Belo contend that the Court of
Appeals erroneously held that a partnership existed
between them and private respondent Anay because
Geminesse Enterprise "came into being" exactly a
year before the "alleged partnership" was formed, and
that it was very unlikely that petitioner Belo would
invest the sum of P2,500,000.00 with petitioner Tocao
contributing nothing, without any "memorandum
whatsoever regarding the alleged partnership."13
The issue of whether or not a partnership exists is a
factual matter which are within the exclusive domain of
both the trial and appellate courts. This Court cannot
set aside factual findings of such courts absent any
showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case,
both the trial court and the Court of Appeals are one in
ruling that petitioners and private respondent
established a business partnership. This Court finds
no reason to rule otherwise.
To be considered a juridical personality, a partnership
must fulfill these requisites: (1) two or more persons
bind themselves to contribute money, property or
industry to a common fund; and (2) intention on the
part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a
public instrument is necessary only where immovable
property or real rights are contributed thereto.16 This
implies that since a contract of partnership is
consensual, an oral contract of partnership is as good
as a written one. Where no immovable property or real
rights are involved, what matters is that the parties
have complied with the requisites of a partnership. The
fact that there appears to be no record in the
Securities and Exchange Commission of a public
instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code17 did not
cause the nullification of the partnership. The pertinent
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality
separate and distinct from that of each of the partners,
even in case of failure to comply with the requirements
of article 1772, first paragraph.
Petitioners admit that private respondent had the
expertise to engage in the business of distributorship
of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was
through her reputation with the West Bend Company
that the partnership was able to open the business of
distributorship of that companys cookware products; it
was through the same efforts that the business was
propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in
putting up the business when, upon being asked if
private respondent held the positions of marketing
manager and vice-president for sales, she testified
thus:
"A: No, sir at the start she was the marketing manager
because there were no one to sell yet, its only me
there then her and then two (2) people, so about four
(4). Now, after that when she recruited already Oscar
Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which
definitely Nita as superior to them would be the Vice
President."18
By the set-up of the business, third persons were
made to believe that a partnership had indeed been
forged between petitioners and private respondents.
Thus, the communication dated June 4, 1986 of Missy
Jagler of West Bend Company to Roger Muencheberg
of the same company states:
"Marge Tocao is president of Geminesse Enterprises.
Geminesse will finance the operations. Marge does
not have cookware experience. Nita Anay has started
to gather former managers, Lina Torda and Dory Vista.
She has also gathered former demonstrators, Betty
Bantilan, Eloisa Lamela, Menchu Javier. They will
continue to gather other key people and build up the
organization. All they need is the finance and the
products to sell."19
On the other hand, petitioner Belos denial that he
financed the partnership rings hollow in the face of the
established fact that he presided over meetings
regarding matters affecting the operation of the
business. Moreover, his having authorized in writing
on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely
a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao
under Article 2053 of the Civil Code,20 he should have
presented documentary evidence therefor. While
Article 2055 of the Civil Code simply provides that
guaranty must be "express," Article 1403, the Statute
of Frauds, requires that "a special promise to answer
for the debt, default or miscarriage of another" be in
writing.21
Petitioner Tocao, a former ramp model,22 was also a
capitalist in the partnership. She claimed that she
herself financed the business. Her and petitioner
Belos roles as both capitalists to the partnership with
private respondent are buttressed by petitioner
Tocaos admissions that petitioner Belo was her
boyfriend and that the partnership was not their only
business venture together. They also established a
firm that they called "Wiji," the combination of
petitioner Belos first name, William, and her nickname,
Jiji.23 The special relationship between them dovetails
with petitioner Belos claim that he was acting in behalf
of petitioner Tocao. Significantly, in the early stage of
the business operation, petitioners requested West
Bend Company to allow them to "utilize their banking
and trading facilities in Singapore" in the matter of
importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was
that petitioners merged their respective capital and
infused the amount into the partnership of distributing
cookware with private respondent as the managing
partner.
The business venture operated under Geminesse
Enterprise did not result in an employer-employee
relationship between petitioners and private
respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the
business,25 the evidence in the case at bar controverts
an employer-employee relationship between the
parties. In the first place, private respondent had a
voice in the management of the affairs of the cookware
distributorship,26 including selection of people who
would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate
against an employer-employee relationship. She
admitted that, like her who owned Geminesse
Enterprise,27 private respondent received only
commissions and transportation and representation
allowances28 and not a fixed salary.29 Petitioner Tocao
testified:
"Q: Of course. Now, I am showing to you certain
documents already marked as Exhs. X and Y.
Please go over this. Exh. Y is denominated `Cubao
overrides 8-21-87 with ending August 21, 1987, will
you please go over this and tell the Honorable Court
whether you ever came across this document and
know of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats
the one I am telling you earlier a certain percentage for
promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive,
there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means
that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you
are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and
I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are
telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal
because the way I look at her kasi, you know in a
sense because of her expertise in the business she is
vital to my business. So, as part of the incentive I offer
her the same thing.
Q: So, in short you are saying that this you have
shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you
were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an
equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y
Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides
Marjorie Ann Tocao P15,314.25 the amount there you
will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation,
promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay
P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by
coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as
your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondents
employer, it is difficult to believe that they shall receive
the same income in the business. In a partnership,
each partner must share in the profits and losses of
the venture, except that the industrial partner shall not
be liable for the losses.31 As an industrial partner,
private respondent had the right to demand for a
formal accounting of the business and to receive her
share in the net profit.32
The fact that the cookware distributorship was
operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was
registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that
enterprise.33 While it is true that in her undated
application for renewal of registration of that firm
name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares,
utensils, skillet,"34 she also admitted that the enterprise
was only "60% to 70% for the cookware business,"
while 20% to 30% of its business activity was devoted
to the sale of water sterilizer or purifier.35 Indubitably
then, the business name Geminesse Enterprise was
used only for practical reasons - it was utilized as the
common name for petitioner Tocaos various business
activities, which included the distributorship of
cookware.
Petitioners underscore the fact that the Court of
Appeals did not return the "unaccounted and
unremitted stocks of Geminesse Enterprise amounting
to P208,250.00."36 Obviously a ploy to offset the
damages awarded to private respondent, that claim,
more than anything else, proves the existence of a
partnership between them. In Idos v. Court of
Appeals, this Court said:
"The best evidence of the existence of the partnership,
which was not yet terminated (though in the winding
up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court.
Since the partnership has not been terminated, the
petitioner and private complainant remained as co-
partners. x x x."37
It is not surprising then that, even after private
respondent had been unceremoniously booted out of
the partnership in October 1987, she still received her
overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded
private respondent from the partnership to reap for
herself and/or for petitioner Belo financial gains
resulting from private respondents efforts to make the
business venture a success. Thus, as petitioner Tocao
became adept in the business operation, she started
to assert herself to the extent that she would even
shout at private respondent in front of other
people.38 Her instruction to Lina Torda Cruz, marketing
manager, not to allow private respondent to hold office
in both the Makati and Cubao sales offices concretely
spoke of her perception that private respondent was
no longer necessary in the business operation,39 and
resulted in a falling out between the two. However, a
mere falling out or misunderstanding between partners
does not convert the partnership into a sham
organization.40 The partnership exists until dissolved
under the law. Since the partnership created by
petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on
their mutual desire and consent, it may be dissolved
by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes
to associate himself is the very foundation and
essence of that partnership. Its continued existence is,
in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it,
and the absence of cause for dissolution provided by
the law itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a
liability for damages."41
An unjustified dissolution by a partner can subject him
to action for damages because by the mutual agency
that arises in a partnership, the doctrine of delectus
personae allows the partners to have
the power, although not necessarily the right to
dissolve the partnership.42
In this case, petitioner Tocaos unilateral exclusion of
private respondent from the partnership is shown by
her memo to the Cubao office plainly stating that
private respondent was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse
Enterprise.43 By that memo, petitioner Tocao effected
her own withdrawal from the partnership and
considered herself as having ceased to be associated
with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the
business.44
The winding up of partnership affairs has not yet been
undertaken by the partnership.1wphi1 This is
manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the
partnership business.
The determination of the amount of damages
commensurate with the factual findings upon which it
is based is primarily the task of the trial court.45 The
Court of Appeals may modify that amount only when
its factual findings are diametrically opposed to that of
the lower court,46 or the award is palpably or
scandalously and unreasonably excessive.47 However,
exemplary damages that are awarded "by way of
example or correction for the public good,"48should be
reduced to P50,000.00, the amount correctly awarded
by the Court of Appeals. Concomitantly, the award of
moral damages of P100,000.00 was excessive and
should be likewise reduced to P50,000.00. Similarly,
attorneys fees that should be granted on account of
the award of exemplary damages and petitioners
evident bad faith in refusing to satisfy private
respondents plainly valid, just and demandable
claims,49 appear to have been excessively granted by
the trial court and should therefore be reduced to
P25,000.00.
WHEREFORE, the instant petition for review
on certiorari is DENIED. The partnership among
petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant
to the pertinent provisions of the Civil Code. This case
is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of
Appeals are AFFIRMED with MODIFICATIONS, as
follows ---
1. Petitioners are ordered to submit to the Regional
Trial Court a formal account of the partnership affairs
for the years 1987 and 1988, pursuant to Article 1809
of the Civil Code, in order to determine private
respondents ten percent (10%) share in the net profits
of the partnership;
2. Petitioners are ordered, jointly and severally, to pay
private respondent five percent (5%) overriding
commission for the one hundred and fifty (150)
cookware sets available for disposition since the time
private respondent was wrongfully excluded from the
partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay
private respondent overriding commission on the total
production which, for the period covering January 8,
1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay
private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of
P25,000.00.
5. Rojas vs Maglana 192 SCRA 110 1990
EUFRACIO D. ROJAS, Plaintiff-Appellant,
vs. CONSTANCIO B.MAGLANA,Defendant-
This is a direct appeal to this Court from a decision **
of the then Court of First Instance of Davao, Seventh
Judicial District, Branch III, in Civil Case No. 3518,
dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the
case are as follows:
On January 14, 1955, Maglana and Rojas executed
their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only
the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered on
January 21, 1955 with the Securities and Exchange
Commission.
One of the purposes of the duly-registered partnership
was to "apply or secure timber and/or minor forests
products licenses and concessions over public and/or
private forest lands and to operate, develop and
promote such forests rights and concessions." (Rollo,
p. 114).
A duly registered Articles of Co-Partnership was filed
together with an application for a timber concession
covering the area located at Cateel and Baganga,
Davao with the Bureau of Forestry which was
approved and Timber License No. 35-56 was duly
issued and became the basis of subsequent renewals
made for and in behalf of the duly registered
partnership EDE.
Under the said Articles of Co-Partnership, appellee
Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash
and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall
be the logging superintendent and shall manage the
logging operations of the partnership. It is also
provided in the said articles of co-partnership that all
profits and losses of the partnership shall be divided
share and share alike between the partners.
During the period from January 14, 1955 to April 30,
1956, there was no operation of said partnership
(Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and
Maglana decided to avail of the services of
Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin
Pahamotang executed their Articles of Co-Partnership
(Exhibit "B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES
(EDE). Aside from the slight difference in the purpose
of the second partnership which is to hold and secure
renewal of timber license instead of to secure the
license as in the first partnership and the term of the
second partnership is fixed to thirty (30) years,
everything else is the same.
The partnership formed by Maglana, Pahamotang and
Rojas started operation on May 1, 1956, and was able
to ship logs and realize profits. An income was derived
from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and
Rojas executed a document entitled "CONDITIONAL
SALE OF INTEREST IN THE PARTNERSHIP,
EASTCOAST DEVELOPMENT ENTERPRISE"
(Exhibits "C" and "D") agreeing among themselves that
Maglana and Rojas shall purchase the interest, share
and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also
agreed in the said instrument that after payment of the
sum of P31,501.12 to Pahamotang including the
amount of loan secured by Pahamotang in favor of the
partnership, the two (Maglana and Rojas) shall
become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second
partnership, be dissolved. Pahamotang was paid in fun
on August 31, 1957. No other rights and obligations
accrued in the name of the second partnership (R.A.
921).
After the withdrawal of Pahamotang, the partnership
was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of
their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a
management contract with another logging enterprise,
the CMS Estate, Inc. He left and abandoned the
partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment
from the partnership for use in the newly acquired area
(Decision, R.A. 948).
The equipment withdrawn were his supposed
contributions to the first partnership and was
transferred to CMS Estate, Inc. by way of chattel
mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding
the latter of his obligation to contribute, either in cash
or in equipment, to the capital investments of the
partnership as well as his obligation to perform his
duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana
that he will not be able to comply with the promised
contributions and he will not work as logging
superintendent. Maglana then told Rojas that the
latter's share will just be 20% of the net profits. Such
was the sharing from 1957 to 1959 without complaint
or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership
more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified
Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court
of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and
damages, docketed as Civil Case No. 3518 (Record
on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was
denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge
Romero appointed commissioners to examine the long
and voluminous accounts of the Eastcoast
Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana
on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge
Romero also required the inclusion of the entire year
1961 in the report to be submitted by the
commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and
supporting papers of the partnership as well as the
information furnished them by the parties, which were
compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of
court to amend his answer with counterclaim,
attaching thereto the amended answer (Ibid., pp. 26-
336), which was granted on May 22, 1964 (Ibid., p.
336).
On May 27, 1964, Judge M.G. Reyes approved the
submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for
reconsideration of the order dated May 27, 1964
approving the report of the commissioners which was
opposed by the appellee.
On September 19, 1964, appellant's motion for
reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8
and 9, 1964 and the following issues were agreed
upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of
Maglana and Rojas after the dissolution of the second
partnership;
(b) Their sharing basis: whether in proportion to their
contribution or share and share alike;
(c) The ownership of properties bought by Maglana in
his wife's name;
(d) The damages suffered and who should be liable for
them; and
(e) The legal effect of the letter dated February 23,
1961 of Maglana dissolving the partnership (Decision,
R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on
March 11, 1968, the dispositive portion of which reads
as follows:
"WHEREFORE, the above facts and issues duly
considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal
relations of Maglana and Rojas after Pahamotang
retired from the second partnership, that is, after
August 31, 1957, when Pahamotang was finally paid
his share the partnership of the defendant and the
plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should
be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the
basis of share and share alike this covered by
actual contributions of the plaintiff and the defendant
and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual
contributions; that from 1957 to 1959, the sharing is on
the basis of 80% for the defendant and 20% for the
plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share will
be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the
plaintiff is not entitled to any share in the profits of the
said partnership;
"3. As to whether the properties which were bought by
the defendant and placed in his or in his wife's name
were acquired with partnership funds or with funds of
the defendant and the Court declares that there is
no evidence that these properties were acquired by
the partnership funds, and therefore the same should
not belong to the partnership;
"4. As to whether damages were suffered and, if so,
how much, and who caused them and who should be
liable for them the Court declares that neither
parties is entitled to damages, for as already stated
above it is not a wise policy to place a price on the
right of a person to litigate and/or to come to Court for
the assertion of the rights they believe they are entitled
to;
"5. As to what is the legal effect of the letter of
defendant to the plaintiff dated February 23, 1961; did
it dissolve the partnership or not the Court declares
that the letter of the
defendant to the plaintiff dated February 23, 1961, in
effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which
sells foodstuffs, supplies, and other merchandise to
the laborers and employees of the Eastcoast
Development Enterprises, the COURT DECLARES
THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit
9-B, executed by Pablo Angeles David is VALID
AND BINDING UPON THE PARTIES AND SHOULD
BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas
to pay or turn over to the partnership the amount of
P69,000.00 the profits he received from the CMS
Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to
pay the further sum of P85,000.00 which according to
him he is still entitled to receive from the CMS Estate,
Inc. is hereby denied considering that it has not yet
been actually received, and further the receipt is
merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to
pay the sum of P62,988.19 his personal account to the
partnership;
"11. The Court also credits the defendant the amount
of P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to
him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs
against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp.
985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the
partnership and legal relationship of the Maglana-
Rojas after Pahamotang retired from the second
partnership.
The lower court is of the view that the second
partnership superseded the first, so that when the
second partnership was dissolved there was no written
contract of co-partnership; there was no reconstitution
as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the
partnership which was carried on by Rojas and
Maglana after the dissolution of the second
partnership was a de facto partnership and at will. It
was considered as a partnership at will because there
was no term, express or implied; no period was fixed,
expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered
partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by the
Articles of Co-Partnership dated January 14, 1955
(Exhibit "A") has not been novated, superseded and/or
dissolved by the unregistered articles of co-partnership
among appellant Rojas, appellee Maglana and Agustin
Pahamotang, dated March 4, 1956 (Exhibit "C") and
accordingly, the terms and stipulations of said
registered Articles of Co-Partnership (Exhibit "A")
should govern the relations between him and Maglana.
Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally
constituted partnership EDE (Exhibit "A") continues to
govern the relations between them and it was legal
error to consider a de facto partnership between said
two partners or a partnership at will. Hence, the letter
of appellee Maglana dated February 23, 1961, did not
legally dissolve the registered partnership between
them, being in contravention of the partnership
agreement agreed upon and stipulated in their Articles
of Co-Partnership (Exhibit "A"). Rather, appellant is
entitled to the rights enumerated in Article 1837 of the
Civil Code and to the sharing profits between them of
"share and share alike" as stipulated in the registered
Articles of Co-Partnership (Exhibit "A"). After a careful
study of the records as against the conflicting claims of
Rojas and Maglana, it appears evident that it was not
the intention of the partners to dissolve the first
partnership, upon the constitution of the second one,
which they unmistakably called an "Additional
Agreement" (Exhibit "9-B") (Brief for Defendant-
Appellee, pp. 24-25). Except for the fact that they took
in one industrial partner; gave him an equal share in
the profits and fixed the term of the second partnership
to thirty (30) years, everything else was the same.
Thus, they adopted the same name, EASTCOAST
DEVELOPMENT ENTERPRISES, they pursued the
same purposes and the capital contributions of Rojas
and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all
subsequent renewals of Timber License No. 35-36
were secured in favor of the First Partnership, the
original licensee. To all intents and purposes therefore,
the First Articles of Partnership were only amended, in
the form of Supplementary Articles of Co-Partnership
(Exhibit "C") which was never registered (Brief for
Plaintiff-Appellant, p. 5). Otherwise stated, even during
the existence of the second partnership, all business
transactions were carried out under the duly registered
articles. As found by the trial court, it is an admitted
fact that even up to now, there are still subsisting
obligations and contracts of the latter (Decision, R.A.
pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of
Pahamotang which was fully paid by the duly
registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second
partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which
continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and
participation in the second partnership of Pahamotang
and that thereafter, the two (Maglana and Rojas)
became the owners of equipment contributed by
Pahamotang. Even more convincing, is the fact that
Maglana on March 17, 1957, wrote Rojas, reminding
the latter of his obligation to contribute either in cash or
in equipment, to the capital investment of the
partnership as well as his obligation to perform his
duties as logging superintendent. This reminder
cannot refer to any other but to the provisions of the
duly registered Articles of Co-Partnership. As earlier
stated, Rojas replied that he will not be able to comply
with the promised contributions and he will not work as
logging superintendent. By such statements, it is
obvious that Roxas understood what Maglana was
referring to and left no room for doubt that both
considered themselves governed by the articles of the
duly registered partnership.
Under the circumstances, the relationship of Rojas and
Maglana after the withdrawal of Pahamotang can
neither be considered as a De Facto Partnership, nor
a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.
As to the question of whether or not Maglana can
unilaterally dissolve the partnership in the case at bar,
the answer is in the affirmative.
Hence, as there are only two parties when Maglana
notified Rojas that he dissolved the partnership, it is in
effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if
there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the
expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no
cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in
whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall
be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-
Partnership; that is, all profits and losses of the
partnership shall be divided "share and share alike"
between the partners.
But an accounting must first be made and which in fact
was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the
corresponding contribution of the partners from 1956-
1961 are as follows: Eufracio Rojas who should have
contributed P158,158.00, contributed only P18,750.00
while Maglana who should have contributed
P160,984.00, contributed P267,541.44 (Decision, R.A.
p. 976). It is a settled rule that when a partner who has
undertaken to contribute a sum of money fails to do
so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Article
1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of
Appeals, 133 SCRA 94 [1984]). Being a contract of
partnership, each partner must share in the profits and
losses of the venture. That is the essence of a
partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas
is not entitled to any profits. In their voluminous reports
which was approved by the trial court, they showed
that on 50-50% basis, Rojas will be liable in the
amount of P131,166.00; on 80-20%, he will be liable
for P40,092.96 and finally on the basis of actual capital
contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the
partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered
partnership and the sharing of profits and losses which
should be on the basis of share and share alike as
provided for in the duly registered Articles of Co-
Partnership, no plausible reason could be found to
disturb the findings and conclusions of the trial court.:
nad
As to whether Maglana is liable for damages because
of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a
management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same
business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his
duties as logging superintendent, as stipulated in their
partnership agreement. The records also show that
Rojas not only abandoned the partnership but also
took funds in an amount more than his contribution
(Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in
bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of
the Court of First Instance of Davao, Branch III, is
hereby MODIFIED in the sense that the duly
registered partnership of Eastcoast Development
Enterprises continued to exist until liquidated and that
the sharing basis of the partners should be on share
and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the
commissioners. We also hereby AFFIRM the decision
of the trial court in all other respects.: nad
SO ORDERED.
Art 1774-1783 CIR vs William Suter GR L 25532 Feb
28 1969 COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. WILLIAM J. SUTER and
THE COURT OF TAX APPEALS,
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson,
as the limited partners. The partners contributed,
respectively,
P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited
partnership was registered with the Securities and
Exchange Commission. The firm engaged, among
other activities, in the importation, marketing,
distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their
parts and accessories. It had an office and held itself
out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads
bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited
partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share
in the partnership to Suter and his wife. The sale was
duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue,
until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06
for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial,
rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the
Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the
William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that
respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after
the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter and the subsequent sale
to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal
Revenue, is that the marriage of Suter and Spirig and
their subsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved
the limited partnership, and if they did not, the fiction of
juridical personality of the partnership should be
disregarded for income tax purposes because the
spouses have exclusive ownership and control of the
business; consequently the income tax return of
respondent Suter for the years in question should have
included his and his wife's individual incomes and that
of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which
provides as follows:
(d) Husband and wife. In the case of married
persons, whether citizens, residents or non-residents,
only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter
maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership,
either in the Code of Commerce or in the New Civil
Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as
contra distinguished from a duly registered general
partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his
individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William
J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only
general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the
partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial
Laws of the Philippines, Vol. 1, 4th Ed., page 58, that
reads as follows:
A husband and a wife may not enter into a
contract of general copartnership, because under the
Civil Code, which applies in the absence of express
provision in the Code of Commerce, persons
prohibited from making donations to each other are
prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-
existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe
the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but a particular one.
As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947),
a universal partnership requires either that the object
of the association be all the present property of the
partners, as contributed by them to the common fund,
or else "all that the partners may acquire by
their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the
contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil
Code of 1889.
The former Chief Justice of the Spanish Supreme
Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with
regard to the prohibition contained in the aforesaid
Article 1677:
Los conyuges, segun esto, no pueden celebrar entre
si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido
muy debatido, nos inclinamos a la tesis permisiva de
los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda
persona es capaz para contratar mientras no sea
declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma
tesis en su resolution de 3 de febrero de 1936, mas
parece cambiar de rumbo en la de 9 de marzo de
1943.
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both
partners the company became a single proprietorship,
is equally erroneous. The capital contributions of
partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their
marriage; and after they were joined in wedlock, such
contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each
spouse:
That which is brought to the marriage as his or her
own; ....
Thus, the individual interest of each consort in William
J. Suter "Morcoin" Co., Ltd. did not become common
property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law
that the partnership has a juridical personality of its
own, distinct and separate from that of its partners
(unlike American and English law that does not
recognize such separate juridical personality), the
bypassing of the existence of the limited partnership
as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic
principles of our law. The limited partnership's
separate individuality makes it impossible to equate its
income with that of the component members. True,
section 24 of the Internal Revenue Code merges
registered general co-partnerships (compaias
colectivas) with the personality of the individual
partners for income tax purposes. But this rule is
exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal
Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc.
vs. Yatco, 77 Phil. 504) as authority for disregarding
the fiction of legal personality of the corporations
involved therein are not applicable to the present case.
In the cited cases, the corporations were
already subject to tax when the fiction of their
corporate personality was pierced; in the present case,
to do so would exempt the limited partnership from
income taxation but would throw the tax burden upon
the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as
business conduits or alter egos of the stockholders, a
factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a
mere business conduit of the partner-spouses; it was
organized for legitimate business purposes; it
conducted its own dealings with its customers prior to
appellee's marriage, and had been filing its own
income tax returns as such independent entity. The
change in its membership, brought about by the
marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of
Section 24 of the tax code, requiring it to pay income
tax. As far as the records show, the partners did not
enter into matrimony and thereafter buy the interests
of the remaining partner with the premeditated scheme
or design to use the partnership as a business conduit
to dodge the tax laws. Regularity, not otherwise, is
presumed.
As the limited partnership under consideration is
taxable on its income, to require that income to be
included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically
provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compaia colectiva)
and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter
on its income, but not the former, because it is in the
case of compaias colectivas that the members, and
not the firm, are taxable in their individual capacities
for any dividend or share of the profit derived from the
duly registered general partnership (Section 26,
N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As
Amended, Vol. 1, pp. 88-89)
But it is argued that the income of the limited
partnership is actually or constructively the income of
the spouses and forms part of the conjugal partnership
of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the fruits of
the wife's parapherna become conjugal only when no
longer needed to defray the expenses for the
administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's
argument erroneously confines itself to the question of
the legal personality of the limited partnership, which is
not essential to the income taxability of the partnership
since the law taxes the income of even joint accounts
that have no personality of their own. 1 Appellant is,
likewise, mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is not.
What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though
the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their
consequences would be different, as their
contributions in the business partnership are not the
same.
The difference in tax rates between the income of the
limited partnership being consolidated with, and when
split from the income of the spouses, is not a
justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay
tax on its own income.
FOR THE FOREGOING REASONS, the decision
under review is hereby affirmed. No costs.
2. Aurback vs Sanitary Wares GR 75875 Dec 15 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES
CHAMSAY, petitioners, vs.SANITARYWARES
MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING
CORPORATION, ERNESTO R. LAGDAMEO,
ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL
A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.THE COURT OF APPEALS, WOLFGANG
AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.SANITARY WARES MANUFACTURING
CORPORATION, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the
amended decision of the Court of Appeals in CA-G.R.
SP Nos. 05604 and 05617 which set aside the earlier
decision dated June 5, 1986, of the then Intermediate
Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American
Standard Inc. (ASI) cannot nominate more than three
(3) directors; that the Filipino stockholders shall not
interfere in ASI's choice of its three (3) nominees; that,
on the other hand, the Filipino stockholders can
nominate only six (6) candidates and in the event they
cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6)
nominees will be, with cumulative voting to be allowed
but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was
incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the
incorporators, Mr. Baldwin Young went abroad to look
for foreign partners, European or American who could
help in its expansion plans. On August 15, 1962, ASI,
a foreign corporation domiciled in Delaware, United
States entered into an Agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino
investors agreed to participate in the ownership of an
enterprise which would engage primarily in the
business of manufacturing in the Philippines and
selling here and abroad vitreous china and sanitary
wares. The parties agreed that the business
operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares
Manufacturing Corporation."
The Agreement has the following provisions relevant
to the issues in these cases on the nomination and
election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine
law, shall specifically provide for
(1)Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall
own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be
designated by American-Standard, and the other six
shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained
provisions designed to protect it as a minority group,
including the grant of veto powers over a number of
corporate acts and the right to designate certain
officers, such as a member of the Executive
Committee whose vote was required for important
corporate transactions.
Later, the 30% capital stock of ASI was increased to
40%. The corporation was also registered with the
Board of Investments for availment of incentives with
the condition that at least 60% of the capital stock of
the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino
investors and the American corporation prospered.
Unfortunately, with the business successes, there
came a deterioration of the initially harmonious
relations between the two groups. According to the
Filipino group, a basic disagreement was due to their
desire to expand the export operations of the company
to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the
countries where Philippine exports were contemplated.
On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items
in the agenda, the stockholders then proceeded to the
election of the members of the board of directors. The
ASI group nominated three persons namely; Wolfgang
Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young.
Mr. Eduardo R, Ceniza then nominated Mr. Luciano E.
Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a)
of the Agreement, the consistent practice of the parties
during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-
member board of directors, and the legal advice of
Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of
stockholders present that a vote be taken on the ruling
of the Chairman. The Chairman, Baldwin Young,
declared the appeal out of order and no vote on the
ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the
Philippine Investors and the 3 nominees of ASI, thus
effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three
ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by
and or represented by them 467,197 shares (p. 27,
Rollo, AC-G.R. SP No. 05617) were being voted
cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the
Secretary to cast all votes equally in favor of the three
ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto
Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin
Young. The Secretary then certified for the election of
the following Wolfgang Aurbach, John Griffin, David
Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
Raul A. Boncan, Baldwin Young. The representative of
ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28,
Rollo, AC-G.R. SP No. 05617). This motion to adjourn
was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared
the meeting adjourned. Protests against the
adjournment were registered and having been ignored,
Mr. Jaqua the ASI representative, stated that the
meeting was not adjourned but only recessed and that
the meeting would be reconvened in the next room.
The Chairman then threatened to have the
stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out.
The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting
at the elevator lobby of the American Standard
Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its
four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation that
there was a tie among the other six (6) nominees for
the four (4) remaining positions of directors and that
the body decided not to break the tie. (pp. 37-39, Rollo
of 75975-76)
These incidents triggered off the filing of separate
petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed
was for preliminary injunction by Saniwares, Emesto V.
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
R. Lagdameo, Jr., Enrique Lagdameo and George F.
Lee against Luciano Salazar and Charles Chamsay.
The case was denominated as SEC Case No. 2417.
The second petition was for quo warranto and
application for receivership by Wolfgang Aurbach,
John Griffin, David Whittingham, Luciano E. Salazar
and Charles Chamsay against the group of Young and
Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case
No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by
a hearing officer who rendered a decision upholding
the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay.
The ASI Group and Salazar appealed the decision to
the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate
appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham
and Charles Chamsay (docketed as AC-G.R. SP No.
05604) and by Luciano E. Salazar (docketed as AC-
G.R. SP No. 05617). The petitions were consolidated
and the appellate court in its decision ordered the
remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders'
meeting of Saniwares be ordered convoked as soon
as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the
appellees Lagdameo Group) the appellate court (Court
of Appeals) rendered the questioned amended
decision. Petitioners Wolfgang Aurbach, John Griffin,
David P. Whittingham and Charles Chamsay in G.R.
No. 75875 assign the following errors:
THE COURT OF APPEALS, IN EFFECT, UPHELD
THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF
DIRECTORS OF SANIWARES WHEN IN FACT
THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER
OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS
WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES
CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT
THERE, WHICH ACTION IT CANNOT LEGALLY DO.
(p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76
assails the amended decision on the following
grounds:
11.1ThatAmendedDecisionwouldsanctiontheCA'sdisre
gard of binding contractual agreements entered into by
stockholders and the replacement of the conditions of
such agreements with terms never contemplated by
the stockholders but merely dictated by the CA
11.2. The Amended decision would likewise sanction
the deprivation of the property rights of stockholders
without due process of law in order that a favored
group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a
corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951
contend that:
ITHE AMENDED DECISION OF THE RESPONDENT
COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE
THE BASIC INTENT OF THE AGREEMENT AND
THE LAW.
IITHE AMENDED DECISION DOES NOT
CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P.
24, Rollo-75951)
The issues raised in the petitions are interrelated,
hence, they are discussed jointly.
The main issue hinges on who were the duly elected
directors of Saniwares for the year 1983 during its
annual stockholders' meeting held on March 8, 1983.
To answer this question the following factors should be
determined: (1) the nature of the business established
by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may
vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular
contract have thereby established among themselves
a joint venture or some other relation depends upon
their actual intention which is determined in
accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v.
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos.
75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement"
dated August 15,1962 wherein it is clearly stated that
the parties' intention was to form a corporation and not
a joint venture.
They specifically mention number 16
under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder. (At
P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which
tends to show that the parties' agreement was to
establish a joint venture presented by the Lagdameo
and Young Group on the ground that it contravenes
the parol evidence rule under section 7, Rule 130 of
the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their
pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an
agreement have been reduced to writing, it is to be
considered as containing all such terms, and therefore,
there can be, between the parties and their successors
in interest, no evidence of the terms of the agreement
other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or
its failure to express the true intent and agreement of
the parties or the validity of the agreement is put in
issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and
Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the
Agreement failed to express the true intent of the
parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would
make it appear that the parties thereto disclaim being
partners or joint venturers such disclaimer is directed
at third parties and is not inconsistent with, and does
not preclude, the existence of two distinct groups of
stockholders in Saniwares one of which (the Philippine
Investors) shall constitute the majority, and the other
ASI shall constitute the minority stockholder. In any
event, the evident intention of the Philippine Investors
and ASI in entering into the Agreement is to enter into
ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may
result from all of them taken jointly (Art. 1374, New
Civil Code). Moreover, in order to judge the intention of
the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC
Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to
prove that the parties joined their efforts in furtherance
of an enterprise for their joint profit, the question
whether they intended by their agreement to create a
joint adventure, or to assume some other relation is a
question of fact for the jury. (Binder v. Kessler v 200
App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex.
Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423,
200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important
provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young
Group shows that the parties agreed to establish a
joint venture and not a corporation. The history of the
organization of Saniwares and the unusual
arrangements which govern its policy making body are
all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin
Young, he negotiated the Agreement with ASI in
behalf of the Philippine nationals. He testified that ASI
agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition
that the Agreement should contain provisions to
protect ASI as the minority.
An examination of the Agreement shows that certain
provisions were included to protect the interests of ASI
as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate
acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is
contractually entitled to designate a member of the
Executive Committee and the vote of this member is
required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority
vote for the amendment of the articles and by-laws of
Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also
given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides
that the sales policy of Saniwares shall be that which
is normally followed by ASI [Sec. 13 (a)] and that
Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI
agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same.
(At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the board of
directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of
the right to designate certain officers of the
corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision
that ASI shall designate 3 out of the 9 directors and
the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the capital
stock and the Philippine National stockholders who
own the balance of 60%, and that 2) ASI is given
certain protections as the minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders who
established a corporation with provisions for a special
contractual relationship between the parties, i.e., ASI
and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word
"designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio.
Each group is assured of a fixed number of directors in
the board.
Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that
"Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was
merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to
third parties.
Quite often, Filipino entrepreneurs in their desire to
develop the industrial and manufacturing capacities of
a local firm are constrained to seek the technology and
marketing assistance of huge multinational
corporations of the developed world. Arrangements
are formalized where a foreign group becomes a
minority owner of a firm in exchange for its
manufacturing expertise, use of its brand names, and
other such assistance. However, there is always a
danger from such arrangements. The foreign group
may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint
venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness
may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group
undermines the local majority ownership and actively
tries to completely or predominantly take over the
entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the
extent that such subversive actions can be lawfully
prevented, the courts should extend protection
especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino
citizens.
The Lagdameo Group stated in their appellees' brief in
the Court of Appeal
In fact, the Philippine Corporation Code itself
recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting
rights.
Sec. 100. Agreements by stockholders.-
2. An agreement between two or more stockholders, if
in writing and signed by the parties thereto, may
provide that in exercising any voting rights, the shares
held by them shall be voted as therein provided, or as
they may agree, or as determined in accordance with
a procedure agreed upon by them.
Appellants contend that the above provision is
included in the Corporation Code's chapter on close
corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95
stockholders are not separate from each other but are
divisible into groups representing a single Identifiable
interest. For example, ASI, its nominees and lawyers
count for 13 of the 95 stockholders. The YoungYutivo
family count for another 13 stockholders, the Chamsay
family for 8 stockholders, the Santos family for 9
stockholders, the Dy family for 7 stockholders, etc. If
the members of one family and/or business or interest
group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8
March 1983, practically only 17 stockholders of
Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically
not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly
claim that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a
realistic approach to joint venture corporations and
have not rigidly applied principles of corporation law
designed primarily for public issue corporations. These
courts have indicated that express arrangements
between corporate joint ventures should be construed
with less emphasis on the ordinary rules of law usually
applied to corporate entities and with more
consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v.
American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254
Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic
Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy
v. Harris, 207 Md., 212,113 A 2d 903; Hathway v.
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal
Status of Joint Venture Corporations", 11 Vand Law
Rev. p. 680,1958). These American cases dealt with
legal questions as to the extent to which the
requirements arising from the corporate form of joint
venture corporations should control, and the courts
ruled that substantial justice lay with those litigants
who relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in
organizing the joint venture deviate from the traditional
pattern of corporation management. A noted authority
has pointed out that just as in close corporations,
shareholders' agreements in joint venture corporations
often contain provisions which do one or more of the
following: (1) require greater than majority vote for
shareholder and director action; (2) give certain
shareholders or groups of shareholders power to
select a specified number of directors; (3) give to the
shareholders control over the selection and retention
of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal,
Close Corporations, 1971 ed., Section 1.06a, pp. 15-
16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation
Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed only
in close corporations. As Campos and Lopez-Campos
explain:
Paragraph 2 refers to pooling and voting agreements
in particular. Does this provision necessarily imply that
these agreements can be valid only in close
corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and therefore
cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a
unit in the election of directors? It is submitted that
there is no reason for denying stockholders of
corporations other than close ones the right to enter
into not voting or pooling agreements to protect their
interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling
agreements are perhaps more useful and more often
resorted to in close corporations. But they may also be
found necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the
requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close
corporation will not come within the definition. In such
case, its stockholders should not be precluded from
entering into contracts like voting agreements if these
are otherwise valid. (Campos & Lopez-Campos, op cit,
p. 405)
In short, even assuming that sec. 5(a) of the
Agreement relating to the designation or nomination of
directors restricts the right of the Agreement's
signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include
appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI
group may vote their additional equity during elections
of Saniwares' board of directors, the Court of Appeals
correctly stated:
As in other joint venture companies, the extent of ASI's
participation in the management of the corporation is
spelled out in the Agreement. Section 5(a) hereof says
that three of the nine directors shall be designated by
ASI and the remaining six by the other stockholders,
i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority
position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such
may interfere with the stockholder's rights to
cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared
to hold that any agreement which curtails in any way
cumulative voting should be struck down, even if such
agreement has been freely entered into by
experienced businessmen and do not prejudice those
who are not parties thereto. It may well be that it would
be more cogent to hold, as the Securities and
Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be
voluntarily waived by stockholders who enter into
special relationships with each other to pursue and
implement specific purposes, as in joint venture
relationships between foreign and local stockholders,
so long as such agreements do not adversely affect
third parties.
In any event, it is believed that we are not here called
upon to make a general rule on this question. Rather,
all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the
parties have assumed for themselves.
On the one hand, the clearly established minority
position of ASI and the contractual allocation of board
seats Cannot be disregarded. On the other hand, the
rights of the stockholders to cumulative voting should
also be protected.
In our decision sought to be reconsidered, we opted to
uphold the second over the first. Upon further
reflection, we feel that the proper and just solution to
give due consideration to both factors suggests itself
quite clearly. This Court should recognize and uphold
the division of the stockholders into two groups, and at
the same time uphold the right of the stockholders
within each group to cumulative voting in the process
of determining who the group's nominees would be. In
practical terms, as suggested by appellant Luciano E.
Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will
be, a vote would have to be taken among the Filipino
stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to
designate under the Agreement, and may even be
able to get a majority of the board seats, a result which
is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give
due consideration to the issue raised by the appellees
on possible violation or circumvention of the Anti-
Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and
the laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate
their theory that the ASI Group has the right to vote
their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean
a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as
members of the board of directors or governing body
of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to
their allowable participation or share in the capital of
such entities. (amendments introduced by Presidential
Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context
of Section 24 of the Corporation Code. The point of
query, however, is whether or not that provision is
applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint 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 their elements are similar
community of interest in the business, sharing of
profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 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. (Tufts v. Mann 116 Cal.
App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395
111. 595, 71 NE 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 law of partnerships. 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)
Moreover, the usual rules as regards the construction
and operations of contracts generally apply to a
contract of joint venture. (O' Hara v. Harman 14 App.
Dev. (167) 43 NYS 556)
Bearing these principles in mind, the correct view
would be that the resolution of the question of whether
or not the ASI Group may vote their additional equity
lies in the agreement of the parties.
Necessarily, the appellate court was correct in
upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of
stockholders to cumulative voting in the process of
determining who the group's nominees would be under
Section 3 (a) (1) of the "Agreement." As pointed out by
SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of
directors while Section 3 (a) (1) relates to the manner
of voting for these nominees.
This is the proper interpretation of the Agreement of
the parties as regards the election of members of the
board of directors.
To allow the ASI Group to vote their additional equity
to help elect even a Filipino director who would be
beholden to them would obliterate their minority status
as agreed upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be allowed to interfere in
the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three
directors it is allowed to designate under the
Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to
the contractual intent of the parties.
Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give
due consideration to the issue raised by the appellees
on possible violation or circumvention of the Anti-
Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and
the laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the
contractual intent of the parties is the consideration as
regards the possible domination by the foreign
investors of the enterprise in violation of the
nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act.
In this regard, petitioner Salazar's position is that the
Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of
the entity. It is to be noted, however, that the same law
also limits the election of aliens as members of the
board of directors in proportion to their allowance
participation of said entity. In the instant case, the
foreign Group ASI was limited to designate three
directors. This is the allowable participation of the ASI
Group. Hence, in future dealings, this limitation of six
to three board seats should always be maintained as
long as the joint venture agreement exists considering
that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and
embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC
Hearing Officer and SEC which were impliedly affirmed
by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto
V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group
(petitioners in G.R. No. 75951) object to a cumulative
voting during the election of the board of directors of
the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus
pursuant to section 5 (a) of the Agreement which uses
the word "designate" meaning "nominate, delegate or
appoint."
They also stress the possibility that the ASI Group
might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees
separately and not as a common slot determined by
the majority of their group.
Section 5 (a) of the Agreement which uses the word
designates in the allocation of board directors should
not be interpreted in isolation. This should be
construed in relation to section 3 (a) (1) of the
Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees
which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to
this procedure, hence, they cannot now impugn its
legality.
The insinuation that the ASI Group may be able to
control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of
the cumulative voting procedure is dependent on the
directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase
the ASI share in the management of Saniwares. The
joint venture character of the enterprise must always
be taken into account, so long as the company exists
under its original agreement. Cumulative voting may
not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish
openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority
status of the Filipino investors as well as to maintain
the minority status of the foreign investors group as
earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76
and G.R. No. 75875 are DISMISSED and the petition
in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that
Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs
against the petitioners in G.R. Nos. 75975-76 and G.R.
No. 75875.
3. Lyons vs Rosentock, 56 Phil 632 1932
E. S. LYONS, plaintiff-appellant, vs.C. W.
ROSENSTOCK, Executor of the Estate of Henry W.
Elser, deceased, defendant-
This action was institute in the Court of First Instance
of the City of Manila, by E. S. Lyons against C. W.
Rosenstock, as executor of the estate of H. W. Elser,
deceased, consequent upon the taking of an appeal by
the executor from the allowance of the claim sued
upon by the committee on claims in said estate. The
purpose of the action is to recover four hundred forty-
six and two thirds shares of the stock of J. K. Pickering
& Co., Ltd., together with the sum of about P125,000,
representing the dividends which accrued on said
stock prior to October 21, 1926, with lawful interest.
Upon hearing the cause the trial court absolved the
defendant executor from the complaint, and the
plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser
had been a resident of the City of Manila where he
was engaged during the years with which we are here
concerned in buying, selling, and administering real
estate. In several ventures which he had made in
buying and selling property of this kind the plaintiff, E.
S. Lyons, had joined with him, the profits being shared
by the two in equal parts. In April, 1919, Lyons, whose
regular vocation was that of a missionary, or
missionary agent, of the Methodist Episcopal Church,
went on leave to the United States and was gone for
nearly a year and a half, returning on September 21,
1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half
owner with Elser of three particular pieces of real
property. Concurrently with this act Lyons execute in
favor of Elser a general power of attorney empowering
him to manage and dispose of said properties at will
and to represent Lyons fully and amply, to the mutual
advantage of both. During the absence of Lyons two of
the pieces of property above referred to were sold by
Elser, leaving in his hands a single piece of property
located at 616-618 Carried Street, in the City of
Manila, containing about 282 square meters of land,
with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn
to a piece of land, containing about 1,500,000 square
meters, near the City of Manila, and he discerned
therein a fine opportunity for the promotion and
development of a suburban improvement. This
property, which will be herein referred to as the San
Juan Estate, was offered by its owners for P570,000.
To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and
when this option was about to expire without his
having been able to raise the necessary funds, he paid
P15,000 more for an extension of the option, with the
understanding in both cases that, in case the option
should be exercised, the amounts thus paid should be
credited as part of the first payment. The amounts paid
for this option and its extension were supplied by Elser
entirely from his own funds. In the end he was able
from his own means, and with the assistance which he
obtained from others, to acquire said estate. The
amount required for the first payment was P150,000,
and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it
was necessary to raise the remainder by obtaining a
loan for P50,000. This amount was finally obtained
from a Chinese merchant of the city named Uy
Siuliong. This loan was secured through Uy Cho Yee,
a son of the lender; and in order to get the money it
was necessary for Elser not only to give a personal
note signed by himself and his two associates in the
projected enterprise, but also by the Fidelity & Surety
Company. The money thus raised was delivered to
Elser by Uy Siuliong on June 24, 1920. With this
money and what he already had in bank Elser
purchased the San Juan Estate on or about June 28,
1920. For the purpose of the further development of
the property a limited partnership had, about this time,
been organized by Elser and three associates, under
the name of J. K. Pickering & Company; and when the
transfer of the property was effected the deed was
made directly to this company. As Elser was the
principal capitalist in the enterprise he received by far
the greater number of the shares issued, his portion
amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced
to come in with him and supply part of the means
necessary to carry the enterprise through. In this
connection it appears that on May 20, 1920, Elser
wrote Lyons a letter, informing him that he had made
an offer for a big subdivision and that, if it should be
acquired and Lyons would come in, the two would be
well fixed. (Exhibit M-5.) On June 3, 1920, eight days
before the first option expired, Elser cabled Lyons that
he had bought the San Juan Estate and thought it
advisable for Lyons to resign (Exhibit M-13), meaning
that he should resign his position with the mission
board in New York. On the same date he wrote Lyons
a letter explaining some details of the purchase, and
added "have advised in my cable that you resign and I
hope you can do so immediately and will come and
join me on the lines we have so often spoken about. . .
. There is plenty of business for us all now and I
believe we have started something that will keep us
going for some time." In one or more communications
prior to this, Elser had sought to impress Lyons with
the idea that he should raise all the money he could for
the purpose of giving the necessary assistance in
future deals in real estate.
The enthusiasm of Elser did not communicate itself in
any marked degree to Lyons, and found him averse
from joining in the purchase of the San Juan Estate. In
fact upon this visit of Lyons to the United States a
grave doubt had arisen as to whether he would ever
return to Manila, and it was only in the summer of
1920 that the board of missions of his church prevailed
upon him to return to Manila and resume his position
as managing treasurer and one of its trustees.
Accordingly, on June 21, 1920, Lyons wrote a letter
from New York thanking Elser for his offer to take
Lyons into his new project and adding that from the
standpoint of making money, he had passed up a
good thing.
One source of embarrassment which had operated on
Lyson to bring him to the resolution to stay out of this
venture, was that the board of mission was averse to
his engaging in business activities other than those in
which the church was concerned; and some of Lyons'
missionary associates had apparently been criticizing
his independent commercial activities. This fact was
dwelt upon in the letter above-mentioned. Upon receipt
of this letter Elser was of course informed that it would
be out of the question to expect assistance from Lyons
in carrying out the San Juan project. No further efforts
to this end were therefore made by Elser.
When Elser was concluding the transaction for the
purchase of the San Juan Estate, his book showed
that he was indebted to Lyons to the extent of,
possibly, P11,669.72, which had accrued to Lyons
from profits and earnings derived from other
properties; and when the J. K. Pickering & Company
was organized and stock issued, Elser indorsed to
Lyons 200 of the shares allocated to himself, as he
then believed that Lyons would be one of his
associates in the deal. It will be noted that the par
value of these 200 shares was more than P8,000 in
excess of the amount which Elser in fact owed to
Lyons; and when the latter returned to the Philippine
Islands, he accepted these shares and sold them for
his own benefit. It seems to be supposed in the
appellant's brief that the transfer of these shares to
Lyons by Elser supplies some sort of basis for the
present action, or at least strengthens the
considerations involved in a feature of the case to be
presently explained. This view is manifestly untenable,
since the ratification of the transaction by Lyons and
the appropriation by him of the shares which were
issued to him leaves no ground whatever for treating
the transaction as a source of further equitable rights
in Lyons. We should perhaps add that after Lyons'
return to the Philippine Islands he acted for a time as
one of the members of the board of directors of the J.
K. Pickering & Company, his qualification for this office
being derived precisely from the ownership of these
shares.
We now turn to the incident which supplies the main
basis of this action. It will be remembered that, when
Elser obtained the loan of P50,000 to complete the
amount needed for the first payment on the San Juan
Estate, the lender, Uy Siuliong, insisted that he should
procure the signature of the Fidelity & Surety Co. on
the note to be given for said loan. But before signing
the note with Elser and his associates, the Fidelity &
Surety Co. insisted upon having security for the liability
thus assumed by it. To meet this requirements Elser
mortgaged to the Fidelity & Surety Co. the equity of
redemption in the property owned by himself and
Lyons on Carriedo Street. This mortgage was
executed on June 30, 1920, at which time Elser
expected that Lyons would come in on the purchase of
the San Juan Estate. But when he learned from the
letter from Lyons of July 21, 1920, that the latter had
determined not to come into this deal, Elser began to
cast around for means to relieve the Carriedo property
of the encumbrance which he had placed upon it. For
this purpose, on September 9, 1920, he addressed a
letter to the Fidelity & Surety Co., asking it to permit
him to substitute a property owned by himself at 644
M. H. del Pilar Street, Manila, and 1,000 shares of the
J. K. Pickering & Company, in lieu of the Carriedo
property, as security. The Fidelity & Surety Co. agreed
to the proposition; and on September 15, 1920, Elser
executed in favor of the Fidelity & Surety Co. a new
mortgage on the M. H. del Pillar property and delivered
the same, with 1,000 shares of J. K. Pickering &
Company, to said company. The latter thereupon in
turn executed a cancellation of the mortgage on the
Carriedo property and delivered it to Elser. But
notwithstanding the fact that these documents were
executed and delivered, the new mortgage and the
release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the
cancellation of the mortgage on the Carriedo property
and took back from the Fidelity & Surety Co. the new
mortgage on the M. H. del Pilar property, together with
the 1,000 shares of the J. K. Pickering & Company
which he had delivered to it.
The explanation of this change of purpose is
undoubtedly to be found in the fact that Lyons had
arrived in Manila on September 21, 1920, and shortly
thereafter, in the course of a conversation with Elser
told him to let the Carriedo mortgage remain on the
property ("Let the Carriedo mortgage ride"). Mrs. Elser
testified to the conversation in which Lyons used the
words above quoted, and as that conversation
supplies the most reasonable explanation of Elser's
recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well
justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo
property. This concession was not only reasonable
under the circumstances, in view of the abundant
solvency of Elser, but in view of the further fact that
Elser had given to Lyons 200 shares of the stock of
the J. K. Pickering & Co., having a value of nearly
P8,000 in excess of the indebtedness which Elser had
owed to Lyons upon statement of account. The trial
court found in effect that the excess value of these
shares over Elser's actual indebtedness was conceded
by Elser to Lyons in consideration of the assistance
that had been derived from the mortgage placed upon
Lyon's interest in the Carriedo property. Whether the
agreement was reached exactly upon this precise line
of thought is of little moment, but the relations of the
parties had been such that it was to be expected that
Elser would be generous; and he could scarcely have
failed to take account of the use he had made of the
joint property of the two.
As the development of the San Juan Estate was a
success from the start, Elser paid the note of P50,000
to Uy Siuliong on January 18, 1921, although it was
not due until more than five months later. It will thus be
seen that the mortgaging of the Carriedo property
never resulted in damage to Lyons to the extent of a
single cent; and although the court refused to allow the
defendant to prove the Elser was solvent at this time in
an amount much greater than the entire encumbrance
placed upon the property, it is evident that the risk
imposed upon Lyons was negligible. It is also plain
that no money actually deriving from this mortgage
was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely
subjected the property to a contingent liability, and no
actual liability ever resulted therefrom. The financing of
the purchase of the San Juan Estate, apart from the
modest financial participation of his three associates in
the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser
placed a mortgage for P50,000 upon the equity of
redemption in the Carriedo property, Lyons, as half
owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the
property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is
entitled to the four hundred forty-six and two-thirds
shares of J. K. Pickering & Company, with the
earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's
death that the money obtained from Uy Siuliong in the
manner already explained had been used to held
finance the purchase of the San Juan Estate. He
seems to have supposed that the Carried property had
been mortgaged to aid in putting through another deal,
namely, the purchase of a property referred to in the
correspondence as the "Ronquillo property"; and in
this connection a letter of Elser of the latter part of
May, 1920, can be quoted in which he uses this
language:
As stated in cablegram I have arranged for P50,000
loan on Carriedo property. Will use part of the money
for Ronquillo buy (P60,000) if the owner comes
through.
Other correspondence shows that Elser had
apparently been trying to buy the Ronquillo property,
and Lyons leads us to infer that he thought that the
money obtained by mortgaging the Carriedo property
had been used in the purchase of this property. It
doubtedless appeared so to him in the retrospect, but
certain consideration show that he was inattentive to
the contents of the quotation from the letter above
given. He had already been informed that, although
Elser was angling for the Ronquillo property, its price
had gone up, thus introducing a doubt as to whether
he could get it; and the quotation above given shows
that the intended use of the money obtained by
mortgaging the Carriedo property was that only part of
the P50,000 thus obtained would be used in this way,
if the deal went through. Naturally, upon the arrival of
Lyons in September, 1920, one of his first inquiries
would have been, if he did not know before, what was
the status of the proposed trade for the Ronquillo
property.
Elser's widow and one of his clerks testified that about
June 15, 1920, Elser cabled Lyons something to this
effect;: "I have mortgaged the property on Carriedo
Street, secured by my personal note. You are amply
protected. I wish you to join me in the San Juan
Subdivision. Borrow all money you can." Lyons says
that no such cablegram was received by him, and we
consider this point of fact of little moment, since the
proof shows that Lyons knew that the Carriedo
mortgage had been executed, and after his arrival in
Manila he consented for the mortgage to remain on
the property until it was paid off, as shortly occurred. It
may well be that Lyons did not at first clearly
understand all the ramifications of the situation, but he
knew enough, we think, to apprise him of the material
factors in the situation, and we concur in the
conclusion of the trial court that Elser did not act in bad
faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of
the appellant is, in our opinion, untenable. If Elser had
used any money actually belonging to Lyons in this
deal, he would under article 1724 of the Civil Code and
article 264 of the Code of Commerce, be obligated to
pay interest upon the money so applied to his own
use. Under the law prevailing in this jurisdiction a trust
does not ordinarily attach with respect to property
acquired by a person who uses money belonging to
another (Martinez vs. Martinez, 1 Phil., 647;
Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an
actual relation of partnership had existed in the money
used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the
relation of partnership which, it is claimed, existed. But
there was clearly no general relation of partnership,
under article 1678 of the Civil Code. It is clear that
Elser, in buying the San Juan Estate, was not acting
for any partnership composed of himself and Lyons,
and the law cannot be distorted into a proposition
which would make Lyons a participant in this deal
contrary to his express determination.
It seems to be supposed that the doctrines of equity
worked out in the jurisprudence of England and the
United States with reference to trust supply a basis for
this action. The doctrines referred to operate, however,
only where money belonging to one person is used by
another for the acquisition of property which should
belong to both; and it takes but little discernment to
see that the situation here involved is not one for the
application of that doctrine, for no money belonging to
Lyons or any partnership composed of Elser and
Lyons was in fact used by Elser in the purchase of the
San Juan Estate. Of course, if any damage had been
caused to Lyons by the placing of the mortgage upon
the equity of redemption in the Carriedo property,
Elser's estate would be liable for such damage. But it
is evident that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error
in admitting the testimony of Lyons upon matters that
passed between him and Elser while the latter was still
alive. While the admission of this testimony was of
questionable propriety, any error made by the trial
court on this point was error without injury, and the
determination of the question is not necessary to this
decision. We therefore pass the point without further
discussion.
The judgment appealed from will be affirmed, and it is
so ordered, with costs against the appellant.
Art 1784 to 1804
Lozana bs Depakabibo 107 Phil 728
MAURO LOZANA, plaintiff-appellee,
vs.SERAFIN DEPAKAKIBO, defendant-
This is an appeal from a judgment of the Court of First
Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are
involved in said appeal.
The record discloses that on November 16, 1954
plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo, under
a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by the
Public Service Commission on May 15, 1955. But the
decision of the Public Service Commission was
appealed to Us on October 21, 1955. A temporary
certificate of public convenience was issued in the
name of Olimpia D. Decolongon on December 22,
1955 (Exh. "B"). Evidently because of the cancellation
of the franchise in the name of Mrs. Piadosa
Buenaflor, plaintiff herein Mauro Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity,
Serial No. 479, to the new grantee Olimpia D.
Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the
other hand, sold one Crossly Diesel Engine, 25 h. p.,
Serial No. 141758, to the spouses Felix Jimenea and
Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana
brought an action against the defendant, alleging that
he is the owner of the Generator Buda (Diesel), valued
at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses
supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained
them as a consequence of which plaintiff suffered
damages. Plaintiff prayed that said properties be
delivered back to him. Three days after the filing of the
complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case
authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing
of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff). On
December 5, 1955, defendant filed an answer, denying
that the generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the
same had been contributed by the plaintiff to the
partnership entered into between them in the same
manner that defendant had contributed equipments
also, and therefore that he is not unlawfully detaining
them. By way of counterclaim, defendant alleged that
under the partnership agreement the parties were to
contribute equipments, plaintiff contributing the
generator and the defendant, the wires for the purpose
of installing the main and delivery lines; that the
plaintiff sold his contribution to the partnership, in
violation of the terms of their agreement. He, therefore,
prayed that the complaint against him be dismissed;
that plaintiff be adjudged guilty of violating the
partnership contract and be ordered to pay the
defendant the sum of P3,000, as actual damages,
P600.00 as attorney's fees and P2,600 annually as
actual damages; that the court order dissolution of the
partnership, after the accounting and liquidation of the
same.
On September 27, 1956, the defendant filed a motion
to declare plaintiff in default on his counterclaim, but
this was denied by the court. Hearings on the case
were conducted on October 25, 1956 and November
5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment and
entitled to the possession thereof, with costs against
defendant. It is against this judgment that the
defendant has appealed.
The above judgment of the court was rendered on a
stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the
aforementioned plaintiff, and the defendant entered
into a contract of Partnership, a copy of which is
attached as Annex "A" of defendant's answer and
counterclaim, for the purpose set forth therein and
under the national franchise granted to Mrs. Piaosa
Buenaflor;
2. That according to the aforementioned Partnership
Contract, the plaintiff Mr. Mauro Lozana, contributed
the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties being
the appraised values of their respective properties
brought into the partnership;
3. That the said Certificate of Public Convenience and
Necessity was revoked and cancelled by order of the
Public Service Commission dated March 15, 1955,
promulgated in case No. 58188, entitled, "Piadosa
Buenaflor, applicant", which order has been appealed
to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold
properties brought into by him to the said partnership
in favor of Olimpia Decolongon in the amount of
P10,000.00 as per Deed of Sale dated October 30,
1955 executed and ratified before Notary Public, Delfin
Demaisip, in and for the Municipality of Dumangas,
Iloilo and entered in his Notarial Registry as Doc. No.
832; Page No. 6; Book No. XIII; and Series of 1955, a
copy thereof is made as Annex "B" of defendant's
answer and counterclaim;
5. That there was no liquidation of partnership and that
at the time of said Sale on October 30, 1955,
defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court
dated November 18, 1955, those properties sold were
taken by the Provincial Sheriff on November 20, 1955
and delivered to the plaintiff on November 25, 1955
upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November
17, 1955 and ratified before the Notary Public,
Eleuterio del Rosario in and for the province of Iloilo
known as Doc. No. 200; Page 90; Book No. VII; and
Series of 1955; of said Notary Public;
7. That the said properties sold are now in the
possession of Olimpia Decolongon, the purchaser,
who is presently operating an electric light plant in
Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of
the spouses, Felix Jimenea and Felisa Harder
contributed by him to the partnership for P3,500.00 as
per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the
Province of Iloilo, known as Doc. No. 76; Page 94;
Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and
made an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that
the plaintiff and the defendant entered into the contract
of partnership, plaintiff contributing the amount of
P18,000, and as it is not stated therein that there bas
been a liquidation of the partnership assets at the time
plaintiff sold the Buda Diesel Engine on October 15,
1955, and since the court below had found that the
plaintiff had actually contributed one engine and 70
posts to the partnership, it necessarily follows that the
Buda diesel engine contributed by the plaintiff had
become the property of the partnership. As properties
of the partnership, the same could not be disposed of
by the party contributing the same without the consent
or approval of the partnership or of the other partner.
(Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of
partnership was null and void, because by the contract
of partnership, the parties thereto have become
dummies of the owner of the franchise. The reason for
this holding was the admission by defendant when
being cross-examined by the court that he and the
plaintiff are dummies. We find that this admission by
the defendant is an error of law, not a statement of a
fact. The Anti-Dummy law has not been violated as
parties plaintiff and defendant are not aliens but
Filipinos. The Anti-Dummy law refers to aliens only
(Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially
the provision thereon wherein the parties agreed to
maintain, operate and distribute electric light and
power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal,
or contrary to law and public policy such as to make
the contract of partnership, null and void ab initio. The
agreement could have been submitted to the Public
Service Commission if the rules of the latter require
them to be so presented. But the fact of furnishing the
current to the holder of the franchise alone, without the
previous approval of the Public Service Commission,
does not per se make the contract of partnership null
and void from the beginning and render the
partnership entered into by the parties for the purpose
also void and non-existent. Under the circumstances,
therefore, the court erred in declaring that the contract
was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not
pass to it as its property. It also follows that the claim
of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is
the proper remedy, not for each contributing partner to
claim back what he had contributed.
For the foregoing considerations, the judgment
appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must
be, as they hereby are set aside and the case
remanded to the court below for further proceedings in
accordance with law.
2. Gregorio Ortega vs CA GR 109248 Jul 3
GREGORIO F. ORTEGA, TOMAS O. DEL
CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.HON. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.
The instant petition seeks a review of the decision
rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by
respondent Commission and quoted at length by the
appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several
subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . .
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO
& MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December
1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners
with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as
junior partners.
On February 17, 1988, petitioner-appellant wrote the
respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito,
Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make
the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote
respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have
a meeting with all of you with regard to the mechanics
of liquidation, and more particularly, my interest in the
two floors of this building. I would like to have this
resolved soon because it has to do with my own
plans."
On 19 February 1988, petitioner-appellant wrote
respondents-appellees another letter stating:
"The partnership has ceased to be mutually
satisfactory because of the working conditions of our
employees including the assistant attorneys. All my
efforts to ameliorate the below subsistence level of the
pay scale of our employees have been thwarted by the
other partners. Not only have they refused to give
meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in
a manner that deprived them of their self-respect. The
result of such policies is the formation of the union,
including the assistant attorneys."
On 30 June 1988, petitioner filed with this
Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the
immediate liquidation of (the partnership of) Bito, Misa
& Lozada;
"2. Order the respondents to deliver or pay for
petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of
Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages
for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and
which the Commission may deem just and equitable
under the premises but in no case less than ten (10%)
per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral
damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their
opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the
Opposition.
On 31 March 1989, the hearing officer rendered a
decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest."1
On appeal, the SEC en banc reversed the decision of
the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm
could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith
or bad faith, since no partner can be forced to continue
in the partnership against his will. In its decision, dated
17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed
order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination
of the respective rights and obligations of the parties.2
The parties sought a reconsideration of the above
decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of
the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent
SEC issued an order denying reconsideration, as well
as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate
appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of
Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991
and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in
the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No.
24648). He expressed concern over the need to
preserve and care for the partnership assets. The
other partners opposed the prayer.
The Court of Appeals, finding no reversible error on
the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from
the partnership had changed the relation of the parties
and inevitably caused the dissolution of the
partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the
partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d)
that the case should be remanded to the SEC Hearing
Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was
unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such
danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of
Court, petitioners confine themselves to the following
issues:
1. Whether or not the Court of Appeals has erred in
holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership
at will;
2. Whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or
bad faith; and
3. Whether or not the Court of Appeals has erred in
holding that private respondent's demand for the
dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad
faith; to which matters we shall, accordingly, likewise
limit ourselves.
A partnership that does not fix its term is a partnership
at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored. We
quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19
August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long
as mutually satisfactory and upon the death or legal
incapacity of one of the partners,
shall be continued by the surviving partners."
The hearing officer however opined that the
partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of
any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and
to appear for and represent their principals and client
in all courts of justice and government departments
and offices in the Philippines, and elsewhere when
legally authorized to do so."
The "purpose" of the partnership is not the specific
undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite
undertaking. There would therefore be no need to
provide for articles on partnership at will as none
would so exist. Apparently what the law contemplates,
is a specific undertaking or "project" which has a
definite or definable period of completion.3
The birth and life of a partnership at will is predicated
on the mutual desire and consent of the partners. The
right to choose with whom a person wishes to
associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will.
He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of
the partnership4 but that it can result in a liability for
damages.5
In passing, neither would the presence of a period for
its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among
partners,7 mutual agency arises and the doctrine
of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be
distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership
continues and its legal personality is retained until the
complete winding up of its business culminating in its
termination.9
The liquidation of the assets of the partnership
following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement
of the partners, like any other contract, is binding
among them and normally takes precedence to the
extent applicable over the Code's general provisions.
We here take note of paragraph 8 of the "Amendment
to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any
partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing
agreements and his partnership participation shall
revert to the Senior Partners for allocation as the
Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office
condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death
or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or the
heirs of a deceased partner, as the case may be. In
the event of any disagreement between the said
appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring
or deceased partner in the aforementioned two (2)
floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of
the new Junior Partner. 11
The term "retirement" must have been used in the
articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves
it.
On the third and final issue, we accord due respect to
the appellate court and respondent Commission on
their common factual finding, i.e., that Attorney Misa
did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity;
certainly, not against their will. 12 Indeed, for as long as
the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose
of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize
the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
3. Uy vs Puzon 79 SCRA 598 1977
WILLIAM UY, plaintiff-appellee,
vs.BARTOLOME PUZON, substituted by FRANCO
PUZON, defendant-appellant.
Appeal from the decision of the Court of First Instanre
of Manila, dissolving the "U.P. Construction Company"
and ordering the defendant Bartolome Puzon to pay
the plaintiff the amounts of: (1) P115,102.13, with legal
interest thereon from the date of the filing of the
complaint until fully paid; (2) P200,000.00, as plaintiffs
share in the unrealized profits of the "U.P.
Construction Company" and (3) P5,000.00, as and for
attorney's fees.
It is of record that the defendant Bartolome Puzon had
a contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the
Pagadian Zamboanga City Road, province of
Zamboanga del Sur 1 and of five (5) bridges in the
Malangas-Ganyangan Road. 2 Finding difficulty in
accomplishing both projects, Bartolome Puzon sought
the financial assistance of the plaintiff, William Uy. As
an inducement, Puzon proposed the creation of a
partnership between them which would be the sub-
contractor of the projects and the profits to be divided
equally between them. William Uy inspected the
projects in question and, expecting to derive
considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P.
Construction Company" 3 which was subsequently
engaged as subcontractor of the construction
projects. 4
The partners agreed that the capital of the partnership
would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. 5 But, as
heretofore stated, Puzon was short of cash and he
promised to contribute his share in the partnership
capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00
shall have been approved. However, before his loan
application could be acted upon, he had to clear his
collaterals of its incumbrances first. For this purpose,
on October 24, 1956, Wilham Uy gave Bartolome
Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be
organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount
mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect
the release of his mortgages with the said Bank. 6 On
October 29, 1956, William Uy again gave Puzon the
amount of P30,000.00 as his partial contribution to the
proposed partnership and which the said Puzon was to
use in payment of his obligation to the Rehabilitation
Finance Corporation. 7 Puzon promised William Uy
that the amount of P150,000.00 would be given to the
partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy
which the said Uy had advanced to clear the title of
Puzon's property; P50,000.00, as Puzon's contribution
to the partnership; and the balance of P60,000.00 as
Puzon's personal loan to the partnership. 8
Although the partnership agreement was signed by the
parties on January 18, 1957,9 work on the projects was
started by the partnership on October 1, 1956 in view
of the insistence of the Bureau of Public Highways to
complete the project right away. 10 Since Puzon was
busy with his other projects, William Uy was entrusted
with the management of the projects and whatever
expense the latter might incur, would be considered as
part of his contribution. 11 At the end of December,
1957, William Uy had contributed to the partnership
the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine
National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount,
P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear
the title to Puzon's property, and the P20,000.00 as
Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned
loan, Bartolome Puzon, without the knowledge and
consent of William Uy, 14 assigned to the Philippine
National Bank all the payments to be received on
account of the contracts with the Bureau of Public
Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial
accomplishments on the government projects in
question to the Philippine National Bank which, in turn,
applied portions of it in payment of Puzon's loan. Of
the amount of P1,047,181.07, released by the Bureau
of Public Highways in payment of the partial work
completed by the partnership on the projects, the
amount of P332,539.60 was applied in payment of
Puzon's loan and only the amount of P27,820.80 was
deposited in the partnership funds, 16 which, for all
practical purposes, was also under Puzon's account
since Puzon was the custodian of the common funds.
As time passed and the financial demands of the
projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the
necessary funds with which to pursue the construction
projects. William Uy correspondingly called on
Bartolome Puzon to comply with his obligations under
the terms of their partnership agreement and to place,
at lest, his capital contribution at the disposal of the
partnership. Despite several promises, Puzon,
however, failed to do so. 17 Realizing that his verbal
demands were to no avail, William Uy consequently
wrote Bartolome Puzon pormal letters of demand, 18 to
which Puzon replied that he is unable to put in
additional capital to continue with the projects. 19
Failing to reach an agreement with William Uy,
Bartolome Puzon, as prime contractor of the
construction projects, wrote the subcontractor, U.P.
Construction Company, on November 20, 1957,
advising the partnership, of which he is also a partner,
that unless they presented an immediate solution and
capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated
and, thereafter, to assume all responsibilities in the
construction of the projects in accordance with his
original contract with the Bureau of Public
Highways. 20 On November 27, 1957, Bartolome
Puzon again wrote the U.P.Construction Company
finally terminating their subcontract agreement as of
December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in
the U.P. Construction Company and his authority to
deal with the Bureau of Public Highways in behalf of
the partnership was revoked by Bartolome Puzon who
continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome
Puzon had violated the terms of their partnership
agreement, instituted an action in court, seeking, inter
alia, the dissolution of the partnership and payment of
damages.
Answering, Bartolome Puzon denied that he violated
the terms of their agreement claiming that it was the
plaintiff, William Uy, who violated the terms thereof.
He, likewise, prayed for the dissolution of the
partnership and for the payment by the plaintiff of his,
share in the losses suffered by the partnership.
After appropriate proceedings, the trial court found that
the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in
the capital of the partnership applied partnership funds
to his personal use; ousted the plaintiff from the
management of the firm, and caused the failure of the
partnership to realize the expected profits of at least
P400,000.00. As a consequence, the trial court
dismissed the defendant's counterclaim and ordered
the dissolution of the partnership. The trial court further
ordered the defendant to pay the plaintiff the sum of
P320,103.13.
Hence, the instant appeal by the defendant Bartolome
Puzon during the pendency of the appeal before this
Court, the said Bartolome Puzon died, and was
substituted by Franco Puzon.
The appellant makes in his brief nineteen (19)
assignment of errors, involving questions of fact, which
relates to the following points:
(1) That the appellant is not guilty of breach of
contract; and
(2) That the amounts of money the appellant has been
order to pay the appellee is not supported by the
evidence and the law.
After going over the record, we find no reason for
rejecting the findings of fact below, justifying the
reversal of the decision appealed from.
The findings of the trial court that the appellant failed
to contribute his share in the capital of the partnership
is clear incontrovertible. The record shows that after
the appellant's loan the amount of P150,000.00 was
approved by the Philippin National Bank in November,
1956, he gave the amount P60,000.00 to the appellee
who was then managing the construction projects. Of
this amount, P40,000.00 was to be applied a
reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the
appellant's property, and th balance of P20,000.00, as
Puzon's contribution to the partnership. 23 Thereafter,
the appellant failed to make any further contributions
the partnership funds as shown in his letters to the
appellee wherein he confessed his inability to put in
additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the
appellee is equally guilty of not contributing his share
in the partnership capital inasmuch as the amount of
P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal
loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the
receipts signed by the appellant are clear and
unequivocal that the sums of money given by the
appellee are appellee's partial contributions to the
partnership capital. Thus, in the receipt for P10,000.00
dated October 24, 1956, 25 the appellant stated
Received from Mr. William Uy the sum of TEN
THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated October
24, 1956, as advance contribution of the share of said
William Uy in the partnership to be organized between
us under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be
used by the undersigned to pay his obligations with the
Philippine National Bank to effect the release of his
mortgages with the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated
October 29, 1956, 26 the appellant also said:
Received from William Uy the sum of THIRTY
THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking Corporation, as
partial contribution of the share of the said William Uy
to the U.P. CONSTRUCTION COMPANY for which the
undersigned will use the said amount in payment of his
obligation to the Rehabilitation Finance Corporation.
(Emphasis supplied)
The findings of the trial court that the appellant
misapplied partnership funds is, likewise, sustained by
competent evidence. It is of record that the appellant
assigned to the Philippine National Bank all the
payments to be received on account of the contracts
with the Bureau of Public Highways for the
construction of the aforementioned projects to
guarantee the repayment of the bank. 27 By virtue of
the said appeflant's personal loan with the said bank
assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the
construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in
payment of the appellant's loan. 28
The appellant claims, however, that the said
assignment was made with the consent of the appellee
and that the assignment not prejudice the partnership
as it was reimbursed by the appellant.
But, the appellee categorically stated that the
assignment to the Philippine National Bank was made
without his prior knowledge and consent and that
when he learned of said assignment, he cal the
attention of the appellant who assured him that the
assignment was only temporary as he would transfer
the loan to the Rehabilitation Finance Corporation
within three (3) months time. 29
The question of whom to believe being a matter large
dependent on the trier's discretion, the findings of the
trial court who had the better opportunity to examine
and appraise the fact issue, certainly deserve respect.
That the assignment to the Philippine National Bank
prejudicial to the partnership cannot be denied. The
record show that during the period from March, 1957
to September, 1959, the appellant Bartolome Puzon
received from the Bureau of Public highways, in
payment of the work accomplished on the construction
projects, the amount of P1,047,181.01, which amount
rightfully and legally belongs to the partnership by
virtue of the subcontract agreements between the
appellant and the U.P. Construction Company. In view
of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the
amount of P332,539,60 in payment of the appellant's
personal loan with the said bank. The balance was
deposited in Puzon's current account and only the
amount of P27,820.80 was deposited in the current
account of the partnership. 30 For sure, if the appellant
gave to the partnership all that were eamed and due it
under the subcontract agreements, the money would
have been used as a safe reserve for the discharge of
all obligations of the firm and the partnership would
have been able to successfully and profitably
prosecute the projects it subcontracted.
When did the appellant make the reimbursement
claimed by him?
For the same period, the appellant actually disbursed
for the partnership, in connection with the construction
projects, the amount of P952,839.77. 31 Since the
appellant received from the Bureau of Public Highways
the sum of P1,047,181.01, the appellant has a deficit
balance of P94,342.24. The appellant, therefore, did
not make complete restitution.
The findings of the trial court that the appellee has
been ousted from the management of the partnership
is also based upon persuasive evidence. The appellee
testified that after he had demanded from the appellant
payment of the latter's contribution to the partnership
capital, the said appellant did not allow him to hold
office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways
was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that
the decis of the trial court is not sustained by the
evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral
court properly ordered him to reimburse the plaintiff-
appellee whatever amount latter had invested in or
spent for the partnership on account of construction
projects.
How much did the appellee spend in the construction
projects question?
It appears that although the partnership agreement
stated the capital of the partnership is P100,000.00 of
which each part shall contribute to the partnership the
amount of P50,000.00 cash 33 the partners of the U.P.
Construction Company did contribute their agreed
share in the capitalization of the enterprise in lump
sums of P50,000.00 each. Aside from the initial
amount P40,000.00 put up by the appellee in October,
1956, 34 the partners' investments took, the form of
cash advances coveting expenses of the construction
projects as they were incurred. Since the
determination of the amount of the disbursements
which each of them had made for the construction
projects require an examination of the books of
account, the trial court appointed two commissioners,
designated by the parties, "to examine the books of
account of the defendant regarding the U.P.
Construction Company and his personal account with
particular reference to the Public Works contract for
the construction of the Ganyangan-Bato Section,
Pagadian-Zamboanga City Road and five (5) Bridges
in Malangas-Ganyangan Road, including the
payments received by defendant from the Bureau of
Public Highways by virtue of the two projects above
mentioned, the disbursements or disposition made by
defendant of the portion thereof released to him by the
Philippine National Bank and in whose account these
funds are deposited . 35
In due time, the loners so appointed, 36 submitted their
report 37 they indicated the items wherein they are in
agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances
are listed under Credits; the money received from the
firm, under Debits; and the resulting monthly
investment standings of the partners, under Balances.
The commissioners are agreed that at the end of
December, 1957, the appellee had a balance of
P8,242.39. 38 It is in their respective adjustments of the
capital account of the appellee that the commissioners
had disagreed.
Mr. Ablaza, designated by the appellant, would want to
charge the appellee with the sum of P24,239.48,
representing the checks isssued by the
appellant, 39 and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the
partnership the amount of P15,997.09
Mr. Tayag, designated by the appellee, upon the other
hand, would credit the appellee the following additional
amounts:
(1) P7,497.80 items omitted from the books of
partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the
amount P128,103.77 less payroll remittances from the
appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee
at construction site.
With respect to the amount of P24,239.48, claimed by completion of the projects within a definite period of
appellant, we are hereunder adopting the findings of time, in the face of adverse and often unpredictable
the trial which we find to be in accord with the circumstances, as well as the fact that the appellee,
evidence: who was in charge of the projects in the field,
To enhance defendant's theory that he should be contributed in a large measure to the failure of the
credited P24,239.48, he presented checks allegedly partnership to realize such profits by his field
given to plaintiff and the latter's brother, Uy Han, management.
marked as Exhibits 2 to 11. However, defendant This argument must be overruled in the light of the law
admitted that said cheeks were not entered nor record and evidence on the matter. Under Article 2200 of the
their books of account, as expenses for and in behalf Civil Code, indemnification for damages shall
of partnership or its affairs. On the other hand, Uy Han comprehend not only the value of the loss suffered,
testified that of the cheeks he received were exchange but also that of the profits which the obligee failed to
for cash, while other used in the purchase of spare obtain. In other words lucrum cessans is also a basis
parts requisitioned by defendant. This testimony was for indemnification.
not refuted to the satisfaction of the Court, considering Has the appellee failed to make profits because of
that Han's explanation thereof is the more plausible appellant's breach of contract?
because if they were employed in the prosecution of There is no doubt that the contracting business is a
the partners projects, the corresponding profitable one and that the U.P. Construction Company
disbursements would have certainly been recorded in derived some profits from' co io oa ects its sub ntracts
its books, which is not the case. Taking into account in the construction of the road and bridges projects its
defendant is the custodian of the books of account, his deficient working capital and the juggling of its funds
failure to so enter therein the alleged disbursements, by the appellant.
accentuates the falsity of his claim on this point. 40 Contrary to the appellant's claim, the partnership
Besides, as further noted by the trial court, the report showed some profits during the period from July 2,
Commissioner Ablaza is unreliable in view of his 1956 to December 31, 1957. If the Profit and Loss
proclivity to favor the appellant and because of the Statement 45 showed a net loss of P134,019.43, this
inaccurate accounting procedure adopted by him in was primarily due to the confusing accounting method
auditing the books of account of the partnership unlike employed by the auditor who intermixed h and accthe
Mr. Tayag's report which inspires faith and cas ruamethod of accounting and the erroneous
credence. 41 inclusion of certain items, like personal expenses of
As explained by Mr. Tayag, the amount of P7,497.80 the appellant and afteged extraordinary losses due to
represen expenses paid by the appellee out of his an accidental plane crash, in the operating expenses
personal funds which not been entered in the books of of the partnership, Corrected, the Profit and Loss
the partnership but which been recognized and Statement would indicate a net profit of P41,611.28.
conceded to by the auditor designated by the appellant For the period from January 1, 1958 to September 30,
who included the said amount under Expenses. 42 1959, the partnership admittedly made a net profit of
The explanation of Mr. Tayag on the inclusion of the P52,943.89. 46
amount of P65,103.77 is likewise clear and Besides, as We have heretofore pointed out, the
convincing. 43 appellant received from the Bureau of Public
As for the sum of of P26,027.04, the same represents Highways, in payment of the zonstruction projects in
the expenses which the appelle paid in connection question, the amount of P1,047,181.01 47 and
withe the projects and not entered in the books of the disbursed the amount of P952,839.77, 48 leaving an
partnership since all vouchers and receipts were sent unaccounted balance of P94,342.24. Obviously, this
to the Manila office which were under the control of the amount is also part of the profits of the partnership.
appellant. However, officer which were under the During the trial of this case, it was discovered that the
control of the appellant. However, a list of these appellant had money and credits receivable froin the
expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ- projects in question, in the custody of the Bureau of
4.In resume', the appelllee's credit balance would be Public Highways, in the amount of P128,669.75,
as follows: representing the 10% retention of said projects.49 After
At the trial, the appellee presented a claim for the the trial of this case, it was shown that the total
amounts of P3,917.39 and P4,665.00 which he also retentions Wucted from the appemnt amounted to
advanced for the construction projects but which were P145,358.00. 50 Surely, these retained amounts also
not included in the Commissioner's Report. 44 form part of the profits of the partnership.
Appellee's total investments in the partnership would, Had the appellant not been remiss in his obligations as
therefore, be: partner and as prime contractor of the construction
projects in question as he was bound to perform
Appellee's total credits P106,871.00
pursuant to the partnership and subcontract
agreements, and considering the fact that the total
Add: unrecorded balances for the contract amount 3,917,39of these two projects is
month of Dec. 1957 (Exhs. KKK, KK-1 to P2,327,335.76, it is reasonable to expect that the
KKK_19, KKK-22) partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The
Add: Payments to Munoz, as award, therefore, 4,665.00
made by the trial court of the amount
subcontractor of five,(5) Bridges (p. 264 tsn; of P200,000.00, as compensatory damages, is not
Exhs. KKK-20, KKK-21) speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision
Total Investments appealed from,Pl the 15,453.39
said decision is hereby affirmed
Regarding the award of P200,000.00 as his share in with costs against the appellant, it being understood
the unrealized profits of the partnership, the appellant that the liability mentioned herein shall be home by the
contends that the findings of the trial court that the estate of the deceased Bartolome Puzon, represented
amount of P400,000.00 as reasonable profits of the in this instance by the administrator thereof, Franco
partnership venture is without any basis and is not Puzon.
supported by the evidence. The appemnt maintains
that the lower court, in making its determination, did 4. Sancho vs Lizarraga 55 Phil 60 1930
not take into consideration the great risks involved in MAXIMILIANO SANCHO, plaintiff-appellant,
business operations involving as it does the vs. SEVERIANO LIZARRAGA, defendant-
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a
partnership contract between himself and the
defendant, entered into on October 15, 1920, the
reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per
annum form October 15, 1920, with costs, and any
other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all the
allegations of the complaint which are incompatible
with his special defenses, cross-complaint and
counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him
as its manager and administrator of P500 monthly
from October 15, 1920, until the final dissolution, with
interest, one-half of said amount to be charged to the
plaintiff. He also prays for any other just and equitable
remedy.
The Court of First Instance of Manila, having heard the
cause, and finding it duly proved that the defendant
had not contributed all the capital he had bound
himself to invest, and that the plaintiff had demanded
that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for
which it was constituted, and ordered the defendant,
as managing partner, to proceed without delay to
liquidate it, submitting to the court the result of the
liquidation together with the accounts and vouchers
within the period of thirty days from receipt of notice of
said judgment, without costs.
The plaintiff appealed from said decision making the
following assignments of error:
1. In holding that the plaintiff and appellant is not
entitled to the rescission of the partnership contract,
Exhibit A, and that article 1124 of the Civil Code is not
applicable to the present case.
2. In failing to order the defendant to return the sum of
P50,000 to the plaintiff with interest from October 15,
1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a
preliminary question is raised purporting to show that
this appeal is premature and therefore will not lie. The
point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the
consequent accounts, have not been made and
submitted, the case cannot be deemed terminated in
said court and its ruling is not yet appealable. In
support of this contention counsel cites section 123 of
the Code of Civil Procedure, and the decision of this
court in the case of Natividad vs. Villarica (31 Phil.,
172).
This contention is well founded. Until the accounts
have been rendered as ordered by the trial court, and
until they have been either approved or disapproved,
the litigation involved in this action cannot be
considered as completely decided; and, as it was held
in said case of Natividad vs .Villarica, also with
reference to an appeal taken from a decision ordering
the rendition of accounts following the dissolution of
partnership, the appeal in the instant case must be
deemed premature.
But even going into the merits of the case, the
affirmation of the judgment appealed from is inevitable.
In view of the lower court's findings referred to above,
which we cannot revise because the parol evidence
has not been forwarded to this court, articles 1681 and
1682 of the Civil Code have been properly applied.
Owing to the defendant's failure to pay to the
partnership the whole amount which he bound himself
to pay, he became indebted to it for the remainder,
with interest and any damages occasioned thereby,
but the plaintiff did not thereby acquire the right to
demand rescission of the partnership contract
according to article 1124 of the Code. This article
cannot be applied to the case in question, because it
refers to the resolution of obligations in general,
whereas article 1681 and 1682 specifically refer to the
contract of partnership in particular. And it is a well
known principle that special provisions prevail over
general provisions.
By virtue of the foregoing, this appeal is hereby
dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So
ordered.
5. US vs Clarin 17 Phil 84
THE UNITED STATES, plaintiff-appellee,
vs.EUSEBIO CLARIN, defendant-
Pedro Larin delivered to Pedro Tarug P172, in order
that the latter, in company with Eusebio Clarin and
Carlos de Guzman, might buy and sell mangoes, and,
believing that he could make some money in this
business, the said Larin made an agreement with the
three men by which the profits were to be divided
equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman
did in fact trade in mangoes and obtained P203 from
the business, but did not comply with the terms of the
contract by delivering to Larin his half of the profits;
neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the
provincial fiscal filed an information only against
Eusebio Clarin in which he accused him of
appropriating to himself not only the P172 but also the
share of the profits that belonged to Larin, amounting
to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the
case as witnesses and assumed that the facts
presented concerned the defendant and themselves
together.
The trial court, that of First Instance of Pampanga,
sentenced the defendant, Eusebio Clarin, to six
months' arresto mayor, to suffer the accessory
penalties, and to return to Pedro Larin P172, besides
P30.50 as his share of the profits, or to subsidiary
imprisonment in case of insolvency, and to pay the
costs. The defendant appealed, and in deciding his
appeal we arrive at the following conclusions:
When two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he
formed with Tarug, Clarin, and Guzman, he invested
his capital in the risks or benefits of the business of the
purchase and sale of mangoes, and, even though he
had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon of his
three partners to return his capital to him, but upon the
partnership of which he himself formed part, or if it
were to be done by one of the three specifically, it
would be Tarug, who, according to the evidence, was
the person who received the money directly from
Larin.
The P172 having been received by the partnership,
the business commenced and profits accrued, the
action that lies with the partner who furnished the
capital for the recovery of his money is not a criminal
action for estafa, but a civil one arising from the
partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to
which those are guilty of estafa "who, to the prejudice
of another, shall appropriate or misapply any money,
goods, or any kind of personal property which they
may have received as a deposit on commission for
administration or in any other character producing the
obligation to deliver or return the same," (as, for
example, in commodatum, precarium, and other
unilateral contracts which require the return of the
same thing received) does not include money received
for a partnership; otherwise the result would be that, if
the partnership, instead of obtaining profits, suffered
losses, as it could not be held liable civilly for the share
of the capitalist partner who reserved the ownership of
the money brought in by him, it would have to answer
to the charge of estafa, for which it would be sufficient
to argue that the partnership had received the
money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the
costs de oficio. The complaint for estafa is dismissed
without prejudice to the institution of a civil action.
6. Pedro Martinez vs Ong Pong Co and Ong Lay Jan
10 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.ONG PONG CO and ONG LAY, defendants. ONG
PONG CO., appellant.
On the 12th of December, 1900, the plaintiff herein
delivered P1,500 to the defendants who, in a private
document, acknowledged that they had received the
same with the agreement, as stated by them, "that we
are to invest the amount in a store, the profits or
losses of which we are to divide with the former, in
equal shares."
The plaintiff filed a complaint on April 25, 1907, in
order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to
refund him the P1,500 that he had given them for the
said purpose. Ong Pong Co alone appeared to answer
the complaint; he admitted the fact of the agreement
and the delivery to him and to Ong Lay of the P1,500
for the purpose aforesaid, but he alleged that Ong Lay,
who was then deceased, was the one who had
managed the business, and that nothing had resulted
therefrom save the loss of the capital of P1,500, to
which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of
Manila who tried the case ordered Ong Pong Co to
return to the plaintiff one-half of the said capital of
P1,500 which, together with Ong Lay, he had received
from the plaintiff, to wit, P750, plus P90 as one-half of
the profits, calculated at the rate of 12 per cent per
annum for the six months that the store was supposed
to have been open, both sums in Philippine currency,
making a total of P840, with legal interest thereon at
the rate of 6 per cent per annum, from the 12th of
June, 1901, when the business terminated and on
which date he ought to have returned the said amount
to the plaintiff, until the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this
court, and assigned the following errors:
1. For not having taken into consideration the fact that
the reason for the closing of the store was the
ejectment from the premises occupied by it.
2. For not having considered the fact that there were
losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have
yielded profits, and that the latter should be calculated
12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the
store was closed by virtue of ejectment proceedings is
of no importance for the effects of the suit. The whole
action is based upon the fact that the defendants
received certain capital from the plaintiff for the
purpose of organizing a company; they, according to
the agreement, were to handle the said money and
invest it in a store which was the object of the
association; they, in the absence of a special
agreement vesting in one sole person the
management of the business, were the actual
administrators thereof; as such administrators they
were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that
of rendering account to the principal of their
transactions, and paying him everything they may
have received by virtue of the mandatum. (Arts. 1695
and 1720, Civil Code.) Neither of them has rendered
such account nor proven the losses referred to by Ong
Pong Co; they are therefore obliged to refund the
money that they received for the purpose of
establishing the said store the object of the
association. This was the principal pronouncement of
the judgment.
With regard to the second and third assignments of
error, this court, like the court below, finds no evidence
that the entire capital or any part thereof was lost. It is
no evidence of such loss to aver, without proof, that
the effects of the store were ejected. Even though this
were proven, it could not be inferred therefrom that the
ejectment was due to the fact that no rents were paid,
and that the rent was not paid on account of the loss of
the capital belonging to the enterprise.
With regard to the possible profits, the finding of the
court below are based on the statements of the
defendant Ong Pong Co, to the effect that "there were
some profits, but not large ones." This court, however,
does not find that the amount thereof has been
proven, nor deem it possible to estimate them to be a
certain sum, and for a given period of time; hence, it
can not admit the estimate, made in the judgment, of
12 per cent per annum for the period of six months.
Inasmuch as in this case nothing appears other than
the failure to fulfill an obligation on the part of a partner
who acted as agent in receiving money for a given
purpose, for which he has rendered no accounting,
such agent is responsible only for the losses which, by
a violation of the provisions of the law, he incurred.
This being an obligation to pay in cash, there are no
other losses than the legal interest, which interest is
not due except from the time of the judicial demand,
or, in the present case, from the filing of the complaint.
(Arts. 1108 and 1100, Civil Code.) We do not consider
that article 1688 is applicable in this case, in so far as
it provides "that the partnership is liable to every
partner for the amounts he may have disbursed on
account of the same and for the proper interest," for
the reason that no other money than that contributed
as is involved.
As in the partnership there were two administrators or
agents liable for the above-named amount, article
1138 of the Civil Code has been invoked; this latter
deals with debts of a partnership where the obligation
is not a joint one, as is likewise provided by article
1723 of said code with respect to the liability of two or
more agents with respect to the return of the money
that they received from their principal. Therefore, the
other errors assigned have not been committed.
In view of the foregoing judgment appealed from is
hereby affirmed, provided, however, that the defendant
Ong Pong Co shall only pay the plaintiff the sum of
P750 with the legal interest thereon at the rate of 6 per
cent per annum from the time of the filing of the
complaint, and the costs, without special ruling as to
the costs of this instance. So ordered.
8. Evangelista and CO vs Estrella Abad Santos June
28 1973
EVANGELISTA & CO., DOMINGO C.
EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.ESTRELLA ABAD SANTOS, respondent.
On October 9, 1954 a co-partnership was formed
under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as
to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of
P17,500 each. The amended Articles provided, inter
alia, that "the contribution of Estrella Abad Santos
consists of her industry being an industrial partner",
and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of
70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo
Atienza Abad Santos to be divided among them
equally; and 30% for the fourth partner Estrella Abad
Santos."
On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which
was also made a party-defendant, had been paying
dividends to the partners except to her; and that
notwithstanding her demands the defendants had
refused and continued to refuse and let her examine
the partnership books or to give her information
regarding the partnership affairs to pay her any share
in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to
render accounting to her of the partnership business
and to pay her corresponding share in the partnership
profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having
declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the
partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties,
which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to
the partnership; and that her share of 30% was to be
based on the profits which might be realized by the
partnership only until full payment of the loan which it
had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory
note as co-maker and mortgaged her property as
security.
The parties are in agreement that the main issue in
this case is "whether the plaintiff-appellee (respondent
here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits
that may be realized by the partnership from June 7,
1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by
appellants (herein petitioners)." On that issue the
Court of First Instance found for the plaintiff and
rendered judgement "declaring her an industrial
partner of Evangelista & Co.; ordering the defendants
to render an accounting of the business operations of
the (said) partnership ... from June 7, 1955; to pay the
plaintiff such amounts as may be due as her share in
the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs
of this suit."
The defendants appealed to the Court of Appeals,
which thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned
the following errors:
I. The Court of Appeals erred in the finding that the
respondent is an industrial partner of Evangelista &
Co., notwithstanding the admitted fact that since 1954
and until after promulgation of the decision of the
appellate court the said respondent was one of the
judges of the City Court of Manila, and despite its
findings that respondent had been paid for services
allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-
partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of
Evangelista & Co.
(B) In not finding that a portion of respondent's
testimony quoted in the decision proves that said
respondent did not bind herself to contribute her
industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of
Manila since 1954.
(C) In finding that respondent did not in fact contribute
her industry, despite the appellate court's own finding
that she has been paid for the services allegedly
rendered by her, as well as for the loans of money
made by her to the partnership.
II. The lower court erred in not finding that in any event
the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in toto the
decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of
the business operation of the partnership from June 7,
1955, and to pay the respondent her alleged share in
the net profits of the partnership plus the sum of
P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with
costs, against the respondent.
It is quite obvious that the questions raised in the first
assigned errors refer to the facts as found by the Court
of Appeals. The evidence presented by the parties as
the trial in support of their respective positions on the
issue of whether or not the respondent was an
industrial partner was thoroughly analyzed by the
Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of
the witnesses.
It is not the function of the Supreme Court to analyze
or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have
been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did
not hold that the Articles of Co-partnership, identified
in the record as Exhibit "A", was conclusive evidence
that the respondent was an industrial partner of the
said company, but considered it together with other
factors, consisting of both testimonial and
documentary evidences, in arriving at the factual
conclusion expressed in the decision.
The findings of the Court of Appeals on the various
points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the
same were made after a through analysis of then
evidence, and hence are beyond this Court's power of
review.
The aforequoted findings of the lower Court are
assailed under Appellants' first assigned error, wherein
it is pointed out that "Appellee's documentary evidence
does not conclusively prove that appellee was in fact
admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds relied upon
by the lower Court are untenable" (Pages 21 and 26,
Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N
and S, appellants' complaint being that "In finding that
the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the
partnership the lower court relied mainly on the
appellee's documentary evidence, entirely
disregarding facts and circumstances established by
appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not
have done otherwise but rely on the exhibits just
mentioned, first, because appellants have admitted
their genuineness and due execution, hence they were
admitted without objection by the lower court when
appellee rested her case and, secondly the said
exhibits indubitably show the appellee is an industrial
partner of appellant company. Appellants are virtually
estopped from attempting to detract from the probative
force of the said exhibits because they all bear the
imprint of their knowledge and consent, and there is no
credible showing that they ever protested against or
opposed their contents prior of the filing of their
answer to appellee's complaint. As a matter of fact, all
the appellant Evangelista, Jr., would have us believe
as against the cumulative force of appellee's
aforesaid documentary evidence is the appellee's
Exhibit "A", as confirmed and corroborated by the
other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the
real understanding between them being the appellee
would be merely a profit sharer entitled to 30% of the
net profits that may be realized between the partners
from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have
been fully paid. This version, however, is discredited
not only by the aforesaid documentary evidence
brought forward by the appellee, but also by the fact
that from June 7, 1955 up to the filing of their answer
to the complaint on February 8, 1964 or a period of
over eight (8) years appellants did nothing to
correct the alleged false agreement of the parties
contained in Exhibit "A". It is thus reasonable to
suppose that, had appellee not filed the present action,
appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true
intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make
much of the argument that 'there is an overriding fact
which proves that the parties to the Amended Articles
of Partnership, Exhibit "A", did not contemplate to
make the appellee Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted fact that
since before the execution of the amended articles of
partnership, Exhibit "A", the appellee Estrella Abad
Santos has been, and up to the present time still is,
one of the judges of the City Court of Manila, devoting
all her time to the performance of the duties of her
public office. This fact proves beyond peradventure
that it was never contemplated between the parties, for
she could not lawfully contribute her full time and
industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider
appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted
without gaining the very definite impression that, even
as she was and still is a Judge of the City Court of
Manila, she has rendered services for appellants
without which they would not have had the
wherewithal to operate the business for which
appellant company was organized. Article 1767 of the
New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves, 'does not specify the kind of industry that
a partner may thus contribute, hence the said services
may legitimately be considered as appellee's
contribution to the common fund. Another article of the
same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to
damages in either case.'
It is not disputed that the provision against the
industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure
faithful compliance by said partner with this prestation.
There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to
that of appellant company, since being a Judge of one
of the branches of the City Court of Manila can hardly
be characterized as a business. That appellee has
faithfully complied with her prestation with respect to
appellants is clearly shown by the fact that it was only
after filing of the complaint in this case and the answer
thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their
Supplemental Answer dated June 29, 1964 or after
around nine (9) years from June 7, 1955
subsequent to the filing of defendants' answer to the
complaint, defendants reached an agreement whereby
the herein plaintiff been excluded from, and deprived
of, her alleged share, interests or participation, as an
alleged industrial partner, in the defendant partnership
and/or in its net profits or income, on the ground
plaintiff has never contributed her industry to the
partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City
of Manila, devoting her time to performance of her
duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from
teaching in law school in Manila, without the express
consent of the herein defendants' (Record On Appeal,
pp. 24-25). Having always knows as a appellee as a
City judge even before she joined appellant company
on June 7, 1955 as an industrial partner, why did it
take appellants many yearn before excluding her from
said company as aforequoted allegations? And how
can they reconcile such exclusive with their main
theory that appellee has never been such a partner
because "The real agreement evidenced by Exhibit "A"
was to grant the appellee a share of 30% of the net
profits which the appellant partnership may realize
from June 7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance Corporal
shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the
lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a
formal accounting and to receive her share in the net
profit that may result from such an accounting, which
right appellants take exception under their second
assigned error. Our said holding is based on the
following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a
formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
We find no reason in this case to depart from the rule
which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.
9. Juan Agustinvs Bartolome Inocencio Oct 26
JUAN AGUSTIN, ET AL., plaintiffs;
VICTOR DEL ROSARIO, appellant,
vs.BARTOLOME INOCENCIO, defendant-
The parties to this controversy, who had been
conducting a partnership as industrial partners without
capital, contributed from its profits the sum of P807.28
as a fund toward the construction of a casco for use in
their business, to which they added P3,500, borrowed
from Maria del Rosario, the wife of the defendant,
Bartolome Inocencio, he being the managing partner.
It is admitted that this total, a little over P4,300, was
the estimated cost of the casco, but in the progress of
the work the defendant found that it called for
additional funds, which he advanced to the amount of
P2,024.49. It is satisfactorily appears from the
evidence that this amount is necessary in order to
complete the work undertaken. Although it would seem
that he failed to notify his partners of the various items
from time to time going to make up this sum, it is
shown that the books were at all times open to their
inspection, and that, being asked to examine them,
they omitted to do so, and that the plaintiff Juan
Agustin, representing all the partners, was also
present at the construction of the casco, in charge of
the practical work and cognizant of its needs and its
progress.
The work done in the casco having been within the
scope of the association and necessary to carry out its
express object, the borrowing of the money required to
carry it on, with the acquiescence if not with the
affirmative consent of his associates, was not outside
the powers of the managing partner and constitutes a
debt for which all the associates are liable.
The note passed into the hands of the defendant by
reason of the successive deaths of his wife and of their
only child, each without debts, and for the amount
thereof he became a creditor, subject, however, to the
deduction therefrom of his proportionate part of the
indebtedness.
The trial court treated his claim on this note, as well as
the sum of P2,024.49 furnished by him, as an addition
to his capital in the firm, rather than as a loan, and this
constitutes one of the grounds of error stated by the
appellant. We do not deem it necessary to pass upon
this objection, for the reason that, considered as a
loan, this sum would place the defendant as a creditor
in a stronger position as against his associates than if
regarded as a mere contribution to capital. The error, if
it be an error, is not, therefore, prejudicial to the
plaintiff, but is rather beneficial to him. The respondent
did not except to it. lawphil.net
Various small sums have been paid out of the profits
to some of the partners and these were properly
allowed him in the judgment.
On the theory on which the action was disposed of, the
trial court committed no error in the computation of the
various shares.
Of the four parties plaintiff, but one, Victor del Rosario,
is interested in this appeal, which has been dismissed
as to the others, and as to him the judgment of the trial
court must be affirmed, with costs of this instance. So
ordered.
ISABELO MORAN, JR., petitioner,
vs.THE HON. COURT OF APPEALS and MARIANO
E. PECSON, respondents.
This is a petition for review on certiorari of the decision
of the respondent Court of Appeals which ordered
petitioner Isabelo Moran, Jr. to pay damages to
respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the
undisputed facts indicate that: t.hqw Appeals decided questions of substance in a way not
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered
into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000
posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a
commission of P l,000 a month starting on April 15,
1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution
and printing of the 95,000 posters would be made, that
Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed;
that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of
P20,000 payable in two equal installments (P10,000
payable on or before June 15, 1971 and P10,000
payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first
installment on the date due, complete with the costs of
collection.
Private respondent Pecson filed with the Court of First
Instance of Manila an action for the recovery of a sum
of money and alleged in his complaint three (3) causes
of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the
partnership would have earned, and, payment of
unpaid commission; (2) on the alleged promissory
note, payment of the sum of P20,000.00; and, (3)
moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held
that: t.hqw
From the evidence presented it is clear in the mind of
the court that by virtue of the partnership agreement
entered into by the parties-plaintiff and defendant the
plaintiff did contribute P10,000.00, and another sum of
P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the
posters, the defendant was able to print 2,000 copies
only authorized of which, however, were sold at P5.00
each. Nothing more was done after this and it can be
said that the venture did not really get off the ground.
On the other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is entitled
to rescind the contract which right is implied in
reciprocal obligations under Article 1385 of the Civil
Code whereunder 'rescission creates the obligation to
return the things which were the object of the contract
...
WHEREFORE, the court hereby renders judgment
ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00,
with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is
hereby dismissed.
From this decision, both parties appealed to the
respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The
dispositive portion of the decision reads:
PREMISES CONSIDERED, the decision appealed
from is hereby SET ASIDE, and a new one is hereby
rendered, ordering defendant-appellant Isabelo C.
Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the
amount that could have accrued to Pecson under their
agreement);
(b) Eight thousand (P8,000), (the commission for eight
months);
(c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the
complaint was filed (up to the time payment is made)
The petitioner contends that the respondent Court of
in accord with law and with Supreme Court decisions
when it committed the following errors:
ITHE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT
MARIANO E. PECSON IN THE SUM OF P47,500 AS
THE SUPPOSED EXPECTED PROFITS DUE HIM.
IITHE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT
MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP
ARISING OUT OF PECSON'S INVESTMENT.
IIITHE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT
MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A
MAGAZINE VENTURE.
IVASSUMING WITHOUT ADMITTING THAT
PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT
EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.
VTHE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM
FOR DAMAGES.
The first question raised in this petition refers to the
award of P47,500.00 as the private respondent's share
in the unrealized profits of the partnership. The
petitioner contends that the award is highly
speculative. The petitioner maintains that the
respondent court did not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of
speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement
between the petitioner and the private respondent. It is
a contract of partnership. The latter in his complaint
alleged that he was induced by the petitioner to enter
into a partnership with him under the following terms
and conditions:
1. That the partnership will print colored posters of the
delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand
Pesos (P15,000.00) each
3. That they will print Ninety Five Thousand (95,000)
copies of the said posters;
4. That plaintiff will receive a commission of One
Thousand Pesos (P1,000.00) a month starting April
15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on
December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said
95,000 posters shall be made.
The petitioner on the other hand admitted in his
answer the existence of the partnership.
The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes
a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code).
Thus in Uy v. Puzon (79 SCRA 598), which interpreted
Art. 2200 of the Civil Code of the Philippines, we
allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the
appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction
projects in question. This case was decided on a
particular set of facts. We awarded compensatory
damages in the Uy case because there was a finding
that the constructing business is a profitable one and
that the UP construction company derived some profits
from its contractors in the construction of roads and
bridges despite its deficient capital." Besides, there
was evidence to show that the partnership made some
profits during the periods from July 2, 1956 to
December 31, 1957 and from January 1, 1958 up to
September 30, 1959. The profits on two government
contracts worth P2,327,335.76 were not speculative.
In the instant case, there is no evidence whatsoever
that the partnership between the petitioner and the
private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of
speculative damages in favor of the private
respondent.
Furthermore, in the Uy case, only Puzon failed to give
his full contribution while Uy contributed much more
than what was expected of him. In this case, however,
there was mutual breach. Private respondent failed to
give his entire contribution in the amount of
P15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters.
Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw to pay P7,000 (as a return of Pecson's investment for
The losses and profits shall be distributed in
conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is
the essence of a partnership. And even with an
assurance made by one of the partners that they
would earn a huge amount of profits, in the absence of
fraud, the other partner cannot claim a right to recover
the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case,
on an investment of P15,000.00, the respondent was
supposed to earn a guaranteed P1,000.00 a month for
eight months and around P142,500.00 on 95,000
posters costing P2.00 each but 2,000 of which were
sold at P5.00 each. The fantastic nature of expected
profits is obvious. We have to take various factors into
account. The failure of the Commission on Elections to
proclaim all the 320 candidates of the Constitutional
Convention on time was a major factor. The petitioner
undesirable his best business judgment and felt that it
would be a losing venture to go on with the printing of
the agreed 95,000 copies of the posters. Hidden risks
in any business venture have to be considered.
It does not follow however that the private respondent
is not entitled to recover any amount from the
petitioner. The records show that the private
respondent gave P10,000.00 to the petitioner. The
latter used this amount for the printing of 2,000 posters
at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000
copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing
costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of
distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between
the petitioner and the private respondent. And since
only P4,000.00 was undesirable by the petitioner in
printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner
submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the
petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to
December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis
of the commission. The payment of the commission
could only have been predicated on relatively
extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or
failure of the venture. Since the venture was a failure,
the private respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner maintains
that the respondent Court of Appeals erred in holding
him liable to the private respondent in the sum of
P7,000.00 as a supposed return of investment in a
magazine venture.
In awarding P7,000.00 to the private respondent as his
supposed return of investment in the "Voice of the
Veterans" magazine venture, the respondent court
ruled that: t.hqw plaintiff invested the P6,000 (Exhibit E) which, together
xxx xxx xxx
... Moran admittedly signed the promissory note of
P20,000 in favor of Pecson. Moran does not question
the due execution of said note. Must Moran therefore
pay the amount of P20,000? The evidence indicates
that the P20,000 was assigned by Moran to cover the
following: in Moran's other project (the publication and
printing of the 'Voice of the Veterans'),000 Moran has
the Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals
are final and conclusive and cannot be reviewed on
appeal to this Court (Amigo v. Teves, 96 Phil. 252),
provided they are borne out by the record or are based
on substantial evidence (Alsua-Betts v. Court of
Appeals, 92 SCRA 332). However, this rule admits of
certain exceptions. Thus, in Carolina Industries Inc. v.
CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we
held that this Court retains the power to review and
rectify the findings of fact of the Court of Appeals when
(1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in
making its findings, went beyond the issues of the
case and the same are contrary to the admissions of
both the appellant and the appellee.
In this case, there is misapprehension of facts. The
evidence of the private respondent himself shows that
his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00
was the amount of profit that the private respondent
expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265
dated March 22, 1971 in favor of defendant. Defendant
admitted the authenticity of this check and of his
receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29,
1972). This exhibit is being offered for the purpose of
showing plaintiff's capital investment in the printing of
the "Voice of the Veterans" for which he was promised
a fixed profit of P8,000. This investment of P6,000.00
and the promised profit of P8,000 are covered by
defendant's promissory note for P14,000 dated March
31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P.
Later, defendant returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing the
promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant
signed and executed the promissory note for P7,000
marked Exhibit 3 for the defendant and Exhibit M for
plaintiff. Of this P7,000, defendant paid P4,000
representing full return of the capital investment and
P1,000 partial payment of the promised profit. The
P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n.,
pp. 22-24, Nov. 29, 1972). It is, therefore, being
presented to show the consideration for the P20,000
promissory note.
F Xerox copy of PNB Manager's check dated May
29, 1971 for P7,000 in favor of defendant. The
authenticity of the check and his receipt of the
proceeds thereof were admitted by the defendant
(t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory
note (t.s.n., p. 25, Nov. 29, 1972), and it is being
presented to show the consideration for the P20,000
note and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being
offered for the purpose of showing the subject matter
of the other partnership agreement and in which
with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit
2; Exhibit P). As explained in connection with Exhibit
E. the P3,000 balance of the promised profit was later
made part consideration of the P20,000 promissory
note.
M-Promissory note for P7,000 dated March 30, 1971.
This is also defendant's Exhibit E. This document is
being offered for the purpose of further showing the
transaction as explained in connection with Exhibits E
and L.
N-Receipt of plaintiff dated March 30, 1971 for the
return of his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note (Exh.
2; P). This is also defendant's Exhibit 4. This document
is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the
transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also
defendant's Exhibit 2. It is being offered for the
purpose of showing the transaction as explained in
connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent
Pecson testified that: t.hqw never took place and on this basis decree the return of
Q During the pre-trial of this case, Mr. Pecson, the
defendant presented a promissory note in the amount
of P14,000.00 which has been marked as Exhibit 2.
Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with
your transaction with the defendant?
A This promissory note is for the printing of the "Voice
of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?A
It is a book.
.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated
in the promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr.
Moran, as evidenced by the Philippine National Bank
Manager's check and the P8,000.00 profit assured me
by Mr. Moran which I will derive from the printing of
this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is
covered by, a Manager's check. I show you Exhibit E,
is this the Manager's check that mentioned?A Yes, sir.
Q What happened to this promissory note of
P14,000.00 which you said represented
P6,000.00 of your investment and P8,000.00 promised
profits?
A Latter, Mr. Moran returned to me P3,000.00 which
represented one-half (1/2) of the P6,000.00 capital I
gave to him.
Q As a consequence of the return by Mr. Moran of
one-half (1/2) of the P6,000.00 capital you gave to
him, what happened to the promised profit of
P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in
connection with the Balance of P3,000.00 of your
capital investment and the P4,000.00 promised
profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of
P7,000.00 dated March 30, 1971 which for purposes
of Identification I request the same to be marked as
Exhibit M. . . as Exhibit M.
Q (continuing) is this the promissory note which you
said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice of
the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by
Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00
as shown by the promissory note.
Q Was there a receipt issued by you covering this
payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of
P4,000.00 on account of the P7,000.00 covered by the
promissory note, Exhibit M. What does this P4,000.00
covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he
has returned of my P6,000.00 capital investment and
the P1,000.00 represents partial payment of the
P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00
under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit
was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the
project never left the ground because the project did
take place. Only it failed. It was the private respondent
himself who presented a copy of the book entitled
"Voice of the Veterans" in the lower court as Exhibit
"L". Therefore, it would be error to state that the project
and Cuenco Law Offices served as lawyers in two (2)
the private respondent's investment.
As already mentioned, there are risks in any business
venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone,
specially if the latter exercised his best business
judgment, which seems to be true in this case. In view
of the foregoing, there is no reason to pass upon the
fourth and fifth assignments of errors raised by the
petitioner. We likewise find no valid basis for the grant
of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision
of the respondent Court of Appeals (now Intermediate
Appellate Court) is hereby SET ASIDE and a new one
is rendered ordering the petitioner Isabelo Moran, Jr.,
to pay private respondent Mariano Pecson SIX
THOUSAND (P6,000.00) PESOS representing the
amount of the private respondent's contribution to the
partnership but which remained unused; and THREE
THOUSAND (P3,000.00) PESOS representing one
half (1/2) of the net profits gained by the partnership in
the sale of the two thousand (2,000) copies of the
posters, with interests at the legal rate on both
amounts from the date the complaint was filed until full
payment is made.
11. Miguel Cuenco vs Concepcion Cuenco Vda de
Manguerra Oct 31 2004
MIGUEL CUENCO, Substituted by MARIETTA C.
CUYEGKENG, petitioner,
vs.CONCEPCION CUENCO Vda. DE
MANGUERRA, respondent.
Inasmuch as the facts indubitably and eloquently show
an implied trust in favor of respondent, the Court of
Appeals did not err in affirming the Decision of the
Regional Trial Court ordering petitioner to convey the
subject property to her. That Decision satisfied the
demands of justice and prevented unjust enrichment.
The Case
Before us is a Petition for Review1 under Rule 45 of
the Rules of Court, challenging the August 22, 2001
Decision2of the Court of Appeals (CA) in CA-GR CV
No. 54852. The assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is
AFFIRMED."3
On the other hand, the Regional Trial Court (RTC)
Decision affirmed by the CA disposed as follows:
"WHEREFORE, considering that this action is
essentially one for reconveyance or enforcement of a
trust, judgment is hereby rendered ordering the
substituted defendant Marietta Cuenco Cuyegkeng to
reconvey or transfer, in a duly registrable public
instrument, Lot No 903-A-6 under TCT No. 113781 of
the Registry of Deeds of Cebu City, of the Banilad
Estate with an area of 834 square meters, in favor of
plaintiff Concepcion Cuenco Vda. De Manguerra; or
should the substituted defendant, for one reason or
another, fail to execute the necessary instrument once
the decision becomes final, the Clerk of Court of this
Court (RTC) is hereby instructed, in accordance with
the Rules of Court, to prepare and execute the
appropriate and requisite conveyance and instrument
in favor of herein plaintiff which, in either case, shall be
registered with the Office of the Register of Deeds of
Cebu City.
Without costs in this instance."4
The Facts
The facts were summarized by the appellate court as
follows:
"On September 19, 1970, the [respondent] filed the
initiatory complaint herein for specific performance
against her uncle [Petitioner] Miguel Cuenco which
averred, inter alia that her father, the late Don Mariano
Jesus Cuenco (who became Senator) and said
[petitioner] formed the Cuenco and Cuenco Law
Offices; that on or around August 4, 1931, the Cuenco
cases entitled Valeriano Solon versus Zoilo Solon
(Civil Case 9037) and Valeriano Solon versus
Apolonia Solon (Civil Case 9040) involving a dispute
among relatives over ownership of lot 903 of the
Banilad Estate which is near the Cebu Provincial
Capitol; that records of said cases indicate the name
of the [petitioner] alone as counsel of record, but in
truth and in fact, the real lawyer behind the success of
said cases was the influential Don Mariano Jesus
Cuenco; that after winning said cases, the awardees of
Lot 903 subdivided said lot into three (3) parts as
follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos
attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos
attorneys fees
Lot 903-C: 54,000 [square meters]: Solons retention
"That at the time of distribution of said three (3) lots in
Cebu, Mariano Jesus Cuenco was actively practicing
law in Manila, and so he entrusted his share (Lot 903-
A) to his brother law partner (the [petitioner]); that on
September 10, 1938, the [petitioner] was able to obtain
in his own name a title for Lot 903-A (Transfer
Certificate of Title [TCT] RT-6999 [T-21108]); that he
was under the obligation to hold the title in trust for his
brother Marianos children by first marriage; that
sometime in 1947, the Cuenco family was anticipating
Marianos second marriage, and so on February 1,
1947, they partitioned Lot 903-A into six (6) sub-lots
(Lots 903-A-1 to 903-A-6) to correspond to the six (6)
children of Marianos first marriage (Teresita, Manuel,
Lourdes, Carmen, Consuelo, and Concepcion); that
the [petitioner] did not object nor oppose the partition
plan; that on June 4, 1947, the [petitioner] executed
four (4) deeds of donation in favor of Marianos four (4)
children: Teresita, Manuel, Lourdes, and Carmen,
pursuant to the partition plan (per notary documents
183, 184, 185, 186, Book III, Series 1947 of Cebu City
Notary Public Candido Vasquez); that on June 24,
1947, the [petitioner] executed the fifth deed of
donation in favor of Marianos fifth child Consuelo
(per notary document 214, Book III, Series 1947 of
Cebu City Notary Public Candido Vasquez) (Exhibits
2 to 5); that said five (5) deeds of donation left out
Marianos sixth child Concepcion who later
became the [respondent] in this case; that in 1949,
[respondent] occupied and fenced a portion of Lot 903-
A-6 for taxation purposes (Exhibit F, Exhibit 6); that
she also paid the taxes thereon (Exhibit G); that her
father died on February 25, 1964 with a Last Will and
Testament; that the pertinent portion of her fathers
Last Will and Testament bequeaths the lot.
near the Cebu provincial capitol, which were my
attorneys fees from my clients, Victoria Rallos and
Zoilo Solon, respectively have already long been
disposed of, and distributed by me, through my
brother, Miguel, to all my said children in the first
marriage;
"That on June 3, 1966, the [petitioner] wrote a letter
petitioning the Register of Deeds of Cebu to transfer
Lot 903-A-6 to his name on the ground that Lot 903-A-
6 is a portion of Lot 903-A; that on April 6, 1967, the
[respondent] requested the Register of Deeds to
annotate an affidavit of adverse claim against the
[petitioners] TCT RT-6999 (T-21108) which covers Lot
903-A; that on June 3, 1967, the Register of Deeds
issued TCT 35275 covering Lot 903-A-6 in the name
of the [petitioner] but carrying the earlier annotation of
adverse claim; that in 1969, the [petitioner] tore down
the wire fence which the [respondent] constructed on
Lot 903-A-6 which compelled the latter to institute the
instant complaint dated August 20, 1970 on
September 19, 1970.
"On December 5, 1970, the answer with counterclaim
dated December 3, 1970 of [petitioner] Miguel Cuenco
was filed where he alleged that he was the absolute
owner of Lot 903-A-6; that this lot was a portion of Lot
903-A which in turn was part of Lot 903 which was the
subject matter of litigation; that he was alone in
defending the cases involving Lot 903 without the
participation of his brother Mariano Cuenco; that he
donated five (5) of the six (6) portions of Lot 903-A to
the five (5) children of his brother Mariano out of
gratitude for the love and care they exhibited to him
(Miguel) during the time of his long sickness; that he
did not give or donate any portion of the lot to the
[respondent] because she never visited him nor took
care of him during his long sickness; that he became
critically ill on February 11, 1946 and was confined at
the Singians Clinic in Manila and then transferred to
Cebu where he nearly died in 1946; that his wife Fara
Remia Ledesma Cuenco had an operation on January
1951 and was confined at the University of Santo
Tomas Hospital and John Hopkins Hospital in the
United States; that two of his children died at the
University of Santo Tomas Hospital in 1951 and 1952;
and that his wife was blind for many months due to
malignant hypertension but [respondent] never
remembered her nor did she commiserate with him
and his wife in their long period of sorrow.
"[Petitioner] Miguel Cuenco took the witness stand as
early as September 13, 1974. His self-conducted
direct examination lasted until 1985, the last one on
November 22, 1985. Unfortunately, he died5 before he
was able to submit himself for cross-examination and
so his testimony had to be stricken off the record. His
only surviving daughter, Marietta Cuyegkeng, stood as
the substitute [petitioner] in this case. She testified that
she purchased Lot 903-A-6 (the property subject
matter of this case) from her late father sometime in
1990 and constructed a house thereon in the same
year; that she became aware of this case because her
late father used to commute to Cebu City to attend to
this case; and that Lot 903-A-6 is in her name per
Transfer Certificate of Title #113781 of the Registry of
Deeds for Cebu."6
Ruling of the Court of Appeals
The CA found respondents action not barred by res
judicata, because there was "no identity of causes of
action between the Petition for cancellation of adverse
claim in L.R.C. Records 5988 and the Complaint for
specific performance to resolve the issue of ownership
in Civil Case No. R-11891."
The appellate court further found no reason to disturb
the findings of the trial court that respondent "has the
legal right of ownership over lot 903-A-6." The CA
ruled that the subject land "is part of the attorneys
fees of Don Mariano Cuenco, predecessor-in-interest
of [Respondent] Concepcion Cuenco vda. de
Manguerra and [petitioner] merely holds such property
in trust for [her], his title there[to] notwithstanding."
Finally, the CA held that the right of action of
respondent "has not yet prescribed as she was in
possession of the lot in dispute and the prescriptive
period to file the case commences to run only from the
time she acquired knowledge of an adverse claim over
[her] possession."
Hence, this Petition.7
The Issues
In her Memorandum, petitioner raises the following
issues for our consideration:
"I.On question of law, the Court of Appeals failed to
consider facts of substance and significance which, if
considered, will show that the preponderance of
evidence is in favor of the petitioner.
"II.On question of law, the Court of Appeals failed to
appreciate the proposition that, contrary to the position
taken by the trial court, no constructive or implied trust
exists between the parties, and neither is the action
one for reconveyance based upon a constructive or
implied trust.
"III.On question of law, the Court of Appeals erred in
not finding that even where implied trust is admitted to
exist the respondents action for relief is barred by
laches and prescription.
"IV.On question of law, the trial court and the appellate
court erred in expunging from the records the
testimony of Miguel Cuenco."8
This Courts Ruling
The Petition has no merit.
First Issue:
Evaluation of Evidence
Petitioner asks us to appreciate and weigh the
evidence offered in support of the finding that Lot 903-
A-6 constituted a part of Mariano Cuencos share in
the attorneys fees. In other words, she seeks to
involve us in a reevaluation of the veracity and
probative value of the evidence submitted to the lower
court. What she wants us to do is contrary to the
dictates of Rule 45 that only questions of law may be
raised and resolved in a petition for review. "Absent
any whimsical or capricious exercise of judgment, and
unless the lack of any basis for the conclusions made
by the lower courts be amply demonstrated, the
Supreme Court will not disturb such factual findings."9
As a rule, findings of fact of the Court of Appeals
affirming those of the trial court are binding and
conclusive. Normally, such factual findings are not
disturbed by this Court, to which only questions of law
may be raised in an appeal by certiorari.10 This Court
has consistently ruled that these questions "must
involve no examination of the probative value of the
evidence presented by the litigants or any of
them."11 Emphasizing the difference between the two
types of question, it has explained that "there is a
question of law in a given case when the doubt or
difference arises as to what the law is pertaining to a
certain state of facts, and there is a question of fact
when the doubt arises as the truth or the falsity of
alleged facts."12
Indeed, after going over the records of the present
case, we are not inclined to disturb the factual findings
of the trial and the appellate courts, just because of the
insistent claim of petitioner. His witnesses allegedly
testified that Civil Case No. 9040 involving Lot 903 had
not been handled by Mariano for defendants therein --
Apolonia Solon, Zoilo Solon, et al. It has sufficiently
been proven, however, that these defendants were
represented by the Cuenco and Cuenco Law Office,
composed of Partners Mariano Cuenco and Miguel
Cuenco.
Given as attorneys fees was one hectare of Lot 903,
of which two five-thousand square meter portions were
identified as Lot 903-A and Lot 903-B. That only
Miguel handled Civil Case No. 9040 does not mean
that he alone is entitled to the attorneys fees in the
said cases. "When a client employs the services of a
law firm, he does not employ the services of the lawyer
who is assigned to personally handle the case. Rather,
he employs the entire law firm."13 Being a partner in
the law firm, Mariano -- like Miguel -- was likewise
entitled14 to a share in the attorneys fees from the
firms clients. Hence, the lower courts finding that Lot
903-A was a part of Mariano Cuencos attorneys fees
has ample support.
Second Issue:
Implied TrustPetitioner then contends that no
constructive or implied trust exists between the
parties.A trust is a legal relationship between one
having an equitable ownership in a property and
another having legal title to it.15
Trust relations between parties may either be express
or implied.16 Express trusts are created by the direct
and positive acts of the parties, indicated through
some writing, deed, will, or words evidencing an
intention to create a trust.17 On the other hand, implied
trusts are those that, "without being express, are
deducible from the nature of the transaction as matters
of intent[;] or which are superinduced on the
transaction by operation of law as a matter of equity,
independently of the particular intention of the parties.
Implied trusts may either be resulting or constructive
trusts, both coming into being by operation of law."18
Resulting trusts are presumed to have been
contemplated by the parties and are based on the
equitable doctrine that valuable consideration, not
legal title, determines the equitable title or
interest.19 These trusts arise from the nature of or the
circumstances involved in a transaction,20 whereby
legal title becomes vested in one person, who is
obligated in equity to hold that title for the benefit of
another.
Constructive trusts are "created by the construction of
equity in order to satisfy the demands of justice and
prevent unjust enrichment. They arise contrary to
intention against one who, by fraud, duress or abuse
of confidence, obtains or holds the legal right to
property which he ought not, in equity and good
conscience, to hold."21
A review of the records shows that indeed there is an
implied trust between the parties.
Although Lot 903-A was titled in Miguels name, the
circumstances surrounding the acquisition and the
subsequent partial dispositions of this property
eloquently speak of the intent that the equitable or
beneficial ownership of the property should belong to
Mariano and his heirs.
First, Lot 903-A was one half of the one-hectare
portion of Lot 903 given as attorneys fees by a client
of the law firm of Partners Miguel and Mariano
Cuenco. It constituted the latters share in the
attorneys fees and thus equitably belonged to him, as
correctly found by the CA. That Lot 903-A had been
titled in the name of Miguel gave rise to an implied
trust between him and Mariano, specifically, the former
holds the property in trust for the latter. In the present
case, it is of no moment that the implied trust arose
from the circumstance -- a share in the attorneys fees
-- that does not categorically fall under Articles 1448 to
1456 of the Civil Code. The cases of implied trust
enumerated therein "does not exclude others
established by the general law of trust."22
Second, from the time it was titled in his name in
1938,23 Lot 903-A remained undivided and
untouched24 by Miguel. Only on February 3, 1947, did
Lourdes Cuenco,25 upon the instruction of Mariano,
have it surveyed and subdivided into six almost equal
portions -- 903-A-1 to 903-A-6. Each portion was
specifically allocated to each of the six children of
Mariano with his first wife.26
Third, Miguel readily surrendered his Certificate of
Title27 and interposed no objection28 to the subdivision
and the allocation of the property to Marianos six
children, including Concepcion.
Fourth, Marianos children, including
Concepcion,29 were the ones who shouldered the
expenses incurred for the subdivision of the property
Fifth, after the subdivision of the property, Marianos
children -- including Concepcion30 -- took possession
of their respective portions thereof.
Sixth, the legal titles to five portions of the property
were transferred via a gratuitous deed of conveyance
to Marianos five children, following the allocations
specified in the subdivision plan prepared for Lourdes
Cuenco.3
With respect to Lot 903-A-6 in particular, the existence
of Concepcions equitable ownership thereof is
bolstered, not just by the above circumstances, but
also by the fact that respondent fenced the portion
allocated to her and planted trees thereon.32
More significantly, she also paid real property taxes on
Lot 903-A-6 yearly, from 1956 until 196933 -- the year
when she was dispossessed of the property. "Although
tax declarations or realty tax payments of property are
not conclusive evidence of ownership, nevertheless,
they are good indicia of possession in the concept of
owner, for no one in his right mind would be paying
taxes for a property that is not in his actual or at least
constructive possession."34 Such realty tax payments
constitute proof that the holder has a claim of title over
the property.
Tellingly, Miguel started paying real property taxes on
Lot 903-A-6 only on April 4, 1964,35 after the death of
Mariano.36 This fact shows that it was only in that year
that he was emboldened to claim the property as his
own and to stop recognizing Marianos, and
subsequently Concepcions, ownership rights over it. It
was only by then that the one who could have easily
refuted his claim had already been silenced by death.
Such a situation cannot be permitted to arise, as will
be explained below.
Estoppel
From the time Lot 903-A was subdivided and
Marianos six children -- including Concepcion -- took
possession as owners of their respective portions, no
whimper of protest from petitioner was heard until
1963. By his acts as well as by his omissions, Miguel
led Mariano and the latters heirs, including
Concepcion, to believe that Petitioner Cuenco
respected the ownership rights of respondent over Lot
903-A-6. That Mariano acted and relied on Miguels
tacit recognition of his ownership thereof is evident
from his will, executed in 1963, which states:
"I hereby make it known and declare that x x x all
properties which my first wife and I had brought to, or
acquired during our marriage, or which I had acquired
during the years I was a widower including jewelry,
war damage compensation, and two other lots also
located at Cebu City, one near the South-Western
University and the other near the Cebu provincial
capitol, which were my attorneys fees from my clients,
Victoria Rallos and Zoilo Solon, respectively have
already long been disposed of, and distributed by me,
through my brother, Miguel, to all my said six children
in the first marriage."37 (emphasis supplied)
Indeed, as early as 1947, long before Mariano made
his will in 1963, Lot 903-A -- situated along Juana
Osmea Extension, Kamputhaw, Cebu City,38 near the
Cebu Provincial Capitol -- had been subdivided and
distributed to his six children in his first marriage.
Having induced him and his heirs to believe that Lot
903-A-6 had already been distributed to Concepcion
as her own, petitioner is estopped from asserting the
contrary and claiming ownership thereof.
The principle of estoppel in pais applies when -- by
ones acts, representations, admissions, or silence
when there is a need to speak out -- one, intentionally
or through culpable negligence, induces another to
believe certain facts to exist; and the latter rightfully
relies and acts on such belief, so as to be prejudiced if
the former is permitted to deny the existence of those
facts.39
Third Issue:
Laches
Petitioner claims that respondents action is already
barred by laches.
We are not persuaded. Laches is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to it
has either abandoned or declined to assert it.40 In the
present case, respondent has persistently asserted
her right to Lot 903-A-6 against petitioner.
Concepcion was in possession as owner of the
property from 1949 to 1969.41 When Miguel took steps
to have it separately titled in his name, despite the fact
that she had the owners duplicate copy of TCT No.
RT-6999 -- the title covering the entire Lot 903-A -- she
had her adverse claim annotated on the title in 1967.
When petitioner ousted her from her possession of the
lot by tearing down her wire fence in 1969,42 she
commenced the present action on September 19,
1970,43 to protect and assert her rights to the property.
We find that she cannot be held guilty of laches, as
she did not sleep on her rights.
Fourth Issue:
Expunging of Testimony
Petitioner Cuyegkeng questions the expunging of the
direct testimony of Miguel Cuenco. Respondent points
out that this issue was not raised before the CA.
Neither had petitioner asked the trial court to
reconsider its Order expunging the testimony. Hence,
this issue cannot for the first time be raised at this
point of the appeal. Issues, arguments and errors not
adequately and seriously brought below cannot be
raised for the first time on appeal.44"Basic
considerationns of due process impel this rule."45
WHEREFORE, the Petition is DENIED, and the
assailed Decision AFFIRMED. Costs against
petitioner.
12. Taitong Chuache and Co vs Insurance
Commission Feb 29 1988
AI TONG CHUACHE & CO., petitioner,
vs.THE INSURANCE COMMISSION and
TRAVELLERS MULTI-INDEMNITY
This petition for review on certiorari seeks the reversal
of the decision of the Insurance Commission in IC
Case #367 1 dismissing the complaint 2 for recovery of
the alleged unpaid balance of the proceeds of the Fire
Insurance Policies issued by herein respondent
insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent
Insurance Commission are as follows:
Complainants acquired from a certain Rolando
Gonzales a parcel of land and a building located at
San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent
S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan
from Tai Tong Chuache Inc. in the amount of
P100,000.00. To secure the payment of the loan, a
mortgage was executed over the land and the building
in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-
A"). On April 25, 1975, Arsenio Chua, representative of
Thai Tong Chuache & Co. insured the latter's interest
with Travellers Multi-Indemnity Corporation for
P100,000.00 (P70,000.00 for the building and
P30,000.00 for the contents thereof) (Exhibit "A-a,"
contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire
Insurance Policy No. F- 02500 (Exhibit "A"), covering
the building for P50,000.00 with respondent Zenith
Insurance Corporation. On July 16, 1975, another Fire
Insurance Policy No. 8459 (Exhibit "B") was procured
from respondent Philippine British Assurance
Company, covering the same building for P50,000.00
and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were
totally razed by fire.
Adjustment Standard Corporation submitted a report
as follow
xxx xxx xxx
... Thus the apportioned share of each company is as
follows:
We are showing hereunder another apportionment of
the loss which includes the Travellers Multi-Indemnity
policy for reference purposes.
Based on the computation of the loss, including the
Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S.
Accredited Group of Insurers, paid their corresponding
shares of the loss. Complainants were paid the
following: P41,546.79 by Philippine British Assurance
Co., P11,877.14 by Zenith Insurance Corporation, and
P5,936.57 by S.S.S. Group of Accredited Insurers
(Par. 6. Amended Complaint). Demand was made
from respondent Travellers Multi-Indemnity for its
share in the loss but the same was refused. Hence,
complainants demanded from the other three (3)
respondents the balance of each share in the loss
based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity
in the amount of P30,894.31 (P5,732.79-Zenith
Insurance: P22,294.62, Phil. British: and P2,866.90,
SSS Accredited) but the same was refused, hence,
this action.
In their answers, Philippine British Assurance and
Zenith Insurance Corporation admitted the material
allegations in the complaint, but denied liability on the
ground that the claim of the complainants had already
been waived, extinguished or paid. Both companies
set up counterclaim in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of
Insurers informed the Commission in its letter of July
22, 1977 that the herein claim of complainants for the
balance had been paid in the amount of P 5,938.57 in
full, based on the Adjustment Standards Corporation
Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance
of the Policy No. 599 DV and alleged as its special and
affirmative defenses the following, to wit: that Fire
Policy No. 599 DV, covering the furniture and building
of complainants was secured by a certain Arsenio
Chua, mortgage creditor, for the purpose of protecting
his mortgage credit against the complainants; that the
said policy was issued in the name of Azucena
Palomo, only to indicate that she owns the insured
premises; that the policy contains an endorsement in
favor of Arsenio Chua as his mortgage interest may
appear to indicate that insured was Arsenio Chua and
the complainants; that the premium due on said fire
policy was paid by Arsenio Chua; that respondent
Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a
complaint in intervention claiming the proceeds of the
fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity
Travellers Insurance, in answer to the complaint in
intervention, alleged that the Intervenor is not entitled
to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured
premises and that the complainants, spouses Pedro
and Azucena Palomo, had already paid in full their
mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance
Commission dismissed spouses Palomos' complaint
on the ground that the insurance policy subject of the
complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as
mortgagee of the insured property and thus
complainant as mortgagors of the insured property
have no right of action against herein respondent. It
likewise dismissed petitioner's complaint in
intervention in the following words:
We move on the issue of liability of respondent
Travellers Multi-Indemnity to the Intervenor-
mortgagee. The complainant testified that she was still
indebted to Intervenor in the amount of P100,000.00.
Such allegation has not however, been sufficiently
proven by documentary evidence. The certification
(Exhibit 'E-e') issued by the Court of First Instance of
Davao, Branch 11, indicate that the complainant was
Antonio Lopez Chua and not Tai Tong Chuache &
Company. 4
From the above decision, only intervenor Tai Tong
Chuache filed a motion for reconsideration but it was
likewise denied hence, the present petition.
It is the contention of the petitioner that respondent
Insurance Commission decided an issue not raised in
the pleadings of the parties in that it ruled that a
certain Arsenio Lopez Chua is the one entitled to the
insurance proceeds and not Tai Tong Chuache &
Company
This Court cannot fault petitioner for the above
erroneous interpretation of the decision appealed from
considering the manner it was written. 5 As correctly
pointed out by respondent insurance commission in
their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest
over the insured property. Perusal of the decision
reveals however that it readily absolved respondent
insurance company from liability on the basis of the
commissioner's conclusion that at the time of the
occurrence of the peril insured against petitioner as
mortgagee had no more insurable interest over the
insured property. It was based on the inference that
the credit secured by the mortgaged property was
already paid by the Palomos before the said property
was gutted down by fire. The foregoing conclusion was
arrived at on the basis of the certification issued by the
then Court of First Instance of Davao, Branch II that in
a certain civil action against the Palomos, Antonio
Lopez Chua stands as the complainant and not
petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a
well known postulate that the case of a party is
constituted by his own affirmative allegations. Under
Section 1, Rule 1316 each party must prove his own
affirmative allegations by the amount of evidence
required by law which in civil cases as in the present
case is preponderance of evidence. The party,
whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of presenting at
the trial such amount of evidence as required by law to
obtain favorable judgment.7 Thus, petitioner who is
claiming a right over the insurance must prove its
case. Likewise, respondent insurance company to
avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the
part of the petitioner must prove its own affirmative
allegations.
It will be recalled that respondent insurance company
did not assail the validity of the insurance policy taken
out by petitioner over the mortgaged property. Neither
did it deny that the said property was totally razed by
fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an
affirmative defense of lack of insurable interest on the
part of the petitioner that before the occurrence of the
peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having
admitted the material allegations in the complaint, has
the burden of proof to show that petitioner has no
insurable interest over the insured property at the time
the contingency took place. Upon that point, there is a
failure of proof. Respondent, it will be noted, exerted
no effort to present any evidence to substantiate its
claim, while petitioner did. For said respondent's
failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance
This was an action brought by the plaintiff to recover
Commission absolved respondent insurance company from the defendant the sum of 9,558 1/3 Spanish
from liability on the basis of the certification issued by
pesetas for services rendered. The trial judge found,
the then Court of First Instance of Davao, Branch II,
and the evidence of record fully sustains his finding,
that in a certain civil action against the Palomos,that the plaintiff was employed as foreman
Arsenio Lopez Chua stands as the complainant and or capataz by one Genaro Ansuategui, the local
not Tai Tong Chuache. From said evidence manager of certain mines of the defendant company,
respondent commission inferred that the credit situated on the Islands of Bataan; and that this
extended by herein petitioner to the Palomos secured
employment continued from November 1, 1903; until
by the insured property must have been paid. Such is
August 4, 1904. The trial judge found further that,
a glaring error which this Court cannot sanction. while the plaintiff failed to establish satisfactorily his
Respondent Commission's findings are based upon a claim that the salary promised him by the company's
mere inference. manager was 1,000 pesestas per month, nevertheless
The record of the case shows that the petitioner tohe is entitled to reasonable compensation for the
support its claim for the insurance proceeds offered as
services rendered which were fixed at P5 per day, or
evidence the contract of mortgage (Exh. 1) which has
P150 per month, the record disclosing that the plaintiff
not been cancelled nor released. It has been held in a
had worked for the defendant company as foreman
long line of cases that when the creditor is in or capataz and received compensation that the rate a
possession of the document of credit, he need not short time prior to his employment under his contract
prove non-payment for it is presumed. 8 The validity of
with Ansuategui.
the insurance policy taken b petitioner was not The defendant comply alleged that it had never
assailed by private respondent. Moreover, petitioner's
received such services of the plaintiff and denied the
claim that the loan extended to the Palomos has notfact of the employment, but us we have said, the
yet been paid was corroborated by Azucena Palomo evidence of record affirmatively establishes the finding
who testified that they are still indebted to herein
of the trial judge that the services were rendered, and
petitioner. 9 that they were rendered under contract of employment
Public respondent argues however, that if the civilbetween the plaintiff and one Ansuategui, the local
case really stemmed from the loan granted to Azucena
manager of the defendant company; the only evidence
Palomo by petitioner the same should have been introduced by the defendant in this connection being
brought by Tai Tong Chuache or by its representative
the testimony of the general manager of the company,
in its own behalf. From the above premise respondent
who lived in Manila, to the effect that it does not
concluded that the obligation secured by the insured
appear from the books of the company that the plaintiff
property must have been paid. was employed by the defendants, or that any record of
The premise is correct but the conclusion is wrong.the employment was forwarded to the central office in
Citing Rule 3, Sec. 2 10 respondent pointed out that the
Manila.
action must be brought in the name of the real party in
Counsel for the defendant company insists, however,
interest. We agree. However, it should be borne in that, granting that the plaintiff did in fact work in the
mind that petitioner being a partnership may sue and
mines of the defendant company and was employed
be sued in its name or by its duly authorized by its local manager, nevertheless, defendant is not
representative. The fact that Arsenio Lopez Chua isindebted to the plaintiff for these service, because the
the representative of petitioner is not questioned.local manager at the mines was not authorized to
Petitioner's declaration that Arsenio Lopez Chua acts
enter into the alleged contract of employment, such
as the managing partner of the partnership was authority not having been granted to him under his
corroborated by respondent insurance
letter of instructions, a copy of which appears in the
company. 11 Thus Chua as the managing partner of record.
the partnership may execute all acts of It is not necessary for us to discuss the question of the
administration 12 including the right to sue debtors of
liability of the defendant company to the plaintiff for the
the partnership in case of their failure to pay their
value of the services rendered, if it in fact appeared
obligations when it became due and demandable. Or that the manager at the mines was not expressly
at the very least, Chua being a partner of petitioner Tai
authorized to employ the plaintiff and to contract for his
Tong Chuache & Company is an agent of the services, because we are of opinion that the authority
partnership. Being an agent, it is understood that he
to contract for the employment of the plaintiff was
acted for and in behalf of the firm.13 Public clearly conferred upon Ansuategui by the terms of this
respondent's allegation that the civil case flied by
letter of instructions.
Arsenio Chua was in his capacity as personal creditor
These transactions, which were introduced into the
of spouses Palomo has no basis. record, were dated in Manila, May 23, 1903, and
The respondent insurance company having issued a among other provisions contain the following:
policy in favor of herein petitioner which policy was of
Es tambien derroche los sueldos que dicen pagan a
legal force and effect at the time of the fire, it is bound
los faginantes y el exceso de gente para poco trabajo;
by its terms and conditions. Upon its failure to prove
debe tenerse la gente necesaria y pagar lo razonable,
the allegation of lack of insurable interest on the part of
y al que no le convenga que se marche. Deben hacer
the petitioner, respondent insurance company is andpor contrata el corte de trozos y maderas de todas
must be held liable. clases, y a sueldo le gente que se emplea para hacer
IN VIEW OF THE FOREGOING, the decision los barracones y otros trabajos que su criterio le dicte,
appealed from is hereby SET ASIDE and ANOTHER pero no permitiendo por ningun concepto que abusen.
judgment is rendered order private respondent (The salaries which it is said are paid to the faginantes
Travellers Multi-Indemnity Corporation to pay petitioner
and the excess of employees for little work is also a
the face value of Insurance Policy No. 599-DV in the
waste. The necessary employees should be kept and
amount of P100,000.00. Costs against said private paid reasonably, and he who is not needed [satisfied],
respondent. let him go. The cutting of logs and wood of all kinds
ought to be done by contract, and the persons
13. Garcia Ron vs La Compania Minsa de Batau 12 ph employed in digging the barracones and other work at
130 1908 JOSE GARCIA RON, plaintiff-appellee, wages which your good judgment may dictate, but on
vs.LA COMPAIA DE MINAS DE BATAN, defendant- account permitting abuses.)
appellant.Ortigas and And at the conclusion of the letter of instructions, we
find the following:
Lo que aqui no va anotado, esperamos lo subsane Vd.
con su buen criterio, y le recomendamos por ultimo
nos tenga al corriente de todo.
(We trust you to correct and supply (subsanar)
anything which is not noted herein, in accordance with
your good judgment, and finally we urgently request
that you keep us informed of everything.)
Other provisions of the letter of instructions expressly
authorized Ansuategui, as the local manager of the
defendant company at the mines, to discharge
employees who did not prove satisfactory, and leave
no room for doubt that he was duly authorized to
represent the company at the mines so far as this was
necessary for their proper local
management.lawphil.net
Taking into consideration the fact that the mines of the
defendant company are located upon an island some
two days' distance by steamer from the office of the
company at Manila, that the only communication
therewith was by mail a few times per month, and that
in the very nature of the enterprise, it was necessary,
in order that the local manager might successfully
perform his duties, to confer upon him wide scope in
the employment and discharge of labor, we think that
there can be no doubt that Genaro Ansuategui was
fully and expressly authorized by the terms of this
letter of instructions to enter into the alleged contract
of employment with the plaintiff on behalf of the
defendant company; and the evidence of record
establishing the fact that he did so, and that the
plaintiff worked for the company for the period set out
in the findings of the trial court, we are of opinion that
the trial court properly rendered judgment in favor of
the plaintiff and against the defendant for the value of
the services rendered.
The plaintiff not having appealed from the judgment of
the trial court denying him the alleged contract value of
the services rendered, and the evidence of record fully
sustaining the findings as to the reasonable value of
these services, the judgment of the trial court should
be and is hereby affirmed, with the costs of this
instance against the defendant. So ordered.
14. Martinez vs Cordoba and Conde 5 phil 545
MARIANO GARCIA MARTINEZ, Plaintiff-
Appellants, v. CORDOBA & CONDE, Defendants-
Appellees.
1. PARTNERSHIP; MANAGING PARTNERS;
DISMISSAL OF EMPLOYEES. When the articles of
partnership make each of the two partners managers,
either one has the right to dismiss an employee
engaged for no definite term.
2. ID.; ACTION AGAINST; ANSWER BY ONE
PARTNER. In an action against a general
partnership an answer in the name of the firm made by
one of the partners can not be disregarded.
In 1902 and 1903 the partners in the defendant firm,
Cordoba & Conde, were Luciano Cordoba and Angel
Conde. Prior to the month of September, 1902, the
plaintiff had been employed by the defendant firm in
the store which it then had on the Escolta, in Manila. In
that month Cordoba returned from a visit to Spain. At
his return a disagreement arose between the partners
in connection with their business. At an interview
between the parties Conde stated to Cordoba that he
wished to discharge the plaintiff. Cordoba stated that
he did not wish to have him discharged. Conde then
told the plaintiff not to return to the store again as an
employee of the firm. Cordoba told him to return the
next day. On the next morning he presented himself at
the store, and Conde refused him admission, while
Cordoba told him to enter. He thereupon seated
himself in a chair near the door, stayed there that day,
and returned and occupied the same position every
day for thirteen months thereafter. During this time he
rendered no service whatever to the firm. He has now
brought this action against the firm to recover the
value of his services during that time.
Judgment was entered against Cordoba by the court
below for P1,350. Judgment was also entered against
the plaintiff and in favor of Conde. From this judgment
Cordoba has not appealed, but from the judgment in
favor of Conde plaintiff has appealed.
The articles of partnership contained the following:j
The contract of employment existing between plaintiff
and the firm prior to September, 1902, was for no
definite time. By the terms of article 302 of the Code of
Commerce the firm had the right to discharge the
plaintiff at any time. By the terms of the contract of
partnership which made each one of the partners a
manager, Conde had the right to discharge the plaintiff
at any time. He did discharge him at the interview
above referred to. This discharge was in no sense the
making of a new contract, as is claimed by the
appellant in his brief. If it be claimed that by the terms
of the articles of partnership Cordoba had the right to
and did employ the plaintiff again immediately upon his
discharge by Conde, it is also true that Conde at once
discharged him, and as often as Cordoba employed
him, Conde dismissed him. He was therefore never in
the employ of the firm, and the evidence shows that he
rendered no service to the firm.
The defendant in this case is the partnership of
Cordoba & Conde, a juridical person. Conde appeared
and presented an answer as one of the partners. The
prayer of this answer is as follows:jgc
"Por esta suplica el Juzgado se sirva dictar sentencia
absolviendole de la demanda por la parte que a el le
corresponde como socio de la sociedad demandada
condenando en costas al demandante."
The appellant claims in this court that the judge below
committed an error in considering the answer of
Conde as the answer of the partnership. This
contention can not be sustained.
The judgment is affirmed, with the costs of this
instance against the plaintiff, and after the expiration of
twenty days judgment should be entered in
accordance herewith and the case remanded to the
court below for execution. So ordered.
Goquilay and Partnership tan Sin An and Antonio
Goquiolay vs Washington Sycip et al
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 sale1 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 fraudulent scheme, even if she subsequently decided of the partnership properties. Suffice it to point out that
Cash paid P37,000.00 to admit their validity after studying the appellant Goquiolay himself admitted that
claims and finding it best to admit the . . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong
Debts assumed by purchase: same. It may not be amiss to remark that Chai Pin continue to manage the properties (as) she
To Yutivo 62,415.91 the probate court approved the questioned had no other means of income. Then I said, because I
claims. wanted to help Mrs. Kong Chai Pin, she could just do
To Sing Yee Cuan & Co. 54,310.13 There is complete failure of proof, it and besides I am not interested in agricultural
TOTAL P153,726.04 moreover, that the price for which the lands. I allowed her to take care of the properties in
express will of one of the managing partners, "it shall properties were sold was unreasonably order to help her and because I believe in God and I
not be annulled for such reason, and it shall produce low, or in any way unfair, since appellants presented wanted to help her.
its effects without prejudice to the responsibility of the no evidence of the market value of the lots as of the Q. So the answer to my question is you did not take
member or members who contracted it, for the time of their sale to appellees Sycip and Lee. The any steps?
damages they may have caused to the common fund." alleged value of P31,056.58 in May of 1955 is no proof A. I did not.
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. of the market value in 1949, specially because in the Q. And this conversation which you had with Mrs.
114-115) points out: interval, the new owners appear to have converted the Yu Eng Lai was few months after 1945?
Although the partnership under consideration is a land into a subdivision, which they could not do without A. In the year 1945. (Emphasis supplied)
commercial partnership and, therefore, to be governed opening roads and otherwise improving the property at The appellant subsequently ratified this testimony in
by the Code of Commerce, the provisions of the old their own expense. Upon the other hand, Kong Chai his deposition of 30 June 1956, page 8-9, wherein he
Civil Code may give us some light on the right of one Pin hardly had any choice but to execute the sated:that plantation was being occupied at that
partner to bind the partnership. States Art. 1695 questioned sale, as it appears that the partnership had time by the widow, Mrs. Tan Sin An, and of course
thereof: neither cash nor other properties with which to pay its they are receiving quite a lot of benefit from that
Should no agreement have been made with respect to obligations. Anyway, we cannot consider seriously the plantation.
the form of management, the following rules shall be inferences freely indulged in by the appellants as Discarding the self-serving expressions, these
observed: allegedly indicating fraud in the questioned admissions of Goquiolay are certainly entitled to
1. All the partners shall be considered agents, and transactions, leading to the conveyance of the lots in greater weight than those of Hernando Young and
whatever any one of the may do individually shall bind dispute to the appellee Insular Development Co., Inc. Rufino Lim, having been made against the party's own
the partnership; but each one may oppose any act of Wherefore, finding no reversible error in the appealed interest.
the others before it has become legally binding. judgment, we affirm the same, with costs against Moreover, the appellant's reference to the testimony of
The records fail to disclose that appellant Goquiolay appellant Antonio Goquiolay. Hernando Young, that the witness found the properties
made any opposition to the sale of the partnership R E S O L U T I O N REYES, J. B. L., J.: "abandoned and undeveloped", omits to mention that
realty to Washington Z. Sycip and Betty Lee; on the The matter now pending is the appellant's motion for said part of the testimony started with the question:
contrary, it appears that he (Goquiolay) only reconsideration of our main decision, wherein we have Now, you said that about 1942 or 1943 you returned to
interposed his objections after the deed of conveyance upheld the validity of the sale of the lands owned by Davao. Did you meet Mrs. Kong Chai Pin there in
was executed and approved by the probate court, and, the partnership Goquiolay & Tan Sin An, made in 1949 Davao at that time?
consequently, his opposition came too late to be by the widow of the managing partner, Tan Sin An Similarly, the testimony of Rufino Lim, to the effect that
effective. (executed in her dual capacity of Administratrix of her the properties of the partnership were undeveloped,
Appellants assails the correctness of the amounts paid husband's estate and as partner, in lieu of the and the family of the widow (Kong Chai Pin) did not
for the account of the partnership as found by the trial husband), in favor of buyers Washington Sycip and receive any income from the partnership properties,
court. This question, however, need not be resolved Betty Lee for the following consideration: was given in answer to the question:
here, as in the deed of conveyance executed by Kong Appellant Goquiolay, in his motion for reconsideration, According to Mr. Goquiolay, during the Japanese
Chai Pin, the purchasers Washington Sycip and Betty insists that, contrary to our holding, Kong Chai Pin, occupation Tan Sin An and his family lived on the
Lee assumed, as part consideration of the purchase, widow of the deceased partner Tan Sin An, never plantation of the partnership and derived their
the full claims of the two creditors, Sing Yee and Cuan became more than a limited partner, incapacitated by subsistence from that plantation. What can you say to
Co., Inc. and Yutivo Sons Hardware Co. law to manage the affairs of the partnership; that the that? (Dep. 19 July 1956, p. 8)
Appellants also question the validity of the sale testimony of her witnesses Young and Lim belies that And also
covering the entire firm realty, on the ground that it, in she took over administration of the partnership What can you say so to the development of these
effect, threw the partnership into dissolution, which property; and that, in any event, the sale should be set other properties of the partnership which you
requires consent of all the partners. This view is aside because it was executed with the intent to saw during the occupation?" (Dep., p. 13, Emphasis
untenable. That the partnership was left without the defraud appellant of his share in the properties sold. supplied)
real property it originally had will not work its Three things must be always held in mind in the to which witness gave the following answer:
dissolution, since the firm was not organized to exploit discussion of this motion to reconsider, being basic I saw the properties in Mamay still undeveloped. The
these precise lots but to engage in buying and selling and beyond controversy: third property which is in Tigatto is about eleven (11)
real estate, and "in general real estate agency and (a) That we are dealing here with the transfer of hectares and planted with abaca seedlings planted by
brokerage business". Incidentally, it is to be noted that partnership property by one partner, acting in behalf of Mr. Sin An. When I went there with Hernando
the payment of the solidary obligation of both the the firm, to a stranger. There is no question between Young we saw all the abaca destroyed. The place was
partnership and the late Tan Sin An, leaves open the partners inter se, and this aspects of the case was occupied by the Japanese Army. They planted
question of accounting and contribution between the expressly reserved in the main decision of 26 July camotes and vegetables to feed the Japanese Army.
co-debtors, that should be ventilated separately. 1960; Of course they never paid any money to Tan Sin An or
Lastly, appellants point out that the sale of the (b) That the partnership was expressly organized "to his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
partnership properties was only a fraudulent device by engage in real estate business, either by buying and Plainly, Both Young and Lim's testimonies do not belie,
the appellees, with the connivance of Kong Chai Pin, selling real estate". The Article of co-partnership, in or contradict, Goquiolay's admission that he told Mr.
to ease out Antonio Goquiolay from the partnership. fact, expressly provided that: Yu Eng Lai that the widow "could just do it" (i e.,
The "devise", according to the appellants, started way IV. The object and purpose of the co-partnership are continue to manage the properties. Witnesses Lim and
back sometime in 1945, when one Yu Khe Thai as follows: Young referred to the period of Japanese occupation;
sounded out Antonio Goquiolay on the possibility of 1. To engage in real estate business, either by buying but Goquiolay's authority was, in fact, given to the
selling his share in the partnership; and upon his and selling real estates; to subdivide real estates into widow in 1945, after the occupation.
refusal to sell, was followed by the filing of the claims lots for the purpose of leasing and selling them.; Again, the disputed sale by the widow took place in
of Yutivo Sons Hardware Co. and Sing Yee and Cuan (c) That the properties sold were not part of the 1949. That Kong Chai Pin carried out no acts of
Co., Inc. in the intestate estate proceedings of Tan Sin contributed capital (which was in cash) but land management during the Japanese occupation (1942-
An. As creditors of Tan Sin An and the plaintiff precisely acquired to be sold, although subject a 1944) does not mean that she did not do so from 1945
partnership (whose liability was alleged to be joint and mortgage in favor of the original owners, from whom to 1949.
several), Yutivo Sons Hardware Co., and Sing Yee the partnership had acquired them. We thus fine that Goquiolay did not merely rely on
Cuan Co., Inc. had every right to file their claims in the With these points firmly in mind, let us turn to the reports from Lim and Young; he actually manifested
intestate proceedings. The denial of the claims at first points insisted upon by appellant. his willingness that the widow should manage the
by Kong Chai Pin ( for lack of sufficient knowledge) It is first averred that there is "not one iota evidence" partnership properties. Whether or not she complied
negatives any conspiracy on her part in the alleged that Kong Chai Pin managed and retained possession with this authority is a question between her and the
appellant, and is not here involved. But the authority
was given, and she did have it when she made the
questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the
widow Kong Chai Pin was only to manage the
property, and that it did not include the power to
alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was
not a mere agent, because she had become a partner
upon her husband's death, as expressly provided by
the articles of co-partnership. Even more, granting that
by succession to her husband, Tan Sin An, the widow
only a became the limited partner, Goquiolay's
authorization to manage the partnership property
was proof that he considered and recognized her has
general partner, at least since 1945. The reason is
plain: Under the law (Article 148, last paragraph, Code
of Commerce), appellant could not empower the
widow, if she were only a limited partner, to administer
the properties of the firm, even as a mere agent:
Limited partners may not perform any act of
administration with respect to the interests of the co-
partnership, not even in the capacity agents of
the managing partners.(Emphasis supplied)
By seeking authority to manage partnership property,
Tan Sin An's widow showed that she desired to be
considered a general partner. By authorizing the
widow to manage partnership property (which a limited
partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel
to deny her position as a general partner, with
authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the
heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability
in excess of the value of the estate inherited so as not
to jeopardize his personal assets. But this statutory
limitation of responsibility being designed to protect the
heir, the latter may disregard it and instead elect to
become a collective or general partner, with all the
rights and privileges of one, and answering for the
debts of the firm not only with the inheritance bud also
with the heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the assent
of the surviving partner.
It must be remembered that the articles of co-
partnership here involved expressly stipulated that:
In that event of the death of any of the partners at any
time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be
continued and the deceased partner shall be
represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the
deceased would be merely limited partner; on the
contrary they expressly stipulated that in case of death
of either partner "the co-partnership ... will have to be
continued" with the heirs or assigns. It certainly could
not be continued if it were to be converted from a
general partnership into a limited partnership, since
the difference between the two kinds of associations is
fundamental; and specially because the conversion
into a limited association would leave the heirs of the
deceased partner without a share in the management.
Hence, the contractual stipulation does actually
contemplate that the heirs would become general
partners rather than limited ones.
Of course, the stipulation would not bind the heirs of
the deceased partner should they refuse to assume
personal and unlimited responsibility for the obligations
of the firm. The heirs, in other words, can not be
compelled to become general partners against their
wishes. But because they are not so compellable, it
does not legitimately follow that they may not
voluntarily choose to become general partners,
waiving the protective mantle of the general laws of
succession. And in the latter event, it is pointless to
discuss the legality of any conversion of a limited
partner into a general one. The heir never was a
limited partner, but chose to be, and became, a
general partner right at the start.
It is immaterial that the heirs name was not included in
the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into
the partnership.
It must never be overlooked that this case involves the
rights acquired by strangers, and does not deal with
the rights arising between partners Goquiolay and the
widow of Tan Sin An. The issues between the partners
inter se were expressly reversed in our main decision.
Now, in determining what kind of partner the widow of
partner Tan Sin An had elected to become, strangers
had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the
partnership business or property, third parties (like the
purchasers) who found the widow possessing and
managing the firm property with the acquiescense (or
at least without apparent opposition) of the surviving
partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in
negotiating with her as such a partner, having authority
to act for, and in behalf of, the firm. This belief, be it
noted, was shared even by the probate court that
approved the sale by the widow of the real property
standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay.
Note that for seven long years, from partner Tan Sin
An's death in 1942 to the sale in 1949, there was more
than ample time for Goquiolay to take up the
management of these properties, or at least ascertain
how its affairs stood. For seven years Goquiolay could
have asserted his alleged rights, and by suitable notice
in the commercial registry could have warned
strangers that they must deal with him alone, as sole
general partner. But he did nothing of the
sort, because he was not interested (supra), and he
did not even take steps to pay, or settle, the firm debts
that were overdue since before the outbreak of the last
war. He did not even take steps, after Tan Sin An died,
to cancel, or modify, the provisions of the partnership
articles that he (Goquiolay) would have no intervention
in the management of the partnership. This laches
certainly contributed to confirm the view that the widow
of Tan Sin An had, or was given, authority to manage
and deal with the firm's properties, apart from the
presumption that a general partner dealing with
partnership property has the requisite authority from
his co-partners (Litton vs. Hill and Ceron, et al., 67
Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of
the two managing partners may contract and sign in
the name of the partnership with the consent of the
other, undoubtedly creates an obligation between the
two partners, which consists in asking the other's
consent before contracting for the partnership. This
obligation of course is not imposed upon a third
person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the
managing partner with whom he contracts has
previously obtained the consent of the other. A third
person may and has a right to presume that the
partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-
partner; for otherwise he would not enter into the
contract. The third person would naturally not presume
that the partner with whom he enters into the
transaction is violating the articles of partnership, but
on the contrary, is acting in accordance therewith. And
this finds support in the legal presumption that the
ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the
law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which
have the force of law between the parties. (Litton vs.
Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis
supplied)
It is next urged that the widow, even as a partner, had
no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to
differentiate between real estate acquired and held
as stock-in-trade and real state held merely
as business site (Vivante's "taller o banco social") for
the partnership. Where the partnership business is to
deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is
not within the ordinary powers of a partner, because it
is not in line with the normal business of the firm. But
where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the
firm form part of its stock-in-trade, and the sale thereof
is in pursuance of partnership purposes, hence within
the ordinary powers of the partner. This distinction is
supported by the opinion of Gay de Montella1, in the
very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del
gerente: cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas
conforme a los fines sociales, viene limitada a los
objetos de comecio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was
held:
a partnership to deal in real estate may be created and
either partner has the legal right to sell the firm real
estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in
real estate, one partner has ample power, as a general
agent of the firm, to enter into an executory contract
for the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182,
25 Am. St., Rep. 83:
If the several partners engaged in the business of
buying and selling real estate can not bind the firm by
purchases or sales of such property made in the
regular course of business, then they are incapable of
exercising the essential rights and powers of general
partners and their association is not really a
partnership at all, but a several agency.
Since the sale by the widow was in conformity with the
express objective of the partnership, "to engage * * * in
buying and selling real estate" (Art IV, No. 1, Articles of
Copartnership), it can not be maintained that the sale
was made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of
the Supreme Court of Ohio in McGrath, et al., vs.
Cowen, et al., 49 N. E., 338. But the facts of that case
are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been,
insolvent, in the sense that its property was insufficient
to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On
that day, which was Saturday, the plaintiff caused to
be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible
property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures
necessary for, and used in carrying on, its business,
and signed the same in this form: "In witness whereof,
the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner of said firm, and Owen
McGrath, individually, have here-unto set their hands,
this 20th day of May, A. D. 1893. Cowen & McGrath,
by Owen McGrath. Owen McGrath, Surviving partner
of Cowen & McGrath. Owen McGrath" At the same
time, the plaintiff had prepared, ready for filing, the
petition for the dissolution of the partnership and
appointment of a receiver, which he subsequently
filed, as hereinafter stated. On the day the mortgages
were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that
there was any intention to make then. At that
time none of the claims secured by the mortgages
were due, except, it may be, a small part of one of
them, and none of the creditors to whom the
mortgages were made had requested security, or were
pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition
of defeasance, and contain a stipulation authorizing
the mortgagees to take immediate possession of the
property, which they did as soon as the mortgages
were filed, through the attorney who then represented
them, as well as the plaintiff; and the stores were at
once closed, andpossession delivered by them to the
receiver appointed upon the filing of the petition. The
avowed purpose of the plaintiff in the course pursued
by him, was to terminate the partnership, place its
property beyond the control of the firm, and insure the
preference of the mortgages, all of which was known
to them at the time: ... . (Cas cit., p. 343, Emphasis
supplied)
It is natural that from these facts the Supreme Court of
Ohio should draw the conclusion that conveyances
were made with intent to terminate the partnership,
and that they were not within the powers of McGrath
as partner. But there is no similarly between those acts
and the sale by the widow of Tan Sin An. In the
McGrath case, the sale included even the fixtures
used in the business, in our case, the lands sold were
those acquired to be sold. In the McGrath case, none
of the creditors were pressing for payment; in our
case, the creditors had been unpaid for more than
seven years, and their claims had been approved by
the probate court for payment. In the McGrath case,
the partnership received nothing beyond the discharge
of its debts; in the present case, not only were its
debts assumed by the buyers, but the latter paid, in
addition, P37,000.00 in cash to the widow, to the profit
of the partnership. Clearly, the McGrath ruling is not
applicable.
We will now turn to the question to fraud. No direct
evidence of it exists; but appellant points out, as
indicia thereof, the allegedly low price paid for the
property, and the relationship between the buyers, the
creditors of the partnership, and the widow of Tan Sin
An.
First, as to the price: As already noted, this property
was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership
debts assumed by the purchaser. These debts
(P62,415.91 to Yutivo, and P54,310.13 to Sing Yee
Cuan & Co.) are not questioned; they were approved
by the Court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase
price of the land sold (due first to La Urbana, later to
the Banco Hipotecario) plus accrued interests and
taxes, redeemed by the two creditors-claimants. To
show that the price was inadequate, appellant relies
on the testimony of the realtor Mata, who in 1955, six
years after the sale in question, asserted that the land
was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation,
and the fact that the sale in question was practically a
forced sale because the partnership had no other
means to pay its legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to
justify rescission of the sale. If at the time of the sale
(1949 the price of P153,726.04 was really low, how is
it that appellant was not able to raise the amount, even
if the creditor's representative, Yu Khe Thai, had
already warned him four years before (1946) that the
creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged
to raise the sum needed to discharge the debts. But
the lands were already mortgaged, and had been
mortgaged since 1940, first to La Urbana, and then to
the Banco Hipotecario. Was it reasonable to expect
that other persons would loan money to the
partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since
1940? If it had been possible to find lenders willing to
take a chance on such a bad financial record, would
not Goquiolay have taken advantage of it? But the fact
is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts
of the partnership. Is he entitled now to cry fraud after
the debts were discharged with no help from him?
With regard to the relationship between the parties,
suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria
Hnos. vs. McMicking, 21 Phil., 243; also Hermandad
de Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz.,
1685). There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the
Yutivos should be willing to extend credit to them, and
not to appellant, is neither illegal nor immoral; at the
very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was
the victim of a conspiracy between the Yutivo firm and
their component members. But no proof is adduced. If
he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the
firm's debts between 1945 and 1949; but he did; he did
not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to
defraud him arose (as he claims) because of his
refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to have
the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of
which increased the risk that the supposed fraud
should be detected.
Neither was there any anomaly in the filing of the
claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings
for the settlement of the estate of Tan Sin An. This for
two reasons: First, Tan Sin An and the partnership
"Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco
Hipotecario), and Rule 87, section 6, is to the effect
that:
Where the obligation of the decedent is joint and
several with another debtor, the claim shall be
filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a
mortgage on the properties of the partnership and
those of Tan Sin An personally, and a mortgage in
indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt
(Civ. Code of 1889, Article 1860; New Civil Code, Art.
2089).
A final and conclusive consideration. The fraud
charged not being one used to obtain a party's consent
to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at all, it can only be
a fraud of creditors that gives rise to a rescission of the
offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New
Civil Code), "the action for rescission is subsidiary; it
can not be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation
from the widow and heirs of Tan Sin An, the present
suit to rescind the sale in question is not maintenable,
even if the fraud charged actually did exist.
Premises considered, the motion for reconsideration is
denied.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First
Instance of Davao dismissing the complaint filed by
Antonio C. Goquiolay, et al., seeking to annul the sale
made by Kong Chai Pin of three parcels of land to
Washington Z. Sycip and Betty Y. Lee on the ground
that it was executed without proper authority and
under fraudulent circumstances. In a decision
rendered on July 26, 1960, we affirmed this decision
although on grounds different from those on which the
latter is predicated. The case is once more before us
on a motion for reconsideration filed by appellants
raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C.
Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of
P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An
P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate
properties for subdivision, resale and lease. The
partnership was duly registered, and among the
conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An
would be the exclusive managing partner, and (2) in
the event of the death of any of the partners the
partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay
executed a general power of attorney in favor of Tan
Sin An appointing the latter manager of the partnership
and conferring upon him the usual powers of
management.
On May 29, 1940, the partnership acquired three
parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of
the partnership, with the capital originally invested,
financing the balance of the purchase price with a
mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00
payable in ten years. On the same date, Tan Sin An, in
his individual capacity, acquired 46 parcels of land
executing a mortgage thereon in favor of the same
company for the sum of P35,000.00. On September
25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario
de Filipinas and as a result Tan Sin An, in his
individual capacity, and the partnership bound
themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest
thereon within the period of eight years mortgaging in
favor of said entity the 3 parcels of land belonging to
the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived
by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On
March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An.
And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid
balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu
Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.,
called for Goquiolay and the two had a conference in
the office of the former during which he offered to buy
the interest of Goquiolay in the partnership. In 1948,
Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuo, to ask Goquiolay to execute in her
favor a power of attorney. Goquiolay refused both to
sell his interest in the partnership as well as to execute
the power of attorney.
Having failed to get Goquiolay to sell his share in the
partnership, Yutivo Sons Hardware Co., and Sing, Yee
and Cuan Co., Inc. filed in November, 1946 a claim
each in the intestate proceedings of Tan Sin An for the
sum of P84,705.48 and P66,529.91, respectively,
alleging that they represent obligations of both Tan Sin
An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the
two claims in an amended answer she filed on
February 28, 1947. The admission was predicated on
the ground that she and the creditors were closely
related by blood, affinity and business ties. On due
course, these two claims were approved by the court.
On March 29, 1949, more than two years after the
approval of the claims, Kong Chai Pin filed a petition in
the probate court to sell all the properties of the
partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for
authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a
deed of sale of the properties owned by Tan Sin An
and by the partnership in favor of Betty Y. Lee and
Washington Z. Sycip in consideration of the payment
to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.
in whose favor the buyers executed a mortgage on the
properties purchased. Betty Y. Lee and Washington Z.
Sycip subsequently executed a deed of sale of the
same properties in favor of their co-defendant Insular
Development Company, Inc. It should be noted that
these transactions took place without the knowledge of
Goquiolay and it is admitted that Betty Y. Lee and
Washington Z. Sycip bought the properties on behalf
of the ultimate buyer, the Insular Development
Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties,
Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the
court approving the sale. The court granted the
petition. While the order was pending appeal in the
Supreme Court, Goquiolay filed the present case on
January 15, 1953 seeking to nullify the sale as stated
in the early part of this decision. In the meantime, the
Supreme Court remanded the original case to the
probate court for rehearing due to lack of necessary
parties.
The plaintiffs in their complaint challenged the
authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to
sell because even granting that she became a partner
upon the death of Tan Sin An the power of attorney
granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity
of the sale on the theory that she succeeded to all the
rights and prerogatives of Tan Sin An as managing
partner.
The trial court sustained the validity of the sale on the
ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner
to represent him in the partnership after hid death
Kong Chai Pin became a managing partner, this being
the capacity held by Tan Sin An when he died.
In the decision rendered by this Court on July 26,
1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the
power of attorney given by Goquiolay to Tan Sin An as
manager of the partnership expired after his death; (2)
his widow Kong Chai Pin did not inherit the
management of the partnership, it being a personal
right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the
capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she
exercised certain alleged acts of management; and (5)
the sale being necessary to pay the obligations of the
partnership, she was therefore authorized to sell the
partnership properties without the consent of
Goquiolay under the principle of estoppel, the buyers
having the right to rely on her acts of management and
to believe her to be in fact the managing partner.
Considering that some of the above findings of fact
and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for
reconsideration which because of the importance of
the issues therein raised has been the subject of
mature deliberation.
In support of said motion, appellants advanced the
following arguments:
1. If the conclusion of the Court is that heirs as a
general rule enter the partnership as limited partners
only, therefore Kong Chai Pin, who must necessarily
have entered the partnership as a limited
partner originally, could have not chosen to be a
general partner by exercising the alleged acts of
management, because under Article 148 of the Code
of Commerce a limited partner cannot intervene in the
management of the partnership even if given a power
of attorney by the general partners. An Act prohibited
by law cannot give rise to any right and is void under
the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all
of them being members of the Yu (Yutivo) family, the
rest, members of the law firm which handles the Yutivo
interests and handled the papers of sale. They did not
rely on the alleged acts of management they
believed (this was the opinion of their lawyers) that
Kong Chai Pin succeeded her husband as a managing
partner and it was on this theory alone that they
submitted the case in the lower court.
3. The alleged acts of management were denied and
repudiated by the very witnesses presented by the
defendants themselves.
The arguments advanced by appellants are in our
opinion well-taken and furnish sufficient basis to
reconsider our decision if we want to do justice to
Antonio C. Goquiolay. And to justify this conclusion, it
is enough that we lay stress on the following points: (1)
there is no sufficient factual basis to conclude that
Kong Chai Pin executed acts of management to give
her the character of general manager of the
partnership, or to serve as basis for estoppel that may
benefit the purchasers of the partnership properties;
(2) the alleged acts of management, even if proven,
could not give Kong Chai Pin the character of general
manager for the same is contrary to law and well-
known authorities; (3) even if Kong Chai Pin acted as
general manager she had no authority to sell the
partnership properties as to make it legal and valid;
and (4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership and
if she did so it was merely to favor the purchasers who
were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not
execute the acts of management imputed to her our
ruling we apparently gave particular importance to the
fact that it was Goquiolay himself who tried to prove
the acts of management. Appellants, however, have
emphasized the fact, and with reason, that
the appellees themselves are the ones who denied
and refuted the so-called acts of management imputed
to Kong Chai Pin. To have a clear view of this factual
situation, it becomes necessary that we analyze the
evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-
examination that he had a conversation with one
Hernando Young in Manila in the year 1945 who
informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and
she had no other means of livelihood except those
properties and some rentals derived from the
properties." He went on to say by way of remark that
she could continue doing this because he wanted to
help her. On point that he emphasized was that he
was "not interested in agricultural lands."
On the other hand, defendants presented Hernando
Young, the same person referred to by Goquiolay, who
was a close friend of the family of Kong Chai Pin, for
the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and
insisted no less than six times during his testimony
that he was not in Manila in 1945, the year when he
allegedly gave the information to Goquiolay, stating
that he arrived in Manila for the first time in 1947. He
testified further that he had visited the partnership
properties during the period covered by the alleged
information given by him to Goquiolay and that he
found them "abandoned and underdeveloped," and
that Kong Chai Pin was not deriving any income from
them.
The other witness for the defendants, Rufino Lim, also
testified that he had seen the partnership properties
and corroborated the testimony of Hernando Young in
all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato,
and the family of Kong Chai Pin did not receive any
income from the partnership properties." He
specifically rebutted the testimony of Goquiolay in his
deposition given on June 30, 1956 that Kong Chai Pin
and her family were living in the partnership properties
and stated that the 'family never actually lived in the
properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely
repeating an information given to him by a third
person, Hernando Young he stressed this point
twice. A careful analysis of the substance of
Goquiolay's testimony will show that he merely had no
objection to allowing Kong Chai Pin to continue
attending to the properties in order to give her some
means of livelihood, because, according to the
information given him by Hernando Young, which he
assumed to be true, Kong Chai Pin had no other
means of livelihood. But certainly he made it very clear
that he did not allow her tomanage the
partnership when he explained his reason for refusing
to sign a general power of attorney for Kong Chai Pin
which her counsel, Atty. Zuo, brought with him to his
house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with
him Atty. Zuo and he asked me if I could execute a
general power of attorney for Mrs. Kong Chai Pin.
Then I told Atty. Zuo what is the use of executing a
general power of attorney for Mrs. Kong Chai Pin
when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for
agricultural purposes she can use that plantation ...
(T.s.n., p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was
categorically stating his opposition to the management
of the partnership by Kong Chai Pin and carefully
made the distinction that his conformity was for her to
attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that
the period covered by the testimony refers to the
period of occupation when living condition was difficult
and precarious. And Atty. Zuo, it should also be
stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to
whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly
controverted. The most that we can say is that the
alleged acts are doubtful more so when they are
disputed by the defendants themselves who later
became the purchasers of the properties, and yet
these alleged acts, if at all, only refer to management
of the properties and not to management of the
partnership, which are two different things.
In resume, we may conclude that the sale of the
partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the
alleged acts of management have not been clearly
proven; second, because the record clearly shows that
the defendants, or the buyers, were not misled nor did
they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty.
Quisumbing, to the effect that she succeeded her
husband in the partnership as managing partner by
operation of law; and third, because the defendants
are themselves estopped to invoke a defense which
they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management
imputed to Kong Chai Pin are true, could such acts
give her the character of general manager of the
partnership as we have concluded in our decision?
Out answer is in the negative because it is contrary to
law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere
acceptance of the inheritance does not make the heir
of a general partner a general partner himself. He
emphasized that the heir must declare that he is
entering the partnership as a general partner unless
the deceased partner has made it an express
condition in his will that the heir accepts the condition
of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the
inheritance is enough.1But here Tan Sin An died
intestate.
Now, could Kong Chai Pin be deemed to have
declared her intention to become general partner by
exercising acts of management? We believe not, for,
in consonance with out ruling that as a general rule the
heirs of a deceased partner succeed as limited
partners only by operation of law, it is obvious that the
heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be
deemed as having succeeded as limited partner by the
mere acceptance of inheritance. And here Kong Chai
Pin did not make such declaration. Being then a
limited partner upon the death of Tan Sin An by
operation of law, the peremptory prohibition contained
in Article 1482 of the Code of Commerce became
binding upon her and as a result she could not change
her status by violating its provisions not only under the
general principle that prohibited acts cannot produce
any legal effect, but also because under the provisions
of Article 1473 of the same Code she was precluded
from acquiring more rights than those pertaining to her
as a limited partner. The alleged acts of management,
therefore, did not give Kong Chai Pin the character of
general manager to authorize her to bind the
partnership.
Assuming also arguendo that the alleged acts of
management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the
partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the
provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the
Civil Code. Thus, Article 129 of the Code of Commerce
says:
If the management of the general partnership has not
been limited by special agreement to any of the
members, all shall have the power to take part in the
direction and management of the common business,
and the members present shall come to an agreement
for all contracts or obligations which may concern the
association.
And the pertinent portions of the Articles of partnership
provides:
VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the
managing partner may delegate the entire
management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as
regards compensation as he may deem proper, and
vest in such person, firm or corporation full power and
authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his
behalf which he as such managing partner might do or
cause to be done. (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing
partner are not defined either under the provisions of
the Code of Commerce or in the articles of
partnership, a situation which, under Article 2 of the
same Code, renders applicable herein the provisions
of the Civil Code, And since, according to well-known
authorities, the relationship between a managing
partner and the partnership is substantially the same
as that of the agent and his principal,4the extent of the
power of Kong Chai Pin must, therefore, be
determined under the general principles governing
agency. And, on this point, the law says that an
agency created in general terms includes only acts of
administration, but with regard to the power to
compromise, sell, mortgage, and other acts of strict
ownership, an express power of attorney is
required.5 Here Kong Chai Pin did not have such
power when she sold the properties of the partnership.
Of course, there is authority to the effect that a
managing partner, even without express power of
attorney, may perform acts affecting ownership if the
same are necessary to promote or accomplish a
declared object of the partnership, but here the
transaction is not for this purpose. It was effected not
to promote any avowed object of the
partnership.6 Rather, the sale was effected to pay an
obligation of the partnership by selling its real
properties which Kong Chai Pin could not do without
express authority. The authorities supporting this view
are overwhelming.
La enajenacion puede entrar en las facultades del
gerente, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociales, viene limitada a
los objetos de comercio, o los productos de la fabrica
para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario. Por el
contrario, el gerente no tiene atribuciones para vender
las instalaciones del comercio ni la fabrica, ni las
maquinarias, vehiculos de transporte, etc., que forman
parte de la explotacion social. En todos estas casos,
igualmente que si tratase de la venta de una marca o
procedimiento mecanico o quimico, etc., siendo actos
de disposicion seria necesario contar con la
conformidad expresa de todos los socios. (R. Gay de
Montella, id., pp. 223-224, Emphasis supplied)
Los poderes de los Administradores no tienen ante el
silencio del contrato otros limites que los sealados
por el objeto de la Sociedad y, por consiguiente,
pueden llevar a cabo todas las operaciones que sirven
para aquel ejercicio, incluso cambiando repetidas
veces los propios acuerdos segun el interes convenido
de la Sociedad. Pueden contratar y despedir a los
empleados, tomar en arriendo almacenas y tiendas,
expedir cambiales, girarlas, avalarlas, dar en prenda o
en hipoteca los bienes de la sociedad y adquirir
inmuebles destinados a su explotacion o al empleo
estable de sus capitales. Pero no podran ejecutar los
actos que estan en contradiccion con la explotacion
que les fue confiada no podran cambiar el objeto, el
domicilio la razon social; fundir a la Sociedad en otra;
ceder la accion, y por tanto, el uso de la firma social a
otro renunciar definitivamente el ejercicio de uno de
otro ramo comercio que se les haya confiado y
enajenar o piqnorar el taller o el banco social excepto
que la venta o piqnoracion tengan por el objeto
procurar los medios necesarios para la continuacion
de la empresa social. (Cesar Vivante, Tratado de
Derecho Mercantil, pp.
124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be
necessary for the carrying on of its business. If all that
can be said of it was that it was convenient, or that it
facilitated the transaction of the business of the firm,
that is not sufficient, in the absence of evidence of
saction by other partners. Nor, it seems, will necessity
itself be sufficient if it be an extraordinary necessity.
What is necessary for carrying on the business of the
firm under ordinary circumstances and in the usual
way, is the test. Lindl. Partn. Sec. 126. While, within
this rule, one member of a partnership may, in the
usual and ordinary course of its business, make a valid
sale or pledge, by way of mortgage or otherwise, of all
or part of its effects intended for sale, to a bona fide
purchaser or mortgage, without the consent of the
other members of the firm, it is not within the scope of
his implied authority to make a final disposition of all of
its effects, including those employed as the means of
carrying on its business, the object and effect of which
is to immediately terminate the partnership, and place
its property beyond its control. Such a disposition,
instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying
it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of
the partnership in its formation. (McGrath, et al. vs.
Cowen, et al., 49 N.F. 338, 343; Emphasis supplied)
Since Kong Chai Pin sold the partnership properties
not in line with the business of the partnership but to
pay its obligation without first obtaining the consent of
the other partners, the sale is invalid being in excess
of her authority.
4. Finally, the same under consideration was effected
in a suspicious manner as may be gleaned from the
following circumstances:
(a) The properties subject of the instant sale which
consist of three parcels of land situated in the City of
Davao have an area of 200 hectares more or less, or
2,000,000 square meters. These properties were
purchased by the partnership for purposes of
subdivision. According to realtor Mata, who testified in
court, these properties could command at the time he
testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which
took over the administration, since the date of sale no
improvement was ever made thereon precisely
because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for
the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai
Pin had no valid reason to sell them if her purpose was
only to pay the partnership's obligation. She could
have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell
them even at such low prices because of her close
relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, sum of P3,375 each, have been made the subject of in the purchase of the trucks, is fully established by the
as may be seen from the following relationship of their the present action, and are exhibited with the document executed by the four appellants upon June
pedigree: complaint in the cause. One was signed by Marcelo 12, 1913. The transaction by which Barba secured
Barba in the following manner: these trucks was in conformity with the tenor of this
KONG CHAI PIN, the administratrix, was a "P. P. La Protectora document. The promissory notes constitute the
granddaughter of Jose P. Yutivo, founder of the By Marcelo Barba obligation exclusively of "La protectora" and of Marcelo
defendant Yutivo Sons Hardware Co. YUTIVO SONS Marcelo Barba," Barba; and they do not in any sense constitute an
HARDWARE CO, and SIN YEE CUAN CO, INC., The other two notes are signed in the same way with obligation directly binding on the four appellants. Their
alleged creditors, are owned by the heirs of Jose P. the word "By" omitted before the name of Marcelo liability is based on the fact that they are members of
Yutivo (Sing, Yee & Cuan are the three children of Barba in the second line of the signature. It is obvious the civil partnership and as such are liable for its
Jose). YU KHE THAI is a grandson of the same Jose that in thus signing the notes Marcelo Barba intended debts. It is true that article 1698 of the Civil Code
P. Yutivo, and president of the two alleged creditors. to bind both . the partnership and himself. In the body declares that a member of a civil partnership is not
He is the acknowledged head of the Yu families. of the note the word "I" (yo) instead of "we" (nosotros) liable in solidum(solidariamente) with his fellows for its
WASHINGTON Z. SYCIP, one of the original buyers, is used before the words "promise to pay" entire indebtedness; but it results from this article, in
is married to Ana Yu, a daughter of Yu Khe Thai, (prometemos) used in the printed form. It is plain that connection with article 1137 of the Civil Code, that
BETTY Y. LEE, the other original buyer is also a the singular pronoun here has all the force of the each is liable with the others (mancomunadamente)
daughter of Yu Khe Thai. The INSULAR plural. for his aliquot part of such indebtedness. And so it has
DEVELOPMENT CO., the ultimate buyer, was As preliminary to the purchase of these trucks, the been held by this court. (Co-Pitco vs. Yulo, 8 Phil.
organized for the specific purpose of buying the defendants Nicolas Segundo, Antonio Adiarte, Ignacio Rep., 544.)
partnership properties. Its incorporators were: Ana Yu Flores, and Modesto Serrano, upon June 12, 1913, The Court of First Instance seems to have founded its
and Betty V. Lee, Atty. Quisumbing and Salazar the executed in due form a document in which they judgment against the appellants in part upon the idea
lawyers who studied the papers of sale and have been declared that they were members of the firm "La that the document executed by them constituted an
counsel for the Yutivo interests; Dalton Chen a Protectora" and that they had granted to its president authority for Marcelo Barba to bind them personally, as
brother-in-law of Yu Khe Thai and an executive of Sing full authority "in the name and representation of said contemplated in the second clause of article 1698 of
Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, partnership to contract for the purchase of two the Civil Code. That clause says that no member of
an executive of Yutivo Sons Hardware, and Simeon automobiles" (en nombre y representation de la the partnership can bind the others by a personal act if
Daguiwag, a trusted employee of the Yutivos. mencionada sociedad contratante la compra de dos they have not given him authority to do so. We think
(c) Lastly, even since Tan Sin An died in 1942 the automoviles). This document was apparently executed that the document referred to was intended merely as
creditors, who were close relatives of Kong Chai Pin, in obedience to the requirements of subsection 2 of an authority to enable Barba to bind the partnership
have already conceived the idea of possessing the article 1697 of the Civil Code, for the purpose of and that the parties to that instrument did not intend
lands for purposes of subdivision, excluding Goquiolay evidencing the authority of Marcelo Barba to bind the thereby to confer upon Barba an authority to bind them
from their plan, and this is evident from the following partnership by the purchase. The document in personally. It is obvious that the contract which Barba
sequence of events: question was delivered by him to Bachrach at the time in fact executed in pursuance of that authority did not
Tan Sin An died in 1942 and intestate proceedings the automobiles were purchased. by its terms profess to bind the appellants personally
were opened in 1944. In 1946, the creditors of the From time to time after this purchase was made, at all, but only the partnership and himself. It follows
partnership filed their claim against the partnership in Marcelo Barba purchased of the plaintiff various that the four appellants cannot be held to have been
the intestate proceedings. The creditors studied ways automobile effects and accessories to be used in the personally obligated by that instrument; but, as we
and means of liquidating the obligation of the business of "La Protectora." Upon May 21, 1914, the have already seen, their liability rests upon the general
partnership, leading to the formation of the defendant indebtedness resulting from these additional principles underlying partnership liability.
Insular Development Co., composed of members of purchases amounted to the sum of P2,916.57 As to so much of the indebtedness as is based upon
the Yutivo family and the counsel of record of the In May, 1914, the plaintiff foreclosed a chattel the claim for automobile supplies and accessories, it is
defendants, which subsequently bought the properties mortgage which he had retained on the trucks in order obvious that the document of June 12, 1313, affords
of the partnership and assumed the obligation of the to secure the purchase price. The amount realized no authority for holding the appellants liable. Their
latter in favor of the creditors of the partnership, Yutivo from this sale was Pl,000. This was credited upon the liability upon this account is, however, no less obvious
Sons Hardware and Sing, Yee & Cuan, also of the notes, but a considerable sum still remained unpaid. than upon the debt incurred by the purchase of the
Yutivo family. The buyers took time to study the To recover this balance, together with the sum due for trucks; and such liability is derived from the fact that
commercial potentialities of the partnership properties the additional purchases, the present action was the debt was lawfully incurred in the prosecution of the
and their lawyers carefully studied the document and instituted in the Court of First Instance of the city of partnership enterprise.
other papers involved in the transaction. All these Manila, upon May 29, 1914, against "La Protectora" There is no proof in the record showing what
steps led finally to the sale of the three partnership and the five individuals Marcelo Barba, Nicolas agreement, if any, was made with regard to the form of
properties. Segundo, Antonio Adiarte, Ignacio Flores, and management. Under these circumstances it is
Upon the strength of the foregoing considerations, I Modesto Serrano. No question has been made as to declared in article 1695 of the Civil Code that all the
vote to grant motion for reconsideration. the propriety of impleading "La Protectora" as if it were partners are considered agents of the partnership.
a legal entity. At the hearing, judgment was rendered Barba therefore must be held to have had authority to
16. Bachrach vs La Protectora 1918 37 Phil against all of the defendants. From this judgment no incur these expenses. But in addition to this he is
E. M. BACHRACH, PLAINTIFF AND APPELLEE, VS. appeal was taken in behalf either of "La Protectora' or shown to have been in fact the president or manager,
"LA PROTECTORA" ET AL., DEFENDANTS AND Marcelo Barba; and their liability is not here under and there can be no doubt that he had actual authority
APPELLANTS. consideration. The four individuals who signed the to incur this obligation.
document to which reference has been made, From what has been said it results that the appellants
In the year 1913, the individuals named as defendants authorizing Barba to purchase the two trucks have, are severally liable for their respective shares of the
in this action formed a civil partnership, called "La however, appealed and assigned errors. The question entire indebtedness found to be due; and the Court of
Protectora," for the purpose of engaging in the here to be determined is whether or not these First Instance committed no error in giving judgment
business of transporting passengers and freight at individuals are liable for the firm debts and if so to against them. The amount for which judgment should
Laoag, Ilocos Norte. In order to provide the enterprise what extent. be entered is P7,037, to which shall be added (1)
with means of transportation, Marcelo Barba, acting as The amount of the indebtedness owing to the plaintiff interest at 10 per cent per annum from June 23, 1913,
manager, came to Manila and upon June 23, 1913, is not in dispute, as the principal of the debt is agreed to be calculated upon the sum of P4.121; (2). interest
negotiated the purchase of two automobile trucks from to be P7,037. Of this amount it must now be assumed, at 6 per cent per annum from July 21,1915, to be
the plaintiff, E. M. Bachrach, for the agreed price of in view of the finding of the trial court, from which no calculated upon the sum of P2,961; (3) the further sum
P16,500. He paid the sum of 3,000 in cash, and for the appeal has been taken by the plaintiff, that the unpaid of P1,030.25, this being the amount stipulated to be
balance executed promissory notes representing the balance of the notes amounts to P4,121, while the paid by way of attorney's fees. However, it should be
deferred payments. These notes provided for the remainder (P2,916) represents the amount due for noted that any property pertaining to "La Protectora"
payment of interest from June 23, 1913, the date of automobile supplies and accessories. should first be applied to this indebtedness pursuant to
the notes, at the rate of 10 per cent per annum. The business conducted under the name of "La the judgment already entered in this case in the court
Provision was also made in the notes for the payment Protectora" was evidently that of a civil partnership; below; and each of the four appellants shall be liable
of 25 per cent of the amount due if it should be and the liability of the partners to this association must only for the one-fifth part of the remainder unpaid.
necessary to place the notes in the hands of an be determined under the provisions of the Civil Code. Let judgment be entered accordingly, without any
attorney for collection. Three of these notes, for the The authority of Marcelo Barba to bind the partnership, express finding of costs of this instance. So ordered.

Art 1805-1809
Antonio Pardo vs Hercules Lumber Aug 1 1924
ANTONIO PARDO, petitioner,
vs.THE HERCULES LUMBER CO., INC., and
IGNACIO FERRER, respondents.
The petitioner, Antonio Pardo, a stockholder in the
Hercules Lumber Company, Inc., one of the
respondents herein, seeks by this original proceeding
in the Supreme Court to obtain a writ of mandamus to
compel the respondents to permit the plaintiff and his
duly authorized agent and representative to examine
the records and business transactions of said
company. To this petition the respondents interposed
an answer, in which, after admitting certain allegations
of the petition, the respondents set forth the facts upon
which they mainly rely as a defense to the petition. To
this answer the petitioner in turn interposed a
demurrer, and the cause is now before us for
determination of the issue thus presented.
It is inferentially, if not directly admitted that the
petitioner is in fact a stockholder in the Hercules
Lumber Company, Inc., and that the respondent,
Ignacio Ferrer, as acting secretary of the said
company, has refused to permit the petitioner or his
agent to inspect the records and business transactions
of the said Hercules Lumber Company, Inc., at times
desired by the petitioner. No serious question is of
course made as to the right of the petitioner, by
himself or proper representative, to exercise the right
of inspection conferred by section 51 of Act No. 1459.
Said provision was under the consideration of this
court in the case of Philpotts vs. Philippine
Manufacturing Co., and Berry (40 Phil., 471), where
we held that the right of examination there conceded
to the stockholder may be exercised either by a
stockholder in person or by any duly authorized agent
or representative.
The main ground upon which the defense appears to
be rested has reference to the time, or times, within
which the right of inspection may be exercised. In this
connection the answer asserts that in article 10 of the
By-laws of the respondent corporation it is declared
that "Every shareholder may examine the books of the
company and other documents pertaining to the same
upon the days which the board of directors shall
annually fix." It is further averred that at the directors'
meeting of the respondent corporation held on
February 16, 1924, the board passed a resolution to
the following effect:
The board also resolved to call the usual general
(meeting of shareholders) for March 30 of the present
year, with notice to the shareholders that the books of
the company are at their disposition from the 15th to
25th of the same month for examination, in appropriate
hours.
The contention for the respondent is that this
resolution of the board constitutes a lawful restriction
on the right conferred by statute; and it is insisted that
as the petitioner has not availed himself of the
permission to inspect the books and transactions of
the company within the ten days thus defined, his right
to inspection and examination is lost, at least for this
year.
We are entirely unable to concur in this contention.
The general right given by the statute may not be
lawfully abridged to the extent attempted in this
resolution. It may be admitted that the officials in
charge of a corporation may deny inspection when
sought at unusual hours or under other improper
conditions; but neither the executive officers nor the
board of directors have the power to deprive a
stockholder of the right altogether. A by-law unduly
restricting the right of inspection is undoubtedly invalid.
Authorities to this effect are too numerous and direct to
require extended comment. (14 C.J., 859; 7 R.C.L.,
325; 4 Thompson on Corporations, 2nd ed., sec. 4517;
Harkness vs. Guthrie, 27 Utah, 248; 107 Am., St.
Rep., 664. 681.) Under a statute similar to our own it
has been held that the statutory right of inspection is
not affected by the adoption by the board of directors
of a resolution providing for the closing of transfer
books thirty days before an election. (State vs. St.
Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right
of inspection can be exercised "at reasonable hours."
This means at reasonable hours on business days
throughout the year, and not merely during some
arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which
reference is above made, the answer of the
respondents calls in question the motive which is
supposed to prompt the petitioner to make inspection;
and in this connection it is alleged that the information
which the petitioner seeks is desired for ulterior
purposes in connection with a competitive firm with
which the petitioner is alleged to be connected. It is
also insisted that one of the purposes of the petitioner
is to obtain evidence preparatory to the institution of an
action which he means to bring against the corporation
by reason of a contract of employment which once
existed between the corporation and himself. These
suggestions are entirely apart from the issue, as,
generally speaking, the motive of the shareholder
exercising the right is immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the
petition and the admissions of the answer, the
petitioner is entitled to relief. The demurrer is,
therefore, sustained; and the writ of mandamus will
issue as prayed, with the costs against the
respondent. So ordered.
Evangelista and Co vs Estrella Abad Santos
EVANGELISTA & CO., DOMINGO C.
EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.ESTRELLA ABAD SANTOS, respondent.
On October 9, 1954 a co-partnership was formed
under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as
to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of
P17,500 each. The amended Articles provided, inter
alia, that "the contribution of Estrella Abad Santos
consists of her industry being an industrial partner",
and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of
70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo
Atienza Abad Santos to be divided among them
equally; and 30% for the fourth partner Estrella Abad
Santos."
On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which
was also made a party-defendant, had been paying
dividends to the partners except to her; and that
notwithstanding her demands the defendants had
refused and continued to refuse and let her examine
the partnership books or to give her information
regarding the partnership affairs to pay her any share
in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to
render accounting to her of the partnership business
and to pay her corresponding share in the partnership
profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having
declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the
partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties,
which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to
the partnership; and that her share of 30% was to be
based on the profits which might be realized by the
partnership only until full payment of the loan which it
had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory
note as co-maker and mortgaged her property as
security.
The parties are in agreement that the main issue in
this case is "whether the plaintiff-appellee (respondent
here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits
that may be realized by the partnership from June 7,
1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by
appellants (herein petitioners)." On that issue the
Court of First Instance found for the plaintiff and
rendered judgement "declaring her an industrial
partner of Evangelista & Co.; ordering the defendants
to render an accounting of the business operations of
the (said) partnership ... from June 7, 1955; to pay the
plaintiff such amounts as may be due as her share in
the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs
of this suit."
The defendants appealed to the Court of Appeals,
which thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned
the following errors:
I. The Court of Appeals erred in the finding that the
respondent is an industrial partner of Evangelista &
Co., notwithstanding the admitted fact that since 1954
and until after promulgation of the decision of the
appellate court the said respondent was one of the
judges of the City Court of Manila, and despite its
findings that respondent had been paid for services
allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-
partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of
Evangelista & Co.
(B) In not finding that a portion of respondent's
testimony quoted in the decision proves that said
respondent did not bind herself to contribute her
industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of
Manila since 1954.
(C) In finding that respondent did not in fact contribute
her industry, despite the appellate court's own finding
that she has been paid for the services allegedly
rendered by her, as well as for the loans of money
made by her to the partnership.
II. The lower court erred in not finding that in any event
the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in toto the
decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of
the business operation of the partnership from June 7,
1955, and to pay the respondent her alleged share in
the net profits of the partnership plus the sum of
P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with
costs, against the respondent.
It is quite obvious that the questions raised in the first
assigned errors refer to the facts as found by the Court
of Appeals. The evidence presented by the parties as
the trial in support of their respective positions on the
issue of whether or not the respondent was an
industrial partner was thoroughly analyzed by the
Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of
the witnesses.
It is not the function of the Supreme Court to analyze
or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have
been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did
not hold that the Articles of Co-partnership, identified
in the record as Exhibit "A", was conclusive evidence
that the respondent was an industrial partner of the
said company, but considered it together with other
factors, consisting of both testimonial and
documentary evidences, in arriving at the factual
conclusion expressed in the decision.
The findings of the Court of Appeals on the various
points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the
same were made after a through analysis of then
evidence, and hence are beyond this Court's power of
review.
The aforequoted findings of the lower Court are
assailed under Appellants' first assigned error, wherein
it is pointed out that "Appellee's documentary evidence
does not conclusively prove that appellee was in fact
admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds relied upon
by the lower Court are untenable" (Pages 21 and 26,
Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N
and S, appellants' complaint being that "In finding that
the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the
partnership the lower court relied mainly on the
appellee's documentary evidence, entirely
disregarding facts and circumstances established by
appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not
have done otherwise but rely on the exhibits just
mentioned, first, because appellants have admitted
their genuineness and due execution, hence they were
admitted without objection by the lower court when
appellee rested her case and, secondly the said
exhibits indubitably show the appellee is an industrial
partner of appellant company. Appellants are virtually
estopped from attempting to detract from the probative
force of the said exhibits because they all bear the
imprint of their knowledge and consent, and there is no
credible showing that they ever protested against or
opposed their contents prior of the filing of their
answer to appellee's complaint. As a matter of fact, all
the appellant Evangelista, Jr., would have us believe
as against the cumulative force of appellee's
aforesaid documentary evidence is the appellee's
Exhibit "A", as confirmed and corroborated by the
other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the
real understanding between them being the appellee
would be merely a profit sharer entitled to 30% of the
net profits that may be realized between the partners
from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have
been fully paid. This version, however, is discredited
not only by the aforesaid documentary evidence
brought forward by the appellee, but also by the fact
that from June 7, 1955 up to the filing of their answer
to the complaint on February 8, 1964 or a period of
over eight (8) years appellants did nothing to
correct the alleged false agreement of the parties
contained in Exhibit "A". It is thus reasonable to
suppose that, had appellee not filed the present action,
appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true
intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make
much of the argument that 'there is an overriding fact
which proves that the parties to the Amended Articles
of Partnership, Exhibit "A", did not contemplate to
make the appellee Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted fact that
since before the execution of the amended articles of
partnership, Exhibit "A", the appellee Estrella Abad
Santos has been, and up to the present time still is,
one of the judges of the City Court of Manila, devoting
all her time to the performance of the duties of her
public office. This fact proves beyond peradventure
that it was never contemplated between the parties, for
she could not lawfully contribute her full time and
industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider
appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted
without gaining the very definite impression that, even
as she was and still is a Judge of the City Court of
Manila, she has rendered services for appellants
without which they would not have had the
wherewithal to operate the business for which
appellant company was organized. Article 1767 of the
New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves, 'does not specify the kind of industry that
a partner may thus contribute, hence the said services
may legitimately be considered as appellee's
contribution to the common fund. Another article of the
same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to
damages in either case.'
It is not disputed that the provision against the
industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure
faithful compliance by said partner with this prestation.
There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to
that of appellant company, since being a Judge of one
of the branches of the City Court of Manila can hardly
be characterized as a business. That appellee has
faithfully complied with her prestation with respect to
appellants is clearly shown by the fact that it was only
after filing of the complaint in this case and the answer
thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their
Supplemental Answer dated June 29, 1964 or after
around nine (9) years from June 7, 1955
subsequent to the filing of defendants' answer to the
complaint, defendants reached an agreement whereby
the herein plaintiff been excluded from, and deprived
of, her alleged share, interests or participation, as an
alleged industrial partner, in the defendant partnership
and/or in its net profits or income, on the ground
plaintiff has never contributed her industry to the
partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City
of Manila, devoting her time to performance of her
duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from
teaching in law school in Manila, without the express
consent of the herein defendants' (Record On Appeal,
pp. 24-25). Having always knows as a appellee as a
City judge even before she joined appellant company
on June 7, 1955 as an industrial partner, why did it
take appellants many yearn before excluding her from
said company as aforequoted allegations? And how
can they reconcile such exclusive with their main
theory that appellee has never been such a partner
because "The real agreement evidenced by Exhibit "A"
was to grant the appellee a share of 30% of the net
profits which the appellant partnership may realize
from June 7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance Corporal
shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the
lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a
formal accounting and to receive her share in the net
profit that may result from such an accounting, which
right appellants take exception under their second
assigned error. Our said holding is based on the
following article of the New Civil Code:
'ART.1899. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
We find no reason in this case to depart from the rule
which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.
Fue Leung vs IAC 169 SCRA 746 1989
DAN FUE LEUNG, petitioner,
vs.HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
The petitioner asks for the reversal of the decision of
the then Intermediate Appellate Court in AC-G.R. No.
CV-00881 which affirmed the decision of the then
Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung
Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in
the annual profits of the said restaurant
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual
profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan
Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was
registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the
case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as
follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of
the P4,000.00 by affixing his signature thereto. The
receipt was written in Chinese characters so that the
trial court commissioned an interpreter in the person of
Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that
the translation to the best of her knowledge and belief
was correct. The private respondent identified the
signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his
(private respondents') presence. Witnesses So Sia
and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were
both present when the receipt (Exhibit "A") was signed
by the petitioner. So Sia further testified that he himself
received from the petitioner a similar receipt (Exhibit D)
evidencing delivery of his own investment in another
amount of P4,000.00 An examination was conducted
by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for
examination of certain documentary exhibits. The
signatures in Exhibits "A" and 'D' when compared to
the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah
Heng and Maria Wong (Exhibits H, H-1 to H-24)
showed that the signatures in the two receipts were
indeed the signatures of the petitioner.
Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 covered by the
latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz,
Chief of the Savings Department of the China Banking
Corporation testified that said check (Exhibit B) was
deposited by and duly credited to the private
respondents savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking
Corporation. Another witness Elvira Rana of the
Equitable Banking Corporation testified that the check
in question was in fact and in truth drawn by the
petitioner and debited against his own account in said
bank. This fact was clearly shown and indicated in the
petitioner's statement of account after the check
(Exhibit B) was duly cleared. Rana further testified that
upon clearance of the check and pursuant to normal
banking procedure, said check was returned to the
petitioner as the maker thereof.
The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested
and impugned the genuineness of the receipt (Exhibit
D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the
sole owner of the restaurant, the petitioner presented
various government licenses and permits showing the
Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to
the private respondent the receipt (Exhibit G) and the
Equitable Banking Corporation's Check No. 13389470
B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the
trial court gave credence to that of the plaintiffs.
Hence, the court ruled in favor of the private
respondent. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff and against the defendant, ordering the
latter to deliver and pay to the former, the sum
equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955,
until fully paid, and attorney's fees in the amount of
P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for
reconsideration in the nature of a motion for new trial
and, as supplement to the said motion, he requested
that the decision rendered should include the net profit
of the Sun Wah Panciteria which was not specified in
the decision, and allow private respondent to adduce
evidence so that the said decision will be
comprehensively adequate and thus put an end to
further litigation.
The motion was granted over the objections of the
petitioner. After hearing the trial court rendered an
amended decision, the dispositive portion of which
reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the
motion for reconsideration filed by the plaintiff, which
was granted earlier by the Court, is hereby reiterated
and the decision rendered by this Court on September
30, 1980, is hereby amended. The dispositive portion
of said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering
the plaintiff (sic) and against the defendant, ordering
the latter to pay the former the sum equivalent to 22%
of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit.
(p. 150, Rollo)
The petitioner appealed the trial court's amended
decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the
appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is
modified, the dispositive portion thereof reading as
follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00
a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit
of P8,000.00 a day from May 16, 1971 to August 30,
1975;
3. And thereafter until fully paid the sum equivalent to
22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is
affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its
decision and affirmed the lower court's decision. The
dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant, ordering the latter
to pay to the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being
understood that the date of judicial demand is July 13,
1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration
filed by petitioner was denied.
Both the trial court and the appellate court found that
the private respondent is a partner of the petitioner in
the setting up and operations of the panciteria. While
the dispositive portions merely ordered the payment of
the respondents share, there is no question from the
factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared
that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous.
Thus, the petitioner argues: "The complaint avers that
private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits
of the restaurant. The same complaint did not claim
that private respondent is a partner of the business. It
was, therefore, a serious error for the lower court and
the Hon. Intermediate Appellate Court to grant a relief
not called for by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret or
construe 'financial assistance' to mean the contribution
of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah
Panciteria, located in the given address of defendant;
as a return for such financial assistance. plaintiff would
be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said
panciteria;
3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos
(P4,000.00), Philippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex "A", and form
an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when
Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding that
he would be entitled to twenty-two percent (22%) of
the annual profit derived from the operation of the said
panciteria. These allegations, which were proved,
make the private respondent and the petitioner
partners in the establishment of Sun Wah Panciteria
because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons
bind themselves to contribute money, property or
industry to a common fund, with the intention of
dividing the profits among themselves".
Therefore, the lower courts did not err in construing
the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial
assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of
money to another without the expectation of any
returns therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But
this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' (p.
99, Rollo) The complaint explicitly stated that "as a
return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum
(22%) of the annual profit derived from the operation of
the said panciteria.' (p. 107, Rollo) The well-settled
doctrine is that the '"... nature of the action filed in court
is determined by the facts alleged in the complaint as
constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243;
Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the
main issue in the instant case was whether or not the
private respondent is a partner of the petitioner in the
establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court
gravely erred in giving probative value to the PC Crime
Laboratory Report (Exhibit "J") on the ground that the
alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were
never testified to by any witness nor has any witness
identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed
standards or specimens of handwriting were marked
as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous
objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon
orders of the lower court examined the signatures in
the two receipts issued separately by the petitioner to
the private respondent and So Sia (Exhibits "A" and
"D") and compared the signatures on them with the
signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah
Heng and Maria Wong, employees of the restaurant.
After the usual examination conducted on the
questioned documents, the PC Crime Laboratory
submitted its findings (Exhibit J) attesting that the
signatures appearing in both receipts (Exhibits "A" and
"D") were the signatures of the petitioner.
The records also show that when the pay envelopes
(Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did
the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with
the two receipts examined by the PC Crime Laboratory
despite due notice to him. Likewise, no explanation
has been offered for his silence nor was any hint of
objection registered for that purpose.
Under these circumstances, we find no reason why
Exhibit "J" should be rejected or ignored. The records
sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He
argues: The Hon. Respondent Intermediate Appellate
Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt is
dated October 1, 1955 and the complaint was filed
only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of
the Civil Code which provides:
Art. 1144. The following actions must be brought within
ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a
written extra-judicial demand by the creditor, and when
there is any written acknowledgment of the debt by the
debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in
Sun Wah Panciteria. The requisites of a partnership
which are 1) two or more persons bind themselves
to contribute money, property, or industry to a common
fund; and 2) intention on the part of the partners to
divide the profits among themselves (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have
been established. As stated by the respondent, a
partner shares not only in profits but also in the losses
of the firm. If excellent relations exist among the
partners at the start of business and all the partners
are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to
state that if a partner does not assert his rights
anytime within ten years from the start of operations,
such rights are irretrievably lost. The private
respondent's cause of action is premised upon the
failure of the petitioner to give him the agreed profits in
the operation of Sun Wah Panciteria. In effect the
private respondent was asking for an accounting of his
interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against the
winding up partners or the surviving partners or the
person or partnership continuing the business, at the
date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the
private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the
partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final
accounting is done.
Finally, the petitioner assails the appellate court's
monetary awards in favor of the private respondent for
being excessive and unconscionable and above the
claim of private respondent as embodied in his
complaint and testimonial evidence presented by said
private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the
private respondent presented the cashier of Sun Wah
Panciteria, a certain Mrs. Sarah L. Licup, to testify on
the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties
was that you were in charge of the custody of the
cashier's box, of the money, being the cashier, is that
correct?
A Yes, sir.
Q So that every time there is a customer who pays,
you were the one who accepted the money and you
gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as
you said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue
Leung.
ATTY. HIPOLITO:I see.
Q So, in other words, after your job, you huddle or
confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less,
will you please tell us, how much is the gross income
of the restaurant?
A For regular days, I received around P7,000.00 a day
during my shift alone and during pay days I receive
more than P10,000.00. That is excluding the catering
outside the place.
Q What about the catering service, will you please tell
the Honorable Court how many times a week were
there catering services?
A Sometimes three times a month; sometimes two
times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the
catering service?
A Yes, because I am the one who receives the
payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand
pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone
in a single day from 3:30 P.M. to 11:30 P.M. in the
evening the restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.(TSN, pp. 53 to 59, inclusive, November
15,1978)
COURT:Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not
only did the petitioner's counsel waive the cross-
examination on the matter of income but he failed to
comply with his promise to produce pertinent records.
When a subpoena duces tecum was issued to the
petitioner for the production of their records of sale, his
counsel voluntarily offered to bring them to court. He
asked for sufficient time prompting the court to cancel
all hearings for January, 1981 and reset them to the
later part of the following month. The petitioner's
counsel never produced any books, prompting the trial
court to state:
Counsel for the defendant admitted that the sales of
Sun Wah were registered or recorded in the daily
sales book. ledgers, journals and for this purpose,
employed a bookkeeper. This inspired the Court to ask
counsel for the defendant to bring said records and
counsel for the defendant promised to bring those that
were available. Seemingly, that was the reason why
this case dragged for quite sometime. To bemuddle
the issue, defendant instead of presenting the books
where the same, etc. were recorded, presented
witnesses who claimed to have supplied chicken,
meat, shrimps, egg and other poultry products which,
however, did not show the gross sales nor does it
prove that the same is the best evidence. This Court
gave warning to the defendant's counsel that if he
failed to produce the books, the same will be
considered a waiver on the part of the defendant to
produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the
Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p.
145)
The records show that the trial court went out of its
way to accord due process to the petitioner.
The defendant was given all the chance to present all
conceivable witnesses, after the plaintiff has rested his
case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised
that he will present the defendant as his last witness.
Notably there were several postponement asked by
counsel for the defendant and the last one was on
October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was
then in Hongkong and he (defendant) will be back after
said period. The Court acting with great concern and
understanding reset the hearing to November 17,
1981. On said date, the counsel for the defendant who
again failed to present the defendant asked for another
postponement, this time to November 24, 1981 in
order to give said defendant another judicial
magnanimity and substantial due process. It was
however a condition in the order granting the
postponement to said date that if the defendant cannot
be presented, counsel is deemed to have waived the
presentation of said witness and will submit his case
for decision.
On November 24, 1981, there being a typhoon
prevailing in Manila said date was declared a partial
non-working holiday, so much so, the hearing was
reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendant's counsel, the same was
again reset to December 22, 1981 as previously
scheduled which hearing was understood as
intransferable in character. Again on December 22,
1981, the defendant's counsel asked for postponement
on the ground that the defendant was sick. the Court,
after much tolerance and judicial magnanimity, denied
said motion and ordered that the case be submitted for
resolution based on the evidence on record and gave
the parties 30 days from December 23, 1981, within
which to file their simultaneous memoranda. (Rollo,
pp. 148-150)
The restaurant is located at No. 747 Florentino Torres,
Sta. Cruz, Manila in front of the Republic Supermarket.
It is near the corner of Claro M. Recto Street.
According to the trial court, it is in the heart of
Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees,
and people from all walks of life converge and
patronize Sun Wah.
There is more than substantial evidence to support the
factual findings of the trial court and the appellate
court. If the respondent court awarded damages only
from judicial demand in 1978 and not from the opening
of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being
plowed back into the expansion of the business. There
is no basis in the records to sustain the petitioners
contention that the damages awarded are excessive.
Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court,
it cannot refer to any portion of the records for such
modification. There is no basis in the records for this
Court to change or set aside the factual findings of the
trial court and the appellate court. The petitioner was
given every opportunity to refute or rebut the
respondent's submissions but, after promising to do
so, it deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court
ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The
question now arises as to whether or not the payment
of a share of profits shall continue into the future with
no fixed ending date.
Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court
shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends
to affect prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach
of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry
on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of
partnership affairs, return of capital, and other
incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby
DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION
that as indicated above, the partnership of the parties
is ordered dissolved.
Lim tanhu vs Ramolete 66 SCRA 425 (1975)
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.HON. JOSE R. RAMOLETE as Presiding Judge,
Branch III, CFI, Cebu and TAN
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of
Cebu Branch III in its Civil Case No. 12328, an action
for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common
cause of action against six defendants, in which after
declaring four of the said defendants herein
petitioners, in default and while the trial as against the
two defendants not declared in default was in
progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted
defendants were concerned and thereafter proceeded
to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against
the defaulted defendants, with the particularities that
notice of the motion to dismiss was not duly served on
any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and
the judgment so rendered granted reliefs not prayed
for in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on
February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy
Ochay. Subsequently, in an amended complaint dated
September 26, 1972, their son Lim Teck Chuan and
the other spouses-petitioners Alfonso Leonardo Ng
Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the
widow of Tee Hoon Lim Po Chuan, who was a partner
in the commercial partnership, Glory Commercial
Company ... with Antonio Lim Tanhu and Alfonso Ng
Sua that "defendant Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual
and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to
use the funds of the partnership to purchase lands and
building's in the cities of Cebu, Lapulapu, Mandaue,
and the municipalities of Talisay and Minglanilla, some
of which were hidden, but the description of those
already discovered were as follows: (list of properties)
...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation continued the business
of Glory Commercial Company by purportedly
organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up
capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the
plaintiff has a share equivalent to one third (/3 )
thereof;
14. (P)laintiff, on several occasions after the death of
her husband, has asked defendants of the above-
mentioned properties and for the liquidation of the
business of the defunct partnership, including
investments on real estate in Hong Kong, but
defendants kept on promising to liquidate said
properties and just told plaintiff to
15. (S)ometime in the month of November, 1967,
defendants, Antonio Lim Tanhu, by means of fraud
deceit and misrepresentations did then and there,
induce and convince the plaintiff to execute a quitclaim
of all her rights and interests, in the assets of the
partnership of Glory Commercial Company, which is
null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio
Lim Tanhu.
16. (A)s a matter of fact, after the execution of said
quitclaim, defendant Antonio Lim Tanhu offered to pay
the plaintiff the amount P65,000.00 within a period of
one (1) month, for which plaintiff was made to sign a
receipt for the amount of P65,000.00 although no such
amount was given and plaintiff was not even given a
copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants
who had earlier promised to liquidate the aforesaid
properties and assets in favor among others of
plaintiff and until the middle of the year 1970 when the
plaintiff formally demanded from the defendants the
accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated
that they would not give the share of the plaintiff. (Pp.
36-37, Record.)She prayed as follows:
WHEREFORE, it is most respectfully prayed that
judgment be rendered:
a) Ordering the defendants to render an accounting of
the real and personal properties of the Glory
Commercial Company including those registered in the
names of the defendants and other persons, which
properties are located in the Philippines and in Hong
Kong;
b) Ordering the defendants to deliver to the plaintiff
after accounting, one third (/3 ) of the total value of all
the properties which is approximately P5,000,000.00
representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the
plaintiff the sum of Two Hundred Fifty Thousand
Pesos (P250,000.00) by way of attorney's fees and
damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and
reliefs consistent with law and equity and order the
defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was
opposed by defendants upon the ground that there
were material modifications of the causes of action
previously alleged, but respondent judge nevertheless
allowed the amendment reasoning that:
The present action is for accounting of real and
personal properties as well as for the recovery of the
same with damages.
An objective consideration of pars. 13 and 15 of the
amended complaint pointed out by the defendants to
sustain their opposition will show that the allegations of
facts therein are merely to amplify material averments
constituting the cause of action in the original
complaint. It likewise include necessary and
indispensable defendants without whom no final
determination can be had in the action and in order
that complete relief is to be accorded as between
those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of action in
the original complaint and the reliefs demanded and to
allow amendments is the rule, and to refuse them the
exception and in order that the real question between
the parties may be properly and justly threshed out in
a single proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the
signature of their common counsel, defendants denied
specifically not only the allegation that respondent Tan
is the widow of Tee Hoon because, according to them,
his legitimate wife was Ang Siok Tin still living and with
whom he had four (4) legitimate children, a twin born
in 1942, and two others born in 1949 and 1965, all
presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the
truth being, according to them, that proper liquidation
had been regularly made of the business of the
partnership and Tee Hoon used to receive his just
share until his death, as a result of which the
partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote
the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts averred and
alleged in the answer, and further most respectfully
declare:
1. That in the event that plaintiff is filing the present
complaint as an heir of Tee Hoon Lim Po Chuan, then,
she has no legal capacity to sue as such, considering
that the legitimate wife, namely: Ang Siok Tin, together
with their children are still alive. Under Sec. 1, (d), Rule
16 of the Revised Rules of Court, lack of legal capacity
to sue is one of the grounds for a motion to dismiss
and so defendants prays that a preliminary hearing be
conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is
filing the present case under Art. 144 of the Civil Code,
then, her claim or demand has been paid, waived
abandoned or otherwise extinguished as evidenced by
the 'quitclaim' Annex 'A' hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h),
Rule 16) and hence defendants pray that a preliminary
hearing be made in connection therewith pursuant to
Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married
to Ang Siok Tin and were blessed with the following
children, to wit: Ching Siong Lim and Ching Hing Lim
(twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June
25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po
Chuan, the plaintiff was no longer his common law
wife and even though she was not entitled to anything
left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was inspiring to
be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim'
(Annex 'A');
5. That the defendants have acquired properties out of
their own personal fund and certainly not from the
funds belonging to the partnership, just as Tee Hoon
Lim Po Chuan had acquired properties out of his
personal fund and which are now in the possession of
the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy
properties from funds belonging to the partnership
without the other partners knowing about it considering
that the amount taken allegedly is quite big and with
such big amount withdrawn the partnership would
have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not
blessed with children who would have been lawfully
entitled to succeed to the properties left by the latter
together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was
no longer entitled to anything of the shares of the late
Tee Hoon Lim Po Chuan, yet, this suit was filed
against the defendant who have to interpose the
following
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of
reference, all the allegations and foregoing averments
as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely
the common-law wife of Tee Hoon Lim Po Chuan and
that the lawful and legal is still living, together with the
legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount
which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event
that plaintiff is married to Tee Hoon Lim Po Chuan,
then, her marriage is bigamous and should suffer the
consequences thereof;
C. That plaintiff was aware and had knowledge about
the 'quitclaim', even though she was not entitled to it,
and yet she falsely claimed that defendants refused
even to see her and for filing this unfounded, baseless,
futile and puerile complaint, defendants suffered
mental anguish and torture conservatively estimated to
be not less than P3,000.00;
D. That in order to defend their rights in court,
defendants were constrained to engage the services of
the undersigned counsel, obligating themselves to pay
P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time
that this case will be before this Honorable Court and
until the same will be finally terminated and
adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this
counterclaim is merely permissive and should be
dismissed for non-payment of the corresponding filing
fee, and after being overruled by the court, in due time,
plaintiff answered the same, denying its material
allegations.
On February 3, 1973, however, the date set for the
pre-trial, both of the two defendants-spouses the Lim
Tanhus and Ng Suas, did not appear, for which
reason, upon motion of plaintiff dated February 16,
1973, in an order of March 12, 1973, they were all
"declared in DEFAULT as of February 3, 1973 when
they failed to appear at the pre-trial." They sought to
hive this order lifted thru a motion for reconsideration,
but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof
where the first witness of the plaintiff by the name of
Antonio Nuez who testified that he is her adopted
son, was up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO COMES now
plaintiff, through her undersigned counsel, unto the
Honorable Court most respectfully moves to drop from
the complaint the defendants Lim Teck Chuan and
Eng Chong Leonardo and to consider the case
dismissed insofar as said defendants Lim Teck Chuan
and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the
Honorable Court to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo
and to dismiss the case against them without
pronouncement as to costs. (Page 50, Record.) which
she set for hearing on December 21, 1974. According
to petitioners, none of the defendants declared in
default were notified of said motion, in violation of
Section 9 of Rule 13, since they had asked for the
lifting of the order of default, albeit unsuccessfully, and
as regards the defendants not declared in default, the
setting of the hearing of said motion on October 21,
1974 infringed the three-day requirement of Section
4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim
Teck Chuan was served with a copy of the motion
personally only on October 19, 1974, while Atty.
Benjamin Alcudia of Eng Chong Leonardo was served
by registered mail sent only on the same date.
Evidently without even verifying the notices of service,
just as simply as plaintiff had couched her motion, and
also without any legal grounds stated, respondent
court granted the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the
dismissal of the complaint as against defendants Lim
Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as
against defendant Lim Teck Chuan and Eng Chong
Leonardo is hereby ordered DISMISSED without
pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and
his spouse Dy Ochay as well as defendants Alfonso
Ng Sua and his spouse Co Oyo have been declared in
default for failure to appear during the pre-trial and as
to the other defendants the complaint had already
been ordered dismissed as against them.
Let the hearing of thplaintiff's evidence ex-parte be set
on November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the
purpose, to swear in witnesses and to submit her
report within ten (10) days thereafter. Notify the
plaintiff.
SO ORDERED. Cebu City, Philippines, October 21,
1974. (Page 52, Record.)
But, in connection with this last order, the scheduled
ex-parte reception of evidence did not take place on
November 20, 1974, for on October 28, 1974, upon
verbal motion of plaintiff, the court issued the following
self-explanatory order: .
Acting favorably on the motion of the plaintiff dated
October 18, 1974, the Court deputized the Branch
Clerk of Court to receive the evidence of the
plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together
with her witnesses, appeared in court and asked, thru
counsel, that she be allowed to present her
evidence.Considering the time and expenses incurred
by the plaintiff in bringing her witnesses to the court,
the Branch Clerk of Court is hereby authorized to
receive immediately the evidence of the plaintiff ex-
parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53.
Record.)
Upon learning of these orders on October 23, 1973,
the defendant Lim Teck Cheng, thru counsel, Atty.
Sitoy, filed a motion for reconsideration thereof, and on
November 1, 1974, defendant Eng Chong Leonardo,
thru counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders.
These motions were denied in an order dated
December 6, 1974 but received by the movants only
on December 23, 1974. Meanwhile, respondent court
rendered the impugned decision on December 20,
1974. It does not appear when the parties were served
copies of this decision
Subsequently, on January 6, 1975, all the defendants,
thru counsel, filed a motion to quash the order of
October 28, 1974. Without waiting however for the
resolution thereof, on January 13, 1974, Lim Teck
Chuan and Eng Chong Leonardo went to the Court of
Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October
21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24,
1975, the Court of Appeals dismissed said petition,
holding that its filing was premature, considering that
the motion to quash the order of October 28, 1974 was
still unresolved by the trial court. This holding was
reiterated in the subsequent resolution of February 5,
1975 denying the motion for reconsideration of the
previous dismissal.
On the other hand, on January 20, 1975, the other
defendants, petitioners herein, filed their notice of
appeal, appeal bond and motion for extension to file
their record on appeal, which was granted, the
extension to expire after fifteen (15) days from January
26 and 27, 1975, for defendants Lim Tanhu and Ng
Suas, respectively. But on February 7, 1975, before
the perfection of their appeal, petitioners filed the
present petition with this Court. And with the evident
intent to make their procedural position clear, counsel
for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14,
1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan filed their
petition in the Court of Appeals, they in effect
abandoned their motion to quash the order of October
28, 1974," and that similarly "when Antonio Lim Tanhu,
Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo,
filed their petition for certiorari and prohibition ... in the
Supreme Court, they likewise abandoned their motion
to quash." This manifestation was acted upon by
respondent court together with plaintiffs motion for
execution pending appeal in its order of the same date
February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of
October 28, 1974 and the motion for execution
pending appeal were called for hearing today, counsel
for the defendants-movants submitted their
manifestation inviting the attention of this Court that by
their filing for certiorari and prohibition with preliminary
injunction in the Court of Appeals which was dismissed
and later the defaulted defendants filed with the
Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for
execution pending appeal shall be resolved after the
petition for certiorari and prohibition shall have been
resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216,
Record.)
Upon these premises, it is the position of petitioners
that respondent court acted illegally, in violation of the
rules or with grave abuse of discretion in acting on
respondent's motion to dismiss of October 18, 1974
without previously ascertaining whether or not due
notice thereof had been served on the adverse parties,
as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng
Chong Leonardo and no notice at all was ever sent to
the other defendants, herein petitioners, and more so,
in actually ordering the dismissal of the case by its
order of October 21, 1974 and at the same time setting
the case for further hearing as against the defaulted
defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of
December 20, 1974 granting respondent Tan even
reliefs not prayed for in the complaint. According to the
petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants
the nature of which is such that it cannot be decided in
an independent action and as to which the attention of
respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no
authority to divide the case before it by dismissing the
same as against the non-defaulted defendants and
thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the
defaulted defendants, considering that in their view,
under the said provision of the rules, when a common
cause of action is alleged against several defendants,
the default of any of them is a mere formality by which
those defaulted are not allowed to take part in the
proceedings, but otherwise, all the defendants,
defaulted and not defaulted, are supposed to have but
a common fate, win or lose. In other words, petitioners
posit that in such a situation, there can only be one
common judgment for or against all the defendant, the
non-defaulted and the defaulted. Thus, petitioners
contend that the order of dismissal of October 21,
1974 should be considered also as the final judgment
insofar as they are concerned, or, in the alternative, it
should be set aside together with all the proceedings
and decision held and rendered subsequent thereto,
and that the trial be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong Leonardo
being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the
contrary view that inasmuch as petitioners had been
properly declared in default, they have no personality
nor interest to question the dismissal of the case as
against their non-defaulted co-defendants and should
suffer the consequences of their own default.
Respondent further contends, and this is the only
position discussed in the memorandum submitted by
her counsel, that since petitioners have already made
or at least started to make their appeal, as they are in
fact entitled to appeal, this special civil action has no
reason for being. Additionally, she invokes the point of
prematurity upheld by the Court of Appeals in regard
to the above-mentioned petition therein of the non-
defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo. Finally, she argues that in any event, the
errors attributed to respondent court are errors of
judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related
proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion
that petitioners should be granted relief, if only to
stress emphatically once more that the rules of
procedure may not be misused and abused as
instruments for the denial of substantial justice. A
review of the record of this case immediately discloses
that here is another demonstrative instance of how
some members of the bar, availing of their proficiency
in invoking the letter of the rules without regard to their
real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in
some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations
as earnest efforts to satisfy the public clamor for
speedy disposition of litigations, forgetting all the while
that the plain injunction of Section 2 of Rule 1 is that
the "rules shall be liberally construed in order to
promote their object and to assist the parties in
obtaining not only 'speedy' but more imperatively, "just
... and inexpensive determination of every action and
proceeding." We cannot simply pass over the
impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were
deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of
every opportunity to properly defend themselves
against a claim of more than substantial character,
considering the millions of pesos worth of properties
involved as found by respondent judge himself in the
impugned decision, a claim that appears, in the light of
the allegations of the answer and the documents
already brought to the attention of the court at the pre-
trial, to be rather dubious. What is most regrettable is
that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to
have hesitated in acting favorably on the motions of
the plaintiff conducive to the deplorable objective just
mentioned, and which motions, at the very least,
appeared to be 'of highly controversial' merit,
considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-
sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of
respondent court to lean more on the contentions of
private respondent may be discerned from the manner
it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default
against them lifted. Notwithstanding that Dy Ochay's
motion of October 8, 1971, co-signed by her with their
counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the
notary public before whom she took her oath, in the
order of November 2, 1971, (Annex 3 id.) it was held
that "the oath appearing at the bottom of the motion is
not the one contemplated by the abovequoted
pertinent provision (See. 3, Rule 18) of the rules. It is
not even a verification. (See. 6, Rule 7.) What the rule
requires as interpreted by the Supreme Court is that
the motion must have to be accompanied by an
affidavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point
that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor,
under which a separate affidavit of merit is required
refers obviously to instances where the motion is not
over oath of the party concerned, considering that
what the cited provision literally requires is no more
than a "motion under oath." Stated otherwise, when a
motion to lift an order of default contains the reasons
for the failure to answer as well as the facts
constituting the prospective defense of the defendant
and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the
motion to lift the order of default "is an admission that
there was a valid service of summons" and that said
motion could not amount to a challenge against the
jurisdiction of the court over the person of the
defendant. Such a rationalization is patently specious
and reveals an evident failure to grasp the import of
the legal concepts involved. A motion to lift an order of
default on the ground that service of summons has not
been made in accordance with the rules is in order and
is in essence verily an attack against the jurisdiction of
the court over the person of the defendant, no less
than if it were worded in a manner specifically
embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex
6, id.) lifting at last the order of default as against
defendant Lim Tanhu, His Honor posited that said
defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read
defendants' motion for reconsideration of November
25, 1971 (Annex 5, id.), but We cannot find in it any
reference to a "quitclaim". Rather, the allegation of a
quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured
through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of
October 8, 1971, Annex 2, to set aside the order of
default, that plaintiff Tan could be but the common law
wife only of Tee Hoon, since his legitimate wife was
still alive, which allegation, His Honor held in the order
of November 2, 1971, Annex 3, to be "not good and
meritorious defense". To top it all, whereas, as already
stated, the order of February 19, 1972, Annex 6, lifted
the default against Lim Tanhu because of the
additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions"
defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings
and manifest inconsistency in the legal postures in the
orders in question can hardly convince Us that the
matters here in issue were accorded due and proper
consideration by respondent court. In fact, under the
circumstances herein obtaining, it seems appropriate
to stress that, having in view the rather substantial
value of the subject matter involved together with the
obviously contentious character of plaintiff's claim,
which is discernible even on the face of the complaint
itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part
of anyone concerned. Upon the considerations
hereunder to follow, the Court expresses its grave
concern that much has to be done to dispel the
impression that herein petitioners and their co-
defendants are being railroaded out of their rights and
properties without due process of law, on the strength
of procedural technicalities adroitly planned by counsel
and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor
and the citations of supposedly pertinent provisions
and jurisprudence made therein, cannot be said to
have proceeded from utter lack of juridical
knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing
the record is the seeming alacrity with which the
motion to dismiss the case against non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have
been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still
under re-cross-examination. Undoubtedly, the motion
to dismiss at that stage and in the light of the
declaration of default against the rest of the
defendants was a well calculated surprise move,
obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say
that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to
rightly assume that the parties in a judicial proceeding
can never be the victims of any procedural waylaying
as long as lawyers and judges are imbued with the
requisite sense of equity and justice.
But the situation here was aggravated by the
indisputable fact that the adverse parties who were
entitled to be notified of such unanticipated dismissal
motion did not get due notice thereof. Certainly, the
non-defaulted defendants had the right to the three-
day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when
the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan,
Atty. Sitoy was personally served with the notice only
on Saturday, October 19, 1974 and the counsel for
Eng Chong Leonardo, Atty. Alcudia, was notified by
registered mail which was posted only that same
Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene
between the date of service of notice and the date set
for the hearing, otherwise the court may not validly act
on the motion." (Comments on the Rules of Court by
Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the instant
case, there can be no question that the notices to the
non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for
plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit mandate
of the pertinent rule, not to speak of the imperatives of
fairness, considering he should have realized the far-
reaching implications, specially from the point of view
he subsequently adopted, albeit erroneously, of his
favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of
dismissal, he immediately set the case for the ex-parte
hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor of his
order which We have quoted above, appears to have
been done by him motu propio As a matter of fact,
plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21,
1974 further ignores or is inconsistent with a number
of known juridical principles concerning defaults, which
We will here take occasion to reiterate and further
elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps
some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge
must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial
actuation that unduly deprives any party of the right to
be heard without clear and specific warrant under the
terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every
judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all
the parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules
and these basic principles must be possessed by
every judge, If substance is to prevail, as it must, over
form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on
the part of any litigant before it, is unworthy of any
court of justice and equity. Withal, only those rules and
procedure informed, with and founded on public policy
deserve obedience in accord with their unequivocal
language or words..
Before proceeding to the discussion of the default
aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on
the face of the record, of the aforementioned order of
dismissal of October 21, 1974 of the case below as
regards non-defaulted defendants Lim and Leonardo.
While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of
the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent
court to also make reference to the very evident fact
that in ordering said dismissal respondent court
disregarded completely the existence of defendant's
counterclaim which it had itself earlier held if indirectly,
to be compulsory in nature when it refused to dismiss
the same on the ground alleged by respondent Tan
that he docketing fees for the filing thereof had not
been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule
9) namely, plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged
late husband as partner of defendants Antonio Lim
Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations
all the defendants have denied. Defendants maintain
in their counterclaim that plaintiff knew of the falsity of
said allegations even before she filed her complaint,
for she had in fact admitted her common-law
relationship with said deceased in a document she had
jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with respect
to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had
already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly
receipted by her, which quitclaim was, however,
executed, according to respondent herself in her
amended complaint, through fraud. And having filed
her complaint knowing, according to defendants, as
she ought to have known, that the material allegations
thereof are false and baseless, she has caused them
to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only
because the same evidence to sustain it will also
refute the cause or causes of action alleged in
plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the
same cannot "remain pending for independent
adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins
that "(i)f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's
motion to dismiss, the action shall not be dismissed
against the defendant's objection unless the
counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was
issued, for the simple reason that they were not
opportunity notified of the motion therefor, but the
record shows clearly that at least defendant Lim
immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his
motion for reconsideration of October 23, 1974, even
as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of
December 6, 1974, however, respondent court not
only upheld the plaintiffs supposed absolute right to
choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration
why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed,
all the six defendants are charged with having actually
taken part in a conspiracy to misappropriate, conceal
and convert to their own benefit the profits, properties
and all other assets of the partnership Glory
Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from
the partnership. Upon such allegations, no judgment
finding the existence of the alleged conspiracy or
holding the capital of the corporation to be the money
of the partnership is legally possible without the
presence of all the defendants. The non-defaulted
defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all
its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and
even prescinding from the other reasons to be
discussed anon it is clear that all the six defendants
below, defaulted and non-defaulted, are indispensable
parties. Respondents could do no less than grant that
they are so on page 23 of their answer. Such being the
case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever
it appears to the court in the course of a proceeding
that an indispensable party has not been joined, it is
the duty of the court to stop the trial and to order the
inclusion of such party. (The Revised Rules of Court,
Annotated & Commented by Senator Vicente J.
Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs.
Avila, 101 Phil. 705.) Such an order is unavoidable, for
the "general rule with reference to the making of
parties in a civil action requires the joinder of all
necessary parties wherever possible, and the joinder
of all indispensable parties under any and all
conditions, the presence of those latter being a sine
qua non of the exercise of judicial power." (Borlasa vs.
Polistico, 47 Phil. 345, at p. 347.) It is precisely " when
an indispensable party is not before the court (that) the
action should be dismissed." (People v. Rodriguez,
106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act,
not only as to the absent parties but even as to those
present. In short, what respondent court did here was
exactly the reverse of what the law ordains it
eliminated those who by law should precisely be
joined.
As may he noted from the order of respondent court
quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the non-
defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the
plaintiff to choose, the theory upon which he
predicates his right of action, or the parties he desires
to sue, without dictation or imposition by the court or
the adverse party. If he makes a mistake in the choice
of his right of action, or in that of the parties against
whom he seeks to enforce it, that is his own concern
as he alone suffers therefrom. The plaintiff cannot be
compelled to choose his defendants, He may not, at
his own expense, be forced to implead anyone who,
under the adverse party's theory, is to answer for
defendant's liability. Neither may the Court compel him
to furnish the means by which defendant may avoid or
mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the
plaintiff to continue prosecuting her cause of action
against the defendants-movants if in the course of the
trial she believes she can enforce it against the
remaining defendants subject only to the limitation
provided in Section 2, Rule 17 of the Rules of Court. ...
(Pages 6263, Record.)
Noticeably, His Honor has employed the same
equivocal terminology as in plaintiff's motion of
October 18, 1974 by referring to the action he had
taken as being "dismissal of the complaint against
them or their being dropped therefrom", without
perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely
on the theory that under Section 11 of Rule 3, parties
may be dropped by the court upon motion of any party
at any stage of the action, hence "it is the absolute
right prerogative of the plaintiff to choosethe parties
he desires to sue, without dictation or imposition by the
court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiff's motion of
October 18, 1974 was not predicated on Section 2 of
Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start
with, the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in a
complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one
is free to join anybody in a complaint in court only to
drop him unceremoniously later at the pleasure of the
plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that
it was proper and the subsequent dropping is
requested because it has turned out that such
inclusion was a mistake. And this is the reason why
the rule ordains that the dropping be "on such terms as
are just" just to all the other parties. In the case at
bar, there is nothing in the record to legally justify the
dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1974 cites none.
From all appearances, plaintiff just decided to ask for
it, without any relevant explanation at all. Usually, the
court in granting such a motion inquires for the
reasons and in the appropriate instances directs the
granting of some form of compensation for the trouble
undergone by the defendant in answering the
complaint, preparing for or proceeding partially to trial,
hiring counsel and making corresponding expenses in
the premises. Nothing of these, appears in the order in
question. Most importantly, His Honor ought to have
considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to
the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim
and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment
against their parents. Respondent court paid no heed
at all to the mandate that such dropping must be on
such terms as are just" meaning to all concerned
with its legal and factual effects.
Thus, it is quite plain that respondent court erred in
issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying
reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that
defendants Lim and Leonardo are not parties herein.
But such consideration is inconsequential. The fate of
the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated
thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case
of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no
longer pursuing further their questioning of the
dismissal is from another point of view
understandable. On the one hand, why should they
insist on being defendants when plaintiff herself has
already release from her claims? On the other hand,
as far as their respective parents-co-defendants are
concerned, they must have realized that they (their
parents) could even be benefited by such dismissal
because they could question whether or not plaintiff
can still prosecute her case against them after she had
secured the order of dismissal in question. And it is in
connection with this last point that the true and correct
concept of default becomes relevant.
At this juncture, it may also be stated that the decision
of the Court of Appeals of January 24, 1975 in G. R.
No. SP-03066 dismissing the petition for certiorari of
non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974,
has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on
its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the
motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally
because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its
result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his
allegations in paragraphs XI to XIV of his answer,
which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear
to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable
fact, the dismissal of the petition was based solely and
exclusively on its being premature without in any
manner delving into its merits. The Court must and
does admonish counsel that such manner of pleading,
being deceptive and lacking in candor, has no place in
any court, much less in the Supreme Court, and if We
are adopting a passive attitude in the premises, it is
due only to the fact that this is counsel's first offense.
But similar conduct on his part in the future will
definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts
to befuddle the issues as invariably then will be
exposed for what they are, certainly unethical and
degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2 for the plaintiff, the complaint must be dismissed. And
Coming now to the matter itself of default, it is quite
apparent that the impugned orders must have
proceeded from inadequate apprehension of the
fundamental precepts governing such procedure under
the Rules of Court. It is time indeed that the concept of
this procedural device were fully understood by the
bench and bar, instead of being merely taken for
granted as being that of a simple expedient of not
allowing the offending party to take part in the
proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in
favor of such opponent, with hardly any chance of said
judgment being reversed or modified.
The Rules of Court contain a separate rule on the
subject of default, Rule 18. But said rule is concerned
solely with default resulting from failure of the
defendant or defendants to answer within the
reglementary period. Referring to the simplest form of
default, that is, where there is only one defendant in
the action and he fails to answer on time, Section 1 of
the rule provides that upon "proof of such failure, (the
court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the
plaintiff's evidence and render judgment granting him
such relief as the complaint and the facts proven may
warrant." This last clause is clarified by Section 5
which says that "a judgment entered against a party in
default shall not exceed the amount or be different in
kind from that prayed for."
Unequivocal, in the literal sense, as these provisions
are, they do not readily convey the full import of what
they contemplate. To begin with, contrary to the
immediate notion that can be drawn from their
language, these provisions are not to be understood
as meaning that default or the failure of the defendant
to answer should be "interpreted as an admission by
the said defendant that the plaintiff's cause of action
find support in the law or that plaintiff is entitled to the
relief prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with
approval Chaffin v. McFadden, 41 Ark. 42; Johnson v.
Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105;
People v. Rust, 292 111. 328; Ken v. Leopold 21 111.
A. 163; Chicago, etc. Electric R. Co. v. Krempel 116
111. A. 253.)
Being declared in default does not constitute a waiver
of rights except that of being heard and of presenting
evidence in the trial court. According to Section 2,
"except as provided in Section 9 of Rule 13, a party
declared in default shall not be entitled to notice of
subsequent proceedings, nor to take part in the trial."
That provision referred to reads: "No service of papers
other than substantially amended pleadings and final
orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order
of default, in which event he shall be entitled to notice
of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to
Section 2 of Rule 41, "a party who has been declared
in default may likewise appeal from the judgment
rendered against him as contrary to the evidence or to
the law, even if no petition for relief to set aside the
order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually
thrown out of court. While in a sense it may be said
that by defaulting he leaves himself at the mercy of the
court, the rules see to it that any judgment against him
must be in accordance with law. The evidence to
support the plaintiff's cause is, of course, presented in
his absence, but the court is not supposed to admit
that which is basically incompetent. Although the
defendant would not be in a position to object,
elementary justice requires that, only legal evidence
should be considered against him. If the evidence
presented should not be sufficient to justify a judgment
if an unfavorable judgment should be justifiable, it
cannot exceed in amount or be different in kind from
what is prayed for in the complaint.
Incidentally, these considerations argue against the
present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their
clerks of court the reception of the plaintiff's evidence
when the defendant is in default. Such a Practice is
wrong in principle and orientation. It has no basis in
any rule. When a defendant allows himself to be
declared in default, he relies on the faith that the court
would take care that his rights are not unduly
prejudiced. He has a right to presume that the law and
the rules will still be observed. The proceedings are
held in his forced absence, and it is but fair that the
plaintiff should not be allowed to take advantage of the
situation to win by foul or illegal means or with
inherently incompetent evidence. Thus, in such
instances, there is need for more attention from the
court, which only the judge himself can provide. The
clerk of court would not be in a position much less
have the authority to act in the premises in the manner
demanded by the rules of fair play and as
contemplated in the law, considering his comparably
limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff,
the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial
policy that there being no imperative reason for judges
to do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this
point is that it is preferable to leave enough opportunity
open for possible lifting of the order of default before
proceeding with the reception of the plaintiff's evidence
and the rendition of the decision. "A judgment by
default may amount to a positive and considerable
injustice to the defendant; and the possibility of such
serious consequences necessitates a careful and
liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p.
534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.)
The expression, therefore, in Section 1 of Rule 18
aforequoted which says that "thereupon the court shall
proceed to receive the plaintiff's evidence etc." is not to
be taken literally. The gain in time and dispatch should
the court immediately try the case on the very day of
or shortly after the declaration of default is far
outweighed by the inconvenience and complications
involved in having to undo everything already done in
the event the defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the
defendants, there being several, are declared in
default. There are additional rules embodying more
considerations of justice and equity in cases where
there are several defendants against whom a common
cause of action is averred and not all of them answer
opportunely or are in default, particularly in reference
to the power of the court to render judgment in such
situations. Thus, in addition to the limitation of Section
5 that the judgment by default should not be more in
amount nor different in kind from the reliefs specifically
sought by plaintiff in his complaint, Section 4 restricts
the authority of the court in rendering judgment in the
situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and
other make difficult. When a complaint states a
common cause of action against several defendant
some of whom answer, and the others fail to do so, the
court shall try the case against all upon the answer
thus filed and render judgment upon the evidence
presented. The same proceeding applies when a
common cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence explanatory
thereof this wise:
Where a complaint states a common cause of action
against several defendants and some appear to
defend the case on the merits while others make
default, the defense interposed by those who appear
to litigate the case inures to the benefit of those who
fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be
absolved. In other words, the answer filed by one or
some of the defendants inures to the benefit of all the
others, even those who have not seasonably filed their
answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23
SCRA 1151.) The proper mode of proceeding where a
complaint states a common cause of action against
several defendants, and one of them makes default, is
simply to enter a formal default order against him, and
proceed with the cause upon the answers of the
others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of
notice in the cause, nor to appear in the suit in any
way. He cannot adduce evidence; nor can he be heard
at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.)
although he may appeal the judgment rendered
against him on the merits. (Rule 41, sec. 2.) If the case
is finally decided in the plaintiff's favor, a final decree is
then entered against all the defendants; but if the suit
should be decided against the plaintiff, the action will
be dismissed as to all the defendants alike. (Velez v.
Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal.
552,21 L. Ed. 60.) In other words the judgment will
affect the defaulting defendants either favorably or
adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is
in his favor. (Castro v. Pea, supra.) (Moran, Rules of
Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous
cases cited by Moran, this Court elaborated on the
construction of the same rule when it sanctioned the
execution, upon motion and for the benefit of the
defendant in default, of a judgment which was adverse
to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel,
also was a movant in the petition for execution Annex
1. Did she have a right to be such, having been
declared in default? In Frow vs. De la Vega, supra,
cited as authority in Velez vs. Ramas, supra, the
Supreme Court of the United States adopted as
ground for its own decision the following ruling of the
New York Court of Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to hold that because one
defendant had made default, the plaintiff should have
a decree even against him, where the court is satisfied
from the proofs offered by the other, that in fact the
plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against
several defendants, the complainant's rights or lack
of them in the controversy have to be the same,
and not different, as against all the defendant's
although one or some make default and the other or
others appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris above cited,
the New York Court of Errors in effect held that in such
a case if the plaintiff is not entitled to a decree, he will
not be entitled to it, not only as against the defendant
appearing and resisting his action but also as against
the one who made default. In the case at bar, the
cause of action in the plaintiff's complaint was common
against the Mayor of Manila, Emilia Matanguihan, and
the other defendants in Civil Case No. 1318 of the
lower court. The Court of First Instance in its judgment
found and held upon the evidence adduced by the
plaintiff and the defendant mayor that as between said
plaintiff and defendant Matanguihan the latter was the
one legally entitled to occupy the stalls; and it decreed,
among other things, that said plaintiff immediately
vacate them. Paraphrasing the New York Court of
Errors, it would be unreasonable to hold now that
because Matanguihan had made default, the said
plaintiff should be declared, as against her, legally
entitled to the occupancy of the stalls, or to remain
therein, although the Court of First Instance was so
firmly satisfied, from the proofs offered by the other
defendant, that the same plaintiff was not entitled to
such occupancy that it peremptorily ordered her to
vacate the stalls. If in the cases of Clason vs. Morris,
supra, Frow vs. De la Vega, supra, and Velez vs.
Ramas, supra the decrees entered inured to the
benefit of the defaulting defendants, there is no reason
why that entered in said case No. 1318 should not be
held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three
cases plainly implies that there is nothing in the law
governing default which would prohibit the court from
rendering judgment favorable to the defaulting
defendant in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim that
benefit, for it would not be a benefit if the supposed
beneficiary were barred from claiming it; and if the
benefit necessitated the execution of the decree, she
must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated
in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid
support to the above considerations. It provides that
when a complaint states a common cause of action
against several defendants, some of whom answer,
and the others make default, 'the court shall try the
case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties
in court'. It is obvious that under this provision the case
is tried jointly not only against the defendants
answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and
the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other
words, the defaulting defendants are held bound by
the answer filed by their co-defendants and by the
judgment which the court may render against all of
them. By the same token, and by all rules of equity
and fair play, if the judgment should happen to be
favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the
defaulting ones, for it would not be just to let the
judgment produce effects as to the defaulting
defendants only when adverse to them and not when
favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied
the provision under discussion in the following words:
In answer to the charge that respondent Judge had
committed a grave abuse of discretion in rendering a
default judgment against the PC, respondents allege
that, not having filed its answer within the
reglementary period, the PC was in default, so that it
was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said
judgment. It should be noted, however, that in entering
the area in question and seeking to prevent Patanao
from continuing his logging operations therein, the PC
was merely executing an order of the Director of
Forestry and acting as his agent. Patanao's cause of
action against the other respondents in Case No. 190,
namely, the Director of Forestry, the District Forester
of Agusan, the Forest Officer of Bayugan, Agusan, and
the Secretary of Agriculture and Natural Resources.
Pursuant to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of action
against several defendants some of whom answer and
the others fail to do so, the court shall try the case
against all upon the answer thus filed (by some) and
render judgment upon the evidence presented.' In
other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even
those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a
common cause of action against all of the respondents
therein, a decision in favor of one of them would
necessarily favor the others. In fact, the main issue, in
said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is
not possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle it
otherwise, as regards the PC, which is merely acting
as agent of the Director of Forestry, and is, therefore,
his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common
cause of action is alleged against several defendants,
some of whom answer and the others do not, the latter
or those in default acquire a vested right not only to
own the defense interposed in the answer of their co-
defendant or co-defendants not in default but also to
expect a result of the litigation totally common with
them in kind and in amount whether favorable or
unfavorable. The substantive unity of the plaintiff's
cause against all the defendants is carried through to
its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. Indeed,
since the singleness of the cause of action also
inevitably implies that all the defendants are
indispensable parties, the court's power to act is
integral and cannot be split such that it cannot relieve
any of them and at the same time render judgment
against the rest. Considering the tenor of the section in
question, it is to be assumed that when any defendant
allows himself to be declared in default knowing that
his defendant has already answered, he does so
trusting in the assurance implicit in the rule that his
default is in essence a mere formality that deprives
him of no more than the right to take part in the trial
and that the court would deem anything done by or for
the answering defendant as done by or for him. The
presumption is that otherwise he would not -have seen
to that he would not be in default. Of course, he has to
suffer the consequences of whatever the answering
defendant may do or fail to do, regardless of possible
adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is
concerned it becomes his inalienable right that the
same be dismissed also as to him. It does not matter
that the dismissal is upon the evidence presented by
the plaintiff or upon the latter's mere desistance, for in
both contingencies, the lack of sufficient legal basis
must be the cause. The integrity of the common cause
of action against all the defendants and the
indispensability of all of them in the proceedings do not
permit any possibility of waiver of the plaintiff's right
only as to one or some of them, without including all of
them, and so, as a rule, withdrawal must be deemed to
be a confession of weakness as to all. This is not only
elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of
procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of
every opportunity to defend themselves against her
claims which, after all, as will be seen later in this
opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into
consideration the tenor of the pleadings and the
probative value of the competent evidence which were
before the trial court when it rendered its assailed
decision where all the defendants are indispensable
parties, for which reason the absence of any of them in
the case would result in the court losing its
competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as
a matter of correct procedure, have to await until after
the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and
the satisfaction of his claim as variably as he might
please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the
non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the
principle of unity and indivisibility of the action just
discussed because all the defendants here have
already joined genuine issues with plaintiff. Their
default was only at the pre-trial. And as to such
absence of petitioners at the pre-trial, the same could
be attributed to the fact that they might not have
considered it necessary anymore to be present, since
their respective children Lim and Leonardo, with whom
they have common defenses, could take care of their
defenses as well. Anything that might have had to be
done by them at such pre-trial could have been done
for them by their children, at least initially, specially
because in the light of the pleadings before the court,
the prospects of a compromise must have appeared to
be rather remote. Such attitude of petitioners is neither
uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and
irrevocably in default was not an absolute necessity.
Practical considerations and reasons of equity should
have moved respondent court to be more
understanding in dealing with the situation. After all,
declaring them in default as respondent court did not
impair their right to a common fate with their children.
3 quoted. Consequently, respondent court had no
Another issue to be resolved in this case is the
question of whether or not herein petitioners were
entitled to notice of plaintiff's motion to drop their co-
defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In
this connection, the decisive consideration is that
according to the applicable rule, Section 9, Rule 13,
already quoted above, (1) even after a defendant has
been declared in default, provided he "files a motion to
set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether
the order of default is set aside or not" and (2) a party
in default who has not filed such a motion to set aside
must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot
be denied that petitioners had all filed their motion for
reconsideration of the order declaring them in default.
Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8
of said answer, which denied said motion for
reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a
motion to set aside the order of default." But as We
have not been favored by the parties with a copy of the
said motion, We do not even know the excuse given
for petitioners' failure to appear at the pre-trial, and We
cannot, therefore, determine whether or not the motion
complied with the requirements of Section 3 of Rule 18
which We have held to be controlling in cases of
default for failure to answer on time. (The Philippine-
British Co. Inc. etc. et al. vs. The Hon. Walfrido de los
Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a
case of default for failure to answer but one for failure
to appear at the pre-trial. We reiterate, in the situation
now before Us, issues have already been joined. In
fact, evidence had been partially offered already at the
pre-trial and more of it at the actual trial which had
already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in
mind and considering that issues had already been
joined even as regards the defaulted defendants, it
would be requiring the obvious to pretend that there
was still need for an oath or a verification as to the
merits of the defense of the defaulted defendants in
their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary judgment
there can be no question that the issues joined were
genuine, and consequently, the reason for requiring
such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the
non-defaulted defendants, petitioners must have
assumed that their presence was superfluous,
particularly because the cause of action against them
as well as their own defenses are common. Under
these circumstances, the form of the motion by which
the default was sought to be lifted is secondary and
the requirements of Section 3 of Rule 18 need not be
strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for
the purposes of the revival of their right to notice under
Section 9 of Rule 13, that petitioner's motion for
reconsideration was in substance legally adequate
regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint.
And there can be no doubt that such amendment was
substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-
defendants, herein petitioners, it had the effect of
increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer
for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974
was legally indispensable under the rule above-
her previous motions which turned the proceedings
authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator
Francisco, "(t) he Rules of Court clearly provide that no
motion shall be acted upon by the Court without the
proof of service of notice thereof, together with a copy
of the motion and other papers accompanying it, to all
parties concerned at least three days before the
hearing thereof, stating the time and place for the
hearing of the motion. (Rule 26, section 4, 5 and 6,
Rules of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement, it is not
a motion. It presents no question which the court could
decide. And the Court acquires no jurisdiction to
consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs.
Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-
G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of
Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the
Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of
dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as
said petitioners have in fact made their appeal already
by filing the required notice of appeal and appeal bond
and a motion for extension to file their record on
appeal, which motion was granted by respondent
court, their only recourse is to prosecute that appeal.
Additionally, it is also maintained that since petitioners
have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28,
1974, they have lost their right to assail by certiorari
the actuations of respondent court now being
questioned, respondent court not having been given
the opportunity to correct any possible error it might
have committed.
We do not agree. As already shown in the foregoing
discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed to
restore order in the entangled situation created by the
series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule
of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury,
juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal,
it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely
affected, when the irregularity committed by the trial
court is so grave and so far reaching in its
consequences that the long and cumbersome
procedure of appeal will only further aggravate the
situation of the aggrieved party because other
untoward actuations are likely to materialize as natural
consequences of those already perpetrated. If the law
were otherwise, certiorari would have no reason at all
for being.
No elaborate discussion is needed to show the urgent
need for corrective measures in the case at bar. Verily,
this is one case that calls for the exercise of the
Supreme Court's inherent power of supervision over all
kinds of judicial actions of lower courts. Private
respondent's procedural technique designed to disable
petitioners to defend themselves against her claim
which appears on the face of the record itself to be at
least highly controversial seems to have so fascinated
respondent court that none would be surprised should
her pending motion for immediate execution of the
impugned judgment receive similar ready sanction as
into a one-sided affair. The stakes here are high. Not
only is the subject matter considerably substantial;
there is the more important aspect that not only the
spirit and intent of the rules but even the basic
rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of
the proceedings below would be nothing short of
wittingly condoning inequity and injustice resulting
from erroneous construction and unwarranted
application of procedural rules.
5
The sum and total of all the foregoing disquisitions is
that the decision here in question is legally anomalous.
It is predicated on two fatal malactuations of
respondent court namely (1) the dismissal of the
complaint against the non-defaulted defendants Lim
and Leonardo and (2) the ex-parte reception of the
evidence of the plaintiff by the clerk of court, the
subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully
discussed above, the order of dismissal of October 21,
1974 is unworthy of Our sanction: (1) there was no
timely notice of the motion therefor to the non-
defaulted defendants, aside from there being no notice
at all to herein petitioners; (2) the common answer of
the defendants, including the non-defaulted, contained
a compulsory counterclaim incapable of being
determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of
the two non-defaulted defendants as parties, and
inasmuch as they are both indispensable parties in the
case, the court consequently lost the" sine qua non of
the exercise of judicial power", per Borlasa vs.
Polistico, supra. This is not to mention anymore the
irregular delegation to the clerk of court of the function
of receiving plaintiff's evidence. And as regards the ex-
parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon,
We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles
on default, to a common and single fate with their non-
defaulted co-defendants. And We are not yet referring,
as We shall do this anon to the numerous reversible
errors in the decision itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do
not call for a common corrective remedy. We cannot
simply rule that all the impugned proceedings are null
and void and should be set aside, without being faced
with the insurmountable obstacle that by so doing We
would be reviewing the case as against the two non-
defaulted defendants who are not before Us not being
parties hereto. Upon the other hand, for Us to hold that
the order of dismissal should be allowed to stand, as
contended by respondents themselves who insist that
the same is already final, not only because the period
for its finality has long passed but also because
allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set
aside by the Court of Appeals whose decision on their
petition is also already final, We would have to
disregard whatever evidence had been presented by
the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words,
whichever of the two apparent remedies the Court
chooses, it would necessarily entail some kind of
possible juridical imperfection. Speaking of their
respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the
non-defaulted defendants whom We have not heard
and who even respondents would not wish to have
anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would
naturally set at naught every effort private respondent
has made to establish or prove her case thru means
sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought
about by none other than private respondent who has
quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective
law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of
the substantive law and of equity that always underlie
them and which have to be inevitably considered in the
construction of the pertinent procedural rules.
All things considered, after careful and mature
deliberation, the Court has arrived at the conclusion
that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We
rule that the order of dismissal of October 21, 1974 is
in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent
thereto including and principally its decision of
December 20, 1974 are illegal and should be set
aside.
This conclusion is fully justified by the following
considerations of equity:
1. It is very clear to Us that the procedural maneuver
resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was
characterized by that which every principle of law and
equity disdains taking unfair advantage of the rules
of procedure in order to unduly deprive the other party
of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end
in view of completely incapacitating their co-
defendants from making any defense, without
considering that all of them are indispensable parties
to a common cause of action to which they have
countered with a common defense readily connotes an
intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of
plaintiff's evidence is taken into account, one easily
understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the
commission of unfairness and inequity in the
application of the rules of procedure, particularly when
the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run
counter to such basic principles in the rules on default
and such elementary rules on dismissal of actions and
notice of motions that no trial court should be unaware
of or should be mistaken in applying. We are at a loss
as to why His Honor failed to see through counsel's
inequitous strategy, when the provisions (1) on the
three-day rule on notice of motions, Section 4 of Rule
15, (2) against dismissal of actions on motion of
plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence
of indispensable parties, Section 7, Rule 3, (4) on
service of papers upon defendants in default when
there are substantial amendments to pleadings,
Section 9, Rule 13, and (5) on the unity and integrity of
the fate of defendants in default with those not in
default where the cause of action against them and
their own defenses are common, Section 4, Rule 18,
are so plain and the jurisprudence declaratory of their
intent and proper construction are so readily
comprehensible that any error as to their application
would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court
are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain
that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous
orders of respondent court. It is only fair that she
should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on
the basis of its own recitals, the decision in question
cannot stand close scrutiny. What is more, the very
considerations contained therein reveal convincingly
the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the
idea of merely returning this case for a resumption of
trial by setting aside the order of dismissal of October
21, 1974, with all its attendant difficulties on account of
its adverse effects on parties who have not been
heard, but upon closer study of the pleadings and the
decision and other circumstances extant in the record
before Us, We are now persuaded that such a course
of action would only lead to more legal complications
incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a
bad situation. Anyway, We feel confident that by and
large, there is enough basis here and now for Us to
rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had
no reason for being were there less haste and more
circumspection in rendering the same. Recklessness
in jumping to unwarranted conclusions, both factual
and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs
granted. It is apparent therein that no effort has been
made to avoid glaring inconsistencies. Where
references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a
litigation which, considering the substantial value of
the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel,
calls for greater attention and skill than the general run
of cases would.
Inter alia, the following features of the decision make it
highly improbable that if We took another course of
action, private respondent would still be able to make
out any case against petitioners, not to speak of their
co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's
case, "she is the widow of the late Tee Hoon Po
Chuan (Po Chuan, for short) who was then one of the
partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu
(Lim Tanhu, for short) and Alfonso Leonardo Ng Sua
(Ng Sua, for short) as co-partners; that after the death
of her husband on March 11, 1966 she is entitled to
share not only in the capital and profits of the
partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the
latter during its lifetime."
Relatedly, in the latter part of the decision, the findings
are to the following effect: .
That the herein plaintiff Tan Put and her late husband
Po Chuan married at the Philippine Independent
Church of Cebu City on December, 20, 1949; that Po
Chuan died on March 11, 1966; that the plaintiff and
the late Po Chuan were childless but the former has a
foster son Antonio Nuez whom she has reared since
his birth with whom she lives up to the present; that
prior to the marriage of the plaintiff to Po Chuan the
latter was already managing the partnership Glory
Commercial Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior to and
just after the marriage of the plaintiff to Po Chuan she
was engaged in the drugstore business; that not long
after her marriage, upon the suggestion of Po Chuan
the plaintiff sold her drugstore for P125,000.00 which
amount she gave to her husband in the presence of
defendant Lim Tanhu and was invested in the
partnership Glory Commercial Co. sometime in 1950;
that after the investment of the above-stated amount in
the partnership its business flourished and it embarked
in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets
and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the final
decisions and approved the appointments of new
personnel who were taken in by the partnership; that
the late Po Chuan and defendants Lim Tanhu and Ng
Sua are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim Tanhu and
Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng
Sua were partners in name but they were mere
employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To
start with, it is not clear in the decision whether or not
in making its findings of fact the court took into account
the allegations in the pleadings of the parties and
whatever might have transpired at the pre-trial. All that
We can gather in this respect is that references are
made therein to pre-trial exhibits and to Annex A of the
answer of the defendants to plaintiff's amended
complaint. Indeed, it was incumbent upon the court to
consider not only the evidence formally offered at the
trial but also the admissions, expressed or implied, in
the pleadings, as well as whatever might have been
placed before it or brought to its attention during the
pre-trial. In this connection, it is to be regretted that
none of the parties has thought it proper to give Us an
idea of what took place at the pre-trial of the present
case and what are contained in the pre-trial order, if
any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from
affording the parties every opportunity to compromise
or settle their differences, is for the court to be
apprised of the unsettled issues between the parties
and of their respective evidence relative thereto, to the
end that it may take corresponding measures that
would abbreviate the trial as much as possible and the
judge may be able to ascertain the facts with the least
observance of technical rules. In other words whatever
is said or done by the parties or their counsel at the
pre- trial serves to put the judge on notice of their
respective basic positions, in order that in appropriate
cases he may, if necessary in the interest of justice
and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken
up at the pre-trial, before finally resolving any issue of
fact or of law. In brief, the pre-trial constitutes part and
parcel of the proceedings, and hence, matters dealt
with therein may not be disregarded in the process of
decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and
worthless.
Now, applying these postulates to the findings of
respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of
plaintiff to the deceased Tee Hoon Lim Po Chuan is
contrary to the weight of the evidence brought before it
during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of
the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument"
signed by the parties as well as by their witnesses and
the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic
copy of the marriage contract. While a marriage may
also be proved by other competent evidence, the
absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible
evidence of such marriage unless proof of loss of the
contract or of any other satisfactory reason for its non-
production is first presented to the court. In the case at
bar, the purported certification issued by a Mons. Jose
M. Recoleto, Bishop, Philippine Independent Church,
Cebu City, is not, therefore, competent evidence, there
being absolutely no showing as to unavailability of the
marriage contract and, indeed, as to the authenticity of
the signature of said certifier, the jurat allegedly signed
by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of
his office. Besides, inasmuch as the bishop did not
testify, the same is hearsay.
As regards the testimony of plaintiff herself on the
same point and that of her witness Antonio Nuez,
there can be no question that they are both self-
serving and of very little evidentiary value, it having
been disclosed at the trial that plaintiff has already
assigned all her rights in this case to said Nuez,
thereby making him the real party in interest here and,
therefore, naturally as biased as herself. Besides, in
the portion of the testimony of Nuez copied in Annex
C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which
means that he was less than eight years old at the
supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same
memorandum purports to be the certificate of birth of
one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis
Occidental, the son of one Uy Bien, father, and Tan
Put, mother. Significantly, respondents have not made
any adverse comment on this document. It is more
likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testified
she was childless. So which is which? In any event, if
on the strength of this document, Nuez is actually the
legitimate son of Tan Put and not her adopted son, he
would have been but 13 years old in 1949, the year of
her alleged marriage to Po Chuan, and even then,
considering such age, his testimony in regard thereto
would still be suspect.
Now, as against such flimsy evidence of plaintiff, the
court had before it, two documents of great weight
belying the pretended marriage. We refer to (1) Exhibit
LL, the income tax return of the deceased Tee Hoon
Lim Po Chuan indicating that the name of his wife was
Ang Sick Tin and (2) the quitclaim, Annex A of the
answer, wherein plaintiff Tan Put stated that she had
been living with the deceased without benefit of
marriage and that she was his "common-law wife".
Surely, these two documents are far more reliable than
all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-
trial evidence. But it is evidence offered to the judge
himself, not to the clerk of court, and should have at
least moved him to ask plaintiff to explain if not rebut it
before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to
the quitclaim containing the admission of a common-
law relationship only, it is to be observed that His
Honor found that "defendants Lim Tanhu and Ng Sua
had the plaintiff execute a quitclaim on November 29,
1967 (Annex "A", Answer) where they gave plaintiff the
amount of P25,000 as her share in the capital and
profits of the business of Glory Commercial Co. which
was engaged in the hardware business", without
making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating
either that no evidence to prove that allegation of the
plaintiff had been presented by her or that whatever
evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established
without any circumstance to detract from its legal
import, the court should have held that plaintiff was
bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more,
that she had already renounced for valuable
consideration whatever claim she might have relative
to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all
these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the
certification of the Local Civil Registrar of Cebu City
and (2) a similar certification of the Apostolic Prefect of
the Philippine Independent Church, Parish of Sto.
Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950
do not show any marriage between Tee Hoon Lim Po
Chuan and Tan Put, neither of which certifications
have been impugned by respondent until now, it
stands to reason that plaintiff's claim of marriage is
really unfounded. Withal, there is still another
document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a
written agreement executed in Chinese, but
purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu
City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put,
have lived with Mr. Lim Po Chuan alias TeeHoon since
1949 but it recently occurs that we are incompatible
with each other and are not in the position to keep
living together permanently. With the mutual
concurrence, we decided to terminate the existing
relationship of common law-marriage and promised
not to interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been given to
me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year
of the Republic of China (corresponding to the year
1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-
284, Record.)
Indeed, not only does this document prove that
plaintiff's relation to the deceased was that of a
common-law wife but that they had settled their
property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no
alternative but to hold that plaintiff Tan Put's allegation
that she is the widow of Tee Hoon Lim Po Chuan has
not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows
that her relation with said deceased was that of a
common-law wife and furthermore, that all her claims
against the company and its surviving partners as well
as those against the estate of the deceased have
already been settled and paid. We take judicial notice
of the fact that the respective counsel who assisted the
parties in the quitclaim, Attys. H. Hermosisima and
Natalio Castillo, are members in good standing of the
Philippine Bar, with the particularity that the latter has
been a member of the Cabinet and of the House of
Representatives of the Philippines, hence, absent any
credible proof that they had allowed themselves to be
parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due
legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her
alleged status as legitimate wife of Po Chuan is not
only unconvincing but has been actually overcome by
the more competent and weighty evidence in favor of
the defendants, her attempt to substantiate her main
cause of action that defendants Lim Tanhu and Ng
Sua have defrauded the partnership Glory Commercial
Co. and converted its properties to themselves is even
more dismal. From the very evidence summarized by
His Honor in the decision in question, it is clear that
not an iota of reliable proof exists of such alleged
misdeeds.
Of course, the existence of the partnership has not
been denied, it is actually admitted impliedly in
defendants' affirmative defense that Po Chuan's share
had already been duly settled with and paid to both the
plaintiff and his legitimate family. But the evidence as
to the actual participation of the defendants Lim Tanhu
and Ng Sua in the operation of the business that could
have enabled them to make the extractions of funds
alleged by plaintiff is at best confusing and at certain
points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged
that as widow of Po Chuan she is entitled to /3 share
of the assets and properties of the partnership. In fact,
her prayer in said complaint is, among others, for the
delivery to her of such /3 share. His Honor's statement
of the case as well as his findings and judgment are all
to that same effect. But what did she actually try to
prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she
had money of her own when she "married" Po Chuan
and "that prior to and just after the marriage of the
plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan, the plaintiff sold her
drugstore for P125,000 which amount she gave to her
husband in the presence of Tanhu and was invested in
the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated
amount in the partnership, its business flourished and
it embarked in the import business and also engaged
in the wholesale and retail trade of cement and GI
sheets and under (sic) huge profits." (pp. 25-26, Annex
L, petition.)
To begin with, this theory of her having contributed of
P125,000 to the capital of the partnership by reason of
which the business flourished and amassed all the
millions referred to in the decision has not been
alleged in the complaint, and inasmuch as what was
being rendered was a judgment by default, such
theory should not have been allowed to be the subject
of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable
that he failed to observe the rule. Then, on the other
hand, if it was her capital that made the partnership
flourish, why would she claim to be entitled to only to
/3 of its assets and profits? Under her theory found
proven by respondent court, she was actually the
owner of everything, particularly because His Honor
also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of
Po Chuan that defendants Lim Tanhu and Ng Sua had
no means of livelihood at the time of their employment
with the Glory Commercial Co. under the management
of the late Po Chuan except their salaries therefrom;
..." (p. 27, id.) Why then does she claim only /3 share?
Is this an indication of her generosity towards
defendants or of a concocted cause of action existing
only in her confused imagination engendered by the
death of her common-law husband with whom she had
settled her common-law claim for recompense of her
services as common law wife for less than what she
must have known would go to his legitimate wife and
children?
Actually, as may be noted from the decision itself, the
trial court was confused as to the participation of
defendants Lim Tanhu and Ng Sua in Glory
Commercial Co. At one point, they were deemed
partners, at another point mere employees and then
elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which
allows these "partners in name" and "partners-
employees" or employees who had no means of
livelihood and who must not have contributed any
capital in the business, "as Po Chuan was practically
the owner of the partnership having the controlling
interest", /3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this
juncture that the decision has made Po Chuan play the
inconsistent role of being "practically the owner" but at
the same time getting his capital from the P125,000
given to him by plaintiff and from which capital the
business allegedly "flourished."
Anent the allegation of plaintiff that the properties
shown by her exhibits to be in the names of
defendants Lim Tanhu and Ng Sua were bought by
them with partnership funds, His Honor confirmed the
same by finding and holding that "it is likewise clear
that real properties together with the improvements in
the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan
in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered
view, however, that this conclusion of His Honor is
based on nothing but pure unwarranted conjecture.
Nowhere is it shown in the decision how said
defendants could have extracted money from the
partnership in the fraudulent and illegal manner
pretended by plaintiff. Neither in the testimony of
Nuez nor in that of plaintiff, as these are summarized
in the decision, can there be found any single act of
extraction of partnership funds committed by any of
said defendants. That the partnership might have
grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the
decision are not in the names of Po Chuan, who was
Chinese, but of the defendants who are Filipinos, do
not necessarily prove that Po Chuan had not gotten
his share of the profits of the business or that the
properties in the names of the defendants were bought
with money of the partnership. In this connection, it is
decisively important to consider that on the basis of
the concordant and mutually cumulative testimonies of
plaintiff and Nuez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the final
decisions and approved the appointments of new
Personnel who were taken in by the partnership; that
the late Po Chuan and defendants Lim Tanhu and Ng
Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and
Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng
Sua were partners in name but they were mere
employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the
running of the partnership, how could the defendants
have defrauded him of such huge amounts as plaintiff
had made his Honor believe? Upon the other hand,
since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if
defendants had obtained any portion of the funds of
the partnership for themselves, it must have been with
the knowledge and consent of Po Chuan, for which
reason no accounting could be demanded from them
therefor, considering that Article 1807 of the Civil Code
refers only to what is taken by a partner without the
consent of the other partner or partners. Incidentally
again, this theory about Po Chuan having been
actively managing the partnership up to his death is a
substantial deviation from the allegation in the
amended complaint to the effect that "defendants
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud
and machination, took actual and active management
of the partnership and although Tee Hoon Lim Po
Chuan was the manager of Glory Commercial Co.,
defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par.
4, p. 2 of amended complaint, Annex B of petition) and
should not have been permitted to be proven by the
hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the
very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu and
Ng Sua with funds of the partnership appear to have
been transferred to their names only in 1969 or later,
that is, long after the partnership had been
automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence
of clear proof that they had violated the trust of Po
Chuan during the existence of the partnership. (See
Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused
His Honor to readily disbelieve plaintiffs' pretensions.
Nuez testified that "for about 18 years he was in
charge of the GI sheets and sometimes attended to
the imported items of the business of Glory
Commercial Co." Counting 18 years back from 1965 or
1966 would take Us to 1947 or 1948. Since according
to Exhibit LL, the baptismal certificate produced by the
same witness as his birth certificate, shows he was
born in March, 1942, how could he have started
managing Glory Commercial Co. in 1949 when he
must have been barely six or seven years old? It
should not have escaped His Honor's attention that the
photographs showing the premises of Philippine Metal
Industries after its organization "a year or two after the
establishment of Cebu Can Factory in 1957 or 1958"
must have been taken after 1959. How could Nuez
have been only 13 years old then as claimed by him to
have been his age in those photographs when
according to his "birth certificate", he was born in
1942? His Honor should not have overlooked that
according to the same witness, defendant Ng Sua was
living in Bantayan until he was directed to return to
Cebu after the fishing business thereat floundered,
whereas all that the witness knew about defendant Lim
Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only
told to him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and hearsay as
to Lim Teck Chuan. Neither should His Honor have
failed to note that according to plaintiff herself, "Lim
Tanhu was employed by her husband although he did
not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and
Ng Sua had no known income except their salaries.
Actually, it is not stated, however, from what evidence
such conclusion was derived in so far as Ng Sua is
concerned. On the other hand, with respect to Lim
Tanhu, the decision itself states that according to
Exhibit NN-Pre trial, in the supposed income tax return
of Lim Tanhu for 1964, he had an income of P4,800 as
salary from Philippine Metal Industries alone and had
a total assess sable net income of P23,920.77 that
year for which he paid a tax of P4,656.00. (p. 14.
Annex L, id.) And per Exhibit GG-Pretrial in the year,
he had a net income of P32,000 for which be paid a
tax of P3,512.40. (id.) As early as 1962, "his fishing
business in Madridejos Cebu was making money, and
he reported "a net gain from operation (in) the amount
of P865.64" (id., per Exhibit VV-Pre-trial.) From what
then did his Honor gather the conclusion that all the
properties registered in his name have come from
funds malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co.
without the aid of any accountant or without the same
being explained by any witness who had prepared
them or who has knowledge of the entries therein. This
must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions
His Honor made out of them. In Exhibit SS-Pre-trial,
the reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit
TT-Pre-trial, according to His Honor, showed that the
total value of goods available as of the same date was
P11,166,327.62. On the other hand, per Exhibit XX-
Pre-trial, the supposed balance sheet of the company
for 1966, "the value of inventoried merchandise, both
local and imported", as found by His Honor, was
P584,034.38. Again, as of December 31, 1966, the
value of the company's goods available for sale was
P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of
Account, whatever that is, of the company showed its
"cash analysis" was P12,223,182.55. We do not
hesitate to make the observation that His Honor,
unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and
committing an injustice. In any event, there is no
comprehensible explanation in the decision of the
conclusion of His Honor that there were
P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly
seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-trial,
Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17.
(p. 15, id.) Under the circumstances, We are not
prepared to permit anyone to predicate any claim or
right from respondent court's unaided exercise of
accounting knowledge.
Additionally, We note that the decision has not made
any finding regarding the allegation in the amended
complaint that a corporation denominated Glory
Commercial Co., Inc. was organized after the death of
Po Chuan with capital from the funds of the
partnership. We note also that there is absolutely no
finding made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to plaintiff,
just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that
while His Honor has ordered defendants to deliver or
pay jointly and severally to the plaintiff P4,074,394.18
or /3 of the P12,223,182.55, the supposed cash
belonging to the partnership as of December 31, 1965,
in the same breath, they have also been sentenced to
partition and give /3share of the properties
enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly
purchased from the funds of the partnership which
would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming
there has not yet been any liquidation of the
partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have
the status of a partnership in liquidation and the only
right plaintiff could have would be to what might result
after such liquidation to belong to the deceased
partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the
deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would
be much more extended than it is already prevent us
from further pointing out the inexplicable deficiencies
and imperfections of the decision in question. After all,
what have been discussed should be more than
sufficient to support Our conclusion that not only must
said decision be set aside but also that the action of
the plaintiff must be totally dismissed, and, were it not
seemingly futile and productive of other legal
complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by
the parties albeit important and perhaps pivotal has
likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is
granted. All proceedings held in respondent court in its
Civil Case No. 12328 subsequent to the order of
dismissal of October 21, 1974 are hereby annulled and
set aside, particularly the ex-parte proceedings against
petitioners and the decision on December 20, 1974.
Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the
action dated October 21, 1974 to herein petitioners
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng
Sua and Co Oyo. And respondent court is hereby
permanently enjoined from taking any further action in
said civil case gave and except as herein indicated.
Costs against private respondent.
Tuazon and San Pedro vs Gavina Zamora and Sons
May 19 1903
TUASON & SAN PEDRO, plaintiffs-appellees,
vs.GAVINA ZAMORA & SONS, defendants-
Don Mariano Tuason and Don Manuel Garcia San
Pedro had entered into a mercantile partnership en
comandita with Luis Vives, under the firm name of
"Luis Vives & Co." By the death of Luis Vives the
partnership was dissolved, and was then reorganized
under the name of "Tuason & San Pedro" on the 31st
of December, 1898, composed solely of the surviving
partners. This partnership assumed the business of
the former partnership as wood sawyers and building
contractors, the liability of the firm being made
retroactive to the 11th of July, 1897. In February,
1898, Don Mariano Tuason entered into the contract
with Don Juan Feliciano upon which this case turns,
the contract being for the construction of a house. He
did not mention in the contract that it was made on
behalf of the firm of Tuason & San Pedro. In the
protest, dated the 23d day of June, 1898, it is seen
that Don Manuel San Pedro makes this protest with
respect to the delivery of the house, and makes it on
behalf of the firm of "Tuason & San Pedro," the
manager of which, Don Mariano Tuason, says Don
Manuel San Pedro had contracted for the building. On
the 25th of August, 1900, Tuason & San Pedro
brought this action. Objection having been made to the
right of the plaintiff partnership to sue, the question
must be determined whether a partnership can
maintain an action in its own behalf upon a contract
entered into by one of the partners in his own name,
thus binding the third person who contracted with this
partner.
The purpose of the complaint is the recovery of the
price of the house built. The entire question is reduced
to these terms: Should this payment be made to the
partnership?
The following facts had been made to appear of record
before the exception was taken: (1) That the
partnership claimed to be the owner of this credit by its
protest against default. (2) That it was in the
possession of the document evidentiary of the credit
and others connected with it, such as the notarial
record of demand for payment made by the partner
Tuason, and the record made of the offer to deliver the
keys of the house, prepared at the instance of Tuason.
(3) That the attorney appearing for the partnership
held a power of attorney from the partnership,
executed by Tuason as managing partner. There can
not, therefore, by any duality, any incompatibility, or
repetition of action. Everything which Tuason might
have done is being done by the partnership, and after
what the partnership has done Tuason can do nothing.
The action being a solidary one, therefore, the result is
the same whether it has been brought by Tuason &
San Pedro or by Tuason alone. "Payment should be
made to the person in whose favor the obligation is
constituted, or to some other person authorized to
receive it in his name." (Art. 1162 of the Civil Code.)
"The first of these cases," says Manresa, "the most
natural and simple, refers not only to the person who
may have been the creditor at the time the obligation
was created but rather to the person who is the
creditor at the time payment is due. . . . That the
principle laid down by the code has this wide meaning
is demonstrated by the fact that it has no rules, as
have other codes (for instance, the Argentine code)
which expressly authorized heirs, assignees, and
subrogated creditors to demand payment, and the
right of these persons being unquestionable they must
be regarded as included in the first part of article 1162,
because, although the obligation was not created in
their favor, it has subsequently resulted that its
constitutions is to their benefit." (Manresa,
Commentaries on the Civil Code, vol. 8, p. 252.)
When process was served upon the defendant to
answer the complaint, it could be seen that the plaintiff
was not an heir, an assignee, or a subrogated creditor,
physically distinct from the person who made the
contract, but this very same person, also bringing with
him into the case the responsibility of a general
partnership, which, far from declining to entertain the
exceptions, set-offs, and counter claims which might
be available against the original creditor, undertakes to
defend against them as the original, actual, and sole
creditor.
Hence it is that the defense of the defendant is by no
means limited, nor will the effects of the payment be
frustrated. Furthermore, it is evident that although
Tuason may have operated in his own name, it
certainly was not with his own private funds. Therefore
it was that this contract was communicated to the
partnership which became responsible therefor. (Art.
134, Code of Commerce.)
In view of the understanding and agreement between
Tuason and the partnership, shown by the facts
stated, the responsibility of the partner Tuason being
included in the responsibility of Tuason & San Pedro,
the liability of the firm is not less than the personal
liability of the partner, as the partnership was a general
one. And the action brought by the firm being simply
the action in favor of the partner assumed by the firm
as the result of the assumption of the business and the
filing of the complaint, the exception, practically
speaking, is entirely unnecessary, although, from a
theoretical point of view, it might perhaps be
supported. We therefore decide that the action brought
by the partnership will lie, and the payment which may
be made to the partnership upon the circumstances
stated will be perfectly legal.
The legal grounds on which paragraph 8 of the
conclusions of law of the appealed judgment was
based, are hereby modified to conform to the
preceding opinion, and so modified we accept the
findings of fact and the conclusions of law of the court
below, with the following amendment: That part of the
first conclusion of law which reads, "the owner of the
property, Don Juan Feliciano, and, by reason of his
death, his heirs, now defendants, are bound to pay the
entire price agreed upon with the contractor, as the
work was terminated and delivered," being amended
to read as follows: "The owner, Don Juan Feliciano,
and, by his death, his heirs, now defendants, are
bound to pay all the price agreed upon to the
contractor, because the house burned after the work
terminated, and after the defendants had become in
default with respect to their obligation to receive it," for
although it is evident, as stated in the seventh
conclusion of law, that the contractor has done
everything incumbent upon him for the delivery of the
house, it is none the less true, as a matter of fact, that
no such delivery took place.
We therefore affirm the judgment below, with costs in
this instance to the appellant. So ordered.
M. Teague vs El Martin GR 30286 Sept 12 1929M.
TEAGUE, plaintiff-appellant, vs.H. MARTIN, J. T.
MADDY and L.H. GOLUCKE, defendants-appellees.
STATEMENT
Plaintiff alleges that about December 23, 1926, he and
the defendants formed a partnership for the operation
of a fish business and similar commercial transactions,
which by mutual contest was called "Malangpaya Fish
Co," with a capital of P35,000, of which plaintiff paid
P25,000, the defendant Martin P5,000, P2,500, and
Golucke P2,500. That as such partnership, they
agreed to share in the profits and losses of the
business in proportion to the amount of capital which
each contributed. That the plaintiff was named the
general manager to take charge of the business, with
full power to do and perform all acts necessary to carry
out of the purposes of the partnership. That there was
no agreement as to the duration of the partnership.
That plaintiff wants to dissolve it, but that the
defendants refused to do so. A statement marked
Exhibit A, which purports to be a cash book, is made a
part of the complaint. That the partnership purchased
and now owns a lighter called Lapu-Lapu, and a
motorship called Barracuda, and other properties. That
the lighter and the motorship are in the possession of
the defendants who are making use of them, to the
damage and prejudice of the plaintiff, for any damage
which plaintiff may sustain. That it is for the best
interest of the parties to have a receiver appointed
pending this litigation, to take possession of the
properties, and he prays that the Philippine Trust
Company be appointed receiver, and for judgment
dissolving the partnership, with costs.
Each of the defendants filed a separate answer, but
the same nature, in which they admit that about
December 10, 1926, the plaintiff and the defendants
formed a partnership for the purpose of the equipment
of the Manila Fish Co., Inc., and the conduct of a fish
business. That the terms of the partnership were never
evidenced by a truth and in fact, the partnership was
formed under a written plan, of which each member
received a copy and to which all agreed. That by its
terms the amount of the capital was P45,000, of which
the plaintiff agreed to contribute P35,000. That
P20,000 of the capital was to be used for the purchase
of the equipment of the Manila Fish Co., Inc. and the
balance placed to the checking account o the new
company.
It is then alleged that "the new owners agree to duties
as follows:
Capt. Maddy will have charger of the Barracuda and
the navigating of the same. Salary P300 per month.
Mr. Martin will have charge of the southern station,
cold stores, commissary and procuring fish. Salary
P300 per month.
Mr. Teague will have charge of selling fish in Manila
and purchasing supplies. No salary until business is on
paying basis, then the same as Maddy or Martin.
The principal office shall be in Manila, each party
doing any business shall keep books showing plainly
all transactions, the books shall be available at all time
for inspections of any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at some future time
to repurchase a larger share in the business Teague
agrees to sell part of his shares to each on the basis
double the amount originally invested by each or ten
thousand to Martin and five thousand to Maddy.
This offer will expire after two years.
That no charge was ever made in the terms of said
agreement of copartnership as set forth above except
that it was later agreed among the partners that the
business of the partnership should be conducted
under the trade name "Malangpaya Fish Company."
That as shown by the foregoing quoted agreement the
agreed capital of the copartnership was P45,000 and
not P35,000 as stated in the third paragraph of
plaintiff's amended complaint, and the plaintiff herein,
M. Teague, bound himself and agreed to contribute to
the said copartnership the sum of P35,000 and not the
sum of P25,000 as stated in the third paragraph of his
said amended complaint.
Defendant Martin specificaly denies the "plaintiff was
named general manager of the partnership," and
alleged "that all the duties and powers of the said
plaintiff were specifically set forth in the above quoted
written agreement and that no further or additional
powers were ever given the said plaintiff." But he
admits the purchase of the motorship Barracuda, by
the partnership. He denies that Exhibit A is a true or
correct statement of the cash received and paid out by
or on behalf of the partnership, or that the partnership
over purchased or that it now owns the lighter Lapu-
Lapu, "And/ or any other properties" as mentioned in
said ninth paragraph, except such motorship and a
smoke in the house," or that the defendants are
making use of any of the properties of the partnership,
to the damage and prejudice of the plaintiff, or that
they do not have any visible means to answer for any
damages, and alleges that at the time of the filing of
the complaint, partnership in cold storage, of the value
of P6,000, for which he has never accounted on the
books of the partnership or mentioned in the
complaint, and defendant prays that plaintiff's
complaint be dismissed, and that he be ordered and
required to render an accounting , and to pay to
partnership the balance of his unpaid subscription
amounting to P10,000.
In his answer the defendant Maddy claimed and
asserted that there is due and owing him from the
plaintiff P1,385.53, with legal interest, and in his
amended answer, the defendant Martin prays for
judgment for P615.49.
To all which the plaintiff made a general and specific
denial.
Upon such issues the lower court on April 30, 1928,
rendered the following judgment:
In view of the foregoing considerations, the court
decrees:
That the partnership, existing among the parties in this
suit, is hereby declared dissolved; that all the existing
properties of the said partnership are ordered to be
sold at public auction; and that all the proceeds and
other unexpended funds of the partnership be used,
first, to pay he P529.48 tax to the Government of the
Philippine Islands; second, to pay debts owing to third
persons; third, to reimburse the partners for their
advances and salaries due; and lastly, to return to the
partners the amounts they contributed to the capital of
the association and any other remaining such to be
distributed proportionately among them as profits:
That the plaintiff immediately render a true and proper
account of all the money due to and received by him
for the partnership.
That the barge Lapu-Lapu as well as the Ford truck
No. T-3019 and adding machine belong exclusively to
the plaintiff, M. Teague, but the said plaintiff must
return to and reimburse the partnership the sum of
P14,032.26 taken from its funds for the purchase and
equipment of the said barge Lapu-Lapu; and also to
return the sum of P1,230 and P228 used for buying
the Ford truck and adding machine, respectively:
That the sum of P,1512.03 be paid to the defendant, J.
T. Maddy, and the sum of P615.49 be paid to
defendant, H. Martin, for their advances and their
unpaid salaries, with legal interest from October 27,
1927, until paid; that the plaintiff pay the costs of this
action.
May 16, 1928, plaintiff filed a motion praying for an
order "directing the court's stenographic notes taken
by them of the evidence presented in the present
case, as soon as possible." This motion was denied on
May 19th, and on May 16th, the court denied the
plaintiff's motion for reconsideration. To all of which
exceptions were duly taken.
June 7, 1928, plaintiff filed a petition praying, for the
reasons therein stated, that the decision of the court in
the case be set aside, and that the parties be
permitted to again present their testimony and to have
the case decided upon its merits. To which objections
were duly made, and on June 28, 1928, the court
denied plaintiff's motion for a new trial. To which
exceptions were duly taken, and on July 10, 1928, the
plaintiff filed a motion in which he prayed that the
period for the appeal interposed by the plaintiff be
suspended, and that the order of June 28, 1928, be
set aside, "and that another be entered ordering the
re-taking of the evidence in this case." To which
objections were also filed and later overruled, from all
of which the plaintiff appealed and assigns the
following errors:
The trial court erred in not having confined itself, in the
determination of this case, to the question as to
whether or not it is proper to dissolve the partnership
and to liquidate its assets, for all other issues raised by
appellees are incidental with the process of liquidation
provided for by law.
II. The trial court erred in not resolving the primary and
most important question at issue in his case, namely,
whether or not the appellant M. Teague was the
manager of the unregistered partnership Malangpaya
Fish Company.
III. The trial court erred in holding that the appellant
had no authority to buy the Lapu-Lapu, the Ford truck
and the adding machine without the consent of his
copartners, for in accordance with article 131 of the
Code of Commerce the managing partner of a
partnership can make purchases for the partnership
without the knowledge and/or consent of his
copartners.
IV. The trial court erred in holding that the Lapu-Lapu,
the Ford truck and the adding machine purchased by
appellant, as manager of the Malangpaya Fish
Company, for and with funds of the partnership, do not
form part of the assets of the partnership.
V. The trial court erred in requiring the appellant to pay
to the partnership the sum of P14,032.26, purchase
price, cost of repairs and equipment of the
barge Lapu-Lapu; P1,230 purchase price of the adding
machine, for these properties were purchased for and
they form part of the assets of the partnership.
VI. The trial court erred in disapproving appellant's
claim for salary and expenses incurred by him for and
in connection with the partnership's business.
VII. The trial court erred in approving the claims of
appellees J.T. Maddy and H. Martin and in requiring
the appellant to pay them the sum of P1,512.03 and
P615.49 respectively.
VIII. The trial court erred in not taking cognizance of
appellant's claim for reimbursement for advances
made by him for the partnerships, as shown in the
statement attached to the complaint marked Exhibit A,
in which there is a balance in his favor and against the
partnership amounting to over P16,000.
X. Lastly, considering the irregularities committed, the
disappearance of the stenographic notes for a
considerable length of time, during which time
changes in the testimonies of the witnesses could
have been made and the impossibility of having an
accurate and complete transcript of the stenographic
notes, the trial court erred in denying appellant's
petition for the retaking of the evidence in this case.
JOHNS, J.:
By their respective pleadings, all parties agreed that
there was a partnership between them, which appears
at one time to have done a good business. In legal
effect, plaintiff asked for its dissolution and the
appointment of a receiver pendente lite. The
defendants did not object to the dissolution of the
partnership, but prayed for an accounting with the
plaintiff. It was upon such issues that the evidence was
taken and the case tried. Hence, there is no merit in
the first in the first assignment of error. Complaint is
made that the lower court did not specifically decide as
to whether or not the plaintiff was the manager of the
unregistered partnership. But upon that question the
lower court, in legal effect, followed and approved the
contention of the defendants that the duties of each
partners were specified and defined in the "plans for
formation of a limited partnership," in which it is stated
that Captain Maddy would have charge of
the Barracuda and its navigation, with a salary of P300
per month, and that Martin would have charge of the
southern station, cold stores, commisary and procuring
fish, with a salary of P300 per month, and that the
plaintiff would have charge of selling fish in Manila and
purchasing supplies, without salary until such time as
the business is placed on a paying basis, when his
salary would be the same as that of Maddy and Martin,
and that the principal office of the partnership "shall
keep books showing plainly all transactions," which
shall be available at all time for inspection of any of the
members.
It will thus be noted that the powers and duties of
Maddy Martin, and the plaintiff are specifically defined,
and that each of them was more or less the general
manager in his particular part of the business. That is
to say, that Maddy's power and duties are confined
and limited to the charge of the Barracuda and its
navigation, and Martin's to the southern station, cold
stores, commissary and procuring fish, and that
plaintiff's powers and duties are confined and limited to
"selling fish in Manila and the purchase of supplies." In
the selling of fish, plaintiff received a substantial
amount of money which he deposited to the credit of
the company signed by him as manager, but it
appears that was a requirement which the bank made
in the ordinary course of business, as to who was
authorized to sign checks for the partnership;
otherwise, it would not cash the checks.
In the final analysis, the important question in this case
is the ownership of the Lapu-Lapu, the Ford truck, and
the adding machine. The proof is conclusive that they
were purchased by the plaintiff and paid for him from
and out of the money of the partnership. That at the
time of their purchase, the Lapu-Lapu was purchased
in the name of the plaintiff, and that he personally had
it registered in the customs house in his own name, for
which he made an affidavit that he was its owner. After
the purchase, he also had the Ford truck registered in
his won name. His contention that this was done as a
matter of convenience is not tenable. The record
shows that when the partnership purchased
the Barracuda, it was registered in the customs house
in the name of the partnership, and that it was a very
simple process to have it so registered.
Without making a detailed analysis of the evidence, we
agree with the trial court that the Lapu-Lapu, the Ford
truck, and the adding machine were purchased by the
plaintiff and paid for out of the funds of the partnership,
and that by his own actions and conduct, and the
taking of the title in his own name, he is now estopped
to claim or assert that they are not his property or that
they are the property of the company. Again, under his
powers and duties as specified in the tentative,
unsigned written agreement, his authority was
confined and limited to the "selling of fish in Manila and
the purchase of supplies." It must be conceded that,
standing alone, the power to sell fish and purchase
supplies does not carry with it or imply the authority to
purchase the Lapu-Lapu, or the Ford truck, or the
adding machine. From which it must follow that he had
no authority to purchase the lighter Lapu-Lapu, the
Ford truck, or the adding machine, as neither of them
can be construed as supplies for the partnership
business. While it is true that the tentative agreement
was never personally signed by any member of the
firm, the trial court found as a fact, and that finding is
sustained by the evidence, that this unsigned
agreement was acted upon and accepted by all parties
as the basis of the partnership. It was upon that theory
that the lower court allowed the defendant s Maddy
and Martin a salary of P300 per month and the money
which each of them paid out and advanced in the
discharged of their respective duties, and denied any
salary to the plaintiff, for the simple reason that the
business was never on a paying basis.
Much could be said about this division of powers, and
that Maddy and Martin's duties were confined and
limited to the catching and procuring of fish, which
were then shipped to the plaintiff who sold them on the
Manila market and received the proceeds of the sales.
In other words, Maddy and Martin were supplying the
fish to plaintiff who sold them under an agreement that
he would account for the money.
Upon the question of accounting, his testimony as to
the entries which he made and how he kept the books
of the partnership is very interesting:
Q. Then this salary does not take into
consideration the fact that you claim the company is
very badly in debt?
A. Well, I put the salary in there.
Q. I am asking you if that is true?
A. I do not think I will decide that, I think it will
be decided by the court.
Q. I will ask you to answer the question? A.
You asked me my opinion and I said that I am
entitled to it.
xxx xxx xxx
I am not on trial as a bookkeeper; if my lawyers won't
object to the question I will object myself; I am not on
trial as a bookkeeper; I keep my books any way I want
to, put in what I want to, and I leave out anything I
don't choose to put in,
xxx xxx xxx
Q. You have your own bookkeeping?
A. Well, I run my business to suit myself, I put in
the books what I want to, and I leave out what I want
to, and I have a quarter of a million pesos to show for
it,
xxx xxx xxx
Q. Did you not say that you paid yourself a
salary in August because you made a profit? A.
Yes. This profit was made counting the stock on
hand and equipment on hand, but as far as cash to
pay this balance, I did not have it. when I wanted a
salary I just took it. I ran things to suit myself.
xxx xxx xxx
Q. In other words in going against these
partners you are going to tax them for the services of
your attorney?
A. You are mistaken; I am not against them. I
paid this out for filing this complaint and if the
honorable court strikes it out, all right. I think it was a
just charge. When I want to sue them the Company
can pay for my suit.
Q. Would you have any objection to their asking
for their attorney's fees from the company as partners
also in the business? A. Yes.
Q. You would object to your partners having
their attorney's fees here paid out of the copartnership
like you have had yours paid? A. Yes, that is
the way I do my business.
To say the least, this kind of evidence does not appeal
to the court. This case has been bitterly contested, and
there is much feeling between the parties and even
their respective attorneys. Be that as it may, we are
clearly of the opinion that the findings of the lower
court upon questions of fact are well sustained by the
evidence. Plaintiff's case was tried on the theory that
the partnership was the owner of the property in
question, and no claim was made for the use of
the Lapu-Lapu, and it appears that P14,032.26 of the
partnership money was used in its purchase,
overhauling, expenses and repairs. That in truth and in
fact the partnership had the use and benefit of
the Lapu-Lapu in its business from sometime in May
until the receiver was appointed on November 11,
1927, or a period of about six months, and that the
partnership has never paid anything for its use. it is
true that there is no testimony as to the value of such
use, but the cost of the Lapu-Lapu and the time of its
use and the purpose for which it was used, all appear
in the record. For such reason, in the interest of
justice, plaintiff should be compensated for the
reasonable value of the time which the partnership
made use of the Lapu-Lapu.
All things considered, we are of the opinion that
P2,000 is a reasonable, amount which the plaintiff
should receive for its use.
In all things and respects, the judgment of the lower
court as to the merits is affirmed, with the modification
only that P2,000 shall be deducted from the amount of
the judgment which was awarded against the plaintiff,
such deduction to be made for and on account of such
use of the Lapu-Lapu by the partnership, with costs
against the appellant. So ordered.
Art 1810-1814
ROGER V. NAVARRO, Petitioner,
vs.HON. JOSE L. ESCOBIDO, Presiding Judge,
RTC Branch 37, Cagayan de Oro City, and KAREN
T. GO, doing business under the name KARGO
ENTERPRISES, Respondents.
This is a petition for review on certiorari1 that seeks to
set aside the Court of Appeals (CA) Decision2 dated
October 16, 2001 and Resolution3 dated May 29, 2002
in CA-G.R. SP. No. 64701. These CA rulings affirmed
the July 26, 20004 and March 7, 20015 orders of the
Regional Trial Court (RTC), Misamis Oriental,
Cagayan de Oro City, denying petitioner Roger V.
Navarros (Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed
two complaints, docketed as Civil Case Nos. 98-599
(first complaint)6 and 98-598 (second
complaint),7 before the RTC for replevin and/or sum of
money with damages against Navarro. In these
complaints, Karen Go prayed that the RTC issue writs
of replevin for the seizure of two (2) motor vehicles in
Navarros possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal
age, married to GLENN O. GO, a resident of Cagayan
de Oro City and doing business under the trade name
KARGO ENTERPRISES, an entity duly registered and
existing under and by virtue of the laws of the Republic
of the Philippines, which has its business address at
Bulua, Cagayan de Oro City; that defendant ROGER
NAVARRO is a Filipino, of legal age, a resident of 62
Dolores Street, Nazareth, Cagayan de Oro City, where
he may be served with summons and other processes
of the Honorable Court; that defendant "JOHN DOE"
whose real name and address are at present unknown
to plaintiff is hereby joined as party defendant as he
may be the person in whose possession and custody
the personal property subject matter of this suit may
be found if the same is not in the possession of
defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of,
among others, buying and selling motor vehicles,
including hauling trucks and other heavy equipment;
3. That for the cause of action against defendant
ROGER NAVARRO, it is hereby stated that on August
8, 1997, the said defendant leased [from] plaintiff a
certain motor vehicle which is more particularly
described as follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH
OPTION TO PURCHASE entered into by and between
KARGO ENTERPRISES, then represented by its
Manager, the aforementioned GLENN O. GO, and
defendant ROGER NAVARRO xxx; that in accordance
with the provisions of the above LEASE AGREEMENT
WITH OPTION TO PURCHASE, defendant ROGER
NAVARRO delivered unto plaintiff six (6) post-dated
checks each in the amount of SIXTY-SIX THOUSAND
THREE HUNDRED THIRTY-THREE & 33/100 PESOS
(66,333.33) which were supposedly in payment of
the agreed rentals; that when the fifth and sixth
checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS CAGAYAN DE ORO BRANCH
CHECKS NOS. 017112 and 017113, respectively
dated January 8, 1998 and February 8, 1998, were
presented for payment and/or credit, the same were
dishonored and/or returned by the drawee bank for the
common reason that the current deposit account
against which the said checks were issued did not
have sufficient funds to cover the amounts thereof;
that the total amount of the two (2) checks, i.e. the
sum of ONE HUNDRED THIRTY-TWO THOUSAND
SIX HUNDRED SIXTY-SIX & 66/100 PESOS
(132,666.66) therefore represents the principal
liability of defendant ROGER NAVARRO unto plaintiff
on the basis of the provisions of the above LEASE
AGREEMENT WITH RIGHT TO PURCHASE; that
demands, written and oral, were made of defendant
ROGER NAVARRO to pay the amount of ONE
HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED SIXTY-SIX & 66/100 PESOS
(132,666.66), or to return the subject motor vehicle
as also provided for in the LEASE AGREEMENT
WITH RIGHT TO PURCHASE, but said demands
were, and still are, in vain to the great damage and
injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been
the subject of any tax assessment and/or fine pursuant
to law, or seized under an execution or an attachment
as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order
of the Honorable Court for the immediate delivery of
the above-described motor vehicle from defendants
unto plaintiff pending the final determination of this
case on the merits and, for that purpose, there is
attached hereto an affidavit duly executed and bond
double the value of the personal property subject
matter hereof to answer for damages and costs which
defendants may suffer in the event that the order for
replevin prayed for may be found out to having not
been properly issued.
The second complaint contained essentially the same
allegations as the first complaint, except that the
Lease Agreement with Option to Purchase involved is
dated October 1, 1997 and the motor vehicle leased is
described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro
delivered three post-dated checks, each for the
amount of 100,000.00, to Karen Go in payment of the
agreed rentals; however, the third check was
dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the
RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and
delivered them to the possession of Karen Go.
In his Answers, Navarro alleged as a special
affirmative defense that the two complaints stated no
cause of action, since Karen Go was not a party to the
Lease Agreements with Option to Purchase
(collectively, the lease agreements) the actionable
documents on which the complaints were based.
On Navarros motion, both cases were duly
consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case
on the ground that the complaints did not state a
cause of action.
In response to the motion for reconsideration Karen
Go filed dated May 26, 2000,11 the RTC issued
another order dated July 26, 2000 setting aside the
order of dismissal. Acting on the presumption that
Glenn Gos leasing business is a conjugal property,
the RTC held that Karen Go had sufficient interest in
his leasing business to file the action against Navarro.
However, the RTC held that Karen Go should have
included her husband, Glenn Go, in the complaint
based on Section 4, Rule 3 of the Rules of Court
(Rules).12 Thus, the lower court ordered Karen Go to
file a motion for the inclusion of Glenn Go as co-
plaintiff.1avvphi1
When the RTC denied Navarros motion for
reconsideration on March 7, 2001, Navarro filed a
petition for certiorari with the CA, essentially
contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the
case and directed Karen Go to amend her complaints
by including her husband Glenn Go as co-plaintiff.
According to Navarro, a complaint which failed to state
a cause of action could not be converted into one with
a cause of action by mere amendment or
supplemental pleading.
On October 16, 2001, the CA denied Navarros petition
and affirmed the RTCs order.13 The CA also denied
Navarros motion for reconsideration in its resolution of
May 29, 2002,14 leading to the filing of the present
petition.
THE PETITION
Navarro alleges that even if the lease agreements
were in the name of Kargo Enterprises, since it did not
have the requisite juridical personality to sue, the
actual parties to the agreement are himself and Glenn
Go. Since it was Karen Go who filed the complaints
and not Glenn Go, she was not a real party-in-interest
and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the
amendment of the complaint to include Glenn Go as a
co-plaintiff, instead of dismissing the complaint outright
because a complaint which does not state a cause of
action cannot be converted into one with a cause of
action by a mere amendment or a supplemental
pleading. In effect, the lower court created a cause of
action for Karen Go when there was none at the time
she filed the complaints.
Even worse, according to Navarro, the inclusion of
Glenn Go as co-plaintiff drastically changed the theory
of the complaints, to his great prejudice. Navarro
claims that the lower court gravely abused its
discretion when it assumed that the leased vehicles
are part of the conjugal property of Glenn and Karen
Go. Since Karen Go is the registered owner of Kargo
Enterprises, the vehicles subject of the complaint are
her paraphernal properties and the RTC gravely erred
when it ordered the inclusion of Glenn Go as a co-
plaintiff.
Navarro likewise faults the lower court for setting the
trial of the case in the same order that required Karen
Go to amend her complaints, claiming that by issuing
this order, the trial court violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of
action against him, Navarro maintains that the
complaints were premature because no prior demand
was made on him to comply with the provisions of the
lease agreements before the complaints for replevin
were filed.
Lastly, Navarro posits that since the two writs of
replevin were issued based on flawed complaints, the
vehicles were illegally seized from his possession and
should be returned to him immediately.
Karen Go, on the other hand, claims that it is
misleading for Navarro to state that she has no real
interest in the subject of the complaint, even if the
lease agreements were signed only by her husband,
Glenn Go; she is the owner of Kargo Enterprises and
Glenn Go signed the lease agreements merely as the
manager of Kargo Enterprises. Moreover, Karen Go
maintains that Navarros insistence that Kargo
Enterprises is Karen Gos paraphernal property is
without basis. Based on the law and jurisprudence on
the matter, all property acquired during the marriage is
presumed to be conjugal property. Finally, Karen Go
insists that her complaints sufficiently established a
cause of action against Navarro. Thus, when the RTC
ordered her to include her husband as co-plaintiff, this
was merely to comply with the rule that spouses
should sue jointly, and was not meant to cure the
complaints lack of cause of action.
THE COURTS RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every
action must be prosecuted or defended in the name of
the real party-in-interest, i.e., the party who stands to
be benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit.15
Interestingly, although Navarro admits that Karen Go
is the registered owner of the business name Kargo
Enterprises, he still insists that Karen Go is not a real
party-in-interest in the case. According to Navarro,
while the lease contracts were in Kargo Enterprises
name, this was merely a trade name without a juridical
personality, so the actual parties to the lease
agreements were Navarro and Glenn Go, to the
exclusion of Karen Go.
As a corollary, Navarro contends that the RTC acted
with grave abuse of discretion when it ordered the
inclusion of Glenn Go as co-plaintiff, since this in effect
created a cause of action for the complaints when in
truth, there was none.
We do not find Navarros arguments persuasive.
The central factor in appreciating the issues presented
in this case is the business name Kargo Enterprises.
The name appears in the title of the Complaint where
the plaintiff was identified as "KAREN T. GO doing
business under the name KARGO ENTERPRISES,"
and this identification was repeated in the first
paragraph of the Complaint. Paragraph 2 defined the
business KARGO ENTERPRISES undertakes.
Paragraph 3 continued with the allegation that the
defendant "leased from plaintiff a certain motor
vehicle" that was thereafter described. Significantly,
the Complaint specifies and attaches as its integral
part the Lease Agreement that underlies the
transaction between the plaintiff and the defendant.
Again, the name KARGO ENTERPRISES entered the
picture as this Lease Agreement provides:
This agreement, made and entered into by and
between:
GLENN O. GO, of legal age, married, with post office
address at xxx, herein referred to as the LESSOR-
SELLER; representing KARGO ENTERPRISES as its
Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as
the principal that Glenn O. Go represented. In other
words, by the express terms of this Lease Agreement,
Glenn Go did sign the agreement only as the manager
of Kargo Enterprises and the latter is clearly the real
party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a
sole proprietorship, which is neither a natural person,
nor a juridical person, as defined by Article 44 of the
Civil Code:
Art. 44. The following are juridical persons:
(1) Te State and its political subdivisions;
(2) Other corporations, institutions and entities for
public interest or purpose, created by law; their
personality begins as soon as they have been
constituted according to law;
(3) Corporations, partnerships and associations for
private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of
each shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the
Rules,16 Kargo Enterprises cannot be a party to a civil
action. This legal reality leads to the question: who
then is the proper party to file an action based on a
contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v.
Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships
like petitioner to bring suit in court. The law merely
recognizes the existence of a sole proprietorship as a
form of business organization conducted for profit by a
single individual, and requires the proprietor or owner
thereof to secure licenses and permits, register the
business name, and pay taxes to the national
government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower
it to file or defend an action in court.
Thus, the complaint in the court below should have
been filed in the name of the owner of Juasing
Hardware. The allegation in the body of the complaint
would show that the suit is brought by such person as
proprietor or owner of the business conducted under
the name and style Juasing Hardware. The descriptive
words "doing business as Juasing Hardware" may be
added to the title of the case, as is customarily
done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section
2, Rule 3 of the Rules, which states:
SEC. 2. Parties in interest. A real party in interest is
the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails
of the suit. Unless otherwise authorized by law or
these Rules, every action must be prosecuted or
defended in the name of the real party in interest.
As the registered owner of Kargo Enterprises, Karen
Go is the party who will directly benefit from or be
injured by a judgment in this case. Thus, contrary to
Navarros contention, Karen Go is the real party-in-
interest, and it is legally incorrect to say that her
Complaint does not state a cause of action because
her name did not appear in the Lease Agreement that
her husband signed in behalf of Kargo Enterprises.
Whether Glenn Go can legally sign the Lease
Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do
not decide, as this is a matter for the trial court to
consider in a trial on the merits.
Glenn Gos Role in the Case
We find it significant that the business name Kargo
Enterprises is in the name of Karen T. Go,19 who
described herself in the Complaints to be "a Filipino, of
legal age, married to GLENN O. GO, a resident of
Cagayan de Oro City, and doing business under the
trade name KARGO ENTERPRISES."20 That Glenn
Go and Karen Go are married to each other is a fact
never brought in issue in the case. Thus, the business
name KARGO ENTERPRISES is registered in the
name of a married woman, a fact material to the side
issue of whether Kargo Enterprises and its properties
are paraphernal or conjugal properties. To restate the
parties positions, Navarro alleges that Kargo
Enterprises is Karen Gos paraphernal property,
emphasizing the fact that the business is registered
solely in Karen Gos name. On the other hand, Karen
Go contends that while the business is registered in
her name, it is in fact part of their conjugal property.
The registration of the trade name in the name of one
person a woman does not necessarily lead to the
conclusion that the trade name as a property is hers
alone, particularly when the woman is married. By law,
all property acquired during the marriage, whether the
acquisition appears to have been made, contracted or
registered in the name of one or both spouses, is
presumed to be conjugal unless the contrary is
proved.21 Our examination of the records of the case
does not show any proof that Kargo Enterprises and
the properties or contracts in its name are conjugal. If
at all, only the bare allegation of Navarro to this effect
exists in the records of the case. As we emphasized
in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil
Code. It provides that "all property of the marriage is
presumed to be conjugal partnership, unless it be
prove[n] that it pertains exclusively to the husband or
to the wife." This article does not require proof that
the property was acquired with funds of the
partnership. The presumption applies even when the
manner in which the property was acquired does not
appear.23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving
the issue of whether Kargo Enterprises as a sole
proprietorship is conjugal or paraphernal property, we
hold that it is conjugal property.
Article 124 of the Family Code, on the administration
of the conjugal property, provides:
Art. 124. The administration and enjoyment of the
conjugal partnership property shall belong to both
spouses jointly. In case of disagreement, the
husbands decision shall prevail, subject to recourse to
the court by the wife for proper remedy, which must be
availed of within five years from the date of the
contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or
Glenn Go to speak and act with authority in managing
their conjugal property, i.e., Kargo Enterprises. No
need exists, therefore, for one to obtain the consent of
the other before performing an act of administration or
any act that does not dispose of or encumber their
conjugal property.
Under Article 108 of the Family Code, the conjugal
partnership is governed by the rules on the contract of
partnership in all that is not in conflict with what is
expressly determined in this Chapter or by the
spouses in their marriage settlements. In other words,
the property relations of the husband and wife shall be
governed primarily by Chapter 4 on Conjugal
Partnership of Gains of the Family Code and,
suppletorily, by the spouses marriage settlement and
by the rules on partnership under the Civil Code. In the
absence of any evidence of a marriage settlement
between the spouses Go, we look at the Civil Code
provision on partnership for guidance.
A rule on partnership applicable to the spouses
circumstances is Article 1811 of the Civil Code, which
states:
Art. 1811. A partner is a co-owner with the other
partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and
to any agreement between the partners, has an equal
right with his partners to possess specific
partnership property for partnership purposes; xxx
Under this provision, Glenn and Karen Go are
effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both
have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code,
which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the
provisions of this Title," we find further support in
Article 487 of the Civil Code that allows any of the co-
owners to bring an action in ejectment with respect to
the co-owned property.
While ejectment is normally associated with actions
involving real property, we find that this rule can be
applied to the circumstances of the present case,
following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for
the recovery of credit, a personal property considered
conjugal property, without including the other spouse
in the action. In resolving the issue of whether the
other spouse was required to be included as a co-
plaintiff in the action for the recovery of the credit, we
said:
Milagros de Guzman, being presumed to be a co-
owner of the credits allegedly extended to the spouses
Carandang, seems to be either an indispensable or a
necessary party. If she is an indispensable party,
dismissal would be proper. If she is merely a
necessary party, dismissal is not warranted, whether
or not there was an order for her inclusion in the
complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed
by the rules on the contract of partnership in all that is
not in conflict with what is expressly determined in this
Chapter or by the spouses in their marriage
settlements.
This provision is practically the same as the Civil Code
provision it superseded:
Art. 147. The conjugal partnership shall be governed
by the rules on the contract of partnership in all that is
not in conflict with what is expressly determined in this
Chapter.
In this connection, Article 1811 of the Civil Code
provides that "[a] partner is a co-owner with the other
partners of specific partnership property." Taken with
the presumption of the conjugal nature of the funds
used to finance the four checks used to pay for
petitioners stock subscriptions, and with the
presumption that the credits themselves are part of
conjugal funds, Article 1811 makes Quirino and
Milagros de Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and
Milagros de Guzman may separately bring an action
for the recovery thereof. In the fairly recent cases
of Baloloy v. Hular and Adlawan v. Adlawan, we held
that, in a co-ownership, co-owners may bring actions
for the recovery of co-owned property without the
necessity of joining all the other co-owners as co-
plaintiffs because the suit is presumed to have been
filed for the benefit of his co-owners. In the latter case
and in that of De Guia v. Court of Appeals, we also
held that Article 487 of the Civil Code, which provides
that any of the co-owners may bring an action for
ejectment, covers all kinds of action for the recovery of
possession.
In sum, in suits to recover properties, all co-owners are
real parties in interest. However, pursuant to Article
487 of the Civil Code and relevant jurisprudence, any
one of them may bring an action, any kind of action,
for the recovery of co-owned properties. Therefore,
only one of the co-owners, namely the co-owner who
filed the suit for the recovery of the co-owned property,
is an indispensable party thereto. The other co-owners
are not indispensable parties. They are not even
necessary parties, for a complete relief can be
accorded in the suit even without their participation,
since the suit is presumed to have been filed for the
benefit of all co-owners.25 [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring
an action against Navarro to recover possession of the
Kargo Enterprises-leased vehicles which they co-own.
This conclusion is consistent with Article 124 of the
Family Code, supporting as it does the position that
either spouse may act on behalf of the conjugal
partnership, so long as they do not dispose of or
encumber the property in question without the other
spouses consent.
On this basis, we hold that since Glenn Go is not
strictly an indispensable party in the action to recover
possession of the leased vehicles, he only needs to be
impleaded as a pro-forma party to the suit, based on
Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. Husband and wife
shall sue or be sued jointly, except as provided by law.
Non-joinder of indispensable parties not ground to
dismiss action
Even assuming that Glenn Go is an indispensable
party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of
indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v.
Masirag:27
Rule 3, Section 11 of the Rules of Court provides that
neither misjoinder nor nonjoinder of parties is a ground
for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither
misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or
added by order of the court on motion of any party or
on its own initiative at any stage of the action and on
such terms as are just. Any claim against a misjoined
party may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper
remedy when a party is left out is to implead the
indispensable party at any stage of the action. The
court, either motu proprio or upon the motion of a
party, may order the inclusion of the indispensable
party or give the plaintiff opportunity to amend his
complaint in order to include indispensable parties. If
the plaintiff to whom the order to include the
indispensable party is directed refuses to comply with
the order of the court, the complaint may be dismissed
upon motion of the defendant or upon the court's own
motion. Only upon unjustified failure or refusal to obey
the order to include or to amend is the action
dismissed.
In these lights, the RTC Order of July 26, 2000
requiring plaintiff Karen Go to join her husband as a
party plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an
action for a writ of replevin is filed, Navarro apparently
likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant
must do is to file an affidavit and bond, pursuant to
Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of
some other person who personally knows the facts:
(a) That the applicant is the owner of the
property claimed, particularly describing it, or is
entitled to the possession thereof;
(b) That the property is wrongfully detained by the
adverse party, alleging the cause of detention thereof
according to the best of his knowledge, information,
and belief;
(c) That the property has not been distrained or taken
for a tax assessment or a fine pursuant to law, or
seized under a writ of execution or preliminary
attachment, or otherwise placed under custodia legis,
or if so seized, that it is exempt from such seizure or
custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the
adverse party in double the value of the property as
stated in the affidavit aforementioned, for the return of
the property to the adverse party if such return be
adjudged, and for the payment to the adverse party of
such sum as he may recover from the applicant in the
action.
We see nothing in these provisions which requires the
applicant to make a prior demand on the possessor of
the property before he can file an action for a writ of
replevin. Thus, prior demand is not a condition
precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position
to claim that a prior demand is necessary, as he has
already admitted in his Answers that he had received
the letters that Karen Go sent him, demanding that he
either pay his unpaid obligations or return the leased
motor vehicles. Navarros position that a demand is
necessary and has not been made is therefore totally
unmeritorious.
WHEREFORE, premises considered, we DENY the
petition for review for lack of merit. Costs against
petitioner Roger V. Navarro
2. Catlan vs Gatchalian 105 Phil 1270 (1959)
Catalan and Gatchalian are partners. They mortgaged
twolots to Dr. Marave together with the improvements
thereon tosecure a credit from the latter. The
partnership failed to pay theobligation. The properties
were sold to Dr. Marave at a publicauction. Catalan
redeemed the property and he contends that
titleshould be cancelled and a new one must be issued
in his name.
Issue:
Did Catalans redemption of the properties make him
the absolute owner of the lands?
Ruling:
No. Under Article 1807 of the NCC every partner
becomes atrustee for his copartner with regard to any
benefits or profitsderived from his act as a partner.
Consequently, when Catalanredeemed the properties
in question, he became a trustee andheld the same in
trust for his copartner Gatchalian, subject to hisright to
demand from the latter his contribution to the amount
ofredemption.
3. Lozana vs Depakabibo 1960
MAURO LOZANA, plaintiff-appellee,
vs.SERAFIN DEPAKAKIBO, defendant-
LABRADOR, J.:
This is an appeal from a judgment of the Court of First
Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are
involved in said appeal.
The record discloses that on November 16, 1954
plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo, under
a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by the
Public Service Commission on May 15, 1955. But the
decision of the Public Service Commission was
appealed to Us on October 21, 1955. A temporary
certificate of public convenience was issued in the
name of Olimpia D. Decolongon on December 22,
1955 (Exh. "B"). Evidently because of the cancellation
of the franchise in the name of Mrs. Piadosa
Buenaflor, plaintiff herein Mauro Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity,
Serial No. 479, to the new grantee Olimpia D.
Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the
other hand, sold one Crossly Diesel Engine, 25 h. p.,
Serial No. 141758, to the spouses Felix Jimenea and
Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana
brought an action against the defendant, alleging that
he is the owner of the Generator Buda (Diesel), valued
at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses
supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained
them as a consequence of which plaintiff suffered
damages. Plaintiff prayed that said properties be
delivered back to him. Three days after the filing of the
complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case
authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing
of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff). On
December 5, 1955, defendant filed an answer, denying
that the generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the
same had been contributed by the plaintiff to the
partnership entered into between them in the same
manner that defendant had contributed equipments
also, and therefore that he is not unlawfully detaining
them. By way of counterclaim, defendant alleged that
under the partnership agreement the parties were to
contribute equipments, plaintiff contributing the
generator and the defendant, the wires for the purpose
of installing the main and delivery lines; that the
plaintiff sold his contribution to the partnership, in
violation of the terms of their agreement. He, therefore,
prayed that the complaint against him be dismissed;
that plaintiff be adjudged guilty of violating the
partnership contract and be ordered to pay the
defendant the sum of P3,000, as actual damages,
P600.00 as attorney's fees and P2,600 annually as
actual damages; that the court order dissolution of the
partnership, after the accounting and liquidation of the
same.
On September 27, 1956, the defendant filed a motion
to declare plaintiff in default on his counterclaim, but
this was denied by the court. Hearings on the case
were conducted on October 25, 1956 and November
5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment and
entitled to the possession thereof, with costs against
defendant. It is against this judgment that the
defendant has appealed.
The above judgment of the court was rendered on a
stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the
aforementioned plaintiff, and the defendant entered
into a contract of Partnership, a copy of which is
attached as Annex "A" of defendant's answer and
counterclaim, for the purpose set forth therein and
under the national franchise granted to Mrs. Piadosa
Buenaflor;
2. That according to the aforementioned Partnership
Contract, the plaintiff Mr. Mauro Lozana, contributed
the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties being
the appraised values of their respective properties
brought into the partnership;
3. That the said Certificate of Public Convenience and
Necessity was revoked and cancelled by order of the
Public Service Commission dated March 15, 1955,
promulgated in case No. 58188, entitled, "Piadosa
Buenaflor, applicant", which order has been appealed
to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold
properties brought into by him to the said partnership
in favor of Olimpia Decolongon in the amount of
P10,000.00 as per Deed of Sale dated October 30,
1955 executed and ratified before Notary Public, Delfin
Demaisip, in and for the Municipality of Dumangas,
Iloilo and entered in his Notarial Registry as Doc. No.
832; Page No. 6; Book No. XIII; and Series of 1955, a
copy thereof is made as Annex "B" of defendant's
answer and counterclaim;
5. That there was no liquidation of partnership and that
at the time of said Sale on October 30, 1955,
defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court
dated November 18, 1955, those properties sold were
taken by the Provincial Sheriff on November 20, 1955
and delivered to the plaintiff on November 25, 1955
upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November
17, 1955 and ratified before the Notary Public,
Eleuterio del Rosario in and for the province of Iloilo
known as Doc. No. 200; Page 90; Book No. VII; and
Series of 1955; of said Notary Public;
7. That the said properties sold are now in the
possession of Olimpia Decolongon, the purchaser,
who is presently operating an electric light plant in
Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of
the spouses, Felix Jimenea and Felisa Harder
contributed by him to the partnership for P3,500.00 as
per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the
Province of Iloilo, known as Doc. No. 76; Page 94;
Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and
made an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that
the plaintiff and the defendant entered into the contract
of partnership, plaintiff contributing the amount of
P18,000, and as it is not stated therein that there bas
been a liquidation of the partnership assets at the time
plaintiff sold the Buda Diesel Engine on October 15,
1955, and since the court below had found that the
plaintiff had actually contributed one engine and 70
posts to the partnership, it necessarily follows that the
Buda diesel engine contributed by the plaintiff had
become the property of the partnership. As properties
of the partnership, the same could not be disposed of
by the party contributing the same without the consent
or approval of the partnership or of the other partner.
(Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of
partnership was null and void, because by the contract
of partnership, the parties thereto have become
dummies of the owner of the franchise. The reason for
this holding was the admission by defendant when
being cross-examined by the court that he and the
plaintiff are dummies. We find that this admission by
the defendant is an error of law, not a statement of a
fact. The Anti-Dummy law has not been violated as
parties plaintiff and defendant are not aliens but
Filipinos. The Anti-Dummy law refers to aliens only
(Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially
the provision thereon wherein the parties agreed to
maintain, operate and distribute electric light and
power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal,
or contrary to law and public policy such as to make
the contract of partnership, null and void ab initio. The
agreement could have been submitted to the Public
Service Commission if the rules of the latter require
them to be so presented. But the fact of furnishing the
current to the holder of the franchise alone, without the
previous approval of the Public Service Commission,
does not per se make the contract of partnership null
and void from the beginning and render the
partnership entered into by the parties for the purpose
also void and non-existent. Under the circumstances,
therefore, the court erred in declaring that the contract
was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not
pass to it as its property. It also follows that the claim
of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is
the proper remedy, not for each contributing partner to
claim back what he had contributed.
For the foregoing considerations, the judgment
appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must
be, as they hereby are set aside and the case
remanded to the court below for further proceedings in
accordance with law.
4. Clemente vs Galvan 67 Phil 565
ENRIQUE CLEMENTE, plaintiff-appellee,
vs.DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
The intervenor Jose Echevarria having lost in the
Court of First Instance of manila which rendered
judgment against him, the pertinent portion of which
reads: "and with respect to the complaint of the
intervenor, the mortgage executed in his favor by
plaintiff is declared null and void, and said complaint in
intervention, as well as the counterclaim filed by the
defendant against the intervenor, is dismissed, without
pronouncement as to costs," he appealed to this court
on the ground that, according to him, the lower court
committed the errors assigned in his brief as follows:
The court a quo erred in finding in the appealed
decision that plaintiff was unable to take possession of
the machines subject of the deed of mortgage Exhibit
B either before or after the execution thereof.
II. The court a quo likewise erred in deciding the
present case against the intervenor-appellant, on the
ground, among others, that "plaintiff has not adduced
any evidence nor has he testified to show that the
machines mortgaged by him to the intervenor have
ever belonged to him, notwithstanding that said
intervenor is his close relative.".
III. The lower court also erred in declaring null and void
the mortgage executed by plaintiff in favor of the
intervenor and, thereby, dismissing the complaint in
intervention.
IV. The lower court lastly erred in ordering the receiver
J. D. Mencarini to deliver to the defendant the
aforesaid machines upon petition of the plaintiff.
In order to have a clear idea of the question, it is
proper to state the facts bearing on the case as they
appear in the decision and judgment of the lower court
and in the documents which constitute all the evidence
adduced by the parties during the trial.
On June 6, 1931, plaintiff and defendant organized a
civil partnership which they named "Galvan y
Compaia" to engage in the manufacture and sale of
paper and other stationery. they agreed to invest
therein a capital of P100,000, but as a matter of fact
they did not cover more than one-fifth thereof, each
contributing P10,000. Hardly a year after such
organization, the plaintiff commenced the present case
in the above-mentioned court to ask for the dissolution
of the partnership and to compel defendant to whom
the management thereof was entrusted to submit an
accounting of his administration and to deliver to him
his share as such partner. In his answer defendant
expressed his conformity to the dissolution of the
partnership and the liquidation of its affairs; but by way
of counterclaim he asked that, having covered a deficit
incurred by the partnership amounting to P4,000 with
his own money, plaintiff reimburse him of one-half of
said sum. On petition of the plaintiff a receiver and
liquidator to take charge of the properties and
business for the partnership while the same was not
yet definitely dissolved, was appointed, the person
chosen being Juan D. Mencarini. The latter was
already discharging the duties of his office when the
court, by virtue of a petition ex parte of the plaintiff,
issued the order of May 24, 1933, requiring said
receiver to deliver to him (plaintiff) certain machines
which were then at Nos. 705-707 Ylaya Street, Manila
but authorizing him to charge their value of P4,500
against the portion which may eventually be due to
said plaintiff. To comply with said order, the receiver
delivered to plaintiff the keys to the place where the
machines were found, which was the same place
where defendant had his home; but before he could
take actual possession of said machines, upon the
strong opposition of defendant, the court, on motion of
the latter, suspended the effects of its order of May 24,
1933. In the meantime the judgments rendered in
cases Nos. 42794 and 43070 entitled "Philippine
Education Co., Inc. vs. Enrique Clemente" for the
recovery of a sum of money, and "Jose
Echevarria vs. Enrique Clemente", also for the
recovery of a sum of money, respectively, were made
executory; and in order to avoid the attachment and
subsequent sale of the machines by the sheriff for the
satisfaction from the proceeds thereof of the
judgments rendered in the two cases aforecited,
plaintiff agreed with the intervenor, who is his nephew,
to execute, as he in fact executed in favor of the latter,
a deed of mortgage Exhibit B encumbering the
machines described in said deed in which it is stated
that "they are situated on Singalong Street No. 1163",
which is a place entirely different from the house Nos.
705 and 707 on Ylaya Street hereinbefore mentioned.
The one year agreed upon in the deed of mortgage for
the fulfillment by the plaintiff of the obligation he had
contracted with the intervenor, having expired, the
latter commenced case No. 49629 to collect his
mortgage credit. The intervenor, as plaintiff in the said
case, obtained judgment in his favor because the
defendant did not interpose any defense or objection,
and, moreover, admitted being really indebted to the
intervenor in the amount set forth in the deed of
mortgage Exhibit B. The machines which the
intervenor said were mortgaged to him were then in
fact in custodia legis, as they were under the control of
the receiver and liquidator Juan D. Mencarini. It was,
therefore, useless for the intervenor to attach the same
in view of the receiver's opposition; and the question
having been brought to court, it decided that nothing
could be done because the receiver was not a party to
the case which the intervenor instituted to collect his
aforesaid credit. (Civil case No. 49629.) The question
ended thus because the intervenor did not take any
other step until he thought of joining in this case as
intervenor.
1. From the foregoing facts, it is clear that plaintiff
could not obtain possession of the machines in
question. The constructive possession deducible from
the fact that he had the keys to the place where the
machines were found (Ylaya Street Nos. 705-707), as
they had been delivered to him by the receiver, does
not help him any because the lower court suspended
the effects of the other whereby the keys were
delivered to him a few days after its issuance; and
thereafter revoked it entirely in the appealed decision.
Furthermore, when he attempted to take actual
possession of the machines, the defendant did not
allow him to do so. Consequently, if he did not have
actual possession of the machines, he could not in any
manner mortgage them, for while it is true that the oft-
mentioned deed of mortgage Exhibit B was annotated
in the registry of property, it is no less true the
machines to which it refers are not the same as those
in question because the latter are on Ylaya Street Nos.
705-707 and the former are on Singalong Street No.
1163. It can not be said that Exhibit B-1, allegedly a
supplementary contract between the plaintiff and the
intervenor, shows that the machines referred to in the
deed of mortgage are the same as those in dispute
and which are found on Ylaya Street because said
exhibit being merely a private document, the same
cannot vary or alter the terms of a public document
which is Exhibit B or the deed of mortgage.
2. The second error attributed to the lower court is
baseless. The evidence of record shows that the
machines in contention originally belonged to the
defendant and from him were transferred to the
partnership Galvan y Compania. This being the case,
said machines belong to the partnership and not to
him, and shall belong to it until partition is effected
according to the result thereof after the liquidation.
3. The last two errors attributed by the appellant to the
lower court have already been disposed of by the
considerations above set forth. they are as baseless
as the previous ones.
In view of all the foregoing, the judgment appealed
from is affirmed, with costs against the appellant. So
ordered.
5. Leyte-Samar Sales and K. Tomassi vs S. Cea and
O Castrilla 93 Phil 100
THE LEYTE-SAMAR SALES CO., and RAYMUNDO
TOMASSI, petitioners,
vs.SULPICIO V. CEA, in his capacity as Judge of
the Court of First Instance of Leyte and OLEGARIO
LASTRILLA, respondents.
Labaled "Certiorari and Prohibition with preliminary
Injunction" this petition prays for the additional writ
of mandamusto compel the respondent judge to give
due course to petitioners' appeal from his order taxing
costs. However, inasmuch as according to the answer,
petitioners through their attorney withdrew their cash
appeal bond of P60 after the record on appeal bond of
P60 after the record on appeal had been rejected, the
matter of mandamus may be summarily be dropped
without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of
Leyte, which is a suit for damages by the Leyte-Samar
Sales Co. (hereinafter called LESSCO) and Raymond
Tomassi against the Far Eastern Lumber &
Commercial Co. (unregistered commercial partnership
hereinafter called FELCO), Arnold Hall, Fred Brown
and Jean Roxas, judgment against defendants jointly
and severally for the amount of P31,589.14 plus costs
was rendered on October 29, 1948. The Court of
Appeals confirmed the award in November 1950,
minus P2,000 representing attorney's fees mistakenly
included. The decision having become final, the sheriff
sold at auction on June 9, 1951 to Robert Dorfe and
Pepito Asturias "all the rights, interests, titles and
participation" of the defendants in certain buildings and
properties described in the certificate, for a total price
of eight thousand and one hundred pesos. But on
June 4, 1951 Olegario Lastrilla filed in the case a
motion, wherein he claimed to be the owner by
purchase on September 29, 1949, of all the "shares
and interests" of defendant Fred Brown in the FELCO,
and requested "under the law of preference of credits"
that the sheriff be required to retain in his possession
so much of the deeds of the auction sale as may be
necessary "to pay his right". Over the plaintiffs'
objection the judge in his order of June 13, 1951,
granted Lastrilla's motion by requiring the sheriff to
retain 17 per cent of the money "for delivery to the
assignee, administrator or receiver" of the FELCO.
And on motion of Lastrilla, the court on August 14,
1951, modified its order of delivery and merely
declared that Lastrilla was entitled to 17 per cent of the
properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han
respetado los derechos del Sr. Lastrilla en lo que se
refiere a su adquiscicion de las acciones de C. Arnold
Hall (Fred Brown) en la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido incluidas
en la subasta.
Es vedad que las acciones adquiridas por el Sr.
Lastilla representan el 17 por ciento del capital de la
sociedad "Far Eastern Lumber & Commercial Co.,
Inc., et al." pero esto no quiere decir que su vlor no
esta sujeto a las fluctuaciones del negocio donde las
invirtio.
Se vendieron propiedades de la corporacion "Far
Eastern Lumber & Co. Inc.," y de la venta solamente
se obtuvo la cantidad de P8,100.
"En su virtud, se declara que el 17 por ciento de las
propiedades vendidas en publica subasta pretenece al
Sr. O Lastrilla y este tiene derecho a dicha porcion
pero con la obligacion de pagar el 17 por ciento de los
gastos for la conservacion de dichas propriedades por
parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to
enforce it1 that the petitioners seek relief by certiorari,
their position being the such orders were null and void
for lack of jurisdiction. At their request a writ of
preliminary injunction was issued here.
The record is not very clear, but there are indications,
and we shall assume for the moment, that Fred Brown
(like Arnold Hall and Jean Roxas) was a partner of the
FELCO, was defendant in Civil Case No. 193 as such
partner, and that the properties sold at auction actually
belonged to the FELCO partnership and the partners.
We shall also assume that the sale made to Lastrilla
on September 29, 1949, of all the shares of Fred
Brown in the FELCO was valid. (Remember that
judgment in this case was entered in the court of first
instance a year before.)
The result then, is that on June 9, 1951 when the sale
was effected of the properties of FELCO to Roberto
Dorfe and Pepito Asturias, Lastilla was already a
partner of FELCO.
Now, does Lastrilla have any proper claim to the
proceeds of the sale? If he was a creditor of the
FELCO, perhaps or maybe. But he was no. The
partner of a partnership is not a creditor of such
partnership for the amount of his shares. That is too
elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be:
inasmuch as Lastrilla had acquired the shares of
Brown is September, 1949, i.e., before the auction
sale and he was not a party to the litigation, such
shares could not have been transferred to Dorfe and
Austrilla.
Granting arguendo that the auction sale and not
included the interest or portion of the FELCO
properties corresponding to the shares of Lastrilla in
the same partnership (17%), the resulting situation
would be at most that the purchasers Dorfe and
Austrias will have to recognized dominion of Lastrillas
over 17 per cent of the properties awarded to
them.2 So Lastrilla acquired no right to demand any
part of the money paid by Dorfe and Austrias to he
sheriff any part of the money paid by Dorfe and
Austrias to the sheriff for the benefit of FELCO and
Tomassi, the plaintiffs in that case, for the reason that,
as he says, his shares (acquired from Brown) could
not have been and were not auctioned off to Dorfe and
Austrias.
Supposing however that Lastrillas shares have been
actually (but unlawfully) sold by the sheriff (at the
instance of plaintiffs) to Dorfe and Austrias, what is his
remedy? Section 15, Rule 39 furnishes the answer.
Precisely, respondents argue, Lastrilla vindicated his
claim by proper action, i.e., motion in the case. We
ruled once that "action" in this section means action as
defined in section 1, Rule 2.3 Anyway his remedy is to
claim "the property", not the proceeds of the sale,
which the sheriff is directed by section 14, Rule 39 to
deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold
may not voluntarily come to court, and insist, "I
approve the sale, therefore give me the proceeds
because I am the owner". The reason is that the sale
was made for the judgment creditor (who paid for the
fees and notices), and not for anybody else.
On this score the respondent judge's action on
Lastrilla's motion should be declared as in excess of
jurisdiction, which even amounted to want of
jurisdiction, which even amounted to want of
jurisdiction, considering specially that Dorfe and
Austrias, and the defendants themselves, had
undoubtedly the right to be heardbut they were not
notified.4
Why was it necessary to hear them on the merits of
Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to
recognized the validity of Lastrilla's purchase, or, if
valid, they may want him not to forsake the partnership
that might have some obligations in connection with
the partnership properties. And what is more
important, if the motion is granted, when the time for
redemptioner seventeen per cent (178%) less than
amount they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing
Lastrilla's financial assets, might also oppose the
substitution by Lastrilla of Fred Brown, the judgment
against them being joint and several. They might
entertain misgivings about Brown's slipping out of their
common predicament through the disposal of his
shares.
Lastly, all the defendants would have reasonable
motives to object to the delivery of 17 per cent of the
proceeds to Lustrial, because it is so much money
deducted, and for which the plaintiffs might as another
levy on their other holdings or resources. Supposing of
course, there was no fraudulent collusion among them.
Now, these varied interest of necessity make Dorfe,
Asturias and the defendants indispensable parties to
the motion of Lastrilla granting it was step allowable
under our regulations on execution. Yet these parties
were not notified, and obviously took no part in the
proceedings on the motion.
A valid judgment cannot be rendered where there is a
want of necessary parties, and a court cannot properly
adjudicate matters involved in a suit when necessary
and indispensable parties to the proceedings are not
before it. (49 C.J.S., 67.)
Indispensable parties are those without whom the
action cannot be finally determined. In a case for
recovery of real property, the defendant alleged in his
answer that he was occupying the property as a tenant
of a third person. This third person is an indispensable
party, for, without him, any judgment which the plaintiff
might obtain against the tenant would have no
effectiveness, for it would not be binding upon, and
cannot be executed against, the defendant's landlord,
against whom the plaintiff has to file another action if
he desires to recover the property effectively. In an
action for partition of property, each co-owner is an
indispensable party. (Moran, Comments, 1952 ed. Vol.
I, p. 56.) (Emphasis supplied.)
Wherefore, the orders of the court recognizing
Lastrilla's right and ordering payment to him of a part
of the proceeds were patently erroneous, because
promulgated in excess or outside of its jurisdiction. For
this reason the respondents' argument resting on
plaintiffs' failure to appeal from the orders on time,
although ordinarily decisive, carries no persuasive
force in this instance.
For as the former Chief Justice Dr. Moran has
summarized in his Comments, 1952 ed. Vol. II, p. 168
. . . And in those instances wherein the lower court has
acted without jurisdiction over the subject-matter, or
where the order or judgment complained of is a patent
nullity, courts have gone even as far as to disregard
completely the questions of petitioner's fault, the
reason being, undoubtedly, that acts performed with
absolute want of jurisdiction over the subject-matter
are void ab initio and cannot be validated by consent,
express or implied, of the parties. Thus, the Supreme
Court granted a petition for certiorari and set aside an
order reopening a cadastral case five years after the
judgment rendered therein had become final. In
another case, the Court set aside an order amending a
judgment acquired a definitive character. And still in
another case, an order granting a review of a decree
of registration issued more than a year ago had been
declared null void. In all these case the existence of
the right to appeal has been recitals was rendered
without any trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its
own recitals a patent nullity, which should be set aside
though an appeal was available but was not availed of.
...
Invoking our ruling in Melocotones vs. Court of First
Instance, (57 Phil., 144), wherein we applied the
theory of laches to petitioners' 3-years delay in
requesting certiorari, respondents point out that
whereas the orders complained of herein were issued
in June 13, 1951 and August 14, 1951 this special civil
action was not filed until August 1952. It should be
observed that the order of June 13 was superseded by
that of August 14, 1951. The last order merely
declared "que el 17 por ciento de la propiedades
vendidas en publica subasta pertenece at Sr. Lastrilla
y este tiene derecho a dicha porcion." This does not
necessarily mean that 17 per cent of the money had to
be delivered to him. It could mean, as hereinbefore
indicated, that the purchasers of the property (Dorfe
and Asturias) had to recognize Lastrilla's ownership. It
was only on April 16, 1952 (Annex N) that the court
issued an order directing the sheriff "to tun over" to
Lastrilla "17 per cent of the total proceeds of the
auction sale". There is the order that actually
prejudiced the petitioners herein, and they fought it
until the last order of July 10,. 1952 (Annex Q). Surely
a month's delay may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so
hold, that all orders of the respondents judge requiring
delivery of 17 per cent of the proceeds of the auction
sale to respondent Olegario Lastrilla are null and void;
and the costs of this suit shall be taxed against the
latter. The preliminary injunction heretofore issued is
made permanent. So ordered.
Art 1815-1817
PNB vs Lo, 50 Phil 802 1927
PHILIPPINE NATIONAL BANK, plaintiff-
appellee, vs.SEVERO EUGENIO LO, ET
AL., defendants. SEVERIO EUGENIO LO, NG KHEY
LING and YEP SENG, appellants.
On September 29, 1916, the appellants Severo
Eugenio Lo and Ng Khey Ling, together with J. A. Say
Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co
Sieng Peng formed a commercial partnership under
the name of "Tai Sing and Co.," with a capital of
P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the
partnership was to last for five years from after the
date of its organization, and that its purpose was to do
business in the City of Iloilo, Province of Iloilo, or in
any other part of the Philippine Islands the partners
might desire, under the name of "Tai Sing & Co.," for
the purchase and sale of merchandise, goods, and
native, as well as Chinese and Japanese, products,
and to carry on such business and speculations as
they might consider profitable. One of the partners, J.
A. Say Lian Ping was appointed general manager of
the partnership, with the appointed general manager of
the partnership, with the powers specified in said
articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping
executed a power of attorney (Exhibit C-1) in favor of
A. Y. Kelam, authorizing him to act in his stead as
manager and administrator of "Tai Sing & Co.," on July
26, 1918, for, and obtained a loan of P8,000 in current
account from the plaintiff bank. (Exhibit C). As security
for said loan, he mortgaged certain personal property
of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25,
1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing &
Co., executed a chattel mortgage in favor of plaintiff
bank as security for a loan of P20,000 with interest
(Exhibit D). This mortgage was again renewed on April
16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai
Sing & Co., executed another chattel mortgage for the
said sum of P20,000 in favor of plaintiff bank. (Exhibit
E.) According to this mortgage contract, the P20,000
loan was to earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A.
Y. Kelam and Ng Khey Ling, the latter represented by
M. Pineda Tayenko, executed a power of attorney in
favor of Sy Tit by virtue of which Sy Tit, representing
"Tai Sing & Co., obtained a credit of P20,000 from
plaintiff bank on January 7, 1921, executing a chattel
mortgage on certain personal property belonging to
"Tai Sing & Co.
Defendants had been using this commercial credit in a
current account with the plaintiff bank, from the year
1918, to May 22, 1921, and the debit balance of this
account, with interest to December 31, 1924, is as
follows:
This total is the sum claimed in the complaint, together
with interest on the P16,518.74 debt, at 9 per cent per
annum from January 1, 1925 until fully paid, with the
costs of the trial.
Defendant Eugenio Lo sets up, as a general defense,
that "Tai Sing & Co. was not a general partnership,
and that the commercial credit in current account
which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of
the company, nor was the person who subscribed said
contract authorized to make the same, under the
article of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint
denying each and every one of the allegations
contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and
Yap Seng Co., Sieng Peng indebted to plaintiff
Philippine National Bank in sum of P22,595.26 to July
29, 1926, with a daily interest of P4.14 on the balance
on account of the partnership "Tai Sing & Co. for the
sum of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to
pay the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and from the date,
P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the
costs of the action.1awph!l.net
Defendants appealed, making the following
assignments of error:
I. The trial court erred in finding that article 126 of the
Code of Commerce at present in force is not
mandatory.
II. The trial court erred in finding that the partnership
agreement of "Tai Sing & Co., (Exhibit A), is in
accordance with the requirements of article 125 of the
Code of Commerce for the organization of a regular
partnership.
III. The trial court erred in not admitting J. A. Sai Lian
Ping's death in China in November, 1917, as a proven
fact.
IV. The trial court erred in finding that the death of J. A.
Say Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt
incurred by the commercial partnership "Tai Sing &
Co., was that evidence by Exhibit F, signed by Sy Tit
as attorney-in-fact of the members of "Tai Sing & Co.,
by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank
was not able to collect its credit from the goods of "Tai
Sing & Co., given as security therefor through its own
fault and negligence; and that the action brought by
plaintiff is a manifest violation of article 237 of the
present Code of Commerce.
VI. The trial court erred in finding that the current
account of "Tai Sing & Co. with plaintiff bank shows a
debit balance of P16,518.74, which in addition to
interest at 9 per cent per annum from July 29, 1926,
amount to P16,595.26, with a daily interest of P4.14 on
the sum of P16,518.74.
VII. The trial court erred in ordering the defendants
appellants to pay jointly and severally to the Philippine
National Bank the sum of P22,727.74 up to August 31,
1926, and interest on P16,518.74 from that date until
fully paid, with the costs of the action.
VIII. The trial court erred in denying the motion for a
new trial filed by defendants-appellants.
Appellants admit, and it appears from the context of
Exhibit A, that the defendant association formed by the
defendants is a general partnership, as defined in
article 126 of the Code Commerce. This partnership
was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm
name the names of all of the partners, of several of
them, or only one of them, to be followed in the last
two cases, by the words "and to be followed in the last
two cases, by the words "and company" the partners
agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name
of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company formed
by defendants had existed in fact, though not in law
due to the fact that it was not recorded in the register,
and having operated and contracted debts in favor of
the plaintiff, the same must be paid by someone. This
applies more strongly to the obligations contracted by
the defendants, for they formed a partnership which
was registered in the mercantile register, and carried
on business contracting debts with the plaintiff bank.
The anomalous adoption of the firm name above noted
does not affect the liability of the general partners to
third parties under article 127 of the Code of
Commerce. And the Supreme Court so held in the
case of Jo Chung Cang vs. Pacific Commercial
Co., (45 Phil., 142), in which it said that the object of
article 126 of the Code of Commerce in requiring a
general partnership to transact business under the
name of all its members, of several of them, or of one
only, is to protect the public from imposition and fraud;
and that the provision of said article 126 is for the
protection of the creditors rather than of the partners
themselves. And consequently the doctrine was
enunciated that the law must be unlawful and
unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of
depriving innocent parties of their rights who may have
dealt with the offenders in ignorance of the latter
having violated the law; and that contracts entered into
by commercial associations defectively organized are
valid when voluntarily executed by the parties, and the
only question is whether or not they complied with the
agreement. Therefore, the defendants cannot invoke
in their defense the anomaly in the firm name which
they themselves adopted.
As to the alleged death of the manager of the
company, Say Lian Ping, before the attorney-in-fact
Ou Yong Kelam executed Exhibits C, D and E, the trial
court did not find this fact proven at the hearing. But
even supposing that the court had erred, such an error
would not justify the reversal of the judgment, for two
reasons at least: (1) Because Ou Yong Kelam was a
partner who contracted in the name of the partnership,
without any objection of the other partners; and (2)
because it appears in the record that the appellant-
partners Severo Eugenio Lo, Ng Khey Ling and Yap
Seng, appointed Sy Tit as manager, and he obtained
from the plaintiff bank the credit in current account, the
debit balance of which is sought to be recovered in this
action.
Appellants allege that such of their property as is not
included in the partnership assets cannot-be seized for
the payment of the debts contracted by the partnership
until after the partnership property has been
exhausted. The court found that the partnership
property described in the mortgage Exhibit F no loner
existed at the time of the filing of the herein complaint
nor has its existence been proven, nor was it offered to
the plaintiff for sale. We find no just reason to reverse
this conclusion of the trial court, and this being so, it
follows that article 237 of the Code of Commerce,
invoked by the appellant, can in no way have any
application here.
Appellants also assign error to the action of the trial
court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest on
P16,518.74, owing from them.
The judgment against the appellants is in accordance
with article 127 of the Code of Commerce which
provides that all the members of a general partnership,
be they managing partners thereof or not, shall be
personally and solidarily liable with all their property,
for the results of the transactions made in the name
and for the account of the partnership, under the
signature of the latter, and by a person authorized to
use it.
As to the amount of the interest suffice it to remember
that the credit in current account sued on in this case
as been renewed by the parties in such a way that
while it appears in the mortgage Exhibit D executed on
March 25, 1919 by the attorney-in-fact Ou Yong Kelam
that the P20,000 credit would earn 8 per cent interest
annually, yet from that executed on April 16, 1920,
Exhibit E, it appears that the P20,000 would earn 9 per
cent interest per annum. The credit was renewed in
January, 1921, and in the deed of pledge, Exhibit F,
executed by "Tai Sing & Co., represented by the
attorney-in-fact Sy Tit, it appears that this security is
for the payment of the sums received by the
partnership, not to exceed P20,000 with interest and
collection fees. There can be no doubt that the parties
agreed upon the rate of interest fixed in the document
Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the
law, and must therefore be, as it is hereby, affirmed
with costs against the appellants. So ordered.
Island Sales Inc vs United Pioneers General Const
July 31 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
This is an appeal interposed by the defendant
Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case No.
50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United
Pioneer General Construction Company to pay plaintiff
the sum of P7,119.07 with interest at the rate of 12%
per annum until it is fully paid, plus attorney's fees
which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim and Augusto Palisoc are sentenced to
pay the plaintiff in this case with the understanding that
the judgment against these individual defendants shall
be enforced only if the defendant company has no
more leviable properties with which to satisfy the
judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general
partnership duly registered under the laws of the
Philippines, purchased from the plaintiff a motor
vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in
twelve (12) equal monthly installments of P786.63, the
first installment payable on or before May 22, 1961
and the subsequent installments on the 22nd day of
every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as
they fall due would render the whole unpaid balance upheld the validity of the sale of the lands owned by
immediately due and demandable. the partnership Goquiolay & Tan Sin An, made in 1949
Having failed to receive the installment due on July 22, by the widow of the managing partner, Tan Sin An
1961, the plaintiff sued the defendant company for the (Executed in her dual capacity as Administratrix of the
unpaid balance amounting to P7,119.07. Benjamin C. husband's estate and as partner in lieu of the
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. husband), in favor of the buyers Washington Sycip and
Lumauig, and Augusto Palisoc were included as co- Betty Lee for the following consideration:
defendants in their capacity as general partners of the
defendant company. Appellant Goquiolay, in his motion for reconsideration,
Daniel A. Guizona failed to file an answer and was insist that, contrary to our holding, Kong Chai Pin,
consequently declared in default.1 widow of the deceased partner Tan Sin An, never
Subsequently, on motion of the plaintiff, the complaint
became more than a limited partner, incapacitated by
was dismissed insofar as the defendant Romulo B. law to manage the affairs of partnership; that the
Lumauig is concerned.2 testimony of her witness Young and Lim belies that
When the case was called for hearing, the defendants she took over the administration of the partnership
and their counsels failed to appear notwithstanding the
property; and that, in any event, the sale should be set
notices sent to them. Consequently, the trial court aside because it was executed with the intent to
authorized the plaintiff to present its evidence ex- defraud appellant of his share in the properties sold.
parte3 , after which the trial court rendered the decision
Three things must be always held in mind in the
appealed from. discussion of this motion to reconsider, being basic
The defendants Benjamin C. Daco and Noel C. Sim and beyond controversy:
moved to reconsider the decision claiming that since (a) That we are dealing here with the transfer of
there are five (5) general partners, the joint and partnership property by one partner, acting in behalf of
subsidiary liability of each partner should not exceedthe firm, to a stranger. There is no question between
one-fifth (1/5 ) of the obligations of the defendant partners inter se, and this aspect to the case was
company. But the trial court denied the said motion expressly reserved in the main decision of 26 July
notwithstanding the conformity of the plaintiff to limit
1960;
the liability of the defendants Daco and Sim to only (b) That partnership was expressly organized: "to
one-fifth (1/5 ) of the obligations of the defendant engage in real estate business, either by buying and
company.4 Hence, this appeal. selling real estate". The Articles of co-partnership, in
The only issue for resolution is whether or not the fact, expressly provided that:
dismissal of the complaint to favor one of the generalIV. The object and purpose of the copartnership are as
partners of a partnership increases the joint and follows:
subsidiary liability of each of the remaining partners for
1. To engage in real estate business, either by buying
the obligations of the partnership. and selling real estates; to subdivide real estates into
Article 1816 of the Civil Code provides: lots for the purpose of leasing and selling them.;
Art. 1816. All partners including industrial ones, shall
(c) That the properties sold were not part of the
be liable pro rata with all their property and after all the
contributed capital (which was in cash) but land
partnership assets have been exhausted, for the precisely acquired to be sold, although subject to a
contracts which may be entered into in the name and mortgage in favor of the original owners, from whom
for the account of the partnership, under its signature
the partnership had acquired them.
and by a person authorized to act for the partnership.With these points firmly in mind, let us turn to the
However, any partner may enter into a separate points insisted upon by appellant.
obligation to perform a partnership contract. It is first averred that there is "not one iota of evidence"
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court
that Kong Chai Pin managed and retained possession
held: of the partnership properties. Suffice it to point out that
The partnership of Yulo and Palacios was engaged in appellant Goquiolay himself admitted that
the operation of a sugar estate in Negros. It was, ... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong
therefore, a civil partnership as distinguished from aChai Pin continue to manage the properties (as) she
mercantile partnership. Being a civil partnership, by had no other means of income. Then I said, because I
the express provisions of articles l698 and 1137 of the
wanted to help Mrs. Kong Chai Pin, she could just do it
Civil Code, the partners are not liable each for the and besides I am not interested in agricultural lands. I
whole debt of the partnership. The liability is pro allowed her to take care of the properties in order to
rata and in this case Pedro Yulo is responsible to help her and because I believe in od and wanted to
plaintiff for only one-half of the debt. The fact that the
help her.
other partner, Jaime Palacios, had left the country Q So the answer to my question is you did not take
cannot increase the liability of Pedro Yulo. any steps?
In the instant case, there were five (5) general partners
A I did not.
when the promissory note in question was executed Q And this conversation which you had with Mrs.
for and in behalf of the partnership. Since the liability
Yu Eng Lai was few months after 1945?
of the partners is pro rata, the liability of the appellant
A In the year 1945. (Emphasis supplied).
Benjamin C. Daco shall be limited to only one-fifth (1/5 )
The appellant subsequently ratified this testimony in
of the obligations of the defendant company. The fact his deposition of 30 June 1956, pages 8-9, wherein he
that the complaint against the defendant Romulo B. stated:
Lumauig was dismissed, upon motion of the plaintiff, that plantation was being occupied at that time by the
does not unmake the said Lumauig as a general widow, Mrs. Tan Sin An, and of course they are
partner in the defendant company. In so moving to receiving quiet a lot benefit from the plantation.
dismiss the complaint, the plaintiff merely condoned Discarding the self-serving expressions, these
Lumauig's individual liability to the plaintiff. admissions of Goquiolay are certainly entitled to
greater weight than those of Hernando Young and
Art 1818 Rufino Lim, having been made against the party's own
Goquilay vs Sycip 9 SCRA 663 1963 interest.
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs- Moreover, the appellant's reference to the testimony of
appellants, vs.WASHINGTON Z. SYCIP, ET Hernando Young, that the witness found the properties
AL., defendants-appellees. "abandoned and undeveloped", omits to mention that
The matter now pending is the appellant's motion for said part of the testimony started with the question:
reconsideration of our main decision, wherein we have
Now, you said that about 1942 or 1943 you returned to
Davao. Did you meet Mrs. Kong Chai Pin there in
Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that
the properties of the partnership were undeveloped,
and the family of the widow (Kong Chai Pin) did not
receive any income from the partnership properties,
was given in answer to the question:
According to Mr. Goquiolay, during the Japanese
occupation Tan Sin an and his family lived on the
plantation of the partnership and derived their
subsistence from that plantation. What can you say to
that? (Dep. 19 July 1956, p. 8).
And also
What can you say as to the development of these
other properties of the partnership which you
saw during the occupation? (Dep. p. 13, Emphasis
supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The
third property which is in Tigato is about eleven (11)
hectares and planted with abaca seedlings planted by
Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was
occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army.
Of course they never paid any money to Tan Sin An or
his family. (Dep., Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie,
or contradict, Goquiolay's admission that he told Mr.
Yu Eng Lai that the widow "could just do it" (i.e.,
continue to manage the properties). Witnesses Lim
and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact,
given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in
1949. That Kong Chai Pin carried out no acts of
management during the Japanese occupation (1942-
1944) does not mean that she did not do so from 1945
to 1949.
We thus find that Goquiolay did not merely rely on
reports from Lim and Young; he actually manifested
his willingness that the widow should manage the
partnership properties. Whether or not she complied
with this authority is a question between her and the
appellant, and is not here involved. But the authority
was given, and she did have it when she made the
questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the
widow Kong Chai Pin was only to manage the
property, and that it did not include the power to
alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was
not a mere agent, because she had become a partner
upon her husband's death, as expressly provided by
the articles of copartnership. Even more, granting that
by succession to her husband, Tan Sin An, the widow
only became a limited partner, Goquiolay's
authorization to manage the partnership property was
proof that he considered and recognized her as
general partner, at least since 1945. The reason is
plain: Under the law (Article 148, last paragraph, Code
of Commerce), appellant could not empower the
widow, if she were only a limited partner, to administer
the properties of the firm, even as a mere agent:
Limited partners may not perform any act of
administration with respect to the interests of the
copartnership, not even in the capacity of agents of the
managing partners. (Emphasis supplied).
By seeking authority to manage partnership property,
Tan Sin An's widow showed that she desired to be
considered a general partner. By authorizing the
widow to manage partnership property (which a limited
partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel
to deny her position as a general partner, with
authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the
heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability
in excess of the value of the estate inherited so as not
to jeopardize his personal assets. But this statutory
limitation of responsibility being designed to protect the
heir, the latter may disregard it and instead elect to
become a collective or general partner, with all the
rights and privileges of one, and answering for the
debts of the firm not only with the inheritance but also
with the heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the assent
of the surviving partner.
It must be remember that the articles of co-partnership
here involved expressly stipulated that:
In the event of the death of any of the partners at any
time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be
continued and the deceased partner shall be
represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the
deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of
death of either partner "the co-partnership ... will have
to be continued" with the heirs or assigns. It certainly
could not be continued if it were to be converted from
a general partnership into a limited partnership, since
the difference between the two kinds of associations is
fundamental; and specially because the
conversion into a limited association would have the
heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation does
actually contemplate that the heirs would
become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of
the deceased partner should they refuse to assume
personal and unlimited responsibility for the obligations
of the firm. The heirs, in other words, can not be
compelled to become general partners against their
wishes. But because they are not so compellable, it
does not legitimately follow that they may not
voluntarily choose to become general partners,
waiving the protective mantle of the general laws of
succession. And in the latter event, it is pointless to
discuss the legality of any conversion of a limited
partner into a general one. The heir never was a
limited partner, but chose to be, and became, a
general partner right at the start.
It is immaterial that the heir's name was not included in
the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into
the partnership.
It must never be overlooked that this case involved the
rights acquired by strangers, and does not deal with
the rights existing between partners Goquiolay and the
widow of Tan Sin An. The issues between the
partners inter sewere expressly reserved in our main
decision. Now, in determining what kind of partner the
widow of partner Tan Sin an Had elected to become,
strangers had to be guided by her conduct and
actuations and those of appellant Goquiolay. Knowing
that by law a limited partner is barred from managing
the partnership business or property, third parties (like
the purchasers) who found the widow possessing and
managing the firm property with the acquiescence (or
at least without apparent opposition) of the surviving
partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in
negotiating with her as such a partner, having authority
to act for, and in behalf of the firm. This belief, be it
noted, was shared even by the probate court that
approved the sale by the widow of the real property
standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay.
Note that for seven long years, from partner Tan Sin
An's death in 1942 to the sale in 1949, there was more
than ample time for Goquiolay to take up the
management of these properties, or at least ascertain
how its affairs stood. For seven years Goquiolay could
have asserted his alleged rights, and by suitable notice
in the commercial registry could have warned
strangers that they must deal with him alone, as sole
general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not
even take steps to pay, or settle the firm debts that
were overdue since before the outbreak of the last
war. He did not even take steps, after Tan Sin An died,
to cancel, or modify, the provisions of the partnership
articles that he (Goquiolay) would have no intervention
in the management of the partnership.
This laches certainly contributed to confirm the view
that the widow of Tan Sin An had, or was given,
authority to manage and deal with the firm's properties
apart from the presumption that a general partner
dealing with partnership property has to requisite
authority from his co-partners (Litton vs. Hill and
Ceron, et al., 67 Phil. 513; quoted in our main
decision, p. 11).
The stipulation in the articles of partnership that any of
the two managing partners may contract and sign in
the name of the partnership with the consent of the
other, undoubtedly creates on obligation between the
two partners, which consists in asking the other's
consent before contracting for the partnership. This
obligation of course is not imposed upon a third
person who contracts with the partnership. Neither it is
necessary for the third person to ascertain if the
managing partner with whom he contracts has
previously obtained the consent of the other. A third
person may and has a right to presume that the
partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his
copartner; for otherwise he would not enter into the
contract. The third person would naturally not presume
that the partner with whom he enters into the
transaction is violating the articles of partnership, but
on the contrary is acting in accordance therewith. And
this finds support in the legal presumption that the
ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the
law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which
have the force of law between the parties. (Litton vs.
Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis
supplied.)
It is next urged that the widow, even as a partner, had
no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to
differentiate between real estate acquired and held
as stock-in-trade and real estate held merely
as business site (Vivante's "taller o banco social") for
the partnership. Where the partnership business is to
deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is
not within the ordinary powers of a partner, because it
is not in line with the normal business of the firm. But
where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the
firm from part of its stock-in-trade, and the sale thereof
is in pursuance of partnership purposes, hence within
the ordinary powers of the partner. This distinction is
supported by the opinion of Gay de Montella1 , in the
very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del
gerante, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas
conforme a los fines sociales, viene limitada a los
objetos de comercio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario.
(Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was
held: a partnership to deal in real estate may be
created and either partner has the legal right to sell the
firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in
real estate, one partner has ample power, as a general
agent of the firm, to enter into an executory contract
for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182,
25 Am. St. Rep. 83:
If the several partners engaged in the business of
buying and selling real estate can not bind the firm by
purchases or sales of such property made in the
regular course of business, then they are incapable of
exercising the essential rights and powers of general
partners and their association is not really a
partnership at all, but a several agency.
Since the sale by the widow was in conformity with the
express objective of the partnership, "to engage ...
in buying and selling real estate" (Art. IV, No. 1 Articles
of Copartnership), it can not be maintained that the
sale was made in excess of her power as general
partner.
Considerable stress is laid by appellant in the ruling of
the Supreme Court of Ohio in McGrath, et al., vs.
Cowen, et al., 49 N.E., 338. But the facts of that case
are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been,
insolvent, in the sense that its property was insufficient
to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On
that day, which was Saturday, the plaintiff caused to
be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible
property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures
necessary for, and used in carrying on, its business,
and signed the same in this form: "In witness whereof,
the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner, of said firm, and Owen
McCrath, individually, have hereunto set their hands,
this 20th day of May, A.D. 1893. Cowen & Mcgrath, by
Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath." At the same time,
the plaintiff had prepared, ready for filing, the
petition for the dissolution of the partnership and
appointment of a receiver which he subsequently filed,
as hereinafter stated. On the day the mortgages were
signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that
there was any intention to make them. At the
time none of the claims secured by the mortgages
were due, except, it may be, a small part of one of
them, and none of the creditors to whom the
mortgages were made had requested security, or were
pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition
of defiance, and contain a stipulation authorizing the
mortgagees to take immediate possession of the
property, which they did as soon as the mortgages
were filed through the attorney who then represented
them, as well as the plaintiff; and the stores were at
once closed, and possession delivered by them to the
receiver appointed upon the filing of the petition. The
avowed purposes of the plaintiff, in the course pursued
by him, was to terminate the partnership, place its
properly beyond the control of the firm, and insure the
preference of the mortgagees, all of which was known
to them at the time; .... (Cas cit., p. 343, Emphasis
supplied).
It is natural that form these facts the Supreme Court of
Ohio should draw the conclusion that the conveyances
were made with intent to terminate the partnership,
and that they were not within the powers of McGrath
as a partner. But there is no similarity between those
acts and the sale by the widow of Tan Sin An. In the
McGrath case, the sale included even the fixtures
used in the business; in our case, the lands sold were
those acquired to be sold. In the McGrath case, none
of the creditors were pressing for payment; in our
case, the creditors had been unpaid for more than
seven years, and their claims had been approved by
the probate court for payment. In the McGrath case,
the partnership received nothing beyond the discharge
of its debts; in the present case, not only were its
debts assumed by the buyers, but the latter paid, in
addition, P37,000.00 in cash to the widow, to the profit
of the partnership. Clearly, the McGrath ruling is not
applicable.
We will now turn to the question of fraud. No direct
evidence of it exists; but appellant point out, as indicia
thereof, the allegedly low price paid for the property,
and the relationship between the buyers, the creditors
of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property
was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership
debts assumed by the purchaser. These debts
(62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan
& Co.) are not questioned; they were approved by the
court, and its approval is now final. The claims were, in
fact, for the balance on the original purchase price of
the land sold (sue first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes,
redeemed by the two creditors-claimants. To show that
the price was inadquate, appellant relies on the
testimony of the realtor Mata, who is 1955, six
years after the sale in question, asserted that the land
was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation,
and the fact that the sale in question was practically a
forced sale because the partnership had no other
means to pay its legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to
justify recission of the sale. If at the time of the sale
(1949) the price of P153,726.04 was really low, how is
it that appellant was not able to raise the amount, even
if the creditor's representative, Yu Khe Thai, had
already warned him four years before (1945) that the
creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged
to raise the sum needed to discharge the debts. But
the lands were already mortgaged, and had been
mortgaged since 1940, first to La Urbana, and then to
the Banco Hipotecario. Was it reasonable to expect
that other persons would loan money to the
partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since
1940? If it had been possible to find lenders willing to
take a chance on such a bad financial record, would
not Goquiolay have taken advantage of it? But the fact
is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts
of the partnership. Is he entitled now to cry fraud after
the debts were discharged with no help from him.
With regard to the relationship between the parties,
suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria Hnos.
vs. McMicking, 21 Phil. 243; also Hermandad del Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the
Yutivos should be willing to extend credit to them, and
not to appellant, is neither illegal nor immoral; at the
very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was
the victim of a conspiracy between the Yutivo firm and
their component members. But no proof is adduced. If
he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the
firm's debts between 1945 and 1949; but he did not;
he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to
defraud him arose (as he claims) because of his
refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to have
the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of
which increased the risk that the supposed fraud
should be detected.
Neither was there any anomaly in the filing of the
claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings
for the settlement of the estate of Tan Sin An. This for
two reasons: First, Tan Sin An and the partnership
"Tan Sin An & Goquiolay" were solidary (Joint and
several)debtors (Exhibits "N", mortgage to the Banco
Hipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and
several with another debtor, the claim shall be
filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. (Emphasis
supplied).
Secondly, the solidary obligation was guaranteed by a
mortgage on the properties of the partnership and
those of Tan Sim An personally, and a mortgage is
indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt
(Civ. Code of 1889, Article 1860; New Civil Code, Art.
2089).
A final and conclusive consideration: The fraud
charged not being one used to obtain a party's consent
to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at al, it can only be
a fraud of creditors that gives rise to a rescission of the
offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New
Civil Code) "the action for rescission is subsidiary; it
can not be instituted except when the party suffering
damage has no other legal means to obtain reparation
for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation
from the widow and heirs of Tan Sin An, the present
suit to rescind the sale in question is not maintainable,
even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for
reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and
Dizon, JJ., concur.
Regala, J., took no part.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First
Instance of Davao dismissing the complaint filed by
Antonio C. Goquiolay, et al., seeking to annul the sale
made Z. Sycip and Betty Y. Lee on the ground that it
was executed without proper authority and under
fraudulent circumstances. In a decision rendered on
July 26, 1960 we affirmed this decision although on
grounds different from those on which the latter is
predicted. The case is once more before us on a
motion for reconsideration filed by appellants raising
both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C.
Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of
P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An
P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate
properties for subdivision, resale and lease. The
partnership was duly registered, and among the
conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An
would be the exclusive managing partner, and (2) in
the event of the death of any of the partners the
partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay
executed a general power of attorney in favor of Tan
Sin An appointing the latter manager of the partnership
and conferring upon him the usual powers of
management.
On May 29, 1940, the partnership acquired three
parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of
the partnership, with the capital orginally invested,
financing the balance of the purchase price with a
mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of
P25,000.00, payable in ten years. On the same date,
Tan Sin An, in his individual capacity, acquired 46
parcels of land executing a mortgage thereon in favor
of the same company for the sum of P35,000.00. On
September 25, 1940, these two mortgage obligations
were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result Tan Sin An, in
his individual capacity, and the partnership bound
themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest
thereon within a period of eight years mortgaging in
favor of said entity the 3 parcels of land belonging to
the partnership and the 46 parcels of land belonging
individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived
by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On
March 18, 1944, Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An.
And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid
balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu
Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.,
called for Goquiolay and the two had a conference in
the office of the former during which he offered to buy
the interest of Goquiolay in the partnership. In 1948,
Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuo, to ask Goquiolay to execute in her
favor a power of attorney. Goquiolay refused both to
sell his interest in the partnership as well as to execute
the power of attorney.
Having failed to get Goquiolay to sell his share in the
partnership, Yutivo Sons Hardware Co. and Sing, Yee
and Cuan Co., Inc. filed in November, 1946 a claim
each in the intestate proceedings of Tan Sin An for the
sum of P84,705.48 and P66,529.91, respectively,
alleging that they represent obligations of both Tan Sin
An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the
two claims in an amended answer she filed on
February 28, 1947. The admission was predicted on
the ground that she and the creditors were closely
related by blood, affinity and business ties. In due
course, these two claims were approved by the court.
On March 29, 1949, more than two years after the
approval of the claims, Kong Chai Pin filed a petition in
the probate court to sell all the properties of the
partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for
authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a
deed of sale of the properties owned by Tan Sin An
and by the partnership in favor of Betty Y. Lee and
Washington Z. Sycip in consideration of the payment
to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo
& Sons Hardware Co. and Sing, Yee and Cuan Co.,
Inc. in whose favor the buyers executed a mortgage
on the properties purchased. Betty Y. Lee and
Washington Z. Zycip subsequently executed a deed of
sale of the same properties in favor of their co-
defendant Insular Development Company, Inc. It
should be noted that these transactions took place
without the knowledge of Goquiolay and it is admitted
that Betty Lee and Washington Z. Sycip bought the
properties on behalf of the ultimate buyer, the Insular
Development Company, Inc., with money given by the
latter.
Upon learning of the sale of the partnership properties,
Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the
court approving the sale. The court granted the
petition. While the order was pending appeal in the
Supreme Court, Goquiolay filed the present case on
January 15, 1953 seeking to nullify the sale as stated
in the early part of this decision. In the meantime, the
Supreme Court remanded the original case to the
probate court for rehearing due to lack of necessary
parties.
The plaintiffs in their complaint challenged the
authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to
sell because even granting that she became a partner
upon the death of Tan Sin An the power of attorney
granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity
of the sale on the theory that she succeeded to all the
rights and prerogatives of Tan Sin an as managing
partner.
The trial court sustained the validity of the sale on the
ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner
to represent him in the partnership after his death
Kong Chai Pin became a managing partner, this being
the capacity held by Tan Sin an when he died.
In the decision rendered by this Court on July 26,
1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the
power of attorney given by Goquiloay to Tan Sin An as
manager of the partnership expired after his death; (2)
his widow Kong Chai Pin did not inherit the
management of the partnership, it being a personal
right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the
capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she
exercised certain alleged acts of management; and (5)
the sale being necessary to pay the obligations of the
partnership properties without the consent of
Goquiolay under the principle of estoppel the buyers
having the right to rely on her acts of management and
to believe her to be in fact the managing partner.
Considering that some of the above findings of fact
and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for
reconsideration which because of the importance of
the issues therein raised has been the subject of
mature deliberation.
In support of said motion, appellants advanced the
following arguments:
1. If the conclusion of the Court is that heirs as a
general rule enter the partnership as limited partners
only, therefore Kong Chai Pin, who must necessarily
have entered the partnership as a limited
partner originally, could have not chosen to be a
general partner by exercising the alleged acts of
management, because under Article 148 of the Code
of Commerce a limited partner cannot intervene in the
management of the partnership, even if given a power
of attorney by the general partners. An Act prohibited
by law cannot given rise to any right and is void under
the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all
of them being members of the Yu (Yutivo) family, the
rest, members of the law firm which handles the Yutivo
interests and handled the papers of sale. They did not
rely on the alleged acts of management they
believed (this was the opinion of their lawyers) that
Kong Chai Pin succeeded her husband as a managing
partner and it was on this theory alone that they
submitted the case in the lower court.
3. The alleged acts of management were denied and
repudiated by the very witnesses presented by the
defendants themselves.
The arguments advanced by appellants are in our
opinion well-taken and furnish sufficient to reconsider
our decision if we want to do justice to Antonio C.
Goquiolay. And to justify this conclusion, it is enough
that we lay stress on the following points: (1) there is
no sufficient factual basis to conclude that Kong Chai
Pin executed acts of management to give her the
character of general manager of the partnership, or to
serve as basis for estoppel that may benefit the
purchasers of the partnership properties; (92) the
alleged acts of management, even if proven, could not
give Kong Chai Pin the character of general manager
for the same contrary to law and well-known
authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership
properties as to make it legal and valid; and (4) Kong
Chai Pin had no necessity to sell the properties to pay
the obligation of the partnership and if she did so it
was merely to favor the purchasers who were close
relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not
execute the acts of management imputed to her our
ruling cannot be sustained. In making our aforesaid
ruling we apparently gave particular importance to the
fact that it was Goquiolay himself who tried to prove
the acts of management. Appellants, however, have
emphasized the fact, and with reason, the appellees
themselves are the ones who denied and refuted the
so-called acts of management imputed to Kong Chai
Pin. To have a clear view of this factual situation, it
becomes necessary that we analyze the evidence of
record.
Plaintiff Goquiolay, it is intimated, testified on cross-
examination that he had a conversation with one
Hernando Young in Manila in the year 1945 who
informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and
she had no other means of livelihood except those
properties and some rentals derived from the
properties." He went on to say by way of remark that
she could continue doing this because he wanted to
help her. One point that he emphasized was that he
was "no interested in agricultural lands."
On the other hand, defendants presented Hernando
Young, the same person referred to by Goquiolay, who
was a close friend of the family of Kong Chai Pin, for
the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and
insisted no less than six times during his testimony
that he was not in Manila in 1945, the year when he
allegedly gave the information to Goquiolay, stating
that he arrived in Manila for the first time in 1947. He
testified further that he had visited the partnership
properties during the period covered by the alleged
information given by him to Goquiolay and that he
found them "abandoned and underdeveloped," and
that Kong Chai Pin was not deriving any income from
them.
The other witness for the defendants, Rufino Lim, also
testified that he had seen the partnership properties
and corroborated the testimony of Hernando Young in
all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato,
and the family of Kong Chai Pin did not receive my
income from the partnership properties." He
specifically rebutted the testimony of Goquiolay, in his
deposition given on June 30, 1956 that Kong Chai Pin
and her family were living in the partnership properties,
and stated that the "family never actually lived in the
properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely
repeating an information given to him by a third
person, Hernando Young he stressed this point
twice. A careful analysis of the substance of
Goquiolay's testimony will show that he merely had no
objection to allowing Kong Chai Pin to continue
attending to the properties in order to give her some
means of livelihood, because, according to the
information given him by Hernando Young, which he
assumed to be true, Kong Chai Pin had no other
means of livelihood. But certainly he made it very clear
that he did not allow her to manage the
partnership when he explained his reason for refusing
to sign a general power of attorney for Kong Chai Pin
which her counsel, Atty. Zuo, brought with him to his
house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with
him Atty. Zuo and he asked me if I could execute a
general power of attorney for Mrs. Kong Chai Pin.
Then I told Atty. Zuo what is the use of executing a
general power of attorney for Mrs. Kong Chai Pin
when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for
agricultural purposes she can use that plantation ...
(T.S.N. p. 9, Hearing on May 5, 1955).
It must be noted that in his testimony Goquiolay was
categorically stating his opposition to the management
of the partnership by Kong Chai Pin and carefully
made the distinction that his conformity was for her to
attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that
the period covered by the testimony refers to the
period of occupation when living condition was difficult
and precarious. And Atty. Zuo, it should also be
stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to
whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly
controverted. The most that we can say is that the
alleged acts are doubtful more so when they are
disputed by the defendants themselves who later
became the purchasers of the properties, and yet
these alleged acts, if at all, only refer to management
of the properties and not to management of the
partnership, which are two different things.
In resume, we may conclude that the sale of the
partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the
alleged acts of management have not been clearly
proven; second, because the record clearly shows that
the defendants, or the buyers, were not misled nor did
they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty.
Quisumbing, to the effect that she succeeded her
husband in the partnership as managing partner by
operation of law; and third, because the defendants
are themselves estopped to invoke a defense which
they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management
imputed to Kong Chai Pin are true, could such acts
give as we have concluded in our decision?
Our answer is in the negative because it is contrary to
law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere
acceptance of the inheritance does not maked the heir
of a general partner a general partner himself. He
emphasized that heir must declare that he is entering
the partnership as a general partner unless the
deceased partner has made it an express condition in
his will that the heir accepts the condition of entering
the partnership as a prerequisite of inheritance, in
which case acceptance of the inheritance is
enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have
declared her intention to become a general partner by
exercising acts of management? We believe not, for,
in consonance with our ruling that as a general rule the
heirs of a deceased partner succeed as limited
partners only by operation of law, it is obvious that the
heirs, upon entering the partnership, must make a
declaration of his characters, otherwise he should be
deemed as having succeeded as limited partner by the
mere acceptance of the inheritance. And here Kong
Chai Pin did not make such declaration. Being then a
limited partner upon the death of Tan Sin An by
operation of law, the peremptory prohibition contained
in Article 1482 of the Code of Commerce became
binding upon her and as a result she could not change
her status by violating its provisions not only under the
general principle that prohibited acts cannot produce
any legal effect, but also because under the provisions
of Article 1473 of the same Code she was precluded
from acquiring more rights than those pertaining to her
as a limited partner. The alleged acts of management,
therefore, did not give Kong Chai Pin the character of
general manager to authorized her to bind the
partnership.
Assuming also arguendo that the alleged acts of
management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the
partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the
provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the
Civil Code. Thus, Article 129 of the Code of Commerce
says:
If the management of the general partnership has not
been limited by special agreement to any of the
members, all shall have the power to take part in the
direction and management of the common business,
and the members present shall come to an agreement
for all contracts or obligations which may concern the
association.
And the pertinent portions of the articles of partnership
provides:
VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the
managing partner may delegate the entire
management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as
regards compensation as he may deem proper, and
vest in such person, firm or corporation full power and
authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his
behalf which he as such managing partner might do or
cause to be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing
partner are not defined either under the provisions of
the Code of Commerce or in the articles of
partnership, a situation which, under Article 2 of the
same Code, renders applicable herein the provisions
of the Civil Code. And since, according to well-known
authorities, the relationship between a managing
partner and the partnership is substantially the same
as that of the agent and his principal,4the extent of the
power of Kong Chai Pin must, therefore, be
determined under the general principles governing
agency. And, on this point, the law says that an
agency created in general terms includes only acts of
administrations, but with regard to the power to
compromise, sell mortgage, and other acts of strict
ownership, an express power of attorney is
required.5 Here Kong Chai Pin did not have such
power when she sold the properties of the partnership.
Of course, there is authority to the effect that a
managing partner, even without express power of
attorney may perform acts affecting ownership if the
same are necessary to promote or accomplish a
declared object of the partnership, but here the
transaction is not for this purpose. It was effected not
to promote any avowed object of the
partnership.6 Rather, the sale was affected to pay an
obligation of the partnership by selling its real
properties which Kong Chai Pin could not do without
express authority. The authorities supporting this view
are overwhelming.
La enajenacion puede entrar en las facultades del
gerente, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociales, viene limitada a
los objetos de comercio, o a los productos de la
fabrica para explotacion de los cauale se ha
constituido la Sociedad. Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese la compra y
venta de inmuebles, en cuyo caso el gerente estaria
facultado para otorgar las ventas que fuere
necesario. Por el contrario el generente no tiene
attribuciones para vender las instalaciones del
comercio, ni la fabrica, ni las maquinarias, vehiculos
de transporte, etc. que forman parte de la explotacion
social. En todos estas casos, equalmente que sisse
tratase de la venta de una marca o procedimiento
mecanico o quimico, etc., siendo actos de disposicion,
seria necesario contar con la conformidad expresa
de todos los socios. (R. Gay de Montella, id., pp. 223-
224; Emphasis supplied).
poderes de los Administradores no tienen ante el
silencio del contrato otros limites que los sealados
por el objeto de la Sociedad y, por consiguiente,
pueden llevar a cabo todas las operaciones que sirven
para aquel ejercicio, incluso cambiando repetidas
veces los propios acuerdos segun el interest
convenido de la Sociedad. Pueden contratar y
despedir a los empleados. tomar en arriendo
almacenes y tiendas; expedir cambiales, girarlas,
avalarlas, dar en prenda o en hipoteca los bienes de la
sociedad y adquirir inmuebles destinados a su
explotacion o al empleo, estable de sus
capitales. Pero no podran ejecutar los actos que esten
en contradiccion con la explotacion que les fue
confiada; no podran cambiar el objeto, el domicilio, la
razon social; fundir a la Sociedad en otro; ceder la
accion, y por tanto, el uso de la firma social a otro,
renunciar definitivamente el ejercicio de uno de otro
ramo comercio que se les haya confiado y enajenar o
pignorar el taller o el banco social, excepto que la
venta o pignoracion tengan por el objeto procurar los
medios necesarios para la continuacion de la empresa
social. (Cesar Vivante, Tratado de Derecho Mercantil,
pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be
necessary for the carrying one of its business. If all
that can be said of it was that it was convenient, or that
it facilitated the transaction of the business of the firm,
that is not sufficient, in the absence of evidence of
sanction by other partners. Nor, it, seems, will
necessity itself be sufficient if it be an extraordinary
necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and
in the usual way, is the test. Lindl. Partn. Sec. 126.
While, within this rule, one member of a partnership
may, in the usual and ordinary course of its business,
make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale,
to a bona fide purchaser of mortgagee, without the
consent of the other members of the firm, it is not
within the scope of his implied authority to make a final
disposition of al of its effects, including those
employed as the means of carrying on its business,
the object and effect of which is to immediately
terminate the partnership, and place its property
beyond its control. Such a disposition, instead of being
within the scope of the partnership business, or in the
usual and ordinary way of carrying it on, is necessarily
subversive of the object of the partnership, and
contrary to the presumed intention of the partnership in
its formation. (McGrath, et al. vs. Cowen, et al., 49
N.E., 338, 343; Emphasis supplied).
Since Kong Chai Pin sold the partnership properties
not in line with the business of the partnership but to
pay its obligation without first obtaining the consent of
the other partners the sale is invalid in excess of her
authority.
4. Finally, the sale under consideration was effected in
a suspicious manner as may be gleaned from the
following circumstances:
(a) The properties subject of the instant sale which
consist of three parcels of land situated in the City of
Davao have an area of 200 hectares more or less, or
2,000,000 square meters. These properties were
purchased by the partnership for purposes of
subdivision. According to realtor Mata, who testified in
court, these properties could command at the time he
testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which
took over the administration, since the date of sale no
improvement was ever made thereon precisely
because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for
the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai
Pin had no valid reason to sell them if her purpose was
only to pay the partnership obligation. She could have
negotiated a loan if she wanted to pay it by placing the
properties as security, but preferred to sell them even
at such low price because of her close relationship
with the purchasers and creditors who conveniently
organized a partnership to exploit them, as may be
seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a
grandaughter of Jose P. Yutivo, founder of the
defendant Yutivo Sons Hardware Co. YUTIVO SONS
HARDWARE CO. and SING, YEE & CUAN CO., INC.,
alleged creditors, are owned by the heirs of Jose P.
Yutivo (Sing, Yee & Cuan are the three children of
Jose). YU KHE THAI is a grandson of the same Jose
P. Yutivo, and president of the two alleged creditors.
He is the acknowledged head of the Yu families.
WASHINGTON Z. SYCIP, one of the original buyers,
is married to Ana Yu, a daughter of Yu Khe Thai.
BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR
DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the
partnership properties. Its incorporators were: Ana Yu
and Betty Y. Lee, Attys. Quisumbing and Salazar, the
lawyers who studied the papers of the sale and have
been counsel for the Yutivo interests; Dalton Chen, a
brother-in-law of Yu Khe Thai and an executive of
Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng
Poh, an executive of Yutivo Sons Hardware, and
Simeon Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the
creditors, who were close relatives of Kong Chai Pin,
have already conceived the idea of possessing the
lands for purposes of subdivision, excluding
Goquilolay from their plan, and this is evident from the
following sequence of events;lawphil.net 3. ID.; PROHIBITION AGAINST BROKERS TO BUY
Tan Sin An died in 1942 and intestate proceedings AND SELL SHARES ON THEIR OWN ACCOUNT.
were opened in 1944. In 1946, the creditors of the The order of the Bureau of Commerce of December 7,
partnership filed their claim against the partnership in 1933, prohibits brokers from buying and selling shares
the intestate proceedings. The creditors studied ways on their own account. The second paragraph of the
and means of liquidating the obligation of the articles of partnership of Hill & Ceron reads in part:
partnership, leading to the formation of the defendant "Second: That the purpose or object for which this
Insular Development Co., composed of members of copartnership is organized is to engage in the
the Yutivo family and the counsel of record of the business of brokerage in general, such as stock and
defendants, which subsequently bought the properties bond brokers, real brokers, investment security
of the partnership and assumed the obligation of the brokers, shipping brokers, and other activities
latter in favor of the creditors of the partnership, Yutivo pertaining to the business of brokers in general." The
Sons Hardware and Sing, Yee & Cuan, also of the kind of business in which the partnership Hill & Ceron
Yutivo family. The buyers took time to study the is to engage being thus determined, none of the two
commercial potentialities of the partnership properties partners, under article 130 of the Code of Commerce,
and their lawyers carefully studied the document and may legally engage in the business of brokerage in
other papers involved in the transaction. All these general as stock brokers, security brokers and other
steps led finally to the sale of the three partnership activities pertaining to the business of the partnership.
properties. C. therefore, could not have entered into the contract
UPON THE STRENGTH OF THE FOREGOING of sale of shares with L as a private individual, but as a
CONSIDERATIONS, I vote to grant the motion for managing partner of Hill & Ceron.
reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur. 4. ID.; CONTRACT WITH THIRD PERSON IN GOOD
FAITH AGAINST THE WILL OF ONE OF MANAGING
PARTNERS. Under article 130 of the Code of
George Litton vs Hill and Ceron Apr 25 1939 Commerce, when, not only without the consent but
GEORGE LITTON, Petitioner-Appellant, v. HILL & against the will of any of the managing partners, a
CERON, ET AL., Respondents-Appellees. contract is entered into with a third person who acts in
good faith, and the transaction is of the kind of
SYLLABUS business in which the partnership is engaged, as in the
1. COMMERCIAL LAW; DISSOLUTION OF A present case, said contract shall not be annulled,
COMMERCIAL ASSOCIATION; EFFECT UPON A without prejudice to the liability of the guilty partner.
THIRD PERSON. Under article 226 of the Code of The reason or purpose behind these legal provisions is
Commerce, the dissolution of a commercial no other than to protect a third person who contracts
association shall not cause any prejudice to third with one of the managing partners of the partnership,
parties until it has been recorded in the commercial thus avoiding fraud and deceit to which he may easily
registry. The Supreme Court of Spain held that the fall a victim without this protection which the Code of
dissolution of a partnership by the will of the partners Commerce wisely provides.
which is not registered in the commercial registry, does
not prejudice third persons. This is a petition to review on certiorari the decision of
the Court of Appeals in a case originating from the
2. ID.; ID.; RIGHT OF THIRD PERSON TO PRESUME Court of First Instance of Manila wherein the herein
THAT PARTNER WITH WHOM HE CONTRACTS petitioner George Litton was the plaintiff and the
HAS CONSENT OF COPARTNER. The stipulation respondents Hill & Ceron, Robert Hill Carlos Ceron
in the articles of partnership that any of the two and Visayan Surety Insurance Corporation were
managing partners may contract and sign in the name defendants. The facts are as follows: On February 14,
of the partnership with the consent of the other, 1934, the plaintiff sold and delivered to Carlos Ceron,
undoubtedly creates an obligation between the two who is one of the managing partners of Hill & Ceron, a
partners, which consists in asking the others consent certain number of mining claims, and by virtue of said
before contracting for the partnership. This obligation transaction, the defendant Carlos Ceron delivered to
of course is not imposed upon a third person who the plaintiff a document reading as follows:jgc:
contracts with the partnership. Neither is it necessary "Feb. 14, 1934
for the third person to ascertain if the managing "Received from Mr. George Litton share certificates
partner with whom he contracts has previously Nos. 4428, 4429 and 6699 for 5,000, 5,000 and 7,000
obtained the consent of the other. A third person may shares respectively total 17,000 shares of Big
and has a right to presume that the partner with whom Wedge Mining Company, which we have sold at P0.11
he contracts has, in the ordinary and natural course of (eleven centavos) per share or P1,870.00 less 1/2 per
business, the consent of his copartner; for otherwise cent brokerage.
he would not enter into the contract. The third person "HILL & CERON
would naturally not presume that the partner with "By: (Sgd.) CARLOS CERON"
whom he enters into the transaction is violating the
articles of partnership but, on the contrary, is acting in Ceron paid to the plaintiff the sum of P1,150 leaving
accordance therewith. And this finds support in the an unpaid balance of P720, and unable to collect this
legal presumption that the ordinary course of business sum either from Hill & Ceron or from its surety Visayan
has been followed (No. 18, section 334, Code of Civil Surety & Insurance Corporation, Litton filed a
Procedure), and that the law has been obeyed (No. complaint in the Court of First Instance of Manila
31, section 334). This last presumption is equally against the said defendants for the recovery of the
applicable to contracts which have the force of law said balance. The court, after trial, ordered Carlos
between the parties. Unless the contrary is shown, Ceron personally to pay the amount claimed and
namely, that one of the partners did not consent to his absolved the partnership Hill & Ceron, Robert Hill and
copartner entering into a contract with a third person, the Visayan Surety & Insurance Corporation. On
and that the latter with knowledge thereof entered into appeal to the Court of Appeals, the latter affirmed the
said contract, the aforesaid presumption with all its decision of the court on May 29, 1937, having reached
force and legal effects should be taken into account. the conclusion that Ceron did not intend to represent
There is nothing in the case at bar which destroys this and did not act for the firm Hill & Ceron in the
presumption. transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion
arrived at by the Court of Appeals as to the question of
fact just mentioned, namely, that Ceron individually
entered into the transaction with the plaintiff, but in
view, however, of certain undisputed facts and of
certain regulations and provisions of the Code of
Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be
understood in law as effected by Hill & Ceron and
binding upon it.
In the first place, it is an admitted fact by Robert Hill
when he testified at the trial that he and Ceron, during
the partnership, bad the same power to buy and sell;
that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date
of the transaction, February 14, 1934, the partnership
between Hill and Ceron was in existence. After this
date, or on February 19th, Hill & Ceron sold shares of
the Big Wedge; and when the transaction was entered
into with Litton, it was neither published in the
newspapers nor stated in the commercial registry that
the partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he
had a conversation with the plaintiff in the course of
which he-advised the latter not to deliver shares for
sale or on commission to Ceron because the
partnership was about to be dissolved; but what
importance can be attached to said advice if the
partnership was not in fact dissolved on February 14th,
the date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the
dissolution of a commercial association shall not cause
any prejudice to third parties until it has been recorded
in the commercial registry. (See also Cardell v.
Maeru, 14 Phil., 368.) The Supreme Court of Spain
held that the dissolution of a partnership by the will of
the partners which is not registered in the commercial
registry, does not prejudice third persons. (Opinion of
March 23,1885.)
Aside from the aforecited legal provisions, the order of
the Bureau of Commerce of December 7, 1933,
prohibits brokers from buying and selling shares on
their own account. Said order reads
"The stock and/or bond broker is, therefore, merely an
agent or an intermediary, and as such, shall not be
allowed . . . broKerage in general as stock brokers, security copartner; for otherwise he would not enter into the
"(c) To buy or to sell shares of stock or bonds on his
own account for purposes of speculation and/or for
manipulating the market, irrespective of whether the
purchase or sale is made from or to a private
individual, broker or brokerage firm."cralaw virtua1aw
library
In its decision the Court of Appeals states:jgc
"But there is stronger objection to the plaintiffs attempt
to make the firm responsible to him. According to the
articles of copartnership of Hill & Ceron, filed in the
Bureau of Commerce:jgc:
"Sixth. That the management of the business affairs of
the copartnership shall be entrusted to both copartners
who shall jointly administered the business affairs,
transactions and activities of the copartnership, shall
jointly open a current account or any other kind of
account in any bank or banks, shall jointly sign all
checks for the withdrawal of funds and shall jointly or
singly sign, in the latter case, with the consent of the
other partner. . ."cralaw virtua1aw library
"Under this stipulation, a written contract of the firm the filing of the complaint, minus the commission of
can only be signed by one of the partners if the other one-half per cent (%) from the original price of
partner consented. Without the consent of one partner, P1,870, with the costs to the respondents. So
the other cannot bind the firm by a written contract. ordered.
Now, assuming for the moment that Ceron attempted
to represent the firm in this contract with the plaintiff Avancea, C.J., Villa-Real, Imperial, Diaz, Laurel and
(the plaintiff conceded that the firm name was not Moran, JJ., concur.
mentioned at that time), the latter has failed to prove
that Hill had consented to such contract."cralaw A motion has been presented in this case by Robert
virtua1aw library Hill, one of the defendants sentenced in our decision
to pay to the plaintiff the amount claimed in his
It follows from the sixth paragraph of the article of complaint. It is asked that we reconsider our decision,
partnership of Hill & Ceron above quoted that the the said defendant insisting that the appellant had not
management of the business of the partnership has established that Carlos Ceron, another of the
been entrusted to both partners thereof, but we dissent defendants, had the consent of his copartner, the
from the view of the Court of Appeals that for one of movant, to enter with the appellant into the contract
the partners to bind the partnership the consent of the whose breach gave rise to the complaint. It is argued
other is necessary. Third persons, like the plaintiff, are that, it being stipulated in the articles of partnership
not bound in entering into a contract with any of the that Hill and Ceron, only partners of the firm Hill &
two partners, to ascertain made has the consent of the Ceron, would, as managers, have the management of
partner. The public need to make inquiries as to the the business of the partnership, and that either may
agreements had between the partners. Its knowledge contract and sign for the partnership ,with the consent
is enough that it is contracting with the partnership of the other; the articles of partnership having been, so
which is represented by one of the managing it is said, recorded in the commercial registry, the
partners. appellant could not ignore the fact that the consent of
"There is a general presumption that each individual the movant was necessary for the validity of the
partner is an authorized agent for the firm and that he contract which he had with the other partner and
has authority to bind the firm in carrying on the defendant, Ceron, and there being no evidence that
partnership transactions." (Mills v. Riggle, 112 Pac., said consent had been obtained, the complaint to
617.) compel compliance with the said contract had to be, as
"The presumption is sufficient to permit third persons it must be in fact, a procedural failure.
to hold the firm liable on transactions entered into by
one of members of the firm acting apparently in its Although this question has already been considered
behalf and within the scope of his authority." (Le Roy and settled in our decision, we nevertheless take
v. Johnson, 7 U. S. [Law. ed. ], 391.) cognizance of the motion in order to enlarge upon our
views on the matter.
The second paragraph of the articles of partnership of
Hill & Ceron reads in part:jgc: The stipulation in the articles of partnership that any of
the two managing partners may contract and sign in
"Second: That the purpose or object for which this the name of the partnership with the consent of the
copartnership is organized is to engage in the other, undoubtedly creates an obligation between the
business of brokerage in general, such as stock and two partners, which consists in asking the others
bond brokers, real brokers, investment security consent before contracting for the partnership. This
brokers, shipping brokers, and other activities obligation of course is not imposed upon a third person
pertaining to the business of brokers in general."cralaw who contracts with the partnership. Neither is it
virtua1aw library necessary for the third person to ascertain if the
managing partner with whom he contracts has
The kind of business in which the partnership Hill & previously obtained the consent of the other. A third
Ceron is to engage being thus determined, none of the person may and has a right to presume that the
two partners, under article 130 of the Code of partner with whom he contracts has, in the ordinary
Commerce, may legally engage in the business of and natural course of business, the consent of his
brokers and other activities pertaining to the business contract. The third person would naturally not presume
of the partnership. Ceron, therefore, could not have that the partner with whom he enters into the
entered into the contract of sale of shares with Litton transaction is violating the articles of partnership but,
as a private individual, but as a managing partner of on the contrary, is acting in accordance therewith. And
Hill & Ceron. this finds support in the legal presumption that the
ordinary course of business has been followed (No.
The respondent argues in its brief that even admitting 18, section 334, Code of Civil Procedure), and that the
that one of the partners could not, in his individual law has been obeyed (No. 31, section 334). This last
capacity, engage in a transaction similar to that in presumption is equally applicable to contracts which
which the partnership is engaged without binding the have the force of law between the parties.
latter, nevertheless there is no law which prohibits a
partner in the stock brokerage business for engaging Wherefore, unless the contrary is shown, namely, that
in other transactions different from those of the one of the partners did not consent to his copartner
partnership, as it happens in the present case, entering into a contract with a third person, and that
because the transaction made by Ceron is a mere the latter with knowledge thereof entered into said
personal loan, and this argument, so it is said, is contract, the aforesaid presumption with all its force
corroborated by the Court of Appeals. We do not find and legal effects should be taken into account.
this alleged corroboration because the only finding of
fact made by the Court of Appeals is to the effect that There is nothing in the case at bar which destroys this
the transaction made by Ceron with the plaintiff was in presumption; the only thing appearing in the findings of
his individual capacity. fact of the Court of Appeals is that the plaintiff "has
failed to prove that Hill had consented to such
The appealed decision is reversed and the defendants contract." According to this, it seems that the Court of
are ordered to pay to the plaintiff, jointly and severally, Appeals is of the opinion that the two partners should
the sum of P720, with legal interest, from the date of give their consent to the contract and that the plaintiff
should prove it. The clause of the articles of
partnership should not be thus understood, for it
means that one of the two partners should have the
consent of the other to contract for the partnership,
which is different; because it is possible that one of the
partners may not see any prospect in a transaction,
but he may nevertheless consent to the realization
thereof by his copartner in reliance upon his skill and
ability or otherwise. And here we have to hold once
again that it is not the plaintiff who, under the articles
of partnership, should obtain and prove the consent of
Hill, but the latters partner, Ceron, should he file a
complaint against the partnership for compliance with
the contract; but in the present case, it is a third
person, the plaintiff, who asks for it. While the said
presumption stands, the plaintiff has nothing to prove.
Passing now to another aspect of the case, had Ceron
in any way stated to the appellant at the time of the
execution of the contract, or if it could be inferred by
his conduct, that he had the consent of Hill, and should
it turn out later that he did not have such consent, this
alone would not annul the contract judging from the
provisions of article 130 of the Code of Commerce
reading as follows:jgc:
"No new obligation shall be contracted against the will
of one of the managing partners, should he have
expressly stated it; but if, however, it should be
contracted it shall not be annulled for this reason, and
shall have its effects without prejudice to the liability of
the partner or partners who contracted it to reimburse
the firm for any loss occasioned by reason thereof."
(Emphasis ours.)
Under the aforequoted provisions, when, not only
without the consent but against the will of any of the
managing partners, a contract is entered into with a
third person who acts in good faith, and the transaction
is of the kind of business in which the partnership is
engaged, as in the present case, said contract shall
not be annulled, without prejudice to the liability of the
guilty partner.
The reason or purpose behind these legal provisions is
no other than to protect a third person who contracts
with one of the managing partners of the partnership,
thus avoiding fraud and deceit to which he may easily
fall a victim without this protection which the Code of
Commerce wisely provides.
If we are to interpret the articles of partnership in
question by holding that it is the obligation of the third
person to inquire whether the managing copartner of
the one with whom he contracts has given his consent
to said contract, which is practically casting upon him
the obligation to get such consent, this interpretation
would, in similar cases, separate to hinder effectively
the transactions, a thing not desirable and contrary to
the nature of business which requires promptness and
dispatch on the basis of good faith and honesty which
are always presumed.
In view of the foregoing, and sustaining the other
views expressed in the decision, the motion is denied.
So ordered.
Art 1819-1827
Villarosa and Partners vs Herminio Benito Aug 5 1999
E. B. VILLAROSA & PARTNER CO.,
LTD., petitioner, vs.HON. HERMINIO I. BENITO, in
his capacity as Presiding Judge, RTC, Branch 132,
Makati City
and IMPERIAL DEVELOPMENT
Before this Court is a petition for certiorari and
prohibition with prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction
seeking to annul and set aside the Orders dated
August 5, 1998 and November 20, 1998 of the public
respondent Judge Herminio I. Benito of the Regional
Trial Court of Makati City, Branch 132 and praying that
the public respondent court be ordered to desist from
further proceeding with Civil Case No. 98-824.
Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited
partnership with principal office address at 102 Juan
Luna St., Davao City and with branch offices at 2492
Bay View Drive, Tambo, Paraaque, Metro Manila and
Kolambog, Lapasan, Cagayan de Oro City. Petitioner
and private respondent executed a Deed of Sale with
Development Agreement wherein the former agreed to
develop certain parcels of land located at Barrio
Carmen, Cagayan de Oro belonging to the latter into a
housing subdivision for the construction of low cost
housing units. They further agreed that in case of
litigation regarding any dispute arising therefrom, the
venue shall be in the proper courts of Makati.
On April 3, 1998, private respondent, as plaintiff, filed
a Complaint for Breach of Contract and Damages
against petitioner, as defendant, before the Regional
Trial Court of Makati allegedly for failure of the latter to
comply with its contractual obligation in that, other than
a few unfinished low cost houses, there were no
substantial developments therein.1
Summons, together with the complaint, were served
upon the defendant, through its Branch Manager Engr.
Wendell Sabulbero at the stated address at Kolambog,
Lapasan, Cagayan de Oro City2 but the Sheriff's
Return of Service3stated that the summons was duly
served "upon defendant E.B. Villarosa & Partner Co.,
Ltd. thru its Branch Manager Engr. WENDELL
SALBULBERO on May 5, 1998 at their new office Villa
Gonzalo, Nazareth, Cagayan de Oro City, and
evidenced by the signature on the face of the original
copy of the summons.1wphi1.nt
On June 9, 1998, defendant filed a Special
Appearance with Motion to Dismiss4 alleging that on
May 6, 1998, "summons intended for defendant" was
served upon Engr. Wendell Sabulbero, an employee of
defendant at its branch office at Cagayan de Oro City.
Defendant prayed for the dismissal of the complaint on
the ground of improper service of summons and for
lack of jurisdiction over the person of the defendant.
Defendant contends that the trial court did not acquire
jurisdiction over its person since the summons was
improperly served upon its employee in its branch
office at Cagayan de Oro City who is not one of those
persons named in Section 11, Rule 14 of the 1997
Rules of Civil Procedure upon whom service of
summons may be made.
Meanwhile, on June 10, 1998, plaintiff filed a Motion to
Declare Defendant in Default5 alleging that defendant
has failed to file an Answer despite its receipt allegedly
on May 5, 1998 of the summons and the complaint, as
shown in the Sheriffs Return.
On June 22, 1998, plaintiff filed an Opposition to
Defendant's Motion to Dismiss6 alleging that the
records show that defendant, through its branch
manager, Engr. Wendell Sabulbero actually received
the summons and the complaint on May 8, 1998 as
evidenced by the signature appearing on the copy of
the summons and not on May 5, 1998 as stated in the
Sheriffs Return nor on May 6, 1998 as stated in the
motion to dismiss; that defendant has transferred its
office from Kolambog, Lapasan, Cagayan de Oro to its
new office address at Villa Gonzalo, Nazareth,
Cagayan de Oro; and that the purpose of the rule is to
bring home to the corporation notice of the filing of the
action.
On August 5, 1998, the trial court issued an
Order7 denying defendant's Motion to Dismiss as well
as plaintiffs Motion to Declare Defendant in Default.
Defendant was given ten (10) days within which to file
a responsive pleading. The trial court stated that since
the summons and copy of the complaint were in fact
received by the corporation through its branch
manager Wendell Sabulbero, there was substantial
compliance with the rule on service of summons and
consequently, it validly acquired jurisdiction over the
person of the defendant.
On August 19, 1998, defendant, by Special
Appearance, filed a Motion for
Reconsideration8 alleging that Section 11, Rule 14 of
the new Rules did not liberalize but, on the contrary,
restricted the service of summons on persons
enumerated therein; and that the new provision is very
specific and clear in that the word "manager" was
changed to "general manager", "secretary" to
"corporate secretary", and excluding therefrom agent
and director.
On August 27, 1998, plaintiff filed an Opposition to
defendant's Motion for Reconsideration9 alleging that
defendant's branch manager "did bring home" to the
defendant-corporation the notice of the filing of the
action and by virtue of which a motion to dismiss was
filed; and that it was one (1) month after receipt of the
summons and the complaint that defendant chose to
file a motion to dismiss.
On September 4, 1998, defendant, by Special
Appearance, filed a Reply10 contending that the
changes in the new rules are substantial and not just
general semantics.
Defendant's Motion for Reconsideration was denied in
the Order dated November 20, 1998.11
Hence, the present petition alleging that respondent
court gravely abused its discretion tantamount to lack
or in excess of jurisdiction in denying petitioner's
motions to dismiss and for reconsideration, despite the
fact that the trial court did not acquire jurisdiction over
the person of petitioner because the summons
intended for it was improperly served. Petitioner
invokes Section 11 of Rule 14 of the 1997 Rules of
Civil Procedure.
Private respondent filed its Comment to the
petition citing the cases Kanlaon Construction
Enterprises Co., Inc. vs.NLRC12 wherein it was held
that service upon a construction project manager is
valid and in Gesulgon vs. NLRC13which held that a
corporation is bound by the service of summons upon
its assistant manager.
The only issue for resolution is whether or not the trial
court acquired jurisdiction over the person of petitioner
upon service of summons on its Branch Manager.
When the complaint was filed by Petitioner on April 3,
1998, the 1997 Rules of Civil Procedure was already
in force.14
Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure
provides that:
When the defendant is a corporation, partnership or
association organized under the laws of the
Philippines with a juridical personality, service may be
made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house
counsel. (emphasis supplied).
This provision revised the former Section 13, Rule 14
of the Rules of Court which provided that:
Sec. 13. Service upon private domestic corporation or
partnership. If the defendant is a corporation
organized under the laws of the Philippines or a
partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent, or
any of its directors. (emphasis supplied).
Petitioner contends that the enumeration of persons to
whom summons may be served is "restricted, limited
and exclusive" following the rule on statutory
construction expressio unios est exclusio alterius and
argues that if the Rules of Court Revision Committee
intended to liberalize the rule on service of summons,
it could have easily done so by clear and concise
language.
We agree with petitioner.
Earlier cases have uphold service of summons upon a
construction project manager15; a corporation's
assistant manager16; ordinary clerk of a corporation17;
private secretary of corporate executives18; retained
counsel19; officials who had charge or control of the
operations of the corporation, like the assistant general
manager20; or the corporation's Chief Finance and
Administrative Officer21. In these cases, these persons
were considered as "agent" within the contemplation of
the old rule.22 Notably, under the new Rules, service of
summons upon an agent of the corporation is no
longer authorized.
The cases cited by private respondent are therefore
not in point.
In the Kanlaon case, this Court ruled that under the
NLRC Rules of Procedure, summons on the
respondent shall be served personally or by registered
mail on the party himself; if the party is represented by
counsel or any other authorized representative or
agent, summons shall be served on such person. In
said case, summons was served on one Engr. Estacio
who managed and supervised the construction project
in Iligan City (although the principal address of the
corporation is in Quezon City) and supervised the work
of the employees. It was held that as manager, he had
sufficient responsibility and discretion to realize the
importance of the legal papers served on him and to
relay the same to the president or other responsible
officer of petitioner such that summons for petitioner
was validly served on him as agent and authorized
representative of petitioner. Also in the Gesulgon case
cited by private respondent, the summons was
received by the clerk in the office of the Assistant
Manager (at principal office address) and under
Section 13 of Rule 14 (old rule), summons may be
made upon the clerk who is regarded as agent within
the contemplation of the rule.
The designation of persons or officers who are
authorized to accept summons for a domestic
corporation or partnership is now limited and more
clearly specified in Section 11, Rule 14 of the 1997
Rules of Civil Procedure. The rule now states "general
manager" instead of only "manager"; "corporate
secretary" instead of "secretary"; and "treasurer"
instead of "cashier." The phrase "agent, or any of its
directors" is conspicuously deleted in the new rule.
The particular revision under Section 11 of Rule 14
was explained by retired Supreme Court Justice
Florenz Regalado, thus:23
. . . the then Sec. 13 of this Rule allowed service upon
a defendant corporation to "be made on the president,
manager, secretary, cashier, agent or any of its
directors." The aforesaid terms were obviously
ambiguous and susceptible of broad and sometimes
illogical interpretations, especially the word "agent" of
the corporation. The Filoil case, involving the litigation
lawyer of the corporation who precisely appeared to
challenge the validity of service of summons but
whose very appearance for that purpose was seized
upon to validate the defective service, is an illustration
of the need for this revised section with limited scope
and specific terminology. Thus the absurd result in the
Filoil case necessitated the amendment permitting
service only on the in-house counsel of the corporation
who is in effect an employee of the corporation, as
distinguished from an independent practitioner.
(emphasis supplied).
Retired Justice Oscar Herrera, who is also a
consultant of the Rules of Court Revision Committee,
stated that "(T)he rule must be strictly observed.
Service must be made to one named in (the) statute . .
. .24
It should be noted that even prior to the effectivity of
the 1997 Rules of Civil Procedure, strict compliance
with the rules has been enjoined. In the case of Delta
Motor Sales Corporation vs. Mangosing,25 the Court
held:
A strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made
must be one who is named in the statute; otherwise
the service is insufficient. . . .
The purpose is to render it reasonably certain that the
corporation will receive prompt and proper notice in an
action against it or to insure that the summons be
served on a representative so integrated with the
corporation that such person will know what to do with
the legal papers served on him. In other words, "to
bring home to the corporation notice of the filing of the
action." . . . .
The liberal construction rule cannot be invoked and
utilized as a substitute for the plain legal requirements
as to the manner in which summons should be served
on a domestic corporation. . . . . (emphasis supplied).
Service of summons upon persons other than those
mentioned in Section 13 of Rule 14 (old rule) has been
held as improper.26 Even under the old rule, service
upon a general manager of a firm's branch office has
been held as improper as summons should have been
served at the firm's principal office. In First Integrated
Bonding & Inc. Co., Inc. vs. Dizon,27 it was held that
the service of summons on the general manager of the
insurance firm's Cebu branch was improper; default
order could have been obviated had the summons
been served at the firm's principal office.
And in the case of Solar Team Entertainment, Inc. vs.
Hon. Helen Bautista Ricafort, et al.28 the Court
succinctly clarified that, for the guidance of the Bench
and Bar, "strictest" compliance with Section 11 of Rule
13 of the 1997 Rules of Civil Procedure (on Priorities
in modes of service and filing) is mandated and the
Court cannot rule otherwise, lest we allow
circumvention of the innovation by the 1997 Rules in
order to obviate delay in the administration of justice.
Accordingly, we rule that the service of summons upon
the branch manager of petitioner at its branch office at
Cagayan de Oro, instead of upon the general manager
at its principal office at Davao City is improper.
Consequently, the trial court did not acquire jurisdiction
over the person of the petitioner.
The fact that defendant filed a belated motion to
dismiss did not operate to confer jurisdiction upon its
person. There is no question that the defendant's
voluntary appearance in the action is equivalent to
service of summons.29Before, the rule was that a party
may challenge the jurisdiction of the court over his
person by making a special appearance through a
motion to dismiss and if in the same motion, the
movant raised other grounds or invoked affirmative
relief which necessarily involves the exercise of the
jurisdiction of the court.30 This doctrine has been
abandoned in the case of La Naval Drug Corporation
vs. Court of Appeals, et al.,31 which became the basis
of the adoption of a new provision in the former
Section 23, which is now Section 20 of Rule 14 of the
1997 Rules. Section 20 now provides that "the
inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary
appearance." The emplacement of this rule clearly
underscores the purpose to enforce strict enforcement
of the rules on summons. Accordingly, the filing of a
motion to dismiss, whether or not belatedly filed by the
defendant, his authorized agent or attorney, precisely
objecting to the jurisdiction of the court over the person
of the defendant can by no means be deemed a
submission to the jurisdiction of the court. There being
no proper service of summons, the trial court cannot
take cognizance of a case for lack of jurisdiction over
the person of the defendant. Any proceeding
undertaken by the trial court will consequently be null
and void.32
WHEREFORE, the petition is hereby GRANTED. The
assailed Orders of the public respondent trial court are
ANNULLED and SET ASIDE. The public respondent
Regional Trial Court of Makati, Branch 132 is declared
without jurisdiction to take cognizance of Civil Case
No. 98-824, and all its orders and issuances in
connection therewith are hereby ANNULLED and SET
ASIDE.1wphi1.nt
Munasque vs CA 139 SCRA 533 1985
ELMO MUASQUE, petitioner,
vs.nCOURT OF APPEALS,CELESTINO GALAN
TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents.
In this petition for certiorari, the petitioner seeks to
annul and set added the decision of the Court of
Appeals affirming the existence of a partnership
between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the
two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from
the liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for
payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent
Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging
or expecting any consideration from Galan although
the latter was casually named as partner in the
contract; that by virtue of his having introduced the
petitioner to the employing company (Tropical). Galan
would receive some kind of compensation in the form
of some percentages or commission; that Tropical,
under the terms of the contract, agreed to give
petitioner the amount of P7,000.00 soon after the
construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00; that
on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a
stranger to the contract, Galan, who succeeded in
getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a
joint account; that on January 26, 1967 when the
second check for P6,000.00 was due, petitioner
refused to indorse said cheek presented to him by
Galan but through later manipulations, respondent
Pons succeeded in changing the payee's name from
Elmo Muasque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch
of the Philippine Commercial and Industrial Bank
(PCIB) placing the petitioner in great financial difficulty
in his construction business and subjecting him to
demands of creditors to pay' for construction materials,
the payment of which should have been made from
the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense
completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of
P13,000.00 to Galan petitioner demanded that said
amount be paid to him by respondents under the terms
of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying
some and admitting some of the material averments
and setting up counterclaims.
During the pre-trial conference, the petitioners and
respondents agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between
Celestino Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on
the part of respondent Tropical to disburse money to
respondent Galan.
The business firms Cebu Southern Hardware
Company and Blue Diamond Glass Palace were
allowed to intervene, both having legal interest in the
matter in litigation.
After trial, the court rendered judgment, the dispositive
portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to
pay jointly and severally the intervenors Cebu and
Southern Hardware Company and Blue Diamond
Glass Palace the amount of P6,229.34 and P2,213.51,
respectively;
(2) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern
Company and its proprietor, Tan Siu filed motions for
reconsideration.
On January 15, 197 1, the trial court issued 'another
order amending its judgment to make it read as
follows:
IN VIEW WHEREOF, Judgment is hereby rendered
(1) ordering plaintiff Muasque and defendant Galan to
pay jointly and severally the intervenors Cebu
Southern Hardware Company and Blue Diamond
Glass Palace the amount of P6,229.34 and P2,213.51,
respectively,
(2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company and
Tan Siu jointly and severally interest at 12% per
annum of the sum of P6,229.34 until the amount is
fully paid;
(3) ordering plaintiff andefendant Galan to pay
P500.00 representing attorney's fees jointly and
severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment
of the trial court with the sole modification that the
liability imposed in the dispositive part of the decision
on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and
severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner
Muasque in behalf of the partnership of "Galan and
Muasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of
P25,000.00 was to be paid under the contract for the
entire services of the Contractor. The terms of
payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the
balance thereof divided into three equal installments at
the lute of Six Thousand Pesos (P6,000.00) every
fifteen (15) working days.
The first payment made by respondent Tropical was in
the form of a check for P7,000.00 in the name of the
petitioner.Petitioner, however, indorsed the check in
favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and
labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of
the P7,000.00 for his personal use so that when the
second check in the amount of P6,000.00 came and
Galan asked the petitioner to indorse it again, the
petitioner refused.
The check was withheld from the petitioner. Since
Galan informed the Cebu branch of Tropical that there
was a"misunderstanding" between him and petitioner,
respondent Tropical changed the name of the payee in
the second check from Muasque to "Galan and
Associates" which was the duly registered name of the
partnership between Galan and petitioner and under
which name a permit to do construction business was
issued by the mayor of Cebu City. This enabled Galan
to encash the second check.
Meanwhile, as alleged by the petitioner, the
construction continued through his sole efforts. He
stated that he borrowed some P12,000.00 from his
friend, Mr. Espina and although the expenses had
reached the amount of P29,000.00 because of the
failure of Galan to pay what was partly due the
laborers and partly due for the materials, the
construction work was finished ahead of schedule with
the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of
P6,000.00,were subsequently given to the petitioner
alone with the last check being given pursuant to a
court order.
As stated earlier, the petitioner filed a complaint for
payment of sum of money and damages against the
respondents,seeking to recover the following: the
amounts covered by the first and second checks which
fell into the hands of respondent Galan, the additional
expenses that the petitioner incurred in the
construction, moral and exemplary damages, and
attorney's fees.
Both the trial and appellate courts not only absolved
respondents Tropical and its Cebu Manager, Pons,
from any liability but they also held the petitioner
together with respondent Galan, hable to the
intervenors Cebu Southern Hardware Company and
Blue Diamond Glass Palace for the credit which the
intervenors extended to the partnership of petitioner
and Galan
In this petition the legal questions raised by the
petitioner are as follows: (1) Whether or not the
appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2)
Assuming that there was such a partnership, whether
or not the court erred in not finding Galan guilty of
malversing the P13,000.00 covered by the first and
second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not
the court committed grave abuse of discretion in
holding that the payment made by Tropical through its
manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in
holding that he and respondent Galan were partners,
the truth being that Galan was a sham and a perfidious
partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also
contends that the appellate court committed grave
abuse of discretion in holding that the payment made
by Tropical to Galan was "good" payment when the
same gave occasion for the latter to misappropriate
the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a
con-tract with Tropical for the renovation of the latter's
building on behalf of the partnership of "Galan and
Muasque." This is readily seen in the first paragraph
of the contract where it states:
This agreement made this 20th day of December in
the year 1966 by Galan and Muasque hereinafter
called the Contractor, and Tropical Commercial Co.,
Inc., hereinafter called the owner do hereby for and in
consideration agree on the following: ... .
There is nothing in the records to indicate that the
partner-ship organized by the two men was not a
genuine one. If there was a falling out or
misunderstanding between the partners, such does
not convert the partnership into a sham organization.
Likewise, when Muasque received the first payment
of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor
of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were
true partners. If they were not partners as petitioner
claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical
but to their other creditors as well. The payments
made to the partnership were, therefore, valid
payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA
643),we ruled:
Although it may be presumed that Margarita
G. Saldajeno had acted in good faith, the appellees
also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must
suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
No error was committed by the appellate court in
holding that the payment made by Tropical to Galan
was a good payment which binds both Galan and the
petitioner. Since the two were partners when the debts
were incurred, they, are also both liable to third
persons who extended credit to their partnership. In
the case of George Litton v. Hill and Ceron, et al, (67
Phil. 513, 514), we ruled:
There is a general presumption that each individual
partner is an authorized agent for the firm and that he
has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan,
617).
The presumption is sufficient to permit third persons to
hold the firm liable on transactions entered into by one
of members of the firm acting apparently in its behalf
and within the scope of his authority. (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court
committed grave abuse of discretion in not holding
Galan liable for the amounts which he "malversed" to
the prejudice of the petitioner. He adds that although
this was not one of the issues agreed upon by the
parties during the pretrial, he, nevertheless, alleged
the same in his amended complaint which was, duly
admitted by the court.
When the petitioner amended his complaint, it was
only for the purpose of impleading Ramon Pons in his
personal capacity. Although the petitioner made
allegations as to the alleged malversations of Galan,
these were the same allegations in his original
complaint. The malversation by one partner was not
an issue actually raised in the amended complaint but
the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the
delimitation of the issues during the pre-trial because
he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336),
we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the
issues contained in the trial court's order issued on the
very day the pre-trial conference was held. Such an
order controls the subsequent course of the action,
unless modified before trial to prevent manifest
injustice.In the case at bar, modification of the pre-trial
order was never sought at the instance of any party.
Petitioner could have asked at least for a modification
of the issues if he really wanted to include the
determination of Galan's personal liability to their
partnership but he chose not to do so, as he
vehemently denied the existence of the partnership. At
any rate, the issue raised in this petition is the
contention of Muasque that the amounts payable to
the intervenors should be shouldered exclusively by
Galan. We note that the petitioner is not solely
burdened by the obligations of their illstarred
partnership. The records show that there is an existing
judgment against respondent Galan, holding him liable
for the total amount of P7,000.00 in favor of Eden
Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to
Universal Lumber.
We, however, take exception to the ruling of the
appellate court that the trial court's ordering petitioner
and Galan to pay the credits of Blue Diamond and
Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to
third persons for contracts executed inconnection with
partnership business is only pro rata under Art. 1816,
of the Civil Code.
While it is true that under Article 1816 of the Civil
Code,"All partners, including industrial ones, shall be
liable prorate with all their property and after all the
partnership assets have been exhausted, for the
contracts which may be entered into the name and fm
the account cd the partnership, under its signature and
by a person authorized to act for the partner-ship. ...".
this provision should be construed together with Article
1824 which provides that: "All partners are liable
solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and
1823." In short, while the liability of the partners are
merely joint in transactions entered into by the
partnership, a third person who transacted with said
partnership can hold the partners solidarily liable for
the whole obligation if the case of the third person falls
under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of
any partner acting in the ordinary course of the
business of the partner-ship or with the authority of his
co-partners, loss or injury is caused to any person, not
being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a
third person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and t he
money or property so received is misapplied by any
partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects
him, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent.
That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the
legal entity which is the partnership, are solidarily
liable.
In the case at bar the respondent Tropical had every
reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be
imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because
as far as it was concerned, Galan was a true partner
with real authority to transact on behalf of the
partnership with which it was dealing. This is even
more true in the cases of Cebu Southern Hardware
and Blue Diamond Glass Palace who supplied
materials on credit to the partnership. Thus, it is but
fair that the consequences of any wrongful act
committed by any of the partners therein should be
answered solidarily by all the partners and the
partnership as a whole
However. as between the partners Muasque and
Galan,justice also dictates that Muasque be
reimbursed by Galan for the payments made by the
former representing the liability of their partnership to
herein intervenors, as it was satisfactorily established
that Galan acted in bad faith in his dealings with
Muasque as a partner.
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the liability
of petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is
declared to be joint and solidary. Petitioner may
recover from respondent Galan any amount that he
pays, in his capacity as a partner, to the above
intervenors,
JT Investment Cor vs Sps Benjamin and Eleanor Ang rates and cost of building materials constitute force
Sept 8 2010 majeure and were beyond its control; that aware of its
J. TIOSEJO INVESTMENT CORP., PETITIONER, VS. responsibilities, it offered several alternatives to its
SPOUSES BENJAMIN AND ELEANOR ANG, buyers like respondents for a transfer of their
RESPONDENTS. investment to its other feasible projects and for the
amounts they already paid to be considered as partial
Filed pursuant to Rule 45 of the 1997 Rules of Civil payment for the replacement unit/s; and, that the
Procedure, the petition for review at bench seeks the complaint was prematurely filed in view of the on-going
reversal of the Resolutions dated 23 May 2006 and 9 negotiations it is undertaking with its buyers and
August 2006 issued by the Third Division of the Court prospective joint venture partners. Aside from the
of Appeals (CA) in CA-G.R. SP No. 93841 which, dismissal of the complaint, PPGI sought the
respectively, dismissed the petition for review of readjustment of the contract price and the grant of its
petitioner J. Tiosejo Investment Corp. (JTIC) for having counterclaims for attorney's fees and litigation
been filed out of time[1] and denied the motion for expenses.[11]
reconsideration of said dismissal.[2]
The Facts Petitioner also specifically denied the material
allegations of the complaint in separate answer dated
On 28 December 1995 petitioner entered into a Joint 5 February 2002[12] which it amended on 20 May
Venture Agreement (JVA) with Primetown Property 2002. Calling attention to the fact that its prestation
Group, Inc. (PPGI) for the development of a residential under the JVA consisted in contributing the property
condominium project to be known as The Meditelon on which The Meditel was to be constructed, petitioner
the former's 9,502 square meter property along Samat asseverated that, by the terms of the JVA, each party
St., Highway Hills, Mandaluyong City.[3] With petitioner was individually responsible for the marketing and sale
contributing the same property to the joint venture and of the units pertaining to its share; that not being privy
PPGI undertaking to develop the condominium, the to the Contracts to Sell executed by PPGI and
JVA provided, among other terms and conditions, that respondents, it did not receive any portion of the
the developed units shall be shared by the former and payments made by the latter; and, that without any
the latter at a ratio of 17%-83%, respectively.[4] While contributory fault and negligence on its part, PPGI
both parties were allowed, at their own individual breached its undertakings under the JVA by failing to
responsibility, to pre-sell the units pertaining to complete the condominium project. In addition to the
them,[5] PPGI further undertook to use all proceeds dismissal of the complaint and the grant of its
from the pre-selling of its saleable units for the counterclaims for exemplary damages, attorney's fees,
completion of the Condominium Project." [6] litigation expenses and the costs, petitioner interposed
a cross-claim against PPGI for full reimbursement of
On 17 June 1996, the Housing and Land Use any sum it may be adjudged liable to pay
Regulatory Board (HLURB) issued License to Sell No. respondents.[13]
96-06-2854 in favor of petitioner and PPGI as project
owners.[7] By virtue of said license, PPGI Acting on the position papers and draft decisions
executedContract to Sell No. 0212 with Spouses subsequently submitted by the parties,[14] Housing and
Benjamin and Eleanor Ang on 5 February 1997, over Land Use (HLU) Arbiter Dunstan T. San Vicente went
the 35.45-square meter condominium unit on to render the 30 July 2003 decision declaring the
denominated as Unit A-1006, for the agreed contract subject Contracts to Sell cancelled and rescinded on
price of P52,597.88 per square meter or a total account of the non-completion of the condominium
P2,077,334.25.[8] On the same date PPGI and project. On the ground that the JVA created a
respondents also executed Contract to Sell No. partnership liability on their part, petitioner and PPGI,
0214 over the 12.50 square meter parking space as co-owners of the condominium project, were
identified as Parking Slot No. 0405, for the stipulated ordered to pay: (a) respondents' claim for refund of the
consideration of P26,400.00 square meters or a total P611,519.52 they paid, with interest at the rate of 12%
of P313,500.00.[9] per annum from 5 February 1997; (b) damages in the
sum of P75,000.00; (c) attorney's fees in the sum of
On 21 July 1999, respondents filed against petitioner P30,000.00; (d) the costs; and, (e) an administrative
and PPGI the complaint for the rescission of the fine in the sum of P10,000.00 for violation of Sec. 20 in
aforesaid Contracts to Sell docketed before the relation to Sec. 38 of Presidential Decree No.
HLURB as HLURB Case No. REM 072199-10567. 957. [15]nbsp; Elevated to the HLURB Board of
Contending that they were assured by petitioner and Commissioners via the petition for review filed by
PPGI that the subject condominium unit and parking petitioner,[16] the foregoing decision was modified to
space would be available for turn-over and occupancy grant the latter's cross-claim in the 14 September 2004
in December 1998, respondents averred, among other decision rendered by said administrative body's
matters, that in view of the non-completion of the Second Division in HLURB Case No. REM-A-031007-
project according to said representation, respondents 0240,[17] to wit:
instructed petitioner and PPGI to stop depositing the Wherefore, the petition for review of the respondent
post-dated checks they issued and to cancel said Corporation is dismissed. However, the decision of the
Contracts to Sell; and, that despite several demands, Office below dated July 30, 2003 is modified, hence,
petitioner and PPGI have failed and refused to refund its dispositive portion shall read:
the P611,519.52 they already paid under the Declaring the contracts to sell, both dated February 5,
circumstances. Together with the refund of said 1997, as cancelled and rescinded, and ordering the
amount and interests thereon at the rate of 12% per respondents to immediately pay the complainants the
annum, respondents prayed for the grant of their following:
claims for moral and exemplary damages as well as The amount of P611,519.52, with interest at the legal
attorney's fees and the costs.[10] rate reckoned from February 5, 1997 until fully paid;
Damages of P75,000.00;
Specifically denying the material allegations of the Attorney's fees equivalent to P30,000.00; and
foregoing complaint, PPGI filed its 7 September 1999 The Cost of suit;
answer alleging that the delay in the completion of the Ordering respondents to pay this Office administrative
project was attributable to the economic crisis which fine of P10,000.00 for violation of Section 20 in relation
affected the country at the time; that the unexpected to Section 38 of P.D. 957; and
and unforeseen inflation as well as increase in interest
Ordering respondent Primetown to reimburse the Moreover, lawyers should not assume that their motion compelling reason and in no case to exceed fifteen
entire amount which the respondent Corporation will for extension or postponement will be granted the (15) days." (Underscoring supplied)
be constrained to pay the complainants. length of time they pray for (Ramos vs. Dajoyag, 378
So ordered.[18] SCRA 229 [2002]). The record shows that, having been granted the 15-
day extension sought in its first motion, petitioner filed
With the denial of its motion for reconsideration of the SO ORDERED.[35] a second motion for extension praying for an additional
foregoing decision,[19] petitioner filed a Notice of 10 days from 17 April 2006 within which to file its
Appeal dated 28 February 2005 which was docketed Petitioner's motion for reconsideration of the foregoing petition for review, on the ground that pressures of
before the Office of the President (OP) as O.P. Case resolution[36] was denied for lack of merit in the CA's work and the demands posed by equally important
No. 05-B-072.[20] On 3 March 2005, the OP issued an second assailed 9 August 2006 resolution,[37] hence, cases prevented its counsel from finalizing the same.
order directing petitioner to submit its appeal this petition. As correctly ruled by the CA, however, heavy workload
memorandum within 15 days from receipt thereof.[21] The Issues cannot be considered as a valid justification to
Acting on the motion therefor filed, the OP also issued sidestep the reglementary period[45]since to do so
another order on the same date, granting petitioner a Petitioner seeks the reversal of the assailed would only serve to encourage needless delays and
period of 15 days from 28 February 2005 or until 15 resolutions on the following grounds, to wit: interminable litigations. Indeed, rules prescribing the
March 2005 within which to file its appeal THE COURT OF APPEALS ERRED IN DISMISSING time for doing specific acts or for taking certain
memorandum.[22] In view of petitioner's filing of a THE PETITION ON MERE TECHNICALITY; proceedings are considered absolutely indispensable
second motion for extension dated 15 March THE COURT OF APPEALS ERRED IN REFUSING to prevent needless delays and to orderly and
2005,[23] the OP issued the 18 March 2005 order TO RESOLVE THE PETITION ON THE MERITS promptly discharge judicial business.[46]Corollary to the
granting the former an additional 10 days from 15 THEREBY AFFIRMING THE OFFICE OF THE principle that the allowance or denial of a motion for
March 2005 or until 25 March 2005 within which to file PRESIDENT'S DECISION (A) DISMISSING JTIC'S extension of time is addressed to the sound discretion
its appeal memorandum, "provided no further APPEAL ON A MERE TECHNICALITY; (B) of the court,[47] moreover, lawyers cannot expect that
extension shall be allowed."[24] Claiming to have AFFIRMING THE HLURB BOARD'S DECISION their motions for extension or postponement will be
received the aforesaid 3 March 2005 order only on 16 INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE granted[48] as a matter of course.
March 2005, however, petitioner filed its 31 March WITH PRIMETOWN TO PAY SPOUSES ANG
2005 motion seeking yet another extension of 10 days DAMAGES, ATTORNEY'S FEES AND THE COST Although technical rules of procedure are not ends in
or until 10 April 2005 within which to file its appeal OF THE SUIT; AND (C) AFFIRMING THE HLURB themselves, they are necessary for an effective and
memorandum.[25] BOARD'S DECISION INSOFAR AS IT FAILED TO expeditious administration of justice and cannot, for
AWARD JITC ITS COUNTERCLAIMS AGAINST said reason, be discarded with the mere expediency of
On 7 April 2005, respondents filed their opposition to SPOUSES ANG.[38] claiming substantial merit.[49] This holds particularly
the 31 March 2005 motion for extension of true in the case at bench where, prior to the filing of its
petitioner[26] which eventually filed its appeal The Court's Ruling petition for review before the CA, petitioner's appeal
memorandum by registered mail on 11 April 2005 in before the OP was likewise dismissed in view of its
view of the fact that 10 April 2005 fell on a We find the petition bereft of merit. failure to file its appeal memorandum within the
Sunday.[27] On 25 October 2005, the OP rendered a extensions of time it had been granted by said office.
decision dismissing petitioner's appeal on the ground While the dismissal of an appeal on purely technical After being granted an initial extension of 15 days to
that the latter's appeal memorandum was filed out of grounds is concededly frowned upon,[39] it bears do the same, the records disclose that petitioner was
time and that the HLURB Board committed no grave emphasizing that the procedural requirements of the granted by the OP a second extension of 10 days from
abuse of discretion in rendering the appealed rules on appeal are not harmless and trivial 15 March 2005 or until 25 March 2005 within which to
decision.[28] Aggrieved by the denial of its motion for technicalities that litigants can just discard and file its appeal memorandum, on the condition that no
reconsideration of the foregoing decision in the 3 disregard at will.[40] Neither being a natural right nor a further extensions shall be allowed. Aside from not
March 2006 order issued by the OP,[29] petitioner filed part of due process, the rule is settled that the right to heeding said proviso, petitioner had, consequently, no
before the CA its 29 March 2006 motion for an appeal is merely a statutory privilege which may be more time to extend when it filed its 31 March 2005
extension of 15 days from 31 March 2006 or until 15 exercised only in the manner and in accordance with motion seeking yet another extension of 10 days or
April 2006 within which to file its petition for review.[30] the provisions of the law.[41] The perfection of an until 10 April 2005 within which to file its appeal
Accordingly, a non-extendible period of 15 days to file appeal in the manner and within the period prescribed memorandum.
its petition for review was granted petitioner in the 31 by law is, in fact, not only mandatory but
March 2006 resolution issued by the CA Third Division jurisdictional.[42] Considering that they are With the foregoing procedural antecedents, the initial
in CA-G.R, SP No. 93841.[31] requirements which cannot be trifled with as mere 15-day extension granted by the CA and the injunction
technicality to suit the interest of a party,[43] failure to under Sec. 4, Rule 43 of the 1997 Rules of Civil
Maintaining that 15 April 2006 fell on a Saturday and perfect an appeal in the prescribed manner has the Procedure against further extensions "except for the
that pressures of work prevented its counsel from effect of rendering the judgment final and executory.[44] most compelling reason", it was clearly inexcusable for
finalizing its petition for review, petitioner filed a motion petitioner to expediently plead its counsel's heavy
on 17 April 2006, seeking for an additional time of 10 Fealty to the foregoing principles impels us to discount workload as ground for seeking an additional
days or until 27 April 2006 within which to file said the error petitioner imputes against the CA for denying extension of 10 days within which to file its petition for
pleading.[32] Although petitioner filed by registered mail its second motion for extension of time for lack of merit review. To our mind, petitioner would do well to
a motion to admit its attached petition for review on 19 and dismissing its petition for review for having been remember that, rather than the low gate to which
April 2006,[33] the CA issued the herein assailed 23 filed out of time. Acting on the 29 March 2006 motion parties are unreasonably required to stoop, procedural
May 2006 resolution,[34] disposing of the former's filed for the purpose, after all, the CA had already rules are designed for the orderly conduct of
pending motion for extension as well as the petition granted petitioner an inextendible period of 15 days proceedings and expeditious settlement of cases in
itself in the following wise from 31 March 2006 or until 15 April 2006 within which the courts of law. Like all rules, they are required to be
to file its petition for review. Sec. 4, Rule 43 of followed[50] and utter disregard of the same cannot be
We resolve to DENY the second extension motion and the 1997 Rules of Civil Procedure provides as follows: expediently rationalized by harping on the policy of
rule to DISMISS the petition for being filed late. Sec. 4. Period of appeal. - The appeal shall be taken liberal construction[51] which was never intended as an
within fifteen (15) days from notice of the award, unfettered license to disregard the letter of the law or,
Settled is that heavy workload is by no means judgment, final order or resolution, or from the date of for that matter, a convenient excuse to substitute
excusable (Land Bank of the Philippines vs. Natividad, its last publication, if publication is required by law for substantial compliance for regular adherence thereto.
458 SCRA 441 [2005]). If the failure of the petitioners' its effectivity, or of the denial of petitioner's motion for When it comes to compliance with time rules, the
counsel to cope up with heavy workload should be new trial or reconsideration duly filed in accordance Court cannot afford inexcusable delay.[52]
considered a valid justification to sidestep the with the governing law of the court or agency a quo.
reglementary period, there would be no end to Only one (1) motion for reconsideration shall be Even prescinding from the foregoing procedural
litigations so long as counsel had not been sufficiently allowed. Upon proper motion and payment of the full considerations, we also find that the HLURB Arbiter
diligent or experienced (LTS Philippine Corporation vs. amount of the docket fee before the expiration of the and Board correctly held petitioner liable alongside
Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay reglementary period, the Court of Appeals may grant PPGI for respondents' claims and the P10,000.00
vs. National Labor Relations Commission, 324 SCRA an additional period of fifteen (15) days only within administrative fine imposed pursuant to Section 20 in
188 [2000]). which to file the petition for review. No further relation to Section 38 of P.D. 957. By the express
extension shall be granted except for the most terms of the JVA, it appears that petitioner not only
retained ownership of the property pending completion PHILIPPINE NATIONAL BANK, plaintiff-
of the condominium project[53] but had also bound itself appellee, vsSEVERO EUGENIO LO, ET
to answer liabilities proceeding from contracts entered AL., defendants.
into by PPGI with third parties. Article VIII, Section 1 of SEVERIO EUGENIO LO, NG KHEY LING and YEP
the JVA distinctly provides as follows: SENG, appellants.
"Sec. 1. Rescission and damages. Non-performance
by either party of its obligations under this Agreement On September 29, 1916, the appellants Severo
shall be excused when the same is due to Force Eugenio Lo and Ng Khey Ling, together with J. A. Say
Majeure. In such cases, the defaulting party must Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co
exercise due diligence to minimize the breach and to Sieng Peng formed a commercial partnership under
remedy the same at the soonest possible time. In the the name of "Tai Sing and Co.," with a capital of
event that either party defaults or breaches any of the P40,000 contributed by said partners. In the articles of
provisions of this Agreement other than by reason of copartnership, Exhibit A, it appears that the
Force Majeure, the other party shall have the right to partnership was to last for five years from after the
terminate this Agreement by giving notice to the date of its organization, and that its purpose was to do
defaulting party, without prejudice to the filing of a civil business in the City of Iloilo, Province of Iloilo, or in
case for damages arising from the breach of the any other part of the Philippine Islands the partners
defaulting party. might desire, under the name of "Tai Sing & Co.," for
the purchase and sale of merchandise, goods, and
In the event that the Developer shall be rendered native, as well as Chinese and Japanese, products,
unable to complete the CondominiumProject, and such and to carry on such business and speculations as
failure is directly and solely attributable to the they might consider profitable. One of the partners, J.
Developer, the Owner shall send written notice to the A. Say Lian Ping was appointed general manager of
Developer to cause the completion of the the partnership, with the appointed general manager of
Condominium Project. If the developer fails to comply the partnership, with the powers specified in said
within One Hundred Eighty (180) days from such articles of copartnership.
notice or, within such time, indicates its incapacity to On June 4, 1917, general manager A. Say Lian Ping
complete the Project, the Owner shall have the right to executed a power of attorney (Exhibit C-1) in favor of
take over the construction and cause the completion A. Y. Kelam, authorizing him to act in his stead as
thereof. If the Owner exercises its right to complete manager and administrator of "Tai Sing & Co.," on July
the Condominium Project under these circumstances, 26, 1918, for, and obtained a loan of P8,000 in current
this Agreement shall be automatically rescinded upon account from the plaintiff bank. (Exhibit C). As security
written notice to the Developer and the latter shall hold for said loan, he mortgaged certain personal property
the former free and harmless from any and all liabilities of "Tai Sing & Co., (Exhibit C.)
to third persons arising from such rescission. In any This credit was renew several times and on March 25,
case, the Owner shall respect and strictly comply with 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing &
any covenant entered into by the Developer and third Co., executed a chattel mortgage in favor of plaintiff
parties with respect to any of its units in the bank as security for a loan of P20,000 with interest
Condominium Project. To enable the owner to comply (Exhibit D). This mortgage was again renewed on April
with this contingent liability, the Developer shall furnish 16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai
the Owner with a copy of its contracts with the said Sing & Co., executed another chattel mortgage for the
buyers on a month-to-month basis. Finally, in case the said sum of P20,000 in favor of plaintiff bank. (Exhibit
Owner would be constrained to assume the obligations E.) According to this mortgage contract, the P20,000
of the Developer to its own buyers, the Developer shall loan was to earn 9 per cent interest per annum.
lose its right to ask for indemnity for whatever it may On April 20, 1920, Yap Seng, Severo Eugenio Lo, A.
have spent in the Development of the Project. Y. Kelam and Ng Khey Ling, the latter represented by
M. Pineda Tayenko, executed a power of attorney in
Nevertheless, with respect to the buyers of the favor of Sy Tit by virtue of which Sy Tit, representing
Developer for the First Phase, the area intended for "Tai Sing & Co., obtained a credit of P20,000 from
the Second Phase shall not be bound and/or subjected plaintiff bank on January 7, 1921, executing a chattel
to the said covenants and/or any other liability incurred mortgage on certain personal property belonging to
by the Developer in connection with the development "Tai Sing & Co.
of the first phase." (Underscoring supplied) Defendants had been using this commercial credit in a
current account with the plaintiff bank, from the year
Viewed in the light of the foregoing provision of the 1918, to May 22, 1921, and the debit balance of this
JVA, petitioner cannot avoid liability by claiming that it account, with interest to December 31, 1924, is as
was not in any way privy to the Contracts to Sell follows:
executed by PPGI and respondents. As correctly
argued by the latter, moreover, a joint venture is
This total is the sum claimed in the complaint, together
considered in this jurisdiction as a form of partnership
with interest on the P16,518.74 debt, at 9 per cent per
and is, accordingly, governed by the law of annum from January 1, 1925 until fully paid, with the
partnerships.[54] Under Article 1824 of the Civil Code of
costs of the trial.
the Philippines, all partners are solidarily liable with the
Defendant Eugenio Lo sets up, as a general defense,
partnership for everything chargeable to the that "Tai Sing & Co. was not a general partnership,
partnership, including loss or injury caused to a third
and that the commercial credit in current account
person or penalties incurred due to any wrongful act or
which "Tai Sing & Co. obtained from the plaintiff bank
omission of any partner acting in the ordinary course
had not been authorized by the board of directors of
of the business of the partnership or with the authority
the company, nor was the person who subscribed said
of his co-partners.[55] Whether innocent or guilty, all
contract authorized to make the same, under the
the partners are solidarily liable with the partnership
article of copartnership. The other defendants, Yap
itself.[56] Sing and Ng Khey Ling, answered the complaint
denying each and every one of the allegations
WHEREFORE, premises considered, the petition for contained therein.
review is DENIED for lack of merit. After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and
PNB vs Severo Eugenio Lo et al Oct 5 1927 Yap Seng Co., Sieng Peng indebted to plaintiff
Philippine National Bank in sum of P22,595.26 to July
29, 1926, with a daily interest of P4.14 on the balance
on account of the partnership "Tai Sing & Co. for the
sum of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to
pay the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and from the date,
P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the
costs of the action.1awph!l.net
Defendants appealed, making the following
assignments of error:
The trial court erred in finding that article 126 of the
Code of Commerce at present in force is not
mandatory.
II. The trial court erred in finding that the partnership
agreement of "Tai Sing & Co., (Exhibit A), is in
accordance with the requirements of article 125 of the
Code of Commerce for the organization of a regular
partnership.
III. The trial court erred in not admitting J. A. Sai Lian
Ping's death in China in November, 1917, as a proven
fact.
IV. The trial court erred in finding that the death of J. A.
Say Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt
incurred by the commercial partnership "Tai Sing &
Co., was that evidence by Exhibit F, signed by Sy Tit
as attorney-in-fact of the members of "Tai Sing & Co.,
by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank
was not able to collect its credit from the goods of "Tai
Sing & Co., given as security therefor through its own
fault and negligence; and that the action brought by
plaintiff is a manifest violation of article 237 of the
present Code of Commerce.
VI. The trial court erred in finding that the current
account of "Tai Sing & Co. with plaintiff bank shows a
debit balance of P16,518.74, which in addition to
interest at 9 per cent per annum from July 29, 1926,
amount to P16,595.26, with a daily interest of P4.14 on
the sum of P16,518.74.
VII. The trial court erred in ordering the defendants
appellants to pay jointly and severally to the Philippine
National Bank the sum of P22,727.74 up to August 31,
1926, and interest on P16,518.74 from that date until
fully paid, with the costs of the action.
VIII. The trial court erred in denying the motion for a
new trial filed by defendants-appellants.
Appellants admit, and it appears from the context of
Exhibit A, that the defendant association formed by the
defendants is a general partnership, as defined in
article 126 of the Code Commerce. This partnership
was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm
name the names of all of the partners, of several of
them, or only one of them, to be followed in the last
two cases, by the words "and to be followed in the last
two cases, by the words "and company" the partners
agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name
of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company formed
by defendants had existed in fact, though not in law
due to the fact that it was not recorded in the register,
and having operated and contracted debts in favor of
the plaintiff, the same must be paid by someone. This
applies more strongly to the obligations contracted by
the defendants, for they formed a partnership which
was registered in the mercantile register, and carried
on business contracting debts with the plaintiff bank.
The anomalous adoption of the firm name above noted
does not affect the liability of the general partners to
third parties under article 127 of the Code of
Commerce. And the Supreme Court so held in the
case of Jo Chung Cang vs. Pacific Commercial
Co., (45 Phil., 142), in which it said that the object of
article 126 of the Code of Commerce in requiring a
general partnership to transact business under the
name of all its members, of several of them, or of one
only, is to protect the public from imposition and fraud;
and that the provision of said article 126 is for the
protection of the creditors rather than of the partners
themselves. And consequently the doctrine was
enunciated that the law must be unlawful and
unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of
depriving innocent parties of their rights who may have
dealt with the offenders in ignorance of the latter
having violated the law; and that contracts entered into
by commercial associations defectively organized are
valid when voluntarily executed by the parties, and the
only question is whether or not they complied with the
agreement. Therefore, the defendants cannot invoke
in their defense the anomaly in the firm name which
they themselves adopted.
As to the alleged death of the manager of the
company, Say Lian Ping, before the attorney-in-fact
Ou Yong Kelam executed Exhibits C, D and E, the trial
court did not find this fact proven at the hearing. But
even supposing that the court had erred, such an error
would not justify the reversal of the judgment, for two
reasons at least: (1) Because Ou Yong Kelam was a
partner who contracted in the name of the partnership,
without any objection of the other partners; and (2)
because it appears in the record that the appellant-
partners Severo Eugenio Lo, Ng Khey Ling and Yap
Seng, appointed Sy Tit as manager, and he obtained
from the plaintiff bank the credit in current account, the
debit balance of which is sought tobe recovered in this
action.
Appellants allege that such of their property as is not
included in the partnership assets cannot-be seized for
the payment of the debts contracted by the partnership
until after the partnership property has been
exhausted. The court found that the partnership
property described in the mortgage Exhibit F no loner
existed at the time of the filing of the herein complaint
nor has its existence been proven, nor was it offered to
the plaintiff for sale. We find no just reason to reverse
this conclusion of the trial court, and this being so, it
follows that article 237 of the Code of Commerce,
invoked by the appellant, can in no way have any
application here.
Appellants also assign error to the action of the trial
court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest on
P16,518.74, owing from them.
The judgment against the appellants is in accordance
with article 127 of the Code of Commerce which
provides that all the members of a general partnership,
be they managing partners thereof or not, shall be
personally and solidarily liable with all their property,
for the results of the transactions made in the name
and for the account of the partnership, under the
signature of the latter, and by a person authorized to
use it.
As to the amount of the interest suffice it to remember
that the credit in current account sued on in this case
as been renewed by the parties in such a way that
while it appears in the mortgage Exhibit D executed on
March 25, 1919 by the attorney-in-fact Ou Yong Kelam
that the P20,000 credit would earn 8 per cent interest
annually, yet from that executed on April 16, 1920,
Exhibit E, it appears that the P20,000 would earn 9 per
cent interest per annum. The credit was renewed in
January, 1921, and in the deed of pledge, Exhibit F,
executed by "Tai Sing & Co., represented by the
attorney-in-fact Sy Tit, it appears that this security is
for the payment of the sums received by the
partnership, not to exceed P20,000 with interest and
collection fees. There can be no doubt that the parties
agreed upon the rate of interest fixed in the document
Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the Pioneer. If an insurance company would be liable for
law, and must therefore be, as it is hereby, affirmed damages in performing an act which is clearly within its
with costs against the appellants. So ordered. power and which is the reason for its being, then
nobody would engage in the insurance business. No
Pioneer Insurance vs CA 1989 175 SCRA 668 further claim or counter-claim for or against anybody is
PIONEER INSURANCE & SURETY declared by this Court. (Rollo - G.R. No. 24197, pp.
CORPORATION, petitioner, 15-16
vs.THE HON. COURT OF APPEALS, BORDER In 1965, Jacob S. Lim (petitioner in G.R. No. 84157)
MACHINERY & HEAVY EQUIPMENT, INC., was engaged in the airline business as owner-operator
(BORMAHECO), CONSTANCIO M. MAGLANA and of Southern Air Lines (SAL) a single proprietorship.
JACOB S. LIM, respondents. On May 17, 1965, at Tokyo, Japan, Japan Domestic
G.R. No. 84157 July 28, 1989 Airlines (JDA) and Lim entered into and executed a
JACOB S. LIM, petitioner, sales contract (Exhibit A) for the sale and purchase of
vs.COURT OF APPEALS, PIONEER INSURANCE two (2) DC-3A Type aircrafts and one (1) set of
AND SURETY CORPORATION, BORDER necessary spare parts for the total agreed price of US
MACHINERY and HEAVY EQUIPMENT CO., INC,, $109,000.00 to be paid in installments. One DC-3
FRANCISCO and MODESTO CERVANTES and Aircraft with Registry No. PIC-718, arrived in Manila on
CONSTANCIO MAGLANA, respondents. June 7,1965 while the other aircraft, arrived in Manila
The subject matter of these consolidated petitions is on July 18,1965.
the decision of the Court of Appeals in CA-G.R. CV On May 22, 1965, Pioneer Insurance and Surety
No. 66195 which modified the decision of the then Corporation (Pioneer, petitioner in G.R. No. 84197) as
Court of First Instance of Manila in Civil Case No. surety executed and issued its Surety Bond No. 6639
66135. The plaintiffs complaint (petitioner in G.R. No. (Exhibit C) in favor of JDA, in behalf of its principal,
84197) against all defendants (respondents in G.R. Lim, for the balance price of the aircrafts and spare
No. 84197) was dismissed but in all other respects the parts.
trial court's decision was affirmed. It appears that Border Machinery and Heavy
The dispositive portion of the trial court's decision Equipment Company, Inc. (Bormaheco), Francisco
reads as follows: and Modesto Cervantes (Cervanteses) and
WHEREFORE, judgment is rendered against Constancio Maglana (respondents in both petitions)
defendant Jacob S. Lim requiring Lim to pay plaintiff contributed some funds used in the purchase of the
the amount of P311,056.02, with interest at the rate of above aircrafts and spare parts. The funds were
12% per annum compounded monthly; plus 15% of supposed to be their contributions to a new
the amount awarded to plaintiff as attorney's fees from corporation proposed by Lim to expand his airline
July 2,1966, until full payment is made; plus business. They executed two (2) separate indemnity
P70,000.00 moral and exemplary damages. agreements (Exhibits D-1 and D-2) in favor of Pioneer,
It is found in the records that the cross party plaintiffs one signed by Maglana and the other jointly signed by
incurred additional miscellaneous expenses aside from Lim for SAL, Bormaheco and the Cervanteses. The
Pl51,000.00,,making a total of P184,878.74. indemnity agreements stipulated that the indemnitors
Defendant Jacob S. Lim is further required to pay principally agree and bind themselves jointly and
cross party plaintiff, Bormaheco, the Cervanteses one- severally to indemnify and hold and save harmless
half and Maglana the other half, the amount of Pioneer from and against any/all damages, losses,
Pl84,878.74 with interest from the filing of the cross- costs, damages, taxes, penalties, charges and
complaints until the amount is fully paid; plus moral expenses of whatever kind and nature which Pioneer
and exemplary damages in the amount of may incur in consequence of having become surety
P184,878.84 with interest from the filing of the cross- upon the bond/note and to pay, reimburse and make
complaints until the amount is fully paid; plus moral good to Pioneer, its successors and assigns, all sums
and exemplary damages in the amount of P50,000.00 and amounts of money which it or its representatives
for each of the two Cervanteses. should or may pay or cause to be paid or become
Furthermore, he is required to pay P20,000.00 to liable to pay on them of whatever kind and nature.
Bormaheco and the Cervanteses, and another On June 10, 1965, Lim doing business under the
P20,000.00 to Constancio B. Maglana as attorney's name and style of SAL executed in favor of Pioneer as
fees.xxx xxx xxx deed of chattel mortgage as security for the latter's
WHEREFORE, in view of all above, the complaint of suretyship in favor of the former. It was stipulated
plaintiff Pioneer against defendants Bormaheco, the therein that Lim transfer and convey to the surety the
Cervanteses and Constancio B. Maglana, is two aircrafts. The deed (Exhibit D) was duly registered
dismissed. Instead, plaintiff is required to indemnify the with the Office of the Register of Deeds of the City of
defendants Bormaheco and the Cervanteses the Manila and with the Civil Aeronautics Administration
amount of P20,000.00 as attorney's fees and the pursuant to the Chattel Mortgage Law and the Civil
amount of P4,379.21, per year from 1966 with legal Aeronautics Law (Republic Act No. 776), respectively.
rate of interest up to the time it is paid. Lim defaulted on his subsequent installment payments
Furthermore, the plaintiff is required to pay Constancio prompting JDA to request payments from the surety.
B. Maglana the amount of P20,000.00 as attorney's Pioneer paid a total sum of P298,626.12.
fees and costs. Pioneer then filed a petition for the extrajudicial
No moral or exemplary damages is awarded against foreclosure of the said chattel mortgage before the
plaintiff for this action was filed in good faith. The fact Sheriff of Davao City. The Cervanteses and Maglana,
that the properties of the Bormaheco and the however, filed a third party claim alleging that they are
Cervanteses were attached and that they were co-owners of the aircrafts,
required to file a counterbond in order to dissolve the On July 19, 1966, Pioneer filed an action for judicial
attachment, is not an act of bad faith. When a man foreclosure with an application for a writ of preliminary
tries to protect his rights, he should not be saddled attachment against Lim and respondents, the
with moral or exemplary damages. Furthermore, the Cervanteses, Bormaheco and Maglana.
rights exercised were provided for in the Rules of In their Answers, Maglana, Bormaheco and the
Court, and it was the court that ordered it, in the Cervanteses filed cross-claims against Lim alleging
exercise of its discretion. that they were not privies to the contracts signed by
No damage is decided against Malayan Insurance Lim and, by way of counterclaim, sought for damages
Company, Inc., the third-party defendant, for it only for being exposed to litigation and for recovery of the
secured the attachment prayed for by the plaintiff
sums of money they advanced to Lim for the purchase
of the aircrafts in question.
After trial on the merits, a decision was rendered
holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial
court's decision in that the plaintiffs complaint against
all the defendants was dismissed. In all other respects
the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation
avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY
ERRED WHEN IT DISMISSED THE APPEAL OF
PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE
PROCEEDS OF THE REINSURANCE ON ITS BOND
IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE
AMOUNT FROM HEREIN PRIVATE RESPONDENTS
AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G.
R. No. 84197, p. 10)
The petitioner questions the following findings of the
appellate court:
We find no merit in plaintiffs appeal. It is undisputed
that plaintiff Pioneer had reinsured its risk of liability
under the surety bond in favor of JDA and
subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to P295,000.00,
hence, plaintiffs instant action for the recovery of the
amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in
interest to institute the instant action as it does not
stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the
reinsurer to recover the amount from defendants,
hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the
attorney-in-fact of the reinsurance company,
authorized to institute an action for and in behalf of the
latter. To qualify a person to be a real party in interest
in whose name an action must be prosecuted, he must
appear to be the present real owner of the right sought
to be enforced (Moran, Vol. I, Comments on the Rules
of Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be
benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in
interest is meant a present substantial interest as
distinguished from a mere expectancy or a future,
contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield
Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v.
Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P.
2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer
cannot be considered as the real party in interest as it
has already been paid by the reinsurer the sum of
P295,000.00 the bulk of defendants' alleged
obligation to Pioneer.
In addition to the said proceeds of the reinsurance
received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of the
subject airplanes and its spare engine, realizing the
total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00, to
the proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering that
the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover from
defendants the amount in excess of P298,666.28
would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the
amount plaintiff has paid to JDA as surety of defendant
Lim vis-a-vis defendant Lim's liability to JDA. Well
settled is the rule that no person should unjustly enrich
himself at the expense of another (Article 22, New Civil
Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where
respondent court based its finding that petitioner was
paid by its reinsurer in the aforesaid amount, as this
matter has never been raised by any of the parties
herein both in their answers in the court below and in
their respective briefs with respondent court; (Rollo, p.
11) (2) even assuming hypothetically that it was paid
by its reinsurer, still none of the respondents had any
interest in the matter since the reinsurance is strictly
between the petitioner and the re-insurer pursuant to
section 91 of the Insurance Code; (3) pursuant to the
indemnity agreements, the petitioner is entitled to
recover from respondents Bormaheco and Maglana;
and (4) the principle of unjust enrichment is not
applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the
reinsurer.
The records belie the petitioner's contention that the
issue on the reinsurance money was never raised by
the parties.
A cursory reading of the trial court's lengthy decision
shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants
with respect to so much of its obligations to JDA as
has been paid with reinsurance money?
2. If the answer to the preceding question is in the
negative, has Pioneer still any claim against
defendants, considering the amount it has realized
from the sale of the mortgaged properties? (Record on
Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the
following findings:
It appearing that Pioneer reinsured its risk of liability
under the surety bond it had executed in favor of JDA,
collected the proceeds of such reinsurance in the sum
of P295,000, and paid with the said amount the bulk of
its alleged liability to JDA under the said surety bond, it
is plain that on this score it no longer has any right to
collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the
reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer
says: The reinsurers opted instead that the Pioneer
Insurance & Surety Corporation shall pursue alone the
case.. . . . Pioneer Insurance & Surety Corporation is
representing the reinsurers to recover the amount.' In
other words, insofar as the amount paid to it by the
reinsurers Pioneer is suing defendants as their
attorney-in-fact.
But in the first place, there is not the slightest
indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no right
to institute and maintain in its own name an action for
the benefit of the reinsurers. It is well-settled that an
action brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and this
is so even where the name of the principal is disclosed
in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides
that 'Every action must be prosecuted in the name of
the real party in interest.' This provision is mandatory.
The real party in interest is the party who would be
benefitted or injured by the judgment or is the party
entitled to the avails of the suit.
This Court has held in various cases that an attorney-
in-fact is not a real party in interest, that there is no law
permitting an action to be brought by an attorney-in-
fact. Arroyo v. Granada and Gentero, 18 Phil. Rep.
484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep.
12; Filipinos Industrial Corporation v. San Diego G.R.
No. L- 22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is
P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured portion
of what it paid to JDA is the difference between the
two amounts, or P3,666.28. This is the amount for
which Pioneer may sue defendants, assuming that the
indemnity agreement is still valid and effective. But
since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the
airplanes and P2,050.00 for a spare engine, or a total
of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against
defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers
was not disputed in the appellate court. Considering
this admitted payment, the only issue that cropped up
was the effect of payment made by the reinsurers to
the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance
contract as this is strictly between the petitioner as
insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance
Code has no basis.
In general a reinsurer, on payment of a loss acquires
the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss
(Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance
policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380,
7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new
Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the
insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or
injury.
Interpreting the aforesaid provision, we ruled in the
case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101
Phil. 1031 [1957]) which we subsequently applied
in Manila Mahogany Manufacturing Corporation v.
Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner
receives the indemnity from the insurer, it is provided
in said article that the insurer is deemed subrogated to
the rights of the insured against the wrongdoer and if
the amount paid by the insurer does not fully cover the
loss, then the aggrieved party is the one entitled to
recover the deficiency. Evidently, under this legal
provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the
insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own
name and not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a
reversible error in dismissing the petitioner's complaint
as against the respondents for the reason that the
petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action
against the respondents.
Nevertheless, the petitioner argues that the appeal as
regards the counter indemnitors should not have been
dismissed on the premise that the evidence on record
shows that it is entitled to recover from the counter
indemnitors. It does not, however, cite any grounds
except its allegation that respondent "Maglanas
defense and evidence are certainly incredible" (p. 12,
Rollo) to back up its contention.
On the other hand, we find the trial court's findings on
the matter replete with evidence to substantiate its
finding that the counter-indemnitors are not liable to
the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity
agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and
Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts
and the spare parts involved, agreed to issue the bond
provided that the same would be mortgaged to it, but
this was not possible because the planes were still in
Japan and could not be mortgaged here in the
Philippines. As soon as the aircrafts were brought to
the Philippines, they would be mortgaged to Pioneer
Insurance to cover the bond, and this indemnity
agreement would be cancelled.
The following is averred under oath by Pioneer in the
original complaint:
The various conflicting claims over the mortgaged
properties have impaired and rendered insufficient the
security under the chattel mortgage and there is thus
no other sufficient security for the claim sought to be
enforced by this action.
This is judicial admission and aside from the chattel
mortgage there is no other security for the claim
sought to be enforced by this action, which necessarily
means that the indemnity agreement had ceased to
have any force and effect at the time this action was
instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having
foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against
the defendants as indemnitors to recover any unpaid
balance of the price. The indemnity agreement was
ipso jure extinguished upon the foreclosure of the
chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of
Pioneer should they make payments to the latter.
Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's
election of the remedy of foreclosure precludes any
further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the
eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as provided
in Article 1484 of the New Civil Code, known as the
Recto Law
Pioneer exercised the remedy of foreclosure of the
chattel mortgage both by extrajudicial foreclosure and
the instant suit. Such being the case, as provided by
the aforementioned provisions, Pioneer shall have no
further action against the purchaser to recover any
unpaid balance and any agreement to the contrary is
void.' Cruz, et al. v. Filipinas Investment & Finance
Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-
6.
The operation of the foregoing provision cannot be
escaped from through the contention that Pioneer is
not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having
subrogated it in such rights. Nor may the application of
the provision be validly opposed on the ground that
these defendants and defendant Maglana are not the
vendee but indemnitors. Pascual, et al. v. Universal
Motors Corporation, G.R. No. L- 27862, Nov. 20,1974,
61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru
the change of their maturity dates discharged these
defendants from any liability as alleged indemnitors.
The change of the maturity dates of the obligations of
Lim, or SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal
successive three months interval installments, the first
of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the
26th day x x x of each succeeding three months and
the last of which shall be due and payable 26th May
1967.
However, at the trial of this case, Pioneer produced a
memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as
follows:
The principal hereof shall be paid in eight equal
successive three month interval installments the first of
which shall be due and payable 4 September 1965,
the remainder of which ... shall be due and payable on
the 4th day ... of each succeeding months and the last
of which shall be due and payable 4th June 1967.
Not only that, Pioneer also produced eight purported
promissory notes bearing maturity dates different from
that fixed in the aforesaid memorandum; the due date
of the first installment appears as October 15, 1965,
and those of the rest of the installments, the 15th of
each succeeding three months, that of the last
installment being July 15, 1967.
These restructuring of the obligations with regard to
their maturity dates, effected twice, were done without
the knowledge, much less, would have it believed that
these defendants Maglana (sic). Pioneer's official
Numeriano Carbonel would have it believed that these
defendants and defendant Maglana knew of and
consented to the modification of the obligations. But if
that were so, there would have been the
corresponding documents in the form of a written
notice to as well as written conformity of these
defendants, and there are no such document. The
consequence of this was the extinguishment of the
obligations and of the surety bond secured by the
indemnity agreement which was thereby also
extinguished. Applicable by analogy are the rulings of
the Supreme Court in the case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553, 563, and the case of
Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532,
538.
Art. 2079. An extension granted to the debtor by the
creditor without the consent of the guarantor
extinguishes the guaranty The mere failure on the part
of the creditor to demand payment after the debt has
become due does not of itself constitute any extension
time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp.
562-563, M.F. Stevenson & Co., Ltd., v. Climacom et
al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already
prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to
recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of
JDA to present its claim to Pioneer within ten days
from default of Lim or SAL on every installment,
released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact
reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary debtor shall not
entitle him to reimbursement from his co-debtors if
such payment is made after the obligation has
prescribed or became illegal.
These defendants are entitled to recover damages and
attorney's fees from Pioneer and its surety by reason
of the filing of the instant case against them and the
attachment and garnishment of their properties. The
instant action is clearly unfounded insofar as plaintiff
drags these defendants and defendant Maglana.'
(Record on Appeal, pp. 363-369, Rollo of G.R. No.
84157).
We find no cogent reason to reverse or modify these
findings.
Hence, it is our conclusion that the petition in G.R. No.
84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-
investors whose agreement was to do business
through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to
invest? How are the losses to be treated in situations
where their contributions to the intended 'corporation'
were invested not through the corporate form? This
Petition presents these fundamental questions which
we believe were resolved erroneously by the Court of
Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's
theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio Maglana
and petitioner Lim to incorporate, a de
facto partnership among them was created, and that
as a consequence of such relationship all must share
in the losses and/or gains of the venture in proportion
to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents
to the petitioner as their contributions to the intended
corporation, to wit:
However, defendant Lim should be held liable to pay
his co-defendants' cross-claims in the total amount of
P184,878.74 as correctly found by the trial court, with
interest from the filing of the cross-complaints until the
amount is fully paid. Defendant Lim should pay one-
half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant
Maglana. It is established in the records that defendant
Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the
latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the
cross-party plaintiffs incurred additional expenses,
hence, the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves the
rights of the stockholders in a defectively incorporated
association should be governed by the supposed
charter and the laws of the state relating thereto and
not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584),
it is ordinarily held that persons who attempt, but fail,
to form a corporation and who carry on business under
the corporate name occupy the position of partners
inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615,
Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to
purchase property to carry on a business, and their
organization is so defective as to come short of
creating a corporation within the statute, they become
in legal effect partners inter se, and their rights as
members of the company to the property acquired by
the company will be recognized (Smith v. Schoodoc
Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v.
Parker, 29 Mich. 369). So, where certain persons
associated themselves as a corporation for the
development of land for irrigation purposes, and each
conveyed land to the corporation, and two of them
contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and
no stock was ever issued in the corporation, it was
treated as a trustee for the associates in an action
between them for an accounting, and its capital stock
was treated as partnership assets, sold, and the
proceeds distributed among them in proportion to the
value of the property contributed by each (Shorb v.
Beaudry, 56 Cal. 446). However, such a relation does
not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between
themselves, when their purpose is that no partnership
shall exist (London Assur. Corp. v. Drennen, Minn., 6
S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it
should be implied only when necessary to do justice
between the parties; thus, one who takes no part
except to subscribe for stock in a proposed corporation
which is never legally formed does not become a
partner with other subscribers who engage in business
under the name of the pretended corporation, so as to
be liable as such in an action for settlement of the
alleged partnership and contribution (Ward v. Brigham,
127 Mass. 24). A partnership relation between certain
stockholders and other stockholders, who were also
directors, will not be implied in the absence of an
agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by
the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23).
(Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).
In the instant case, it is to be noted that the petitioner
was declared non-suited for his failure to appear
during the pretrial despite notification. In his answer,
the petitioner denied having received any amount from
respondents Bormaheco, the Cervanteses and
Maglana. The trial court and the appellate court,
however, found through Exhibit 58, that the petitioner
received the amount of P151,000.00 representing the
participation of Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject airplanes and
spare parts. The record shows that defendant Maglana
gave P75,000.00 to petitioner Jacob Lim thru the
Cervanteses.
It is therefore clear that the petitioner never had the
intention to form a corporation with the respondents
despite his representations to them. This gives
credence to the cross-claims of the respondents to the
effect that they were induced and lured by the
petitioner to make contributions to a proposed
corporation which was never formed because the
petitioner reneged on their agreement. Maglana
alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to
Francisco Cervantes and Maglana to expand his
airline business. Lim was to procure two DC-3's from
Japan and secure the necessary certificates of public
convenience and necessity as well as the required
permits for the operation thereof. Maglana sometime in
May 1965, gave Cervantes his share of P75,000.00 for
delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an
undertaking sometime on or about August 9,1965,
promised to incorporate his airline in accordance with
their agreement and proceeded to acquire the planes
on his own account. Since then up to the filing of this
answer, Lim has refused, failed and still refuses to set
up the corporation or return the money of Maglana.
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses
alleged in their answer, counterclaim, cross-claim and
third party complaint:
Sometime in April 1965, defendant Lim lured and
induced the answering defendants to purchase two
airplanes and spare parts from Japan which the latter
considered as their lawful contribution and
participation in the proposed corporation to be known
as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were
advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1).
Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed
and executed the alleged chattel mortgage and surety
bond agreement in his personal capacity as the
alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery and
misrepresentation of the other, Jacob Lim, when the
herein plaintiff chattel mortgage (sic) allegedly
executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to defendant
Lim, to surrender the possession of the two planes and
their accessories and or return the amount advanced
by the former amounting to an aggregate sum of P
178,997.14 as evidenced by a statement of accounts,
the latter ignored, omitted and refused to comply with
them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to
the facts of the case, necessarily, no de facto
partnership was created among the parties which
would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
record shows that the petitioner was acting on his own
and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
WHEREFORE, the instant petitions are DISMISSED.
The questioned decision of the Court of Appeals is
AFFIRMED.
Art 1828-1842
Idos vs CA 296 SCRA 194 1998
IRMA IDOS, petitioner, vs. COURT OF APPEALS
and PEOPLE OF THEPHILIPPINES, respondents.
Before this Court is the petition for review of the
Decision of respondent Court of Appeals[1] dismissing
petitioners appeal in CA-G.R. CR No. 11960; and
affirming her conviction as well as the sentence
imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88[2] as follows:
WHEREFORE . . . the [c]ourt finds the accused
Irma Idos guilty beyond reasonable doubt and is
hereby sentenced to suffer the penalty of
imprisonment of six (6) months and to pay a fine
of P135,000.00 and to pay private complainant Eddie
Alarilla the amount of the check in question
of P135,000.00 at 12% interest from the time of the
filing of the [i]nformation (August 10, 1988) until said
amount has been fully paid.
Elevated from the Third Division[3] of this Court,
the case was accepted for resolution en banc on the
initial impression that here, a constitutional question
might be involved.[4] It was opined that petitioners
sentence, particularly six months imprisonment, might
be in violation of the constitutional guarantee against
imprisonment for non-payment of a debt.[5]
A careful consideration of the issues presented
in the petition as well as the comments thereon and
the findings of fact by the courts below in the light of
applicable laws and precedents convinces us,
however, that the constitutional dimension need not be
reached in order to resolve those issues
adequately. For, as herein discussed, the merits of the
petition could be determined without delving into
aspects of the cited constitutional guarantee vis--vis
provisions of the Bouncing Checks Law (Batas
Pambansa Blg. 22). There being no necessity therefor,
we lay aside discussions of the constitutional
challenge to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a
businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier
and business partner, the complainant below, Eddie
Alarilla.
As narrated by the Court of Appeals, the
background of this case is as follows:
The complainant Eddie Alarilla supplied
chemicals and rawhide to the accused-appellant Irma
L. Idos for use in the latters business of manufacturing
leather. In 1985, he joined the accused-appellants
business and formed with her a partnership under the
style Tagumpay Manufacturing, with offices in Bulacan
and Cebu City.
However, the partnership was short lived. In
January, 1986 the parties agreed to terminate their
partnership.Upon liquidation of the business the
partnership had as of May 1986 receivables and
stocks worth P1,800,000.00. The complainants share
of the assets was P900,000.00 to pay for which the
accused-appellantissued the following postdated
checks, all drawn against Metrobank Branch in
Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second,
and fourth checks, but the third check (Exh. A) which
is the subject of this case, was dishonored on October
14, 1986 for insufficiency of funds. The complainant
demanded payment from the accused-appellant but
the latter failed to pay. Accordingly, on December 18,
1986, through counsel, he made a formal demand for
payment. (Exh. B) In a letter dated January 2, 1987,
the accused-appellant denied liability. She claimed
that the check had been given upon demand of
complainant in May 1986 only as assurance of his
share in the assets of the partnership and that it was
not supposed to be deposited until the stocks had
been sold.
Complainant then filed his complaint in the Office of
the Provincial Fiscal of Bulacan which on August 22,
1988 filed an information for violation of BP Blg. 22
against accused-appellant.
Complainant denied that the checks issued to him by
accused-appellant were subject to the disposition of
the stocks and the collection of receivables of the
business. But the accused-appellant insisted that the
complainant had known that the checks were to be
funded from the proceeds of the sale of the stocks and
the collection of receivables. She claimed that the
complainant himself asked for the checks because he
did not want to continue in the tannery business and
had no use for a share of the stocks. (TSN, p. 7, April
14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16,
20, Feb. 14, 1990; id., p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered
judgment finding the accused-appellant guilty of
the crime charged. The accused-appellants
motion for annulment of the decision and for
reconsideration was denied by the trial court in
its order dated April 12, 1991.[6]
Herein respondent court thereafter affirmed on
appeal the decision of the trial court. Petitioner timely
moved for a reconsideration, but this was
subsequently denied by respondent court in its
Resolution[7] dated June 11, 1993.Petitioner has now
appealed to us by way of a petition for certiorari under
Rule 45 of the Rules of Court.
During the pendency of this petition, this Court
by a resolution[8] dated August 30, 1993, took note of
the compromise agreement executed between the
parties, regarding the civil aspect of the case, as
manifested by petitioner in a Motion to Render
Judgment based on Compromise Agreement[9]filed on
August 5, 1993. After submission of the
Comment[10] by the Solicitor General, and the
Reply[11] by petitioner, this case was deemed
submitted for decision.
Contending that the Court of Appeals erred in
its affirmance of the trial courts decision, petitioner
cites the following reasons to justify the review of her
case:
1. The Honorable Court of Appeals has decided
against the innocence of the accused based on mere
probabilities which, on the contrary, should have
warranted her acquittal on reasonable doubt. Even
then, the conclusion of the trial court is contrary to the
evidence on record, including private complainants
judicial admission that there was no consideration for
the check.
2. The Honorable Court of Appeals has confused and
merged into one the legal concepts of dissolution,
liquidation and termination of a partnership and, on the
basis of such misconception of the law, disregarded
the fact of absence of consideration of the check and
convicted the accused.
3. While this appeal was pending, the parties
submitted for the approval of the Honorable Court a
compromise agreement on the civil liability. The
accused humbly submits that this supervening event,
which by its terms puts to rest any doubt the Court of
Appeals had entertained against the defense of lack of
consideration, should have a legal effect favorable to
the accused, considering that the dishonored check
constitutes a private transaction between partners
which does not involve the public interest, and
considering further that the offense is not one involving
moral turpitude.
4. The Honorable Court of Appeals failed to appreciate
the fact that the accused had warned private
complainant that the check was not sufficiently funded,
which should have exonerated the accused pursuant
to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more
flexible and less rigid application of the Bouncing
Checks law.[12]
For a thorough consideration of the merits of
petitioners appeal, we find pertinent and decisive the
following issues:
1. Whether respondent court erred in holding that the
subject check was issued by petitioner to apply on
account or for value, that is, as part of the
consideration of a buy-out of said complainants
interest in the partnership, and not merely as a
commitment on petitioners part to return the
investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding
that petitioner issued the subject check knowing at the
time of issue that she did not have sufficient funds in
or credit with the drawee bank and without
communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue:
Did the respondent court err in affirming the trial courts
judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly
construed against the state and liberally in favor of the
accused, it bears stressing that for an act to be
punishable under the B.P. 22, it must come clearly
within both the spirit and the letter of the
statute.[13] Otherwise, the act has to be declared
outside the laws ambit and a plea of innocence by the
accused must be sustained.
The relevant provisions of B.P. 22 state that:
SECTION 1. Checks without sufficient funds. Any
person who makes or draws and issues any check to
apply on account or for value, knowing at the time of
issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in
full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid
reason, ordered the bank to stop payment, shall be
punished by imprisonment of not less than thirty days
but not more than one (1) year or by a fine of not less
than but not more than double the amount of the check
which fine shall in no case exceed Two hundred
thousand pesos, or both such fine and imprisonment
at the discretion of the court.
The same penalty shall be imposed upon any person
who having sufficient funds in or credit with the drawee
bank when he makes or draws and issues a check,
shall fail to keep sufficient funds or to maintain a credit
or to cover the full amount of the check if presented
within a period of ninety (90) days from the date
appearing thereon, for which reason it is dishonored
by the drawee bank.
Where the check is drawn by a corporation, company
or entity, the person or persons who actually signed
the check in behalf of such drawer shall be liable
under this Act.
SECTION 2. Evidence of knowledge of insufficient
funds. The making, drawing and issuance of a check
payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when
presented within ninety (90) days from the date of the
check, shall be prima facie evidence of knowledge of
such insufficiency of funds or credit unless such maker
or drawer pays the holder thereof the amount due
thereon, or makes arrangements for payment in full by
the drawee of such check within five (5) banking days
after receiving notice that such check has not been
paid by the drawee. (Underscoring supplied)
As decided by this Court, the elements of the
offense penalized under B.P. 22, are as follows: (1)
the making, drawing and issuance of any check to
apply to account or for value; (2) the knowledge of the
maker, drawer or issuer that at the time of issue he
does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full
upon its presentment; and (3) subsequent dishonor of
the check by the drawee bank for insufficiency offunds
or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to
stop payment.[14]
In the present case, with regard to the first
issue, evidence on record would show that the subject
check was to be funded from receivables to be
collected and goods to be sold by the partnership, and
only when such collection and sale were
realized.[15] Thus, there is sufficient basis for the
assertion that the petitioner issued the subject check
(Metrobank Check No. 103115490 dated October 30,
1986, in the amount of P135,828.87) to evidence only
complainants share or interest in the partnership, or at
best, to show her commitment that when receivables
are collected and goods are sold, she would give to
private complainant the net amount due him
representing his interest in the partnership. It did not
involve a debt of or any account due and payable by
the petitioner.
Two facts stand out. Firstly, three of four checks
were properly encashed by complainant; only one (the
third) was not. But eventually even this one was
redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration
whatsoever for the issuance of the check, whose
funding was dependent on future sales of goods and
receipts of payment of account receivables.
Now, it could not be denied that though the
parties petitioners and complainant had agreed to
dissolve the partnership, such agreement did not
automatically put an end to the partnership, since they
still had to sell the goods on hand and collect the
receivables from debtors. In short, they were still in the
process of winding up the affairs of the partnership,
when the check in question was issued.
Under the Civil Code, the three final stages of a
partnership are (1) dissolution; (2) winding-up; and (3)
termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying on of the business
(Art. 1828). It is that point of time the partners
cease to carry on the business
together. [Citation omitted]
(2) Winding Up Defined
Winding up is the process of settling business affairs
after dissolution.
(NOTE: Examples of winding up: the paying of
previous obligations; the collecting of assets previously
demandable; even new business if needed to wind up,
as the contracting with a demolition company for the
demolition of the garage used in a used car
partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership
affairs have been wound up.[16] [Citation
omitted] (Underscoring supplied.)
These final stages in the life of a partnership
are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not
terminated, to wit:
Art. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed. (Underscoring
supplied.)
The best evidence of the existence of the
partnership, which was not yet terminated (though in
the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the
trial court. Since the partnership has not been
terminated, the petitioner and private complainant
remained as co-partners. The check was thus issued
by the petitioner to complainant, as would a partner to
another, and not as payment from a debtor to a
creditor.
The more tenable view, one in favor of the
accused, is that the check was issued merely to
evidence the complainants share in the partnership
property, or to assure the latter that he would receive
in time his due share therein. The alternative view that
the check was in consideration of a buy out is but a
theory, favorable to the complainant, but lacking
support in the record; and must necessarily be
discarded.
For there is nothing on record which even
slightly suggests that petitioner ever became
interested in acquiring, much less keeping, the shares
of the complainant. What is very clear therefrom is that
the petitioner exerted her best efforts to sell the
remaining goods and to collect the receivables of the
partnership, in order to come up with the amount
necessary to satisfy the value of complainants interest
in the partnership at the dissolution thereof. To go by
accepted custom of the trade, we are more inclined to
the view that the subject check was issued merely to
evidence complainants interest in the
partnership. Thus, we are persuaded that the check
was not intended to apply on account or for value;
rather it should be deemed as having been drawn
without consideration at the time of issue.
Absent the first element of the offense
penalized under B.P. 22, which is the making, drawing
and issuance of any check to apply on account or for
value, petitioners issuance of the subject check was
not an act contemplated in nor made punishable by
said statute.
As to the second issue, the Solicitor General
contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or
required to constitute a violation thereof. In his view,
the only essential element is the knowledge on the
part of the maker or drawer of the check of the
insufficiency of his/her funds at the time of the
issuance of said check.
The Bouncing Checks Law makes the mere act
of issuing a bad or worthless check a special offense
punishable by law. Malice or intent in issuing the
worthless check is immaterial, the offense
being malum prohibitum,[17] so goes the argument for
the public respondents.
But of course this could not be an absolute
proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a kidnapper
for ransom, it would be absurd to hold the drawer
liable under B.P. 22, if the check is dishonored and
unpaid. That would go against public policy and
common sense.
Public respondents further contend that since
petitioner issued the check in favor of complainant
Alarilla and when notified that it was returned for
insufficiency of funds, failed to make good the check,
then petitioner is liable for violation of B.P.
22.[18] Again, this matter could not be all that
simple. For while the makers knowledge of the
insufficiency of funds is legally presumed from the
dishonor of his checks for insufficiency of funds,[19] this
presumption is rebuttable.
In the instant case, there is only a prima
facie presumption which did not preclude the
presentation of contrary evidence.[20] In fact, such
contrary evidence on two points could be gleaned from
the record concerning (1) lack of actual knowledge of
insufficiency of funds; and (2) lack of adequate notice
of dishonor.
Noteworthy for the defense, knowledge of
insufficiency of funds or credit in the drawee bank for
the payment of a check upon its presentment is an
essential element of the offense.[21] It must be proved,
particularly where the prima facie presumption of the
existence of this element has been
rebutted. The prima facie presumption arising from the
fact of drawing, issuing or making a check, the
payment of which was subsequently refused for
insufficiency of funds is, moreover, not sufficient proof
of guilt by the issuer.
In the case of Nieva v. Court of Appeals,[22] it
was held that the subsequent dishonor of the subject
check issued by accused merely engendered
the prima facie presumption that she knew of the
insufficiency of funds, but did not render the accused
automatically guilty under B.P. 22.[23]
The prosecution has a duty to prove all the elements
of the crime, including the acts that give rise to
the prima faciepresumption; petitioner, on the other
hand, has a right to rebut the prima
facie presumption. Therefore, if such knowledge of
insufficiency of funds is proven to be actually absent or
non-existent, the accused should not be held liable for
the offense defined under the first paragraph of
Section 1 of B.P. 22. Although the offense charged is
a malum prohibitum, the prosecution is not thereby
excused from its responsibility of proving beyond
reasonable doubt all the elements of the offense, one
of which is knowledge of the insufficiency of funds.
Section 1 of B.P. 22 specifically requires that
the person in making, drawing or issuing the check, be
shown that he knows at the time of issue, that he does
not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its
presentment.
In the case at bar, as earlier discussed,
petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership
assets upon its dissolution. Payment of that share in
the partnership was conditioned on the subsequent
realization of profits from the unsold goods and
collection of the receivables of the firm. This condition
must be satisfied or complied with before the
complainant can actually encash the check. The
reason for the condition is that petitioner has no
independent means to satisfy or discharge the
complainants share, other than by the future sale and
collection of the partnership assets. Thus, prior to the
selling of the goods and collecting of the receivables,
the complainant could not, as of yet, demand his
proportionate share in the business. This situation
would hold true until after the winding up, and
subsequent termination of the partnership. For only
then, when the goods were already sold and
receivables paid that cash money could be availed of
by the erstwhile partners.
Complainant did not present any evidence that
petitioner signed and issued four checks actually
knowing that funds therefor would be insufficient at the
time complainant would present them to the drawee
bank. For it was uncertain at the time of issuance of
the checks whether the unsold goods would have
been sold, or whether the receivables would have
been collected by the time the checks would be
encashed. As it turned out, three were fully funded
when presented to the bank; the remaining one was
settled only later on.
Since petitioner issued these four checks
without actual knowledge of the insufficiency of funds,
she could not be held liable under B.P. 22 when one
was not honored right away. For it is basic doctrine
that penal statutes such as B.P. 22 must be construed
with such strictness as to carefully safeguard the rights
of the defendant x x x.[24] The element of knowledge of
insufficiency of funds has to be proved by the
prosecution; absent said proof, petitioner could not be
held criminally liable under that law. Moreover, the
presumption of prima facie knowledge of such
insufficiency in this case was actually rebutted by
petitioners evidence.
Further, we find that the prosecution also failed
to prove adequate notice of dishonor of the subject
check on petitioners part, thus precluding any finding
of prima facie evidence of knowledge of insufficiency
of funds. There is no proof that notice of dishonor was
actually sent by the complainant or by the drawee
bank to the petitioner. On this point, the record is
bereft of evidence to the contrary.
But in fact, while the subject check initially
bounced, it was later made good by petitioner. In
addition, the terms of the parties compromise
agreement, entered into during the pendency of this
case, effectively invalidates the allegation of failure to
pay or to make arrangement for the payment of the
check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of
the subject check.
The absence of notice of dishonor is crucial in
the present case. As held by this Court in prior cases:
Because no notice of dishonor was actually sent to
and received by the petitioner, the prima
facie presumption that she knew about the
insufficiency of funds cannot apply. Section 2 of B.P.
22 clearly provides that this presumption arises not
from the mere fact of drawing, making and issuing a
bum check; there must also be a showing that, within
five banking days from receipt of the notice of
dishonor, such maker or drawer failed to pay the
holder of the check the amount due thereon or to
make arrangement for its payment in full by the
drawee of such check.[25] [Underscoring supplied.]
The absence of a notice of dishonor necessarily
deprives an accused an opportunity to preclude a
criminal prosecution. Accordingly, procedural due
process clearly enjoins that a notice of dishonor be
actually served on petitioner. Petitioner has a right to
demand and the basic postulates of fairness require
that the notice of dishonor be actually sent to and
received by her to afford her the opportunity to avert
prosecution under B.P. 22.[26]
Further, what militates strongly against public
respondents stand is the fact that petitioner repeatedly
notified the complainant of the insufficiency of
funds. Instructive is the following pronouncement of
this Court in Magno v. Court of Appeals:
Furthermore, the element of knowing at the time of
issue that he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in
full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the
same reason x x x is inversely applied in this
case. From the very beginning, petitioner never hid the
fact that he did not have the funds with which to put up
the warranty deposit and as a matter of fact, he openly
intimated this to the vital conduit of the transaction,
Joey Gomez, to whom petitioner was introduced by
Mrs. Teng. It would have been different if this
predicament was not communicated to all the parties
he dealt with regarding the lease agreement the
financing of which was covered by L.S. Finance
Management.[27]
In the instant case, petitioner intimated to
private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact
that the partnerships goods were yet to be sold and
receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to
safeguard the interest of the banking system and the
legitimate public checking account user. It did not
intend to shelter or favor nor encourage users of the
system to enrich themselves through manipulations
and circumvention of the noble purpose and objective
of the law. Least should it be used also as a means of
jeopardizing honest-to-goodness transactions with
some color of get-rich scheme to the prejudice of well-
meaning businessmen who are the pillars of society.
xxx
Thus, it behooves upon a court of law that in applying
the punishment imposed upon the accused, the
objective of retribution of a wronged society, should be
directed against the actual and potential
wrongdoers. In the instant case, there is no doubt that
petitioners four (4) checks were used to collateralize
an accommodation, and not to cover the receipt of an
actual account or credit for value as this was absent,
and therefore petitioner should not be punished for
mere issuance of the checks in question. Following the
aforecited theory, in petitioners stead the potential
wrongdoer, whose operation could be a menace to
society, should not be glorified by convicting the
petitioner.[28]
Under the circumstances obtaining in this case,
we find the petitioner to have issued the check in good
faith, with every intention of abiding by her
commitment to return, as soon as able, the
investments of complainant in the
partnership. Evidently, petitioner issued the check with
benign considerations in mind, and not for the purpose
of committing fraud, deceit, or violating public policy
To recapitulate, we find the petition impressed
with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1) the
subject check was not made, drawn and issued by
petitioner in exchange for value received as to qualify
it as a check on account or for value; (2) there is no
sufficient basis to conclude that petitioner, at the time
of issue of the check, had actual knowledge of the
insufficiency of funds; and (3) there was no notice of
dishonor of said check actually served on petitioner,
thereby depriving her of the opportunity to pay or make
arrangements for the payment of the check, to avoid
criminal prosecution.
Having resolved the foregoing principal issues,
and finding the petition meritorious, we no longer need
to pass upon the validity and legality or necessity of
the purported compromise agreement on civil liability
between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby
GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-
G.R. CR No. 11960 is hereby REVERSED and the
Decision ofRegional Trial Court in Criminal Case No. action under the terms of the written contract by virtue repeated unsuccessful demands for the return of her
1395-M-88 is hereby SET ASIDE. of which the enterprise was organized. This contention share of the capital invested in the enterprises. And
having been overruled an account of the affairs of the yet it further appears that during all that time the
Lichauco vs Lichauco Jan 31 1916 enterprise was submitted, and the parties having been defendant manager of the defunct enterprise had in his
EUGENIA LICHAUCO ET AL., Plaintiffs-Appellants, given an opportunity to offer evidence for and against possession not less than P20,000, the cash balance
v. FAUSTINO LICHAUCO, Defendant-Appellant. certain disputed items of the account, judgment was on hand, over and above all claims of indebtedness
rendered for the balance shown to be due the after suspending operations in 1904; and that since
1. PARTNERSHIP; DISSOLUTION AND plaintiffs, after allowing some of these disputed items that time he received or should have received
SETTLEMENT. A provision of articles of and disallowing the rest. To this judgment, both substantial sums of money from the sale of the
partnership, which prohibits the dissolution of the plaintiffs and defendant excepted, and the record is machinery of the dismantled mill.
partnership except by the consent and agreement of now before us on their respective bills of exceptions.
two-thirds of the partners, denies the right of a less There is evidence in the record tending to show that
number of the partners to effect a dissolution of the In October, 1901, a notarial instrument was executed the defendant informed some of his associates, about
partnership through judicial intervention or otherwise; in Manila, by the terms of which a partnership was duly the year 1906 or 1907, that the whole enterprise was
but it in no wise limits or restricts the rights of the organized for the purpose of carrying on a rice- bankrupt; and it appears that some months prior to the
individual partners in the event that the dissolution of cleaning business at Dagupan, and for the purchase institution of this action, he rendered upon demand of
the partnership is effected, not by any act of theirs, but and sale of "palay" and rice. The articles of counsel, a so-called account showing a balance to the
by the express mandate of law. association, which were not recorded in the mercantile credit of the enterprise of only P634.64; although at
registry, contain, among others, the following the trial, some six months afterwards, he expressly
2. ID.; ID. It would be absurd and unreasonable to provisions:jgc: admitted the existence of a cash balance of some
hold that the partnership could never be dissolved and P23,131.53, and the amount by the trial judge as due
liquidated without the consent of two-thirds of its "2. The association will be named F. Lichauco by him on account of the venture was P29,549.99. The
partners notwithstanding that it had lost all its capital, Hermanos and will be domiciled in the center of its defendant explained that the account rendered to
or had become bankrupt, or that the enterprise for operations, that is, in the pueblo of Dagupan, Province counsel for the plaintiffs showing a balance of P634.64
which it had been organized had been concluded or of Pangasinan. was mailed by one of his employees without his
utterly abandoned. knowledge, and that it was a stupid blunder which he
"3. The association cannot be dissolved except by the greatly regretted; and it would seem that his
3. ID.; DUTY OF MANAGER. The business consent and agreement of two-thirds of its partners statements as to the bankruptcy of the enterprise were
association described in the opinion having been and in the event of the death of any of the latter, the not intended to be understood as an assertion that
dissolved by the termination and abandonment of the heirs of the deceased, if they be minors or otherwise there was no balance due the partners, but merely that
enterprise for which it was organized, the manager incapacitated, shall be represented in the association the enterprise had not paid, and that the losses of
(gestor) was bound to liquidate the partnership and by their legal representatives or if two-thirds of the operation had exceeded the profits.
account to all and each of his associates, and upon his surviving partners agree thereto, the participation of
failure so to do, all or any of them had a clear legal the deceased partner may be liquidated. Giving the defendant the benefit of the doubt, we are
right to institute the appropriate judicial proceedings to inclined to accept these explanations of these
secure relief. "5. The management and direction of the association incidents, as it is hardly possible that he could have
shall be in charge of Don Faustino Lichauco y Santos, hoped to escape indefinitely the necessity of
4. ID.; ID.; ACTION BY OR AGAINST PARTNERS; who shall be domiciled in this city of Manila, with accounting for his management of the enterprise, and
PARTIES. In order to avoid a multiplicity of actions, ample powers to direct and manage the business; to thus permanently retain in his own possession the
the defendant in such an action could require all the carry out all manner of purchases and sales of palay, substantial balance due to his associates. But it is to
associates to be made parties, but the right of an rice, chattels, machinery and whatsoever may be be observed that, viewed from any standpoint, these
individual member of the association to recover his necessary and proper for the business of the statements, made and rendered by the defendant as
share in the enterprise and to assert his individual association; to make all contracts of every kind related to the affairs of the association, taken together with the
claim for redress, wholly independent of the action or to said business, either orally, in private documents or other evidence in the record, leave no room for doubt
attitude of his associates, could be in no wise affected in public instruments, as he deems fit: to appoint that from the time he concluded the operations of the
thereby. The other associates would be proper, but not subordinates and other employees such as may be business in 1904 until the date of the institution of this
necessary parties to an action of this kind, and when, necessary; and finally to perform whatever acts and action in 1912 he made no attempt to account to his
as in the case at bar, the defendant proceeds to trial things he may deem suitable to the interest of the associates or to turn over to them the amount due
without objection on the express ground that all the association; and to appear before the courts of justice them on a proper accounting.
associates in the enterprise have not been made and other authorities and public offices in such matters
parties to the action, he cannot thereafter be heard to as may concern the association and to appoint agents The assignments of error made by counsel for the
raise such an objection for the purpose of challenging for those matters to which he cannot attend defendant, as appellant, are as follows:jgc:
any judgment which may be rendered therein. personally."cralaw virtua1aw library
"Error No. 1. The trial court erred in rendering
5. ID.; UNREGISTERED COMMERCIAL The articles disclose that the capital invested in the judgment in favor of the plaintiffs and against the
PARTNERSHIPS; CODE PROVISIONS APPLICABLE enterprise was fixed at P100,000, of which amount defendant for any sum, without first decreeing a
TO RELATIONS OF MEMBERS. --Under the P60,000 was contributed by the defendant and his dissolution of the association and final liquidation of its
provisions of article 1670 of the Civil Code, if it be brothers in the form of machinery in a mill at Dagupan assets in accordance with paragraph 10 of the articles
found that an unregistered commercial partnership is and the good will of the milling business formerly of association, and because such judgment is not
clothed with the forms of any of the commercial conducted at the place, the balance of the capital within the issues joined.
associations or partnerships recognized in the being contributed by the plaintiffs and others in cash,
Commercial Code, the provisions of that Code, in so in the following proportions: Eugenia Lichauco, "Error No. 2. The trial court erred in charging the
far as they are not in conflict with those of the Civil P13,000; Catalino Arevalo, P8,000; Mariano Nable defendant with P5,500, the price of certain boilers and
Code, may be relied upon in an attempt to define the Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco, machinery sold to one Marciano Rivera by Crisanto
legal relations of the association and its members. P10,000. Lichauco, which amount never came into the
possession of the defendant.
DECISION The business thus organized was carried on until May,
This action was brought by two of the partners of an 1904, when it was found to be unprofitable and "Error No. 3. The trial court erred in disallowing the
enterprise of which the defendant was manager discontinued by the defendant manager (gestor); and, credit of P60.36, taken by defendant for that amount
(gestor), to secure an accounting of its affairs, and the thereafter, the machinery of the rice mill was expended in an attempt to make good the sale and
payment to the plaintiffs of their respective shares of dismantled by his orders, and offered for sale. No delivery to Marciano Rivera of the boilers and
capital and profits. accounting ever was made to his associates by the machinery mentioned in the second assignment of
defendant until this action was instituted in October, error.
The defendant admitted the allegations of the 1912, although it appears that in the year 1905,
complaint as to the organization of the enterprise and Mariano Limjap, one of the participants in the venture, "Error No. 4. The court erred in charging the
the participation of the plaintiffs therein, but he demanded a rendition of accounts; and that Eugenia defendant with the P1,820, covered by stipulation of
contended that the plaintiffs could not maintain this Lichauco, one of the plaintiffs in this action, made December 10, 1913, for the reason that the
defendants liability under that stipulation can only These contentions of counsels for the defendant take articles of copartnership do not contain an express
accrue on the final dissolution and liquidation of the no account of the provisions of both the Civil and agreement that the heirs of the deceased partner are
association. Commercial Codes for the dissolution and liquidation to continue in the copartnership, or an agreement to
of the different classes of partnerships and mercantile the effect that said copartnership will continue between
"Error No. 5. The court erred in rendering judgment associations upon the occurrence of certain the surviving partners.
against the defendant for the costs of the contingencies not within the control of the partners.
action."cralaw virtua1aw library The provisions of paragraph 10 of the articles of "(2) The insanity of a managing partner or any other
partnership prohibiting the dissolution of the cause which renders him incapable of administering
The assignments of error made by counsel for the association under review, except by the consent and his property.
plaintiffs, as appellants, are as follows:jgc: agreement of two-thirds of its partners, denied the right
to a less number of the partners to effect a dissolution "(3) The failure of any of the general partners."cralaw
"Error No. 1. The court erred in refusing to condemn of the partnership through judicial intervention or virtua1aw library
the defendant to the payment of interest at the legal otherwise; but it in no wise limited or restricted the
rate of 6 per cent upon the credit balance of the joint rights of the individual partners in the event the It cannot be doubted that under these provisions of law
venture from May 30, 1904, to date of payment. dissolution of the association was effected, not by any the association of which the defendant was nominated
act of theirs, but by the express mandate of statutory manager (gestor) was totally dissolved in the year
"Error No. 2. The court erred in refusing to allow law. It would be absurd and unreasonable to hold that 1904, when the rice mill for the operation of which it
interest at the legal rate of 6 per cent upon the sum of such an association could never be dissolved and was organized was dismantled, the machinery offered
P1,147.44 from May 30, 1904, to date of payment, liquidated without the consent and agreement of two- for sale and the whole enterprise concluded and
said sum being the amount by which the said credit thirds of its partners, notwithstanding that it had lost all abandoned.
balance of the joint venture was unduly diminished by its capital, or had become bankrupt, or that the
error in the conversion of gold currency. enterprise for which it had been organized had been Upon the dissolution of the association in 1904 it
concluded or utterly abandoned. became the duty of the defendant to liquidate its affairs
"Error No. 3. The court erred in refusing to allow the and account to his associates for their respective
joint venture account the sum of P17,746, being the Chapter 3 of Title VIII [Book IV,] of the Civil Code shares in the capital invested this not merely from
value of 3,736 cavanes of rice at P4.75 per cavan, for prescribes the means by which partnership the very nature of his relation to the enterprise and of
which the defendant has wholly failed to account. (sociedades), as defined in that code, may be his duties to those associated with him as partners, but
terminated. The first article of that chapter is as also by the express mandate of the law. The
"Error No. 4. The court erred in declining to allow follows:: association having been dissolved by the termination
the joint venture account the sum of P8,943.98 as and abandonment of the enterprise for which it was
interest upon said last-mentioned sum at the legal "1700. Partnership is extinguished:: organized, he owed this duty to liquidate and account
rate. to all and to each of his associates, and upon his
"(1) When the term for which it was constituted failure to perform that duty, all or any of them had a
"Error No. 5. The court erred in declining to allow expires. clear legal right to compel him to fulfill it. Each of his
the joint venture account the sum of P564.34, as associates had a perfect right to demand for himself a
interest at the legal rate upon the sum of P5,500, for "(2) When the thing is lost, or the business for which it full, complete and satisfactory accounting, and in the
which the defendant has failed and refused to was constituted ends. event that he conceived himself aggrieved in this
account. regard, to institute the appropriate judicial proceedings
"(3) By the natural death, civil interdiction, or to secure relief. Doubtless, in order to avoid a
"Error No. 6. The court erred in declining to credit insolvency of any of the partners, and in the case multiplicity of actions, the defendant in such an action
the joint venture account with the sum of P2,498.46 as provided for in article 1699. could require all the associates to be made parties, but
the amount due said account from Mariano Nable the right of an individual member of the association to
Jose, together with interest thereon at the legal rate, "(4) By the will of any of the partners, subject to the recover his share in the enterprise and to assert his
amounting to P1,259.22."cralaw virtua1aw library provisions of articles 1705 and 1707. individual claim for redress, wholly independent of the
action or attitude of his associates, could be in no wise
We shall first examine the contentions of counsel for "Partnerships, to which article 1670 refers, are affected thereby. The other associates would be
the defendant in support of his principal assignment of excepted from the provisions of Nos. 3 and 4 of this proper, but not necessary, parties to an action of this
error, as a ruling in this regard is necessary to the article, in the cases in which they should exist, kind; and when, as in the case at bar, the defendant
proper disposition of all the other assignments of error according to the Code of Commerce."cralaw virtua1aw proceeds to trial without objection on the express
by both plaintiffs and defendant. library ground that all the associates in the enterprise have
not been made parties to the action, he cannot
Counsel for defendant says in his brief:jgc: "1670. Civil partnerships, on account of the objects for thereafter be heard to raise such an objection for the
which they are destined, may adopt all the forms purpose of challenging any judgment which may be
"It is our contention, and we believe it to be accepted by the Code of Commerce. In this case, the rendered therein.
unanswerable, that the dissolution and liquidation, provisions of the same shall be applicable, in so far as
either in whole or in part, of the association is they are not in conflict with those of the present Although the enterprise was organized in the year
absolutely prohibited by paragraph 10 of the articles of Code."cralaw virtua1aw library
1901 for the purpose of conducting mercantile
association, except by and with the conformity and operations, including the buying and selling of "palay"
agreement of two thirds of the partners, and that as a Articles 221 and 222 of the Code of Commerce are as and rice, the articles of partnership or association were
consequence thereof the court, without allegations or follows:jgc: not registered in the mercantile registry in accordance
proof of compliance with that paragraph and without with the provisions of articles 17 and 119 of the
making the other partners parties to the action, had no "221. Associations of any kind whatsoever shall be Commercial Code. It was therefore a mere
power to decree a distribution either in whole or in part completely dissolved for the following reasons:jgc: unregistered commercial partnership, and the
of the capital or assets of the association. association never became in the legal sense a juridical
"(1) The termination of the period fixed in the articles of
person, nor did it attain the dignity, rights or privileges
"It certainly cannot be seriously contended that part of association or the conclusion of the enterprise which accorded the different classes of compaias
the capital and assets of this association can be constitutes its purpose.
mercantiles (mercantile partnership) discussed in Title
lawfully returned to and distributed between the 1 of Book 2 of the Commercial Code. Still, under the
plaintiffs who constitute one-fifth of the total number of "(2) The entire loss of the capital.
provisions of the above-cited article 1670 of the Civil
partners, as required by paragraph 10 of the articles of Code, if it be found that the association is clothed with
association. "(3) The failure of the association.
the forms of any of the commercial associations or
partnerships recognized in the Commercial Code, the
"It is elementary that no lawful liquidation and "222. General and limited copartnership shall provisions of that code, in so far as they are not in
distribution of capital and assets of any company or furthermore be totally dissolved for the following conflict with those of the Civil Code, may be relied
association can ever take place except upon reasons: upon in an attempt to define the legal relations of the
dissolution thereof."cralaw virtua1aw library association and its members. Though the unregistered
"(1) The death of one of the general partners if the articles of partnership gave the association a form of
organization closely assimilated to that of a regular
"compaia en comandita," as prescribed in the
Commercial code, except that the name designated in
the articles did not include the words "y compaia"
(and company) and the additional words "sociedad en
comandita," it appears to have been organized and
conducted in substantially the manner and form
prescribed for "cuentas en participacion" (joint
accounts) in articles 239-243 of that Code.
The plaintiffs alleged in their complaint and the
defendant admitted in his answer that the contract was
one of a "sociedad de cuentas en participacion" (joint
account partnership) of which the defendant was
gestor (manager). In his bried on appeal, however,
counsel for defendant intimates that under article 241
of the Commercial Code, the adoption in the articles of
partnership of a firm name deprived the parties of the
rights and priveleges secured to those interested in
cuentas en participacion under th provisions of the
Commercial Code.
But whatever effect the inclusion or omission of a firm
name in the articles of partnership may have had as to
third persons dealing with the partnership, we are of
opinion that as between the associates themselves,
their mutual rights, duties and obligation may properly
be determined upon the authority of article 1670 of the
Civil Code by the provisions of the Commercial Code
touching partnerships, the forms of which in all other
respects, the partners have adopted in their articles of
partnership.
The duty of the defendant to liquidate the affairs of the
enterprise and to account to his associated promptly
upon the dissolution of the association in the year
1904 is expressly prescribed in the Commercial Code,
whether we regard the association, so far as it affects
the mutual rights and obligation of the partners, as
clothed with the forms of a "sociedad de cuentas en
participacion" (joint account partnership), or a
"sociedad en comandita."cralaw virtua1aw library
Article 243 of the Code of Commerce prescribes with
reference to "cuentas en participacion" (joint accounts)
that:jgc:.
"243. The liquidation shall be effected by the manager,
and after the transactions have been concluded he
shall render a proper account of its results."cralaw
virtua1aw library
Articles 229 and 230 of the same Code are as
follows:jgc:
"229. In general or limited copartnerships, should there
be no opposition on the part of any of the partners, the
persons who managed the common funds shall
continue in charge of the liquidation; but should all the
partners not agree thereto a general meeting shall be
called without delay, and the decision adopted at the
same shall be enforced with regard to the appointment
of liquidators from among the members of the
association or not, as well as in all that refers to the
form and proceedings of the liquidation and the
management of the common funds.
"230. Under the penalty of removal the liquidators shall
"(1) Draw up and communicate to the members, within
the period of twenty days, an inventory of the common
property, with a balance of the association in
liquidation, according to its books.
"(2) Communicate in the same manner to the
members every month the condition of the
liquidation."cralaw virtua1aw library herewith, and ten days thereafter let the record be
remanded in conformity therewith. So ordered.
We conclude that an express statutory obligation
imposed upon the defendant an imperative obligation Testate Estate of Lazaro Mota vs Serra Feb 14 1925
to proceed without delay to the liquidation of the TESTATE ESTATE OF LAZARO MOTA, deceased,
association in the year 1904 and the further duty to ET AL., Plaintiffs-Appellants, v. SALVADOR
account to his associates for the result of that SERRA, Defendant-Appellee.
liquidation. While he appears to have gone forward Eduardo Gutierrez Repide for Appellants.
with the liquidation far enough to collect all the cash Hilado & Hilado, Fisher, DeWitt, Perkins & Brady,
resources of the association into his own hands, he Araneta & Zaragoza, Antonio Sanz and Jose Galan
utterly failed and neglected to account therefor to his y Blanco for Appellee.
associates or to make any attempt so to do, and we
are of opinion that the plaintiffs were clearly entitled to
bring this action to compel an accounting, and the 1. OBLIGATIONS; CONTRACTS; NOVATION;
payment of their respective shares of the capital CONSENT OF CREDITOR. In order that there may
invested, together with damages resulting from the be a novation of a contract by the substitution of the
failure of the defendant to perform the duty expressly debtor, the express consent of the creditor is
imposed upon him by statute. The damages arising necessary.
from the failure to account consisted of the loss of the
use of the money to which they would have been 2. ID.; ID.; ID.; TIME AND FORM OF CONSENT. It
entitled upon a proper accounting, from the date at is not necessary that the creditor should give his
which it should have been turned over by the consent simultaneously with the execution of the new
defendant until it is actually paid by him, that is to say, contract. He may do so afterwards, provided it is given
interest on that amount at the rate of six per centum in an indubitable manner.
per annum until paid.
3. ID.; ID.; ID.; EVIDENCE. The mere fact that the
What has been said disposes adversely of the creditor has dealt with the person who is alleged to
contentions of the defendant in support of his have been substituted in the place of the original
assignments of errors Nos. 1 and 5; and sustains the debtor on matters different from the obligation incurred
contentions of the plaintiffs in their assignments of does not prove that said creditor has consented to the
errors Nos. 1 and 2, to the extent that interest at the substitution so as to liberate the original debtor from
rate of six per centum per annum should have been his obligations, it not appearing that the creditor has
allowed upon the credit balance of the enterprise from taken part in the agreement of substitution or that he
May 30, 1904, the date when it should have been has waived his right against debtor.
distributed among his associated by the defendant had
he performed his statutory duty in that regard. This 4. ID.; ID.; CONFUSION. The rights of creditor and
balance (including the item mentioned in plaintiffs debtor are not merged in one same person by the fact
assignment of error No. 2) we fix at P23,131.53, that the things pertaining to said creditor and debtor
adopting as a basis for our finding in this regard, the which were the subject of the obligation were
findings and conclusions of the trial judge, and transferred to him where said transfer did not include,
disregarding the possibility that had defendant among the rights and obligations transferred, the credit
accounted promptly to his associates, interest might that the creditor had against the debtor.
not have been chargeable on some of the smaller
items included in the account until some little time after 5. ID.; ID.; PARTNERSHIP; DISSOLUTION; EFFECTS
the date just mentioned. OF. The dissolution of a partnership does not
extinguish its obligations already incurred, and the
As to the other assignments of error it must suffice to partnership continues until they are liquidated,
say that we have carefully examined the record and although it may not incur new obligations.
have arrived at the following conclusions:chanrob1es
virtual 1aw library 6. ID.; ID.; ID.; ID.; PERIOD. Obligations contracted
by a partner with his copartners, for the fulfillment of
With relation to the item of account referred to in which a period was fixed, become pure obligations
defendants assignment of error No. 2 and plaintiffs upon the immediate dissolution of the partnership by
assignment No. 5, we hold that the defendants agreement of the members, and the partner entitled to
account was properly charged by the trial judge with enforce them may bring an action for the purpose after
the sum of P5,500, the purchase price of certain the dissolution agreed upon by the parties, without the
machinery sold by him and for which, under all the necessity of waiting for the expiration of the period
circumstances, he must account, together with interest originally fixed.
at the rate of six per centum per annum from January
8, 1912, the date of sale to Marciano Rivera. On February 1, 1919, plaintiffs and defendant entered
into a contract of partnership, marked Exhibit A, for the
With relation to the items mentioned in plaintiffs construction and exploitation of a railroad line from the
assignments of errors Nos. 3 and 4, we hold that the "San Isidro" and "Palma" centrals to the place known
trial judge properly declined to charge the defendants as "Nandong." The original capital stipulated was
account with the amounts mentioned therein, the P150,000. It was covenanted that the parties should
evidence of record not being sufficient to establish his pay this amount in equal parts and the plaintiffs were
liability therefor as manager or gestor of the entrusted with the administration of the partnership.
enterprise. The agreed capital of P150,000, however, did not
prove sufficient, as the expenses up to May 15, 1920,
We find no merit in defendants assignment of error had reached the amount of P226,092.92, as per
numbered 3. statement Exhibit B, presented by the administrator
and O. K.d by the defendant.
Twenty days hereafter let judgment be entered
reversing the judgment of the lower court, without January 29, 1920, the defendant entered into a
special condemnation of the costs in this instance, and contract of sale with Venancio Concepcion, Phil. C.
directing the return of the record to the trial court, Whitaker, and Eusebio R. de Luzuriaga, whereby he
wherein judgment will be entered in accordance sold to the latter the estate and central known as
"Palma" with its running business, as well as all the
improvements, machineries and buildings, real and
personal properties, rights, choses in action and
interests, including the sugar plantation of the harvest
year of 1920 to 1921, covering all the property of the
vendor. This contract was executed before a notary
public of Iloilo and is evidence by Exhibit 1 of the
defendant, paragraph 5 of which reads as follows:jgc:
"5. The party of the first part hereby states that he has
entered into a contract with the owners of the San
Isidro Central for the construction, operation, and
exploitation of a railroad line of about 10 kilometers
extending from the Palma Central and San Isidro
Central to a point known as Nandong, the expenses
until the termination of which shall be for the account
of the San Isidro Central, and of which expenses,
one-half shall be borne by the Palma Central with the
obligation to reimburse same five (5) years with
interest at the rate of 10 per cent per annum to the
said San Isidro Central. The vendee hereby obligates
himself to respect the aforesaid contract and all
obligations arising therefrom."cralaw virtua1aw library
Before the delivery to the purchasers of the hacienda
thus sold, Eusebio R. de Luzuriaga renounced all his
rights under the contract of January 29, 1920, in favor
of Messrs. Venancio Concepcion and Phil. C.
Whitaker. This gave rise to the fact that on July 17,
1920, Venancio Concepcion and Phil. C. Whitaker and
the herein defendant executed before Mr. Antonio
Sanz, a notary public in and for the City of Manila,
another deed of absolute sale of the said "Palma"
Estate for the amount of P1,695,961.90, of which the
vendor received at the time of executing the deed the
amount of P945,861.90, and the balance was payable
by installments in the form and manner stipulated in
the contract. The purchasers guaranteed the unpaid
balance of the purchase price by a first and special
mortgage in favor of the vendor upon the hacienda
and the central with all the improvements, buildings,
machineries, and appurtenances then existing on the
said hacienda.
Clause 6 of the deed of July 17, 1920, contains the
following stipulations:jgc:
"6. Messrs. Phil. C. Whitaker and Venancio
Concepcion hereby state that they are aware of the
contract that Mr. Salvador Serra has with the
proprietors of the San Isidro Central for the operation
and exploitation of a railroad line about 10 kilometers
long from the Palma and hereby and San Isidro
centrals to the place known as Nandong; and hereby
obligate themselves to respect the said contract and
subrogate themselves into the rights and obligations
thereunder. They also bind themselves to comply with
all the contracts heretofore entered by the vendor with
the customers, copaceners on shares and
employees."cralaw virtua1aw library
Afterwards, on January 8, 1921, Venancio Concepcion
and Phil. C. Whitaker bought from the plaintiffs the one
half of the railroad line pertaining to the latter
executing therefor the document Exhibit 5. The price of
this sale was P237,722.15, excluding any amount
which the defendant might be owing to the plaintiffs. Of
the purchase price, Venancio Concepcion and Phil. C.
Whitaker paid the sum of P47,544.43 only. In the deed
Exhibit 5, the plaintiffs and Concepcion and Whitaker
agreed, among other things, that the partnership
"Palma" and "San Isidro," formed by the agreement of
February 1, 1919, between Serra, Lazaro Mota, now
deceased, and Juan J. Vidaurrazaga for himself and in
behalf of his brothers, Felix and Dionisio Vidaurrazaga,
should be dissolved upon the execution of this
contract, and that the said partnership agreement
should be totally cancelled and of no force and effect
whatever. article 1205 of the Civil Code. If so, it is clear that the
obligation of the defendant was, in accordance with
So it results that the "Hacienda Palma", with the entire article 1156 of the same code, extinguished.
railroad, the subject-matter of the contract of
partnership between plaintiffs and defendant, became It should be noted that in order to give novation its
the property of Whitaker and Concepcion. Phil. C. legal effect, the law requires that the creditor should
Whitaker and Venancio Concepcion having failed to consent to the substitution of a new debtor. This
pay to the defendant a part of the purchase price, that consent must be given expressly for the reason that,
is, P750,000, the vendor, the herein defendant, since novation extinguishes the personality of the first
foreclosed the mortgage upon the said hacienda, debtor who is to be substituted by a new one, it implies
which was adjudicated to him at the public sale held by on the part of the creditor a waiver of the right that he
the sheriff for the amount of P500,000, and the had before the novation which waiver must be express
defendant put in possession thereof, including what under the principle that renuntiatio non praesumitor,
was planted at the time, together with all the recognized by the law in declaring that a waiver of
improvements made by Messrs. Phil. C. Whitaker and right may not be performed unless the will to waive is
Venancio Concepcion. indisputably shown by him who holds the right.
Since the defendant Salvador Serra failed to pay one- The fact that Phil. C. Whitaker and Venancio
half of the amount expended by the plaintiffs upon the Concepcion were willing to assume the defendants
construction of the railroad line, that is, P113,046.46, obligation to the plaintiffs is of no avail, if the latter
as well as Phil. C. Whitaker and Venancio have no expressly consented to the substitution of the
Concepcion, the plaintiffs instituted the present action first debtor. Neither can the letter, Exhibit 6, on page
praying: (1) That the deed of February 1, 1919, be 87 of the record be considered as proof of the consent
declared valid and binding; (2) that after the execution of the plaintiffs to the substitution of the debtor,
of the said document the defendant improved because that exhibit is a letter written by plaintiffs to
economically so as to be able to pay the plaintiffs the Phil. C. Whitaker and Venancio Concepcion for the
amount owed, but that he refused to pay either in part reason that the defendant had told them (plaintiffs) that
or in whole the said amount notwithstanding the after the sale of the Hacienda Palma" to Messrs. Phil.
several demands made on him for the purpose; and C. Whitaker and Venancio Concepcion, the latter from
(3) that the defendant be sentenced to pay the then on would bear the cost of the repairs and
plaintiffs the aforesaid um of P113,046.46, with the maintenance of the railroad line and of the
stipulated interest at 10 per cent per annum beginning construction of whatever addition there into might be
June 4, 1920, until full payment thereof, with the costs necessary. So the plaintiffs by their letter of August
of the present action. 14th, submitted a statement of account to Phil. C.
Whitaker and Venancio Concepcion containing the
Defendant set up three special defenses: (1) The accounts of the "San Isidro" Central, as stated June
novation of the contract by the substitution of the 30, 1920, saying that they had already explained
debtor with the conformity of the creditors; (2) the previously the reason for the increase in the expenses
confusion of the rights of the creditor and debtor; and and since the retiring partner, Mr. Serra, had already
(3) the extinguishment of the contract, Exhibit A. given his conformity with the accounts, as stated May
15, 1920, it remained only to hear the conformity of the
The court a quo in its decision had that there was a new purchasers for the accounts covering the period
novation of the contract by the substitution of the from May 15 to June 30, 1920, and their authority for
debtor, and therefore absolved the defendant from the future investments, or their objection, if any, to the
complaint with costs against the plaintiffs. With regard amounts previously expended. Neither can the
to the prayer that the said contract be declared valid testimony of Julio Infante in connection with Exhibit 7
and binding, the court held that there was no way of be taken as evidence of the consent of the plaintiffs to
reviving the contract which the parties themselves in the exchange of the person of the debtor for that of
interest has spontaneously and voluntarily Messrs. Phil. C. Whitaker and Venancio Concepcion.
extinguished. (Exhibit 5.) This witness testified, in substance, that he is
acquainted with the partnership formed by the owners
Plaintiffs had appealed form this judgment and as of the "Hacienda Palma" and "Hacienda San Isidro" for
causes for the review, they allege that the trial court the construction of the railroad line; that the costs of
erred: (a) In holding that Messrs. Whitaker and the construction thereof was originally estimated at
Concepcion, upon purchasing the "Palma" Central, P150,000; that the owner of the "Hacienda Palma"
were subrogated in the place of the defendant in all his would pay one-half of this amount; that when the
rights and obligations under the contract relating to the "Hacienda Palma" was sold to Messrs. Phil. C.
railroad line existing between the "Palma" and the Whitaker and Venancio Concepcion, the latter agreed
"San Isidro" centrals and that the plaintiffs agreed to to pay one-half of the cost of P150,000; that as the
this subrogation; (b) in holding that the deed Exhibit A cost of construction exceeded P200,000, he, as an
of February 1, 1919, had been extinguished in its employee of Messrs. Phil. C. Whitaker and Venancio
entirety and made null and void by the agreement Concepcion, could not O.K. the accounts as presented
Exhibit 5 dated December 16, 1920; (c) in absolving by the plaintiffs, and suggested that they take up in
the defendant from the complaint and in sentencing writing their points of view directly with Messrs. Phil. C.
the plaintiffs to pay the costs; and (d) in not sentencing Whitaker and Venancio Concepcion. Then the
the defendant to pay the plaintiffs the sum of plaintiffs did as suggested, and wrote the letter Exhibit
P133,046.46, with legal interest at 10 per cent per 7 in which they asked the new owners of the
annum from June 4, 1920, until full payment, with cost "Hacienda Palma" their decision upon the following
against the defendant. three questions: 1. Will the "Palma" Central accept the
statement of accounts as presented by the "San Isidro"
Taking for granted that the defendant was under Central regarding the actual cost of the railroad line
obligation to pay the plaintiffs one-half of the cost of "Palma-San Isidro-Nandong?" 2. Is the "Palma"
the construction of the railroad line in question, by Central willing to continue as co-proprietor of the
virtue of the contract of partnership Exhibit A, the railroad line for the exploitation of the sugar-cane
decisive point here to determine is whether there was business of "Nandong" and neighboring barrios, and
a novation of the contract by the substitution of the therefore to pay 50 per cent of the expenses that may
debtor with the consent of the creditor, as required by incurred in completing the line?
 debtor, while not making it impossible to express the relieved from this obligation and it then devolved upon
It was but natural that the plaintiffs should have done same, imply the distinction between these forms of Serna to pay the plaintiff. This means that as a
this. Defendant transferred his hacienda to Messrs. novation and it is based on the simple consideration of consequence of the contract between the defendant
Phil. C. Whitaker and Venancio Concepcion and made justice that since the consequences of the substitution and Serna, the contract between the defendant and
it known to the plaintiffs that the owners would hold may be prejudicial to the creditor, but not to the debtor, the plaintiff was novated by the substitution of Serna
themselves liable for the cost of constructing the said the consent of the creditor alone is necessary. as new debtor. This is untenable. In order that this
railroad line. Plaintiffs could not prevent the defendant novation may take place, the new law requires the
from selling to Phil. C. Whitaker and Venancio "The two forms of this novation, also impliedly consent of the creditor (art. 1205 of the Civil Code).
Concepcion his "Hacienda Palma" with the rights that recognized by article 1206 which employs the word The plaintiff did not intervene in the contract between
he had over the railroad in question. The defendant delagate, as applied to the debt, are the expromission Veloso and Serna and did not expressly give his
ceased to be a partner in the said line and, therefore, and the delegation. Between these, there is a marked consent to this substitution. Novation must be express,
the plaintiffs had to take the vendees as their new difference of meaning and, sa a consequence, a and cannot be presumed."cralaw virtua1aw library
partners. Plaintiffs had to come to an understanding logical difference of requisite and another clear
with the owners of the "Hacienda Palma" in connection difference as to their effects, of which we shall speak In Martinez v. Cavives (25 Phil., 581), it was held
with the railroad line "Palma-San Isidro Nandong." later. that:jgc:
But in all of this, there was nothing to show the
express consent, the manifest and deliberate intention "In the expromission, the initiative of the change does ". . . The consent of the new debtor is as essential to
of the plaintiffs to attempt the defendant from his not emanate from the debtor and may be made even the novation as is that of the creditor.
obligation and to transfer it to his successors in without his consent, since it consist in a third person
interest, Messrs. Phil. C. Whitaker and Venancio assuming his obligation; it logically requires the "There is no express stipulation in any of the
Concepcion. consent of this third man and of the creditor and of this documents of record that the obligation of the
last requisite lies the difference between novation and defendant was novated, and the parol evidence
The plaintiffs were not a party to the document Exhibit payment, as the latter can be effected by a third tending to show that it was novated is not in law to
1. Neither in this document, nor in others in the record, person even against the will of the creditor, whereas in establish that fact."cralaw virtua1aw library
do we find any stipulation whereby the obligation of the the former case it cannot.
defendant was novated with the consent of the The same doctrine was upheld in the case of Vaca v.
creditor, and as it has been held in the case of "In the delegation, the debtor offers and the creditor Kosca (26 Phil., 388):jgc:
Martinez v. Cavives (25 Phil., 581), the oral evidence accepts a third person who consents to the "A new debtor cannot be substituted for the original
tending to prove such a fact as this is not in law substitution so that the intervention and the consent of obligor in the first contract without the creditors
sufficient. these three persons are necessary and they are consent."cralaw virtua1aw library
respectively known as delegante, delegatario, and
As has been said, in all contracts of novation delegado. It must be noted that the consent need not The supreme court of Spain has constantly laid down
consisting in the change of the debtor, the consent of be given simultaneously and that it may be given the same doctrine with regard to novation of
the creditor indespensable, pursuant to article 1205 of afterwards, as for example, that of the creditor contracts:jgc:
the Civil Code which reads as follows:jgc: delegatario to the proposition of the debtor accepted
by the delegado. "The obligations and rights in a contract cannot be
"Novation which consist in the substitution of a new novated with regard to a third person who has not
debtor in the place of the original one may be made "Delegation notably differs from the mere indication intervened in the execution thereof." (Decision of June
without the knowledge of the latter, but not without the made by the debtor that a third person shall pay the 28, 1860.)
consent of the creditor."cralaw virtua1aw library debt; in this case, there is no novation and the former
is not acquitted of his obligation and his relations with "Novation by the change of debtors cannot be effected
Mr. Manresa in his commentaries on articles 1205 and the third person are regulated by the rules of agency. without the express approval of the creditor."
1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-426) The French Code in article 1276 expressly provides for (Decisions of February 8, 1862 and June 12, 1867.)
says as follows:jgc: this case, as well as the inverse one where the debtor
"Article 1205 clearly says in what this kind of novation points out somebody else to answer for the payment, "Novation should not be established by presumptions
must consist, because in stating that another person declaring that there is no novation in either case. The but by the express will of the parties." (Decisions of
must be substituted in lieu of the debtor, it means that same sound criterion is impliedly accepted by our February 14, 1876 and June 16, 1883.)
it is not enough to extend the juridical relation to that Code."cralaw virtua1aw library
other person, but that it is necessary to place the latter "In order that novation of a contract by subrogation of
in the same position occupied by the original debtor. In the case of E. C. McCullough & Co. v. Veloso and the debtor may take effect and thus liberate the first
"Consequently, the obligation contracted by a third Serna (46 Phil., 1), it appears that McCullough & Co., debtor from the obligation, it is necessary that the
person to answer for the debtor, as in the case of Inc., sold to Veloso a real state worth P700,000 on subrogation be made with the consent of the creditor."
suretyship, in the last analysis, does not work as a true account of which Veloso paid P50,000, promising to (Decision of March 2, 1897.)
novation, because the third person is not put in the pay the balance at the times and manner stipulated in
same position as the debtorthe latter in his same the contract. He further bound himself to pay 10 per "It is undeniable that obligations judicially declared, as
place and with the same obligation which is cent of the amount of the debt as attorneys fees in well as those acquired by any other title, can be
guaranteed by the former. case of litigation. To secure the unpaid balance of the novated by substituting a new debtor in place of the
purchase price he executed a first mortgage upon the primitive, only when the creditor gives his consent to
"Since it is necessary that the third person should property in favor of the vendor. Subsequently, Veloso the substitution." (Decision of November 15, 1899.)
become a debtor in the same position as the debtor sold the property for P100,000 to Joaquin Serna who
whom he substitutes, this charge and the resulting bound himself to respect the mortgage in favor of "Novation can in no case be presumed in contracts,
novation may be respected as to the whole debt, thus McCullough & Co., Inc., and to assume Velosos but it is necessary that it should result from the will of
untying the debtor from his obligation, except the obligation to pay the unpaid balance of the purchase the parties, or that the old and the new one be
eventual responsibilities of which we shall speak later, price of the property at the times agreed upon in the altogether incompatible." (Decision of December 31,
or he may continue with the character of such debtor contract between Veloso and McCullough & Co., Inc. 1904.)
and also allow the third person to participate in the
obligation. In the first case, there is a complete and Veloso had paid on account of the price the amount of "An obligation cannot be deemed novated by means of
perfect novation; in the second, there is a change that P50,000, and Serna also made several payments modifications which do not substantially change the
does not free the debtor nor authorized the aggregating the total amount of P250,000. But after essence thereof, nor when it is not extinguished by
extinguishment of the accessory obligations of the this, neither Veloso nor Serna made further payments another obligation, nor when the debtor is not
latter. In this last hypothesis, if there has been no and thus gave cause for litigation. The court in substituted." (Decision of March 14, 1908.)
agreement as to solidarity, the first and the new debtor deciding the case said:jgc:
should be considered as obligated severally. "The consent of the creditor required in a novation
"The defendant contends that having sold the property consisting of the charge of debtors (arts. 1205, Civil
"The provisions of article 1205 which require the to Serna, and the latter having assumed the obligation Code) must appear in an express and positive manner
consent of the creditor as an indespensable requisite to pay the plaintiff the unpaid balance of the price and must be given with the deliberate intention of
in this kind of novation and not always that of the secured by the mortgage upon the property, he was exonerating the primitive debtor of his obligations and
transfer them wholly upon the new debtor." (Decision "1. While it is true that it cannot be strictly said that La
of June 22, 1911.) Notwithstanding the doctrines above quoted, Azucarera de Pravia was merged with the Sociedad
defendants counsel calls our attention to the decision General Azucarera de Espana, the document
In the decision in the case of Martinez v. Cavives, of the supreme court of Spain of June 16, 1908, whereby the property of the La Azucarera de Pravia
supra, the following decisions of the several courts of wherein it was held that the provisions of article 1205 was ceded to the Sociedad General Azucarera de
the United States are cited, wherein this question was of the Code do not mean nor require that the consent Espaa clearly and expressly recites that this
decided in the same manner:jgc: of the creditor to the change of a debtor must be given company upon taking charge of the immovable
just at the time when the debtors agreed on the property of the La Azucarera de Pravia accepted in
"In Latiolais, admrx. v. Citizens Bank of Louisiana (33 substitution, because its evident object being the full general, with respect to the property ceded,
La. Ann., 1444), one Duclozel mortgaged property to protection of the rights of the creditor, it is sufficient if everything belonging to the same, after making
the defendant bank for the triple purpose of obtaining the latter manifests his consent in any form and at any provisions about active and passive easements,
shares in the capital stock of the bank, bonds which time as long as the agreement among the debtors hold contracts for transportation and other matters."cralaw
the bank was authorized to issue, and loans to him as good. And the defendant insists that the acts virtua1aw library
stockholder. Duclozel subsequently sold this performed by the plaintiffs after the "Hacienda Palma"
mortgaged property to one Sproule, who, as one of the was sold to Messrs. Phil. C. Whitaker and Venancio The supreme court held that by virtue of the words
terms of the sale, assumed the liabilities of his vendor Concepcion constitute evidence of the consent of the hereinabove quoted, the "Sociedad General Azucarera
to bank. Sproule sold part of the property to Graff and creditor. First of all, we should have an idea of the de Espana" took over the obligation to pay the
Chalfant. The debt becoming due, the bank brought facts upon which that decision was rendered by the insurance premiums of the "La Azucarera de Pravia"
suit against the last two named and Sproule as supreme court of Spain. inasmuch as said insurance pertained to the property
owners. Duclozel was not made a party. The bank that was ceded.
discontinued these proceedings and subsequently A partnership known as "La Azucarera de Pravia"
brought suit against Latiolais, administratrix of obtained a fire insurance policy from the company "La "2. While it is true that La Union y Fenix Espaol
Duclozel, who had died. Union y Fenix Espaol," by virtue of which, said insurance company did not give its consent to the
company insured in consideration of an annual contract of cession at the moment of its execution, yet
"The court said: But the plaintiff insists that in its premium of 3,000 pesetas, the buildings, machinery the mere fact that the said insurance company now
petition in the proceeding first brought the bank ratified and other apparatuses pertaining to the "Pravia sues the "Sociedad General Azucarera de Espana is
the sale made by Duclozel to Sproule, and by the latter Factory" for ten years and for half their value, and an incontrovertible proof that the said insurance
to other parties, in treating them as owners. Be that so, another value insurance from another insurance company accepts the substitution of the new
but it does not follow in the absence of either a formal company insuring the same property and effects for debtor."cralaw virtua1aw library
and express or of an implied consent to novate, which the other half of their value.
should be irresistibly inferred from surrounding By comparing the facts of that case with the defenses
circumstances, that it has discharged Duclozel Later, "La Azucarera de Pravia," with other sugar of the case at bar, it will be seen that, whereas in the
unconditionally, and has accepted those parties as companies, ceded all its property to another company former case the creditor sues the new debtor in the
new delegated debtors in his place. Nemo presumitor known as "Sociedad General Azucarera de Espana," instant case the creditor sues the original debtor. The
donare. in which in consideration of a certain amount of stock supreme court of Spain in that case held that the fact
that the said "Sociedad General Azucarera de Espana" that the creditor sued the new debtor was proof
"Novation is a contract, the object of which is: either to issued to the "La Azucarera de Pravia," the latter was incontrovertible of his assent to the substitution of the
extinguish an existing obligation and to substitute a merged with the former. After the cession, "La Union y debtor. This would seem evident because the judicial
new one in its place; or to discharge an old debtor and Fenix Espaol" sued the "Sociedad General Azucarera demand made on the new debtor to comply with the
substitute a new one to him; or to substitute a new de Espana" demanding the payment of the premium obligation of the first debtor is the best proof that the
creditor to an old creditor with regard to whom the that should have been paid by the "La Azucarera de creditor accepts the change of the debtor. His
debtor is discharged. Pravia," which payment the "Sociedad General complaint is an authentic document where his consent
Azucarera de Espana" refused to make on the ground is given to the change of the debtor. We are not
"It is never presumed. The intention must clearly result that the "La Azucarera de Pravia" was not merged with holding that the creditors consent must necessarily be
from the terms of the agreement or by a full discharge the "Sociedad General Azucarera de Espana," but given in the same instrument between the first and the
of the original debt. Novation by the substitution of a merely transferred its properties to the latter in new debtor. The consent of the creditor may be given
new debtor can take place without the consent of the consideration of the stock that was issued to the "La subsequently, but in either case it must be expressly
debtor, but the delegation does not operate a novation, Azucarera de Pravia." It was further contended by the manifested. In the present case, however, the creditor
unless the creditor has expressly declared that he "Sociedad General Azucarera de Espana" that even if makes judicial demand upon the first debtor for the
intends to discharge with delegating debtor, and the it were true that in the contract of cession it appeared fulfillment of his obligation, evidently showing by this
delegating debtor was not in open failure or insolvency that the "La Azucarera de Pravia" was merged with the act that he does not give his consent to the
at the time. The mere indication by a debtor of a "Sociedad General Azucarera de Espana," substitution of the new debtor. We are of the opinion
person who is to pay in his place does not operate a nevertheless, there was no such merger in law, for in that the decision of the supreme court of Spain of June
novation. Delegatus debitor est odiosus in lege. truth and in fact, the "La Azucarera de Pravia" had 16, 1908, cannot be successfully invoked in support of
ceded only its property, but not its rights and defendants contention. Wherefore, we hold that in
"The most that could be inferred would be that the obligations; that the existence of the partnership accordance with article 1205 of the Civil Code, in the
bank in the exercise of a sound discretion, proposed to known as "La Azucarera de Pravia" was proven by its instant case, there was no novation of the contract, by
better its condition by accepting an additional debtor to registration in the mercantile register, which was not the change of the person of the debtor.
be and remain bound with the original one. cancelled, nor did it contain any statement to the effect
that the "La Azucarera de Pravia" had been Another defense urged by the defendant is the merger
"In Fidelity L. & T. Co. v. Engleby (99 Va., 168), the extinguished or had ceased to do business even after of the rights of debtor and creditor, whereby under
court said: Whether or not a debt has been novated is the cession of properties to the "Sociedad General article 1192 of the Civil Code, the obligation, the
a question of fact and depends entirely upon the Azucarera de Espana." Another argument advanced fulfillment of which is demanded in the complaint,
intention of the parties to the particular transaction by the "Sociedad General" was that at the time the became extinguished. It is maintained in appellees
claimed to be novated. In the absence of satisfactory "Azucarera de Pravia" ceded its properties to the brief that the debt of the defendant was transferred to
proof to the contrary, the presumption is that the debt "Sociedad General Azucarera de Espana," the Phil. C. Whitaker and Venancio Concepcion by the
has not been extinguished by taking the new evidence insurance company "La Union y Fenix Espaol" did not document Exhibit 1. These in turn acquired the credit
in the absence of an intention expressed or implied, assent to the subrogation of the "Sociedad General of the plaintiffs by virtue of the debt, Exhibit 5; thus the
being treated as a conditional payment merely. Azucarera" into the rights and obligations of the rights of the debtor and creditor were merged in one
"Azucarera de Pravia," assuming that there had been person. The argument would at first seem to be
"In Hamlin v. Drummond (91 Me., 175; 39 A., 551), it such a subrogation or substitution of a debtor by incontrovertible, but if we bear in mind that the rights
was said that novation is never presumed but must another. and titles which the plaintiffs sold to Phil. C. Whitaker
always be proven. In Netterstorn v. Gallistel (110 Ill. and Venancio Concepcion refer only to one-half of the
App., 352), it was said that the burden of establishing The supreme court of Spain gave judgment in favor of railroad line in question, it will be seen that the credit
a novation is on the party who asserts its existence; the "La Union y Fenix Espaol" insurance company for which they had against the defendant for the amount
that novation is not easily presumed; and that it must the following reasons:jgc of one-half of the cost of construction of the said line
clearly appear before the court will recognized it was not included in the sale contained in Exhibit 5.
That the plaintiffs sold their rights and titles over one- error alleging infringement of articles 1680 and 1700 of brought this action to recover said part of the fish pond
half of the line, is evident from the very Exhibit 5. The the Civil Code, on the proposition that all contracts are belonging to his decedent, Perpetua, and delivery
purchasers, Phil. C. Whitaker and Venancio reputed consummated and therefore extinguishes, having been refused, Domingo Bearneza brought this
Concepcion, to secure the payment of the price, when the contracting parties fulfill all the obligations action recover said part of the fish pond and one-half
executed a mortgage in favor of the plaintiffs on the arising therefrom and that by the payment of the of the profits received by the defendant from the fish
same rights and titles that they had bought and also money and the granting and distribution of the lands pond from the year 1913 to 1919, as damages (the
upon what they had purchased from Mr. Salvador without any position, the juridical relations between the amended complaint was filed on April 12, 1920),
Serra. In other words, Phil C. Whitaker and Venancio contracting parties become extinguished and none of amounting, according to plaintiff, to the sum of thirteen
Concepcion mortgaged unto the plaintiffs what they the parties has any right of action under the contract. thousand one hundred pesos
had bought from the plaintiffs and also what they had The supreme court, holding that some corrections and
bought from Salvador Serra. If Messrs. Phil. C. liquidations asked by the actor were still pending, In his answer, the defendant denies generally and
Whitaker and Venancio Concepcion had purchased denied the writ, ruling that the articles cited were not specifically the allegations of the complaint, and
something from Mr. Salvador Serra, the herein infringed because a partnership cannot be considered alleges, as special defense, that "the formation of the
defendant, regarding the railroad line, it was as extinguished until all the obligations pertaining to it supposed partnership between the plaintiff and the
undoubtedly the one-half thereof pertaining to Mr. are fulfilled. (11 Manresa, page 312.) defendant for the exploitation of the aforesaid fish
Salvador Serra. This clearly shows that the rights and pond was not carried into effect, on account of the
titles transferred by the plaintiffs to Phil. C. Whitatker The dissolution of a firm does not relieve any of its plaintiff having refused to defray the expenses of
and Venancio Concepcion were only those they had members from liability for existing obligations, although reconstruction and exploitation of said fish pond." As
over the other half of the railroad line. Therefore, as it does save them from new obligations to which they another special defense, the defendant alleges "that in
already stated, since there was no novation of the have not expressly or impliedly assented, and any of the event that the court should hold the plaintiff to be
contract between the plaintiffs and the defendant, as them may be discharged from old obligations by entitled to the undivided one-half of the fish pond,
regards the obligation of the latter to pay the former novation or other form of release. It is often said that a claimed in the complaint, the plaintiff's action has
one-half of the cost of the construction of the said partnership continues, even after dissolution, for the prescribed, the time for bringing the same having
railroad line, and since the plaintiffs did not include in purpose of winding up its affairs. (30 Cyc., page 659.) elapsed."
the sale, evidenced by Exhibit 5, the credit that they Proceedings having been held as usual, the court
had against the defendant, the allegation that the Another question presented by appellees counsel in below rendered judgment, declaring the plaintiff owner
obligation of the defendant became extinguished by his memorandum and oral argument is that as in the of one-half of the fish pond, which was composed of
the merger of the rights of creditor and debtor by the partnership articles of February 1, 1919, it was the portions known as "Alimango" and "Dalusan," but
purchase of Messrs. Phil. C. Whitaker and Venancio covenanted that the defendant would put up one-half without awarding him any of the damages claimed by
Concepcion is wholly untenable. of the cost of the railroad line within five years from him, the same not having been proven, in the opinion
that date, that is, from February 1, 1919, with interest of the court, and ordering the defendant to pay the
Appellants assign also as a ground of their appeal the at 10 per cent per annum, the present action is costs.
holding of the court that by the termination of the premature since, from the execution of the contract From this judgment the defendant appeals, making
partnership, as shown by the document Exhibit 5, no until October 25, 1922, the date of the complaint, the various assignments of error. The plaintiff did not
legal rights can be derived therefrom. five years, within which the defendant could pay his appeal from that part of the judgment denying his
part of the cost of the construction of the line, had not claim for damages; hence the only question we are
By virtue of the contract Exhibit 5, the plaintiffs and yet elapsed. Suffice it to say that the plaintiffs and the called upon to decide is whether or not the plaintiff has
Phil. C. Whitaker and Venancio Concepcion, by successors in interest of the defendant, by mutual any right to maintain an action for the recovery of one-
common consent, decided to dissolve the partnership consent, dissolved the partnership on June 16, 1920, half of the said fish pond.
between the "Hacienda Palma" and "Hacienda San cancelling the contract Exhibit A to all of which the The partnership formed by Perpetua Bearneza and
Isidro," thus cancelling the contract of partnership of defendant consented as evidence by his allegations in Balbino Dequilla, as to the existence of which the proof
February 1, 1919. his answer. If this is so, there is no reason for waiting contained in the record is conclusive and there is no
for the expiration of the five years which the parties dispute, was of a civil nature. It was a particular
Counsel for appellee in his brief and oral argument themselves had seen fit to stipulate and therefore the partnership, as defined in article 1678 of the Civil
maintains that the plaintiffs cannot enforce any right previsions of article 1113, regarding the fulfillment of Code, it having had for its subject-matter a specified
arising out of that contract of partnership, which has pure obligations, must be applied in this case. thing, to with, the exploitation of the aforementioned
been annulled, such as the right to claim now a part of fish pond. Although, as the trial court says in its
the cost of the construction of the railroad line For all of the foregoing, the judgment appealed from is decision, the defendant, in his letters to Perpetua or
stipulated in that contract. reversed, and we hold that the defendant Salvador her husband, makes reference to the fish pond, calling
Serra is indebted to the plaintiffs, the Testate Estate of it "our," or "your fish pond," this reference cannot be
Defendants contention signifies that any person, who Lazaro Mota, Et Al., in the amount of P113,046.46, held to include the land on which the said fish pond
has contracted a valid obligation with a partnership, is and said defendant is hereby sentenced to pay the was built. It has not been proven that Perpetua
exempt from complying with his obligation by the mere plaintiffs said amount, together with the agreed interest Bearneza participated in the ownership of said land,
fact of the dissolution of the partnership. Defendants at the rate of 10 per cent per annum from the date of and Exhibits 2 and 3 of the defendant show that he
contention is untenable. The dissolution of a the filling of the complaint. has been paying, as exclusive owner of the fish pond,
partnership must not be understood in the absolute the land tax thereon, although in Exhibit X he says that
and strict sense so that at the termination of the object Bearneza vs Dequilla GR 17024 March 24 1922 the said land belongs to the State. The conclusion,
for which it was created the partnership is DOMINGO BEARNEZA, plaintiff-appelle, therefore, from the evidence is that the land on which
extinguished, pending the winding up of some vs.BALBINO DEQUILLA, defendant- the fish pond was constructed did not constitute a part
incidents and obligations of the partnership, but in In the year 1903, Balbino Dequilla, the herein of the subject- matter of the aforesaid partnership.
such case, the partnership will be reputed as existing defendant, and Perpetua Bearneza formed a Now, this partnership not having been organized in the
until the juridical relations arising out of the contract partnership for the purpose of exploiting a fish pond form of a mercantile partnership, and, therefore, the
are dissolved. This doctrine has been upheld by the situated in the barrio of Talisay, municipality of Barotac provisions of the Code of Commerce not being
supreme court of Spain in its decision of February 6, Nuevo, Province of Iloilo, Perpetua obligating herself applicable thereto (article 1670 of the Civil Code), it
1903, in the following case: There was a partnership to contribute to the payment of the expenses of the was dissolved by the death of Perpetua Bearneza, and
formed between several persons to purchase some business, which obligation she made good, and both falls under the provisions of article 1700, subsection 3,
lands sold by the state. The partnership paid the agreeing to divide the profits between themselves, of the same Code, and not under the exception
purchase price and distributed among its members the which they had been doing until the death of the said established in the last paragraph of said article 1700 of
lands so acquired, but after the lapse of some time, Perpetua in the year 1912. the Civil Code.
one of the partners instituted an action in the court of The deceased left a will in one of the clauses of which Neither can it be maintained that the partnership
Badajoz, praying that he be accepted as a partner with she appointed Domingo Bearnez, the herein plaintiff, continued to exist after the death of Perpetua,
the same rights and obligations as others, for the as her heir to succeed to all her rights and interests in inasmuch as it does not appear that any stipulation to
reason that he had not been allowed all that he had a the fish pond in question. that effect has ever been made by her and the
right to. The court granted the petition, which judgment Demand having been made upon Balbino Dequilla by defendant, pursuant to the provisions of article 1704 of
was affirmed by the Audiencia de Caceres. Domingo Bearneza for the delivery of the part of the the Code last cited.
fish pond belonging to his decedent, Perpetua, and The partnership having been dissolved by the death of
From that decision the defendant sued out a writ of delivery having been refused, Domingo Bearneza 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.
Primelink Properties Devt vs Lazatin-Magat June 27
PRIMELINK PROPERTIES AND DEVELOPMENT
CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.MA. CLARITA T. LAZATIN-MAGAT, JOSE
SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T.
LAZATIN, Respondents.
Before us is a Petition for Review on Certiorari under
Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1of 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
The parties agreed that any unsettled or unresolved
misunderstanding or conflicting 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 Voluntary
Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the
subject property to an escrow agreement.
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 Development Permit from
Tagaytay City, and applied the permit only on August
30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins,
through counsel, demanded that Primelink 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 meet with the Lazatins and enabled the
latter to review its business records/papers. In 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.
Subsequently, on January 19, 1998, the Lazatins filed,
with the Regional Trial Court (RTC) of 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. 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 the title and possession of
the land to defendants, the land development aspect
of the 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 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 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
done by the defendants was to grade the area; the
units so far constructed had been the 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 marketability. Plaintiffs also alleged that
defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing
procedures, checks and 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 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 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 exemplry 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 Order24dated
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 reconsideration29 of the July 14, 1998 Order, which
the RTC denied in its Order30dated 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 compaint;
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 x34
On May 15, 2000, plaintiffs filed a Motion for Execution
Pending Appeal35 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
Resolution43 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.54With 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
secondparagraph, 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 filed for the lifting of the injunction ordered by this court etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill,
the Court. upon the commencement of this case. et al., Civil Case No. 4787, Court of First Instance of
The cross-claim cf the defendant Margarita G. Negros Occidental;
Singsong vs Isabela Sawmill 88 SCRA 623 Saldajeno against the defendants Leon Garibay arid 3. That as a result of the said dissolution and the
MANUEL G. SINGSONG, JOSE BELZUNCE, Timoteo Tubungbanua is hereby discussed Margarita decision of the Court of First Instance of Negros
AGUSTIN E. TONSAY, JOSE L. ESPINOS, G. Saldajeno shall pay the costs. SO ORDERED.1 Occidental in the aforesaid case, the other defendants
BACOLOD SOUTHERN LUMBER YARD, and In a resolution promulgated on February 3, 1967, the herein Messrs. Leon Garibay and Timoteo
OPPEN, ESTEBAN, INC., plaintiffs-appellees, Court of Appeals certified the records of this case to Tubungbanua became the successors-in-interest to
vs.ISABELA SAWMILL, MARGARITA G. the Supreme Court "considering that the resolution of the said defunct partnership and have bound
SALDAJENO and her husband CECILIO this appeal involves purely questions or question of themselves to answere for any and all obligations of
SALDAJENO LEON GARIBAY, TIMOTEO law over which this Court has no jurisdiction ...2 the defunct partnership to its creditors and third
TUBUNGBANUA, and THE PROVINCIAL SHERIFF On June 5. 1959, Manuel G. Singsong, Jose persons;
OF NEGROS OCCIDENTAL, defendants, Belzunce, Agustin E. Tonsay, Jose L. Espinos, 4. That to secure the performance of the obligations of
MARGARITA G. SALDAJENO and her husband Bacolod Southern Lumber Yard, and Oppen, Esteban, the other defendants Leon Garibay and Timoteo
CECILIO SALDAJENO, defendants- Inc. filed in the Court of first Instance of Negros Tubungbanua to the answering defendant herein, the
Occidental, Branch I, against "Isabela Sawmill", former have constituted a chattel mortgage over the
This is an appeal to the Court of Appeals from the Margarita G. Saldajeno and her husband Cecilio properties mentioned in the annexes to that instrument
judgment of the Court of First Instance of Negros Saldajeno, Leon Garibay, Timoteo Tubungbanua and entitled "Assignment of Rights with Chattel Mortgage"
Occidental in Civil Cage No. 5343, entitled "Manuel G. the Provincial Sheriff of Negros Occidental a complaint entered into on May 26, 1968 and duly registered in
Singson, et all vs. Isabela Sawmill, et al.,", the the prayer of which reads: the Register of Deeds of Negros Occidental on the
dispositive portion of which reads: WHEREFORE, the plaintiffs respectfully pray: same date:
IN VIEW OF THE FOREGOING CONSIDERATIONS, (1) That a writ of preliminary injunction be issued 5. That all the plaintiffs herein, with the exceptionof the
it is hereby held. (1) that thecontract, Appendix "F", of restraining the defendant ProvincialSheriff of Negros plaintiff Oppen, Esteban, Inc. are creditors of Messrs.
the Partial Stipulation of Facts, Exh. "A", has not Occidental from proceeding with the sales at public Leon Garibay and Timoteo Tubungbanua and not of
created a chattel mortgage lien on the machineries auction that he advertised in two notices issued by him the defunct Isabela Sawmill and as such they have no
and other chattels mentioned therein, all of which are on May 18, 1959 in connection with Civil Case No. cause of action against answering defendant herein
property of the defendant partnership 5223 of this Honorable Court, until further orders of and the defendant Isabela Sawmill;
"IsabelaSawmill", (2) that the plaintiffs, as creditors of this Court; and to make said injunction permanent after 6. That all the plaintiffs herein, except for the plaintiff
the defendant partnership,have a preferred right over hearing on the merits: Oppen, Esteban,Inc. granted cash advances, gasoline,
the assets of the said partnership and over the (2) That after hearing, the defendant partnership be crude oil, motor oil, grease, rice and nipa to the
proceeds of their sale at public auction, superior to the ordered; to pay to the plaintiff Manuel G. Singson the defendants Leon Garibay and Timoteo Tubungbanua
right of the defendant Margarita G. Saldajeno, as sum of P3,723.50 plus 1% monthly interest thereon with the knowledge and notice that the Isabela Sawmill
creditor of the partners Leon Garibay and Timoteo and 25% attorney's fees, and costs; to pay to the as a former partnership of defendants Margarita G.
Tubungbanua; (3) that the defendant Isabela Sawmill' plaintiff JoseBelzunce the sum of P2,052.10, plus 6% Isabela Sawmill as a former partnership of defendants
is indebted to the plaintiff Oppen, Esteban, Inc. in the annual interest thereon and 25% for attorney's fees, Margarita G. Saldajeno, Leon Garibay and Timoteo
amount of P1,288.89, with legal interest thereon from and costs;to pay to the plaintiff Agustin E. Tonsay the Tubungbanua, has already been dissolved;
the filing of the complaint on June 5, 1959; (4) that the sum of P993.73 plus 6% annual interest thereon and 7. That this Honorable Court has no jurisdictionover
same defendant is indebted to the plaintiff Manuel G. 25% attorney's fees, and costs; to pay to the plaintiff the claims of the plaintiffs Oppen, Esteban, Inc.,
Singsong in the total amount of P5,723.50, with Bacolod Southern Lumber Yard the sum of P1,048.78, Agustin R. Tonsay, Jose L. Espinos, and the Bacolod
interest thereon at the rate of 1 % per month from May plus 6% annual interest thereon and 25% attorney's Southern Lumber Yard, it appearing that the amounts
6, 1959, (the date of the statements of account, Exhs. fees, and costs; and to pay to the plaintiff Oppen, sought to be recovered by them in this action is less
"L" and "M"), and 25% of the total indebtedness at the Esteban, Inc. the sum of P1,350.89, plus 6% annual than P2,000.00 each, exclusive of interests;
time of payment, for attorneys' fees, both interest and interest thereon and 25% attorney's fees and costs: 8. That in so far as the claims of these alleged
attorneys fees being stipulated in Exhs. "I" to "17", (3) That the so-called Chattel Mortgage executed by creditors plaintiffs are concerned, there is a misjoinder
inclusive; (5) that the same defendant is indebted to the defendant Leon Garibay and Timoteo of parties because this is not a class suit, and
the plaintiff Agustin E. Tonsay in the amount of Tubungbanua in favor of the defendant Margarita G. therefore this Honorable Court cannot take
P933.73, with legal interest thereon from the filing of Saldajeno on May 26, 1958 be declared null and void jurisdictionof the claims for payment;
the complaint on June 5, 1959; (6) that the same being in fraud of creditors of the defendant partnership 9. That the claims of plaintiffs-creditors, except Oppen,
defendant is indebted to the plaintiff Jose L. Espinos in and without valuable consideration insofar as the said Esteban, Inc. go beyond the limit mentioned inthe
the amount of P1,579.44, withlegal interest thereon defendant is concerned: statute of frauds, Art. 1403 of the Civil Code, and are
from the filing of the complaint on June 5, 1959; (7) (4) That the Honorable Court order the sale of public therefor unenforceable, even assuming that there were
that the same defendant is indebted to the plaintiff auction of the assets of the defendnat partnership in such credits and claims;
Bacolod Southern Lumber Yard in the amount of case the latter fails to pay the judgment that the 10. That this Honorable Court has no jurisdiction in this
Pl,048.78, with legal interest thereon from the filing of plaintiffs may recover in the action, with instructions case for it is well settled in law and in jurisprudence
the complaint on June 5, 1959; (8) that the same that the proceeds of the sale b e applied in payment of that a court of first instance has no power or
defendant is indebted to the plaintiff Jose Belzunce in said judgment before any part of saod proceeds is jurisdiction to annul judgments or decrees of a
the amount of P2,052.10, with legal interest thereon paid to the defendant Margarita G. Saldajeno; coordinate court because other function devolves upon
from the filing of the complaint on June 5. 1959; (9) (5) That the defendant Leon Garibay, Timoteo the proper appellate court; (Lacuna, et al. vs. Ofilada,
that the defendant Margarita G. Saldajeno, having Tubungbanua, and Margarita G. Saldajeno be et al., G.R. No. L-13548, September 30, 1959;
purchased at public auction the assets of the declared jointly liable to the plaintifs for whatever Cabigao vs. del Rosario, 44 Phil. 182; PNB vs.
defendant partnership over which the plaintiffs have a deficiency may remain unpaid after the proceeds of Javellana, 49 O.G. No. 1, p.124), as it appears from
preferred right, and having sold said assets for P the sale of the assets of the defendnt partnership are the complaint in this case to annul the decision of this
45,000.00, is bound to pay to each of the plaintiffs the supplied in payment of the judgment that said plaintiffs same court, but of another branch (Branch II, Judge
respective amounts for which the defendant may recover in this action; Querubin presiding).4
partnership is held indebted to, them, as above (6) The plaintiffs further pray for all other remedies to Said defendants interposed a cross-claim against the
indicated and she is hereby ordered to pay the said which the Honorable Court will find them entitled to, defendsants Leon Garibay and Timoteo Tubungbanua
amounts, plus attorneys fees equivalent to 25% of the with costs to the defendants. Bacolod City, June 4, praying "that in the event that judgment be rendered
judgment in favor of the plaintiff Manuel G. Singson, as 1959.3 ordering defendant cross claimant to pay to the
stipulated in Exhs. "I" "to I-17", inclusive, and 20% of The action was docketed as Civil Case No. 5343 of plaintiffs the amount claimed in the latter's complaint,
the respective judgments in favor of the other plaintiffs, said court. In their amended answer, the defendants that the cross claimant whatever amount is paid by the
pursuant to. Art. 2208, pars. (5) and (11), of the Civil Margarita G. Saldajeno and her husband, Cecilio latter to the plaintiff in accordance to the said
Code of the Philippines; (10) The defendants Leon Saldajeno, alleged the following special and affirmative judgment. ...5
Garibay nd Timoteo Tibungbanua are hereby ordered defenses: After trial, judgment was rendered in favor of the
to pay to the plaintiffs the respective amounts xxx xxx xxx plaintiffs and against the defendants.
adjudged in their favor in the event that said plaintiffs 2. That the defendant Isabela Sawmill has been The defendants, Margarita G. Saldajeno and her
cannot recover them from the defendant Margarita G. dissolved by virtue of an action entitled "In the matter husband Cecilio Saldajeno, appealed to the Court of
Saldajeno and the surety on the bond that she has of: Dissolution of Isabela Sawmill as partnership, Appeals assigning the following errors:
 I of Facts that was marked as Exh. "A". Said stipulation
THE COURT A QUO ERRED IN ASSUMING
JURISDICTION OVER THE CASE.
IITHE COURT A QUO ERRED IN HOLDING THAT
THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G.
SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH
WITHDRAWAL CAUSED THE "COMPLETE
DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT
THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AS APARTNER
THEREIN DISSOLVED THE PARTNERSHIP
"ISABELA SAWMILL" (FORMED ONJAN. 30, 1951
AMONG LEON GARIBAY, TIMOTEO
TUBUNGBANUA AND SAID MARGARITA
G.SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT
OF PRELIMINARY INJUNCTION.
V 4. That on April 25, 1958 Civil Case No. 4797 was filed
THE COURT A QUO ERRED IN HOLDING THAT
THE CHATTEL MORTGAGE DATED MAY 26, 1958,
WHICH CONSTITUTED THE JUDGMENT IN CIVIL
CASE NO. 4797 AND WHICH WAS FORECLOSED IN
CIVILCASE NO. 5223 (BOTH OF THE COURT OF
FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS
NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT
THE CHATTLES ACQUIRED BY DEFENDANT-
APPELLANT MARGARITA G. SALDAJENO IN THE
FORECLOSURE SALE INCIVIL CASE NO. 5223
CONSTITUTED 'ALL THEASSETS OF THE
DEFENDNATPARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT
DEFENDANT-APPELLANTMARGARITA
SALDAJENO BECAMEPRIMARILY LIABLE TO THE
PLAINTFFS-APPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN
FORECLOSURE SALE CONDUCTED
CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING
DEFENDANT-APPELLANT MARGARITA
SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY
TIMOTEOTUBUNGBANUA, INCURRED BY THE
LATTER AS PARTNERS IN THE NEW 'ISABELA
SAWMILL', AFTER THE DISSOLUTION OF THE OLD
PARTNERSHIP IN WHICH SAID MARGARITA G.
SALDAJENO WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING
DEFENDANT-APPELLANT MARGARITA
SALDAJENO LIABLE TO THE PLAINTIFFS-
APPELLEES FOR ATTORNEY'S FEES.
X favor of the defendant Margarita G. Saldajeno, as a
THE COURT A QUO ERRED IN NOT DISMISSING
THE COMPLAINT OF THE PLAINTIFFS-
APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE
CROSS-CLAIM OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AGAINST CROSS-
DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA.6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on
the merits the plaintiffs and the defendant Cecilio and
Margarita g. Saldajeno submittee a Partial Stipulation
reads as folows:
1. That on January 30, 1951 the defendants Leon
Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of Partnership
under the firm name "Isabela Sawmill", a copy of which
is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen,
Esteban, Inc. sold a Motor Truck and two Tractors to
the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price,
the said partnership agreed to make arrangements
with the International Harvester Company at Bacolod
City so that the latter would sell farm machinery to
Oppen, Esteban, Inc. with the understanding that the
price was to be paid by the partnership. A copy of the
corresponding contract of sle is attached hereto as
Appendix "B".
3. That through the method of payment stipulated in
the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a total
of P19,211.11, leaving an unpaid balance of
P1,288.89 as shown in the statements hereto attached
as Appendices "C", "C-1", and "C-2".
by the spouses Cecilio Saldajeno and Margarita G.
Saldajeno against the Isabela Sawmill, Leon Garibay,
and Timoteo Tubungbanua, a copy of which Complaint
is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay,
Timoteo Tubungbanua and Margarita G. Saldajeno
entered into a "Memorandum Agreement", a copy of
which is hereto attached as Appendix 'E' in Civil Case
4797 of the Court of First Instance of Negros
Occidental.
6. That on May 26, 1958 the defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights
with Chattel Mortgage", a copy of which documents
and its Annexes "A" to "A-5" forming a part of the
record of the above mentioned Civil Case No. 4797,
G. which deed was referred to in the Decision of the
Court ofFirst Instance of Negros Occidental in Civil
Case No. 4797 dated May 29, 1958, a copy of which is
THE hereto attached as Appendix "F" and "F-1"
IN respectively.
7. That thereafter the defendants Leon Garibay and
Timoteo Tubungbanua did not divide the assets and
properties of the "Isabela Sawmill" between them, but
G. they continued the business of said partnership under
the same firm name "Isabela Sawmill".
AND 8. That on May 18, 1959 the Provincial Sheriff of
Negros Occidental published two (2) notices that he
would sell at public auction on June 5, 1959 at Isabela,
Negros Occidental certain trucks, tractors, machinery,
officeequipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of
Negros Occidental, entitled "Margarita G. Saldajeno
vs. Leon Garibay, et al." See Appendices "G" and "G-
G. 1".
9. That on October 15, 1969 the Provincial Sheriff of
Negros Occidental executed a Certificate ofSale in
result of the sale conducted by him on October 14 and
15, 1959 for the enforcement of the judgment rendered
in Civil Case No. 5223 of the Court of First Instance of
Negros Occidental, a certified copy of which certificte
of sale is hereto attached as Appendix "H".
10. That on October 20, 1959 the defendant Margarita
G. Saldajeno executed a deed of sale in favor of the
Pan Oriental Lumber Company transfering to the latter
for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchashed
at a public auction referred to in the foregoing
paragraph, a certified true copy of which Deed of Sale
is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno
and Margarita G. Saldajeno reserve the right to
present additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are
documents that were marked as Appendices "A", "B",
"C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H",
and "I".
The plaintiffs and the defendants Cecilio and Margarita
G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not
present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is
indebted to theplaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89 as the unpaid balance of an
obligation of P20,500.00 contracted on February 3,
10956 is expressly admitted in paragraph 2 and 3 of
the Stipulation, Exh. "A" and its Appendices "B", "C",
"C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own
testimony and his Exhs. "B" to"G" that from October 6,
1958 to November 8, 1958 he advanced a total of
P4,200.00 to the defendant 'Isabela Sawmill'. Agaist
the said advances said defendant delivered to Tonsay
P3,266.27 worth of lumber, leavng an unpaid balance
of P933.73, which balance was confirmed on May 15,
1959 by the defendant Leon Garibay, as Manager of
the defendant partnership.
The plaintiff Manuel G. Singsong proved by his own
testimony and by his Exhs. "J" to "L" that from May 25,
1988 to January 13, 1959 he sold on credit to the
defendnat "Isabela Sawmill" rice and bran, on account
of which business transaction there remains an unpaid
balance of P3,580.50. The same plaintiff also proved
that the partnership ownes him the sum of P143.00 for
nipa shingles bought from him on credit and unpaid
for.
The plaintiff Jose L. Espinos proved through the
testimony of his witness Cayetano Palmares and his
Exhs. "N" to "O-3" that he owns the "Guia Lumber
Yard", that on October 11, 1958 said lumber yard
advanced the sum of P2,500.00 to the defendant
"Isabela Sawmill", that against the said cash advance,
the defendant partnership delivered to Guia Lumber
Yard P920.56 worth of lumber, leaving an outstanding
balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved
through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October 11,
1958 said plaintiff advanced the sum of P1,500.00 to
the defendsant 'Isabela Sawmill', that against the said
cash advance, the defendant partnership delivered to
the said plaintiff on November 19, 1958 P377.72 worth
of lumber, and P73.54 worth of lumber on January 27,
1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the
testimony of Leon Garibay whom he called as his
witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to
the defedant "Isabela Sawmill" gasoline, motor fuel,
and lubricating oils, and that on account of said
transactions, the defendant partnersip ownes him an
unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on
October 13 and 14, 1959 the Provincial Sheriff sold to
the defendant Margrita G. Saldajeno for P38,040.00
the assets of the defendsant "Isabela Sawmill" which
the defendants Leon G. Garibay and Timoteo
Tubungbanua had mortgaged to her, and said
purchase price was applied to the judgment that she
has obtained against he said mortgagors in Civil Case
No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows
that on October 20, 1959 the defendant Margarita G.
Saldajeno sold to the PAN ORIENTAL LUMBER
COMPANY for P45,000.00 part of the said properties
that she had bought at public aucton one week before.
 xxx xxx xxx7
It is contended by the appellants that the Court of First
Instance of Negros Occidental had no jurisdiction over
Civil Case No. 5343 because the plaintiffs Oppen,
Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and
the Bacolod Southern Lumber Yard sought to collect
sums of moeny, the biggest amount of which was less
than P2,000.00 and, therefore, within the jurisdiction of
the municipal court.
This contention is devoid of merit because all the
plaintiffs also asked for the nullity of the assignment of
right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former
partners Leon Garibay and Timoteo Tubungbanua.
This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court
of First Instnace. Where the basic issue is something
more than the right to recover a sum of money and
where the money claim is purely incidental to or a
consequence of the principal relief sought, the action
is as a case where the subject of the litigation is not
capable of pecuniary estimation and is cognizable
exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far
as the authority thereof depends upon the nature of
litigation, is defined in the amended Judiciary Act,
pursuant to which courts of first instance shall have
exclusive original jurisdiction over any case the subject
matter of which is not capable of pecuniary estimation.
An action for the annulment of a judgment and an
order of a court of justice belongs to th category.8
In determining whether an action is one the subject
matter of which is not capable of pecuniary estimation
this Court has adopted the criterion of first ascertaining
the nature of the principal action or remedy sought. If it
is primarily for the recovery of a sum of money, the
cliam is considered capable of pecuniary estimation,
and whether jurisdiciton is in the municipal courts or in
the courts of first instance would depend on the
amount of the claim. However, where the basic issue
is something other than the right to recover a sum of
money, where the money claim is purely incidental to,
or a consequence of, the principal relief sought, this
Court has considered such actions as cases where the
subject ogf the litigation may not be estimated in terms
of money, and are cognizable exclusively by courts of
first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court
held:
Actions for specific performance of contracts have
been expressly prounounced to be exclusively
cognizable by courts of first instance: De Jesus vs.
Judge Garcia, L-26816, February 28,
1967; Manufacturers' Distributors, Inc. vs. Yu Siu
Liong, L-21285, April 29, 1966. And no cogent reason
appears, and none is here advanced by the parties,
why an actin for rescission (or resolution) should be
differently treated, a "rescission" being a counterpart,
so to speak, of "specific performance'. In both cases,
the court would certainly have to undertake an
investigation into facts that would justify one act of the
other. No award for damages may be had in an action
for resicssion without first conducting an inquiry into
matters which would justify the setting aside of a
contract, in the same manner that courts of first
instance would have to make findings of fact and law
in actions not capable of pecuniary estimnation
espressly held to be so by this Court, arising from
issues like those arised in Arroz v. Alojado, et al., L-
22153, March 31, 1967 (the legality or illegality of the
conveyance sought for and the determination of the
validity of the money deposit made); De Ursua v.
Pelayo, L-13285, April 18, 1950 (validity of a
judgment); Bunayog v. Tunas, L-12707, December 23,
1959 (validity of a mortgage); Baito v. Sarmiento, L-
13105, August 25, 1960 (the relations of the parties,
the right to support created by the relation, etc., in
actions for support); De Rivera, et al. v. Halili, L-15159,
September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues
of the same nature may be raised by a party against
whom an action for rescission has been brought, or by
the plaintiff himself. It is, therefore, difficult to see why
a prayer for damages in an action for rescission should
be taken as the basis for concluding such action for
resiccison should be taken as the basis for concluding
such action as one cpable of pecuniary estimation - a
prayer which must be included in the main action if
plaintiff is to be compensated for what he may have
suffered as a result of the breach committed by
defendant, and not later on precluded from recovering
damages by the rule against splitting a cause of action
and discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good
Development Corporation vs. Tutaan, 10 where this
Court held:
On the issue of which court has jurisdiction, the case
of SENO vs. Pastolante, et al., is in point. It was ruled
therein that although the purposes of an action is to
recover an amount plus interest which comes within
the original jurisidction of the Justice of the Peace
Court, yet when said action involves the foreclosure of
a chattel mortgage covering personal properties
valued at more than P2,000, (now P10,000.00) the
action should be instituted before the Court of First
Instance.
In the instanct, case, the action is to recover the
amount of P1,520.00 plus interest and costs, and
involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is
clearly within the competence of the respondent court
to try and resolve.
In the light of the foregoing recent rulings, the Court of
First Instance of Negros Occidental did no err in
exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage
may no longer be annulled because it had been
judicially approved in Civil Case No. 4797 of the Court
of First Instance of Negros Occidental and said chattel
mortgage had been ordered foreclosed in Civil Case
No. 5223 of the same court.
On the question of whether a court may nullify a final
judgment of another court of co-equal, concurrent and
coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or
decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief
sought by the injunction.
The various branches of the Court of First Instance of
Manila are in a sense coordinate courts and cannot be
allowed to interfere with each others' judgments or
decrees. 11
The foregoing doctrine was reiterated in a 1953
case 12 where this Court said:
The rule which prohibits a Judge from intertering with
the actuations of the Judge of another branch of the
same court is not infringed when the Judge who
modifies or annuls the order isued by the other Judge
acts in the same case and belongs to the same court
(Eleazar vs. Zandueta, 48 Phil. 193. But the rule is
infringed when the Judge of a branch of the court
issues a writ of preliminary injunction in a case to
enjoint the sheriff from carrying out an order by
execution issued in another case by the Judge of
another branch of the same court. (Cabigao and
Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs.
Dumaraog, 13 the judgment sought to be annulled was
rendered by the Court of First Instance of Iloilo and the
action for annullment was filed with the Court of First
Instance of Antique, both courts belonging to the same
Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not
only possessed by but restricted to the court in which
the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment
of a court of competent jurisdiction may not be
interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to
annul a judgement of a branch of the court of First
Instance belongs solely to the very same branch which
rendered the judgement. 14
Two years later, the same doctrine was laid down in
the Sterling Investment case.15
In December 1971, however, this court re-examined
and reversed its earlier doctrine on the matter.
In Dupla v. Court of Appeals, 16 this Tribunal, speaking
through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-
og case, the policy of judicial stability, to the end that
the judgment of a court of competent jurisdiction may
not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of
concurrent jurisdiciton, this Court feels that this is as
good an occasion as any to re-examine the doctrine
laid down ...
In an action to annul the judgment of a court, the
plaintiff's cause of action springs from the alleged
nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the
plaintiff a right to judicial interference in his behalf. In
such a suit the cause of action is entirely different from
that in the actgion which grave rise to the judgment
sought to be annulled, for a direct attack against a final
and executory judgment is not a incidental to, but is
the main object of the proceeding. The cause of action
in the two cases being distinct and separate from each
other, there is no plausible reason why the venue of
the action to annul the judgment should necessarily
follow the venue of the previous action ...
The present doctrine whicpostulate that one court or
one branch of a court may not annul the judgment of
another court or branch, not only opens the door to a
violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said
rule.
Our conclusion must therefore be that a court of first
instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to
annul final and executory judgment or order rendered
by another court of first instance or by another branch
of the same court...
In February 1974 this Court reiterated the ruling in the
Dulap case.17
In the light of the latest ruling of the Supreme Court,
there is no doubt that one branch of the Court of First
Instance of Negros Occidental can take cognizance of
an action to nullify a final judgment of the other two
branches of the same court.
It is true that the dissolution of a partnership is caused
by any partner ceasing to be associated in the carrying
on of the business. 18 However, on dissolution, the
partnershop is not terminated but continuous until the
winding up to the business. 19
The remaining partners did not terminate the business
of the partnership "Isabela Sawmill". Instead of winding
up the business of the partnership, they continued the
business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement
that the remaining partners had constituted
themselves as the partnership entity, the "Isabela
Sawmill". 20
There was no liquidation of the assets of the
partnership. The remaining partners, Leon Garibay
and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of "Isabela
Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno
by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela
Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she
purchased at public auction the properties of the
partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G.
Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general
had a right to expect that whatever, credit they
extended to Leon Garibay and Timoteo Tubungbanua
doing the business in the name of the partnership
"Isabela Sawmill" could be enforced against the
proeprties of said partnership. The judicial foreclosure
of the chattel mortgage executed in favor of Margarita
G. Saldajeno did not relieve her from liability to the
creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot
complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even
agreed to let Leon Garibay and Timoteo Tubungbanua
continue doing the business of the partnership "Isabela
Sawmill" by entering into the memorandum-agreement
with them.
Although it may be presumed that Margarita G.
Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the
partnership. Where one of two innocent persons must
suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and
Timoteo Tubungbanua to continue doing the business
of the aprtnership, the applees would not have been
misled into thinking that they were still dealing with the
partnership "Isabela Sawmill". Under the facts, it is of
no moment that technically speaking the partnership
"Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The partnership
was not terminated and it continued doping business
through the two remaining partners.
The contention of the appellant that the appleees
cannot bring an action to annul the chattel mortgage of
the propertiesof the partnership executed by Leon
Garibay and Timoteo Tubungbanua in favor of
Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an
action to annul the contract.
This Court has held that a person, who is not a party
obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which
would positively result to him from the contract in
which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights
by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in
favopr of Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua.
Hence, said appelees have a right to file the action to
nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the
appellants to pay attorney's fees to the plaintiffs-
appellees cannot be sustained. There is no showing
that the appellants displayed a wanton disregard of the
rights of the plaintiffs. Indeed, the appellants believed
in good faith, albeit erroneously, that they are not liable
to pay the claims.
The defendants-appellants have a right to be
reimbursed whatever amounts they shall pay the
appellees by their co-defendants Leon Garibay and
Timoteo Tubungbanua. In the memorandum-
agreement, Leon Garibay and Timoteo Tubungbaun
undertook to release Margarita G. Saldajeno from any
obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby
affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the
defendants-appellants, Margarita G. Saldajeno and
her husband Cecilio Saldajeno, whatever they shall
pay to the plaintiffs-appellees, without pronouncement
as to costs.
Lota vs Tolentino 90 Phil 829
URBANO LOTA (Substituted by SOLOMON LOTA
in his capacity as Administrator of the Estate of
URBANO LOTA), plaintiff-appellant,
vs.BENIGNO TOLENTINO, defendant-appellee.
Manuel P. Calanog and Jose A. Buendia for
This is an appeal from a resolution of the Court of First
Instance of Batangas of May 4, 1949, worded in full as
follows:
On April 6, 1949, counsel for plaintiff filed a motion
praying that deceased defendant be substituted by his
heirs, Marta Sadiasa and Efigenia, Resurreccion and
Mercedes, all surnamed Tolentino, as parties
defendant in this case. To said motion counsel for
defendant interposed an opposition upon the following
grounds:
That the nature of the action for accounting and
liquidation of the partnership filed by plaintiff since
March 3, 1937, is purely personal in character and,
upon the death of the defendant on November 22,
1939, the claim was already extinguished. II.
Assuming that the action for accounting and liquidation
of the partnership is not purely personal in character
and that such claim is not yet extinguished, the case
should now be dismissed in view of the failure of the
plaintiff to prosecute his action for an unreasonable
length of time. III. Assuming further that the plaintiff's
claim was not yet extinguished upon the death of the
defendant on November 22, 1939, the rights, if any,
sought to be enforced by the plaintiff in the complaint
have already been lost by claches.
The question before the Court therefore is whether the
motion for substitution should be granted and the case
allowed to go to trial on the merits, or whether the
defendant's opposition should be sustained and the
case dismissed. The following factual background
appears of record:
On March 3, 1937, plaintiff filed an action against
defendant to order the latter (a) to render an
accounting of his management of their partnership,
and (b) to deliver the plaintiff whatever share he may
have in the assets of the partnership after the
liquidation has been approved by the Court.
The partnership above-mentioned was entered into by
and between plaintiff and defendant in the year 1918,
whereby they agreed to engage in general business in
the municipality of Alabat, province of Batangas, both
to divide the profits and losses share alike, and
defendant to be manager of the partnership. Plaintiff
alleges that from 1918 until 1928 defendant had
rendered an annual accounting, but has refused to do
so from 1929 to 1937, hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer,
alleging that defendant was the industrial partner in
said partnership; that he rendered a yearly accounting
and liquidation thereof from 1918 to 1932, and that in
the latter year, 1932, the partnership was dissolved
and defendant delivered all its properties and assets to
the plaintiff. Hence, defendant prays for the dismissal
of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939,
he was substituted by the administrator of his estate,
Solomon Lota.
On December 8, 1939, defendant's counsel made a
suggestion upon the record that defendant died on
November 26, 1939. On January 9, 1940, the Court
gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the
administrator of his estate or his legal representative.
On January 28, 1941, the Court ordered the dismissal
of the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by plaintiff
that on March 28, 1941, he had filed a petition for the
issuance of letters of administration to deceased
defendant's surviving spouse, Marta Sadiasa, for the
purpose of substituting her for the deceased
defendant, said petition being Special Proceedings No.
3859 of this Court entitled "Intestate Estate of the late
Benigno Tolentino, Solomon Lota, petitioner." This
special proceedings was, however, dismissed for
failure of the administratrix to file a bond and to take
her oath.
It will thus be seen that from defendant's death on
November 26, 1939, to the present, or almost ten
years, no administrator or legal representative had
been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff
made another try to substitute said deceased by filing
his motion, referred to in the first paragraph of this
resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The following considerations stand in the way of
plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager
of the partnership formed by and between him and the
plaintiff, and that said defendant died on November 26,
1939, during the pendency of the present for
accounting and liquidation against defendant, the said
action should have been discontinued as it could no
longer be maintained against deceased defendant.
Under these circumstances, the remedy and duty of
the plaintiff are as set out in the following ruling of the
Supreme Court in Po Yeng Cheo vs. Lim Ka Yam, (44
Phil. 172, 178):
In the first place, it is well settled that when a member
of a mercantile partnership dies, the duty of liquidating
its affairs devolves upon the surviving member, or
members of the firm, not upon the legal representative
of the deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744). And the same rule must be equally applicable to
a civil partnership clothed with the form of the
commercial association (ART. 1670, Civil Code;
Lichauco vs. Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to
defendant's death, the duty to liquidate devolved upon
the legal representative of the plaintiff because it was
the latter who sought to establish a claim against the
defendant.
2. If after such liquidation, there should be found
money or property due the partnership from the
deceased defendant, a claim therefor should be filed
against the latter's estate in administration. Again, this
is the procedure marked out in the case just cited:
Upon the death of Lim Ka Yam it therefore become the
duty of his surviving associates to take the proper
steps to settle the affairs of the firms, and any claim
against him, or his estate, for a sum of money due to
the partnership by reason of any misappropriation of
its funds by him or damages resulting from his
wrongful acts as a manager, should be prosecuted
against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the
Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Ya sieng Chyip Konski and
Manila Electric Railroad and Light Company, are in the
possession of the deceased partner, the proper step
for the surviving associates to take would be to make
application to the court having charge of the
administration to require the administration to
surrender such property. (Po Yeng Cheo vs. Lim Ka
Yam, supra.)
This procedure was not also followed in the case at
bar because plaintiff, or his legal representative, did
not procure the appointment and qualification of an
administrator of the estate of deceased defendant,
altho he had already filed a petition looking towards
such administration. This plaintiff was under a duty to
do if he considered himself a creditor with a legitimate
claim enforceable against the estate of deceased
defendant.
3. What plaintiff, or his legal representative, insisted on
doing in the present case is to continue and press his
action for accounting and liquidation against the heirs
of deceased defendant, a procedure which, as above
stated, runs counter to that set out in the Po Yeng
Cheo vs. Lim Ka Yam case. But even in this, plaintiff,
or his legal representative, proceeded half-heartedly,
because he only filed a petition for the appointment of
an administrator for the estate of deceased defendant,
but did not see to it that administrator filed a bond and
qualify as such. Hence, the said petition for
administration was dismissed
4. Also, conceding, without admitting, that the present
action for accounting would lie against defendant, it is
this Court's opinion that such a duty to account died
with the defendant, was extinguished upon his death,
and was not shifted upon his heirs. The heirs of the
defendant have never been partners in the partnership
formed by and between plaintiff and defendant, and
said heirs are hardly in a position and hardly called
upon to effect an accounting of said partnership.
5. Finally, it will be recalled that the partnership in
question was organized in 1918 and dissolved in 1932.
The action for accounting was commenced on March
3, 1937. And the present motion for substitution was
filed on April 6, 1949, only. Trial on the merits at this
late date might prove futile and fruitless if no
partnership property is found in the possession of
defendant's heirs, let alone the allegation of said
defendant in his answer to the complaint back in 1937
that he had already delivered all the properties and
assets of the partnership to the plaintiff. If the principle
of laches is ever to be applied, it should be applied to
this case.
Wherefore, the plaintiff's action for substitution is
denied and defendant's prayer for the dismissal for this
case against the plaintiff.
The present appellant is Solomon Lota, in his capacity
as administrator of the estate of Urbano Lota, original
plaintiff, who died in l938. The decisive question that
arises is whether or not, after the death of the
defendant Benigno Tolentino on November 22, 1939,
plaintiff's action for accounting and liquidation of the
partnership formed in l918 between Urbano Lota and
Benigno Tolentino, of which the latter was the
industrial and managing partner, may be continued
against the heirs of Benigno Tolentino. This question
was decided adversely to the appellant by the lower
court and, in our opinion, correctly. The applicable
authority is the case of Po Yeng Cheo vs. Lim Ka
Yam, 44 Phil. 172, in which the following
pronouncements were made:
In the first place, it is well settled that when a member
of a mercantile partnership dies, the duty of liquidating
its affairs devolves upon the surviving member, or
members, of the firm, not upon the legal
representatives of the deceased partner.
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo
and Shibata vs. Green, 6 Phil., 744.) And the same
rule must be equally applicable to a civil partnership
clothed with the form of a commercial association (art.
1670, Civil Code: Lichauco vs. Licahuco, 33 Phil.,
350). Upon the death of Lim Ka Yam it therefore
become the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any
claim against him, or his state, for a sum of money due
to the partnership by reason of any misappropriation of
its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted
against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the
Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Yut Siong Chyip Konski and
Manila Electric Railroad and Light Company, are in the
possession of the partner, the proper step for the
surviving associates to take would be to make
application to the court having charge of the
administration to require the administrator to surrender
such property.
But in the second place, as already indicated, the
proceedings in this cause, considered in the character
of an action for an accounting, were futile; and the
court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator
upon the supposed liability of his intestate to respond
for the plaintiffs proportionate share of the capital and
assets. But of course the action was not maintenable
in this aspect after the death of the defendant; and the
motion to discontinue the action against the
administrator should have been granted. (pp. 178-
179.)
Another ground equally decisive against the
appellant correctly advanced by the lower court in
dismissing the present action for accounting, is lack of
prosecution on the part of the appellant. It may be
fittingly recalled that the action for accounting and
liquidation was filed on March 3, l937. No sooner had
the defendant Benigno Tolentino died on November
22, l939, than said fact was made record by his
attorney. On January 9, 1940, the lower court gave the
plaintiff (who had then died and was substituted on
September 28, 1939, by the administrator of his
estate, Solomon Lota), 30 days to amend the
complaint by substituting the administrator or legal
representative of the deceased defendant Benigno
Tolentino. On January 28, 1941, the lower court
dismissed the case for lack of prosecution on the part
of the plaintiff, but the order of dismissal was
reconsidered, upon a showing by the plaintiff that on
March 28, 1941, an administration proceeding for the
estate of Benigno Tolentino was instituted by the
plaintiff. On August 8, 1941 the lower court issued, at
the instance of the plaintiff, letters of administration to
Tolentino's surviving spouse, Marta Sadiasa, who
however failed to qualify. Accordingly, the court
dismissed the administration proceeding on January 3,
1949, for lack of interest. It was only as late as April 6,
l949, that the plaintiff filed the motion to substitute, not
even the legal representative of Benigno Tolentino but
his heirs.
If the plaintiff was genuinely interested in substituting
the proper party, assuming that plaintiff's action may
still be pursued after Tolentino's death, he should have
taken timely measures to have the administratrix
appointed on August 8, 1941, qualify or, in case of her
failure or refusal, to procure the appointment of
another administrator; because the plaintiff could have
availed himself of section 6, Rule 80, of the Rules of
Court, providing that "letters of administration may be
granted to any qualified applicant, though it appears
that there are other competent persons having better
right to the administration, if such persons fail to
appear when notified and claim the issuance of letters
to themselves." Certainly, inaction for almost eight
years (after the issuance of letters of administration)
on the part of the appellant, sufficiently implies
indifference to or desistance from its suit.
The theory of the appellant is that the heirs may
properly be substituted for the deceased Benigno
Tolentino, because they are in possession of property
allegedly belonging to the partnership in question, and
the appellant seeks the recovery thereof. Apart from
the fact that said allegation seems to refer to cause of
action foreign to the claim for accounting and
liquidation against Tolentino, and should have been
made in proper pleading to duly admitted by the lower
court, the filing of appellant's motion for substitution
more than twelve years after the institution of the
complaint came too late and already called for the
prosecution. It is immaterial that, before the appealed
resolution was issued by the lower court, the appellant
attempted to have the deceased defendant had not yet
been properly substituted.
The resolution herein complained of will therefore be
as it is hereby affirmed, with costs against the
appellant. S
Goquilay bs Sycip 108 Phil 947
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP
"TAN SIN AN and ANTONIO C.
GOQUIOLAY", Plaintiffs-Appellants, v.
WASHINGTON Z. SYCIP, ET AL., Defendants-
Appellees. Jose C. Colayco, Manuel O. Chan and
Padilla Law Offices for Appellants.
1. PARTNERSHIP; MANAGEMENT, RIGHT OF
EXCLUSIVE; PERSONAL RIGHT; TERMINATION
UPON MANAGER-PARTNERS DEATH. The right
of exclusive management conferred upon Tan Sin An,
being premised upon trust and confidence, was a
mere personal right that terminated upon Tans
demise.
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF
HEIRS TO REPRESENT DECEASED PARTNER;
MANAGERIAL RIGHT; PROPRIETARY INTEREST.
The provision in the Articles of Co-Partnership
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 relates to the
succession in the proprietary interest of each partner.
3. ID.; ID.; EFFECT OF HEIRS FAILURE TO
REPUDIATE; HEIRS BECOME INDIVIDUAL
PARTNERS; MINORITY OF HEIRS. 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 Tans demise.
Minority of the heirs is not a bar to the application of
that clause in the articles of co-partnership. Heirs
liability in the partnership being limited to the value of
their importance, they become no more than limited
partners, when they manifest their intent to be bound
as general partners.
4. ID.; SALE OF PARTNERSHIP PROPERTIES;
CONSENT OF ALL PARTNERS UNNECESSARY;
STRANGERS DEALING WITH PARTNERSHIPS;
POWER TO BIND PARTNERSHIP. As to whether
or not the consent of the other partners was necessary
to perfect the sale of the partnership properties, the
Court believes that it is not. 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.
5. ID.; ID.; ESTOPPEL. By allowing defendant Kong
Chai Pin to retain control of the partnership properties
from 1942 to 1949, plaintiff Goquiolay estopped
himself from denying her (Kong Chai Pins) legal
representation of the partnership, with the power to
bind it by proper contracts.

6. PARTNERSHIP; GENERAL PARTNER BY
ESTOPPEL; WIDOW OF MANAGING PARTNER
AUTHORIZED BY OTHER PARTNER TO MANAGE
PARTNERSHIP. By authorizing the widow of the
managing partner to manage partnership property
(which a limited partner could not be authorized to do),
the other general partner recognized her as a general
partner, and is now in estoppel to deny her position as
a general partner, with authority to administer and
alienate partnership property.
7. ID.; HEIR OF PARTNER, STATUS ORDINARILY
AS LIMITED PARTNER BUT MAY WAIVE IT AND
BECOME AS GENERAL PARTNER. Although the
heir of a partner ordinarily becomes a limited partner
for his own protection, yet the heir may disregard it
and instead elect to become a collective or general
partner, with all the rights and obligations of one. This
choice pertains exclusively to the heir, and does not
require the assent of the surviving partner.
8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER
TO DEAL WITH PROPERTY. A third person has
the right to presume that a general partner dealing with
partnership property has the requisite authority from
his co-partners.
9. ID.; PROPERTY OF PARTNERSHIP; SALE OF
IMMOVABLES, WHEN CONSIDERED WITHIN THE
ORDINARY POWERS OF A GENERAL PARTNER.
Where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the
firm form part of its stock-in-trade, and the sale thereof
is in pursuance of partnership purposes, hence within
the ordinary powers of the partner.
10. ID.; SALE OF PARTNERSHIP PROPERTY;
ACTION FOR RESCISSION ON GROUND OF
FRAUD; NO INADEQUACY OF PRICE; CASE AT
BAR. Appellants claim that the price was
inadequate, relies on the testimony of a realtor, who in
1955, six years after the sale in the question, asserted
that the land was by then worth double the price for
which it was sold. But taking into account the
continued rise of real estate values since liberation,
and the fact that the sale in question was practically a
forced sale because the partnership has no other
means to pay the legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to
justify the rescission of the sale.
11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO
BADGE OF FRAUD. The Supreme court has ruled
that relationship alone is not a badge of fraud (Oria
Hnos. v. McMicking, 21 Phil., 243; Hermandad de
Smo. Nombre de Jesus v. Sanchez, 40 Official
Gazette 1685).
12. ID.; ID.; ID.; FRAUD OF CREDITORS
DISTINGUISHED FROM FRAUD TO OBTAIN
CONSENT. Fraud used to obtain a partys consent
to a contract (deceit or dolus in contrahendo) is
different from fraud of creditors that gives rise to a
rescission of contract.
13. ID.; ID.; ID.; SUBSIDIARY NATURE;
ALLEGATION OF NO OTHER MEANS TO OBTAIN
REPARATION, NECESSARY. The action for
rescission is subsidiary; it can not be instituted except
when the party suffering damage has no other legal
means to obtain reparation for the same. hence, if
there is no allegation or evidence that the plaintiff can
not obtain reparation from the widow and heirs of the
deceased partner, the suit to rescind the sale in
question s not maintainable, even if the fraud charged pledge real and personal properties, to secure the
actually did exist. obligation of the co-partnership, to buy real or personal
properties for cash or upon such terms as he may
Direct appeal from the decision of the Court of First deem advisable, to sell personal or real properties,
Instance of Davao (the amount involved being more such as lands and buildings of the co-partnership in
than P200,000) dismissing the plaintiffs-appellants any manner he may deem advisable for the best
complaint. interest of said co-partnership, to borrow money on
behalf of the co-partnership and to issue promissory
From the stipulation of facts of the parties and the notes for the repayment thereof, to deposit the funds
evidence on record, it would appear that on May 29, of the co-partnership in any local bank or elsewhere
1940, Tan Sin An and Antonio C. Goquiolay entered and to draw checks against funds so deposited . . .
into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. On May 29, 1940, the plaintiff partnership "Tan Sin An
Goquiolay", for the purpose of dealing in real estate. and Goquiolay" purchased the three (3) parcels of
The partnership had a capital of P30,000.00, land, known as Lots Nos. 526, 441 and 521 of the
P18,000.00 of which was contributed by Goquiolay Cadastral Survey of Davao, subject-matter of the
and P12,000.00 by Tan Sin An. The agreement lodged instant litigation, assuming the payment of a mortgage
upon Tan Sin An the sole management of the obligation of P25,000.00, payable to "La Urbana
partnership affairs, stipulating that Sociedad Mutua de Construccin y Prestamos" for a
period of ten (10) years, with 10% interest per annum.
"III. The co-partnership shall be composed of said Tan Another 46 parcels were purchased by Tan Sin An in
Sin An as sole managing and partner (sic), and his individual capacity, and he assumed payment of a
Antonio C. Goquiolay as co-partner. mortgage debt thereon for P35,000.00, with interest.
The down payment and the amortization were
"VIII. The affairs of the co-partnership shall be advanced by Yutivo and Co., for the account of the
managed exclusively by the managing and partner purchasers.
(sic) or by his authorized agent, and it is expressly
stipulated that the managing and partner (sic) may On September 25, 1940, the two separate obligations
delegate the entire management of the affairs of the were consolidated in an instrument executed by the
co- partnership by irrevocable power of attorney to any partnership and Tan Sin An, whereby the entire 49 lots
person, firm or corporation he may select upon such were mortgaged in favor of the "Banco Hipotecario de
terms as regards compensation as he may deem Filipinas" (as successor to "La Urbana") and the
proper, and vest in such person, firm or corporation full covenantors bound themselves to pay, jointly and
power and authority, as the agent of the co-partnership severally, the remaining balance of their unpaid
and in his name, place and stead to do anything for it accounts amounting to P52,282.80 within eight 8
or on his behalf which he as such managing and years, with 8% annual interest, payable in 96 equal
partner (sic) might do or cause to be done. monthly installments.
"IX. The co-partner shall have no voice or participation On June 26, 1942, Tan Sin An died, leaving as
in the management of the affairs of the co-partnership; surviving heirs his widow, Kong Chai Pin, and four
but he may examine its accounts once every six (6) minor children, namely: Tan L. Cheng, Tan L. Hua,
months at any time during ordinary business hours, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai
and in accordance with the provisions of the Code of Pin was appointed administratrix of the intestate estate
Commerce." (Articles of Co-Partnership). of her deceased husband.
The lifetime of the partnership was fixed at ten (10) In the meantime, repeated demands for payment were
years and also that made by the Banco Hipotecario on the partnership and
on Tan Sin An. In March, 1944, the defendant Sing
"In the event of the death of any of the partners at any Yee and Cuan, Co., Inc., upon request of defendant
time before the expiration of said term, the co- Yutivo Sons Hardware Co., paid the remaining
partnership shall not be dissolved but will have to be balance of the mortgage debt, and the mortgage was
continued and the deceased partner shall be cancelled.
represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership). Then in 1946, Yutivo Sons Hardware Co. and Sing
Yee and Cuan Co., Inc. filed their claims in the
However, the partnership could be dissolved and its intestate proceedings of Tan Sin An for P62,415.91
affairs liquidated at any time upon mutual agreement and P54,310.13, respectively, as alleged obligations of
in writing of the partners (Art. XIII, articles of Co- the partnership "Tan Sin An and Antonio C. Goquiolay"
Partnership). and Tan Sin An, for advances, interests and taxes paid
in amortizing and discharging their obligations to "La
On May 31, 1940, Antonio Goquiolay executed a Urbana" and the "Banco Hipotecario." Disclaiming
general power of attorney to this effect:jgc: knowledge of said claims at first, Kong Chai Pin later
"That besides the powers and duties granted the said admitted the claims in her amended answer and they
Tan Sin An by the articles of co-partnership of said co- were accordingly approved by the Court.
partnership "Tan Sin An and Antonio Goquiolay", the
said Tan Sin An should act as my Manager for said co- On March 29, 1949, Kong Chai Pin filed a petition with
partnership for the full period of the term for which said the probate court for authority to sell all the 49 parcels
co-partnership was organized or until the whole period of land to Washington Z, Sycip and Betty Y. Lee, for
that the said capital of P30,000.00 of the co- the purpose primarily of settling the aforesaid debts of
partnership should last, to carry on to the best Tan Sin An and the partnership. Pursuant to a court
advantage and interest of the said co-partnership, to order of April 2, 1949, the administratrix executed on
make and execute, sign, seal and deliver for the co- April 4, 1949, a deed of sale 1 of the 49 parcels of land
partnership, and in its name, all bills, bonds, notes, to the defendants Washington Sycip and Betty Lee in
specialties, and trust receipts or other instruments or consideration of P37,000.00 and of vendees
documents in writing whatsoever kind or nature which assuming payment of the claims filed by Yutivo Sons
shall be necessary to the proper conduction of the said Hardware Co. and Sing Yee and Cuan Co., Inc. Later,
businesses, including the power to mortgage and in July, 1949, defendants Sycip and Betty Lee
executed in favor of the Insular Development Co., Inc. 1949, plaintiff estopped himself to deny her legal
a deed of transfer covering the said 49 parcels of X The lower court erred in holding that the sale was representation of the partnership, with the power to
land. not fraudulent against the partnership and Antonio bind it by proper contracts.
Goquiolay.
Learning about the sale to Sycip and Lee, the The question now arises as to whether or not the
surviving partner Antonio Goquiolay filed, on or about XI The lower court erred in holding that the sale consent of the other partners was necessary to perfect
July 25, 1949, a petition in the intestate proceedings was not only necessary but beneficial to the the sale of the partnership properties to Washington
seeking to set aside the order of the probate court partnership. Sycip and Betty Lee. The answer is, we believe, in the
approving the sale in so far as his interest over the negative. Strangers dealing with a partnership have
parcels of land sold was concerned. In its order of XII The lower court erred in dismissing the the right to assume, in the absence of restrictive
December 29, 1949, the probate court annulled the complaint and in ordering Antonio Goquiolay to pay clauses in the co-partnership agreement, that every
sale executed by the administratrix with respect to the the costs of suit."cralaw virtua1aw library general partner has power to bind the partnership,
60% interest of Antonio Goquiolay over the properties specially those partners acting with ostensible
sold. King Chai Pin appealed to the Court of Appeals, There is merit in the contention that the lower court authority. And so, we held in one case:jgc:
which court later certified the case to us (93 Phil., 413; erred in holding that the widow, Kong Chai Pin,
49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered succeeded her husband, Tan Sin An, in the sole ". . . Third persons, like the plaintiff, are not bound in
decision setting aside the orders of the probate court management of the partnership, upon the latters entering into a contract with any of the two partners, to
complained of and remanding the case for new trial, death. While, as we previously stated in our narration ascertain whether or not this partner with whom the
due to the non-inclusion of indispensable parties. of facts, the Articles of Co-Partnership and the power transaction is made has the consent of the other
Thereafter, new pleadings were filed. of attorney executed by Antonio Goquiolay conferred partner. The public need not make inquiries as to the
upon Tan Sin An the exclusive management of the agreements had between the partners. Its knowledge
The second amended complaint in the case at bar business, such power, premised as it is upon trust and is enough that it is contracting with the partnership
prays, among other things, for the annulment of the confidence, was a mere personal right that terminated which is represented by one of the managing
sale in favor of Washington Sycip and Betty Lee, and upon Tans demise. The provision in the articles partners.
their subsequent conveyance in favor of the Insular stating that "in the event of death of any one of the
Development Co., Inc., in so far as the three (3) lots partners within the 10-year term of the partnership, the There is a general presumption that each individual
owned by the plaintiff partnership are concerned. The deceased partner shall be represented by his heirs", partner is an agent for the firm and that he has
answer averred the validity of the sale by Kong Chai could not have referred to the managerial right given to authority to bind the firm in carrying on the partnership
Pin as successor partner, in lieu of the late Tan Sin Tan Sin An; more appropriately, it related to the transactions. [Mills v. Riggle, 112 Pac., 617]
An. After hearing, the complaint was dismissed by the succession in the proprietary interest of each partner.
lower court in its decision dated October 30, 1956; The covenant that Antonio Goquiolay shall have no The presumption is sufficient to permit third persons to
hence, this appeal taken directly to us by the plaintiffs, voice or participation in the management of the hold the firm liable on transactions entered into by one
as the amount involved is more than P200,000.00. partnership, being a limitation upon his right as a of the members of the firm acting apparently in its
Plaintiffs-appellants assign as errors that general partner, must be held coextensive only with behalf and within the scope of his authority. [Le Roy v.
Tans right to manage the affairs, the contrary not Johnson, 7 U.S. Law, Ed., 391](George Litton v. Hill &
"I. The lower court erred in holding that Kong Chai being clearly apparent. Ceron, Et Al., 67 Phil., 513-514)."cralaw virtua1aw
Pin became the managing partner of the partnership library
upon the death of her husband, Tan Sin An, by virtue Upon the other hand, consonant with the articles of co-
of the articles of Partnership executed between the partnership providing for the continuation of the firm We are not unaware of the provision of Article 129 of
Tan Sin An and Antonio Goquiolay, and the general notwithstanding the death of one of the partners, the the Code of Commerce to the effect that
power of attorney granted by Antonio Goquiolay. heirs of the deceased, by never repudiating or refusing
to be bound under the said provision in the articles, "If the management of the general partnership has not
II The lower court erred in holding that Kong Chai became individual partners with Antonio Goquiolay been limited by special agreement to any of the
Pin could act alone as sole managing partner in view upon Tans demise. The validity of like clauses in members, all shall have the power to take part in the
of the minority of the other heirs. partnership agreements is expressly sanctioned under direction and management of the common business,
Article 222 of the Code of Commerce. 1 and the members present shall come to an agreement
III The lower court erred in holding that Kong Chai for all contracts or obligations which may concern the
Pin was the only heir qualified to act as managing Minority of the heirs is not a bar to the application of association." (Emphasis supplied)
partner. that clause in the articles of co-partnership (2 Vivante,
Tratado de Derecho Mercantil, 493; Planiol, Traite but this obligation is one imposed by law on the
IV The lower court erred in holding that Kong Chai Elementaire de Droit Civil, English translation by the partners among themselves, that does not necessarily
Pin had authority to sell the partnership properties by Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177). affect the validity of the acts of a partner, while acting
virtue of the articles of partnership and the general within the scope of the ordinary course of business of
power of attorney granted to Tan Sin An in order to Appellants argue, however, that since the "new" the partnership, as regards third persons without
pay the partnership indebtedness. members liability in the partnership was limited merely notice. The latter may rightfully assume that the
to the value of the share or estate left by the deceased contracting partner was duly authorized to contract for
V The lower court erred in finding that the Tan Sin An, they became no more than limited and in behalf of the firm and that, furthermore, he
partnership did not pay its obligation to the Banco partners and, as such, were disqualified from the would not ordinarily act to the prejudice of his co-
Hipotecario. management of the business under Article 148 of the partners. The regular course of business procedure
Code of Commerce. Although ordinarily, this effect does not require that each time a third person
VI The lower court erred in holding that the consent follows from the continuance of the heirs in the contracts with one of the managing partners, he
of Antonio Goquiolay was not necessary to partnership, 2 it was not so with respect to the widow should inquire as to the latters authority to do so, or
consummate the sale of the partnership properties. Kong Chai Pin, who, by her affirmative actions, that he should first ascertain whether or not the other
manifested her intent to be bound by the partnership partners had given their consent thereto. In fact, Article
VII The lower court erred in finding that Kong Chai agreement not only as a limited but as a general 130 of the same Code of Commerce provides that
Pin managed the business of the partnership after the partner. Thus, she managed and retained possession even if a new obligation was contracted against the
death of her husband, and that Antonio Goquiolay of the partnership properties and was admittedly express will of one of the managing partners, "it shall
knew it. deriving income therefrom up to and until the same not be annulled for such reason, and it shall produce
were sold to Washington Sycip and Betty Lee. In fact, its effects without prejudice to the responsibility of the
VIII The lower court erred in holding that the failure by executing the deed of sale of the parcels of land in member or members who contracted it, for the
of Antonio Goquiolay to oppose the management of dispute in the name of the partnership, she was acting damages they may have caused to the common
the partnership by Kong Chai Pin estops him now from no less than as a managing partner. Having thus fund."cralaw virtua1aw library
attacking the validity of the sale of the partnership preferred to act as such, she could be held liable for
properties. the partnership debts and liabilities as a general Cesar Vivante (2 Tratado de Derecho Mercantil, pp.
partner, beyond what she might have derived only 114-115) points out:jgc:
IX The lower court erred in holding that the buyers from the estate of her deceased husband. By allowing "367. Primera hipotesis. A falta de factos
of the partnership properties acted in good faith. her to retain control of the firms property from 1942 to 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 Cdigo
no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato,
debia quiza el legislador privar de la administracin 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 administracin, que es asunto de todos
los dias y de todas horas. Hubieran sido disposiciones
menos oportunas que lo adoptado por el Cdigo, el
cual se confia al espiritu de reciproca confianza que
deberia animar la colaboracin de los socios, y en la
ley inflexible de responsabilidad que implica
comunidad en los intereses de los mismos.
En esta hiptesis, 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 administracin en la totalidad de sus
relaciones, salvo su responsabilidad en el caso de una
administracin 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 oposicin de cada uno de los socios
puede quedar frustrado. Pero se puede contestar que
este derecho de oposicin concedido por la ley como
un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el
Cdigo concede sin limite: se presume que los socios
se han concedido reciprocamente la facultad de
administrar uno para otro. Se haria precipitar esta
hiptesis en la otra de una administracin colectiva
(art. 1.721, Cdigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios
lo que el Cdigo 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."cralaw virtua1aw library
Commenting on the same subject, Gay de Montella
(Cdigo de Comercio, Tomo II, 147-148) opines:jgc:
"Para obligar a las Compaias enfrente de terceros
(art. 128 del Cdigo), 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 es que toda obligacin contraida bajo
la razon social, se presume contraida por la
Compaia. Esta presuncion 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 razn social una obligacin
que no interesa a la Sociedad, ste podra rechazar la
accin del tercero probando que el acreedor conocia
que la obligacin no tenia ninguna relacin con ella. Si
tales actos y contratos no comportasen la
concurrencia de ambos elementos, serian 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. negatives any conspiracy on her part in the alleged
fraudulent scheme, even if she subsequently decided
Cuando los Estatutos o la escritura social no to admit their validity after studying the claims and
contienen ninguna clausula relativa al nombramiento o finding it best to admit the same. It may not be amiss
designacin de uno o mas de un socio para to remark that the probate court approved the
administrar la Compaia (art. 129 del Cdigo) todos questioned claims.
tienen por un igual el derecho de concurir a la decisin
y manejo de los negocios comunes . . ."cralaw There is complete failure of proof, moreover, that the
virtua1aw library price for which the properties were sold was
unreasonably low, or in any way unfair, since
Although the partnership under consideration is a appellants presented no evidence of the market value
commercial partnership and, therefore, to be governed of the lots as of the time of their sale to appellees
by the Code of Commerce, the provisions of the old Sycip and Lee. The alleged value of P31,056.58 in
Civil Code may give us some light on the right of one May of 1955 is no proof of the market value in 1949,
partner to bind the partnership. States Art. 1695 specially because in the interval, the new owners
thereof:jgc: appear to have converted the land into a subdivision,
which they could not do without opening roads and
"Should no agreement have been made with respect otherwise improving the property at their own expense.
to the form of management, the following rules shall be Upon the other hand, Kong Chai Pin hardly had any
observed:chanrob1es virtual 1aw library choice but to execute the questioned sale, as it
appears that the partnership had neither cash nor
1. All the partners shall be considered agents, and other properties with which to pay its obligations.
whatever any one of them may do individually shall Anyway, we cannot consider seriously the inferences
bind the partnership; but each one may oppose any freely indulged in by the appellants as allegedly
act of the others before it has become legally indicating fraud in the questioned transactions, leading
binding."cralaw virtua1aw library to the conveyance of the lots in dispute to the appellee
Insular Development Co., Inc.
The records fail to disclose that appellant Goquiolay
made any opposition to the sale of the partnership Wherefore, finding no reversible error in the appealed
realty to Washington Z. Sycip and Betty Lee; on the judgment, we affirm the same, with costs against
contrary, it appears that he (Goquiolay) only appellant Antonio Goquiolay.
interposed his objections after the deed of conveyance
was executed and approved by the probate court, and, Padilla, Montemayor, Bautista Angelo, Labrador,
consequently, his opposition came too late to be Concepcion, Endencia, Barrera and Gutierrez
effective. David, JJ., concur.
Appellants assail the correctness of the amounts paid RESOLUTION
for the account of the partnership as found by the trial December 10, 1963
court. This question, however, need not be resolved The matter now pending is the appellants motion for
here, as in the deed of conveyance executed by Kong reconsideration of our main decision, wherein we have
Chai Pin, the purchasers Washington Sycip and Betty upheld the validity of the sale of the lands owned by
Lee assumed, as part consideration of the purchase, the partnership Goquiolay & Tan Sin An, made in 1949
the full claims of the two creditors, Sing Yee and Cuan by the widow of the managing partner, Tan Sin An
Co., Inc. and Yutivo Sons Hardware Co. (executed in her dual capacity of Administratrix of her
husbands estate and as partner, in lieu of the
Appellants also question the validity of the sale husband), in favor of buyers Washington Sycip and
covering the entire firm realty, on the ground that it, in Betty Lee for the following consideration:chanrob1es
effect, threw the partnership into dissolution, which Cash paid P37,000.00
requires consent of all the partners. This view is
untenable. That the partnership was left without the Debts assumed by purchaser:chanrob1es virtual 1aw
real property it originally had will not work its library
dissolution, since the firm was not organized to exploit
these precise lots but to engage in buying and selling To Yutivo 62,415.91
real estate, and "in general real estate agency and
brokerage business." Incidentally, it is to be noted that To Sing Yee Cuan & Co. 54,310.13
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. TOTAL P153,726.04
Lastly, appellants point out that the sale of the Appellant Goquiolay, in his motion for reconsideration,
partnership properties was only a fraudulent device by insists that, contrary to our holding, Kong Chai Pin,
the appellees, with the connivance of Kong Chai Pin, widow of the deceased partner Tan Sin An, never
to ease out Antonio Goquiolay from the partnership. became more than a limited partner, incapacitated by
The "devise", according to the appellants, started way law to manage the affairs of the partnership; that the
back sometime in 1945, when one Yu Khe Thai testimony of her witnesses Young and Lim belies that
sounded out Antonio Goquiolay on the possibility of she took over administration of the partnership
selling his share in the partnership; and upon his property; and that, in any event, the sale should be set
refusal to sell, was followed by the filing of the claims aside because it was executed with the intent to
of Yutivo Sons Hardware Co. and Sing Yee and Cuan defraud appellant of his share in the properties sold.
Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff Three things must be always held in mind in the
partnership (whose liability was alleged to be joint and discussion of this motion to reconsider, being basic
several), Yutivo Sons Hardware Co. and Sing Yee and and beyond controversy:chanrob1es virtual 1aw library
Cuan Co., Inc. had every right to file their claims in the
intestate proceedings. The denial of the claims at first (a) That we are dealing here with the transfer of
by Kong Chai Pin (for lack of sufficient knowledge) partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partner could not be authorized to do), Goquiolay
partners inter se, and this aspect of the case was "According to Mr. Goquiolay, during the Japanese recognized her as such partner, and is now in estoppel
expressly reserved in the main decision of 26 July occupation Tan Sin An and his family lived on the to deny her position as a general partner, with
1960; plantation of the partnership and derived their authority to administer and alienate partnership
subsistence from that plantation. What can you say to property.
(b) That the partnership was expressly organized "to that?" (Dep. 19 July 1956, p. 8)
engage in real estate business, either by buying and Besides, as we pointed out in our main decision, the
selling real estate." The Articles of co-partnership, in And also heir ordinarily (and we did not say "necessarily")
fact, expressly provided that:jgc: becomes a limited partner for his own protection,
"What can you say as to the development of these because he would normally prefer to avoid any liability
"IV. The object and purpose of the co-partnership are other properties of the partnership which you saw in excess of the value of the estate inherited so as not
as follows:chanrob1es virtual 1aw library during the occupation?" (Dep., p. 13, Emphasis to jeopardize his personal assets. But this statutory
supplied) limitation of responsibility being designed to protect the
1. To engage in real estate business, either by buying heir, the latter may disregard it and instead elect to
and selling real estates; to subdivide real estates into to which witness gave the following become a collective or general partner, with all the
lots for the purpose of leasing and selling them." ; answer:chanrob1es virtual 1aw library rights and privileges of one, and answering for the
debts of the firm not only with the inheritance but also
(c) That the properties sold were not part of the I saw the properties in Mamay still undeveloped. The with the heirs personal fortune. This choice pertains
contributed capital (which was in cash) but land third property which is in Tigatto is about eleven (11) exclusively to the heir, and does not require the assent
precisely acquired to be sold, although subject to a hectares and planted with abaca seedlings planted by of the surviving partner.
mortgage in favor of the original owners, from whom Mr. Sin An. When I went there with Hernando Young
the partnership had acquired them. we saw all the abaca destroyed. The place was It must be remembered that the articles of co-
occupied by the Japanese Army. They planted partnership here involved expressly stipulated that:jgc:
With these points firmly in mind, let us turn to the camotes and vegetables to feed the Japanese Army.
points insisted upon by Appellant. Of course they never paid any money to Tan Sin An or "In the event of the death of any of the partners at any
his family." (Dep., Lim, pp. 13-14. (Emphasis supplied) time before the expiration of said term, the co-
It is first averred that there is "not one iota of evidence" partnership shall not be dissolved but will have to be
that Kong Chai Pin managed and retained possession Plainly, Both Young and Lims testimonies do not continued and the deceased partner shall be
of the partnership properties. Suffice it to point out that belie, or contradict, Goquiolays admission that he told represented by his heirs or assigns in said co-
appellant Goquiolay himself admitted that Mr. Yu Eng Lai that the widow "could just do it" (i. e., partnership" (Art. XII, Articles of Co-Partnership).
continue to manage the properties). Witnesses Lim
". . . Mr. Yu Eng Lai asked me if I can just let Mrs. and Young referred to the period of Japanese The Articles did not provide that the heirs of the
Kong Chai Pin continue to manage the properties (as) occupation; but Goquiolays authority was, in fact, deceased would be merely limited partner; on the
she had no other means of income. Then I said, given to the widow in 1945, after the occupation. contrary, they expressly stipulated that in case of
because I wanted to help Mrs. Kong Chai Pin, she death of either partner "the co-partnership . . . will have
could just do it and besides I am not interested in Again, the disputed sale by the widow took place in to be continued" with the heirs or assigns. It certainly
agricultural lands. I allowed her to take care of the 1949. That Kong Chai Pin carried out no acts of could not be continued if it were to be converted from
properties in order to help her and because I believe in management during the Japanese occupation (1942- a general partnership into a limited partnership, since
God and I wanted to help her."cralaw virtua1aw library 1944) does not mean that she did not do so from 1945 the difference between the two kinds of associations is
Q. So the answer to my question is you did not take to 1949. fundamental; and specially because the conversion
any steps? into a limited association would leave the heirs of the
A. I did not. We thus find that Goquiolay did not merely rely on deceased partner without a share in the management.
reports from Lim and Young; he actually manifested Hence, the contractual stipulation does actually
Q. And this conversation which you had with Mrs. Yu his willingness that the widow should manage the contemplate that the heirs would become general
Eng Lai was few months after 1945? partnership properties. Whether or not she complied partners rather than limited ones.
with this authority is a question between her and the
A. In the year 1945." (Emphasis supplied) appellant, and is not here involved. But the authority Of course, the stipulation would not bind the heirs of
was given, and she did have it when she made the the deceased partner should they refuse to assume
The appellant subsequently ratified this testimony in questioned sale, because it was never revoked. personal and unlimited responsibility for the obligations
his deposition of 30 June 1956, page 8-9, wherein he of the firm. The heirs, in other words, can not be
stated:jgc: It is argued that the authority given by Goquiolay to the compelled to become general partners against their
widow Kong Chai Pin was only to manage the wishes. But because they are not so compellable, it
"that plantation was being occupied at that time by the property, and that it did not include the power to does not legitimately follow that they may not
widow, Mrs. Tan Sin An, and of course they are alienate, citing Article 1713 of the Civil Code of 1889. voluntarily choose to become general partners,
receiving quite a lot of benefit from that What this argument overlooks is that the widow was waiving the protective mantle of the general laws of
plantation."cralaw virtua1aw library not a mere agent, because she had become a partner succession. And in the latter event, it is pointless to
upon her husbands death, as expressly provided by discuss the legality of any conversion of a limited
Discarding the self-serving expressions, these the articles of co-partnership. Even more, granting that partner into a general one. The heir never was a
admissions of Goquiolay are certainly entitled to by succession to her husband, Tan Sin An, the widow limited partner, but chose to be, and became, a
greater weight than those of Hernando Young and only became a limited partner, Goquiolays general partner right at the start.
Rufino Lim, having been made against the partys own authorization to manage the partnership property was
interest. proof that he considered and recognized her as It is immaterial that the heirs name was not included in
general partner, at least since 1945. The reason is the firm name, since no conversion of status is
Moreover, the appellants reference to the testimony of plain: Under the law (Article 148, last paragraph, Code involved, and the articles of co-partnership expressly
Hernando Young, that the witness found the properties of Commerce), appellant could not empower the contemplated the admission of the partners heirs into
"abandoned and undeveloped", omits to mention that widow, if she were only a limited partner, to administer the partnership.
said part of the testimony started with the question:jgc: the properties of the firm, even as a mere agent:jgc:
It must never be overlooked that this case involves the
"Now, you said that about 1942 or 1943 you returned "Limited partners may not perform any act of rights acquired by strangers, and does not deal with
to Davao. Did you meet Mrs. Kong Chai Pin there in administration with respect to the interests of the co- the rights arising between partners Goquiolay and the
Davao at that time? partnership, not even in the capacity of agents of the widow of Tan Sin An. The issues between the partners
managing partners." (Emphasis supplied) inter se were expressly reserved in our main decision.
Similarly, the testimony of Rufino Lim, to the effect that Now, in determining what kind of partner the widow of
the properties of the partnership were undeveloped, By seeking authority to manage partnership property, partner Tan Sin An had elected to become, strangers
and the family of the widow (Kong Chai Pin) did not Tan Sin Ans widow showed that she desired to be had to be guided by her conduct and actuations and
receive any income from the partnership properties, considered a general partner. By authorizing the those of appellant Goquiolay. Knowing that by law a
was given in answer to the question:jgc: widow to manage partnership property (which a limited limited partner is barred from managing the
partnership business or property, third parties (like the
purchasers) who found the widow possessing and
managing the firm property with the acquiescence (or
at least without apparent opposition) of the surviving
partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in
negotiating with her as such a partner, having authority
to act for, and in behalf of, the firm. This belief, be it
noted, was shared even by the probate court that
approved the sale by the widow of the real property
standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay.
Note that for seven long years, from partner Tan Sin
Ans death in 1942 to the sale in 1949, there was more
than ample time for Goquiolay to take up the
management of these properties, or at least ascertain
how its affairs stood. For seven years Goquiolay could
have asserted his alleged rights, and by suitable notice
in the commercial registry could have warned
strangers that they must deal with him alone, as sole
general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not
even take steps to pay, or settle, the firm debts that
were overdue since before the outbreak of the last
war. He did not even take steps, after Tan Sin An died,
to cancel, or modify, the provisions of the partnership
articles that he (Goquiolay) would have no intervention
in the management of the partnership. This laches
certainly contributed to confirm the view that the widow
of Tan Sin An had, or was given, authority to manage
and deal with the firms properties, apart from the
presumption that a general partner dealing with
partnership property has the requisite authority from
his co-partners (Litton v. Hill and Cern, Et Al., 67
Phil., 513; quoted in our main decision, p. 11).
"The stipulation in the articles of partnership that any
of the two managing partners may contract and sign in
the name of the partnership with the consent of the
other, undoubtedly creates an obligation between the
two partners, which consists in asking the others
consent before contracting for the partnership. This
obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the
managing partner with whom he contracts has
previously obtained the consent of the other. A third
person may and has a right to presume that the
partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-
partner; for otherwise he would not enter into the
contract. The third person would naturally not presume
that the partner with whom he enters into the
transaction is violating the articles of partnership, but
on the contrary, is acting in accordance therewith. And
this finds support in the legal presumption that the
ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the
law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which
have the force of law between the parties." (Litton v.
Hill & Cern, Et Al., 67 Phil., 509, 516) (Emphasis
supplied)
It is next urged that the widow, even as a partner, had
no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as
stock-in-trade and real state held merely as business
site (Vivantes "taller banco social") for the
partnership. Where the partnership business is to deal
in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the
ordinary powers of a partner, because it is not in line
with the normal business of the firm. But where the
express and avowed purpose of the partnership is to
buy and sell real estate (as in the present case), the
immovables thus acquired by the firm form part of its this 20th day of May, A. D. 1893. Cowen & McGrath,
stock-in-trade, and the sale thereof is in pursuance of by Owen McGrath. Owen McGrath, Surviving partner
partnership purposes, hence within the ordinary of Cowen & McGrath. Owen McGrath" At the same
powers of the partner. This distinction is supported by time, the plaintiff had prepared, ready for filing, the
the opinion of Gay de Montella 1 , in the very passage petition for the dissolution of the partnership and
quoted in the appellants motion for appointment of a receiver, which he subsequently
reconsideration:jgc: filed, as hereinafter stated. On the day the mortgages
were signed, they were placed in the hands of the
"La enajenacin puede entrar en las facultades del mortgagees, which was the first intimation to them that
gerente: cuando es conforme a los fines sociales. there was any intention to make then. At that time
Pero esta facultad de enajenar limitada a las ventas none of the claims secured by the mortgages were
conforme a los fines sociales, viene limitada a los due, except, it may be, a small part of one of them,
objetos de comecio a los productos de la fabrica and none of the creditors to whom the mortgages were
para explotacin de los cuales se ha constituido la made had requested security, or were pressing for the
Sociedad. Ocurrira una cosa parecida cuando el payment of their debts . . . The mortgages appear to
objeto de la Sociedad fuese la compra y venta de be without a sufficient condition of defeasance, and
inmuebles, en cuyo caso el gerente estaria facultado contain a stipulation authorizing the mortgagees to
para otorgar las ventas que fuere necesario." take immediate possession of the property, which they
(Montella) (Emphasis supplied) did as soon as the mortgages were filed, through the
attorney who then represented them, as well as the
The same rule obtains in American law. plaintiff; and the stores were at once closed, and
possession delivered by them to the receiver
In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was appointed upon the filing of the petition. The avowed
held:jgc: purpose of the plaintiff in the course pursued by him,
was to terminate the partnership, place its property
"a partnership to deal in real estate may be created beyond the control of the firm, and insure the
and either partner has the legal right to sell the firm preference of the mortgages, all of which was known
real estate" to them at the time; . . ." (Cas cit., p. 343, Italics
supplied)
In Chester v. Dickerson, 54 N. Y. 1, 13 Am. Rep.
550:jgc: It is natural that from these facts the Supreme Court of
Ohio should draw the conclusion that conveyances
"And hence, when the partnership business is to deal were made with intent to terminate the partnership,
in real estate, one partner has ample power, as a and that they were not within the powers of McGrath
general agent of the firm, to enter into an executory as partner. But there is no similarity between those
contract for the sale of real estate."cralaw virtua1aw acts and the sale by the widow of Tan Sin An. In the
library McGrath case, the sale included even the fixtures
used in the business, in our case, the lands sold were
And in Rovelsky v. Brown, 92 Ala. 522, 9 South 182, those acquired to be sold. In the McGrath case, none
25 Am. St., Rep. 83:jgc: of the creditors were pressing for payment; in our
case, the creditors had been unpaid for more than
"If the several partners engaged in the business of seven years, and their claims had been approved by
buying and selling real estate can not bind the firm by the probate court for payment. In the McGrath case,
purchases or sales of such property made in the the partnership received nothing beyond the discharge
regular course of business, then they are incapable of of its debts; in the present case, not only were its
exercising the essential rights and powers of general debts assumed by the buyers, but the latter paid, in
partners and their association is not really a addition, P37,000.00 in cash to the widow, to the profit
partnership at all, but a several agency."cralaw of the partnership. Clearly, the McGrath ruling is not
virtua1aw library applicable.
Since the sale by the widow was in conformity with the We will now turn to the question of fraud. No direct
express objective of the partnership, "to engage . . . in evidence of it exists; but appellant points out, as
buying and selling real estate" (Art. IV, No. 1, Articles indicia thereof, the allegedly low price paid for the
of Copartnership), it can not be maintained that the property, and the relationship between the buyers, the
sale was made in excess of her powers as general creditors of the partnership, and the widow of Tan Sin
partner. An.
Considerable stress is laid by appellant in the ruling of First, as to the price: As already noted, this property
the Supreme Court of Ohio in McGrath, Et Al., v. was actually sold for a total of P153,726.04, of which
Cowen, Et Al., 49 N. E., 338. But the facts of that case P37,000.00 was in cash, and the rest in partnership
are vastly different from the one before us. In the debts assumed by the purchaser. These debts
McGrath case, the Court expressly found that:jgc: (P62,415.91 to Yutivo, and P54,310.13 to Sing Yee
Cuan & Co.) are not questioned; they were approved
"The firm was then, and for some time had been, by the Court, and its approval is now final. The claims
insolvent, in the sense that its property was insufficient were, in fact, for the balance on the original purchase
to pay its debts, though it still had good credit, and was price of the land sold (due first to La Urbana, later to
actively engaged in the prosecution of its business. On the Banco Hipotecario) plus accrued interests and
that day, which was Saturday, the plaintiff caused to taxes, redeemed by the two creditors-claimants. To
be prepared, ready for execution, the four chattel show that the price was inadequate, appellant relies
mortgages in question, which cover all the tangible on the testimony of the realtor Mata, who in 1955, six
property then belonging to the firm, including the years after the sale in question, asserted that the land
counters, shelving, and other furnishings and fixtures was worth P312,000.00. Taking into account the
necessary for, and used in carrying on, its business, continued rise of real estate values since liberation,
and signed the same in this form: "In witness whereof, and the fact that the sale in question was practically a
the said Cowen & McGrath, a firm, and Owen forced sale because the partnership had no other
McGrath, surviving partner of said firm, and Owen means to pay its legitimate debts, this evidence
McGrath, individually, have hereunto set their hands, certainly does not show such "gross inadequacy" as to
justify rescission of the sale. If at the time of the sale
(1949) the price of P153,726.04 was really low, how is
it that appellant was not able to raise the amount, even
if the creditors representative, Yu Khe Thai, had
already warned him four years before (1945) that the
creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged
to raise the sum needed to discharge the debts. But
the lands were already mortgaged, and had been
mortgaged since 1940, first to La Urbana, and then to
the Banco Hipotecario. Was it reasonable to expect
that other persons would loan money to the
partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since
1940? If it had been possible to find lenders willing to
take a chance on such a bad financial record, would
not Goquiolay have taken advantage of it? But the fact
is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts
of the partnership. Is he entitled now to cry fraud after
the debts were discharged with no help from him?
With regard to the relationship between the parties,
suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria Hnos.
v. McMicking, 21 Phil., 243; also Hermandad de Smo.
Nombre de Jesus v. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the
Yutivos should be willing to extend credit to them, and
not to appellant, is neither illegal nor immoral; at the
very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An &
Goquiolay."
Appellant seeks to create the impression that he was
the victim of a conspiracy between the Yutivo firm and
their component members. But no proof is adduced. If
he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the
firms debts between 1945 and 1949; but he did not;
he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to
defraud him arose (as he claims) because of his
refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to have
the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate
court taking cognizance of Tan Sin Ans estate, all of
which increased the risk that the supposed fraud
should be detected.
Neither was there any anomaly in the filing of the
claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings
for the settlement of the estate of Tan Sin An. This for
two reasons: First, Tan Sin An and the partnership
"Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco
Hipotecario), and Rule 87, section 6, is to the effect
that:jgc:
"Where the obligation of the decedent is joint and
several with another debtor, the claim shall be filed
against the decedent as if he were the only debtor,
without prejudice to the right of the estate to recover
contribution from the other debtor." (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a
mortgage on the properties of the partnership and
those of Tan Sin An personally, and a mortagage in
indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt individual capacity, and the partnership bound
(Civ. Code of 1889, Article 1860; New Civil Code, Art. themselves to pay jointly and severally the total
2089). amount of P52,282.80, with 8% annual interest
thereon within the period of eight years mortgaging in
A final and conclusive consideration. The fraud favor of said entity the 3 parcels of land belonging to
charged not being one used to obtain a partys the partnership to Tan Sin An.
consent to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at all, it can only be a Tan Sin An died on June 26, 1942 and was survived
fraud of creditors that gives rise to a rescission of the by his widow, defendant Kong Chai Pin, and four
offending contract. But by express provision of law children, all of whom are minors of tender age. On
(Article 1294, Civil Code of 1889; Article 1383, New March 18, 1944, Kong Chai Pin was appointed
Civil Code), "the action for rescission is subsidiary; it administratrix of the intestate estate of Tan Sin An.
can not be instituted except when the party suffering And on the same date, Sing, Yee and Cuan Co., Inc.
damage has no other legal means to obtain reparation paid to the Banco Hipotecario the remaining unpaid
for the same." Since there is no allegation, or balance of the mortgage obligation of the partnership
evidence, that Goquiolay can not obtain reparation amounting to P46,116.75 in Japanese currency.
from the widow and heirs of Tan Sin An, the present
suit to rescind the sale in question is not maintenable, Sometime in 1945, after the liberation of Manila, Yu
even if the fraud charged actually did exist. Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.,
Premises considered, the motion for reconsideration is called for Goquiolay and the two had a conference in
denied. the office of the former during which he offered to buy
the interest of Goquiolay in the partnership. In 1948,
Bengzon, C.J., Padilla, Concepcion, Barrera and Kong Chai Pin, the widow, sent her counsel, Atty.
Dizon, JJ., concur. Dominador Zuo, to ask Goquiolay to execute in her
Separate Opinions favor a power of attorney. Goquiolay refused both to
sell his interest in the partnership as well as to execute
BAUTISTA ANGELO, J., dissenting:chanrob1es virtual the power of attorney.
1aw library
Having failed to get Goquiolay to sell his share in the
This is an appeal from a decision of the Court of First partnership, Yutivo Sons Hardware Co., and Sing, Yee
Instance of Davao dismissing the complaint filed by and Cuan Co., Inc. filed in November, 1946 a claim
Antonio C. Goquiolay, Et Al., seeking to annul the sale each in the intestate proceedings of Tan Sin An for the
made by Kong Chai Pin of three parcels of land to sum of P84,705.48 and P66,529.91, respectively,
Washington Z. Sycip and Betty Y. Lee on the ground alleging that they represent obligations of both Tan Sin
that it was executed without proper authority and An and the partnership. After first denying any
under fraudulent circumstances. In a decision knowledge of the claims, Kong Chai Pin, as
rendered on July 26, 1960, we affirmed this decision administratrix, admitted later without qualification the
although on grounds different from those on which the two claims in an amended answer she file on February
latter is predicated. The case is once more before us 28, 1947. The admission was predicated on the
on a motion for reconsideration filed by appellants ground that she and the creditors were closely related
raising both questions of fact and of law. by blood, affinity and business ties. In due course,
these two claims were approved by the court.
On May 29, 1940, Tan Sin An and Antonio C.
Goquiolay executed in Davao City a commercial On March 29, 1949, more than two years after the
partnership for a period of ten years with a capital of approval of the claims, Kong Chai Pin filed a petition in
P30,000.00 of which Goquiolay contributed the probate court to sell all the properties of the
P18,000.00 representing 60% while Tan Sin An partnership as well as some of the conjugal properties
P12,000.00 representing 40%. The business of the left by Tan Sin An for the purpose of paying the claims.
partnership was to engage in buying real estate Following approval by the court of the petition for
properties for subdivision, resale and lease. The authority to sell, Kong Chai Pin, in her capacity as
partnership was duly registered, and among the administratrix, and presuming to act as managing
conditions agreed upon in the partnership agreement partner of the partnership, executed on April 4, 1949 a
which are material to this case are: (1) that Tan Sin An deed of sale of the properties owned by Tan Sin An
would be the exclusive managing partner, and (2) in and by the partnership in favor of Betty Y. Lee and
the event of the death of any of the partners the Washington Z. Sycip in consideration of the payment
partnership would continue, the deceased to be to Kong Chai Pin of the sum of P37,000.00, and the
represented by his heirs. On May 31, 1940, Goquiolay assumption by the buyers of the claims filed by Yutivo
executed a general power of attorney in favor of Tan Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.
Sin An appointing the latter manager of the partnership in whose favor the buyers executed a mortgage on the
and conferring upon him the usual powers of properties purchased. Betty Y. Lee and Washington Z.
management. Sycip subsequently executed a deed of sale of the
same properties in favor of their co-defendant Insular
On May 29, 1940, the partnership acquired three Development Company, Inc. It should be noted that
parcels of land known as Lots Nos. 526, 441 and 521 these transactions took place without the knowledge of
of the cadastral survey of Davao, the only assets of Goquiolay and it is admitted that Betty Y. Lee and
the partnership, with the capital originally invested, Washington Z. Sycip bought the properties on behalf
financing the balance of the purchase price with a of the ultimate buyer, the Insular Development
mortgage in favor of "La Urbana Sociedad Mutua de Company, Inc., with money given by the latter.
Construccin Prestamos" in the amount of P25,000.00
payable in ten years. On the same date, Tan Sin An, in Upon learning of the sale of the partnership properties,
his individual capacity, acquired 46 parcels of land Goquiolay filed on July 25, 1949 in the intestate
executing a mortgage thereon in favor of the same proceedings a petition to set aside the order of the
company for the sum of P35,000.00. On September court approving the sale. The court granted the
25, 1940, these two mortgage obligations were petition. While the order was pending appeal in the
consolidated and transferred to the Banco Hipotecario Supreme Court, Goquiolay filed the present case on
de Filipinas and as a result Tan Sin An, in his January 15, 1953 seeking to nullify the sale as stated
in the early part of this decision. In the meantime, the repudiated by the very witnesses presented by the properties of the partnership even before the war or
Supreme Court remanded the original case to the defendants themselves. after the war."cralaw virtua1aw library
probate court for rehearing due to lack of necessary
parties. The arguments advanced by appellants are in our It is unquestionable that Goquiolay was merely
opinion well-taken and furnish sufficient basis to repeating an information given to him by a third
The plaintiffs in their complaint challenged the reconsider our decision if we want to do justice to person, Hernando Young - he stressed this point
authority of Kong Chai Pin to sell the partnership Antonio C. Goquiolay. And to justify this conclusion, it twice. A careful analysis of the substance of
properties on the ground that she had no authority to is enough that we lay stress on the following points: (1) Goquiolays testimony will show that he merely had no
sell because even granting that she became a partner there is no sufficient factual basis to conclude that objection to allowing Kong Chai Pin to continue
upon the death of Tan Sin An the power of attorney Kong Chai Pin executed acts of management to give attending to the properties in order to give her some
granted in favor of the latter expired after his death. her the character of general manager of the means of livelihood, because, according to the
partnership, or to serve as basis for estoppel that may information given him by Hernando Young, which he
Defendants, on the other hand, defended the validity benefit the purchasers of the partnership properties; assumed to be true, Kong Chai Pin had no other
of the sale on the theory that she succeeded to all the (2) the alleged acts of management, even if proven, means of livelihood. But certainly he made it very clear
rights and prerogatives of Tan Sin An as managing could not give Kong Chai Pin the character of general that he did not allow her to manage the partnership
partner. manager for the same is contrary to law and well- when he explained his reason for refusing to sign a
known authorities; (3) even if Kong Chai Pin acted as general power of attorney for Kong Chai Pin which her
The trial court sustained the validity of the sale on the general manager she had no authority to sell the counsel, Atty. Zuo, brought with him to his house in
ground that under the provisions of the articles of partnership properties as to make it legal and valid; 1948. He said:jgc:
partnership allowing the heirs of the deceased partner and (4) Kong Chai Pin had no necessity to sell the
to represent him in the partnership after his death properties to pay the obligation of the partnership and ". . . Then Mr. Yu Eng Lai told me that he brought with
Kong Chai Pin became a managing partner, this being if she did so it was merely to favor the purchasers who him Atty. Zuo and he asked me if I could execute a
the capacity held by Tan Sin An when he died. were close relatives to the prejudice of Goquiolay. general power of attorney for Mrs. Kong Chai Pin.
Then I told Atty. Zuo what is the use of executing a
In the decision rendered by this Court on July 26, 1. This point is pivotal for if Kong Chai Pin did not general power of attorney for Mrs. Kong Chai Pin
1960, we affirmed this decision but on different execute the acts of management imputed to her our when Mrs. Kong Chai Pin had already got that
grounds, among which the salient points are: (1) the ruling cannot be sustained. In making our aforesaid plantation for agricultural purposes, I said for
power of attorney given by Goquiolay to Tan Sin An as ruling we apparently gave particular importance to the agricultural purposes she can use that plantation . . ."
manager of the partnership expired after his death; (2) fact that it was Goquiolay himself who tried to prove (T.s.n., p. 9, Hearing on May 5, 1955)
his widow Kong Chai Pin did not inherit the the acts of management. Appellants, however, have
management of the partnership, it being a personal emphasized the fact, and with reason, that the It must be noted that in his testimony Goquiolay was
right; (3) as a general rule, the heirs of a deceased appellees themselves are the ones who denied and categorically stating his opposition to the management
general partner come into the partnership in the refuted the so-called acts of management imputed to of the partnership by Kong Chai Pin and carefully
capacity only of limited partners; (4) Kong Chai Pin, Kong Chai Pin. to have a clear view of this factual made the distinction that his conformity was for her to
however, became a general partner because she situation, it becomes necessary that we analyze the attend to the partnership properties in order to give her
exercised certain alleged acts of management; and (5) evidence of record. merely a means of livelihood. It should be stated that
the sale being necessary to pay the obligations of the the period covered by the testimony refers to the
partnership, she was therefore authorized to sell the Plaintiff Goquiolay, it is intimated, testified on cross- period of occupation when living condition was difficult
partnership properties without the consent of examination that he had a conversion with one and precarious. And Atty. Zuo, it should also be
Goquiolay under the principle of estoppel, the buyers Hernando Young in Manila in the year 1945 who stated, did not deny the statement of Goquiolay.
having the right to rely on her acts of management and informed him that Kong Chai Pin "was attending to the
to believe her to be in fact the managing partner. properties and deriving some income therefrom and It can therefore be seen that the question as to
she had no other means of livelihood except those whether Kong Chai Pin exercised certain acts of
Considering that some of the above findings of fact properties and some rentals derived from the management of the partnership properties is highly
and conclusions of law are without legal or factual properties." He went on to say by way of remark that controverted. The most that we can say is that the
basis, appellants have in due course filed a motion for she could continue doing this because he wanted to alleged acts are doubtful more so when they are
reconsideration which because of the importance of help her. On point that he emphasized was that he disputed by the defendants themselves who later
the issues therein raised has been the subject of was "not interested in agricultural lands."cralaw became the purchasers of the properties, and yet
mature deliberation. virtua1aw library these alleged acts, if at all, only refer to management
of the properties and not to management of the
In support of said motion, appellants advanced the On the other hand, defendants presented Hernando partnership, which are two different things.
following arguments:chanrob1es virtual 1aw library Young, the same person referred to by Goquiolay, who
was a close friend of the family of Kong Chai Pin, for In resume, we may conclude that the sale of the
1. If the conclusion of the Court is that heirs as a the purpose of denying the testimony of Goquiolay. partnership properties by Kong Chai Pin cannot be
general rule enter the partnership as limited partners Young testified that in 1945 he was still in Davao, and upheld on the ground of estoppel, first, because the
only, therefore Kong Chai Pin, who must necessarily insisted no less than six times during his testimony alleged acts of management have not been clearly
have entered the partnership as a limited partner that he was not in Manila in 1945, the year when he proven; second, because the record clearly shows that
originally, could have not chosen to be a general allegedly gave the information to Goquiolay, stating the defendants, or the buyers, were not misled nor did
partner by exercising the alleged acts of management, that he arrived in Manila for the first time in 1947. He they rely on the acts of management, but instead they
because under Article 148 of the Code of Commerce a testified further that he had visited the partnership acted solely on the opinion of their counsel, Atty.
limited partner cannot intervene in the management of properties during the period covered by the alleged Quisumbing, to the effect that she succeeded her
the partnership, even if given a power of attorney by information given by him to Goquiolay and that he husband in the partnership as managing partner by
the general partners. An Act prohibited by law cannot found them "abandoned and underdeveloped," and operation of law; and third, because the defendants
give rise to any right and is void under the express that Kong Chai Pin was not deriving any income from are themselves estopped to invoke a defense which
provisions of the Civil Code. them. they tried to dispute and repudiate.

2. The buyers were not strangers to Kong Chai Pin, all

The other witness for the defendants, Rufino Lim, also 2. Assuming arguendo that the acts of management
of them being members of the Yu (Yutivo) family, the
testified that he had seen the partnership properties imputed to Kong Chai Pin are true, could such acts
rest, members of the law firm which handles the Yutivo
and corroborated the testimony of Hernando Young in give her the character of general manager of the
interests and handled the papers of sale. They did not
all respects: "the properties in Mamay were partnership as we have concluded in our decision?
rely on the alleged acts of management they underdeveloped, the shacks were destroyed in Tigato,
believed (this was the opinion of their lawyers) that
and the family of Kong Chai Pin did not receive any Our answer is in the negative because it is contrary to
Kong Chai Pin succeeded her husband as a managing income from the partnership properties." He law and precedents. Garrigues, a well-known
partner and it was on this theory alone that they specifically rebutted the testimony of Goquiolay in his commentator, is clearly of the opinion that mere
submitted the case in the lower court. deposition given on June 30, 1956 that Kong Chai Pin acceptance of the inheritance does not make the heir
and her family were living in the partnership properties of a general partner a general partner himself. He
3. The alleged acts of management were denied and and stated that the family never actually lived in the emphasized that the heir must declare that he is
entering the partnership as a general partner unless as that of the agent and his principal, 4 the extent of only the paltry sum of P66,529.91 was paid as a
the deceased partner has made it an express the power of Kong Chai Pin must, therefore, be consideration therefor, of which the sum of P46,116.75
condition in his will that the heir accepts the condition determined under the general principles governing was even paid in Japanese currency.
of entering the partnership as a prerequisite of agency. And, on this point, the law says that an
inheritance, in which case acceptance of the agency created in general terms includes only acts of (b) Considering the area of the properties Kong Chai
inheritance is enough. 1 But here Tan Sin An died administration, but with regard to the power to Pin had no valid reason to sell them if her purpose was
intestate. compromise, sell, mortgage, and other acts of strict only to pay the partnerships obligation. She could
ownership, an express power of attorney is required. 5 have negotiated a loan if she wanted to pay it by
Now, could Kong Chai Pin be deemed to have Here Kong Chai Pin did not have such power when placing the properties as security, but preferred to sell
declared her intention to become general partner by she sold the properties of the partnership. them even at such low prices because of her close
exercising acts of management? We believe not, for, relationship with the purchasers and creditors who
in consonance with our ruling that as a general rule the Of course, there is authority to the effect that a conveniently organized a partnership to exploit them,
heirs of a deceased partner succeed as limited managing partner, even without express power of as may be seen from the following relationship of their
partners only by operation of law, it is obvious that the attorney, may perform acts affecting ownership if the pedigree:chanrob1es virtual 1aw library
heir, upon entering the partnership, must make a same are necessary to promote or accomplish a
declaration of his character, otherwise he should be declared object of the partnership, but here the KONG CHAI PIN, the administratrix, was a
deemed as having succeeded as limited partner by the transaction is not for this purpose. It was effected not granddaughter of Jose P. Yutivo, founder of the
mere acceptance of inheritance. And here Kong Chai to promote any avowed object of the partnership. 6 defendant Yutivo Sons Hardware Co. YUTIVO SONS
Pin did not make such declaration. Being then a Rather, the sale was effected to pay an obligation of HARDWARE CO, and SIN YEE CUAN CO, INC.,
limited partner upon the death of Tan Sin An by the partnership by selling its real properties which alleged creditors, are owned by the heirs of Jose P.
operation of law, the peremptory prohibition contained Kong Chai Pin could not do without express authority. Yutivo (Sing, Yee & Cuan are the three children of
in Article 148 2 of the Code of Commerce became The authorities supporting this view are Jose). YU KHE THAI is a grandson of the same Jose
binding upon her and as a result she could not change overwhelming. P. Yutivo, and president of the two alleged creditors.
her status by violating its provisions not only under the He is the acknowledged head of the Yu families.
general principle that prohibited acts cannot produce "The act of one partner to bind the firm, must be WASHINGTON Z. SYCIP, one of the original buyers,
any legal effect, but also because under the provisions necessary for the carrying on of its business. If all that is married to Ana Yu, a daughter of Yu Khe Thai,
of Article 147 3 of the same Code she was precluded can be said of it was that it was convenient, or that it BETTY Y. LEE, the other original buyer is also a
from acquiring more rights than those pertaining to her facilitated the transaction of the business of the firm, daughter of Yu Khe Thai. The INSULAR
as a limited partner. The alleged acts of management, that is not sufficient, in the absence of evidence of DEVELOPMENT CO., the ultimate buyer, was
therefore, did not give Kong Chai Pin the character of sanction by other partners. Nor, it seems, will organized for the specific purpose of buying the
general manager to authorize her to bind the necessity itself be sufficient if it be an extraordinary partnership properties. Its incorporators were: Ana Yu
partnership. necessity. What is necessary for carrying on the and Betty V. Lee, Atty. Quisumbing and Salazar the
business of the firm under ordinary circumstances and lawyers who studied the papers of sale and have been
Assuming also arguendo that the alleged acts of in the usual way, is the test. Lindl. Partn. Sec. 126. counsel for the Yutivo interests; Dalton Chen a
management imputed to Kong Chai Pin gave her the While, within this rule, one member of a partnership brother-in-law of Yu Khe Thai and an executive of Sing
character of a general partner, could she sell the may, in the usual and ordinary course of its business, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh,
partnership properties without authority from the other make a valid sale or pledge, by way of mortgage or an executive of Yutivo Sons Hardware, and Simeon
partners? otherwise, of all or part of its effects intended for sale, Daguiwag, a trusted employee of the Yutivos.
to a bona fide purchaser or mortgagee, without the
Our answer is also in the negative in the light of the consent of the other members of the firm, it is not (c) Lastly, even since Tan Sin An died in 1942 the
provisions of the articles of partnership and the within the scope of his implied authority to make a final creditors, who were close relatives of Kong Chai Pin,
pertinent provisions of the Code of Commerce and the disposition of all of its effects, including those have already conceived the idea of possessing the
Civil Code. Thus, Article 129 of the Code of Commerce employed as the means of carrying on its business, lands for purposes of subdivision, excluding Goquiolay
says:jgc: the object and effect of which is to immediately from their plan, and this is evident from the following
"If the management of the general partnership has not terminate the partnership, and place its property sequence of events:chanrob1es virtual 1aw library
been limited by special agreement to any of the beyond its control. Such a disposition, instead of being
members, all shall have the power to take part in the within the scope of the partnership business, or in the Tan Sin An died in 1942 and intestate proceedings
direction and management of the common business, usual and ordinary way of carrying it on, is necessarily were opened in 1944. In 1946, the creditors of the
and the members present shall come to an agreement subversive of the object of the partnership, and partnership filed their claim against the partnership in
for all contracts or obligations which may concern the contrary to the presumed intention of the partnership in the intestate proceedings. The creditors studied ways
association." its formation." (McGrath, Et. Al. v. Cowen, Et Al., 49 and means of liquidating the obligation of the
N.F. 338, 343; Italics supplied) partnership, leading to the formation of the defendant
And the pertinent portions of the Articles of partnership Insular Development Co., composed of members of
provides:jgc: Since Kong Chai Pin sold the partnership properties the Yutivo family and the counsel of record of the
not in line with the business of the partnership but to defendants, which subsequently bought the properties
"VII. The affairs of the co-partnership shall be pay its obligation without first obtaining the consent of of the partnership and assumed the obligation of the
managed exclusively by the managing partner or by the other partners, the sale is invalid being in excess latter in favor of the creditors of the partnership, Yutivo
his authorized agent, and it is expressly stipulated that of her authority. Sons Hardware and Sing, Yee & Cuan, also of the
the managing partner may delegate the entire Yutivo family. The buyers took time to study the
management of the affairs of the co-partnership by 4. Finally, the sale under consideration was effected in commercial potentialities of the partnership properties
irrevocable power of attorney to any person, firm or a suspicious manner as may be gleaned from the and their lawyers carefully studied the document and
corporation he may select, upon such terms as following circumstances:chanrob1es virtual 1aw library other papers involved in the transaction. All these
regards compensation as he may deem proper, and steps led finally to the sale of the three partnership
vest in such person, firm or corporation full power and (a) The properties subject of the instant sale which properties.
authority, as the agent of the co-partnership and in his consist of three parcels of land situated in the City of
name, place and stead to do anything for it or on his Davao have an area of 200 hectares more or less, or Upon the strength of the foregoing considerations, I
behalf which he as such managing partner might do or 2,000,000 square meters. These properties were vote to grant motion for reconsideration.
cause to be done." (Page 23, Record on Appeal) purchased by the partnership for purposes of
subdivision. According to realtor Mata, who testified in 9. Goquilay vs Sycip 9 SCRA 663
It would thus be seen that the powers of the managing court, these properties could command at the time he Ng Cho Cio ns Ng Diong 1 SCRA 275
partner are not defined either under the provisions of testified a value of not less than P312,000.00, and NG CHO CIO ET AL., plaintiffs-appellants,
the Code of Commerce or in the articles of according to Dalton Chen, manager of the firm which vs.NG DIONG, defendant-appellant.
partnership, a situation which, under Article 2 of the took over the administration, since the date of sale no C. N. HODGES, ET AL., defendants-
same Code, renders applicable herein the provisions improvement was ever made thereon precisely
of the Civil Code. And since, according to well-known because of this litigation. And yet, for said properties, This action was begun in the Court of First Instance of
authorities, the relationship between a managing aside from the sum of P37,000.00 which was paid for Iloilo by Ng Cho Cio Ng Sian King and Ng Due King to
partner and the partnership is substantially the same the properties of the deceased and the partnership, recover their three-fourths (3/4) pro-indiviso share on
seven (7) parcels of land situated in the City of Iloilo
which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor
of C.N. Hodges. The latter had sold four of those
parcels of land to Jose C. Tayengco and the other
three parcels to Julian Go, and for that reason these
two were included as party defendants. As the original
plaintiffs sold their rights, title and interest in said
partnership to Ng Be Chuat and Ng Feng Tuan, the
latter two were allowed to intervene as plaintiffs. Since
Jose C. Tayengco had mortgaged three of the lands
which he purchased from C. N. Hodges in favor of the
Bank of the Philippine Islands, the complaint was
amended so as to include the Bank also as party
defendant.
On October 16, 1956, after trial had begun, defendant
Ng Diong died, whereupon his heirs were order to
substitute him parties defendants. Defendants C. N.
Hodges, Ng Diong and Jose C. Tayengco answered
the complaint separately setting up certain special
defenses and counterclaims. In substance, they
refuted the allegations set forth in the complaint and
prayed for its dismissal.
The parties submitted a partial Stipulation of facts on
many points covered by the pleadings thus simplifying
the trial of the case while at the same time they
introduced additional evidence in amplification of the
fact stipulated, Thereupon, the trial court, after a
thorough evaluation of the evidence, rendered
decision dismissing the complaint with costs. Plaintiffs
interposed the present appeal on purely questions of
law.
The pertinent facts may be briefly stated, as follow On
May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan
Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due
King entered into a contract of general co-partnership
under the name NG CHIN BENG HERMANOS. The
partnership was to exist for a period of 10 years from
May 23, 1925 and Ng Diong was named as managing
partner. On May 10, 1935, the articles of co-
partnership were amended by extending its life to 16
years more to be counted from May 23, 1925, or up to
May 23, 1941.
On January 5, 1938, the partnership obtained from the
National Loan and Investment Board a loan in the
amount of P30,000.00, and to guarantee its payment it
executed in its favor a mortgage on Lots Nos. 236-B,
317-A, 233 and 540 of the cadastral survey of Iloilo.
On the same date, the partnership also obtained from
the same entity another loan in the amount of
P50,000.00 to secure which it also executed in its
favor a mortgage on Lots Nos. 386, 829 and 237 of the
same cadastral survey.
Sometime in 1938, the partnership was declared
insolvent upon petition of its creditors in, Special
Proceedings No. 2419 of the Court of First Instance of
Iloilo wherein one Crispino Melocoton was elected as
assignee. As a consequence, on June 21, 1939, the
titles to the seven parcels of land abovementioned
were issued in his name as assignee. In due time, the
creditors filed their claims in said proceeding which
totalled P192,901.12.
On August 9, 1940, a majority of the creditors with
claims amounting to P139,704.81, and the partners of
the firm, acting thru counsel, entered into a
composition agreement whereby it was agreed that
said creditors would receive 20% of the amount of
their claims in full payment thereof. Prior to this
agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the
insolvent whose total claims amounted to
P139,323.10. Said composition agreement was
approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial
Bank which had succeeded the National Loan and
Investment Board assigned its rights and interests in
the loans obtained from it by the partnership in the
aggregate amount of P80,000.00 in favor of C.N.
Hodges, together with the right and interest in the
mortgage executed to secure the loans. Since said
loans became due and no payment was forthcoming,
Hodges asked permission from the insolvency court to
file a complaint against the assignee to foreclose he
mortgage executed to secure the same in a separate
proceeding, and permission having been granted,
Hodges filed a complaint for that purpose on May 13,
1941. In his complaint, Hodges prayed that the
assignee be ordered to pay him the sum of
P75,622.90, with interest at 8% per annum thereon
from March 6, 1941, plus P8,000.00 attorney's fees,
exclusive of costs and charges. Meanwhile, war broke
out and nothing appears to have been done in the
insolvency proceedings. The court records were
destroyed. However, they were reconstituted later and
given due course.
On August 15, 1945, the partners of the insolvent firm
and Julian Go, who acquired most of the claims of the
creditors, filed a petition with the insolvency court
praying at the insolvency proceedings be closed or
terminated cause the composition agreement the
creditors had submitted relative to the settlement of
the claims had already been approved on October 10,
1940. And on October 6, 1946, the court, acting
favorably on the petition, ordered, closure of the
proceedings directing the assignee to turn and
reconvey all the properties of the partnership back to
the latter as required by law. In accordance with this
order of the court, the assignee executed a deed of
reconveyance of the properties to the partnership on
April 2, 1946 and by virtue thereof, the register of
deeds cancelled the titles issued in the name of the
assignee and issued new ones in lieu thereof in the
name of the partnership.
As of said date, April 2, 1946, the indebtedness of the
partnership to C. N. Hodges which was the subject of
the foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise
necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng
Diong, who continued to be the manager of the
partnership, to sell all its properties mortgaged to
Hodges in order that the excess may be applied to the
Payment of said other obligations, and to that effect
Ng Diong executed on April 2, 1946 a deed of sale
thereof in favor of Hodges for the sum of P124,580.00.
Out of this price; the sum of P103,883.34 was applied
to the payment of the debt of the partnership to
Hodges and the balance was paid to the other
creditors of the partnership. On the same date,
Hodges executed another contract giving the
partnership the right to repurchase Lots Nos. 237, 386
and 829 in installments for the sum of P26,000.00
within three years with interest the rate of 1% Per
annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its
indebtedness to Julian Go in he amount of P24,864.62
under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and
so Ng Diong, in behalf of the partnership, transferred
the right of the latter to repurchase the same from
Hodges to Julian Go in full payment of the
partnership's indebtedness to him. And having Julian
Go exercised the option January 6, 1948, Hodges
executed a deed of sale of the properties in his favor,
and pursuant thereto the register of deeds issued new
titles' in his name covering said lots. On May 29, 1948,
Hodges executed another deed of sale covering Lots
Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on
August 31, 1948, Tayengco mortgaged said lots,
together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to
be used in the construction of a commercial building
on said lots.
Appellants make in their brief six assignments of
errors, which, reduced to bare essentials, may be
boiled down to the following points: (1) the sale made
by Ng Diong in behalf of the partnership NG CHIN
BENG HERMANOS of the seven lots belonging to it in
favor of C. N. Hodges on April 2, 1946 is null and void
because at that time said parcels were still in the
custody of the assignee of the insolvency proceedings,
or in custodia legis, and, hence, the same is null and
void; (2) said sale is also null and void "because of the
disparity, irrationality and unreasonableness between
the consideration and the real value of the properties
when sold"; and (3) the lower court erred in not finding
that the two deeds of mortgage executed by he
partnership in favor of the National Loan and
Investment Board which were later assigned to C. N.
Hodges can no longer be enforced because the action
to foreclose the same has already prescribed.
Anent the first issue, it would be well to state the
following facts by way of clarification: It should be
recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the
representatives of the latter, submitted to the court
taking cognizance of the insolvency proceedings
a composition agreement whereby it was agreed that
said creditors would receive 20% of the amount of
their claims in full payment thereof. This agreement
was approved on October 10, 1940 which, in
contemplation of law, has the effect of putting an end
to the insolvency proceedings. However, no further
step was taken thereon because of the outbreak of the
war. Later, the record of the case was reconstituted
and the parties on August 15, 1945 filed a petition with
the court praying for the dismissal and closure of the
proceedings in view of the approval of the
aforesaid composition agreement, and acting favorably
thereon, the court on October 6, 1945, issued an order
declaring the proceedings terminated and ordering the
assignee to return and reconvey the properties the
partnership. The actual reconveyance was done by a
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical
purposes the insolvency ended on said date. Since
then partnership became, restored to its status quo. It
again reacquired its personality as such with Ng Diong
as its general manager. From that date on its
properties ceased to be in custodia legis. Such being
the case, it is obvious that when Ng Diong as manager
of the partnership sold the seven parcels of land to C.
N. Hodges on April 2, 1946 by virtue of a deed of sale
acknowledged before a notary public on April 6, 1946,
the properties were already was at liberty to do what it
may deem convenient and proper to protect its
interest. And acting accordingly, Ng Diong made the
sale in the exercise of the power granted to him by the
partnership in its articles of co-partnership. We do not,
therefore, find anything irregular in this actuation of Ng
Diong.
Since at the time of the sale the life of the partnership
had already expired, the question may be fixed: Who
shall wind up it business affairs? May its manager still
execute the sale of its properties to C. N. Hodges as
was done by Ng Diong? The answer to this question
cannot but be in the affirmative because Ng Diong was
still the managing partner of the partnership and he
had the necessary authority to liquidate its affairs
under its articles of co-partnership. And considering
that war had intervened and the affairs of the
partnership were placed under receivership up to
October 6, 1945, we are of the opinion that Ng Diong
could still exercise his power as liquidator when he
executed the sale in question in favor of C. N. Hodges.
This is sanctioned by Article 228 of the Code of
Commerce which was the law in force at the time.1
With regard to the second issue, it is contended that
the trial court should have declared the sale of the lots
made to C. N. Hodges null and void "because of the
disparity, irrationality and unreasonableness between From this order of dismissal, the appellant took an the court a paper written by Lim Ka Yam in life
the consideration and real value of the properties appeal, assigning twenty alleged errors committed by purporting to give, with vague and uncertain details, a
when sold." In stressing his point, counsel contends the lower court in its order referred to. history of the formation of the Kwong Cheong Tay and
that the lands in question, which are located in a The demurrer interposed by defendant to the amended some account of its disruption and cessation from
commercial section of the City of Iloilo, were frittered complaint filed by plaintiff having been sustained on business in 1910. To this narrative was appended a
away only for a "pittance of P124,580.00" when, the grounds that the facts alleged in said complaint are statement of assets and liabilities, purporting to show
borrowing his words they could have been sold like hot not sufficient to constitute a cause of action and that that after the business was liquidate, it was actually
cakes to any resident of the city of regular financial the complaint is ambiguous, unintelligible and vague, debtor to Lim Ka Yam to the extent of several
standing upon proper approaches and the only questions which may be raised and thousand pesos. Appreciating the worthlessness of
representations, because at that time those properties considered in the present appeal are those which refer this so-called statement, and all parties apparently
were fairly worth one-half of a million pesos." to said grounds. realizing that nothing more was likely to be discovered
This claim may be true, but the same is unsupported. In the amended complaint it is prayed that defendant by further insisting on an accounting, the court
Appellants have failed to introduce any evidence to Carmen de Luna be sentenced to pay plaintiff proceeded, on December 27, 1921, to render final
show that they could have secured better offers for the damages in the sum of P700,432 as a result of the judgment in favor of the plaintiff.
properties if given a chance to do so and that they administration, said to be fraudulent, of he partnership, The decision made on this occasion takes as its basis
advance now is a mere speculation or conjecture "Centro Escolar de Seoritas", of which plaintiff, the fact stated by the court in its earlier decision of July
which had no place in our judicial system. Since every defendant and the deceased Librada Avelino were 1, 1921, which may be briefly set fourth as
claim must be substantiated by sufficient evidence, members. For the purpose of adjudicating to plaintiff follows:lawphil.net
and this appellants have failed to do, their pretense damages which he alleges to have suffered as a The plaintiff, Po Yeng Cheo, is the sole heir of one Po
cannot be entertained. partner by reason of the supposed fraudulent Gui Yao, deceased, and as such Po Yeng Cheo
Neither can we give any value to the claim that the management of he partnership referred to, it is first inherited the interest left by Po Gui Yao in a business
action for the foreclosure of the mortgage executed by necessary that a liquidation of the business thereof be conducted in Manila under the style of Kwong Cheong
the partnership in favor of C. N. Hodges has already made to the end that the profits and losses may be Tay. This business had been in existence in Manila for
prescribed not only because the same is immaterial known and the causes of the latter and the many years prior to 1903, as a mercantile partnership,
but because it is an issue that appellants are raising responsibility of the defendant as well as the damages with a capitalization of P160,000, engaged in the
for the first time in this appeal. Such issue has never which each partner may have suffered, may be import and export trade; and after the death of Po Gui
been raised in their pleadings, nor in the trial court. determined. It is not alleged in the complaint that such Yao the following seven persons were interested
Verily, this claim has no merit. a liquidation has been effected nor is it prayed that it therein as partners in the amounts set opposite their
With regard to the appeal taken by the heirs of be made. Consequently, there is no reason or cause respective names, to wit: Po Yeng Cheo, P60,000;
defendant Ng Diong whose main claim is that the trial for plaintiff to institute the action for damages which he Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee
court failed to adjudicate to the partnership the claims from the managing partner Carmen de Luna Kom Chuen, P10,000; Ley Wing Kwong, P10,000;
properties which were bought by Julian Go from C. N. (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172). Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000.
Hodges, suffice it to say that the same could not be Having reached the conclusion that the facts alleged in The manager of Kwong Cheong Tay, for many years
done, firstly, because no such claim was made by the complaint are not sufficient to constitute a cause of prior of its complete cessation from business in 1910,
them in their pleadings in the trial court, and, secondly,action on the part of plaintiff as member of the was Lim Ka Yam, the original defendant herein.
because the evidence shows that said properties were partnership "Centro Escolar de Seoritas" to collect Among the properties pertaining to Kwong Cheong
bought by Julian Go by virtue of the option given to damages from defendant as managing partner thereof, Tay and consisting part of its assets were ten shares
him by the partnership for a valuable consideration in without a previous liquidation, we do not deem it of a total par value of P10,000 in an enterprise
full payment of the credits assigned to him by a good necessary to discuss the remaining question of conducted under the name of Yut Siong Chyip Konski
number of creditors of said partnership. There is no whether or not the complaint is ambiguous, and certain shares to the among of P1,000 in the
evidence that he promised to reconvey the same to unintelligible and vague. Manila Electric Railroad and Light Company, of
the partnership. In view of the foregoing considerations, we are of the Manila.
WHEREFORE, the decision appealed from is affirmed, opinion and so hold that for a partner to be able to In the year 1910 (exact date unstated) Kwong Cheong
with costs against appellants. claim from another partner who manages the general Tay ceased to do business, owing principally to the
copartnership, damages allegedly suffered by him by fact that the plaintiff ceased at that time to transmit
Soncuya vs De Luna 67 Phi 646 reason of the fraudulent administration of the latter, a merchandise from Hongkong, where he then resided.
JOSUE SONCUYA, plaintiff-appellant, previous liquidation of said partnership is necessary. Lim Ka Yam appears at no time to have submitted to
vs.CARMEN DE LUNA, defendant-appellee. Wherefore, finding no error in the order appealed from the partners any formal liquidation of the business,
Josue Soncuya in his own behalf. the same is affirmed in all its parts, with costs against though repeated demands to that effect have been
the appellant. So ordered. made upon him by the plaintiff.
On September 11, 1936, plaintiff Josue Soncuya filed In view of the facts above stated, the trial judge
with the Court of First Instance of Manila and amended Po Yeng Cheo vs Lim Ka Yan 44 Phil 172 rendered judgment in favor of the plaintiff, Po Yeng
complaint against Carmen de Luna in her own name PO YENG CHEO, plaintiff-appellee, vs.LIM KA Cheo, to recover of the defendant Lim Yock Tock, as
and as co-administratrix of the intestate estate, of YAM, defendant-appellant. administrator of Lim Ka Yam, the sum of sixty
Librada Avelino, in which, upon the facts therein By the amended complaint in this action, the present thousand pesos (P60,000), constituting the interest of
alleged, he prayed that defendant be sentenced to pay plaintiff, Po Yeng Cheo, alleged sole owner of a the plaintiff in the capital of Kwong Cheong Tay, plus
him the sum of P700,432 as damages and costs. business formerly conducted in the City of Manila the plaintiff's proportional interest in shares of the Yut
To the aforesaid amended complaint defendant under the style of Kwong Cheong, as managing Siong Chyip Konski and Manila Electric Railroad and
Carmen de Luna interposed a demurrer based on the partner in said business and to recover from him its Light Company, estimated at P11,000, together with
following grounds: (1) That the complaint does not properties and assets. The defendant having died the costs. From this judgment the defendant appealed.
contain facts sufficient to constitute a cause of action; during the pendency of the cause in the court below In beginning our comment on the case, it is to be
and (2) that the complaint is ambiguous, unintelligible and the death suggested of record, his administrator, observed that this court finds itself strictly
and vague. one Lim Yock Tock, was required to appear and make circumscribed so far as our power of review is
Trial on the demurrer having been held and the parties defense. concerned, to the facts found by the trial judge, for the
heard, the court found the same well-founded and In a decision dated July 1, 1921, the Honorable C. A. plaintiff did not appeal from the decision of the court
sustained it, ordering the plaintiff to amend his Imperial, presiding in the court below, found that the below in so far as it was unfavorable to him, and the
complaint within a period of ten days from receipt of plaintiff was entitled to an accounting from Lim Ka defendant, as appellant, has not caused a great part of
notice of the order. Yam, the original defendant, as manager of the the oral testimony to be brought up. It results, as
Plaintiff having manifested that he would prefer not to business already reffered to, and he accordingly stated, that we must accept the facts as found by the
amend his amended complaint, the attorney for the required Lim Yock Tock, as administrator, to present a trial judge; and our review must be limited to the error,
defendant, Carmen de Luna, filed a motion praying liquidation of said business within a stated time. This or errors, if any, which may be apparent upon the face
that the amended complaint be dismissed with costs order bore no substantial fruit, for the reason that Lim of the appealed decision, in relation with the pleadings
against the plaintiff. Said motion was granted by The Yock Tock personally knew nothing about the of record.
Court of First Instance of Manila which ordered the aforesaid business (which had ceased operation more Proceeding then to consider the appealed decision in
dismissal of the aforesaid amended complaint, with than ten years previously) and was apparently unable relation with the facts therein stated and other facts
costs against the plaintiff. to find any books or documents that could shed any appearing in the orders and proceedings in the cause,
real light on its transaction. However, he did submit to it is quite apparent that the judgment cannot be
sustained. In the first place, it was erroneous in any
event to give judgment in favor of the plaintiff to the
extent of his share of the capital of Kwong Cheong
Tay. The managing partner of a mercantile enterprise
is not a debtor to the shareholders for the capital
embarked by them in the business; and he can only be
made liable for the capital when, upon liquidation of
the business, there are found to be assets in his hands
applicable to capital account. That the sum of one
hundred and sixty thousand pesos (P160,000) was
embarked in this business many years ago reveals
nothing as to the condition of the capital account at the
time the concern ceased to do business; and even
supposing--as the court possibly did--that the capital
was intact in 1908, this would not prove it was intact in
1910 when the business ceased to be a going
concern; for in that precise interval of time the capital
may have been diminished or dissipated from causes
in no wise chargeable to the negligence or
misfeasance of the manager.
Again, so far as appears from the appealed decision,
the only property pertaining to Kwong Cheong Tay at
the time this action was brought consisted of shares in
the two concerns already mentioned of the total par
value of P11,000. Of course, if these shares had been
sold and converted into money, the proceeds, if not
needed to pay debts, would have been distributable
among the various persons in interest, that is, among
the various shareholders, in their respective
proportions. But under the circumstances revealed in
this case, it was erroneous to give judgment in favor of
the plaintiff for his aliquot part of the par value of said
shares. It is elementary that one partner, suing alone,
cannot recover of the managing partner the value of
such partner's individual interest; and a liquidation of
the business is an essential prerequisite. It is true that
in Lichauco vs. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager the
plaintiff's aliquot part of the proceeds of the business,
then long since closed; but in that case the affairs of
the defunct concern had been actually liquidate by the
manager to the extent that he had apparently
converted all its properties into money and had
pocketed the same--which was admitted;--and nothing
remained to be done except to compel him to pay over
the money to the persons in interest. In the present
case, the shares referred to--constituting the only
assets of Kwong Cheong Tay--have not been
converted into ready money and doubtless still remain
in the name of Kwong Cheong Tay as owner. Under
these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of
the par value of said shares, which would be
equivalent to allowing one of several coowners to
recover from another, without process of division, a
part of an undivided property.
Another condition will be noted as present in this case
which in our opinion is fatal to the maintenance of the
appealed judgment. This is that, after the death of the
original defendant, Lim Ka Yam, the trial court allowed
the action to proceed against Lim Yock Tock, as his
administrator, and entered judgment for a sum of
money against said administrator as the accounting
party,--notwithstanding the insistence of the attorneys
for the latter that the action should be discontinued in
the form in which it was then being prosecuted. The
error of the trial court in so doing can be readily
demonstrated from more than one point of view.
In the first place, it is well settled that when a member
of a mercantile partnership dies, the duty of liquidating
its affair devolves upon the surviving member, or
members, of the firm, not upon the legal representative
of the deceased partner. (Wahl vs. Donaldson Sim &
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744) And the same rule must be equally applicable to
a civil partnership clothed with the form of a
commercial association (art. 1670, Civil Code;
Lichauco vs. Lichauco, 33 Phil., 350) Upon the death
of Lim Ka Yam it therefore became the duty of his
surviving associates to take the proper steps to settle
the affairs of the firm, and any claim against him, or his
estate, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or
for damages resulting from his wrongful acts as
manager, should be prosecuted against his estate in
administration in the manner pointed out in sections
686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property
pertaining to Kwong Cheong Tay, like the shares in the
Yut Siong Chyip Konski and the Manila Electric
Railroad and Light Company, are in the possession of
the deceased partner, the proper step for the surviving
associates to take would be to make application to the
court having charge to the administration to require the
administrator to surrender such property.
But, in the second place, as already indicated, the
proceedings in this cause, considered in the character
of an action for an accounting, were futile; and the
court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator
upon the supposed liability of his intestate to respond
for the plaintiff's proportionate share of the capital and
assets. But of course the action was not maintainable
in this aspect after the death of the defendant; and the
motion to discontinue the action as against the
administrator should have been granted.
The judgment must be reversed, and the defendant
will be absolved from the complaint; but it will be
understood that this order is without prejudice to any
proceeding which may be undertaken by the proper
person or persons in interest to settle the affairs of
Kwong Cheong Tay and in connection therewith to
recover from the administrator of Lim Ka Yam the
shares in the two concerns mentioned above. No
special pronouncement will be made as to costs of
either. So ordered.
Laguna Transpo vs SSS 197 Phil 833
LAGUNA TRANSPORTATION CO.INC., petitioner-
appellant,
vs.SOCIAL SECURITY SYSTEM, respondent-.
On January 24, 1958, petitioner Laguna
Transportation Co., Inc. filed with the Court of First
Instance of Laguna petition praying that an order be
issued by the court declaring that it is not bound to
register as a member of respondent Social Security
System and, therefore, not obliged to pay to the latter
the contributions required under the Social Security
Act.1 To this petition, respondent filed its answer on
February 11, 1958 praying for its dismissal due to
petitioner's failure to exhaust administrative remedies,
and for a declaration that petitioner is covered by said
Act, since the latter's business has been in operation
for at least 2 years prior to September 1, 1957.
On February 11, 1958, respondent filed a motion for
preliminary hearing on its defense that petitioner failed
to exhaust administrative remedies. When the case
was called for preliminary hearing, it was postponed by
agreement of the parties. Subsequently, it was set for
trial. On the date of the trial, the parties agreed to
present, in lieu of any other evidence, a stipulation of
facts, which they did on May 27, 1958, as follows:
1. That petitioner is a domestic corporation duly
organized and existing under the laws of the
Philippines, with principal place of business at Bian,
Laguna;
2. That respondent is an agency created under
Republic Act No. 1161, as amended by Republic Act
No. 1792, with the principal place of business at the
new GSIS Bldg., corner Arroceros and Concepcion
Streets, Manila, where it may be served with
summons;
3. That respondent has served notice upon the
petitioner requiring it to register as member of the
System and to remit the premiums due from all the
employees of the petitioner and the contribution of the
latter to the System beginning the month of
September, 1957;
4. That sometime in 1949, the Bian Transportation
Co., a corporation duly registered with the Securities
and Exchange Commission, sold part of the lines and
equipment it operates to Gonzalo Mercado, Artemio
Mercado, Florentino Mata and Dominador Vera Cruz;
5. That after the sale, the said vendees formed an
unregistered partnership under the name of Laguna
Transportation Company which continued to operate
the lines and equipment bought from the Bian
Transportation Company, in addition to new lines
which it was able to secure from the Public Service
Commission;
6. That the original partners forming the Laguna
Transportation Company, with the addition of two new
members, organized a corporation known as the
Laguna Transportation Company, Inc., which was
registered with the Securities and Exchange
Commission on June 20, 1956, and which corporation
is the plaintiff now in this case;
7. That the incorporators of the LagunaTransportation
Company, Inc., and their corresponding shares are as
follows:
8. That the corporation continued the same
transportation business of the unregistered
partnership;
9. That the plaintiff filed on August 30, 1957 an
Employee's Data Record . . . and a supplemental
Information Sheet . . .;
10. That prior to November 11, 1957, plaintiff
requested for exemption from coverage by the System
on the ground that it started operation only on June 20,
1956, when it was registered with the Securities and
Exchange Commission but on November 11, 1957, the
Social Security System notified plaintiff that it was
covered;
11. On November 14, 1957, plaintiff through counsel
sent a letter to the Social Security System contesting
the claim of the System that plaintiff was covered, . .
.12. On November 27, 1957, Carlos Sanchez,
Manager of the Production Department of the
respondent System for and in behalf of the Acting
Administrator, informed plaintiff that plaintiff's business
has been in actual operation for at least two years, . . .
On the basis of the foregoing stipulation of facts, the
court, on August 15, 1958, rendered a decision the
dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares
that the petitioner was an employer engaged in
business as common carrier which had been in
operation for at least two years prior to the enactment
of Republic Act No. 1161, as amended by Republic
Act 1792 and by virtue thereof, it was subject to
compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us,
raising purely questions of law.
Petitioner claims that the lower court erred in holding
that it is an employer engaged in business as a
common carrier which had been in operation for at
least 2 years prior to the enactment of the Social
Security Act and, therefore, subject to compulsory
coverage thereunder.
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. Coverage in the
System shall be compulsory upon all employees
between the ages of sixteen and sixty years, inclusive,
if they have been for at least six months in the service
of an employer who is a member of the System.
Provided, That the Commission may not compel any
employer to become a member of the System unless
he shall have been in operation for at least two years .
. . . (Italics supplied.).
It is not disputed that the Laguna Transportation
Company, an unregistered partnership composed of
Gonzalo Mercado, Artemio Mercado, Florentina Mata,
and Dominador Vera Cruz, commenced the operation
of its business as a common carrier on April 1, 1949.
These 4 original partners, with 2 others (Maura
Mendoza and Sabina Borja) later converted the
partnership into a corporate entity, by registering its
articles of incorporation with the Securities and
Exchange Commission on June 20, 1956. The firm
name "Laguna Transportation Company" was not
altered, except with the addition of the word "Inc." to
indicate that petitioner was duly incorporated under
existing laws. The corporation continued the same
transportation business of the unregistered
partnership, using the same lines and equipment.
There was, in effect, only a change in the form of the
organization of the entity engaged in the business of
transportation of passengers. Hence, said entity as an
employer engaged in business, was already in
operation for at least 3 years prior to the enactment of
the Social Security Act on June 18, 1954 and for at
least two years prior to the passage of the amendatory
act on June 21, 1957. Petitioner argues that, since it
was registered as a corporation with the Securities and
Exchange Commission only on June 20, 1956, it must
be considered to have been in operation only on said
date. While it is true that a corporation once formed is
conferred a juridical personality separate and district
from the persons composing it, it is but a legal fiction
introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot be
extended to a point beyond its reasons and policy, and
when invoked in support of an end subversive of this
policy, will be disregarded by the courts. (13 Am. Jur.
160.)
If any general rule can be laid down, in the present
state of authority, it is that a corporation will be looked
upon as a legal entity as a general rule, and until
sufficient reason to the contrary appears; but, when
the motion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an
association of persons. (1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 135-136; U.S. Milwaukee
Refrigeration Transit Co., 142 Fed. 247, cited in
Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)
To adopt petitioner's argument would defeat, rather
than promote, the ends for which the Social Security
Act was enacted. An employer could easily circumvent
the statute by simply changing his form of organization
every other year, and then claim exemption from
contribution to the System as required, on the theory
that, as a new entity, it has not been in operation for a
period of at least 2 years. the door to fraudulent
circumvention of the statute would, thereby, be
opened.
Moreover, petitioner admitted that as an employer
engaged in the business of a common carrier, its
operation commenced on April 1, 1949 while it was a
partnership and continued by the corporation upon its
formation on June 20, 1956. Unlike in the conveyance
made by the Bian Transportation Company to the
partners Gonzalo Mercado, Artemio Mercado,
Florentino Mata, and Dominador Vera Cruz, no
mention whatsoever is made either in the pleadings or
in the stipulation of facts that the lines and equipment
of the unregistered partnership had been sold and
transferred to the corporation, petitioner herein. This
omission, to our mind, clearly indicates that there was,
in fact, no transfer of interest, but a mere change in the
form of the organization of the employer engaged in
the transportation business, i.e., from an unregistered
partnership to that of a corporation. As a rule, courts
will look to the substance and not to the form.(Colonial
Trust Co. vs. Montolo Eric Works, 172 Fed. 310;
Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263,
103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil., 634;
1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-
140.)
Finally, the weight of authority supports the view that
where a corporation was formed by, and consisted of
members of a partnership whose business and
property was conveyed and transferred to the
corporation for the purpose of continuing its business,
in payment for which corporate capital stock was
issued, such corporation is presumed to have
assumed partnership debts, and is prima facie liable
therefor. (Stowell vs. Garden City News Corps., 57 P.
2d 12; Chicago Smelting & Refining Corp. vs. Sullivan,
246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y.
Supp. 692.) The reason for the rule is that the
members of the partnership may be said to have
simply put on a new coat, or taken on a corporate
cloak, and the corporation is a mere continuation of
the partnership. (8 Fletcher Cyclopedia Corporations
[Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the
court a quo, the same is hereby affirmed, with costs
against petitioner-appellant. So ordered.
Sison vs McQuaid 94 Phil 201
CONVETS, INC., plaintiff-appellant,
vs.NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-apeellees.
This is an appeal from an order of dismissal.
On September 13, 1955, the Confederation of Filipino
Veterans (hereinafter referred to as the CONVETS), a
domestic corporation, filed a complaint in the Court of
First Instance of Manila against the National
Development Company (hereinafter called the NDC),
the Land Settlement and Development Corporation
(hereinafter called the LASEDECO), and the Board of
Liquidators created by Republic Act No. 1160 for the
recovery of the sum of P36,000 as agent's commission
on the sale of certain commodities.
For cause of action, the complaint, as later amended,
alleges that on July 7, 1949 a committee of the NDC in
a memorandum submitted to the latter's general
manager (attached to the complaint as annex A)
recommended that plaintiff be allowed a 10% straight
commission on sales of items from the Caledonia Pile
(a mass of surplus goods which the NDC had in the
compound in Manila) where plaintiff had a direct hand
in the sale; that in line with said recommendation, the
NDC , as Per resolution of its Board of Directors on
July 13, 1949, accepted CONVETS' firm offer "to act
as the exclusive sales agent for the sale of all items
whether inventoried or uninventoried, classified or not,
segregated or otherwise, of the Caledonia Pile" under
the terms and conditions embodied in the minutes of
the Board's meeting, an excerpt of which was attached
to the complaint as annex B; that on September 28,
1942. plaintiff informed the NDC Board that it had
found buyer, the firm of Joseph Behr & Sons, Inc., of
1100 Seminary St., Rockford, Illinois, U.S.A., which
had sent authorized representative to Manila to deal
with the NDC; that on November 25, 1949, through the
direct intervention of plaintiff in its capacity as sole
agent of the defendant NDC, a contract of sale of
about 4,000 tons of spare parts in the Caledonia Pile
at P90 per ton between the NDC and Joseph Behr &
Sons, Inc., was approved the NDC's Board of Director
in its resolution of that date attached to the complaint
as annex C, the deeds pertaining thereto being also
attached to the complaint as annexes D and E; that in
confirmation of previous commitments, promises and
past business dealing been plaintiff and the NDC, a
written against agreement entered into between them
on February 8, 1950, with retroactive effect from July
13, 1949 copy of the agreement being attached to the
complaint as annex F; that the aforementioned sale of
spare parts to Joseph Behr & Sons, Inc., has already
been executed with the latter paying the NDC the sum
of $45 or P90 for every long ton of said spare parts
taken from the Caledonia Pile by establishing, as
stipulated in the contract, "an irrevocable Letter of
Credit in the total amount of $150,000" in a Manila
bank; that upon the promulgation of Executive Order
No. 355 on October 23, 1950, the management and
disposition of the Caledonia Pile were transferred from
the NDC to the LASEDECO and that upon the latter
being dissolved by Republic Act No. 1160 its assets
were turned over to the Board of Liquidators created
by said Act, plaintiff being, for that reason, uncertain
from which one of the defendants it is entitled to get
relief; and that notwithstanding repeated demands, the
defendants have failed and refused to pay plaintiff its
commission on the sale mentioned.
Instead of answering the complaint, the defendants
filed a motion to dismiss on the grounds that the
complaint did not state a cause of action and that
plaintiff's action, if it had any, had already prescribed.
Upholding both grounds, the lower court granted the
motion to dismiss. Hence, this appeal.
We find the appeal meritorious.
In holding that plaintiff's complaint did not state a
cause of action against the defendant NDC, the lower
court took into account the documents attached to the
complaint as annexes A to F, and inferred therefrom
that the sale in question was neither initiated nor
consummated by plaintiff but was a direct transaction
between the management of the NDC and Joseph
Behr & Sons, Inc., and that said sale was not
according to the conditions set forth in the
aforementioned annexes in that it was not a "lot sale,"
at "formula price," and "to the general public." But it is
elementary that lack of cause of action as ground for
dismissal must appear on the face of the complaint
and that to determine the sufficiency of the cause of
action, only the facts alleged in the complaint, and no
other, should be considered. (Moran's Rules of Court,
Vol. 1, 1957 ed., p. 140.) In the present case, the
complaint, as amended, alleges in effect that plaintiff
was appointed by the defendant NDC its exclusive
agent to sell "all items . . . of the Caledonia Pile" on a
10% straight commission; that some time thereafter,
plaintiff informed the said defendant that it had found a
buyer in the United States with authorized
representatives in Manila to deal with said defendant,
the buyer being the firm of Joseph Behr & Sons, Inc. of
1100 Seminary S-t., Rockford, Illinois; that "thru the
direct intervention of the plaintiff, acting in its capacity
as (such) sole agent", a contract of sale of certain
items from the Caledonia Pile at a specified price, was
finally approved by said defendant's Board of Directors
and thereafter the sale was executed with the buyer
paying the seller the stipulated price by means of an
irrevocable letter of credit; and that notwithstanding the
consummation of the sale, the defendants have filed
and refused to pay the stipulated commission
notwithstanding repeated demands. These allegations,
the truth of which is hypothetically admitted by
defendants' motion to dismiss, do constitute a cause of
action for the recovery of the stipulated commission;
and while the annexes to the complaint do also
mention certain terms under which the sales of
merchandise from the Caledonia Pile should be made,
there is really nothing in said annexes that contradicts
or nullifies the ultimate facts alleged in the complaint or
proves by itself alone the terms prescribed were not
complied with to the satisfaction of the principal. Any
such non-compliance is a matter of defense, which
should be alleged in the answer and proved at the trial.
As was said by this Court in the case of World Wide
Insurance & Surety Co., Inc. vs. Manuel, et al. (98
Phil., 46, 51 Off. Gaz., 6214).
. . . To determine whether a complaint states a cause
of action one must accept its allegations as true. One
may not go beyond and outside the complaint for data
or facts, especially contrary to the allegations of the
complaint, to determine whether there is cause of
action. Of course, there are cases where there may be
a conflict or contradiction between the allegations of a
complaint and a document or exhibit attached to and
made part of it. In that case, instead of dismissing the
complaint, defendant should be made to answer the
same so as to establish an issue and then the parties
will be given an opportunity, the plaintiff to reconcile
any apparent conflict between the allegations in his
complaint and a document attached to support the
same, and the defendant an equal opportunity to
refute the allegations of the complaint and to show that
the conflict between its allegation and the document
attached to it is real, material and decisive.
The court below also ruled that the complaint states no
cause of action against the defendants LASEDECO
and Board of Liquidators on the theory that the articles
sold to Joseph Behr & Sons, Inc., no longer formed
part of the Caledonia Pile when its management and
disposition were transferred from the NDC to the
LASEDECO and that consequently they were also not
among the assets of the LASEDECO that were turned
over to the Board of Liquidators. The ruling is
erroneous, for it is apparent that these two defendants
have been made parties to the action for having
succeeded to the management of the Caledonia Pile
and to the obligations incurred in connection with its
disposal.
Finally, the lower court also erred in declaring that
plaintiff's cause of action had already prescribed when
the complaint was filed on September 13, 1955.
Plaintiff's claim is founded upon a written contract of
agency, which allows it a 10% commission on sales
negotiated by it, the commission to be payable within
the first five days of the month succeeding the sale. As
the sale was consummated in December, 1949,
plaintiff's right of action for the recovery of the
commission accrued on January 5, 1950. From that
date, plaintiff had ten years to bring his action in court
since the action is based upon a written contract (art.
1144, new Civil Code). It is thus clear that when the
complaint was filed in 1955, plaintiff's right of action
had not yet prescribed. In any event, this Court has
already held that where it is not clear from the
allegations of the complaint just when plaintiff's cause
of action accrued, and consequently it cannot be
determined with certainty whether that action has
already prescribed or not, the defense of prescription
cannot be sustained on a mere motion to dismiss
based on what appears on the face of the complaint.
(Sison vs. McQuaid, 94 Phil., 201, 50 Off. Gaz., 96.)
In view of the foregoing, the order complained of is set
aside and the cases remanded to the court below for
further proceedings. No costs.
Dela Rosa vs Ortega Go-Cotay 48 Phil 605
ILDEFONSO DE LA ROSA, administrator of the
intestate estate of the deceased Go-Lio, plaintiff-
appellant, vs.ENRIQUE ORTEGA GO-
COTAY, defendant-appellant.
During the Spanish regime the Chinamen Go-Lio and
Vicente Go-Sengco formed a society for the purchase
and sale of articles of commerce, and for this purpose
they opened a store in the town of San Isidro, Nueva
Ecija. Later Go-Lio went to China. Vicenyte Go-
Sengco died and his son Enrique Ortega Go-Cotay
took charge of the businesses. Go-Lio died in China in
October, 1916, leaving a widow and three children,
one of whom came to the Philippines and filed a
petition for the appointment of Ildefonso de la Rosa as
administrator of the intestate estate of his deceased
father, which petition was granted by the Court of First
Instance of Nueva Ecija. Ildefonso de la Rosa, in his
capacity as administrator of the intestate estate of the
deceased Go-Lio, requested Enrique Go-Cotay to
wind up the business and to deliver to him the portion
corresponding to the deceased Go-Lio. Enrique
Ortega Go-Cotay denied the petition, alleging that the
business was his exclusively. In view of this denial,
Ildefonso de la Rosa, as administratorm, on July 2,
1918, filed with the Court of First Instance of Nueva
Ecija a complaint against Enrique Ortega Co-Cotay in
which he prayed that the defendant be sentenced to
deliver to the plaintiff one-half of all the property of the
partnership formed by Go-lIo and Vicente Go-Sengco,
with costs against the defendant, and that the said
plaintiff be appointed receiver for the property of the
said partnership.
Defendant, in answering the complaint, denied each
and every allegation thereof, and as a special defense
alleged that more than ten years had elapsed before
the filing of the complaint, and prayed that he be
absolved therefrom, with costs against the plaintiff.
On August 3, 1918, the Court of First Instance of
Nueva Ecija appointed Justo Cabo-Chan, Francisco T.
Tantengco and Go-Tiao, as commissioners to make
an inventory, liquidate and determine the one-half
belonging to the plaintiff of all the property of the store
in question.
On August 9, 1918, in order to prevent Justo Cabo-
Chan from assuming the office of receiver, pursuant to
the order of the court dated August 3, 1918, the
defendant filed a bond in the sum of P10,000.
Under the date of November 15, 1920, the said
commissioners submitted to the court their report,
showing the net profits of the business between the
period from 1913 to 1917, which amounted to the total
sum of P25,038.70 and consisted of the following
items:
Profits for the year
1913........................
Profits for the year
1914........................
Profits for the year
1915........................
Profits for the year
1916........................
Profits for the year
1917........................
Total...........................................
................
In view of the appeal taken by defendant the parties on
December 7, 1921, entered into an agreement
whereby they agreed to suspend the liquidation
ordered by the court until the appeal to the Supreme
Court was decided, and whereby the defenadnt was
authorized to continue in the possession of the
property in litigation, upon the giving of a bond in the
amount of P25,000, and cancelling the former bond for
P10,000.
This court in deciding case R. G. No. 18919, on
October 5, 1922, 1 held that the appeal was premature
and ordered that the record be remanded to the court
of origin with instruction to enter a final order in
accordance with the liquidation made by the
commissioners.
The record having been remanded and two of the
commissioners having filed their resignations, the
copurt below appointed again Justo Cabo-Chan
suggested by the defendant and Cua POco suggested
by the plaintiff, as commissioners, who submitted two
reports, one prepared by commissioners Tantengco
and Cua Poco, and the other by commissioners Justo
Cabo-Chan. The former stated in their report that they
had examined the books for the years 1919 to 1922,
for the reason, they said, that they appeared "to have
been prepared by some person in a careful way at a
certain time." The later commissioner examined all
books and stated in his report that the business had
suffered a net loss amounting to the sum of
P89,099.22.
After trial and the parties having introduced all their
evidence, the lower court, by order of December 13,
1924, disapproved the report of the commissioners
Tantengco and Cua Poco, but approved, with slight
modifications, the report of commissioner Cabo-Chan,
holding that the result of the liquidation showed
liabilities to the amiount of P89,690.45 in view of which
plaintiff had nothing to recover from defendant, as
there was no profit to divide.
From this decision the plaintiff has appealed in due
time and form making the following assignment of
errors: (1) The lower court erred in holding that the
books were authentic, and in not holding that they
were false books exhibited by the defendant about
alleged operations in the years 1918 et seq. which
show enormous debts and imaginary losses of the
business; (2) the lower court erred in giving full credit
to the testimony of commissioner Justo Cabo-Chan;
(3) the lower court erred in holding that the partnership
had incurred debts and suffered losses, as shown in
the report of Justo Cabo-Cahn from 1918 on; (4) the
lower court erred in not holding that the share of the
plaintiff, as his capital and profits until the end of 1917,
is equivalent to the sum of twenty-seven thousand
seven hundred fifty-five pesos and forty-seven
centavos (P27,755.47). Philippine currency, plus an
annual quota of at least two thousand five hundred
three pesos and eighty-seven centavos (P2,503.87),
Philippime currency, as his portion of the profits since
the beginning of 1918 until the delivery to the palintiff
P2,979.
of his share in the partnership; (5) the court below
00
erred in not ordering the prosecuting attorney to
commence an investigation as to the falsified books of
3,046.9
accounts that the defendant had exhibited for proper
4
criminal proceeding.
4,103.0 From the evidence it appears that the partnership
7 capital was P4,779.39, and the net profits until the
year 1915 amounted to P5,551.40. Because some
4,735.0 books of account had been destroyed by white ants
0 (anay), the liquidation of the business of the
partnership for the period from 1906 to 1912 could not
10,174. be made. But knowing the net profit for the period
69 between 1904 and 1905, which is P5,551.40, and
findng the average of the profits for each of these
25.038. years, which is P2,775.70; and knowing the net profit
70 for the year 1913, which is P2,979, we can find the
average between the net profit for 1905, namely,
P2,979. Said average is the sum of P2,877.35, which
may be considered as the average of the net annual
profits for the period between 1906 an 1912, which in
seven years make a total of P20,141.45. The assets of
the partnership, as well as the value of its property,
could not be determined when making the liquidation
because there was no inventory and for this reason it
was not possible to determine the capital of the
partnership. The plaintiff, however, seems to be
agreeable to considering the initial partnership capital
as the capital at the time of the winding up of the
business.
August 3, 1918, defendant assumed complete
responsibility for the business by objecting to the
appointment of a receiver as prayed for by plaintiff,
and giving a bond therefor. Until that date his acts
were those of a managing partner, binding against the
partnership; but thereafter his acts were those of a
receiver whose authority is contained in section 175 of
the Code of Civil Procedure.
A receiver has no right to carry on and conduct a
business unless he is authorized or directed by the
court to do some, and such authority is not derived
from an order of appointment to take and preserve the
property (34 Cyc., 283; 23 R. C. L., 73). It does not
appear that the defendant as a receiver was
authorized by the court to continue the business of the
partnership in liquidation. This being so, he is
personally liable for the losses that the business amy
have sustained. (34 Cyc., 296.) The partnership must
not, therefore, be liable for the acts of the defendant in
connection with the management of the business until
August 3, 1918, the date when he ceased to be a
member and manager in order to become receiver.
As to the first semester of 1918, during which time the
defendant had seen managing the business of the
partnership as a member and manager, taking into
account that the profits had been on the increase, said
profits having reached the amount of P10,174.69 in
the year 1917, it would not be an exaggeration to
estimate that the profits for 1918 would have been at
least the same as the profits of 1917; so that for the
first half of 1918, the profit would be P5,087.34.
In conclusion we have the following profits of the
business of this partnership now in liquidation, to wit:
Capital of partnership...........................
Profits until 1905..................................
Profits 1906-1912................................
Profits 1913-1917................................
Profits first semester 1918...............
Total.......................................................
One-half of this total, that is, P30,299.14 pertains to
the plaintiff as administrator of the intestate estate of
Go-Lio.
In view of the foregoing, we are of the opinion that the
case must be, as is hereby, decided by the reversing
the judgment appealed from, and sentencing the
defendant to pay the plaintiff the sum of P30,299.14
with legal interest at the rate of 6 per cent per annum
from July 1, 1918, until fully paid, with costs. So
ordered.
Magdusa vs Albaran 5 SCRA 511
GREGORIO MAGDUSA, ET AL., petitioners,
vs.GERUNDIO ALBARAN, ET AL., respondents.
Appeal from a decision of the Court of Appeals (G.R.
No. 24248-R) reversing a judgment of the Court of
First Instance of Bohol and ordering appellant
Gregorio Magdusa to pay to appellees, by way of
refund of their shares as partners, the following
amounts: Gerundio Albaran, P8,979.10; Pascual
Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and
Telesforo Bebero, P3,020.27; plus legal interests from
the filing of the complaint, and costs.
The Court of Appeals found that appellant and
appellees, together with various other persons, had
verbally formed a partnership de facto, for the sale of
general merchandise in Surigao, Surigao, to which
appellant contributed P2,000 as capital, and the others
contributed their labor, under the condition that out of
the net profits of the business 25% would be added to
the original capital, and the remaining 75% would be
divided among the members in proportion to the length
of service of each. Sometime in 1953 and 1954, the
appellees expressed their desire to withdraw from the
partnership, and appellant thereupon made a
computation to determine the value of the partners'
shares to that date. The results of the computation
were embodied in the document Exhibit "C", drawn in
the handwriting of appellant. Appellees thereafter
made demands upon appellant for payment, but
appellant having refused, they filed the initial complaint
in the court below. Appellant defended by denying any
partnership with appellees, whom he claimed to be
mere employees of his.
The Court of First Instance of Bohol refused to give
credence to Exhibit "C", and dismissed the complaint
on the ground that the other were indispensable Lim Tanhu vs Remolete 66 SCRA 425
parties but hid not been impleaded. Upon appeal, the
Court of Appeals reversed, with the result noted at the
start of this opinion.
Gregorio Magdusa then petitioned for a review of the
decision, and we gave it due course.1wph1.t Branch III, CFI, Cebu and TAN PUT, respondents.
The main argument of appellant is that the appellees'
action can not be entertained, because in the
distribution of all or part of a partnership's assets, all
the partners have no interest and are indispensable
parties without whose intervention no decree of
distribution can be validly entered. This argument was
considered and answered by the Court of Appeals in
the following words:
We now come to the last issue involved. While finding
that some amounts are due the plaintiffs, the lower
court withheld an award in their favor, reasoning that a
judgment ordering the defendant to pay might affect
the rights of other partners who were not made parties
in this case. The reason cited by the lower court does
P4,779.39
not constitute a legal impediment to a judgment for the
plaintiffs in this case. This is not an action for a
5,551.40
dissolution of a partnership and winding up of its
20,141.45 affairs or liquidation of its assets in which the interest
of other partners who are not brought into the case
25,038.70 may be affected. The action of the plaintiffs is one for
the recovery of a sum of money with Gregorio
5,087.34 Magdusa as the principal defendant. The partnership,
with Gregorio Magdusa as managing partner, was
60,598.28 brought into the case as an alternative defendant only.
Plaintiffs' action was based on the allegation,
substantiated in evidence, that Gregorio Magdusa,
having taken delivery of their shares, failed and
refused and still fails and refuses to pay them their
claims. The liability, therefore, is personal to Gregorio
Magdusa, and the judgment should be against his sole
interest, not against the partnership's although the
judgment creditors may satisfy the judgment against
the interest of Gregorio Magdusa in the partnership
subject to the condition imposed by Article 1814 of the
Civil Code.
We do not find the preceding reasoning tenable. A
partner's share can not be returned without first
dissolving and liquidating the partnership (Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return is
dependent on the discharge of the creditors, whose
claims enjoy preference over those of the partners;
and it is self-evident that all members of the
partnership are interested in his assets and business,
and are entitled to be heard in the matter of the firm's
liquidation and the distribution of its property. The
liquidation Exhibit "C" is not signed by the other
members of the partnership besides appellees and
appellant; it does not appear that they have approved,
authorized, or ratified the same, and, therefore, it is not
binding upon them. At the very least, they are entitled
to be heard upon its correctness.
In addition, unless a proper accounting and liquidation
of the partnership affairs is first had, the capital shares
of the appellees, as retiring partners, can not be
repaid, for the firm's outside creditors have preference
over the assets of the enterprise (Civ. Code, Art.
1839), and the firm's property can not be diminished to
their prejudice. Finally, the appellant can not be held
liable in his personal capacity for the payment of
partners' shares for he does not hold them except as
manager of, or trustee for, the partnership. It is the
latter that must refund their shares to the retiring
partners. Since not all the members of the partnership
have been impleaded, no judgment for refund can be
rendered, and the action should have been dismissed.
IN VIEW OF THE FOREGOING, the decision of the
Court of Appeals is reversed and the action ordered
dismissed, without prejudice to a proper proceeding for
the dissolution and liquidation of the common
enterprise. Costs against appellees.
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.HON. JOSE R. RAMOLETE as Presiding Judge,
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of
Cebu Branch III in its Civil Case No. 12328, an action
for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common
cause of action against six defendants, in which after
declaring four of the said defendants herein
petitioners, in default and while the trial as against the
two defendants not declared in default was in
progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted
defendants were concerned and thereafter proceeded
to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against
the defaulted defendants, with the particularities that
notice of the motion to dismiss was not duly served on
any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and
the judgment so rendered granted reliefs not prayed
for in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on
February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy
Ochay. Subsequently, in an amended complaint dated
September 26, 1972, their son Lim Teck Chuan and
the other spouses-petitioners Alfonso Leonardo Ng
Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the
widow of Tee Hoon Lim Po Chuan, who was a partner
in the commercial partnership, Glory Commercial
Company ... with Antonio Lim Tanhu and Alfonso Ng
Sua that "defendant Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual
and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to
use the funds of the partnership to purchase lands and
building's in the cities of Cebu, Lapulapu, Mandaue,
and the municipalities of Talisay and Minglanilla, some
of which were hidden, but the description of those
already discovered were as follows: (list of properties)
...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation continued the business
of Glory Commercial Company by purportedly
organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up
capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the
plaintiff has a share equivalent to one third (/3 )
thereof;
14. (P)laintiff, on several occasions after the death of
her husband, has asked defendants of the above-
mentioned properties and for the liquidation of the
business of the defunct partnership, including
investments on real estate in Hong Kong, but
defendants kept on promising to liquidate said
properties and just told plaintiff to
15. (S)ometime in the month of November, 1967,
defendants, Antonio Lim Tanhu, by means of fraud
deceit and misrepresentations did then and there,
induce and convince the plaintiff to execute a quitclaim
of all her rights and interests, in the assets of the
partnership of Glory Commercial Company, which is
null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio
Lim Tanhu.
16. (A)s a matter of fact, after the execution of said
quitclaim, defendant Antonio Lim Tanhu offered to pay
the plaintiff the amount P65,000.00 within a period of
one (1) month, for which plaintiff was made to sign a
receipt for the amount of P65,000.00 although no such
amount was given and plaintiff was not even given a
copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants
who had earlier promised to liquidate the aforesaid
properties and assets in favor among others of
plaintiff and until the middle of the year 1970 when the
plaintiff formally demanded from the defendants the
accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated
that they would not give the share of the plaintiff. (Pp.
36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that
judgment be rendered:
a) Ordering the defendants to render an accounting of
the real and personal properties of the Glory
Commercial Company including those registered in the
names of the defendants and other persons, which
properties are located in the Philippines and in Hong
Kong;
b) Ordering the defendants to deliver to the plaintiff
after accounting, one third (/3 ) of the total value of all
the properties which is approximately P5,000,000.00
representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the
plaintiff the sum of Two Hundred Fifty Thousand
Pesos (P250,000.00) by way of attorney's fees and
damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and
reliefs consistent with law and equity and order the
defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was
opposed by defendants upon the ground that there
were material modifications of the causes of action
previously alleged, but respondent judge nevertheless
allowed the amendment reasoning that:
The present action is for accounting of real and
personal properties as well as for the recovery of the
same with damages.
An objective consideration of pars. 13 and 15 of the
amended complaint pointed out by the defendants to
sustain their opposition will show that the allegations of
facts therein are merely to amplify material averments
constituting the cause of action in the original
complaint. It likewise include necessary and
indispensable defendants without whom no final
determination can be had in the action and in order
that complete relief is to be accorded as between
those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of action in
the original complaint and the reliefs demanded and to
allow amendments is the rule, and to refuse them the
exception and in order that the real question between
the parties may be properly and justly threshed out in
a single proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the
signature of their common counsel, defendants denied
specifically not only the allegation that respondent Tan
is the widow of Tee Hoon because, according to them,
his legitimate wife was Ang Siok Tin still living and with
whom he had four (4) legitimate children, a twin born
in 1942, and two others born in 1949 and 1965, all
presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the
truth being, according to them, that proper liquidation
had been regularly made of the business of the
partnership and Tee Hoon used to receive his just
share until his death, as a result of which the
partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote
the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts averred and
alleged in the answer, and further most respectfully
declare:
1. That in the event that plaintiff is filing the present
complaint as an heir of Tee Hoon Lim Po Chuan, then,
she has no legal capacity to sue as such, considering
that the legitimate wife, namely: Ang Siok Tin, together
with their children are still alive. Under Sec. 1, (d), Rule
16 of the Revised Rules of Court, lack of legal capacity
to sue is one of the grounds for a motion to dismiss
and so defendants prays that a preliminary hearing be
conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is
filing the present case under Art. 144 of the Civil Code,
then, her claim or demand has been paid, waived
abandoned or otherwise extinguished as evidenced by
the 'quitclaim' Annex 'A' hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h),
Rule 16) and hence defendants pray that a preliminary
hearing be made in connection therewith pursuant to
Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married
to Ang Siok Tin and were blessed with the following
children, to wit: Ching Siong Lim and Ching Hing Lim
(twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June
25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po
Chuan, the plaintiff was no longer his common law
wife and even though she was not entitled to anything
left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was inspiring to
be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim'
(Annex 'A');
5. That the defendants have acquired properties out of
their own personal fund and certainly not from the
funds belonging to the partnership, just as Tee Hoon
Lim Po Chuan had acquired properties out of his
personal fund and which are now in the possession of
the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy
properties from funds belonging to the partnership
without the other partners knowing about it considering
that the amount taken allegedly is quite big and with
such big amount withdrawn the partnership would
have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not
blessed with children who would have been lawfully
entitled to succeed to the properties left by the latter
together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was
no longer entitled to anything of the shares of the late
Tee Hoon Lim Po Chuan, yet, this suit was filed
against the defendant who have to interpose the
following C O U N T E R C L A I M
A. That the defendants hereby reproduced, by way of
reference, all the allegations and foregoing averments
as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely
the common-law wife of Tee Hoon Lim Po Chuan and
that the lawful and legal is still living, together with the
legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount
which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event
that plaintiff is married to Tee Hoon Lim Po Chuan,
then, her marriage is bigamous and should suffer the
consequences thereof;
C. That plaintiff was aware and had knowledge about
the 'quitclaim', even though she was not entitled to it,
and yet she falsely claimed that defendants refused
even to see her and for filing this unfounded, baseless,
futile and puerile complaint, defendants suffered
mental anguish and torture conservatively estimated to
be not less than P3,000.00;
D. That in order to defend their rights in court,
defendants were constrained to engage the services of
the undersigned counsel, obligating themselves to pay
P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time
that this case will be before this Honorable Court and
until the same will be finally terminated and
adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this
counterclaim is merely permissive and should be
dismissed for non-payment of the corresponding filing
fee, and after being overruled by the court, in due time,
plaintiff answered the same, denying its material
allegations.
On February 3, 1973, however, the date set for the
pre-trial, both of the two defendants-spouses the Lim
Tanhus and Ng Suas, did not appear, for which
reason, upon motion of plaintiff dated February 16,
1973, in an order of March 12, 1973, they were all
"declared in DEFAULT as of February 3, 1973 when
they failed to appear at the pre-trial." They sought to
hive this order lifted thru a motion for reconsideration,
but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof
where the first witness of the plaintiff by the name of
Antonio Nuez who testified that he is her adopted
son, was up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned
counsel, unto the Honorable Court most respectfully
moves to drop from the complaint the defendants Lim
Teck Chuan and Eng Chong Leonardo and to consider
the case dismissed insofar as said defendants Lim
Teck Chuan and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the
Honorable Court to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo
and to dismiss the case against them without
pronouncement as to costs. (Page 50, Record.
which she set for hearing on December 21, 1974.
According to petitioners, none of the defendants
declared in default were notified of said motion, in
violation of Section 9 of Rule 13, since they had asked
for the lifting of the order of default, albeit
unsuccessfully, and as regards the defendants not
declared in default, the setting of the hearing of said
motion on October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch as Atty.
Adelino Sitoy of Lim Teck Chuan was served with a
copy of the motion personally only on October 19,
1974, while Atty. Benjamin Alcudia of Eng Chong
Leonardo was served by registered mail sent only on
the same date.
Evidently without even verifying the notices of service,
just as simply as plaintiff had couched her motion, and
also without any legal grounds stated, respondent
court granted the prayer of the above motion
thus:ORDER
Acting on the motion of theplaintiff praying for the
dismissal of the complaint as against defendants Lim
Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as
against defendant Lim Teck Chuan and Eng Chong
Leonardo is hereby ordered DISMISSED without
pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and
his spouse Dy Ochay as well as defendants Alfonso
Ng Sua and his spouse Co Oyo have been declared in
default for failure to appear during the pre-trial and as
to the other defendants the complaint had already
been ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be
set on November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the
purpose, to swear in witnesses and to submit her
report within ten (10) days thereafter. Notify the
plaintiff.
SO ORDERED.Cebu City, Philippines, October 21,
1974. (Page 52, Record.)
But, in connection with this last order, the scheduled
ex-parte reception of evidence did not take place on
November 20, 1974, for on October 28, 1974, upon
verbal motion of plaintiff, the court issued the following
self-explanatory order: .
Acting favorably on the motion of the plaintiff dated
October 18, 1974, the Court deputized the Branch
Clerk of Court to receive the evidence of the
plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together
with her witnesses, appeared in court and asked, thru
counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the
plaintiff in bringing her witnesses to the court, the
Branch Clerk of Court is hereby authorized to receive
immediately the evidence of the plaintiff ex-parte.
SO ORDERED.Cebu City, Philippines, October 28,
1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973,
the defendant Lim Teck Cheng, thru counsel, Atty.
Sitoy, filed a motion for reconsideration thereof, and on
November 1, 1974, defendant Eng Chong Leonardo,
thru counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders.
These motions were denied in an order dated
December 6, 1974 but received by the movants only
on December 23, 1974. Meanwhile, respondent court
rendered the impugned decision on December 20,
1974. It does not appear when the parties were served
copies of this decision.
Subsequently, on January 6, 1975, all the defendants,
thru counsel, filed a motion to quash the order of
October 28, 1974. Without waiting however for the
resolution thereof, on January 13, 1974, Lim Teck
Chuan and Eng Chong Leonardo went to the Court of
Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October
21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24,
1975, the Court of Appeals dismissed said petition,
holding that its filing was premature, considering that
the motion to quash the order of October 28, 1974 was
still unresolved by the trial court. This holding was
reiterated in the subsequent resolution of February 5,
1975 denying the motion for reconsideration of the
previous dismissal.
On the other hand, on January 20, 1975, the other
defendants, petitioners herein, filed their notice of
appeal, appeal bond and motion for extension to file
their record on appeal, which was granted, the
extension to expire after fifteen (15) days from January
26 and 27, 1975, for defendants Lim Tanhu and Ng
Suas, respectively. But on February 7, 1975, before
the perfection of their appeal, petitioners filed the
present petition with this Court. And with the evident
intent to make their procedural position clear, counsel
for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14,
1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan filed their
petition in the Court of Appeals, they in effect
abandoned their motion to quash the order of October
28, 1974," and that similarly "when Antonio Lim Tanhu,
Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo,
filed their petition for certiorari and prohibition ... in the
Supreme Court, they likewise abandoned their motion
to quash." This manifestation was acted upon by
respondent court together with plaintiffs motion for
execution pending appeal in its order of the same date
February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of
October 28, 1974 and the motion for execution
pending appeal were called for hearing today, counsel
for the defendants-movants submitted their
manifestation inviting the attention of this Court that by
their filing for certiorari and prohibition with preliminary
injunction in the Court of Appeals which was dismissed
and later the defaulted defendants filed with the
Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for
execution pending appeal shall be resolved after the
petition for certiorari and prohibition shall have been
resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page
Upon these premises, it is the position of petitioners
that respondent court acted illegally, in violation of the
rules or with grave abuse of discretion in acting on
respondent's motion to dismiss of October 18, 1974
without previously ascertaining whether or not due
notice thereof had been served on the adverse parties,
as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng
Chong Leonardo and no notice at all was ever sent to
the other defendants, herein petitioners, and more so,
in actually ordering the dismissal of the case by its
order of October 21, 1974 and at the same time setting
the case for further hearing as against the defaulted
defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of
December 20, 1974 granting respondent Tan even
reliefs not prayed for in the complaint. According to the
petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants
the nature of which is such that it cannot be decided in
an independent action and as to which the attention of
respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no
authority to divide the case before it by dismissing the
same as against the non-defaulted defendants and
thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the
defaulted defendants, considering that in their view,
under the said provision of the rules, when a common
cause of action is alleged against several defendants,
the default of any of them is a mere formality by which
those defaulted are not allowed to take part in the
proceedings, but otherwise, all the defendants,
defaulted and not defaulted, are supposed to have but
a common fate, win or lose. In other words, petitioners
posit that in such a situation, there can only be one
common judgment for or against all the defendant, the
non-defaulted and the defaulted. Thus, petitioners
contend that the order of dismissal of October 21,
1974 should be considered also as the final judgment
insofar as they are concerned, or, in the alternative, it
should be set aside together with all the proceedings
and decision held and rendered subsequent thereto,
and that the trial be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong Leonardo
being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the
contrary view that inasmuch as petitioners had been
properly declared in default, they have no personality
nor interest to question the dismissal of the case as
against their non-defaulted co-defendants and should
suffer the consequences of their own default.
Respondent further contends, and this is the only
position discussed in the memorandum submitted by
her counsel, that since petitioners have already made
or at least started to make their appeal, as they are in
fact entitled to appeal, this special civil action has no
reason for being. Additionally, she invokes the point of
prematurity upheld by the Court of Appeals in regard
to the above-mentioned petition therein of the non-
defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo. Finally, she argues that in any event, the
errors attributed to respondent court are errors of
judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related
proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion
that petitioners should be granted relief, if only to
stress emphatically once more that the rules of
procedure may not be misused and abused as
instruments for the denial of substantial justice. A
review of the record of this case immediately discloses
that here is another demonstrative instance of how
some members of the bar, availing of their proficiency
in invoking the letter of the rules without regard to their
real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in
some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations
as earnest efforts to satisfy the public clamor for
speedy disposition of litigations, forgetting all the while
that the plain injunction of Section 2 of Rule 1 is that
the "rules shall be liberally construed in order to
promote their object and to assist the parties in
obtaining not only 'speedy' but more imperatively, "just
... and inexpensive determination of every action and
proceeding." We cannot simply pass over the
impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were
deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of
every opportunity to properly defend themselves
against a claim of more than substantial character,
considering the millions of pesos worth of properties
involved as found by respondent judge himself in the
impugned decision, a claim that appears, in the light of
the allegations of the answer and the documents
already brought to the attention of the court at the pre-
trial, to be rather dubious. What is most regrettable is
that apparently, all of these alarming circumstances
have escaped respondent judge who did not seem to
have hesitated in acting favorably on the motions of
the plaintiff conducive to the deplorable objective just
mentioned, and which motions, at the very least,
appeared to be 'of highly controversial' merit,
considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-
sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of
respondent court to lean more on the contentions of
private respondent may be discerned from the manner
it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default
against them lifted. Notwithstanding that Dy Ochay's
motion of October 8, 1971, co-signed by her with their
counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the
notary public before whom she took her oath, in the
order of November 2, 1971, (Annex 3 id.) it was held
that "the oath appearing at the bottom of the motion is
not the one contemplated by the abovequoted
pertinent provision (See. 3, Rule 18) of the rules. It is
not even a verification. (See. 6, Rule 7.) What the rule
requires as interpreted by the Supreme Court is that
the motion must have to be accompanied by an
affidavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point
that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor,
under which a separate affidavit of merit is required
refers obviously to instances where the motion is not
over oath of the party concerned, considering that
what the cited provision literally requires is no more
than a "motion under oath." Stated otherwise, when a
motion to lift an order of default contains the reasons
for the failure to answer as well as the facts
constituting the prospective defense of the defendant
and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the
motion to lift the order of default "is an admission that
there was a valid service of summons" and that said
motion could not amount to a challenge against the
jurisdiction of the court over the person of the
defendant. Such a rationalization is patently specious
and reveals an evident failure to grasp the import of
the legal concepts involved. A motion to lift an order of
default on the ground that service of summons has not
been made in accordance with the rules is in order and
is in essence verily an attack against the jurisdiction of
the court over the person of the defendant, no less
than if it were worded in a manner specifically
embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex
6, id.) lifting at last the order of default as against
defendant Lim Tanhu, His Honor posited that said
defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read
defendants' motion for reconsideration of November
25, 1971 (Annex 5, id.), but We cannot find in it any
reference to a "quitclaim". Rather, the allegation of a
quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured
through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of
October 8, 1971, Annex 2, to set aside the order of
default, that plaintiff Tan could be but the common law
wife only of Tee Hoon, since his legitimate wife was
still alive, which allegation, His Honor held in the order
of November 2, 1971, Annex 3, to be "not good and
meritorious defense". To top it all, whereas, as already
stated, the order of February 19, 1972, Annex 6, lifted
the default against Lim Tanhu because of the
additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions"
defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings
and manifest inconsistency in the legal postures in the
orders in question can hardly convince Us that the
matters here in issue were accorded due and proper
consideration by respondent court. In fact, under the
circumstances herein obtaining, it seems appropriate
to stress that, having in view the rather substantial
value of the subject matter involved together with the
obviously contentious character of plaintiff's claim,
which is discernible even on the face of the complaint
itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part
of anyone concerned. Upon the considerations
hereunder to follow, the Court expresses its grave
concern that much has to be done to dispel the
impression that herein petitioners and their co-
defendants are being railroaded out of their rights and
properties without due process of law, on the strength
of procedural technicalities adroitly planned by counsel
and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor
and the citations of supposedly pertinent provisions
and jurisprudence made therein, cannot be said to
have proceeded from utter lack of juridical
knowledgeability and competence.
1 consistency between the letter of the adjective rules
The first thing that has struck the Court upon reviewing
the record is the seeming alacrity with which the
motion to dismiss the case against non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have
been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still
under re-cross-examination. Undoubtedly, the motion
to dismiss at that stage and in the light of the
declaration of default against the rest of the
defendants was a well calculated surprise move,
obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say
that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to
rightly assume that the parties in a judicial proceeding
can never be the victims of any procedural waylaying
as long as lawyers and judges are imbued with the
requisite sense of equity and justice.
But the situation here was aggravated by the
indisputable fact that the adverse parties who were
entitled to be notified of such unanticipated dismissal
motion did not get due notice thereof. Certainly, the
non-defaulted defendants had the right to the three-
day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when
the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan,
Atty. Sitoy was personally served with the notice only
on Saturday, October 19, 1974 and the counsel for
Eng Chong Leonardo, Atty. Alcudia, was notified by
registered mail which was posted only that same
Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene
between the date of service of notice and the date set
for the hearing, otherwise the court may not validly act
on the motion." (Comments on the Rules of Court by
Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the instant
case, there can be no question that the notices to the
non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for
plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit mandate
of the pertinent rule, not to speak of the imperatives of
fairness, considering he should have realized the far-
reaching implications, specially from the point of view
he subsequently adopted, albeit erroneously, of his
favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of
dismissal, he immediately set the case for the ex-parte
hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor of his
order which We have quoted above, appears to have
been done by him motu propio As a matter of fact,
plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21,
1974 further ignores or is inconsistent with a number
of known juridical principles concerning defaults, which
We will here take occasion to reiterate and further
elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps
some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge
must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial
actuation that unduly deprives any party of the right to
be heard without clear and specific warrant under the
terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every
judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all
the parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for
and these basic principles must be possessed by
every judge, If substance is to prevail, as it must, over
form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on
the part of any litigant before it, is unworthy of any
court of justice and equity. Withal, only those rules and
procedure informed, with and founded on public policy
deserve obedience in accord with their unequivocal
language or words..
Before proceeding to the discussion of the default
aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on
the face of the record, of the aforementioned order of
dismissal of October 21, 1974 of the case below as
regards non-defaulted defendants Lim and Leonardo.
While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of
the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent
court to also make reference to the very evident fact
that in ordering said dismissal respondent court
disregarded completely the existence of defendant's
counterclaim which it had itself earlier held if indirectly,
to be compulsory in nature when it refused to dismiss
the same on the ground alleged by respondent Tan
that he docketing fees for the filing thereof had not
been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule
9) namely, plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged
late husband as partner of defendants Antonio Lim
Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations
all the defendants have denied. Defendants maintain
in their counterclaim that plaintiff knew of the falsity of
said allegations even before she filed her complaint,
for she had in fact admitted her common-law
relationship with said deceased in a document she had
jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with respect
to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had
already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly
receipted by her, which quitclaim was, however,
executed, according to respondent herself in her
amended complaint, through fraud. And having filed
her complaint knowing, according to defendants, as
she ought to have known, that the material allegations
thereof are false and baseless, she has caused them
to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only
because the same evidence to sustain it will also
refute the cause or causes of action alleged in
plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the
same cannot "remain pending for independent
adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins
that "(i)f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's
motion to dismiss, the action shall not be dismissed
against the defendant's objection unless the
counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was
issued, for the simple reason that they were not
opportunity notified of the motion therefor, but the
record shows clearly that at least defendant Lim
immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his
motion for reconsideration of October 23, 1974, even
as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of
December 6, 1974, however, respondent court not
only upheld the plaintiffs supposed absolute right to
choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration
why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed,
all the six defendants are charged with having actually
taken part in a conspiracy to misappropriate, conceal
and convert to their own benefit the profits, properties
and all other assets of the partnership Glory
Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from
the partnership. Upon such allegations, no judgment
finding the existence of the alleged conspiracy or
holding the capital of the corporation to be the money
of the partnership is legally possible without the
presence of all the defendants. The non-defaulted
defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all
its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and
even prescinding from the other reasons to be
discussed anon it is clear that all the six defendants
below, defaulted and non-defaulted, are indispensable
parties. Respondents could do no less than grant that
they are so on page 23 of their answer. Such being the
case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever
it appears to the court in the course of a proceeding
that an indispensable party has not been joined, it is
the duty of the court to stop the trial and to order the
inclusion of such party. (The Revised Rules of Court,
Annotated & Commented by Senator Vicente J.
Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs.
Avila, 101 Phil. 705.) Such an order is unavoidable, for
the "general rule with reference to the making of
parties in a civil action requires the joinder of all
necessary parties wherever possible, and the joinder
of all indispensable parties under any and all
conditions, the presence of those latter being a sine
qua non of the exercise of judicial power." (Borlasa vs.
Polistico, 47 Phil. 345, at p. 347.) It is precisely " when
an indispensable party is not before the court (that) the
action should be dismissed." (People v. Rodriguez,
106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act,
not only as to the absent parties but even as to those
present. In short, what respondent court did here was
exactly the reverse of what the law ordains it
eliminated those who by law should precisely be
joined.
As may he noted from the order of respondent court
quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the non-
defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the
plaintiff to choose, the theory upon which he
predicates his right of action, or the parties he desires
to sue, without dictation or imposition by the court or
the adverse party. If he makes a mistake in the choice
of his right of action, or in that of the parties against
whom he seeks to enforce it, that is his own concern
as he alone suffers therefrom. The plaintiff cannot be
compelled to choose his defendants, He may not, at
his own expense, be forced to implead anyone who,
under the adverse party's theory, is to answer for
defendant's liability. Neither may the Court compel him
to furnish the means by which defendant may avoid or
mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the
plaintiff to continue prosecuting her cause of action
against the defendants-movants if in the course of the
trial she believes she can enforce it against the
remaining defendants subject only to the limitation
provided in Section 2, Rule 17 of the Rules of Court. ...
(Pages 6263, Record.)
Noticeably, His Honor has employed the same
equivocal terminology as in plaintiff's motion of
October 18, 1974 by referring to the action he had
taken as being "dismissal of the complaint against
them or their being dropped therefrom", without
perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely
on the theory that under Section 11 of Rule 3, parties
may be dropped by the court upon motion of any party
at any stage of the action, hence "it is the absolute
right prerogative of the plaintiff to choosethe parties
he desires to sue, without dictation or imposition by the
court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiff's motion of
October 18, 1974 was not predicated on Section 2 of
Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start
with, the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in a
complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one
is free to join anybody in a complaint in court only to
drop him unceremoniously later at the pleasure of the
plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that
it was proper and the subsequent dropping is
requested because it has turned out that such
inclusion was a mistake. And this is the reason why
the rule ordains that the dropping be "on such terms as
are just" just to all the other parties. In the case at
bar, there is nothing in the record to legally justify the
dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1974 cites none.
From all appearances, plaintiff just decided to ask for
it, without any relevant explanation at all. Usually, the
court in granting such a motion inquires for the
reasons and in the appropriate instances directs the
granting of some form of compensation for the trouble
undergone by the defendant in answering the
complaint, preparing for or proceeding partially to trial,
hiring counsel and making corresponding expenses in
the premises. Nothing of these, appears in the order in
question. Most importantly, His Honor ought to have
considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to
the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim
and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment
against their parents. Respondent court paid no heed
at all to the mandate that such dropping must be on
such terms as are just" meaning to all concerned
with its legal and factual effects.
Thus, it is quite plain that respondent court erred in
issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying
reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that
defendants Lim and Leonardo are not parties herein.
But such consideration is inconsequential. The fate of
the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated
thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case
of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no
longer pursuing further their questioning of the
dismissal is from another point of view
understandable. On the one hand, why should they
insist on being defendants when plaintiff herself has
already release from her claims? On the other hand,
as far as their respective parents-co-defendants are
concerned, they must have realized that they (their
parents) could even be benefited by such dismissal
because they could question whether or not plaintiff
can still prosecute her case against them after she had
secured the order of dismissal in question. And it is in
connection with this last point that the true and correct
concept of default becomes relevant.
At this juncture, it may also be stated that the decision
of the Court of Appeals of January 24, 1975 in G. R.
No. SP-03066 dismissing the petition for certiorari of
non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974,
has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on
its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the
motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally
because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its
result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his
allegations in paragraphs XI to XIV of his answer,
which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear
to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable
fact, the dismissal of the petition was based solely and
exclusively on its being premature without in any
manner delving into its merits. The Court must and
does admonish counsel that such manner of pleading,
being deceptive and lacking in candor, has no place in
any court, much less in the Supreme Court, and if We
are adopting a passive attitude in the premises, it is
due only to the fact that this is counsel's first offense.
But similar conduct on his part in the future will
definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts
to befuddle the issues as invariably then will be
exposed for what they are, certainly unethical and
degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite
apparent that the impugned orders must have
proceeded from inadequate apprehension of the
fundamental precepts governing such procedure under
the Rules of Court. It is time indeed that the concept of
this procedural device were fully understood by the
bench and bar, instead of being merely taken for
granted as being that of a simple expedient of not
allowing the offending party to take part in the
proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in
favor of such opponent, with hardly any chance of said
judgment being reversed or modified.
The Rules of Court contain a separate rule on the
subject of default, Rule 18. But said rule is concerned
solely with default resulting from failure of the
defendant or defendants to answer within the
reglementary period. Referring to the simplest form of
default, that is, where there is only one defendant in
the action and he fails to answer on time, Section 1 of
the rule provides that upon "proof of such failure, (the
court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the
plaintiff's evidence and render judgment granting him
such relief as the complaint and the facts proven may
warrant." This last clause is clarified by Section 5
which says that "a judgment entered against a party in
default shall not exceed the amount or be different in
kind from that prayed for."
Unequivocal, in the literal sense, as these provisions
are, they do not readily convey the full import of what
they contemplate. To begin with, contrary to the
immediate notion that can be drawn from their
language, these provisions are not to be understood
as meaning that default or the failure of the defendant
to answer should be "interpreted as an admission by
the said defendant that the plaintiff's cause of action
find support in the law or that plaintiff is entitled to the
relief prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with
approval Chaffin v. McFadden, 41 Ark. 42; Johnson v.
Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105;
People v. Rust, 292 111. 328; Ken v. Leopold 21 111.
A. 163; Chicago, etc. Electric R. Co. v. Krempel 116
111. A. 253.)
Being declared in default does not constitute a waiver
of rights except that of being heard and of presenting
evidence in the trial court. According to Section 2,
"except as provided in Section 9 of Rule 13, a party
declared in default shall not be entitled to notice of
subsequent proceedings, nor to take part in the trial."
That provision referred to reads: "No service of papers
other than substantially amended pleadings and final
orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order
of default, in which event he shall be entitled to notice
of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to
Section 2 of Rule 41, "a party who has been declared
in default may likewise appeal from the judgment
rendered against him as contrary to the evidence or to
the law, even if no petition for relief to set aside the
order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually
thrown out of court. While in a sense it may be said
that by defaulting he leaves himself at the mercy of the
court, the rules see to it that any judgment against him
must be in accordance with law. The evidence to
support the plaintiff's cause is, of course, presented in
his absence, but the court is not supposed to admit
that which is basically incompetent. Although the
defendant would not be in a position to object,
elementary justice requires that, only legal evidence
should be considered against him. If the evidence
presented should not be sufficient to justify a judgment
for the plaintiff, the complaint must be dismissed. And
if an unfavorable judgment should be justifiable, it
cannot exceed in amount or be different in kind from
what is prayed for in the complaint.
Incidentally, these considerations argue against the
present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their
clerks of court the reception of the plaintiff's evidence
when the defendant is in default. Such a Practice is
wrong in principle and orientation. It has no basis in
any rule. When a defendant allows himself to be
declared in default, he relies on the faith that the court
would take care that his rights are not unduly
prejudiced. He has a right to presume that the law and
the rules will still be observed. The proceedings are
held in his forced absence, and it is but fair that the
plaintiff should not be allowed to take advantage of the
situation to win by foul or illegal means or with
inherently incompetent evidence. Thus, in such
instances, there is need for more attention from the
court, which only the judge himself can provide. The
clerk of court would not be in a position much less
have the authority to act in the premises in the manner
demanded by the rules of fair play and as
contemplated in the law, considering his comparably
limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff,
the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial
policy that there being no imperative reason for judges
to do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this
point is that it is preferable to leave enough opportunity
open for possible lifting of the order of default before
proceeding with the reception of the plaintiff's evidence
and the rendition of the decision. "A judgment by
default may amount to a positive and considerable
injustice to the defendant; and the possibility of such
serious consequences necessitates a careful and
liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p.
534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.)
The expression, therefore, in Section 1 of Rule 18
aforequoted which says that "thereupon the court shall
proceed to receive the plaintiff's evidence etc." is not to
be taken literally. The gain in time and dispatch should
the court immediately try the case on the very day of
or shortly after the declaration of default is far
outweighed by the inconvenience and complications
involved in having to undo everything already done in
the event the defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the
defendants, there being several, are declared in
default. There are additional rules embodying more
considerations of justice and equity in cases where
there are several defendants against whom a common
cause of action is averred and not all of them answer
opportunely or are in default, particularly in reference
to the power of the court to render judgment in such
situations. Thus, in addition to the limitation of Section
5 that the judgment by default should not be more in
amount nor different in kind from the reliefs specifically
sought by plaintiff in his complaint, Section 4 restricts
the authority of the court in rendering judgment in the
situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and
other make difficult. When a complaint states a
common cause of action against several defendant
some of whom answer, and the others fail to do so, the
court shall try the case against all upon the answer
thus filed and render judgment upon the evidence
presented. The same proceeding applies when a
common cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence explanatory
thereof this wise:
Where a complaint states a common cause of action
against several defendants and some appear to
defend the case on the merits while others make
default, the defense interposed by those who appear
to litigate the case inures to the benefit of those who
fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be
absolved. In other words, the answer filed by one or
some of the defendants inures to the benefit of all the
others, even those who have not seasonably filed their
answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23
SCRA 1151.) The proper mode of proceeding where a
complaint states a common cause of action against
several defendants, and one of them makes default, is
simply to enter a formal default order against him, and
proceed with the cause upon the answers of the
others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of
notice in the cause, nor to appear in the suit in any
way. He cannot adduce evidence; nor can he be heard
at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.)
although he may appeal the judgment rendered
against him on the merits. (Rule 41, sec. 2.) If the case
is finally decided in the plaintiff's favor, a final decree is
then entered against all the defendants; but if the suit
should be decided against the plaintiff, the action will
be dismissed as to all the defendants alike. (Velez v.
Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal.
552,21 L. Ed. 60.) In other words the judgment will
affect the defaulting defendants either favorably or
adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is
in his favor. (Castro v. Pea, supra.) (Moran, Rules of
Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous
cases cited by Moran, this Court elaborated on the
construction of the same rule when it sanctioned the
execution, upon motion and for the benefit of the
defendant in default, of a judgment which was adverse
to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel,
also was a movant in the petition for execution Annex
1. Did she have a right to be such, having been
declared in default? In Frow vs. De la Vega, supra,
cited as authority in Velez vs. Ramas, supra, the
Supreme Court of the United States adopted as
ground for its own decision the following ruling of the
New York Court of Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to hold that because one
defendant had made default, the plaintiff should have
a decree even against him, where the court is satisfied
from the proofs offered by the other, that in fact the
plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against
several defendants, the complainant's rights or lack
of them in the controversy have to be the same,
and not different, as against all the defendant's
although one or some make default and the other or
others appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris above cited,
the New York Court of Errors in effect held that in such
a case if the plaintiff is not entitled to a decree, he will
not be entitled to it, not only as against the defendant
appearing and resisting his action but also as against
the one who made default. In the case at bar, the
cause of action in the plaintiff's complaint was common
against the Mayor of Manila, Emilia Matanguihan, and
the other defendants in Civil Case No. 1318 of the
lower court. The Court of First Instance in its judgment
found and held upon the evidence adduced by the
plaintiff and the defendant mayor that as between said
plaintiff and defendant Matanguihan the latter was the
one legally entitled to occupy the stalls; and it decreed,
among other things, that said plaintiff immediately
vacate them. Paraphrasing the New York Court of
Errors, it would be unreasonable to hold now that
because Matanguihan had made default, the said
plaintiff should be declared, as against her, legally
entitled to the occupancy of the stalls, or to remain
therein, although the Court of First Instance was so
firmly satisfied, from the proofs offered by the other
defendant, that the same plaintiff was not entitled to
such occupancy that it peremptorily ordered her to
vacate the stalls. If in the cases of Clason vs. Morris,
supra, Frow vs. De la Vega, supra, and Velez vs.
Ramas, supra the decrees entered inured to the
benefit of the defaulting defendants, there is no reason
why that entered in said case No. 1318 should not be
held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three
cases plainly implies that there is nothing in the law
governing default which would prohibit the court from
rendering judgment favorable to the defaulting
defendant in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim that
benefit, for it would not be a benefit if the supposed
beneficiary were barred from claiming it; and if the
benefit necessitated the execution of the decree, she
must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated
in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid
support to the above considerations. It provides that
when a complaint states a common cause of action
against several defendants, some of whom answer,
and the others make default, 'the court shall try the
case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties
in court'. It is obvious that under this provision the case
is tried jointly not only against the defendants
answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and
the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other
words, the defaulting defendants are held bound by
the answer filed by their co-defendants and by the
judgment which the court may render against all of
them. By the same token, and by all rules of equity
and fair play, if the judgment should happen to be
favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the
defaulting ones, for it would not be just to let the
judgment produce effects as to the defaulting
defendants only when adverse to them and not when
favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied
the provision under discussion in the following words:
In answer to the charge that respondent Judge had
committed a grave abuse of discretion in rendering a
default judgment against the PC, respondents allege
that, not having filed its answer within the
reglementary period, the PC was in default, so that it
was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said
judgment. It should be noted, however, that in entering
the area in question and seeking to prevent Patanao
from continuing his logging operations therein, the PC
was merely executing an order of the Director of
Forestry and acting as his agent. Patanao's cause of
action against the other respondents in Case No. 190,
namely, the Director of Forestry, the District Forester
of Agusan, the Forest Officer of Bayugan, Agusan, and
the Secretary of Agriculture and Natural Resources.
Pursuant to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of action
against several defendants some of whom answer and
the others fail to do so, the court shall try the case
against all upon the answer thus filed (by some) and
render judgment upon the evidence presented.' In
other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even
those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a
common cause of action against all of the respondents
therein, a decision in favor of one of them would
necessarily favor the others. In fact, the main issue, in
said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is
not possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle it
otherwise, as regards the PC, which is merely acting
as agent of the Director of Forestry, and is, therefore,
his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common
cause of action is alleged against several defendants,
some of whom answer and the others do not, the latter
or those in default acquire a vested right not only to
own the defense interposed in the answer of their co-
defendant or co-defendants not in default but also to
expect a result of the litigation totally common with
them in kind and in amount whether favorable or
unfavorable. The substantive unity of the plaintiff's
cause against all the defendants is carried through to
its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. Indeed,
since the singleness of the cause of action also
inevitably implies that all the defendants are
indispensable parties, the court's power to act is
integral and cannot be split such that it cannot relieve
any of them and at the same time render judgment
against the rest. Considering the tenor of the section in
question, it is to be assumed that when any defendant
allows himself to be declared in default knowing that
his defendant has already answered, he does so
trusting in the assurance implicit in the rule that his
default is in essence a mere formality that deprives
him of no more than the right to take part in the trial
and that the court would deem anything done by or for
the answering defendant as done by or for him. The
presumption is that otherwise he would not -have seen
to that he would not be in default. Of course, he has to
suffer the consequences of whatever the answering
defendant may do or fail to do, regardless of possible
adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is
concerned it becomes his inalienable right that the
same be dismissed also as to him. It does not matter
that the dismissal is upon the evidence presented by
the plaintiff or upon the latter's mere desistance, for in
both contingencies, the lack of sufficient legal basis
must be the cause. The integrity of the common cause
of action against all the defendants and the
indispensability of all of them in the proceedings do not
permit any possibility of waiver of the plaintiff's right
only as to one or some of them, without including all of
them, and so, as a rule, withdrawal must be deemed to
be a confession of weakness as to all. This is not only
elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of
procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of
every opportunity to defend themselves against her
claims which, after all, as will be seen later in this
opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into
consideration the tenor of the pleadings and the
probative value of the competent evidence which were
before the trial court when it rendered its assailed
decision where all the defendants are indispensable
parties, for which reason the absence of any of them in
the case would result in the court losing its
competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as
a matter of correct procedure, have to await until after
the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and
the satisfaction of his claim as variably as he might
please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the
non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the
principle of unity and indivisibility of the action just
discussed because all the defendants here have
already joined genuine issues with plaintiff. Their
default was only at the pre-trial. And as to such
absence of petitioners at the pre-trial, the same could
be attributed to the fact that they might not have
considered it necessary anymore to be present, since
their respective children Lim and Leonardo, with whom
they have common defenses, could take care of their
defenses as well. Anything that might have had to be
done by them at such pre-trial could have been done
for them by their children, at least initially, specially
because in the light of the pleadings before the court,
the prospects of a compromise must have appeared to
be rather remote. Such attitude of petitioners is neither
uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and
irrevocably in default was not an absolute necessity.
Practical considerations and reasons of equity should
have moved respondent court to be more
understanding in dealing with the situation. After all,
declaring them in default as respondent court did not
impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the
question of whether or not herein petitioners were
entitled to notice of plaintiff's motion to drop their co-
defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In
this connection, the decisive consideration is that
according to the applicable rule, Section 9, Rule 13,
already quoted above, (1) even after a defendant has
been declared in default, provided he "files a motion to
set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether
the order of default is set aside or not" and (2) a party
in default who has not filed such a motion to set aside
must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot
be denied that petitioners had all filed their motion for
reconsideration of the order declaring them in default.
Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8
of said answer, which denied said motion for
reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a
motion to set aside the order of default." But as We
have not been favored by the parties with a copy of the
said motion, We do not even know the excuse given
for petitioners' failure to appear at the pre-trial, and We
cannot, therefore, determine whether or not the motion
complied with the requirements of Section 3 of Rule 18
which We have held to be controlling in cases of
default for failure to answer on time. (The Philippine-
British Co. Inc. etc. et al. vs. The Hon. Walfrido de los
Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a
case of default for failure to answer but one for failure
to appear at the pre-trial. We reiterate, in the situation
now before Us, issues have already been joined. In
fact, evidence had been partially offered already at the
pre-trial and more of it at the actual trial which had
already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in
mind and considering that issues had already been
joined even as regards the defaulted defendants, it
would be requiring the obvious to pretend that there
was still need for an oath or a verification as to the
merits of the defense of the defaulted defendants in
their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary judgment
there can be no question that the issues joined were
genuine, and consequently, the reason for requiring
such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the
non-defaulted defendants, petitioners must have
assumed that their presence was superfluous,
particularly because the cause of action against them
as well as their own defenses are common. Under
these circumstances, the form of the motion by which
the default was sought to be lifted is secondary and
the requirements of Section 3 of Rule 18 need not be
strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for
the purposes of the revival of their right to notice under
Section 9 of Rule 13, that petitioner's motion for
reconsideration was in substance legally adequate
regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint.
And there can be no doubt that such amendment was
substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-
defendants, herein petitioners, it had the effect of
increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer
for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974
was legally indispensable under the rule above-
quoted. Consequently, respondent court had no
authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator
Francisco, "(t) he Rules of Court clearly provide that no
motion shall be acted upon by the Court without the
proof of service of notice thereof, together with a copy
of the motion and other papers accompanying it, to all
parties concerned at least three days before the
hearing thereof, stating the time and place for the
hearing of the motion. (Rule 26, section 4, 5 and 6,
Rules of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement, it is not
a motion. It presents no question which the court could
decide. And the Court acquires no jurisdiction to
consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs.
Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-
G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of
Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the
Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of
dismissal of October 21, 1974 is fatally ineffective.
4 timely notice of the motion therefor to the non-
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as
said petitioners have in fact made their appeal already
by filing the required notice of appeal and appeal bond
and a motion for extension to file their record on
appeal, which motion was granted by respondent
court, their only recourse is to prosecute that appeal.
Additionally, it is also maintained that since petitioners
have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28,
1974, they have lost their right to assail by certiorari
the actuations of respondent court now being
questioned, respondent court not having been given
the opportunity to correct any possible error it might
have committed.
We do not agree. As already shown in the foregoing
discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed to
restore order in the entangled situation created by the
series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule
of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury,
juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal,
it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely
affected, when the irregularity committed by the trial
court is so grave and so far reaching in its
consequences that the long and cumbersome
procedure of appeal will only further aggravate the
situation of the aggrieved party because other
untoward actuations are likely to materialize as natural
consequences of those already perpetrated. If the law
were otherwise, certiorari would have no reason at all
for being.
No elaborate discussion is needed to show the urgent
need for corrective measures in the case at bar. Verily,
this is one case that calls for the exercise of the
Supreme Court's inherent power of supervision over all
kinds of judicial actions of lower courts. Private
respondent's procedural technique designed to disable
petitioners to defend themselves against her claim
which appears on the face of the record itself to be at
least highly controversial seems to have so fascinated
respondent court that none would be surprised should
her pending motion for immediate execution of the
impugned judgment receive similar ready sanction as
her previous motions which turned the proceedings
into a one-sided affair. The stakes here are high. Not
only is the subject matter considerably substantial;
there is the more important aspect that not only the
spirit and intent of the rules but even the basic
rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of
the proceedings below would be nothing short of
wittingly condoning inequity and injustice resulting
from erroneous construction and unwarranted
application of procedural rules.
5 construction of the pertinent procedural rules.
The sum and total of all the foregoing disquisitions is
that the decision here in question is legally anomalous.
It is predicated on two fatal malactuations of
respondent court namely (1) the dismissal of the
complaint against the non-defaulted defendants Lim
and Leonardo and (2) the ex-parte reception of the
evidence of the plaintiff by the clerk of court, the
subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully
discussed above, the order of dismissal of October 21,
1974 is unworthy of Our sanction: (1) there was no
This conclusion is fully justified by the following
defaulted defendants, aside from there being no notice
at all to herein petitioners; (2) the common answer of
the defendants, including the non-defaulted, contained
a compulsory counterclaim incapable of being
determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of
the two non-defaulted defendants as parties, and
inasmuch as they are both indispensable parties in the
case, the court consequently lost the" sine qua non of
the exercise of judicial power", per Borlasa vs.
Polistico, supra. This is not to mention anymore the
irregular delegation to the clerk of court of the function
of receiving plaintiff's evidence. And as regards the ex-
parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon,
We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles
on default, to a common and single fate with their non-
defaulted co-defendants. And We are not yet referring,
as We shall do this anon to the numerous reversible
errors in the decision itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do
not call for a common corrective remedy. We cannot
simply rule that all the impugned proceedings are null
and void and should be set aside, without being faced
with the insurmountable obstacle that by so doing We
would be reviewing the case as against the two non-
defaulted defendants who are not before Us not being
parties hereto. Upon the other hand, for Us to hold that
the order of dismissal should be allowed to stand, as
contended by respondents themselves who insist that
the same is already final, not only because the period
for its finality has long passed but also because
allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set
aside by the Court of Appeals whose decision on their
petition is also already final, We would have to
disregard whatever evidence had been presented by
the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words,
whichever of the two apparent remedies the Court
chooses, it would necessarily entail some kind of
possible juridical imperfection. Speaking of their
respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the
non-defaulted defendants whom We have not heard
and who even respondents would not wish to have
anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would
naturally set at naught every effort private respondent
has made to establish or prove her case thru means
sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought
about by none other than private respondent who has
quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective
law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of
the substantive law and of equity that always underlie
them and which have to be inevitably considered in the
All things considered, after careful and mature
deliberation, the Court has arrived at the conclusion
that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We
rule that the order of dismissal of October 21, 1974 is
in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent
thereto including and principally its decision of
December 20, 1974 are illegal and should be set
aside.
considerations of equity:
1. It is very clear to Us that the procedural maneuver
resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was
characterized by that which every principle of law and
equity disdains taking unfair advantage of the rules
of procedure in order to unduly deprive the other party
of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end
in view of completely incapacitating their co-
defendants from making any defense, without
considering that all of them are indispensable parties
to a common cause of action to which they have
countered with a common defense readily connotes an
intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of
plaintiff's evidence is taken into account, one easily
understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the
commission of unfairness and inequity in the
application of the rules of procedure, particularly when
the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run
counter to such basic principles in the rules on default
and such elementary rules on dismissal of actions and
notice of motions that no trial court should be unaware
of or should be mistaken in applying. We are at a loss
as to why His Honor failed to see through counsel's
inequitous strategy, when the provisions (1) on the
three-day rule on notice of motions, Section 4 of Rule
15, (2) against dismissal of actions on motion of
plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence
of indispensable parties, Section 7, Rule 3, (4) on
service of papers upon defendants in default when
there are substantial amendments to pleadings,
Section 9, Rule 13, and (5) on the unity and integrity of
the fate of defendants in default with those not in
default where the cause of action against them and
their own defenses are common, Section 4, Rule 18,
are so plain and the jurisprudence declaratory of their
intent and proper construction are so readily
comprehensible that any error as to their application
would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court
are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain
that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous
orders of respondent court. It is only fair that she
should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on
the basis of its own recitals, the decision in question
cannot stand close scrutiny. What is more, the very
considerations contained therein reveal convincingly
the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the
idea of merely returning this case for a resumption of
trial by setting aside the order of dismissal of October
21, 1974, with all its attendant difficulties on account of
its adverse effects on parties who have not been
heard, but upon closer study of the pleadings and the
decision and other circumstances extant in the record
before Us, We are now persuaded that such a course
of action would only lead to more legal complications
incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a
bad situation. Anyway, We feel confident that by and
large, there is enough basis here and now for Us to
rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had
no reason for being were there less haste and more
circumspection in rendering the same. Recklessness
in jumping to unwarranted conclusions, both factual
and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs
granted. It is apparent therein that no effort has been
made to avoid glaring inconsistencies. Where
references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a
litigation which, considering the substantial value of
the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel,
calls for greater attention and skill than the general run
of cases would.
Inter alia, the following features of the decision make it
highly improbable that if We took another course of
action, private respondent would still be able to make
out any case against petitioners, not to speak of their
co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's
case, "she is the widow of the late Tee Hoon Po
Chuan (Po Chuan, for short) who was then one of the
partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu
(Lim Tanhu, for short) and Alfonso Leonardo Ng Sua
(Ng Sua, for short) as co-partners; that after the death
of her husband on March 11, 1966 she is entitled to
share not only in the capital and profits of the
partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the
latter during its lifetime."
Relatedly, in the latter part of the decision, the findings
are to the following effect: .
That the herein plaintiff Tan Put and her late husband
Po Chuan married at the Philippine Independent
Church of Cebu City on December, 20, 1949; that Po
Chuan died on March 11, 1966; that the plaintiff and
the late Po Chuan were childless but the former has a
foster son Antonio Nuez whom she has reared since
his birth with whom she lives up to the present; that
prior to the marriage of the plaintiff to Po Chuan the
latter was already managing the partnership Glory
Commercial Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior to and
just after the marriage of the plaintiff to Po Chuan she
was engaged in the drugstore business; that not long
after her marriage, upon the suggestion of Po Chuan
the plaintiff sold her drugstore for P125,000.00 which
amount she gave to her husband in the presence of
defendant Lim Tanhu and was invested in the
partnership Glory Commercial Co. sometime in 1950;
that after the investment of the above-stated amount in
the partnership its business flourished and it embarked
in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets
and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership
Glory Commercial Co. he was the one who made the
final decisions and approved the appointments of new
personnel who were taken in by the partnership; that
the late Po Chuan and defendants Lim Tanhu and Ng
Sua are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim Tanhu and
Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng
Sua were partners in name but they were mere
employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To
start with, it is not clear in the decision whether or not
in making its findings of fact the court took into account
the allegations in the pleadings of the parties and
whatever might have transpired at the pre-trial. All that
We can gather in this respect is that references are
made therein to pre-trial exhibits and to Annex A of the
answer of the defendants to plaintiff's amended
complaint. Indeed, it was incumbent upon the court to
consider not only the evidence formally offered at the
trial but also the admissions, expressed or implied, in
the pleadings, as well as whatever might have been
placed before it or brought to its attention during the
pre-trial. In this connection, it is to be regretted that
none of the parties has thought it proper to give Us an
idea of what took place at the pre-trial of the present
case and what are contained in the pre-trial order, if
any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from
affording the parties every opportunity to compromise
or settle their differences, is for the court to be
apprised of the unsettled issues between the parties
and of their respective evidence relative thereto, to the
end that it may take corresponding measures that
would abbreviate the trial as much as possible and the
judge may be able to ascertain the facts with the least
observance of technical rules. In other words whatever
is said or done by the parties or their counsel at the
pre- trial serves to put the judge on notice of their
respective basic positions, in order that in appropriate
cases he may, if necessary in the interest of justice
and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken
up at the pre-trial, before finally resolving any issue of
fact or of law. In brief, the pre-trial constitutes part and
parcel of the proceedings, and hence, matters dealt
with therein may not be disregarded in the process of
decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and
worthless.
Now, applying these postulates to the findings of
respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of
plaintiff to the deceased Tee Hoon Lim Po Chuan is
contrary to the weight of the evidence brought before it
during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of
the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument"
signed by the parties as well as by their witnesses and
the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic
copy of the marriage contract. While a marriage may
also be proved by other competent evidence, the
absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible
evidence of such marriage unless proof of loss of the
contract or of any other satisfactory reason for its non-
production is first presented to the court. In the case at
bar, the purported certification issued by a Mons. Jose
M. Recoleto, Bishop, Philippine Independent Church,
Cebu City, is not, therefore, competent evidence, there
being absolutely no showing as to unavailability of the
marriage contract and, indeed, as to the authenticity of
the signature of said certifier, the jurat allegedly signed
by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of
his office. Besides, inasmuch as the bishop did not
testify, the same is hearsay.
As regards the testimony of plaintiff herself on the
same point and that of her witness Antonio Nuez,
there can be no question that they are both self-
serving and of very little evidentiary value, it having
been disclosed at the trial that plaintiff has already
assigned all her rights in this case to said Nuez,
thereby making him the real party in interest here and,
therefore, naturally as biased as herself. Besides, in
the portion of the testimony of Nuez copied in Annex
C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which
means that he was less than eight years old at the
supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same
memorandum purports to be the certificate of birth of
one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis
Occidental, the son of one Uy Bien, father, and Tan
Put, mother. Significantly, respondents have not made
any adverse comment on this document. It is more
likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testified
she was childless. So which is which? In any event, if
on the strength of this document, Nuez is actually the
legitimate son of Tan Put and not her adopted son, he
would have been but 13 years old in 1949, the year of
her alleged marriage to Po Chuan, and even then,
considering such age, his testimony in regard thereto
would still be suspect.
Now, as against such flimsy evidence of plaintiff, the
court had before it, two documents of great weight
belying the pretended marriage. We refer to (1) Exhibit
LL, the income tax return of the deceased Tee Hoon
Lim Po Chuan indicating that the name of his wife was
Ang Sick Tin and (2) the quitclaim, Annex A of the
answer, wherein plaintiff Tan Put stated that she had
been living with the deceased without benefit of
marriage and that she was his "common-law wife".
Surely, these two documents are far more reliable than
all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-
trial evidence. But it is evidence offered to the judge
himself, not to the clerk of court, and should have at
least moved him to ask plaintiff to explain if not rebut it
before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to
the quitclaim containing the admission of a common-
law relationship only, it is to be observed that His
Honor found that "defendants Lim Tanhu and Ng Sua
had the plaintiff execute a quitclaim on November 29,
1967 (Annex "A", Answer) where they gave plaintiff the
amount of P25,000 as her share in the capital and
profits of the business of Glory Commercial Co. which
was engaged in the hardware business", without
making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating
either that no evidence to prove that allegation of the
plaintiff had been presented by her or that whatever
evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established
without any circumstance to detract from its legal
import, the court should have held that plaintiff was
bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more,
that she had already renounced for valuable
consideration whatever claim she might have relative
to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all
these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the
certification of the Local Civil Registrar of Cebu City
and (2) a similar certification of the Apostolic Prefect of
the Philippine Independent Church, Parish of Sto.
Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950
do not show any marriage between Tee Hoon Lim Po
Chuan and Tan Put, neither of which certifications
have been impugned by respondent until now, it
stands to reason that plaintiff's claim of marriage is
really unfounded. Withal, there is still another
document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a
written agreement executed in Chinese, but
purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu
City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put,
have lived with Mr. Lim Po Chuan alias TeeHoon since
1949 but it recently occurs that we are incompatible
with each other and are not in the position to keep
living together permanently. With the mutual
concurrence, we decided to terminate the existing
relationship of common law-marriage and promised
not to interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been given to
me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year
of the Republic of China (corresponding to the year
1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-
284, Record.)
Indeed, not only does this document prove that
plaintiff's relation to the deceased was that of a
common-law wife but that they had settled their
property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no
alternative but to hold that plaintiff Tan Put's allegation
that she is the widow of Tee Hoon Lim Po Chuan has
not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows
that her relation with said deceased was that of a
common-law wife and furthermore, that all her claims
against the company and its surviving partners as well
as those against the estate of the deceased have
already been settled and paid. We take judicial notice
of the fact that the respective counsel who assisted the
parties in the quitclaim, Attys. H. Hermosisima and
Natalio Castillo, are members in good standing of the
Philippine Bar, with the particularity that the latter has
been a member of the Cabinet and of the House of
Representatives of the Philippines, hence, absent any
credible proof that they had allowed themselves to be
parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due
legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her
alleged status as legitimate wife of Po Chuan is not
only unconvincing but has been actually overcome by
the more competent and weighty evidence in favor of
the defendants, her attempt to substantiate her main
cause of action that defendants Lim Tanhu and Ng
Sua have defrauded the partnership Glory Commercial
Co. and converted its properties
tothemselves is even more dismal. From the very
evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof
exists of such alleged misdeeds.Of course, the of the
partnership has not been denied, it is actually admitted
impliedly in defendants' affirmative defense that Po
Chuan's share had already been duly settled existence
with and paid to both the plaintiff and his legitimate
family. But the evidence as to the actual participation
of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled
them to make the extractions of funds alleged by
plaintiff is at best confusing and at certain points
manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged
that as widow of Po Chuan she is entitled to /3 share
of the assets and properties of the partnership. In fact,
her prayer in said complaint is, among others, for the
delivery to her of such /3 share. His Honor's statement
of the case as well as his findings and judgment are all
to that same effect. But what did she actually try to
prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she
had money of her own when she "married" Po Chuan
and "that prior to and just after the marriage of the
plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan, the plaintiff sold her
drugstore for P125,000 which amount she gave to her
husband in the presence of Tanhu and was invested in
the partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-stated
amount in the partnership, its business flourished and
it embarked in the import business and also engaged
in the wholesale and retail trade of cement and GI
sheets and under (sic) huge profits." (pp. 25-26, Annex
L, petition.)
To begin with, this theory of her having contributed of
P125,000 to the capital of the partnership by reason of
which the business flourished and amassed all the
millions referred to in the decision has not been
alleged in the complaint, and inasmuch as what was
being rendered was a judgment by default, such
theory should not have been allowed to be the subject
of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable
that he failed to observe the rule. Then, on the other
hand, if it was her capital that made the partnership
flourish, why would she claim to be entitled to only to
/3 of its assets and profits? Under her theory found
proven by respondent court, she was actually the
owner of everything, particularly because His Honor
also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of
Po Chuan that defendants Lim Tanhu and Ng Sua had
no means of livelihood at the time of their employment
with the Glory Commercial Co. under the management
of the late Po Chuan except their salaries therefrom;
..." (p. 27, id.) Why then does she claim only /3 share?
Is this an indication of her generosity towards
defendants or of a concocted cause of action existing
only in her confused imagination engendered by the
death of her common-law husband with whom she had
settled her common-law claim for recompense of her
services as common law wife for less than what she
must have known would go to his legitimate wife and
children?
Actually, as may be noted from the decision itself, the
trial court was confused as to the participation of
defendants Lim Tanhu and Ng Sua in Glory
Commercial Co. At one point, they were deemed
partners, at another point mere employees and then
elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which
allows these "partners in name" and "partners-
employees" or employees who had no means of
livelihood and who must not have contributed any
capital in the business, "as Po Chuan was practically
the owner of the partnership having the controlling
interest", /3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this
juncture that the decision has made Po Chuan play the
inconsistent role of being "practically the owner" but at
the same time getting his capital from the P125,000
given to him by plaintiff and from which capital the
business allegedly "flourished."
Anent the allegation of plaintiff that the properties
shown by her exhibits to be in the names of
defendants Lim Tanhu and Ng Sua were bought by
them with partnership funds, His Honor confirmed the
same by finding and holding that "it is likewise clear
that real properties together with the improvements in
the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan
in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered
view, however, that this conclusion of His Honor is
based on nothing but pure unwarranted conjecture.
Nowhere is it shown in the decision how said
defendants could have extracted money from the
partnership in the fraudulent and illegal manner
pretended by plaintiff. Neither in the testimony of
Nuez nor in that of plaintiff, as these are summarized
in the decision, can there be found any single act of
extraction of partnership funds committed by any of
said defendants. That the partnership might have
grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the
decision are not in the names of Po Chuan, who was
Chinese, but of the defendants who are Filipinos, do
not necessarily prove that Po Chuan had not gotten
his share of the profits of the business or that the
properties in the names of the defendants were bought
with money of the partnership. In this connection, it is
decisively important to consider that on the basis of
the concordant and mutually cumulative testimonies of
plaintiff and Nuez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the final
decisions and approved the appointments of new
Personnel who were taken in by the partnership; that
the late Po Chuan and defendants Lim Tanhu and Ng
Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and
Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po Chuan
was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng
Sua were partners in name but they were mere
employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the
running of the partnership, how could the defendants
have defrauded him of such huge amounts as plaintiff
had made his Honor believe? Upon the other hand,
since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if
defendants had obtained any portion of the funds of
the partnership for themselves, it must have been with
the knowledge and consent of Po Chuan, for which
reason no accounting could be demanded from them
therefor, considering that Article 1807 of the Civil Code
refers only to what is taken by a partner without the
consent of the other partner or partners. Incidentally
again, this theory about Po Chuan having been
actively managing the partnership up to his death is a
substantial deviation from the allegation in the
amended complaint to the effect that "defendants
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud
and machination, took actual and active management
of the partnership and although Tee Hoon Lim Po
Chuan was the manager of Glory Commercial Co.,
defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par.
4, p. 2 of amended complaint, Annex B of petition) and
should not have been permitted to be proven by the
hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the
very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu and
Ng Sua with funds of the partnership appear to have
been transferred to their names only in 1969 or later,
that is, long after the partnership had been
automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence
of clear proof that they had violated the trust of Po
Chuan during the existence of the partnership. (See
Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused
His Honor to readily disbelieve plaintiffs' pretensions.
Nuez testified that "for about 18 years he was in
charge of the GI sheets and sometimes attended to
the imported items of the business of Glory
Commercial Co." Counting 18 years back from 1965 or
1966 would take Us to 1947 or 1948. Since according
to Exhibit LL, the baptismal certificate produced by the
same witness as his birth certificate, shows he was
born in March, 1942, how could he have started
managing Glory Commercial Co. in 1949 when he
must have been barely six or seven years old? It
should not have escaped His Honor's attention that the
photographs showing the premises of Philippine Metal
Industries after its organization "a year or two after the
establishment of Cebu Can Factory in 1957 or 1958"
must have been taken after 1959. How could Nuez
have been only 13 years old then as claimed by him to
have been his age in those photographs when
according to his "birth certificate", he was born in
1942? His Honor should not have overlooked that
according to the same witness, defendant Ng Sua was
living in Bantayan until he was directed to return to
Cebu after the fishing business thereat floundered,
whereas all that the witness knew about defendant Lim
Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only
told to him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and hearsay as
to Lim Teck Chuan. Neither should His Honor have
failed to note that according to plaintiff herself, "Lim
Tanhu was employed by her husband although he did
not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and
Ng Sua had no known income except their salaries.
Actually, it is not stated, however, from what evidence
such conclusion was derived in so far as Ng Sua is
concerned. On the other hand, with respect to Lim
Tanhu, the decision itself states that according to
Exhibit NN-Pre trial, in the supposed income tax return
of Lim Tanhu for 1964, he had an income of P4,800 as
salary from Philippine Metal Industries alone and had
a total assess sable net income of P23,920.77 that
year for which he paid a tax of P4,656.00. (p. 14.
Annex L, id.) And per Exhibit GG-Pretrial in the year,
he had a net income of P32,000 for which be paid a
tax of P3,512.40. (id.) As early as 1962, "his fishing
business in Madridejos Cebu was making money, and
he reported "a net gain from operation (in) the amount
of P865.64" (id., per Exhibit VV-Pre-trial.) From what
then did his Honor gather the conclusion that all the
properties registered in his name have come from
funds malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co.
without the aid of any accountant or without the same
being explained by any witness who had prepared
them or who has knowledge of the entries therein. This
must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions
His Honor made out of them. In Exhibit SS-Pre-trial,
the reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit
TT-Pre-trial, according to His Honor, showed that the
total value of goods available as of the same date was
P11,166,327.62. On the other hand, per Exhibit XX-
Pre-trial, the supposed balance sheet of the company
for 1966, "the value of inventoried merchandise, both
local and imported", as found by His Honor, was
P584,034.38. Again, as of December 31, 1966, the
value of the company's goods available for sale was
P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of
Account, whatever that is, of the company showed its
"cash analysis" was P12,223,182.55. We do not
hesitate to make the observation that His Honor,
unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and
committing an injustice. In any event, there is no
comprehensible explanation in the decision of the
conclusion of His Honor that there were
P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly
seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-trial,
Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17.
(p. 15, id.) Under the circumstances, We are not
prepared to permit anyone to predicate any claim or
right from respondent court's unaided exercise of
accounting knowledge.
Additionally, We note that the decision has not made
any finding regarding the allegation in the amended
complaint that a corporation denominated Glory
Commercial Co., Inc. was organized after the death of
Po Chuan with capital from the funds of the
partnership. We note also that there is absolutely no
finding made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to plaintiff,
just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that
while His Honor has ordered defendants to deliver or
pay jointly and severally to the plaintiff P4,074,394.18
or /3 of the P12,223,182.55, the supposed cash
belonging to the partnership as of December 31, 1965,
in the same breath, they have also been sentenced to
partition and give /3share of the properties
enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly
purchased from the funds of the partnership which
would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming
there has not yet been any liquidation of the
partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have
the status of a partnership in liquidation and the only
right plaintiff could have would be to what might result
after such liquidation to belong to the deceased
partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the
deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would
be much more extended than it is already prevent us
from further pointing out the inexplicable deficiencies
and imperfections of the decision in question. After all,
what have been discussed should be more than
sufficient to support Our conclusion that not only must
said decision be set aside but also that the action of
the plaintiff must be totally dismissed, and, were it not
seemingly futile and productive of other legal
complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by
the parties albeit important and perhaps pivotal has
likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is
granted. All proceedings held in respondent court in its
Civil Case No. 12328 subsequent to the order of
dismissal of October 21, 1974 are hereby annulled and
set aside, particularly the ex-parte proceedings against
petitioners and the decision on December 20, 1974.
Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the
action dated October 21, 1974 to herein petitioners
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng
Sua and Co Oyo. And respondent court is hereby
permanently enjoined from taking any further action in
said civil case gave and except as herein indicated.
Costs against private respondent.
Bonnevie vs Hernandez 95 Phil 175
CRISTOBAL BONNEVIE, ET AL., plaintiffs-,
vs.JAIME HERNANDEZ, defendant-appellee.
This is an action for the recovery of the sum of
P115,312.50, with interests, as plaintiffs' alleged share
in the profits of a partnership.
It appears that prior to January, 1947, plaintiffs with
other associates formed a syndicate or secret
partnership for the purpose of acquiring the plants,
franchises and other properties of the Manila Electric
Co. hereinafter called the Meralco in the
provinces of Camarines Sur, Albay, and Sorsogon,
with the idea of continuing that company's business in
that region. No formal articles were drawn for it was
the purpose of the members to incorporate once the
deal had been consummated. But in the meantime
they elected Pedro Serranzana and David Serrano
general manager and secretary-treasurer,
respectively, of the partnership.
Negotiation for the purchase was commenced, but as
it made no headway, defendant was taken in as a
member of the partnership so that he could push the
deal through, and to that end he was given the
necessary power of attorney. Using partnership funds,
defendant was able to buy the Meralco properties for
P122,000, paying P40,000 upon the signing of the
deed of sale and agreeing to pay the balance in two
equal installments, that is, P41,000 on or before July
31, 1947, and another P41,000 on or before January
31, 1948, with interest at 6 per cent per annum and
with a penalty clause which reads:
(6) That in case the VENDEE fails to make the
payment or payments of the balance due or any part
thereof as herein provided, this contract shall, at the
option of the VENDOR, be annuled and, in such an
event, all payments made by the VENDEE to the
VENDOR by virtue of this contract shall be forfeited
and retained by the VENDOR in full satisfaction as the
liquidated damages sustained by said VENDOR; and
the said VENDOR shall have the right to forthwith
reenter and take possession of the premises,
properties and rights which are the subject-matter of
this contract.
Although defendant was the one named vendee in the
deed of sale, there is no question that the transaction
was in penalty made for the partnership so that the
latter assumed control of the business the day
following the sale.
About the latter half of the following month the
members of the partnership proceeded with the
formation of the proposed corporation, apportioning
among themselves its shares of stock in proportion to
their respective contributions to the capital of the
partnership and their individual efforts in bringing
about the acquisition of the Meralco properties. But
before the incorporation papers could be perfected,
several partners, not satisfied with the way matters
were being run and fearful that the venture might
prove a failure because the business was not going
well and there was a possibility of their being assessed
more than their original investments when the time
came to meet the two installments of the unpaid
purchase price due the Meralco, expressed their
desire to withdraw from the partnership and get back
the money they had invested therein. In accordance
with this wish, one of them, Judge Jaime Reyes, in a
meeting held on April 10, 1947, to consider various
matters connected with the business, presented a
resolution to the effect that those partners who did not
want to remain in the association should be allowed to
withdraw and get back their contributions. The
resolution was approved, with the herein plaintiffs
voting affirmatively, and on that same day plaintiffs
and Judge Reyes withdrew from the partnership, and,
as admitted by both parties, the partnership was then
dissolved. In accordance with the terms of the
resolution, the withdrawing partners were, on the
following day, reimbursed their respective
contributions to the partnership fund.
Following the dissolution of the partnership, the
members who preferred to remain in the business
went ahead with the formation of the corporation,
taking in new associates as stockholders. And
defendant, on his part, in fulfillment of his trust, made a
formal assignment of the Meralco properties to the
treasurer of the corporation, giving them a book value
of P365,000, in return for which the corporation issued,
to the various subscribers to its capital stock, shares of
stock of the total face value of P225,000 and assumed
the obligation of paying what was still due the Meralco
on the purchase price. The new corporation was
named "Bicol Electric Company."
Though business was losing during the first year, that
is, in 1947, the corporation, thanks to a loan obtained
from the RFC later prospered and made money. Then
trouble began for one of its big stockholders, the
defendant herein.
Two years from their withdrawal from the partnership,
when the corporate business was already in a
prosperous condition, plaintiffs brought the present suit
against Jaime Hernandez, claiming a share in the
profit the latter is supposed to have made from the
assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000 and
their share of it to be P115,312.50.
Defendant's answer denies that he has made any
profit out of the assignment in question and alleges
that in any event plaintiffs, after their withdrawal from
the partnership, ceased to have any further interest in
the subsequent transactions of the remaining
members.
After trial the lower court found that the partnership
had not realized any profit out of the assignment of the
Meralco properties to the corporation and that, even
supposing that profit had really been made, defendant
would not be the one to answer to plaintiffs for their
share thereof, because he did not receive the
consideration for the assignment, which according to
the court, consisted of the subscriptions of various
persons to the capital stock of the corporation. The
court therefore dismissed the complaint with costs
against the plaintiffs. From this decision plaintiffs
appealed. The case comes within our jurisdiction
because of the amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been
realized from the assignment of the Meralco properties
to the new corporation, the Bicol Electric Company, is
more apparent than real. It is true that the value set for
those properties in the deed of assignment was
P365,000 when the acquisition price was only
P122,000. But one should not jump to the conclusion
that a profit, consisting of the difference between the
two sums was really made out of the transaction, for
the assignment was not made for cash but in payment
for subscriptions to shares of stock in the assignee,
and while those shares had a total face value of
P225,000, this is not necessarily their real worth.
Needless to say, the real value of the shares of stock
of a corporation depends upon the value of its assets
over and above its liabilities. It does not appear that
the Bicol Electric Company had any assets other than
those acquired from the Meralco, and according to the
evidence the company, aside from owing the Meralco,
P82,000 was, in the language of the court below,
actually "in the red."
In the second place, assuming that the assignment
actually brought profit to the partnership, it is hard to
see how defendant could be made to answer for
plaintiffs' alleged share thereof. As stated in the
decision below, defendant did not receive the
consideration for the assignment for, as already
stated, the assignment was made in payment for
subscriptions of various persons to the capital stock of
the new corporation. Plaintiffs, in order to give color of
legality to their claim against defendant, maintain that
the latter should be held liable for damages caused to
them, consisting of the loss of their share of the profits,
due to defendant's failure properly to perform his duty
as a liquidator of the dissolved partnership, this on the
theory that as managing partner of the partnership, it
was defendant's duty to liquidate its affairs upon its
dissolutions. But it does not appear that plaintiffs have
ever asked for a liquidation, and as will presently be
explained no liquidation was called for because when
plaintiffs withdrew from the partnership the
understanding was that after they had been
reimbursed their investment, they were no longer to
have any further interest in the partnership or its
assets and liabilities. Moreover, the stipulation of facts
made at the hearing does not bear out the claim that
defendant was the managing partner of the
partnership, for if there appears that the partnership
had its general manager in the person of Pedro
Serranzana, who upon the formation of the new
corporation also became its vice-president and general
manager.
As a general rule, when a partner retires from the firm,
he is entitled to the payment of what may be due him
after a liquidation. But certainly no liquidation is
necessary where there is already a settlement or an
agreement as to what the retiring partner shall receive.
In the instant case, it appears that a settlement was
agreed upon on the very day the partnership was
dissolved. For when plaintiffs and Judge Jaime Reyes
withdrew from the partnership on that day they did so
as agreed to by all the partners, subject to the only
condition that they were to be repaid their contributions
or investments within three days from said date. And
this condition was fulfilled when on the following day
they were reimbursed the respective amounts due
them pursuant to the agreement.
There is evidence that the partnership was at that time
operating its business at a loss and that the
partnership did not have necessary funds to meet its
obligation to Meralco for the balance of the purchase
price. And in that connection it should be recalled that
nonpayment of that obligation would result in the
partnership losing its entire investment because of the
penalty clause in the deed of sale. Because of these
circumstances there is every reason to believe that
plaintiffs together with Judge Jaime Reyes, withdrew
from the partnership for fear that they might lose their
entire investment should they choose to remain in the
partnership which then faced the danger of losing its
entire assets. As testified to by Judge Reyes, one of
the withdrawing partners, it was clearly understood
that upon their withdrawal and return to them of their
investment they would have nothing more to do with
the association. It must, therefore, have been the
intention or understanding of the parties that the
withdrawing partners were relinquishing all their rights
and interest in the partnership upon the return to them
of their investment. That Judge Reyes did not join the
plaintiffs in this action is a clear indication that such
was really the understanding. Judge Reyes has
testified that when he was invited to join in the present
claim he refused because he did not want to be a "sin
verguenza." And, indeed, if the agreement was that
the withdrawing partners were still to have participation
in the subsequent transactions of the partnership so
that they would have a share not only in the profits but
also in the losses, it is not likely that their investment
would have been returned to them.
It is, therefore, our conclusion that the acceptance by
the withdrawing partners, including the plaintiffs, of
their investment in the instant case was understood
and intended by all the parties as a final settlement of
whatever rights or claim the withdrawing partners
might have in the dissolved partnership. Such being
the case they are now precluded from claiming any
share in the alleged profits, should there be any, at the
time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against
defendant to be without legal basis so that the
judgment of dismissal rendered by the court below
should be, as it is hereby, affirmed, with costs against
the appellants.
Ornum vs Lasala 74 Phil 241 1943
JOSE ORNUM and EMERENCIANA
ORNUM, petitioners,
vs.MARIANO, LASALA, et al., respondent.
The following facts are practically admitted in the
pleadings and briefs of the parties: The respondents
(plaintiffs below) are natives of Taal, Batangas, and
resided therein or in Manila. The petitioners
(defendants below) are also natives of Taal, but
resided in the barrio of Tan-agan, municipality of
Tablas, Province of Romblon. In 1908 Pedro Lasala,
father of the respondents, and Emerenciano Ornum
formed a partnership, whereby the former, as
capitalist, delivered the sum of P1,000 to the latter
who, as industrial partner, was to conduct a business
at his place of residence in Romblon. In 1912, when
the assets of the partnership consisted of outstanding
accounts and old stock of merchandise, Emerenciano
Ornum, following the wishes of his wife, asked for the
dissolution of the Lasala, Emerenciano Ornum looked
for some one who could take his place and he
suggested the names of the petitioners who
accordingly became the new partners. Upon joining
the business, the petitioners, contributed P505.54 as
their capital, with the result that in the new partnership
Pedro Lasala had a capital of P1,000, appraised value
of the assets of the former partnership, plus the said
P505.54 invested by the petitioners who, as industrial
partners, were to run the business in Romblon. After
the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest in
the partnership. The partners never knew each other
personally. No formal partnership agreement was ever
executed. The petitioners, as managing partners, were
received one-half of the net gains, and the other half
was to be divided between them and the Lasala group
in proportion to the capital put in by each group.
During the course divided, but the partners were given
the election, as evidenced by the statements of
accounts referred to in the decision of the Court of
Appeals, to invest their respective shares in such
profits as additional capital. The petitioners accordingly
let a greater part of their profits as additional
investment in the partnership. After twenty years the
business had grown to such an extent that is total
value, including profits, amounted to P44,618.67.
Statements of accounts were periodically prepared by
the petitioners and sent to the respondents who
invariably did not make any objection thereto. Before
the last statement of accounts was made, the
respondents had received P5,387.29 by way of profits.
The last and final statement of accounts, dated May
27, 1932, and prepared by the petitioners after the
respondents had announced their desire to dissolve
the partnership, read as follows:
After the receipt of the foregoing statement of
accounts, Father Mariano Lasala, spokesman for the
respondents, wrote the following letter to the
petitioners on July 19, 1932:
Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the above-
quoted statement of accounts which, however, was not
signed by the latter. Thereafter the complaint in this
case was filed by the respondents, praying for an
accounting and final liquidation of the assets of the
partnership. The Court of First Instance of Manila held
that the last and final statement of accounts prepared
by the petitioners was tacitly approved and accepted
by the respondents who, by virtue of the above-quoted
letter of Father Mariano Lasala, lost their right to a
further accounting from the moment they received and
accepted their shares as itemized in said statement.
This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement of
accounts remains unsigned by the respondents, the
same stands disapproved. The decision appealed by
the petitioners thus said:
To support a plea of a stated account so as to
conclude the parties in relation to all dealings between
them, the accounting must be shown to have been
final. (1 Cyc. 366.) All the first nine statements which
the defendants sent the plaintiffs were partial
settlements, while the last, although intended to be
final, has not been signed.
We hold that the last and final statement of accounts
hereinabove quoted, had been approved by the
respondents. This approval resulted, by virtue of the
letter of Father Mariano Lasala of July 19, 1932,
quoted in part in the appealed decision from the failure
of the respondents to object to the statement and from
their promise to sign the same as soon as they
received their shares as shown in said statement. After
such shares had been paid by the petitioners and
accepted by the respondents without any reservation,
the approval of the statement of accounts was virtually
confirmed and its signing thereby became a mere
formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their
shares, amounted to a waiver to that formality in favor
of the petitioners who has already performed their
obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or mistake
in said approval. (Pastor, vs. Nicasio, 6 Phil., 152;
Aldecoa & Co., vs.Warner, Barnes & Co., 16 Phil.,
423; Gonsalez vs. Harty, 32 Phil. 328.) The Court of
Appeals did not make any findings that there was
fraud, and on the matter of error or mistake it merely
said:
The question, then is, have mistakes, been committed
in the statements sent appellants? Not only do
plaintiffs so allege, and not only does not evidence so
tend to prove, but the charge is seconded by the
defendants themselves when in their counterclaims
they said:
In our opinion, the pronouncement that the evidence
tends to prove that there were mistakes in the
petitioners' statements of accounts, without specifying
the mistakes, merely intimates as suspicion and is not
such a positive and unmistakable finding of fact (Cf.
Concepcion vs. People, G.R. No. 48169, promulgated
December 28, 1942) as to justify a revision, especially
because the Court of Appeals has relied on the bare
allegations of the parties, Even admitting that, as
alleged by the petitioners in their counterclaim, they
overpaid the respondents in the sum of P575.12, this
error is essentially fatal to the latter's theory what the
statement of accounts shows, and is therefore not the
kind of error that calls for another accounting which will
serve the purpose of the respondent's suit. Moreover,
as the petitioners did not appeal from the decision of
the Court abandoned such allegation in the Court of
Appeals.
If the liquidation is ordered in the absence of any
particular error, found as a fact, simply because no
damage will be suffered by the petitioners in case the
latter's final statement of the accounts proves to be
correct, we shall be assuming a fundamentally
inconsistent position. If there is not mistake, the only
reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that
they will be required to pay anything to the
respondents, but they will have to go to the trouble of
itemizing accounts covering a period of twenty years
mostly from memory, its appearing that no regular
books of accounts were kept. Stated more
emphatically, they will be told to do what seems to be
hardly possible. When it is borne in mind that this case
has been pending for nearly nine years and that, if
another accounting is ordered, a costly action or
proceeding may arise which may not be disposed of
within a similar period, it is not improbable that the
intended relief may in fact be the respondents' funeral.
We are reversing the appealed decision on the legal
ground that the petitioners' final statement of accounts
had been approved by the respondents and no
justifiable reason (fraud, deceit, error or mistake) has
been positively and unmistakably found by the Court of
Appeals so as to warrant the liquidations sought by the
respondents. In justice to the petitioners, however, we
may add that, considering that they ran the business of
the partnership for about twenty years at a place far
from the residence of the respondents and without the
latter's intervention; that the partners did not even
know each other personally; that no formal partnership
agreement was entered into which bound the
petitioners under specific conditions; that the
petitioners could have easily and freely alleged that
the business became partial, or even a total, loss for
any plausible reason which they could have
concocted, it appearing that the partnership engaged
in such uncertain ventures as agriculture, cattle raising
and operation of rice mill, and the petitioners did not
keep any regular books of accounts; that the
petitioners were still frank enough to disclose that the
original capital of P1,505.54 amounted, as of the date
of the dissolution of the partnership, to P44,618.67;
and that the respondents had received a total of
P8,105.76 out of their capital of P1,000, without any
effort on their part, we are reluctant even to make the
conjecture that the petitioners had ever intended to, or
actually did, take undue advantage of the absence and
confidence of the respondents. Indeed, we feel
justified in stating that the petitioners have here given
a remarkable demonstration of the legendary honesty,
good faith and industry with which the natives of Taal
pursue business arrangements similar to the
partnership in question, and we would hate, in the
absence of any sufficient reason, to let such a
beautiful legend have a distateful ending.
The appealed decision is hereby reversed and the
petitioners (defendants below) absolved from the
complaints of the respondents (plaintiffs below), with
costs against the latter.
Separate Opinios
OZAETA J., concurring:
Let us record here the mental processes by which I
arrived at my vote for the reversal of the judgment of
the Court of Appeals.
After the respondents had announced their desire to
withdraw from the "partnership," the petitioners
rendered a final statement of account dated May 27,
1932, which is set forth in the opinion written by Mr.
Justice Paras and which was accepted as correct by
the respondents, who them asked from the payment to
them in cash of their participation in the capital and
profits of the business as shown by said statement. It
must be borne in mind that the assets reflected in said
statement of account did not consist of cash but of
merchandise, credits, land, large cattle, and a rice mill.
To gratify the respondent wish the petitioners raised
money and paid respondents' total participation. After
their interest and participation in the business had thus
been liquidated, the respondents, apparently believing
that they might be entitled to more money than they
had accepted and received, sought to have the books
and records examined by a representative of theirs.
The petitioners regarded such conduct of the
respondents not only as a violation of their agreement
to consider the "partnership" dissolved upon the
payment of respondents' participation therein but as an
unwarranted reflections upon their honesty and good
faith. Hence they refused to allow the examination or
proposed reliquidation.
On November 20, 1933, the complaint in this case was
filed by the respondents, praying for an accounting
and final liquidation of the assets of the "partnership."
The trial lasted off and on from September 26, 1934, to
March 23, 1937, involving a transcript of 815 pages of
oral testimony. The Court of First Instance of Manila
rendered its decision on December 29, 1937, in which
it found that there was no proof whatever to the effect
that the defendants acted in bad faith in the
preparation of the periodical statements of account by
not including merchandise or money to defraud the
plaintiffs. Judge Rovira analyzed the main aspect of
the case as follows:
The Court of Appeals reversed that judgment and
ordered the defendants "to render an accounting of all
the assets of the partnership and of all its profits and
losses from the time of its organization to the date of
plaintiffs' withdrawal."
This is an unfortunate and unnecessary lawsuit,
engendered by suspicion and misunderstanding on the
part of the respondents and abetted by pride and amor
propio on the part of their opponents. It is unfortunate
from two viewpoints sentimental and material: (1)
Friendship that for twenty years united the parties for
the sake of business and of their common birthplace
has become but a program memory to them, it having
been dethroned from their hearts and replaced by ill
will and lacerated sentiments. (2) The fruit of more
than twenty years of toil that should entitle the
petitioners to enjoy competence and comfort in their
declining years is being squandered by them in their
defense of this protracted litigation. This lawsuit is
unnecessary because once the smoke of passion and
misunderstanding has vanished, the parties would or
should see that there is no real cause for quarrel
between them.
The judgment of the trial court which would, once and
for all, put an end to this unnecessary lawsuit,
achieves practical justice; that of the Court of Appeals
which would prolong it, pursues theoretical justice. Our
own verdict is not difficult to make. Let us pour oil on
troubled waters.
First. The suspicions entertained by the respondents
against the good faith of their erstwhile friends, the
petitioners, finds expression in the allegation of
paragraph 8 of their complaint:
8. That the said defendants, in order to defraud and
deprive the plaintiffs of their just share in the business
have caused properties, which rightfully belong to the
business of which they were and are the managers, to
be inscribed in their own joint names or in their
individual names, by virtue of which said defendants
now appears to be the sole and exclusive owners of
said properties and their fruits.
Such suspicion is unjustified. There is nothing irregular
or improper in the act of the petitioners of putting the
properties and the business in their own names. The
association of the parties was not a general
copartnership under articles 125-144 of the Code of
Commerce but one of joint accounts governed by
articles 239-243 of the same Code. The respondents
acquired an interest in the transactions of the
petitioners by contributing thereto merchandise and
accounts receivable valued at P1,000 (Article 239.) No
formality was observed in the formation of the
association. (Article 240.) No commercial name,
common to all the participants was adopted, and the
petitioners transacted and managed the business in
their own individual names and under their individual
liability. (Article 241.) The respondents had no reason
to expect the petitioners to put the business and
properties in the name of the "partnership" because
they knew that from the beginning no firm name had
been adopted for it. The respondents were silent
partners.
Second. An apparent misunderstanding on the part of
the respondents is reflected in the allegation of
paragraph 10 of their complaint:
10. That the defendants have fraudulently withdrawn
from the funds of the said partnership large amounts of
money, which they applied for their personal use and
benefit to which withdrawals they were not legally
entitled, thereby impairing seriously the capital of the
partnership and hampering its orderly and efficient
administration.
Such unkind words uttered against long-trusted
business associates can only be attributed to a serious
misunderstanding in view of the fact that neither the
trial court nor the Court of Appeals found any indicia of
bad faith on the part of the petitioners. The aspersion
was wholly unwarranted.
Third. The respondents have apparently been misled
by the public accountant they employed, who
advanced a different method of computing the
participations of the parties in the profits. As noted by
the trial court in its decision and as urged by the
respondents in their brief, they claim that the
petitioners, "as industrial and capitalist partners, could
not include their participation in the profits as capital
because by such procedure the plaintiffs [respondents]
were absorbed and the defendants [petitioners]
obtained greater participation in the profits. Following
the hint of their "expert" accountant, the respondent
contend in their brief that the original profit-sharing
agreement of 50 per cent to the industrial partner and
the balance to be distributed among the partners in
proportion to their capital, namely 66.67 per cent to the
respondents for their capital of P1,000 and 33.33 per
cent to the petitioners for their capital of P500, should
be maintained notwithstanding the increase of the
capital of the petitioners through the accumulation of
unwithdrawn profits. This contention does not impress
us as being either fair or sound. Throughout the twenty
years of have by common consent followed the same
method of distributing the profits in party was permitted
to put in as much capital as he wanted and to share in
the profits accordingly. Up to the time the respondents
received the last centavo of their participation in the
capital and profits of the business, they had tacitly and
repeatedly approved, the same procedure of dividing
the profits. They must have found it to be fair, as
indeed it was, for why should not one's share of the
profits increase in proportions to one's capital? It is
true that the original capital of respondents and
petitioners were P1,000 and P505.54 respectively, or,
roughly, a proportion of two to one be maintained after
the capital of the petitioners has increased through the
accumulation of unwithdrawn profits? In any event, as
the trial court held, the respondents are now estopped
from insisting on a fixed and invariable two-to-one
division of the profits regardless of the amount of the
capital of each of the parties in a given year.
Fourth. If, as we have seen, there is no reasons for a
new division of the profits as contended by the
respondents, it seems to us that no useful purpose
would be attained by remanding the case to the trial
court with an order to the petitioners to render a new
account. As we have noted, respondents' allegation of
fraud and bad faith on the part of the petitioners in the
preparation of the statements of account submitted by
them to the respondents and tacitly approved by the
latter, was not found proven by the Court of Appeals.
All that the Court of Appeals intimated was that the
plaintiffs alleged that mistakes had been committed
and that the evidence so tended to prove. But the
mistake pointed out by the respondents consisted
principally in the mode or procedure of dividing the
profits and in petitioners' having caused the properties
"to be inscribed in their own joint names or in their
individual names"; and as we have seen, such alleged
mistakes are unfounded.
During the trial of this case, which off and on lasted
nearly three years, the petitioners and their witnesses,
who had to come from the Province of Romblon to
Manila, presented the only books they kept to the
business (Exhibits S and T). which respondents' expert
accountants audited and found to be incorrect as to
the mode of dividing the profits. Of course, the auditor
of the respondents also demanded vouchers, ledgers,
and other books. But the business having been run for
twenty years without employing a bookkeeper, it
seems too late now to do so after the "partnership" has
been dissolved.
In the absence of any finding of fraud or prejudicial
error committed by the petitioners in the rendition of
their accounts, which were tacitly, approved by their
respondents, who asked for and received their
participation in accordance with the liquidation, we
think it would only occasion unnecessary trouble and
expense to both parties to require further accounting
and remand the case to the trial court for further
proceedings. Nine years of litigation in three instances
should be enough to afford the parties in this case
their day in court. It would be scandalous to prolong it
under the circumstances. After all, it's only a tempest
in a teapot.
MORAN, J., dissenting:
The decision of the majority, ultimately analyzed,
suggests the query: May this Court, in an appeal by
certiorari from a judgment of the Court of Appeals,
make its own finding of fact in disregard of the findings
of the latter Court of Appeals, make its own findings of
fact in disregard to the findings of the latter Court and
reverse the appealed judgment accordingly? The rule
is settled that this Court cannot, and that, on the
contrary, in every such appeal "everything necessary
to uphold the jurisdiction" of the Court of Appeals "and
the correctness of its proceedings and decision will be
presumed, in the absence of a clear showing to the
contrary". (4 C.J., 1082.)
The essential facts of the case, as found by the Court
of Appeals, are as follows: Petitioners and
respondents were members of a commercial
partnership, the former being the managers of the
business and the latter having "no hand whatsoever in
the conduct of it." From December 23, 1913 to May 27,
1932, petitioners had made ten balance statements
and sent copies thereof to respondents together with
the latter's shares in the profits. No question arose
between the parties as to the correctness of the
balance statements until the tenth statement was
made, respondents had made known to petitioners
their desire to withdraw from the partnership and had
requested for the remittance of their capital and profits.
On July 9, 1932, after the tenth statement was
received by them, respondent reiterated their desire
for withdrawal, adding that "en cuanto hayamos
recibido todo, entonces firmaremos el balance que
habeis hecho alli, cuya copia has dejado aqui." The
amount which purported to be their entire capital and
profits was received by respondents but they refused
to sign the statement of final liquidation because they
had an agreement with petition to the effect that before
they sign it, "they would send some one to Tablas to
examine the partnership books, but that afterwards the
defendants (petitioners here) declined to allow
plaintiffs' (respondents here) representative to see said
books." And the evidence tends to prove, so the Court
of Appeals concluded, that there were mistakes in
petitioners statements of account sent to respondents,
as corroborated by petitioners themselves in their
counterclaims.
Upon these facts, the majority reversed the decision of
the Court of Appeals and sustained the petitioners
plea of concluded accounting upon the following
grounds.
1. That as respondents have promised to sign the final
statement of accounts upon their receipt of their entire
capital and profits, their acceptance without
reservation of said capital and profits, constitutes
virtual approval of the final liquidation and their signing
the same becomes a mere formality to be
subsequently complied with and which was waived by
their refusal to do so;
2. That while re-examination of accounts is authorized
upon proof of fraud or gross error, in the instant case,
the Court's finding as to mistake is not positive and its
pronouncement that "the evidence tends to prove that
there was mistake in the statement of accounts is not
a definite conclusion sufficient to justify a further
accounting";
3. That as this case has been pending for nearly nine
years, "if another accounting is ordered, a costly action
or proceedings may arise which may not be disposed
of within a similar period," and that accordingly "it is
not improbable that the intended relief may prove to be
the respondents' funeral"; and
4. That, in a nutshell, the circumstances of the case
attest remarkably to the honesty of petitioners in their
dealings with respondents.
I propose to take up these grounds seriatim.
"An account stated" has been defined as "an
agreement that the balance and all items of an
account representing the previous monetary
transaction of the parties thereto are correct, together
with the promise to pay such balance." (1 C. J.S., p.
693.) In the present case, was there such an
agreement? Respondents, it is true, had promised to
sign the balance statement upon receiving their capital
and share in the profits, but they actually had never
signed such statement and a promise to sign is not
equivalent to signing. The fact that respondents have
never signed the statement only indicates that they
could not agree with petitioners thereon. And if there is
no agreement there is no account stated. Indeed, it
has been held that "in stating as account, as in making
any other agreement, the minds of the parties must
meet." (1 C.J., pp. 684-685.) Here, there has been no
meeting of minds as to the true balance.
Besides, respondents' promise to sign the statement of
final liquidation upon receipts of their entire capital and
profits was not absolute. It was subject to the
agreement with petitioners that before respondents
"sign the final settlement they would send some one to
Tablas to examine the partnership books." This is a
fact supported by proof expressly mentioned by the
Court of Appeals which the majority has utterly ignored
and if considered would have been decidedly fatal to
the conclusion it has reached. As respondents "to
whom the accounts were rendered had no knowledge
of all the circumstances relating to the business and
had to rely upon the good faith of their partners"
(words of the Court of Appeals), the examination of the
partnership books becomes to them a matter of capital
important which, for purposes of final liquidation,
cannot lightly be dismissed. When petitioners declined
to allow respondents' representative to see said books
in violation of the agreement, respondents must be
deemed legally exempted from their promise and are,
therefore, entirely justified in refusing to sign the final
settlement.
Even if it be conceded that the final settlement had
been acquiesced in by the respondent, a reopening of
accounts, as the majority itself admits, is authorized
upon a showing of fraud or mistake. The rule is that
"an account stated being only prima facie evidence of
its correctness, does not work an estoppel and is
subject to impeachment for fraud or mistake; and if
fraud or mistake exists it is immaterial that the parties
agreed that the account shall not be opened for error
after a fixed period, that it was signed by the party
charged, or that evidence of indebtedness, receipt in
full, or releases were given." (1 C.J.S., pp. 728-729.) In
the instant case, does there exist evidence of such
mistake? The Court of Appeals, putting up the same
question, categorically stated:
The question then is, have mistakes been committed
in the statements sent appellants? Not only do
plaintiffs so allege, and not only does the evidence so
tend to prove, but the charged is seconded by the
defendant themselves when in their counterclaims
they said:
(a) Que recientemente se ha hecho una acabada
revision de las cuentas y libros del negocio, y, se ha
descubierto que los demandados cometieron un error
al hacer las entregas de las varias cantidades en
efectivo a los demandantes, entregando en total
mayores cantidades a la que tenian derecho estos por
su participacion y ganancias en dicho negocio.
But the majority averred that this does not constitute a
positive findings of mistake and that "the
pronouncement of the Court of Appeals that the
evidence tends to prove that there was a mistake in
the statement of accounts is not a definite conclusion
in a sense sufficient to justify a further accounting." As
a general rule when the grant or refusal of a legal relief
sought in this Court depends upon the existence of
findings of fact by the Court of Appeals, the test for the
grant or refusal of such relief is not whether its finding
is positive or not, but whether such findings actually
exists and is sufficient for the purpose. The reason is,
in the language of the majority itself, "we are not here
authorized to review the evidence and determine the
existence" of any matter of fact. In the closely
analogue case of Zubiri vs. Quijano, G.R. No. 48696.
November 28, 1942, this Court held:
Under the second assignment, the petitioners alleged
that the Court of Appeals erred in not finding that she
had paid to the respondent usurious interest
amounting (as found by the Court of the First Instance
of Mindoro) to P950. The pronouncements of the Court
of Appeals to wit, "pero rechazamos la pretension de
la demandada, aceptada por el Tribunal a quo, de que
el demandante percibio intereses usurarios" and "con
respecto a la alegacion sobre usura, la misma nos
parece insostenible", being conclusions, of fact, must
be accepted for the purposes of the present appeal,
since we cannot make contrary findings without
reexamining the evidence, and we are not authorized
to do this.
In the instant case, the Court of Appeals made a
general conclusion of fact as to the existence of
mistake and, on the authority of the case cited, this
general conclusion must be deemed sufficient. When
the Court of Appeals went further and fortified its
general conclusion of fact by a specific instance of
such mistake, are we to reject the finding as less
sufficient because more specific?
But it is said that the Court of Appeals merely stated
that the evidence so tend to prove" the existence of
mistake. The use, however, of the verb "tend" in no
way imports ex necessitate rei indefiniteness or
ambiguity of the evidence upon which the Court of
Appeals rested its conclusion of mistake. Doubtless,
the verb was used advisedly because, the action being
merely to compel accounting, the Court cannot and is
not actually passing finally upon the correctness of the
accounts. Its pronouncement as to mistake cannot
accordingly be couched with finality, much as the
majority wishes it to be, but should merely be worded
as to indicate that a ground exists for the accounting
prayed for.
And as to the specific mistake found by the Court of
Appeals to have been admitted in petitioners'
counterclaim, the majority argues that such mistake
consists in overpayment of respondents of what is due
to them, and therefore, the error was not to their
prejudice. This argument entirely misses the point.
Whether the mistake be favorable or unfavorable to
respondents, the fact remains that a mistake exists
and this is sufficient to authorize a reopening even of a
concluded account. Indeed, if the mistake be one
prejudicial to the interest of the party who made the
statement, it is all the worse. When a person makes a
mistake against himself when he is presumed to have
taken special care for the protection of his interest, he
may in all probability be presumed to have made more
mistakes against others whose interests he is less
concerned with, if at all.
But assuming that the Court's finding as to mistake is
insufficient, is the majority justified in closing the case
upon that ground? To foreclose accounting, under the
circumstances, is to make, in effect, a contrary finding
that there is no mistake and to presume that
petitioners' accountings is correct. This is both
unauthorized and faulty. Unauthorized, because when
the finding of the Court of Appeals is here deemed
insufficient, the remedy is not for this Court to make
contrary findings but to supply the deficiency by
remanding the case to the Court of Appeals for further
findings, as we did in Ofiana vs. People (40 Off. Gaz.,
2293), and Bautista vs. Victoriano G.R. No. 46879,
April 3, 1940. Faulty, because when the majority
presumes that petitioners accounting is correct, it
takes for granted precisely the basic issue of the case.
And the presumption becomes the more faulty when
we considered that it militates against positive findings
of mistake by the Court of Appeals. The existence of
such findings, whether or not they are insufficient,
constitutes a solemn warning against reliance upon a
mere presumption, specially if there exists a contrary
presumption to the effect that everything necessary to
uphold the correctness of the decision appealed from
shall be deemed present in the record, in the absence
of a clear showing to the contrary. And here, there is
absolutely no showing that the supposedly insufficient
findings are erroneous.
The majority expresses the fear that, as this case has
been pending for nearly, nine years, if another
accounting is ordered a costly action or proceedings
may arise which may not be disposed of within a
similar period. I cannot understand how this Court
would haphazardly close a case only upon bare fear or
delay. What the law abhors is unnecessary delay in
the administration of justice. Delays necessary for the
ascertainment of truth are welcomed. Hurried justice is
certainly not to be less deplored than delayed justice.
Dispatch in the disposal of cases is, indeed, in every
system of law, a beautiful ideal to be devoutly wished
for; but, like every other ideal, its beauty or utility ends
with its abuse. We owe it to the paramount interests of
justice that in every litigation we are called upon to
decide, we should strive thoroughly and judiciously to
ascertain the truth and not to hurriedly pull down the
curtain on the case until we are reasonably certain that
all efforts to the end have been exhausted.
The majority adds that if the accounting prayed for the
permitted, it is not improbable that the intended relief
may prove to be the respondents' funeral. I take this
statement to mean that the majority hazards the
conjecture that if a new accounting is ordered,
respondents will probably come out to be less entitled
that what they have received. I do not think this Court
should, in propriety, hazard any guess on the probable
outcome of any suit specially where the guess is made
on the basis of factual evidence about which it cannot
speak with authority. And, neither is the guess good,
for if we remand the case to the Court of Appeals for
more specific findings, the likelihood is that more
specific mistakes will be shown as to render it
inevitable for this Court to order a new accounting.
This probability is founded not on mere conjecture but
on the presumption of law above mentioned that the
conclusions of fact of the Court of Appeals are in
accordance with the evidence. Furthermore,
respondents in asking for an accounting are of course
ready and willing to abide by any result, whether it be
favorable or unfavorable to them. There being just
grounds therefor, it should not be denied by this Court
because such accounting may be disastrous to
respondents.
The majority concluded its decision thus:
Considering that they (petitioners) ran the business of
the partnership for about twenty years at a place far
from the residence of the respondents and without the
latter's intervention; that the partners did not even
know each other personally; that no formal partnership
agreement was entered into which bound the
petitioners under specific conditions; that the
petitioners could have easily and freely alleged that
the business became a partial, or even a total, loss for
any plausible reason which they could have
concocted, it appearing that the partnership engaged
in such uncertain ventures as agriculture, cattle
raising, and the operation of rice mill, and the
petitioners did not keep any regular books of accounts;
that the petitioners were still frank enough to disclose
that the original capital of P1,505.54 amounted, as of
the date of the dissolution of the partnership to
P44,618.67; and that the respondents had received a
total of P3,105.76 out of their capital of P1,000, without
any effort on their part, we are reluctant even to make
the conjecture that the petitioners had ever intended
to, or actually did, take undue advantage of the
absence and confidence of the respondents. Indeed,
we feel justified in stating that the petitioners have
here given a remarkable demonstration of the
legendary honesty, good faith and industry with which
the natives of Taal pursue business arrangements
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA On appeal, the National Labor Relations Commission
similar to the partnership in question, and we would
BENDAL, CHIU SHIAN JENG and CHEN HO- ("NLRC") reversed the decision of the Labor Arbiter
hate in the absence of any sufficient reason to let such
Petitioner Benjamin Yu was formerly the Assistant and dismissed petitioner's complaint in a Resolution
a beautiful legend have a distateful ending.General Manager of the marble quarrying and export dated 29 November 1990. The NLRC held that a new
Too much, I fear, has here been assumed by the
business operated by a registered partnership with the partnership consisting of Mr. Willy Co and Mr.
majority. They assumed that the figures cited are
firm name of "Jade Mountain Products Company Emmanuel Zapanta had bought the Jade Mountain
correct when they are in question; they assumed that
Limited" ("Jade Mountain"). The partnership was business, that the new partnership had not retained
petitioners have not taken advantage of the confidence
originally organized on 28 June 1984 with Lea Bendal petitioner Yu in his original position as Assistant
of the respondents when this yet remains to be seen;
and Rhodora Bendal as general partners and Chin General Manager, and that there was no law requiring
they assumed that petitioners' accounting is correct
Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the new partnership to absorb the employees of the
when this is precisely the question between the
the Republic of China (Taiwan), as limited partners. old partnership. Benjamin Yu, therefore, had not been
parties; and, finally, they held that because petitioners
The partnership business consisted of exploiting a illegally dismissed by the new partnership which had
did not keep any regular books of account, they should
marble deposit found on land owned by the Sps. simply declined to retain him in his former managerial
not be compelled to an accounting because they may
Ricardo and Guillerma Cruz, situated in Bulacan position or any other position. Finally, the NLRC held
not be able to do so, which is in effect offering a
Province, under a Memorandum Agreement dated 26 that Benjamin Yu's claim for unpaid wages should be
premium for negligence. This mode of ratiocination is,
June 1984 with the Cruz spouses. 1 The partnership asserted against the original members of the
to my regret, without authority and without parallel.
had its main office in Makati, Metropolitan Manila. preceding partnership, but these though impleaded
True petitioners ran the business of the partnership
Benjamin Yu was hired by virtue of a Partnership had, apparently, not been served with summons in the
without intervention whatever on the part ofResolution dated 14 March 1985, as Assistant General proceedings before the Labor Arbiter.6
respondents who relied entirely on the good faith of
Manager with a monthly salary of P4,000.00. Petitioner Benjamin Yu is now before the Court on a
the former. This indicates that the relation between the
According to petitioner Yu, however, he actually Petition for Certiorari, asking us to set aside and annul
parties is manifestly fiduciary and it has been held that
received only half of his stipulated monthly salary, the Resolution of the NLRC as a product of grave
"when a a fiduciary relationship exists between the
since he had accepted the promise of the partners that abuse of discretion amounting to lack or excess of
parties stating an account in will be more readily
the balance would be paid when the firm shall have jurisdiction.
reopened than when the parties had been dealing with
secured additional operating funds from abroad. The basic contention of petitioner is that the NLRC has
each other at arm's length." (1 C.J.S. p. 729.)
Benjamin Yu actually managed the operations and overlooked the principle that a partnership has a
I wish I could share with the majority in the abundance
finances of the business; he had overall supervision of juridical personality separate and distinct from that of
of their admirations for what they called the "legendary
the workers at the marble quarry in Bulacan and took each of its members. Such independent legal
honesty, good faith and industry with which the natives
charge of the preparation of papers relating to the personality subsists, petitioner claims, notwithstanding
of Taal pursue business arrangements similar to the
exportation of the firm's products. changes in the identities of the partners.
partnership in question to let "such a beautiful legend
Sometime in 1988, without the knowledge of Benjamin Consequently, the employment contract between
have a distasteful ending." But I fell loath to pose a set
Yu, the general partners Lea Bendal and Rhodora Benjamin Yu and the partnership Jade Mountain could
of men as paragons of virtue and otherwise reflect,
Bendal sold and transferred their interests in the not have been affected by changes in the latter's
without cause or reason, upon the integrity of the rest
partnership to private respondent Willy Co and to one membership.7
of their kind. I fell even more loath to rest the judgment
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, Two (2) main issues are thus posed for our
of this Court upon a mere legend, no matter how
also sold and transferred his interest in the partnership consideration in the case at bar: (1) whether the
beautiful that legend may be, and would prefer to
to Willy Co. Between Mr. Emmanuel Zapanta and partnership which had hired petitioner Yu as Assistant
adjudicate every case upon what the evidence and the
himself, private respondent Willy Co acquired the great General Manager had been extinguished and replaced
law alone may direct. Facts, not fancy, are still the
bulk of the partnership interest. The partnership now by a new partnerships composed of Willy Co and
chosen tools with which the courts perform their
constituted solely by Willy Co and Emmanuel Zapanta Emmanuel Zapanta; and (2) if indeed a new
solemn function of dispensing justice of litigants.
continued to use the old firm name of Jade Mountain, partnership had come into existence, whether
After this dissent had been written, Brother Justice
though they moved the firm's main office from Makati petitioner Yu could nonetheless assert his rights under
Ozaeta gave out his concurring opinion predicated
to Mandaluyong, Metropolitan Manila. A Supplement his employment contract as against the new
fundamentally upon facts not appearing in the findings
to the Memorandum Agreement relating to the partnership.
of the Court of Appeals. We have held time and again
operation of the marble quarry was entered into with In respect of the first issue, we agree with the result
that in appeals by certiorari from the Court of Appeals
the Cruz spouses in February of 1988.2 The actual reached by the NLRC, that is, that the legal effect of
and in cases like the present one, only questions of
operations of the business enterprise continued as the changes in the membership of the partnership was
law may be considered, question of fact requiring
before. All the employees of the partnership continued the dissolution of the old partnership which had hired
examination of evidence being without our jurisdiction.
working in the business, all, save petitioner Benjamin petitioner in 1984 and the emergence of a new firm
(Rule 46, sec. 2; Guico vs. Mayuga, 63 Phil., 328;
Yu as it turned out. composed of Willy Co and Emmanuel Zapanta in
Mateo vs. Collector of Customs, 63 Phil., 470;
On 16 November 1987, having learned of the transfer 1987.
Mamuyac vs. Abena, 38 Off. Gaz., 34,
of the firm's main office from Makati to Mandaluyong, The applicable law in this connection of which the
Meneses vs.Com. of the Philippines, 40 Off, Gaz., 7th
petitioner Benjamin Yu reported to the Mandaluyong NLRC seemed quite unaware is found in the Civil
Sup. 41; Diaz vs. People, 40 Off. Gaz. 3d Sup. 22.) I
office for work and there met private respondent Willy Code provisions relating to partnerships. Article 1828
abstain, therefore, from dealing on matters that are
Co for the first time. Petitioner was informed by Willy of the Civil Code provides as follows:
forbidden to us by our own Rules. Doubtless, the
Co that the latter had bought the business from the Art. 1828. The dissolution of a partnership is the
concurring opinion is impelled by the commendable
original partners and that it was for him to decide change in the relation of the partners caused by any
desire to do "practical," not "theoretical," justice.
whether or not he was responsible for the obligations partner ceasing to be associated in the carrying on as
Regrettably, however, we cannot fulfill this end at the
of the old partnership, including petitioner's unpaid distinguished from the winding up of the business.
risk of transcending the limits of this Court's
salaries. Petitioner was in fact not allowed to work (Emphasis supplied)
jurisdictions. Beyond that jurisdiction all our
anymore in the Jade Mountain business enterprise. Article 1830 of the same Code must also be noted:
pronouncements have no judicial value for they may
His unpaid salaries remained unpaid.3 Art. 1830. Dissolution is caused:
be regarded as made out of court and do not On 21 December 1988. Benjamin Yu filed a complaint without violation of the agreement between the
constitute due process of law. And, what is worse is
for illegal dismissal and recovery of unpaid salaries partners;) by the express will of any partner, who must
that the concurring opinion takes the decision of the
accruing from November 1984 to October 1988, moral act in good faith, when no definite term or particular
Court of First Instance wholly or in part as a basis for
and exemplary damages and attorney's fees, against undertaking is specified;
reversing the decision of the Court of Appeals. This
Jade Mountain, Mr. Willy Co and the other private in contravention of the agreement between the
mode of procedure is unprecedented and amazing.
respondents. The partnership and Willy Co denied partners, where the circumstances do not permit a
The law considers the Court of Appeals as superior to
petitioner's charges, contending in the main that dissolution under any other provision of this article, by
a Court of First Instance specially on matters of fact,
Benjamin Yu was never hired as an employee by the the express will of any partner at any time;
and yet the reverse is implied in the concurring
present or new partnership.4 In the case at bar, just about all of the partners had
opinion. In due time, Labor Arbiter Nieves Vivar-De Castro sold their partnership interests (amounting to 82% of
rendered a decision holding that petitioner had been the total partnership interest) to Mr. Willy Co and
BENJAMIN YU, petitioner, illegally dismissed. The Labor Arbiter decreed his Emmanuel Zapanta. The record does not show what
vs.NATIONAL LABOR RELATIONS COMMISSION reinstatement and awarded him his claim for unpaid happened to the remaining 18% of the original
and JADE MOUNTAIN PRODUCTS COMPANY salaries, backwages and attorney's fees.5 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
thepartnersand 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.
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. 11It 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.
1843-1867 Ltd Partnership