G.R. No. 109248. July 3, 1995.
* *
GREGORIO F. ORTEGA, TOMAS O. DEL
CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON. COURT
OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN
L. MISA, respondents.
Commercial Law; Partnership; A
partnership that does not fix its term is a
partnership at will.—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.
Same; Same; The birth and life of a
partnership at will is predicated on the mutual
desire and consent of the partners.—The
birth and life of a partnership at will is
predicated on the mutual desire and consent
of the partners. The right to choose with
whom a person wishes to associate himself
is the very foundation and essence of that
partnership. Its continued existence is, in
turn, dependent on the constancy of that
mutual resolve, along with each partner’s
capability to give it, and the absence of a
cause for dissolution provided by the law
itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in
good faith, not that the attendance of bad
faith can prevent the dissolution of the
partnership but that it can result in a liability
for damages.
Same; Same; 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.—In
_______________
THIRD DIVISION.
530
530 SUPREME COURT REPORTS ANNOTAT
Ortega vs. Court of Appeals
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.
Among partners, mutual agency arises and
the doctrine of delectus personae allows
them to have the power, although not
necessarily the right, to dissolve the
partnership. An unjustified dissolution by the
partner can subject him to a possible action
for damages.
Same; Same; Upon its dissolution, the
partnership continues and its legal
personality is retained until the complete
winding up of its business culminating in its
termination.—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. Upon its dissolution, the
partnership continues and its legal
personality is retained until the complete
winding up of its business culminating in its
termination.
Same; Same; The liquidation of the
assets of the partnership following its
dissolution is governed by various provisions
of the Civil Code.—The liquidation of the
assets of the partnership following its
dissolution is governed by various provisions
of the Civil Code; 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.
Same; Same; It would not be right to let
any of the partners remain in the partnership
under such an atmosphere of animosity.—
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. 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.
PETITION for review on certiorari of a
decision of the Court of Appeals.
The facts are stated in the opinion of the
Court.
531
VOL. 245, JULY 3, 1995
Ortega vs. Court of Appeals
Bito, Lozada, Ortega & Castillo for
petitioners.
Misa Law Offices for private
respondent.
Adrian Sison collaborating counsel for
private respondent.
VITUG, J.:
The instant petition seeks a review of the
decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No.
24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission
(“SEC”) in SEC AC 254.
The antecedents of the controversy,
summarized by respondent Commission and
quoted at length by the appellate court in its
decision, are hereunder restated.
“The law firm of ROSS, LAWRENCE,
SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4
January 1937 and reconstituted with the
Securities and Exchange Commission on 4
Au-gust 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 x x x 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
531
Castillo, Jr., and Benjamin Bacorro, as junior
partners.
“On February 17, 1988, petitioner-
appellant wrote the respon-dents-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
532
532 SUPREME COURT REPORTS ANNOTATED
Ortega vs. Court of Appeals
building. I would like to have this resolved
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. “‘1.Decree the formal dissolution and
order the immediate liquidation of
(the partnership of) Bito, Misa &
Lozada;
2. ‘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. ‘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. ‘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. ‘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.’
533
VOL. 245, JULY 3, 1995 5
Ortega vs. Court of Appeals
“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 04 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).
_______________
1
Rollo, pp. 53-56.
2
Rollo, p. 122.
534
534 SUPREME COURT REPORTS ANNOTATED
Ortega vs. Court of Appeals
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 nosufficient 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. 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. 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. 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,
535
VOL. 245, JULY 3, 1995
Ortega vs. Court of Appeals
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
535
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
_______________
3
Rollo, pp. 119-120.
536
536 SUPREME COURT REPORTS ANNOTATED
Ortega vs. Court of Appeals
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 the right, to dissolve
the partnership. An unjustified dissolution by
the partner can subject him to a possible
action for damages.
The dissolution of a partnership is the
change in the relation of the parties caused
by any partner ceasing to be associated in
the carrying on, as might be distinguished
from the winding up of, the business.8 Upon
its dissolution, the partnership continues and
its legal personality is retained until the
complete winding up of its business
culminating in its termination.9
The liquidation of the assets of the
partnership following its dissolution is
governed by various provisions of the Civil
Code;10
_______________
4
Art. 1830(1) (b), Civil Code.
5
See Art. 19, Civil Code.
6
Art. 1830(2), Civil Code; see also Rojas
vs. Maglana, 192 SCRA 110.
7
As general, as distinguished from
limited partners.
8
Art. 1828, Civil Code.
9
Art. 1829, Civil Code.
10
For instance, Art. 1837 of the Civil
Code provides:
“ART. 1837. When dissolution is caused in
any way, except in contravention of the
partnership agreement, each partner, as
against his co-partners and all persons
claiming through them in respect of their
interests in the partnership, unless otherwise
agreed, may have the partnership property
applied to discharge its liabilities, and the
surplus applied to pay in cash the net amount
owning to the respective partners. But if
dissolution is caused by expulsion of a
partner, bona fide under the partnership
agreement and if the expelled partner is
discharged from all
537
VOL. 245, JULY 3, 1995 5
Ortega vs. Court of Appeals
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:
“x x x 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
design to do a wrongful act for a dishonest
purpose or moral obliquity.
WHEREFORE, the decision appealed
from is AFFIRMED. No pronouncement on
costs.
SO ORDERED.
Feliciano (Chairman), Romero, Mel
o and Francisco, JJ., concur.

The term “retirement” must have been used Judgment affirmed.

in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, ———o0o———
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 G.R. No. 10695 December 15, 1916
his withdrawal to have been spurred by
“interpersonal conflict” among the TEODORO DE LOS REYES, plaintiff-
partners. It would not be right, we agree, to appellee,
let any of the partners remain in the partner- vs.
_______________ VICENTE LUKBAN and ESPERIDION
BORJA, defendants. VICENTE
partnership liabilities, either by payment LUKBAN, appellant.
or agreement under the second paragraph of
Article 1835, he shall receive in cash only the Ramon Diokno for appellant.
net amount due him from the partnership.” Ramon Salinas for appellee.
11
Rollo, pp. 69-70.

538
538 SUPREME COURT REPORTS ANNOTATED
People vs. De Leon
ship under such an atmosphere of animosity; TORRES, J.:
certainly, not against their will.12 Indeed, for
On December 5, 1913, Teodoro de los
as long as the reason for withdrawal of a
Reyes brought suit in the Court of First
partner is not contrary to the dictates of
Instance of this city against Vicente Lukban
justice and fairness, nor for the purpose of
and Esperidion Borja, to recover from them
unduly visiting harm and damage upon the
individually the sum of P853, the balance of
partnership, bad faith cannot be said to
a debt of P1,086.65 owing for merchandise
characterize the act. Bad faith, in the context
bought on credit in October and November,
here used, is no different from its normal
1904, by the firm Lukban & Borja, from the
concept of a conscious and intentional
plaintiff's ship supply store, named La
Industria.
In case No. 3759, prosecuted in the said
court by the creditor Reyes against the said
firm of Lukban & Borja, the latter was ordered
by a final judgment of October 19, 1905, to
pay the said sum of P1,086.65, together with
the interest thereon, amounting to a total of
P1,102.95, in addition to the costs, P46.24.
One of the partner, Esperidion Borja, paid
P522.69 on account of the
debt.lawphi1.net There still remains to be
paid P610.21, and this sum, together with the
costs and legal interest thereon from July 14,
1905, to the date of the complaint, December
5, 1913, aggregates the total sum of
P894.17. The plaintiff prayed the court to
order the defendants jointly or severally to
pay him, the plaintiff, this last mentioned
amount, together with the legal interest
thereon from the date of the complaint, and
the costs.
After due summons the defendants
appeared, and one of them, Esperidion
Borja, in answer to the complaint entered a
general and specific denial of each and all of
the allegations therein contained, and, as a
special defense, alleged that it was res
judicata and that the plaintiff's action, if it
existed, had already prescribed.
The other defendant, Vicente Lukban, in his
amended answer set forth (1) that he denied
generally and specifically each and all of the
facts alleged in each and all of the
paragraphs of the complaint; (2) that the
issues raised by the complaint had already
been decided in case No. 10908, in which the
firm of Lukban & Borja was acquitted, without
costs; (3) that the defendant Lukban was
merely an industrial partner in the firm of
Lukban & Borja, Espiridion Borja being the
partner thereof who furnished the capital; (4)
that the assets of the firm of Lukban & Borja
had not been exhausted (by attachment),
wherefore the present action is premature;
and (5) that the plaintiff Reyes' action, as
regards this defendant Lukban, has
prescribed.
At the trial of the case the parties made the
following stipulation:
1. That on July 15, 1905, the herein
plaintiff Teodoro de los Reyes
brought suit against the firm of
Lukban & Borja to recover the sum of
P1,086.65 owing for merchandise
bought on credit in the months of
October and November, 1904, from
the ship supply store known by the
name of La Industria. The said suit
was heard before the Honorable
John C. Sweeney, on October 19,
1905, on which date the said judge
sentenced the defendant firm to pay
the sum of P1,086.65, Philippine
currency, with legal interest thereon
from July 14, 1905, to the date of the
judgment, amounting to P16.30,
Philippine currency, and costs
amounting to P46.24. It does not
appear that this obligation was set
forth in writing. All the preceding has
been taken from the record of that
court in case No. 3759, De los Reyes
vs, Lukban & Borja.
2. On August 19, 1913, the same
plaintiff Teodoro de los Reyes
brought suit against Lukban & Borja
to recover the sum of P853, alleging
for this purpose that the defendant
Espiridion Borja paid P522.69 on
account of the sum of P1,086.65
allowed in the judgment referred to in
the preceding paragraph, there
remaining unpaid P610.21 of the
principal debt, to which is added the
legal interest thereon from January 1,
1906, to the date of the
commencement of the said suit, thus
forming the total sum above stated of
P853. After hearing the case, the
Honorable Judge Del Rosario, on
November 20, 1913, rendered
judgment absolving the firm of
Lukban & Borja from the complaint
without special finding as to costs. All
the facts related in this paragraph
appear in case No. 10908 of this
court.
3. That several years ago and seven
months after its organization, or,
more specifically, on April 13, 1909,
the firm of Lukban & Borja was
lawfully dissolved, as stated by Borja;
and that the five years from the 13th
of the same month of the year 1904,
stipulated for its duration had
elapsed. (Judgment in case No.
10908.) The articles of incorporation
of the firm of Lukban & Borja are
found in the attached document,
which, for its identification, is marked
as Exhibit A of this agreement.
4. That the assets of the firm of
Lukban & Borja had not been
exhausted (by attachment) for the
reason that the plaintiff did not know
what property belonged to it.
5. Vicente Lukban and Espiridion
Borja, notwithstanding that they
alleged themselves to be copartners
of the firm of Lukban & Borja, were
not sued by the herein plaintiff in
cases Nos. 3759 and 10908, but that
plaintiff sued the firm of Lukban &
Borja, represented by Borja.
After hearing the evidence, the court
rendered judgment on November 25, 1914,
sentencing the defendants Vicente Lukban
and Espiridion Borja jointly and severally to
pay to the plaintiff Teodoro de los Reyes the
sum of P610.20, together with the legal
interest thereon from December 17, 1913,
and the costs. To this judgment Lukban
excepted, announced his intention to file the
proper bill of exceptions and moved for a new
trial on the grounds that the evidence did not
justify the decision and that the latter was
contrary to law. By an order of December 10,
the motion for a new trial was overruled and
an exception was entered by this defendant-
appellant. The other defendant, Espiridion
Borja, made no exception to the said ruling
so the judgment became final with respect to
him.
The subject matter of this suit is an
acknowledged debt held to be owing by a
judicial pronouncement contained in a
judgment rendered in case No. 3759,
prosecuted by the creditor Teodor de los
Reyes against the general partnership of
Lukban & Borja, which was sentenced to pay
the said debt. The creditor was unable to
collect it in its entirety but recovered only a
part thereof, to wit, P522.69, which was paid
by the partner Borja. In order to demonstrate
the propriety of the judgment appealed from,
rendered against the parties who were the
partners of the said firm, we shall confine
ourselves in this decision to the four errors
assigned to the said judgment by the
defendant Lukban, inasmuch as the other
defendant Borja acquiesced in the said
judgment and the same became final as to
him. These error are the following:
1. In not holding that the action
brought against this defendant is
improper, inasmuch as prior to its
 prosecution no attachment was
levied on the assets of the said
partnership.
2. In not holding that the action
brought against this appellee
[defendant] has not been proven.
3. In not holding that the present is
not a true case of res judicata.
4. In not holding that the appellee's
action has prescribed in so far as it
concerns this appellant.
With respect to the first assignment of error,
the contents of the writ and the return of the
execution of the final judgment rendered in
the said case No. 3759 show that the
dissolved partnership of Lukban & Borja had
absolutely no property whatever of its own.
Had any property whatever of the said
partnership still remained, the defendant
Lukban would have pointed it out inorder to
avoid being obliged to pay in solidum all the
balance of the sum which the firm was
sentenced to pay by the said final judgment
of October 19, 1905. He did not do so
because the firm of Lukban & Borja no longer
had any kind of property or credits, as shown
by the document setting forth the agreement
made by and between several creditors of
the said firm, a third party named Ramon
Tinsay and the former partner of the firm,
Espiridion Borja, in which document it
appears that the firm Lukban & Borja owed
four creditors, among them the plaintiff De
los Reyes, the total sum of P10,165.01 and
these creditors with some difficulty
succeeded in collecting the sum of P5,000
through a transaction with the said Ramon
Tinsay who paid this last amount for the
account of the partner Espiridion Borja. It
appears that the latter paid to the creditor De
los Reyes the aforementioned sum of
P522.69, on account of the firm's debt to
Teodoro de los Reyes, a debt which was
recognized in the said judgment of October
19, 1905. The attachment, or recourse to the
property, the lack of which proceeding was
complained of, is a proceeding that was
resorted to when attempt was made to
execute the final judgment rendered against
the partnership of Lukban & Borja, which
proceeding gave negative results; therefore,
if the requirement of article 237 of the Code
of Commerce must be complied with by the
creditor it is evident that it has already been
done for the defendant Lukban was unable
to show that the partnership to which he
belonged actually possessed any more
assets.
With respect to the second assignment of
error, if Teodoro de los Reyes is entitled to
collect individually from the partners Lukban
and Borja the amount of the debt that the
dissolved partnership owed at the time of its
dissolution, it is unquestionable that such a
right has given rise to the corresponding right
of action to demand the payment of the debt
from the partners individually, or from each
of them, by the insolvency of the partnership,
inasmuch as they are personally and
severally liable with all their property for the
results of the operations of the partnership
which they conducted.
Article 127 of the Code of Commerce
provides:
All the member of the general
copartnership, be they or be they not
managing partners of the same, are
personally and severally 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 make use
thereof.
With regard to the third assignment of error.
Although the action brought in case No.
10908 by the creditor Teodoro de los Reyes
against the partnership Lukban & Borja be
not different from that brought in the present
case No. 11296, and although it be deemed
to have arisen out of the right of the plaintiff-
creditor to collect his credit, yet the first time
it was brought against the partnership. The
action against Vicente Lukban and Espiridion
Borja individually ca not be demurred to on
the ground of res judicata by the judgment of
acquittal entered in case No. 10908.
Article 1252 of the Civil Code provides:
In order that the presumption of the
res judicata may be valid in another
suit, it is necessary that, between the
case decided by the sentence and
that in which the name is invoked,
there must be the most perfect
identity between the things causes,
and persons of the litigants, and their
capacity as such.
There may be perfect identity between the
cause of action and the things demanded in
case no. 10908, wherein the said partnership
was absolved from the complaint, and in the
present case No. 11296; it is, however,
undeniable that the parties defendant are not
the same nor is their capacity as such. In the
first case it was the partnership that was
sued, while in the present case it is Lukban
and Borja individually, as former members of
that dissolved partnership, who are sued
jointly and severally. Therefore, pursuant to
the above-cited article of the Civil Code, the
provisions of which harmonize with those of
section 307 of the Code of Civil Procedure,
the former judgment can not be set up as res
judicata in the present action.
As regards the last assignment of error,
alleging prescription of action, suffice it to say
that from October 19, 1905, to December 5,
1913, even without counting the interruption
caused by the action brought on August 18th
of this latter year, the ten year period fixed by
section 43 of the Code of Civil Procedure has
not elapsed. In view of the negative results of
the proceedings had by the sheriff in levying
execution of the final judgment rendered
against the partnership of Lukban & Borja,
the creditor in the exercise of his rights has
brought the proper action against those who
were the members of that firm for the
recovery of the unpaid balance of his credit,
and he filed his complaint within the period
fixed by the law of procedure and the
defendants cannot allege that it is now res
judicata.
For the foregoing reasons the judgment
appealed from is affirmed with the costs of
this instance against the appellant. So
ordered.
Johnson, Carson, Trent and Araullo, JJ.,
concur.
Separate Opinions
MORELAND, J., dissenting:
This action was begun against Vicente
Lukban and Espiridion Borja personally to
recover the sum of P853, the balance due on
a judgment obtained against the partnership
known as "Lukban & Borja." The facts
preceding the beginning of this action are
stated in a stipulation between the parties as
follows:
1st. That on the 15th of July, 1905,
the plaintiff, Teodoro de los Reyes,
sued the firm of Lukban and Borja, a
copartnership, for the recovery of
P1,086.65, the purchase price of
article sold to the said partnership
during the months of October and
November, 1904. The action was
tried before the Hon. John C.
Sweeney who, on October 19, 1905,
found in favor of the plaintiff for
P1,086.65, Philippine currency, with
interest from the 14th of July, 1905,
to the date of the judgment,
amounting to P16.30, and costs,
amounting to P46.24. . . .
2d. That on the 19th of August, 1913,
the said plaintiff, Tedoro de los
Reyes, began an action against the
said partnership, Lukban and Borja,
to recover the sum of P853, alleging
that the defendant Espiridion Borja
paid on the above-mentioned
judgment the sum of P522.69,
leaving a balance due thereon of
P610.21, with interest from the 1st of
January, 1906, to the date of filing the
complaint, principal and interest
amounting to P853, already
mentioned. On the trial of the case
the Hon. Judge Del Rosario in the
month of November, 1913, entered a
judgment dismissing the complaint
on the merits against the said
partnership of Lukban and Borja
without costs.
3d. That the partnership of Lukban
and Borja was dissolved by operation
of law about five years ago, that is to
say, about the 13th of April, 1909, on
which date the five years stipulated in
the contract of partnerships the
duration of the same expired, said
partnership having been formed on
the 13th of April, 1904. . . .
4th That the plaintiff made no attempt
to collect the said judgment of
P1,086.65, or any part thereof, from
the partnership property for the
reason that he did not know of the
existence of any such property.
5th. That Vicente Lukban and
Espiridion Borja, although they were
members of the firm of Lukban and
Borja, were not made parties to the
actions in which the judgments above
referred to were obtained, but in each
of said actions the partnership of
Lukban and Borja was the sole
defendant.
The trial court found in favor of the plaintiff
and entered judgment against the
defendants Vicente Lukban and Espiridion
Borja jointly and severally for the sum of
P610.20, with interest from the 17th day of
December, 1913. From that judgment this
appeal was taken.
We have these facts before us:
The partnership of Lukban and Borja was
formed on the 13th of April, 1904, to run for
a period of five years. On the 19th of
October, 1905, the plaintiff obtained a
judgment against the said partnership for the
sum of P1,086.65. Later the partnership paid
on said judgment the sum of P522.69, a
balance of P610.21. On the 19th of August,
1913, and after the lapse of more than five
years from the date of the judgment and
without execution having been issued
thereon, the plaintiff began the action for the
recovery of the balance due on said
judgment. The complaint in that action was
dismissed on the ground that, on the date on
which the action was brought, the
partnership had ceased to exist, the five
years term having expired, and that no action
could be brought against it. Later the present
action was commenced against the
members of the partnership personally for
the recovery of the balance due on said
judgment. It is admitted that no attempt has
been made by the plaintiff to collect the
original judgment out of the partnership
property.
The first question which arises is: Can an
action be maintained against the partnership,
or against any or all of the members thereof,
on the old judgment for the purpose of
obtaining another judgment of precisely
similar character? We think not. The only
action on a judgment authorized either by the
Civil Code or by the Code of Civil Procedure
is one for the enforcement of the judgment
(section 447, Code of Civil Procedure). 1 A
judgment is not recognized by the Civil Code,
or by the Code of Civil Procedure or any
other law called to our attention, as a contract
either express or implied, or as a quasi
contract, or as a debt, or any other kind of
obligation which can be made the basis of an
action to obtain another judgment of
precisely the same nature. In some cases it
is regarded more in the nature of an order for
the specific performance of the contract on
which the action is founded; and in every
case it is considered the highest form which
men's relations can take under the law and
no action based thereon can make it any
better or higher; and an action for that
purpose is useless. It would seem to be but
natural that the law not permit the courts to
be moved and parties perturbed and cause
loss of time and money for the sole purpose
of obtaining a thing not one with better than
that which the courts have already given him
and cannot be of the slightest legal value to
him. When courts have given a party the very
highest thing of which they are capable their
powers cannot be again exercised in that
particular regard. They exhausted. Why
should a party who has one judgment which
is completely enforceable be permitted to
have another on top of it no more
enforceable?
An action on a judgment as a debt,
obligation, or contract being unknown to the
Civil Code or the Spanish law generally, it is
a necessary result that , if any right of action
on a judgment exists in this jurisdiction, it
must have been conferred by a statute
passed since the American occupation. The
only legislation on that subject is found, as
we have stated, in section 447 of the Code of
Civil Procedure, which permits an action to
be brought, not on the judgment as a debt or
for the purpose of securing a new judgment
of precisely similar character to the old one,
but to enforce the old judgment after the
explanation of the time during which an
execution may be issued. In other words, the
action authorized by section 447 is not
to obtain a new judgment but to enforce the
old; and the judgment secured in such an
action is not for a sum of money, but it is
simply an order directing the execution of the
old judgment. It simply takes the place of the
execution which, five years having elapsed,
is not issuable. In a word, it is another means
of obtaining an execution. 2
We are of the opinion, therefore, that the
second action against the partnership to
procure a new judgment for the amount
remaining due on the old judgment was not
maintainable and was property dismissed by
the court; and, while the dismissal was based
on an untenable ground, it was,
nevertheless, correct. No appeal was taken
from that judgment, and it is now, of course,
final and was when this action was
commenced.
The second question which arises is: Can an
action to recover a judgment on a judgment
be maintained against the members of a
partnership personally if it cannot be
maintained against the partnership itself? As
we have already said, the present action is
directed against the members of the
partnership personally and is to recover a
joint and several judgment against them
upon the old judgment against the
partnership.
It is clear that our reasoning in connection
with the first question is correct, then this
action cannot be maintained. If there is no
authority of law for bringing an action on a
judgment to secure a new judgment, then
this action cannot be maintained any more
than the action against the partnership under
similar circumstances. There is no law giving
a right of action on a judgment in favor of or
against anybody, except that conferred by
section 447 above quoted; and that, as we
have seen, is simply a right to enforce the old
judgment.
The third question which presents itself is:
Even admitting the right of the plaintiff to
maintain an action on the old judgment, is the
remedy of the plaintiff a new judgment
against the members of the partnership
personally or it is the execution of
the old judgment against them? Under the
law and procedure existing in this jurisdiction
prior to American occupation, a new
judgment against the members of the firm
personally under circumstances such as
appear in this case was not permitted. The
first step required of a plaintiff who had a
judgment against a partnership of the
character described in this action was to
execute the judgment as far as possible
against the property of the partnership; and,
after was exhausted, to proceed, by
execution, against the property of the
individual members under the same
judgment. It was not necessary, nor was it
permitted, to bring a new action against the
members of the firm personally on the old
judgment and obtain a new judgment against
them. That procedure has not been changed
by any legislation since American occupation
and that is the practice to-day.
As a necessary result the plaintiff is not
entitled to a judgment in this action.
We do not stop to discuss the question
presented by the appellant as to whether the
exhaustion of the property of the partnership
is a necessary prerequisite to the bringing of
this action. That question is not involved,
inasmuch as it cannot be reached until has
been determined whether such as an action
can be maintained. If the action cannot be
maintained under any theory, then it is
unnecessary to determine the validity of the
defenses to that action, one of which is,
appellant claims, that the plaintiff has not
exhausted his remedy against the
partnership property.
Nor do we find it necessary to consider at this
time whether or not the judgment in the
second action against the plaintiff and in
favor of the partnership is res adjudicata in
the present action. For the same reason we
find it unnecessary to decide whether the
action has prescribed under the provisions of
the Code of Civil Procedure.
The judgment appealed from should be
reversed and the cause dismissed on the
merits, without costs in this instance.
G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO
GALAN TROPICAL COMMERCIAL
COMPANY and RAMON
PONS, respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue
Diamond Glass Palace.
GUTTIERREZ, JR., J.:
In this petition for certiorari, the petitioner
seeks to annul and set added the decision of
the Court of Appeals affirming the existence
of a partnership between petitioner and one
of the respondents, Celestino Galan and
holding both of them liable to the two
intervenors which extended credit to their
partnership. The petitioner wants to be
excluded from the liabilities of the
partnership.
Petitioner Elmo Muñasque 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 Muñasque 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 Galan to pay jointly and
construction at his own expense completing severally the intervenors
it prior to the March 16, 1967 deadline;that Cebu and Southern Hardware
because of the unauthorized disbursement Company and Blue Diamond
by respondents Tropical and Pons of the sum Glass Palace the amount of
of P13,000.00 to Galan petitioner demanded P6,229.34 and P2,213.51,
that said amount be paid to him by respectively;
respondents under the terms of the written
contract between the petitioner and (2) absolving the defendants
respondent company. Tropical Commercial
Company and Ramon Pons
The respondents answered the complaint by from any liability,
denying some and admitting some of the
material averments and setting up No damages awarded
counterclaims. whatsoever.

During the pre-trial conference, the The petitioner and intervenor Cebu Southern
petitioners and respondents agreed that the Company and its proprietor, Tan Siu filed
issues to be resolved are: motions for reconsideration.

(1) Whether or not there
existed a partners between
Celestino Galan and Elmo
Muñasque; 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
Muñasque and defendant
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
Muñasque and defendant
Galan to pay jointly and
severally the intervenors
Cebu Southern Hardware
Company and Blue Diamond
Glass Palace the amount of
P6,229.34 and P2,213.51,
respectively,
(2) ordering plaintiff and
defendant Galan to pay
Intervenor Cebu Southern
Hardware Company and Tan
Siu jointly and severally
interest at 12% per annum of
 the sum of P6,229.34 until the
amount is fully paid;
(3) ordering plaintiff and
defendant Galan to pay
P500.00 representing
attorney's fees jointly and
severally to Intervenor Cebu
Southern Hardware
Company:
(4) absolving the defendants
Tropical Commercial
Company and Ramon Pons
from any liability,
No damages awarded
whatsoever.
On appeal, the Court of Appeals affirmed the
judgment of the trial court with the sole
modification that the liability imposed in the
dispositive part of the decision on the credit
of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from
"jointly and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this
petition.
The present controversy began when
petitioner Muñasque in behalf of the
partnership of "Galan and Muñasque" 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 Muñasque 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 Muñasque."
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
Muñasque 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 Muñasque 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 Muñasque 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
Muñasque and Galan,justice also dictates
that Muñasque 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 Muñasque as a partner.
WHEREFORE, the decision appealed from
is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner
and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary.
Petitioner may recover from respondent
Galan any amount that he pays, in his
capacity as a partner, to the above
intervenors,
SO ORDERED.
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her
husband JOSE C. YULO, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for
appellants.
Augusto Francisco and Julian T. Ocampo for
appellee.
LABRADOR, J.:
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 (Exh. "B").
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.
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by
it Managing PARTNER, GREGORIA
ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court
of First Instance of Rizal, Quezon City Branch,
to recover possesion of registered land
situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times
with respect to the extent and description of the
land sought to be recovered. The original
complaint described the land as a portion of a
lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record
of Rizal Province and as containing an area of
13 hectares more or less. But the complaint
was amended by reducing the area of 6
hectares, more or less, after the defendant had
indicated the plaintiff's surveyors the portion of
land claimed and occupied by him. The second
amendment became necessary and was
allowed following the testimony of plaintiff's
surveyors that a portion of the area was
embraced in another certificate of title, which
was plaintiff's Transfer Certificate of Title No.
37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino
Feria, had testified that the area occupied and
claimed by defendant was about 13 hectares,
as shown in his Exhibit 1, plaintiff again, with
the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription
and title in himself thru "open, continuous,
exclusive and public and notorious possession
(of land in dispute) under claim of ownership,
adverse to the entire world by defendant and
his predecessor in interest" from "time in-
memorial". The answer further alleges that
registration of the land in dispute was obtained
by plaintiff or its predecessors in interest thru
"fraud or error and without knowledge (of) or
interest either personal or thru publication to
defendant and/or predecessors in interest."
The answer therefore prays that the complaint
be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment
for plaintiff, declaring defendant to be without
any right to the land in question and ordering
him to restore possession thereof to plaintiff
and to pay the latter a monthly rent of P132.62
from January, 1940, until he vacates the land,
and also to pay the costs.
Appealing directly to this court because of the
value of the property involved, defendant
makes the following assignment or errors:
I. The trial court erred in not dismissing
the case on the ground that the case
was not brought by the real property in
interest.
II. The trial court erred in admitting the
third amended complaint.
III. The trial court erred in denying
defendant's motion to strike.
 IV. The trial court erred in including in
its decision land not involved in the
litigation.
V. The trial court erred in holding that
the land in dispute is covered by
transfer certificates of Title Nos. 37686
and 37677.
Vl. The trial court erred in not finding
that the defendant is the true and lawful
owner of the land.
VII. The trial court erred in finding that
the defendant is liable to pay the
plaintiff the amount of P132.62 monthly
from January, 1940, until he vacates
the premises.
VIII. The trial court erred in not ordering
the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing
to the contention that the present action is not
brought by the real party in interest, that is, by
J. M. Tuason and Co., Inc. What the Rules of
Court require is that an action be brought in the
name of, but not necessarily by, the real party
in interest. (Section 2, Rule 2.) In fact the
practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name
of the plaintiff. That practice appears to have
been followed in this case, since the complaint
is signed by the law firm of Araneta and
Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff,
through its undersigned counsel." It is true that
the complaint also states that the plaintiff is
"represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation,
but there is nothing against one corporation
being represented by another person, natural
or juridical, in a suit in court. The contention
that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that
it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is
that "though a corporation has no power to
enter into a partnership, it may nevertheless
enter into a joint venture with another where the
nature of that venture is in line with the
business authorized by its charter." (Wyoming-
Indiana Oil Gas Co. vs. Weston, 80 A. L. R.,
1043, citing 2 Fletcher Cyc. of Corp., 1082.)
There is nothing in the record to indicate that
the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate
business of either of them.
Errors II, III, and IV, referring to the admission
of the third amended complaint, may be
answered by mere reference to section 4 of
Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to
evidence. — When issues not raised
by the pleadings are tried by express or
implied consent of the parties, they
shall be treated in all respects, as if
they had been raised in the pleadings.
Such amendment of the pleadings as
may be necessary to cause them to
conform to the evidence and to raise
these issues may be made upon
motion of any party at my time, even of
the trial of these issues. If evidence is
objected to at the trial on the ground
that it is not within the issues made by
the pleadings, the court may allow the
pleadings to be amended and shall be
so freely when the presentation of the
merits of the action will be subserved
thereby and the objecting party fails to
satisfy the court that the admission of
such evidence would prejudice him in
maintaining his action or defense upon
the merits. The court may grant a
continuance to enable the objecting
party to meet such evidence.
Under this provision amendment is not even
necessary for the purpose of rendering
judgment on issues proved though not alleged.
Thus, commenting on the provision, Chief
Justice Moran says in this Rules of Court:
Under this section, American courts
have, under the New Federal Rules of
Civil Procedure, ruled that where the
facts shown entitled plaintiff to relief
other than that asked for, no
amendment to the complaint is
necessary, especially where defendant
has himself raised the point on which
recovery is based, and that the
appellate court treat the pleadings as
amended to conform to the evidence,
although the pleadings were not
actually amended. (I Moran, Rules of
Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of
error II, III, and IV are without merit..
Let us now pass on the errors V and VI.
Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that
described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name
Quirino Bolaños," defendant later changed his
lawyer and also his theory and tried to prove
that the land in dispute was not covered by
plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly
establishes that plaintiff is the registered owner
of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by
transfer certificate of title No. 37686 of the land
records of Rizal province, and of lot No. 4-B-4,
situated in the same barrio, having an area of
74,789 square meters, more or less, covered
by transfer certificate of title No. 37677 of the
land records of the same province, both lots
having been originally registered on July 8,
1914 under original certificate of title No. 735.
The identity of the lots was established by the
testimony of Antonio Manahan and Magno
Faustino, witnesses for plaintiff, and the
identity of the portion thereof claimed by
defendant was established by the testimony of
his own witness, Quirico Feria. The combined
testimony of these three witnesses clearly
shows that the portion claimed by defendant is
made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area
covered by the two transfer certificates of title
already mentioned. This fact also appears
admitted in defendant's answer to the third
amended complaint.
As the land in dispute is covered by plaintiff's
Torrens certificate of title and was registered in
1914, the decree of registration can no longer
be impugned on the ground of fraud, error or
lack of notice to defendant, as more than one
year has already elapsed from the issuance
and entry of the decree. Neither court the
decree be collaterally attacked by any person
claiming title to, or interest in, the land prior to
the registration proceedings. (Soroñgon vs.
Makalintal,1 45 Off. Gaz., 3819.) Nor could title
to that land in derogation of that of plaintiff, the
registered owner, be acquired by prescription
or adverse possession. (Section 46, Act No.
496.) Adverse, notorious and continuous
possession under claim of ownership for the
period fixed by law is ineffective against a
Torrens title. (Valiente vs. Judge of CFI of
Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And
it is likewise settled that the right to secure
possession under a decree of registration does
not prescribed. (Francisco vs. Cruz, 43 Off.
Gaz., 5105, 5109-5110.) A recent decision of
this Court on this point is that rendered in the
case of Jose Alcantara et al., vs. Mariano et al.,
92 Phil., 796. This disposes of the alleged
errors V and VI.
As to error VII, it is claimed that `there was no
evidence to sustain the finding that defendant
should be sentenced to pay plaintiff P132.62
monthly from January, 1940, until he vacates for and on behalf of others. The motion for
the premises.' But it appears from the record dismissal is clearly without merit.
that that reasonable compensation for the use
and occupation of the premises, as stipulated Wherefore, the judgment appealed from is
at the hearing was P10 a month for each affirmed, with costs against the plaintiff.
hectare and that the area occupied by
defendant was 13.2619 hectares. The total rent
to be paid for the area occupied should
therefore be P132.62 a month. It is appears G.R. Nos. L-32347-53 December 26, 1973
from the testimony of J. A. Araneta and witness
Emigdio Tanjuatco that as early as 1939 an AGUSTIN ABONG, petitioner,
action of ejectment had already been filed vs.
against defendant. And it cannot be supposed THE WORKMEN'S COMPENSATION
that defendant has been paying rents, for he COMMISSION, NELLY BALLARES,
has been asserting all along that the premises ANACORITA DAHIL-DAHIL, MANUEL
in question 'have always been since time LAHAO-LAHAO, CONCHITA MONTEROYO,
immemorial in open, continuous, exclusive and SHIRLEY LOZADA and ROSARIO
public and notorious possession and under ALOVA, respondents.
claim of ownership adverse to the entire world
by defendant and his predecessors in interest.' Pelaez, Jalandoni and Jamir for petitioner.
This assignment of error is thus clearly without
merit. Pagano C. Villavieja for respondent Workmen
Compensation Commission.
Error No. VIII is but a consequence of the other
errors alleged and needs for further Labaton and Labaton for private respondents.
consideration.

During the pendency of this case in this Court

appellant, thru other counsel, has filed a motion ESGUERRA, J.:
to dismiss alleging that there is pending before
the Court of First Instance of Rizal another I. STATEMENT OF THE CASE
action between the same parties and for the
same cause and seeking to sustain that Appeal by certiorari from the decision of the
allegation with a copy of the complaint filed in Workmen's Compensation Commission,
said action. But an examination of that awarding compensation to private
complaint reveals that appellant's allegation is respondents.
not correct, for the pretended identity of parties
and cause of action in the two suits does not II. FACTS OF THE CASE
appear. That other case is one for recovery of
ownership, while the present one is for The undisputed facts as borne out by the
recovery of possession. And while appellant record are follows:
claims that he is also involved in that order
action because it is a class suit, the complaint Aladino Dionson, Filomeno Umbria, Noel
does not show that such is really the case. On Lahao-lahao, Juanita Monteroyo and Wilfredo
the contrary, it appears that the action seeks Monteroyo and Demetrio Escoreal, all decent
relief for each individual plaintiff and not relief were members of a fishing outfit, the "IWAG" or
more popularly called the "ALEX", owned by
petitioner herein, Dr. Agustino R. Abong.
On May 15, 1966, this fishing outfit set out to
sea somewhat off the coast of Northern
Negros. The decedents were among the 70
crew members who were loaded on two big
bancas, 8 small fishing boats locally known as
"lawagan" and one towing motorboat. While
they were, thus, fishing, typhoon "IRMA"
passed along their way, scattering the boats
and blowing them far out into the open sea. The
tragedy netted eight (8) dead while some sixty
(60) men survived the disaster.1
As a consequence of the incident seven (7)
notices and claims for death compensation
were filed with the Bacolod Sub-Regional
Office (or Regional Office No. VII) of the
Department of Labor by herein private
respondents on June 1, 1966. A copy of the
notices and claims were sent to petitioner Dr.
Agustino R. Abong by registered mail at his
place of business, but the envelopes
containing said notices and claims were
returned unclaimed, although petitioner was
personally notified thrice. Thereafter, counsel
for private respondents on July 6, 1966, and
July 14, 1966, respectively, filed an ex-
parte motion with the Bacolod Sub-Regional
Office of the Workmen's Compensation
Commission to declare petitioner in default,
which motion was granted. Thereupon,
claimants were allowed to present their
evidence. Finding the claims of the private
respondents to be allied in nature, the cases
were consolidated.2
After due hearing before Acting Referee,
Bertito D. Dadivas, he rendered on August 1,
1966, a decision granting the claims, the
pertinent portions of which are quoted as
follows:
In the light of the testimonies of
herein claimants and their
principal witness, Filomeno
Pason, who is a survivor of that
unfortunate tragedy and who
personally witnessed the
deaths of all eight (8) deceased
workers of respondent, there is
no doubt at all that their deaths
arose out of and in the course
of their employment as
"washing" or helpers and light
tenders of respondent Dr.
Agustino R. Abong. Under
Sections 2 and 8 of the
Workmen's Compensation Act,
as amended, the deaths of
above deceased persons are,
therefore, compensable.
In granting this award — it
should be considered that two
of the eight deceased workers
— Noel Lahao-lahao and
Wilfredo Monteroyo — were
minors at the time of
employment. Respondent
herein has also failed to submit
a report of this accident "as
soon as possible after the
occurence of an injury resulting
in absence from work for a day
or more"; nor registered himself
or his business enterprise in
accordance with Sections 37
and 56 of the Workmen's
Compensation Act, otherwise
known as Republic Act No.
3428.
Section 4-A of the Workmen's
Compensation Act provides for
payment of an additional
compensation equal to fifty per
centum of the compensation to
be awarded, in case of failure
of the employer to comply with
any order, rule or regulation of
the Workmen's Compensation
Act in the event of the death of
the employee or employees
concerned.
Wherefore, under the law, the
claimants are entitled to
compensation and respondent
is hereby ordered:
1. To pay to claimant,
ANACORITA DAHIL-DAHIL
the sum of SIX THOUSAND
PESOS (P6,000.00), plus 50%
penalty in the sum of THREE
THOUSAND PESOS
(P3,000.00), plus the further
sum of TWO HUNDRED
PESOS as burial expenses,
through this Office;
2. To pay to claimant, NELLY
BALLARES, the sum of SIX
THOUSAND PESOS
(P6,000.00) plus 50% penalty
in the sum of THREE
THOUSAND PESOS
(P3,000.00) or the total sum of
NINE THOUSAND PESOS
(P9,000.00) plus the further
sum of TWO HUNDRED
PESOS (P200.00), as burial
expenses through this Office;
3. To pay to claimant, MANUEL
LAHAO-LAHAO, the sum of
TWO THOUSAND SIX
HUNDRED PESOS
(P2,600.00) plus 50% penalty
in the sum of ONE THOUSAND
THREE HUNDRED PESOS
(P1,300.00), or the total sum of
THREE THOUSAND NINE
HUNDRED PESOS
(P3,900.00), plus burial
expenses in the sum of TWO
HUNDRED PESOS (P200.00),
through this Office;
4. To pay to claimant,
SHIRLEY LOZADA, the sum of
FIVE THOUSAND ONE
HUNDRED TWENTY PESOS
(P5,120.00) plus 50% penalty
in the sum of TWO
THOUSAND FIVE HUNDRED
SIXTY PESOS (P2,560.00) or
the total sum of SEVEN
THOUSAND SIX HUNDRED
EIGHTY PESOS (P7,680.00),
plus burial expenses of TWO
HUNDRED PESOS (P200.00)
through this Office;
5. To pay to claimant,
ROSARIO ALOVA, the sum of
SIX THOUSAND PESOS
(P6,000.00) plus 50% penalty
in the sum of THREE
THOUSAND PESOS
(P3,000.00) or the total sum of
NINE THOUSAND PESOS
(P9,000.00), plus the further
sum of TWO HUNDRED
PESOS (P200.00) for burial
expenses, through this Office;
6. To pay to claimant,
CONCHITA MONTEROYO,
the sum of SIX THOUSAND
PESOS (P6,000.00) plus 50%
penalty in the sum of THREE
THOUSAND PESOS
(P3,000.00) representing
compensation for the death of
her husband, Juanito; and
TWO THOUSAND SIX
HUNDRED PESOS
(P2,600.00) plus 50% penalty
in the sum of ONE THOUSAND
THREE HUNDRED PESOS
(P1,300.00) or the total sum of
 THREE THOUSAND NINE
HUNDRED PESOS
(P3,900.00) representing
compensation for the death of
her son, Wilfredo; plus the
further sum of FOUR
HUNDRED PESOS (P400.00)
for burial expenses of Juanito
and Wilfredo Monteroyo; or a
grand total for these two cases
of THIRTEEN THOUSAND
THREE HUNDRED PESOS
(P13,300.00), through this
Office;
7. To pay to counsel for
claimants, Atty. Angel F.
Lobaton, Sr. the sum of TWO
THOUSAND SIX HUNDRED
FORTY-FOUR PESOS
(P2,644.00) as attorney's fees;
and
opposition thereto was interposed by private
respondents on November 10, 1966.7
On March 23, 1970, Associate (Medical)
Commissioner Herminia Castelo-Sotto, M.D.,
of the Workmen Compensation Commission
rendered a decision affirming the earlier
decision of the referee.8
On April 17, 1970, petitioner sought the review
of the decision of Associate (Medical)
Commission Castelo-Sotto by the respondent
Workmen's Compensation Commission
sitting en banc, but the latter however affirmed
the decision with the modification that the 50%
additional compensation earlier imposed as
penalty was eliminated, in its resolution of July
7, 1970.9
Dissatisfied with the verdict, petitioner came to
this Court for reversal of the adverse decision
against him.

8. To pay to the Workmen's III. ISSUES OF THE CASE

Compensation Fund, through
this Office, the sum of FIVE In his brief before this Court the petitioner
HUNDRED TWENTY PESOS imputes five errors committed by respondent
(P520.00), pursuant to Section Workmen's Compensation Commission, viz:
55 of the Workmen's
Compensation Act, as 1. THE RESPONDENT
amended."3 COMMISSION ERRED
AND/OR ACTED WITH
On September 14, 1966, herein petitioner filed GRAVE ABUSE OF
a (1) motion to set aside the order declaring DISCRETION IN HOLDING
him in default and a (2) separate motion to set THAT THERE WAS AN
aside the Decision of the Acting Referee, to EMPLOYER-EMPLOYEE
which seasonable oppositions were interposed RELATIONSHIP BETWEEN
by private respondents on September 26, THE PETITIONER AND THE
1966.4 DECEASED CREW
MEMBERS OF THE "IWAG"
On October 25, 1966, Acting Referee Bertito D. FISHING OUTFIT.
Dadivas issued an Order denying both motions
of petitioner.5 A motion for reconsideration was 2. THE RESPONDENT
then filed by petitioner on November 4, 1966, COMMISSION ERRED
raising, inter alia, the fundamental question of AND/OR ACTED WITH
jurisdiction and denial of due process.6 An GRAVE ABUSE OF
 DISCRETION IN NOT As regards the first three interrelated assigned
DECLARING ITSELF errors, there is a faint attempt by petitioner
WITHOUT JURISDICTION Agustino R. Abong to evade liability by
OVER THE CLAIMS FOR advancing the theory that he had absolutely no
DEATH BENEFITS. voice or intervention in the choice, hiring,
dismissing, control, supervision and
3. THE RESPONDENT compensation of the fishermen-crew members,
COMMISSION ERRED and that these matters, which are the essence
AND/OR ACTED WITH of employer-employee relationship, are the
GRAVE ABUSE OF sole responsibility of the team leader, Simplicio
DISCRETION IN FINDING Panganiban, and the team-members or crew
THAT THE DEATH OF THE pursuant to their Agreement (Exhibit "G"). 10
DECEASED CREW MEMBER
IS COMPENSABLE UNDER The contention of petitioner is devoid of merit.
THE WORKMEN'S It should be pointed out that this case is an
COMPENSATION ACT, AS appeal from the decision of the Workmen's
AMENDED, IN FINDING Compensation Commission. And in this class
PETITIONER LIABLE FOR of proceedings, only questions of law should be
THE PAYMENT OF SUCH raised, the findings of facts made by the
COMPENSATION. Commission being conclusive and binding
upon this Court. 11 Although this Court is
4. THE RESPONDENT authorized to inquire into the facts, it only does
COMMISSION ERRED so when the conclusions therefrom are not
AND/OR ACTED WITH supported by the evidence. In the case at bar,
GRAVE ABUSE OF however, this Court finds the findings of fact
DISCRETION IN DENYING made by Associate (Medical) Commissioner
PETITIONER HIS RIGHT TO Herminia Castelo-Sotto, M.D., and concurred
BE HEARD. in by the Commission en banc to be fully
supported by the evidence on record which
5. THE RESPONDENT clearly points out that petitioner Agustino R.
COMMISSION ERRED Abong is the statutory employer of the
AND/OR ACTED WITH decedents. In ruling for the deceased workers,
GRAVE ABUSE OF the Commission said:
DISCRETION, AMOUNTING
TO LACK OF JURISDICTION, ... After a careful review of the
IN GRANTING EXCESSIVE evidence and the records, We
AWARDS TO THE are inclined to agree with the
CLAIMANTS. proposition, advanced by the
claimant's counsel that there
The pivotal issue requiring determination is existed an employer-employee
who is the statutory employer of the decedents relationship between the
and who should be liable for their death respondent and the decedents.
compensation. Nevertheless, We take up the Not only that the said deceased
merits of the points raised ad seriatim. workers worked for and in the
interest of the business of the
IV. DISCUSSION herein respondent. But that
they were subject to the
control, supervision, and
dismissal of the respondent,
thru its agent, Simplicio
Panganiban, the alleged
"partner" of herein respondent.
And while these workers were
paid in kind, or by "pakiao
basis" still that fact did not alter
the character of their
relationship with the
respondent as employees of
the latter. The intervention of
Simplicio Panganiban, in this
case, is merely that of an agent
or intermediary between the
owner of the fishing boat and
the members of its crew. In
short, Panganiban is merely
the person charged by Dr.
Abong to recruit the said
fishermen to work for and for
the enforcement of the
business venture of herein
respondent.
The proposition, on the other
hand, of the respondent's
counsel, that Dr. Abong was
not the employer of the
decedents, simply because of
an alleged partnership
agreement, executed on March
23, 1962, between the
respondent, Dr. Agustino R.
Abong, as "Financier" and
Simplicio Panganiban, as his
"Team leader", is intended
certainly as a very clever
device designed primarily to
exempt the employer from
answering any liability under
the provisions of the
Workmen's Compensation Act,
as amended.
The said contract of
partnership while it may be
considered as valid and lawful,
between the signatories
thereto, the respondent Dr.
Abong and his "partner" or
agent, Simplicio Panganiban,
nowhere in that said
agreement did the decedents
or their heirs in interests take
any participation or manifested
their conformity to the said
covenant. Thus, even if we
consider this contract as valid
and enforceable between
them, it cannot bind the non-
signatories thereto, like the
deceased fishermen.
The case invoked by the
respondent (Pajarillo, et al., vs.
Social Security System, G.R.
No. L-21930, August 31, 1966)
can not be legally applied in the
instant case, for the simple
reason that the facts in that
aforesaid case are not the
same as those in the case at
bar. Moreover, we are of the
view, that the said Pajarillo
case may be good only as far
as the Social Security System,
for purposes of membership
thereat, is concerned and is not
readily applicable to cases
involving Workmen's
Compensation claims as the
one at bar. For here, the
contract of partnership, if valid,
only binds the parties thereto,
and the decedents in this case,
as the records will show, were
never a party signatory thereto.
How then can we tie them to
that partnership agreement
when it only holds the two-
 party, Abong and Panganiban,
as the sole partners in that
agreement?
Furthermore, even if
Panganiban will be considered
as an independent contractor,
which he is not, his position as
such will not relieve the
employer, respondent Abong,
from his liability under the Act.
It is well-defined in the Act, that
an employer includes every
person or association of
persons, incorporated or not,
public or private, and the legal
representatives of the
deceased employer. It includes
the owner or manager of the
business carried on in the
establishment or place of work
but who, for the reason that
there is an independent
contractor in the same, or for
any other reason, is not the
direct employer of laborers
employed there. (Section 39,
paragraph[s], Workmen's
Compensation Act, as
amended).
xxx xxx xxx 12
As pointed out by the Commission's findings,
the fundamental bases showing that petitioner,
Dr. Agustino R. Abong, is the employer, are
present, namely, the selection and
engagement of the employee; the payment of
wages; the power of dismissal and the
employer's power to control the employees'
conduct. 13 These powers were lodged in
petitioner Abong, thru his agent, Simplicio
Panganiban, whom he alleges to be his
"partner". On this score alone, the petitioner for
review must fail. It is well-settled that employer-
employee relationship involves findings of fact
which are conclusive and binding and not
subject to review by this Court. 14
Petitioner also argues that he was denied his
right to heard. 15 It is contended that petitioner
was not properly notified of the proceedings
against him.
The assigned error merits scant consideration.
Proper notices and claims for compensation
together with a formal letter to accomplish
WCC Form No. 3 — Employer's Report
Accident or Sickness — were duly served upon
petitioner at his place of business in Sagay,
Negros Occidental. 16 His failure to claim his
mail and to answer the claims or controvert the
same and to accomplish WCC Form No. 3, are
fatal errors which cannot be repaired at this
time. It needs no argument to show that service
by registered mail is deemed completed upon
petitioner's failure to claim his mail from the
post office within five (5) days from the first
notice sent by the postmaster. 17 The further
contention that the "notices" should have been
sent his place of residence in Bacolod City is of
no moment either. Section 26 of Republic Act
No. 3428, as amended, provides:
SEC. 26. Delivery of notice and
claim ... . The notices shall be
served by personal delivery or
by sending it by registered
letter addressed to the
employer at his last known
residence or at his place of
business. (Emphasis supplied)
Clearly, there was no error in sending
petitioner's mails to his place of business at
Sagay, Negros Occidental.
And now We come to the last point. It is
contended that respondent Commission erred
in granting excessive awards the claimants.
We find this contention incorrect. The
Commission's findings relative to the wages of
the decedents are findings facts which are not
open to review by this Court as the same are
supported by substantial evidence on
record. 18We, therefore, find no cogent reason
to disturb the Commission's findings on this
point.
V. CONCLUSION
Under the circumstances, private respondents'
claim should be upheld not only because they
are supported by the evidence on record, but
also because the Workmen's Compensation
Act is a social legislation designed to give relief
to the workman who has been the victim of an
accident in the pursuit of his employment, and
the law must be liberally construed to attain the
purpose for which it was enacted. 19 Moreover,
this Tribunal finds no reason in this case to
depart from the rule which limits its appellate
jurisdiction to the review of errors of law only,
accepting as conclusive the factual findings of
the Workmen's Compensation Commission
which in this case are supported by substantial
evidence.
VI. JUDGMENT
ACCORDINGLY, the assailed decision is
hereby fully affirmed.
Costs against the petitioner.
G.R. No. 31057 September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-
appellees,
vs.
VICENTE POLISTICO, ET AL., defendants-
appellants.
Marcelino Lontok and Manuel dela Rosa for
appellants.
Sumulong & Lavides for appellees.
VILLAMOR, J.:
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:
Income:
Member's shares............................ 97
Credits paid................................ 6,1
Interest received........................... 4,5
 Miscellaneous...............................
Expenses:
Premiums to members.......................
Loans on real-estate.......................
Loans on promissory notes..............
Salaries....................................
Miscellaneous...............................
Cash on hand........................................
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
1,891.00
praiseworthy efforts of the attorney of the
defendants, we are P109,620.70
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 68,146.25
in the commissioner's report, the
conclusion reached by the court below,
9,827.00
accepting and adopting the findings of fact
contained in said report, and especially those
4,258.55
referring to the disposition of the association's
money, 1,095.00
should not be disturbed.
1,686.10 Tan Siu Pic vs. Echauz Tan
In Tan Dianseng
Siuco (5 Phil., 516), it was held that the findings
85,012.90
of facts made by a referee appointed under the
provisions of section 135 of the Code of Civil
24,607.80
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 and paid therefor the amounts as
proper. So ordered. follows:

G.R. No. L-45425 April 29, 1939

1. Jose Gatchalian
P0
..............................................................
JOSE GATCHALIAN, ET AL., plaintiffs- .18
......................................
appellants,
vs. 2. Gregoria Cristobal
THE COLLECTOR OF INTERNAL .............................................................. .18
REVENUE, defendant-appellee. .................................

Guillermo B. Reyes for appellants. 3. Saturnina Silva

Office of the Solicitor-General Tuason for .............................................................. .08
appellee. ......................................

4. Guillermo Tapia
IMPERIAL, J.: .............................................................. .13
.....................................
The plaintiff brought this action to recover from
the defendant Collector of Internal Revenue 5. Jesus Legaspi
the sum of P1,863.44, with legal interest .............................................................. .15
thereon, which they paid under protest by way ........................................
of income tax. They appealed from the decision
6. Jose Silva
rendered in the case on October 23, 1936 by
.............................................................. .07
the Court of First Instance of the City of Manila,
...............................................
which dismissed the action with the costs
against them. 7. Tomasa Mercado
.............................................................. .08
The case was submitted for decision upon the ..................................
following stipulation of facts:
8. Julio Gatchalian
Come now the parties to the above- .............................................................. .13
mentioned case, through their .....................................
respective undersigned attorneys, and
9. Emiliana Santiago
hereby agree to respectfully submit to
.............................................................. .13
this Honorable Court the case upon the
..................................
following statement of facts:
10. Maria C. Legaspi
1. That plaintiff are all residents of the .............................................................. .16
municipality of Pulilan, Bulacan, and .................................
that defendant is the Collector of
Internal Revenue of the Philippines; 11. Francisco Cabral
.............................................................. .13
2. That prior to December 15, 1934 .................................
plaintiffs, in order to enable them to
purchase one sweepstakes ticket
valued at two pesos (P2), subscribed
12. Gonzalo Javier
.............................................................. .14
......................................
13. Maria Santiago
.............................................................. .17
.....................................
14. Buenaventura Guzman
.............................................................. .13
........................
15. Mariano Santos
.............................................................. .14
...................................
Total
.............................................................. 2.0
.......................................... 0 said Jose Gatchalian & Company until
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
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;
8. 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 Amou Addre
evidenced by income tax receipt No. Purchaser
nt ss
35811 which is attached and marked
Exhibit N and made a part hereof; and Pulilan
that on September 3, 1936, the 1. Mariano Santos ,
P0.14
plaintiffs formally protested to the ........................................... Bulaca
defendant against the payment of said n.
amount and requested the refund
thereof, copy of which is attached and 2. Buenaventura Guzman
.13 - Do -
marked Exhibit O and made part ...............................
hereof; but that on September 4, 1936, 3. Maria Santiago
the defendant overruled the protest ........................................... .17 - Do -
and denied the refund thereof; copy of .
which is attached and marked Exhibit P
and made a part hereof; and 4. Gonzalo Javier
........................................... .14 - Do -
16. That plaintiffs demanded upon ...
defendant the refund of the total sum of
5. Francisco Cabral
one thousand eight hundred and sixty .13 - Do -
..........................................
three pesos and forty-four centavos
(P1,863.44) paid under protest by them 6. Maria C. Legaspi
but that defendant refused and still .16 - Do -
..........................................
refuses to refund the said amount
notwithstanding the plaintiffs' 7. Emiliana Santiago
.13 - Do -
demands. .........................................

8. Julio Gatchalian
17. The parties hereto reserve the right
........................................... .13 - Do -
to present other and additional
.
evidence if necessary.
9. Jose Silva
Exhibit E referred to in the stipulation is of the ........................................... .07 - Do -
following tenor: ...........

To whom it may concern: 10. Tomasa Mercado

.08 - Do -
.......................................
I, Jose Gatchalian, a resident of
11. Jesus Legaspi
Pulilan, Bulacan, married, of age,
........................................... .15 - Do -
hereby certify, that on the 11th day of
..
August, 1934, I sold parts of my shares
on ticket No. 178637 to the persons 12. Guillermo Tapia
and for the amount indicated below and .13 - Do -
...........................................
the part of may share remaining is also
shown to wit: 13. Saturnina Silva
........................................... .08 - Do -
.
 14. Gregoria Cristobal 3. Saturnina
.18 - Do - 1,
....................................... Silva D- 1,8
.08 360 51
....................... 3 75
15. Jose Gatchalian 5
......................
........................................... .18 - Do -
. 4. Guillermo
2,
Tapia D- 3,3
Total .13 360 96
....................... 4 25
cost of 5
2.00 ...................
said
5. Jesus
Legaspi by 3,
ticket; and that, therefore, the persons D- 3,8
Maria .15 720 10
named above are entitled to the parts 5 25
Cristobal 5
of whatever prize that might be won by
.........
said ticket.
6. Jose Silva
Pulilan, Bulacan, P.I. 1,
....................... D- 1,8
.08 360 51
....................... 6 75
(Sgd.) JOSE GATCHALIAN 5
......

And a summary of Exhibits D-1 to D-15 is 7. Tomasa

1,
inserted in the bill of exceptions as follows: Mercado D- 1,8
.07 360 51
....................... 7 75
5
RECAPITULATIONS OF 15 ................
INDIVIDUAL INCOME TAX RETURNS
8. Julio
FOR 1934 ALL DATED JANUARY 19, 2,
Gatchalian by D- 3,1
1935 SUBMITTED TO THE .13 240 91
Beatriz 8 50
COLLECTOR OF INTERNAL 0
Guzman .......
REVENUE.
9. Emiliana
2,
Ex Purc Santiago D- 3,3
Pri N .13 360 96
hib has ....................... 9 25
ce Expe et 5
Name it e ...............
W nses pri
No Pric
on ze 10. Maria C.
. e 3,
Legaspi D- 4,1
.16 960 14
1. Jose ....................... 10 00
P4 3, 0
Gatchalian D- P0.1 P ...............
,42 94
....................... 1 8 480
5 5 11. Francisco
................... 2,
Cabral D- 3,3
.13 360 96
2. Gregoria ....................... 11 25
2, 5
Cristobal D- 4,5 ...............
.18 2,000 57
....................... 2 75
5 2,
............... 12. Gonzalo D- 3,3
.14 360 96
Javier 12 25
5
....................... ana;"
................... >
13. Maria
3,
Santiago D- 4,3 The legal questions raised in plaintiffs-
.17 360 99
....................... 13 50 appellants' five assigned errors may properly
0
................... be reduced to the two following: (1) Whether
the plaintiffs formed a partnership, or merely a
14. community of property without a personality of
Buenaventura 2,
D- 3,3 its own; in the first case it is admitted that the
Guzman .13 360 96 partnership thus formed is liable for the
14 25
....................... 5 payment of income tax, whereas if there was
.... merely a community of property, they are
15. Mariano exempt from such payment; and (2) whether
2, they should pay the tax collectively or whether
Santos D- 3,3
.14 360 96 the latter should be prorated among them and
....................... 15 25
5 paid individually.
.................

<="" The Collector of Internal Revenue collected the

td="" tax under section 10 of Act No. 2833, as last
style amended by section 2 of Act No. 3761, reading
as follows:
="fo
nt- SEC. 10. (a) There shall be levied,
size: assessed, collected, and paid annually
14px upon the total net income received in
; the preceding calendar year from all
text- sources by every corporation, joint-
deco stock company, partnership, joint
account (cuenta en participacion),
ratio
association or insurance company,
50, n:
organized in the Philippine Islands, no
2.00 00 none matter how created or organized, but
0 ; not including duly registered general
color copartnership (compañias colectivas),
: a tax of three per centum upon such
rgb(0 income; and a like tax shall be levied,
assessed, collected, and paid annually
, 0,
upon the total net income received in
128); the preceding calendar year from all
font- sources within the Philippine Islands by
famil every corporation, joint-stock
y: company, partnership, joint account
arial, (cuenta en participacion), association,
verd 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.
G.R. No. L-18703 August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS
RUEDA & CO., S. en C., appellee,
vs.
PACIFIC COMMERCIAL CO., ASIATIC
PETROLEUM CO., and INTERNATIONAL
BANKING CORPORATION,petitioners-
appellants.
Jose Yulo, Ross and Lawrence and J. A.
Wolfson for appellants.
Antonio Sanz for appellee.
ROMUALDEZ, J.:
The record of this proceeding having been
transmitted to this court by virtue of an appeal
taken herein, a motion was presented by the
appellants praying this court that this case be
considered purely a moot question now, for the
reason that subsequent to the decision
appealed from, the partnership Campos Rueda
& Co., voluntarily filed an application for a
judicial decree adjudging itself insolvent, which
is just what the herein petitioners and
appellants tried to obtain from the lower court
in this proceeding.
The motion now before us must be, and is
hereby, denied even under the facts stated by
the appellants in their motion aforesaid. The
question raised in this case is not purely moot
one; the fact that a man was insolvent on a
certain day does not justify an inference that he
was some time prior thereto.
Proof that a man was insolvent on a
certain day does not justify an
inference that he was on a day some
time prior thereto. Many contingencies,
such as unwise investments, losing
contracts, misfortune, or accident,
might happen to reduce a person from
a state of solvency within a short space
of time. (Kimball vs. Dresser, 98 Me.,
519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the
date it is issued. It is one thing to adjudge
Campos Rueda & Co. insolvent in December,
1921, as prayed for in this case, and another to
declare it insolvent in July, 1922, as stated in
the motion.
Turning to the merits of this appeal, we find that
this limited partnership was, and is, indebted to
the appellants in various sums amounting to
not less than P1,000, payable in the
Philippines, which were not paid more than
thirty days prior to the date of the filing by the
petitioners of the application for involuntary
insolvency now before us. These facts were
sufficient established by the evidence.
The trial court denied the petition on the ground
that it was not proven, nor alleged, that the
members of the aforesaid firm were insolvent
at the time the application was filed; and that
was said partners are personally and solidarily
liable for the consequence of the transactions
of the partnership, it cannot be adjudged
insolvent so long as the partners are not
alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court,
on the ground that this finding of the lower court
is erroneous.
The fundamental question that presents itself
for decision is whether or not a limited
partnership, such as the appellee, which has
failed to pay its obligation with three creditors
for more than thirty days, may be held to have
committed an act of insolvency, and thereby be
adjudged insolvent against its will.
Unlike the common law, the Philippine statutes
consider a limited partnership as a juridical
entity for all intents and purposes, which
personality is recognized in all its acts and
contracts (art. 116, Code of Commerce). This
being so and the juridical personality of a
limited partnership being different from that of
its members, it must, on general principle,
answer for, and suffer, the consequence of its
acts as such an entity capable of being the
subject of rights and obligations. If, as in the
instant case, the limited partnership of Campos
Rueda & Co. Failed to pay its obligations with
three creditors for a period of more than thirty
days, which failure constitutes, under our
Insolvency Law, one of the acts of bankruptcy
upon which an adjudication of involuntary
insolvency can be predicated, this partnership
must suffer the consequences of such a failure,
and must be adjudged insolvent. We are not
unmindful of the fact that some courts of the
United States have held that a partnership may
not be adjudged insolvent in an involuntary
insolvency proceeding unless all of its
members are insolvent, while others have
maintained a contrary view. But it must be
borne in mind that under the American
common law, partnerships have no juridical
personality independent from that of its
members; and if now they have such
personality for the purpose of the insolvency
law, it is only by virtue of general law enacted
by the Congress of the United States on July 1,
1898, section 5, paragraph (h), of which reads
thus:
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.
.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF
TAX APPEALS, respondents.
Office of the Solicitor General Antonio P.
Barredo, Assistant Solicitor General Felicisimo
R. Rosete and Special Attorneys B. Gatdula,
Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for
respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William
J. Suter as the general partner, and Julia Spirig
and Gustav Carlson, as the limited partners.
The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited
partnership was registered with the Securities
and Exchange Commission. The firm engaged,
among other activities, in the importation,
marketing, distribution and operation of
automatic phonographs, radios, television sets
and amusement machines, their parts and
accessories. It had an office and held itself out
as a limited partnership, handling and carrying
merchandise, using invoices, bills and
letterheads bearing its trade-name,
maintaining its own books of accounts and
bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and
limited partner Spirig got married and,
thereafter, on 18 December 1948, limited
partner Carlson sold his share in the
partnership to Suter and his wife. The sale was
duly recorded with the Securities and
Exchange Commission on 20 December 1948.
The limited partnership had been filing its
income tax returns as a corporation, without
objection by the herein petitioner,
Commissioner of Internal Revenue, until in
1959 when the latter, in an assessment,
consolidated the income of the firm and the
individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of
a deficiency income tax against respondent
Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter protested the assessment,
and requested its cancellation and withdrawal,
as not in accordance with law, but his request
was denied. Unable to secure a
reconsideration, he appealed to the Court of
Tax Appeals, which court, after trial, rendered
a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed
by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises
these issues:
(a) Whether or not the corporate personality of
the William J. Suter "Morcoin" Co., Ltd. should
be disregarded for income tax purposes,
considering that respondent William J. Suter
and his wife, Julia Spirig Suter actually formed
a single taxable unit; and
(b) Whether or not the partnership was
dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig
Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for
a nominal amount of P1.00.
The theory of the petitioner, Commissioner of
Internal Revenue, is that the marriage of Suter
and Spirig and their subsequent acquisition of
the interests of remaining partner Carlson in
the partnership dissolved the limited
partnership, and if they did not, the fiction of
juridical personality of the partnership should
be disregarded for income tax purposes
because the spouses have exclusive
ownership and control of the business;
consequently the income tax return of
respondent Suter for the years in question
should have included his and his wife's
individual incomes and that of the limited
partnership, in accordance with Section 45 (d)
of the National Internal Revenue Code, which
provides as follows:
(d) Husband and wife. — In the case of
married persons, whether citizens,
residents or non-residents, only one
consolidated return for the taxable year
shall be filed by either spouse to cover
the income of both spouses; ....
In refutation of the foregoing, respondent Suter
maintains, as the Court of Tax Appeals held,
that his marriage with limited partner Spirig and
their acquisition of Carlson's interests in the
partnership in 1948 is not a ground for
dissolution of the partnership, either in the
Code of Commerce or in the New Civil Code,
and that since its juridical personality had not
been affected and since, as a limited
partnership, as contra distinguished from a
duly registered general partnership, it is
taxable on its income similarly with
corporations, Suter was not bound to include in
his individual return the income of the limited
partnership.
We find the Commissioner's appeal
unmeritorious.
The thesis that the limited partnership, William
J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the
marriage of the only general partner, William J.
Suter to the originally limited partner, Julia
Spirig one year after the partnership was
organized is rested by the appellant upon the
opinion of now Senator Tolentino in
Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
A husband and a wife may not enter
into a contract
of general copartnership, because
under the Civil Code, which applies in
the absence of express provision in the
Code of Commerce, persons
prohibited from making donations to
each other are prohibited from entering
into universal partnerships. (2
Echaverri 196) It follows that the
marriage of partners necessarily brings
about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to
observe the fact that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but
a particular one. As appears from Articles 1674
and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject
firm was organized in 1947),
a universal partnership requires either that the
object of the association be all the present
property of the partners, as contributed by
them to the common fund, or else "all that the
partners may acquire by their industry or
work during the existence of the partnership".
William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the
contributions of the partners were fixed sums
of money, P20,000.00 by William Suter and
P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to
enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish
Supreme Court, D. Jose Casan, in his Derecho
Civil, 7th Edition, 1952, Volume 4, page 546,
footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden
celebrar entre si el contrato de
sociedad universal, pero o podran
constituir sociedad particular? Aunque
el punto ha sido muy debatido, nos
 inclinamos a la tesis permisiva de los
contratos de sociedad particular entre
esposos, ya que ningun precepto de
nuestro Codigo los prohibe, y hay que
estar a la norma general segun la que
toda persona es capaz para contratar
mientras no sea declarado incapaz por
la ley. La jurisprudencia de la Direccion
de los Registros fue favorable a esta
misma tesis en su resolution de 3 de
febrero de 1936, mas parece cambiar
de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the
partners operate to dissolve it, such marriage
not being one of the causes provided for that
purpose either by the Spanish Civil Code or the
Code of Commerce.
The appellant's view, that by the marriage of
both partners the company became a single
proprietorship, is equally erroneous. The
capital contributions of partners William J.
Suter and Julia Spirig were separately owned
and contributed by them before their marriage;
and after they were joined in wedlock, such
contributions remained their respective
separate property under the Spanish Civil
Code (Article 1396):
The following shall be
the exclusive property of each spouse:
(a) That which is brought to the
marriage as his or her own; ....
Thus, the individual interest of each consort in
William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their
marriage in 1948.
It being a basic tenet of the Spanish and
Philippine law that the partnership has a
juridical personality of its own, distinct and
separate from that of its partners (unlike
American and English law that does not
recognize such separate juridical personality),
the bypassing of the existence of the limited
partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory
mandates and basic principles of our law. The
limited partnership's separate individuality
makes it impossible to equate its income with
that of the component members. True, section
24 of the Internal Revenue Code merges
registered general co-partnerships (compañias
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 (compañia 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 compañias
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.; Arañas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi 1.nêt
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.
G.R. No. L-27010 April 30, 1969
MARLENE DAUDEN-HERNAEZ, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge
of the Court of First Instance of Quezon
City, HOLLYWOOD FAR EAST
PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for respondent.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside
certain orders of the Court of First Instance of
Quezon City (Branch IV), in its Civil Case No.
Q-10288, dismissing a complaint for breach of
contract and damages, denying
reconsideration, refusing to admit an amended
complaint, and declaring the dismissal final and
unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion
picture actress, had filed a complaint against
herein private respondents, Hollywood Far
East Productions, Inc., and its President and
General Manager, Ramon Valenzuela, to
recover P14,700.00 representing a balance
allegedly due said petitioner for her services as
leading actress in two motion pictures
produced by the company, and to recover
damages. Upon motion of defendants, the
respondent court (Judge Walfrido de los
Angeles presiding) ordered the complaint
dismissed, mainly because the "claim of
plaintiff was not evidenced by any written
document, either public or private", and the
complaint "was defective on its face" for
violating Articles 1356 and 1358 of the Civil,
Code of the Philippines, as well as for
containing defective allege, petitions. Plaintiff
sought reconsideration of the dismissal and for
admission of an amended complaint, attached
to the motion. The court denied reconsideration
and the leave to amend; whereupon, a second
motion for reconsideration was filed.
Nevertheless, the court also denied it for
being pro forma, as its allegations "are, more
or less, the same as the first motion", and for
not being accompanied by an affidavit of
merits, and further declared the dismissal final
and unappealable. In view of the attitude of the
Court of First Instance, plaintiff resorted to this
Court.
The answer sets up the defense that "the
proposed amended complaint did not vary in
any material respect from the original
complaint except in minor details, and suffers
from the same vital defect of the original
complaint", which is the violation of Article 1356
of the Civil Code, in that the contract sued upon
was not alleged to be in writing; that by Article
1358 the writing was absolute and
indispensable, because the amount involved
exceeds five hundred pesos; and that the
second motion for reconsideration did not
interrupt the period for appeal, because it was
not served on three days' notice.
We shall take up first the procedural question.
It is a well established rule in our jurisprudence
that when a court sustains a demurrer or
motion to dismiss it is error for the court to
dismiss the complaint without giving the party
plaintiff an opportunity to amend his complaint
if he so chooses. 1 Insofar as the first order of
dismissal (Annex D, Petition) did not provide
that the same was without prejudice to
amendment of the complaint, or reserve to the
plaintiff the right to amend his complaint, the
said order was erroneous; and this error was
compounded when the motion to accept the
amended complaint was denied in the
subsequent order of 3 October 1966 (Annex F,
Petition). Hence, the petitioner-plaintiff was
within her rights in filing her so-called second
motion for reconsideration, which was actually
a first motion against the refusal to admit the
amended complaint.
It is contended that the second motion for
reconsideration was merely pro forma and did
not suspend the period to appeal from the first
order of dismissal (Annex D) because (1) it
merely reiterated the first motion for
reconsideration and (2) it was filed without
giving the counsel for defendant-appellee the 3
days' notice provided by the rules. This
argument is not tenable, for the reason that the
second motion for reconsideration was
addressed to the court' refusal to allow an
amendment to the original complaint, and this
was a ground not invoked in the first motion for
reconsideration. Thus, the second motion to
reconsider was really not pro forma, as it was
based on a different ground, even if in its first
part it set forth in greater detail the arguments
against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice,
the record shows that appellees had filed their
opposition (in detail) to the second motion to
reconsider (Answer, Annex 4); so that even if it
were true that respondents were not given the
full 3 days' notice they were not deprived of any
substantial right. Therefore, the claim that the
first order of dismissal had become final and
unappealable must be overruled.
It is well to observe in this regard that since a
motion to dismiss is not a responsive pleading,
the plaintiff-petitioner was entitled as of right to
amend the original dismissed complaint.
In Paeste vs. Jaurigue 94 Phil. 179, 181, this
Court ruled as follows:
Appellants contend that the lower court
erred in not admitting their amended
complaint and in holding that their
action had already prescribed.
Appellants are right on both counts.
Amendments to pleadings are favored
and should be liberally allowed in the
furtherance of justice. (Torres vs.
Tomacruz, 49 Phil. 913). Moreover,
under section 1 of Rule 17, Rules of
Court, a party may amend his pleading
once as a matter of course, that is,
without leave of court, at any time
before a responsive pleading is served.
A motion to dismiss is not a
"responsive pleading". (Moran on the
Rules of Court, vol. 1, 1952, ed., p.
376). As plaintiffs amended their
complaint before it was answered, the
motion to admit the amendment should
not have been denied. It is true that the
amendment was presented after the
original complaint had been ordered
dismissed. But that order was not yet
final for it was still under
reconsideration.
The foregoing observations leave this Court
free to discuss the main issue in this petition.
Did the court below abuse its discretion in
ruling that a contract for personal services
involving more than P500.00 was either invalid
of unenforceable under the last paragraph of
Article 1358 of the Civil Code of the
Philippines?
We hold that there was abuse, since the ruling
herein contested betrays a basic and
lamentable misunderstanding of the role of the
written form in contracts, as ordained in the
present Civil Code.
In the matter of formalities, the contractual
system of our Civil Code still follows that of the
Spanish Civil Code of 1889 and of the
"Ordenamiento de Alcala" 2 of upholding the
spirit and intent of the parties over formalities:
hence, in general, contracts are valid and
binding from their perfection regardless of form
whether they be oral or written. This is plain
from Articles 1315 and 1356 of the present Civil
Code. Thus, the first cited provision prescribes:
ART. 1315. Contracts are perfected by
mere consent, and from that moment
the parties are bound not only to the
fulfillment of what has been expressly
stipulated but also to all the
consequences which, according to
their nature, may be in keeping with
good faith, usage and law. (Emphasis
supplied)
Concordantly, the first part of Article 1356 of
the Code Provides:
ART. 1356. Contracts shall be
obligatory in whatever form they may
have been entered into, provided all
the essential requisites for their validity
are present.... (Emphasis supplied)
These essential requisites last mentioned are
normally (1) consent (2) proper subject matter,
and (3) consideration or causa for the
obligation assumed (Article 1318). 3 So that
once the three elements exist, the contract is
generally valid and obligatory, regardless of the
form, oral or written, in which they are
couched. lawphi1.nêt
To this general rule, the Code admits
exceptions, set forth in the second portion of
Article 1356:
However, when the law requires that a
contract be in some form in order that it
may be valid or enforceable, or that a
contract be proved in a certain way,
that requirement is absolute and
indispensable....
It is thus seen that to the general rule that the
form (oral or written) is irrelevant to the binding
effect inter partes of a contract that possesses
the three validating elements of consent,
subject matter, and causa, Article 1356 of the
Code establishes only two exceptions, to wit:
(a) Contracts for which the law itself requires
that they be in some particular form (writing) in
order to make them valid and enforceable (the
so-called solemn contracts). Of these the
typical example is the donation of immovable
property that the law (Article 749) requires to
be embodied in a public instrument in order
"that the donation may be valid", i.e., existing
or binding. Other instances are the donation of
movables worth more than P5,000.00 which
must be in writing, "otherwise the donation
shall be void" (Article 748); contracts to pay
interest on loans (mutuum) that must be
"expressly stipulated in writing" (Article 1956);
and the agreements contemplated by Article
1744, 1773, 1874 and 2134 of the present Civil
Code.
(b) Contracts that the law requires to be
proved by some writing (memorandum) of its
terms, as in those covered by the old Statute of
Frauds, now Article 1403(2) of the Civil Code.
Their existence not being provable by mere
oral testimony (unless wholly or partly
executed), these contracts are exceptional in
requiring a writing embodying the terms thereof
for their enforceability by action in court.
The contract sued upon by petitioner herein
(compensation for services) does not come
under either exception. It is true that it appears
included in Article 1358, last clause, providing
that "all other contracts where the amount
involved exceeds five hundred pesos must
appear in writing, even a private one." But
Article 1358 nowhere provides that the
absence of written form in this case will make
the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that
contracts covered by Article 1358 are binding
and enforceable by action or suit despite the
absence of writing.
ART. 1357. If the law requires a
document or other special form, as
in the acts and contracts enumerated
in the following article, the contracting
parties may compel each other to
observe that form, once the contract
has been perfected. This right may be
exercised simultaneously with the
action the contract. (Emphasis
supplied) .
It thus becomes inevitable to conclude that
both the court a quo as well as the private
respondents herein were grossly mistaken in
holding that because petitioner Dauden's
contract for services was not in writing the
same could not be sued upon, or that her
complaint should be dismissed for failure to
state a cause of action because it did not plead
any written agreement.
The basic error in the court's decision lies in
overlooking that in our contractual system it is
not enough that the law should require that the
contract be in writing, as it does in Article 1358.
The law must further prescribe that without the
writing the contract is not valid or not
enforceable by action.

WHEREFORE, the order dismissing the

complaint is set aside, and the case is ordered
remanded to the court of origin for further
proceedings not at variance with this decision.

Costs to be solidarity paid by private

respondents Hollywood Far East Productions,
Inc., and Ramon Valenzuela.