Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DE CASTIO, JR.,
!"# $ENJAMIN T. $ACORRO, petitioners,
vs.
%ON. COURT OF APPEAS, SECURITIES AND
E&C%ANGE COMMISSION !"# JOA'UIN .
MISA,respondents.
(ITUG, J.:
The instant petition sees a revie! of the decision rendered
b" the #ourt of $ppeals, dated %& 'ebruar" ())*, in #$+,.R.
SP No. %-&*. and No. %-&-. a/r0in1 in toto that of the
Securities and 23chan1e #o00ission 45S2#56 in S2# $# %7-.
The antecedents of the controvers", su00ari8ed b"
respondent #o00ission and 9uoted at len1th b" the
appellate court in its decision, are hereunder restated.
The la! :r0 of ROSS, ;$<R2N#2, S2;PH and
#$RR$S#OSO !as dul" re1istered in the Mercantile
Re1istr" on - =anuar" ()*> and reconstituted !ith
the Securities and 23chan1e #o00ission on -
$u1ust ()-.. The S2# records sho! that there !ere
several subse9uent a0end0ents to the articles of
partnership on (. Septe0ber ()7., to chan1e the
:r0 ?na0e@ to ROSS, S2;PH and #$RR$S#OSOA on &
=ul" ()&7 . . . to ROSS, S2;PH, S$;#2DO, D2;
ROS$RIO, BITO C MIS$A on (. $pril ()>% to
S$;#2DO, D2; ROS$RIO, BITO, MIS$ C ;OD$D$A on -
Dece0ber ()>% to S$;#2DO, D2; ROS$RIO, BITO,
MIS$ C ;OD$D$A on (( March ()>> to D2; ROS$RIO,
BITO, MIS$ C ;OD$D$A on > =une ()>> to BITO, MIS$
C ;OD$D$A on () Dece0ber ().E, ?=oa9uin ;. Misa@
appellees =esus B. Bito and Mariano M. ;o8ada
associated the0selves to1ether, as senior partners
!ith respondents+appellees ,re1orio '. Orte1a,
To0as O. del #astillo, =r., and BenFa0in Bacorro, as
Funior partners.
On 'ebruar" (>, ().., petitioner+appellant !rote the
respondents+appellees a letter statin1G
I a0 !ithdra!in1 and retirin1 fro0 the
:r0 of Bito, Misa and ;o8ada, eHective
at the end of this 0onth.
5I trust that the accountants !ill be
instructed to 0ae the proper
li9uidation of 0" participation in the
:r0.5
On the sa0e da", petitioner+appellant !rote
respondents+appellees another letter statin1G
5'urther to 0" letter to "ou toda", I
!ould lie to have a 0eetin1 !ith all of
"ou !ith re1ard to the 0echanics of
li9uidation, and 0ore particularl", 0"
interest in the t!o Ioors of this
buildin1. I !ould lie to have this
resolved soon because it has to do
!ith 0" o!n plans.5
On () 'ebruar" ().., petitioner+appellant !rote
respondents+appellees another letter statin1G
5The partnership has ceased to be
0utuall" satisfactor" because of the
!orin1 conditions of our e0plo"ees
includin1 the assistant attorne"s. $ll
0" eHorts to a0eliorate the belo!
subsistence level of the pa" scale of
our e0plo"ees have been th!arted b"
the other partners. Not onl" have the"
refused to 1ive 0eanin1ful increases
to the e0plo"ees, even attorne"s, are
dressed do!n publicl" in a loud voice
in a 0anner that deprived the0 of
their self+respect. The result of such
policies is the for0ation of the union,
includin1 the assistant attorne"s.5
On *E =une ().., petitioner :led !ith this
#o00issionJs Securities Investi1ation and #learin1
Depart0ent 4SI#D6 a petition for dissolution and
li9uidation of partnership, doceted as S2# #ase No.
**.- pra"in1 that the #o00issionG
5(. Decree the for0al dissolution and
order the i00ediate li9uidation of 4the
partnership of6 Bito, Misa C ;o8adaA
5%. Order the respondents to deliver or
pa" for petitionerJs share in the
partnership assets plus the pro:ts, rent
or interest attributable to the use of his
ri1ht in the assets of the dissolved
partnershipA
5*. 2nFoin respondents fro0 usin1 the
:r0 na0e of Bito, Misa C ;o8ada in
an" of their correspondence, checs
and pleadin1s and to pa" petitioners
da0a1es for the use thereof despite
the dissolution of the partnership in
the a0ount of at least P7E,EEE.EEA
5-. Order respondents Fointl" and
severall" to pa" petitioner attorne"Js
fees and e3pense of liti1ation in such
a0ounts as 0a"be proven durin1 the
trial and !hich the #o00ission 0a"
dee0 Fust and e9uitable under the
pre0ises but in no case less than ten
4(EK6 per cent of the value of the
shares of petitioner or P(EE,EEE.EEA
57. Order the respondents to pa"
petitioner 0oral da0a1es !ith the
a0ount of P7EE,EEE.EE and e3e0plar"
da0a1es in the a0ount of
P%EE,EEE.EE.
5Petitioner lie!ise pra"ed for such
other and further reliefs that the
#o00ission 0a" dee0 Fust and
e9uitable under the pre0ises.5
On (* =ul" ().., respondents+appellees :led their
opposition to the petition.
On (* =ul" ().., petitioner :led his Repl" to the
Opposition.
On *( March ().), the hearin1 o/cer rendered a
decision rulin1 thatG
5?P@etitionerJs !ithdra!al fro0 the la!
:r0 Bito, Misa C ;o8ada did not
dissolve the said la! partnership.
$ccordin1l", the petitioner and
respondents are hereb" enFoined to
abide b" the provisions of the
$1ree0ent relative to the 0atter
1overnin1 the li9uidation of the shares
of an" retirin1 or !ithdra!in1 partner
in the partnership interest.5
1
On appeal, the S2# en banc reversed the decision of the
Hearin1 O/cer and held that the !ithdra!al of $ttorne"
=oa9uin ;. Misa had dissolved the partnership of 5Bito, Misa
C ;o8ada.5 The #o00ission ruled that, bein1 a partnership
at !ill, the la! :r0 could be dissolved b" an" partner at
an"ti0e, such as b" his !ithdra!al therefro0, re1ardless of
1ood faith or bad faith, since no partner can be forced to
continue in the partnership a1ainst his !ill. In its decision,
dated (> =anuar" ())E, the S2# heldG
<H2R2'OR2, pre0ises considered the appealed
order of *( March ().) is hereb" R2V2RS2D insofar
as it concludes that the partnership of Bito, Misa C
;o8ada has not been dissolved. The case is hereb"
R2M$ND2D to the Hearin1 O/cer for deter0ination
of the respective ri1hts and obli1ations of the
parties.
2
The parties sou1ht a reconsideration of the above decision.
$ttorne" Misa, in addition, ased for an appoint0ent of a
receiver to tae over the assets of the dissolved partnership
and to tae char1e of the !indin1 up of its aHairs. On - $pril
())(, respondent S2# issued an order den"in1
reconsideration, as !ell as reFectin1 the petition for
receivership, and reiteratin1 the re0and of the case to the
Hearin1 O/cer.
The parties :led !ith the appellate court separate appeals
4doceted #$+,.R. SP No. %-&*. and #$+,.R. SP No. %-&-.6.
Durin1 the pendenc" of the case !ith the #ourt of $ppeals,
$ttorne" =esus Bito and $ttorne" Mariano ;o8ada both died
on, respectivel", E7 Septe0ber ())( and %( Dece0ber
())(. The death of the t!o partners, as !ell as the
ad0ission of ne! partners, in the la! :r0 pro0pted
$ttorne" Misa to rene! his application for receivership 4in
#$ ,.R. SP No. %-&-.6. He e3pressed concern over the need
to preserve and care for the partnership assets. The other
partners opposed the pra"er.
The #ourt of $ppeals, :ndin1 no reversible error on the part
of respondent #o00ission, $''IRM2D in toto the S2#
decision and order appealed fro0. In :ne, the appellate
court held, per its decision of %& 'ebruar" ())*, 4a6 that
$tt". MisaJs !ithdra!al fro0 the partnership had chan1ed
the relation of the parties and inevitabl" caused the
dissolution of the partnershipA 4b6 that such !ithdra!al !as
not in bad faithA 4c6 that the li9uidation should be to the
e3tent of $ttorne" MisaJs interest or participation in the
partnership !hich could be co0puted and paid in the
0anner stipulated in the partnership a1ree0entA 4d6 that
the case should be re0anded to the S2# Hearin1 O/cer for
the correspondin1 deter0ination of the value of $ttorne"
MisaJs share in the partnership assetsA and 4e6 that the
appoint0ent of a receiver !as unnecessar" as no su/cient
proof had been sho!n to indicate that the partnership
assets !ere in an" such dan1er of bein1 lost, re0oved or
0ateriall" i0paired.
In this petition for revie! under Rule -7 of the Rules of
#ourt, petitioners con:ne the0selves to the follo!in1
issuesG
(. <hether or not the #ourt of $ppeals has erred in
holdin1 that the partnership of Bito, Misa C ;o8ada
4no! Bito, ;o8ada, Orte1a C #astillo6 is a partnership
at !illA
%. <hether or not the #ourt of $ppeals has erred in
holdin1 that the !ithdra!al of private respondent
dissolved the partnership re1ardless of his 1ood or
bad faithA and
*. <hether or not the #ourt of $ppeals has erred in
holdin1 that private respondentJs de0and for the
dissolution of the partnership so that he can 1et a
ph"sical partition of partnership !as not 0ade in bad
faithA
to !hich 0atters !e shall, accordin1l", lie!ise li0it
ourselves.
$ partnership that does not :3 its ter0 is a partnership at
!ill. That the la! :r0 5Bito, Misa C ;o8ada,5 and no! 5Bito,
;o8ada, Orte1a and #astillo,5 is indeed such a partnership
need not be undul" belabored. <e 9uote, !ith approval, lie
did the appellate court, the :ndin1s and dis9uisition of
respondent S2# on this 0atterA vizG
The partnership a1ree0ent 4a0ended articles of ()
$u1ust ()-.6 does not provide for a speci:ed period
or undertain1. The 5DLR$TION5 clause si0pl"
statesG
57. DLR$TION. The partnership shall
continue so lon1 as 0utuall"
satisfactor" and upon the death or
le1al incapacit" of one of the partners,
shall be continued b" the survivin1
partners.5
The hearin1 o/cer ho!ever opined that the
partnership is one for a speci:c undertain1 and
hence not a partnership at !ill, citin1 para1raph % of
the $0ended $rticles of Partnership 4() $u1ust
()-.6G
5%. Purpose. The purpose for !hich the
partnership is for0ed, is to act as le1al
adviser and representative of an"
individual, :r0 and corporation
en1a1ed in co00ercial, industrial or
other la!ful businesses and
occupationsA to counsel and advise
such persons and entities !ith respect
to their le1al and other aHairsA and to
appear for and represent their
principals and client in all courts of
Fustice and 1overn0ent depart0ents
and o/ces in the Philippines, and
else!here !hen le1all" authori8ed to
do so.5
The 5purpose5 of the partnership is not the speci:c
undertain1 referred to in the la!. Other!ise, all
partnerships, !hich necessaril" 0ust have a
purpose, !ould all be considered as partnerships for
a de:nite undertain1. There !ould therefore be no
need to provide for articles on partnership at !ill as
none !ould so e3ist. $pparentl" !hat the la!
conte0plates, is a speci:c undertain1 or 5proFect5
!hich has a de:nite or de:nable period of
co0pletion.
3
The birth and life of a partnership at !ill is predicated on the
0utual desire and consent of the partners. The ri1ht to
choose !ith !ho0 a person !ishes to associate hi0self is
the ver" foundation and essence of that partnership. Its
continued e3istence is, in turn, dependent on the constanc"
of that 0utual resolve, alon1 !ith each partnerJs capabilit"
to 1ive it, and the absence of a cause for dissolution
provided b" the la! itself. Veril", an" one of the partners
0a", at his sole pleasure, dictate a dissolution of the
partnership at !ill. He 0ust, ho!ever, act in 1ood faith, not
that the attendance of bad faith can prevent the dissolution
of the partnership
4
but that it can result in a liabilit" for
da0a1es.
5
In passin1, neither !ould the presence of a period for its
speci:c duration or the state0ent of a particular purpose for
its creation prevent the dissolution of an" partnership b" an
act or !ill of a partner.
)
$0on1 partners,
*
0utual a1enc"
arises and the doctrine of delectus personae allo!s the0 to
have the power, althou1h not necessaril" the right, to
dissolve the partnership. $n unFusti:ed dissolution b" the
partner can subFect hi0 to a possible action for da0a1es.
The dissolution of a partnership is the chan1e in the relation
of the parties caused b" an" partner ceasin1 to be
associated in the carr"in1 on, as 0i1ht be distin1uished
fro0 the !indin1 up of, the business.
8
Lpon its dissolution,
the partnership continues and its le1al personalit" is
retained until the co0plete !indin1 up of its business
cul0inatin1 in its ter0ination.
9
The li9uidation of the assets of the partnership follo!in1 its
dissolution is 1overned b" various provisions of the #ivil
#odeA
10
ho!ever, an a1ree0ent of the partners, lie an"
other contract, is bindin1 a0on1 the0 and nor0all" taes
precedence to the e3tent applicable over the #odeJs 1eneral
provisions. <e here tae note of para1raph . of the
5$0end0ent to $rticles of Partnership5 readin1 thusl"G
. . . In the event of the death or retire0ent of an"
partner, his interest in the partnership shall be
li9uidated and paid in accordance !ith the e3istin1
a1ree0ents and his partnership participation shall
revert to the Senior Partners for allocation as the
Senior Partners 0a" deter0ineA provided, however,
that !ith respect to the t!o 4%6 Ioors of o/ce
condo0iniu0 !hich the partnership is no! ac9uirin1,
consistin1 of the 7th and the &th Ioors of the $lpap
Buildin1, (-E $lfaro Street, Salcedo Villa1e, Maati,
Metro Manila, their true value at the ti0e of such
death or retire0ent shall be deter0ined b" t!o 4%6
independent appraisers, one to be appointed 4b" the
partnership and the other b" the6 retirin1 partner or
the heirs of a deceased partner, as the case 0a" be.
In the event of an" disa1ree0ent bet!een the said
appraisers a third appraiser !ill be appointed b"
the0 !hose decision shall be :nal. The share of the
retirin1 or deceased partner in the afore0entioned
t!o 4%6 Ioor o/ce condo0iniu0 shall be deter0ined
upon the basis of the valuation above 0entioned
!hich shall be paid 0onthl" !ithin the :rst ten 4(E6
da"s of ever" 0onth in install0ents of not less than
P%E,EEE.EE for the Senior Partners, P(E,EEE.EE in the
case of t!o 4%6 e3istin1 =unior Partners and P7,EEE.EE
in the case of the ne! =unior Partner.
11
The ter0 5retire0ent5 0ust have been used in the articles,
as !e so hold, in a 1eneric sense to 0ean the dissociation
b" a partner, inclusive of resi1nation or !ithdra!al, fro0 the
partnership that thereb" dissolves it.
On the third and :nal issue, !e accord due respect to the
appellate court and respondent #o00ission on their
co00on factual :ndin1, i.e., that $ttorne" Misa did not act
in bad faith. Public respondents vie!ed his !ithdra!al to
have been spurred b" 5interpersonal conIict5 a0on1 the
partners. It !ould not be ri1ht, !e a1ree, to let an" of the
partners re0ain in the partnership under such an
at0osphere of ani0osit"A certainl", not a1ainst their
!ill.
12
Indeed, for as lon1 as the reason for !ithdra!al of a
partner is not contrar" to the dictates of Fustice and fairness,
nor for the purpose of undul" visitin1 har0 and da0a1e
upon the partnership, bad faith cannot be said to
characteri8e the act. Bad faith, in the conte3t here used, is
no diHerent fro0 its nor0al concept of a conscious and
intentional desi1n to do a !ron1ful act for a dishonest
purpose or 0oral obli9uit".
<H2R2'OR2, the decision appealed fro0 is $''IRM2D. No
pronounce0ent on costs.
SO ORD2R2D.
Republic of the Philippines
SUPREME COURT
Manila
2N B$N#
G.R. No. +5953 F,-.u!.y 24, 1912
ANTONIO M. PA$AAN, plaintiH+appellant,
vs.
FEICIANO (EE/, defendant+appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee.
TORRES, J.G
This case !as appealed b" counsel for the plaintiH, fro0 the
Fud10ent rendered b" the Honorable =ud1e $. S. #ross:eld.
On =anuar" %E, ()E., counsel for the plaintiH :led a !ritten
co0plaint a1ainst the defendant, the ad0inistrator of the
intestate estate of <alter $. 'itton, no! deceased. The said
ad0inistrator !as appointed b" an order issued on
Dece0ber %(, ()E>, b" the afore0entioned Fud1e in case
No. 7(E*, heard in the #ourt of 'irst Instance of this cit".
The co0plaint alle1edG That until =une %>, ()EE, the plaintiH,
$ntonio M. Pabalan, !as the o!ner in fee si0ple of a rural
estate consistin1 of an hacienda no!n b" the na0e of
5Panta"ani,5 !hich !as devoted to a1ricultural purposes,
situated on the roads leadin1 fro0 Mari9uina to $ntipolo,
!ithin the pueblos of #ainta and $ntipolo, Province of Ri8al,
and !hich covered an area of (,)>.,.%% s9uare 0etersA also
a parcel of land consistin1 of a buildin1 lot situated on #alle
Real, of #ainta, 0easurin1 *>(.*E s9uare 0eters, the 0etes
and bounds of !hich !ere speci:ed in the co0plaintA that,
on the said date of =une %>, ()EE, the plaintiH, desirin1 to
0ae use of the t!o properties described, and lacin1 the
re9uired 0eans for the purpose, entered into an a1ree0ent
!ith the said <alter $. 'itton !hereb" the" for0ed a re1ular
0ercantile partnership for the develop0ent of the said
properties and for the 0anufacture and sale of their
products and other business pertinent theretoA that the su0
of ),EEE pesos Me3ican currenc" !as :3ed as the a0ount of
the capital stoc of the partnership, of !hich *,EEE pesos, in
cash, !ere to be contributed b" the plaintiH and &,EEE
pesos, in real propert", b" the said 'ittonA that, for the
purpose of obtainin1 the said *,EEE pesos, the plaintiH sold
his t!o afore0entioned real properties to the said <alter $.
'itton, the rural estate, sho!n in 23hibit $, for 7,)EE pesos,
and the urban propert", described in 23hibit B, for (EE
pesosA that the plaintiH received fro0 the purchaser the su0
of *,EEE pesos and the latter, <alter $. 'itton, bound hi0self
to pa" into the funds of the said partnership, as the
plaintiHJs capital, the re0ainin1 *,EEE pesos of the sellin1
priceA that it !as further0ore a1reed that the t!o said real
properties should constitute the capital of <alter $. 'itton in
the partnership, !hich !ould be no!n b" the na0e of 5$.
M. Pabalan and #o0pan"5 and should be an e9uivalent for
the aforesaid su0 of &,EEE pesosA that all the fore1oin1
facts set forth in the co0plaint !ere recorded in the
instru0ent of sale and or1ani8ation of the partnership,
e3ecuted on =une %>, ()EE, before the notar" public Rosado,
a cop" of !hich !as attached to and 0ade an inte1ral part
of the co0plaintA that, fro0 =une %>, ()EE, up to the date
!hen the partner 'itton died, the latter failed to pa" into the
partnership funds the said *,EEE pesos, the re0ainder of the
price of the properties purchased b" hi0, or an" part
thereof, and did not pa" the said su0 or an" part of the
sa0e to the plaintiHA that, since 'ittonJs death, and up to the
date of the :lin1 of the co0plaint, neither the ad0inistrator
of the latterJs estate nor an" other person had turned into
the partnership or paid to the plaintiH the aforesaid *,EEE
pesosA that, o!in1 to the failure of 'itton to co0pl" !ith his
obli1ation, the properties in 9uestion had been entirel"
unproductive and losses and da0a1es had been occasioned
to the plaintiH in the su0 of %,EEE pesos Philippine currenc".
The latter, therefore, pra"ed for the rescission of the
contract entered into, on =une %>, ()EE, b" hi0self, the
plaintiH, and <alter $. 'itton, the dissolution of the
partnership 5$. M. Pabalan and #o0pan",5 and the
annul0ent of the sale of the said properties, b" returnin1 to
the defendant a su0 in Philippine currenc" e9uivalent to the
*,EEE pesos in Me3ican currenc" received fro0 <alter $.
'itton, and that the defendant be sentenced to pa" to the
plaintiH, as losses and da0a1es, the su0 of %,EEE pesos,
and to the pa"0ent of the cost of the suit, in addition to the
other re0edies sou1ht.
The instru0ent attached to the co0plaint and e3ecuted on
=une %>, ()EE, before the notar" public =ose M.a Rosado "
#alvo, b" $ntonio M. Pabalan " Santos, on the one hand, and
<alter $. 'itton, on the other, contains the follo!in1 clausesG
First. That Don $ntonio Maria Pabalan " Santos is the
sole and e3clusive o!ner in fee+si0ple of the
follo!in1 landed properties, to !itG 4a6 $ rural estate
consistin1 of an hacienda, no!n as Panta"anin1 or
Pantaen, devoted to a1ricultured and situated on the
roads !hich lead fro0 Mari9uina to $ntipolo, !ithin
the pueblos of #ainta and $ntipolo of the district of
Moron1, inscribed in the propert" re1istr" of this cit"
as of the north district, !ith an area of (,)>.,E%%
s9uare 0eters and bounded on the north b" the land
of Victor Var1as and the Sucabin River, b" a part of
the Taban1 River, Mount Ma1paton1, the sitio of
Palen9ue and another part of the said Taban1 River,
as far as the foot of Mount #a"+$larin1, Mount
Sapan1, and the road leadin1 to the pueblo of Ta"ta"A
on the south b" the su00it of Mount Matu1alo, the
Pa1lilin1ohan estero, the old #ainta hi1h!a", and the
land of =uan Santa $naA and one on the !est b" the
lands of DoMa #olu0ba Suare8 and Don Mariano
Su0ulon1, the Bilao road, and the lands of Perfecto
;e1aspi Mi1uel ,on8ales, Dacarias ,on8ales, =uan
$driano, and that of the aforesaid =uan Santa $na.
$nd 4b6 an urban propert" consistin1 of a buildin1 lot,
!ith neither street nor district nu0ber, situated on
#alle Real, pueblo of #ainta, Moron1 District, and in
the north district division of the propert" re1istr" of
this cit"A it is bounded on its front, !hich faces the
south, b" the aforesaid #alle RealA on its ri1ht, upon
enterin1, or on the east, b" the lot belon1in1 to Don
$leFandro San Die1o and his !ife DoMa Buenaventura
SantosA on its left, or the !est, b" the lot of Don
Pablo OrdoMe8 and his !ife Dionisia SalandananA and
on its rear, or the north, b" the lot of Don 'lorencio
San $ntonio, his !ife and DoMa Severina Santos, and
has an area of *&( s9uare 0eters and *E s9uare
centi0eters. Second. That the properties
hereinbefore described belon1 to the afore0entioned
Don $ntonio Maria Pabalan " Santos, !ho purchased
the sa0e fro0 their for0er o!ner, the :r0 of ,.
Buchanan and #o0pan", of the cit" of ;ondon,
represented b" its a1ent, Herbert Heiden Todd,
throu1h a deed, serial nu0ber .7%, dra!n up in this
cit" and attested before the for0er notar" public of
the sa0e, Don =ose 2n1racio Monro" " Torres, on the
t!ent"+ninth of Nove0ber, (.)-, as sho!n b" the
notarial instru0ent containin1 the description of the
said properties, !ritten b" the undersi1ned notar" at
the re9uest of their o!ner, Sr. Pabalan, on the t!elfth
of the present 0onth of =une, !hich certi:cate,
!ithout nu0ber, on account of its notarial character,
!as e3hibited to 0e b" the latter and I certif" to the
sa0e.Third. That the properties in 9uestion are free
of all encu0brance, char1e, and liabilit", and Don
$ntonio Maria Pabalan " Santos and Mr. <alter $.
'itton havin1 a1reed to sell the sa0e and to for0 a
re1ular 0ercantile partnership for the purpose of
their i0prove0ent and the utili8ation of their
products, hereb" e3ecute the present instru0ent, in
order that all its contents 0a" appear in an
authenticated for0, and sole0nl" stipulatedG That
Don $ntonio Maria Pabalan " Santos hereb" sells
absolutel" and :nall" to Mr. <alter $. 'itton, the
propert" !hich, under the letters $ and B, is
0entioned and described in the :rst para1raph of
this instru0ent, to1ether !ith all the ri1hts, actions,
uses and ease0ents thereto pertainin1, for the price
of 7,)EE pesos, for the propert" speci:ed under letter
$, and the price of (EE pesos, for that described
under letter B, that is, for the total price of &,EEE
pesos, of !hich the vendor received in the act, in 0"
presence and in that of the !itnesses hereunto,
!hich I, the notar", hereb" attest, and fro0 the
hands of the vendee, the su0 of *,EEE pesos in coin,
counted to his entire satisfaction, for !hich the said
<alter $. 'itton hereb" acno!led1es b" a bindin1
receipt !hich secures the said $ntonio M. Pabalan in
all his ri1hts and the vendor binds hi0self to protect
and defend the title to the properties hereb" sold and
1uarantees the0 in accordance !ith la!A and the
vendee shall retain the re0ainin1 *,EEE pesos for the
purpose of brin1in1 the0, as the vendorJs capital,
into the partnership !hich is also a subFect of this
public instru0ent.Fourth. <alter $. 'itton, in his turn,
covenantsG That he accepts this sale in the precise
ter0s in !hich it is e3ecuted b" $ntonio Maria
Pabalan " Santos. Fifth. That, b" virtue of the
preinserted stipulations, both parties to this contract,
b" this sa0e public instru0ent, for0 a re1ular
0ercantile partnership, upon the follo!in1 bases and
conditionsG (. The co0pan" or1ani8ed throu1h the
present public instru0ent shall operate under the
:r0 na0e of 5$. M. Pabalan and #o0pan"5 and shall
have its do0icile, for all le1al purposes, in this cit" of
Manila. %. The obFect and ai0 of the co0pan" is the
cultivation and i0prove0ent of the t!o properties
described under letters $ and B of the :rst para1raph
hereof, the 0anufacture and sale of their products,
and the conduct of all other business connected !ith,
incidental or pertinent to the said lands. *. The
0ana1e0ent, direction and ad0inistration of the
co0pan" shall be in char1e of the t!o partners !ho
shall both be entitled to use the :r0 na0e, it bein1
thereof understood that the" are authori8ed to carr"
on, Fointl" or severall", all inds of operations
co0prised !ithin the purpose of this partnership,
!ith the sole li0itation that neither of the0 0a"
0ae the co0pan" a suret" or borro! 0one" for the
sa0e, !ithout its bein1 necessar", !ith respect to
this latter prohibition, for Mr. Pabalan to state that it
does not suit hi0 to increase his capital to an
a0ount e9ual to that invested b" Mr. 'itton. Both
partners are lie!ise authori8ed, for the purposes of
0ana1e0ent, to appoint 1eneral or social attorne"s+
in+fact to represent the co0pan", as !ell as
attorne"s to de0and and collect such credits and
brin1 such suits before the courts as be proper. -.
The 0ana1e0ent of a1ricultural 0atters pertainin1
to the rural and the urban propert" described in the
:rst para1raph of this instru0ent, shall be solel" and
e3clusivel" in char1e of the partner $ntonio Maria
Pabalan or the person b" hi0 desi1nated for this
purpose. 7. The capital stoc is co0posed of the total
su0 of ),EEE pesos contributed b" the partners in
the follo!in1 proportion and fro0G $ntonio Maria
Pabalan, *,EEE pesos in cash, !hich shall be paid into
the partnership fund b" <alter $. 'itton, !ho, for this
purpose, has retained the0 in his possession upon
his pa"in1 the a0ount of the sale herein set forthA
<alter $. 'itton, &,EEE pesos, represented b" the t!o
properties described under letters $ and B in the :rst
para1raph herein, and in !hich the said lands are b"
co00on accord appraised. &. The partners 0a" not
en1a1e, in the Province of Moron1, in the sa0e inds
of business en1a1ed in b" this co0pan", but the"
0utuall" authori8e each other personall" to carr" on
and conduct an" such business at an" other place
outside of the said province. >. $n" and all rural or
cit" properties !hich Mr. Pabalan 0a" ac9uire to the
!est of the hacienda hereinabove described under
letter $, shall necessaril" for0 a part of the hacienda
itself. .. The ter0 of the e3istence of this partnership
shall be t!ent"+:ve "ears, !hich shall be1in to run
fro0 this date and 0a" be e3tended at the !ill of the
contractin1 parties. ). In order that a re1ular and
orderl" course be pursued in the 0ana1e0ent of the
co0pan", and the losses and pro:ts of the latter
ascertained, an annual balance of accounts shall be
struc in the 0onth of =une of each "ear, in addition
to such other balances as the partners 0a", b"
0utual accord, deter0ine. (E. If, durin1 the ter0 of
this contract, either of the partners should die, the
co0pan" shall not, on such account, be considered
as dissolved, but shall be continued b" the survivin1
partner and the heirs of the deceased partner, unless
it should suit the for0er to be separated fro0 the
latter, in !hich case he shall deliver to such heirs the
part of the capital that belon1ed to the deceased,
to1ether !ith all the latterJs vested ri1hts. ((. The
pro:ts obtained and losses suHered b" the co0pan"
shall be shared b" the partners in proportion to the
capital invested b" each respectivel". (%. The
partners 0a", b" a1ree0ent, chan1e the co0pan"
hereb" or1ani8ed into a Foint stoc co0pan", in
!hich case the" shall observe and co0pl" !ith the
for0alities provided and prescribed b" the e3istin1
#ode of #o00erce in respect to co0panies of this
ind. (*. $ll 9uestions, controversies, doubts or
diHerences !hich 0a" arise bet!een the partners,
b" reason of this co0pan" or fro0 an" acts
perfor0ed b" the0 on account of the sa0e, shall be
deter0ined b" the decision of friendl" arbitrators
appointed one b" each part", such appointees so
desi1nated to choose a third arbitrator in case of
disa1ree0ent.
The de0urrer interposed to the co0plaint havin1 been
overruled b" an order of $pril (, ()E., and e3ception thereto
taen b" the defendant, the latter, on the ((th of the sa0e
0onth, :led a !ritten ans!er !herein he set forth that he
ad0itted the alle1ations contained in para1raphs (, %, and -
of the co0plaint and denied, 1enerall" and speci:call", each
and all of those contained in para1raphs *, 7, &, >, ., and ).
$s a special defense the defendant alle1ed that the action
prosecuted b" the plaintiH had prescribedA that the fact that
the properties of the co0pan" no!n as 5$. M. Pabalan and
#o0pan"5 had been unproductive !as e3clusivel" due to
the 1reat ne1li1ence of the plaintiH, since he had had 0ore
than su/cient ti0e, fro0 =une %>, ()EE, to the date of the
death of 'itton, to have de0anded fro0 his copartner the
su0 oHered b" the latter and !hich he !as to contribute to
the co00on assets, and that, not!ithstandin1 all the ti0e
that had elapsed since the e3ecution of the articles of
partnership, up to the date of the presentation of the
co0plaint the plaintiH had never re9uired his copartner to
turn into the partnership funds the capital pled1ed.
The defendant, in his cross+co0plaint and counterclai0, set
forthG That, accordin1 to the said articles of partnership, the
plaintiH had the 0ana1e0ent of a1ricultural 0atters
pertainin1 to the properties, rural and urban, described
therein, and, conse9uentl", !as alone responsible for the
successful 0ana1e0ent of the co0pan"A that, also,
accordin1 to the articles of partnership, either of the t!o
partners had char1e of the 0ana1e0ent, direction, and
ad0inistration of the co0pan"A that, so0e 0onths after the
e3ecution of the said instru0ent of partnership, <alter $.
'itton !as obli1ed, for reasons of health, to 1o abroad,
!here he resided until his death, and durin1 his absence
fro0 this cit" the plaintiH, $ntonio M. Pabalan, !ith notable
ne1li1ence and abandon0ent of the interests of the
co0pan", failed to attend to the ad0inistration of its aHairs
and did not e0plo" on his part an" 0eans to 0aintain in a
productive condition the t!o properties brou1ht into the
partnership b" the partner 'itton, and that, throu1h the
ne1li1ence, abandon0ent, and carelessness of the plaintiH
Pabalan, the defendant suHered losses and da0a1es in the
su0 of P*,EEE Philippine currenc"A the latter, therefore,
pra"ed that the co0plaint be dis0issed and that, b" reason
of his cross+co0plaint and counterclai0, an a!ard be 0ade
in his behalf, and a1ainst the plaintiH, for losses and
da0a1es, in the su0 of P*,EEE Philippine currenc", !ith the
costs.
B" a !ritten 0otion of March (), ()E), $ntonio Vas9ue8
representedG That, o!in1 to the death of the plaintiH, the
hearin1 of the case had to be suspended until, on the -th of
March, as aforesaid, letters of ad0inistration !ere issued in
his behalf, relative to the estate of the plaintiH PabalanA and
he therefore pra"ed that he be ad0itted as a part" in the
capacit" of ad0inistrator of the estate of the deceased
$ntonio M. Pabalan.
The case havin1 co0e to trial on $pril %), ()E), !ith the
introduction of oral evidence b" counsel for the plaintiH, the
court, on =ul" ) of the sa0e "ear, pronounced Fud10ent and
found that the defendant had not proved an" of the
da0a1es alle1ed in his ans!er, and !as not entitled to an"
recover" therefore, nor the plaintiH for the ta3es that he had
paid. The court ordered a dissolution of the partnership
for0ed bet!een the plaintiH and the deceased <alter $.
'itton and a recission of the sale and contract of partnership
e3ecuted bet!een the0 on =ul" %>, ()EE, and further
ordered that the defendant, as the ad0inistrator of the
estate of the said deceased <alter $. 'itton, deliver to the
plaintiH, upon the latterJs pa"in1 to the defendant, out of
the propert" !hich belon1ed to the aforesaid deceased, the
su0 of P*,EEE Me3ican currenc", e9uivalent to P%,>EE
Philippine currenc", the follo!in1 real propertiesG
$. $ rural estate consistin1 of an hacienda, no!n as
Panta"ani or Pantaen, devoted to a1riculture and
situated on the roads fro0 Mari9uina to $ntipolo,
!ithin the pueblos of #ainta and $ntipolo of the old
district of Moron1, no! Province of Ri8al, havin1 an
area of (,)>.,.%% s9uare 0eters, bounded on the
north b" the land of Victor Var1as and the Sucabin
RiverA on the east b" a part of the said Sucabin River,
a part of the Taban1 River, Mount Na1tapon1,
the sitio of Palen9ue, and b" another part of the
Taban1 River to!ard the base of Mount #a"+$larin1,
Mount Sapan1, and the road leadin1 to the pueblo of
Ta"ta"A on the south b" the su00it of Mount
Matu1alo, the Pa1lilin1ohan estero, the old #ainta
hi1h!a", and the land of =uan Santa $naA and on the
east b" the lands of #olu0ba Suare8 and Mariano
Su0ulon1, the Bulao Road, the lands of Perfecto
;e1aspi, Mi1uel ,on8ales, Dacarias ,on8ales, =uan
$driano, and of the afore0entioned =uan Santa $na.
B. $n urban propert" consistin1 of a buildin1 lot,
!ithout either street or district nu0ber, situated on
#alle Real in #ainta, a 0unicipalit" of the Province of
Ri8alA bounded on its front, !hich faces the south, b"
the aforesaid #alle RealA on its ri1ht, upon enterin1,
or on the east, b" the lot belon1in1 to $leFandro San
Die1o and his !ife Buenaventura SantosA on its left,
or the !est, b" the lot of Pablo OrdoMe8 and his !ife
Dionisia SalandananA and on its rear, or the north, b"
the lot of 'lorencio San $ntonio and his !ife Severina
Santos, !ith an area of *&( s9uare 0eters and *E
s9uare centi0eters.
This liti1ation concerns the dissolution of a re1ular
0ercantile partnership and the rescission of the sale of
certain real properties, the contracts !ith respect to !hich
!ere entered into bet!een $ntonio M. Pabalan " Santos, on
one hand, and <alter $. 'itton, on the other, accordin1 to a
notarial instru0ent e3ecuted b" the contractin1 parties on
=ul" %>, ()EE.
The plaintiHJs clai0 is founded on the alle1ed fact that the
said <alter $. 'itton failed to co0pl" !ith his obli1ations as
stipulated in the said double contract, inas0uch as he did
not pa" into the funds of the co0pan" entitled 5$. M.
Pabalan and #o0pan",5 as the capital of the partner
Pabalan, the su0 of P*,EEE, or the re0ainder of P&,EEE, the
price of the properties !hich he had purchased fro0 the
plaintiH, did not pa" to the latter the said a0ount, nor an"
part thereof, nor !as such pa"0ent 0ade, after the said
'ittonJs death, b" the ad0inistrator of the latterJs estate.
$rticle (7E& of the #ivil #ode prescribesG
The sale shall be rescinded for the sa0e causes as all
other obli1ations, etc.
$rticle ((%- providesG
The ri1ht to rescind the obli1ations is considered as
i0plied in 0utual ones, in case one of the obli1ated
persons does not co0pl" !ith !hat is incu0bent
upon hi0.
The person preFudiced 0a" choose bet!een e3actin1
the ful:ll0ent of the obli1ation or its rescission, !ith
inde0nit" for da0a1es and the pa"0ent of interest
in either case. He 0a" also de0and the rescission,
even after havin1 re9uested its ful:ll0ent, should
the latter appear i0possible.
The court shall order the rescission de0anded,
unless there are su/cient causes authori8in1 it to :3
a period.
This is understood !ithout preFudice to the ri1hts of
third ac9uirers, in accordance !ith articles (%)7 and
(%)., and !ith the provisions of the Mort1a1e ;a!.
$rticle ((& of the #ode of #o00erce prescribesG
$rticles of association b" !hich t!o or 0ore persons
obli1ate the0selves to place in a co00on fund an"
propert", industr", or an" of these thin1s, in order to
obtain pro:t, shall be co00ercial, no 0atter !hat its
class 0a" be, provided it has been established in
accordance !ith the provisions of this code.
$fter the or1ani8ation of the 1eneral 0ercantile partnership
deno0inated 5$. M. Pabalan and #o0pan",5 throu1h the
aforesaid instru0ent of =une %>, ()EE, the partner 'itton did
not turn into the co0pan" funds the su0 of P*,EEE, in the
na0e and to the credit of Pabalan, as the latterJs capital,
!hich su0 !as a part of the price of the sale of the t!o real
properties purchased fro0 the said Pabalan b" his partner
'itton !ho, in turn, brou1ht the said t!o parcels of land, as
his capital, into the co00on fund, !ithout havin1 paid the
said su0 up to the ti0e !hen he absented hi0self fro0
these Islands, a fe! 0onths after the establish0ent of the
partnership, and died in a forei1n countr".
It !as dul" proved at the trial of this case, that the partner
<alter $. 'itton failed to observe the stipulations of the t!o
aforesaid contractsA that he did not pa" an" part of the price
of the sale of the t!o parcels of land !hich he had
purchased fro0 his partner, $ntonio M. Pabalan, and,
conse9uentl", did not turn into the co0pan" funds, as
capital of the said Pabalan, the su0 of !hich the said price
consistedA it is therefore un9uestionable that he did not
co0pl" !ith his t!o principal obli1ations, assu0ed in the
said double contract !herein he e3pressl" a1reed that the
said P*,EEE, a part of the price of the t!o pieces of land that
he purchased fro0 Pabalan, !ould be b" hi0 turned into the
fund of the 1eneral partnership !hich the" had for0ed, as
capital of the partner Pabalan.
In case one of the parties to a contract does not ful:ll his
obli1ation as stipulated therein, the other contractin1 part",
b" the provisions of the above+9uoted article ((%- of the
#ivil #ode, is entitled to de0and the rescission of the
contract, as such obli1ations are 0utual, and the court 0ust
order the rescission de0anded. The partner, <alter $.
'itton, ca0e !ithin such a case, since he failed to pa" an"
part of the price of the t!o properties !hich he had ac9uired
and did not turn into the co0pan" fund, as capital of the
vendor partner, the su0 representin1 such sale, and
therefore Fustice re9uires the dissolution of the
afore0entioned co0pan" and the rescission of the said sale,
in confor0it" !ith the :ndin1 contained in the Fud10ent
appealed fro0 the pra"er ri1htfull" and la!full" 0ade b"
the partner !ho did not violate his obli1ations as set forth in
the said contract.
Durin1 the course of this suit in the #ourt of 'irst Instance,
the plaintiH, $ntonio M. Pabalan, also diedA and if the latter,
!hile livin1, !as not obli1ed, accordin1 to clause (E of the
articles of partnership, to continue in the co0pan" after the
decease of his copartner, and had a ri1ht to !ithdra!
therefro0 or fro0 the heirs of the deceased <alter $. 'itton,
after the death of the partner Pabalan, neither are the
latterJs successors in interest obli1ed to continue in the
co0pan", and, therefore, under this circu0stance, the
propriet" of the Fud10ent appealed fro0 is still 0ore
evident. <ith respect to the interest on the capital !hich
belon1ed to Pabalan, and !hich 'itton failed to turn into the
co0pan" fund in confor0it" !ith the a1ree0ent 0ade, and
in re1ard to the a0ount of the losses and da0a1es
occasioned b" the nonco0pliance, on the part of the partner
'itton, !ith the stipulated provisions, both such a0ounts
should be considered as the co0pan"Js losses and
co0puted pro rata, in proportion to the e3tent that each
partner is interested in the co0pan" and on the sa0e basis
as the pro:ts. 4$rts. (-E and (-( of the #ode of #o00erce.6
$s re1ards the a0ount of the land ta3, !hich the partner
Pabalan had to pa", a0ountin1 to P7%%.*E, under the
assess0ent levied upon the t!o real properties o!ned b"
the co0pan", inas0uch as the latter is the o!ner of the said
t!o parcels of land, !hich for0 the assets of the co0pan"
no!n as 5$. M. Pabalan and #o0pan",5 it is un9uestionable
that this co0pan" should have paid the said ta3 to the
,overn0ent, and the sa0e bein1 paid b" the partner
Pabalan out of his private funds and not of those of the
co0pan", he !as solel" entitled to be rei0bursed for t!o+
thirds of the said su0 paid, in proportion to the a0ount of
the respective capital brou1ht in, !hich t!o+thirds of the
su0 of P7%%.*E, that is, P*-..%E, 0a" be deducted fro0 the
su0 of P%,>EE Philippine currenc", e9uivalent to P*,EEE
Me3ican currenc", !hich the estate of $ntonio M. Pabalan
0ust restore to the testate or intestate estate of <alter $.
'itton, upon the defendantJs returnin1 to the plaintiH the t!o
aforesaid parcels of land.
'or the reasons hereinbefore stated, !e are of opinion that
the Fud10ent appealed fro0 should be and is hereb"
a/r0ed, !ith no special :ndin1 as to the costsA provided,
ho!ever, that the ad0inistrator of the estate of the
deceased 'itton shall deliver to the ad0inistrator of the
estate of Pabalan the t!o parcels of land, the sale of !hich
!as rescinded, upon pa"0ent b" the last na0ed
ad0inistrator to that of the estate of 'itton, of the su0 of
P%,>EE, e9uivalent to P*,EEE Me3ican pesos, the said
ad0inistrator of the Pabalan estate bein1 entitled to deduct
fro0 the said su0 that of P*-..%E, !hich is t!o+thirds of the
a0ount paid as land ta3 on the properties concerned. So
ordered.
Republic of the Philippines
SUPREME COURT
Manila
2N B$N#
G.R. No. +13)80 A0.1l 2*, 19)0
MAURO O/ANA, plaintiH+appellee,
vs.
SERAFIN DEPA2A2I$O, defendant+appellant.
Antonio T. Lozada for appellee.
Agustin T. isola and To!as ". "o!inado for appellant.
A$RADOR, J.3
This is an appeal fro0 a Fud10ent of the #ourt of 'irst
Instance of Iloilo, certi:ed to us b" the #ourt of $ppeals, for
the reason that onl" 9uestions of la! are involved in said
appeal.
The record discloses that on Nove0ber (&, ()7- plaintiH
Mauro ;o8ana entered into a contract !ith defendant Sera:n
Depaaibo !herein the" established a partnership
capitali8ed at the su0 of P*E,EEE, plaintiH furnishin1 &EK
thereof and the defendant, -EK, for the purpose of
0aintainin1, operatin1 and distributin1 electric li1ht and
po!er in the Municipalit" of Du0an1as, Province of Iloilo,
under a franchise issued to Mrs. Piadosa BuenaIor.
Ho!ever, the franchise or certi:cate of public necessit" and
convenience in favor of the said Mrs. Piadosa BuenaIor !as
cancelled and revoed b" the Public Service #o00ission on
Ma" (7, ()77. But the decision of the Public Service
#o00ission !as appealed to Ls on October %(, ()77. $
te0porar" certi:cate of public convenience !as issued in
the na0e of Oli0pia D. Decolon1on on Dece0ber %%, ()77
423h. 5B56. 2videntl" because of the cancellation of the
franchise in the na0e of Mrs. Piadosa BuenaIor, plaintiH
herein Mauro ;o8ana sold a 1enerator, Buda 4diesel6, >7 hp.
*E NV$ capacit", Serial No. ->), to the ne! 1rantee Oli0pia
D. Decolon1on, b" a deed dated October *E, ()77 423hibit
5#56. Defendant Sera:n Depaaibo, on the other hand, sold
one #rossl" Diesel 2n1ine, %7 h. p., Serial No. (-(>7., to the
spouses 'eli3 =i0enea and 'elina Harder, b" a deed dated
=ul" (E, ()7&.
On Nove0ber (7, ()77, plaintiH Mauro ;o8ana brou1ht an
action a1ainst the defendant, alle1in1 that he is the o!ner
of the ,enerator Buda 4Diesel6, valued at P.,EEE and >E
!ooden posts !ith the !ires connectin1 the 1enerator to
the diHerent houses supplied b" electric current in the
Municipalit" of Du0an1as, and that he is entitled to the
possession thereof, but that the defendant has !ron1full"
detained the0 as a conse9uence of !hich plaintiH suHered
da0a1es. PlaintiH pra"ed that said properties be delivered
bac to hi0. Three da"s after the :lin1 of the co0plaint,
that is on Nove0ber (., ()77, =ud1e Pantaleon $. Pela"o
issued an order in said case authori8in1 the sheriH to tae
possession of the 1enerator and >E !ooden posts, upon
plaintiHJs :lin1 of a bond in the a0ount of P(&,EEE in favor
of the defendant 4for subse9uent deliver" to the plaintiH6.
On Dece0ber 7, ()77, defendant :led an ans!er, den"in1
that the 1enerator and the e9uip0ent 0entioned in the
co0plaint belon1 to the plaintiH and alle1in1 that the sa0e
had been contributed b" the plaintiH to the partnership
entered into bet!een the0 in the sa0e 0anner that
defendant had contributed e9uip0ents also, and therefore
that he is not unla!full" detainin1 the0. B" !a" of
counterclai0, defendant alle1ed that under the partnership
a1ree0ent the parties !ere to contribute e9uip0ents,
plaintiH contributin1 the 1enerator and the defendant, the
!ires for the purpose of installin1 the 0ain and deliver"
linesA that the plaintiH sold his contribution to the
partnership, in violation of the ter0s of their a1ree0ent. He,
therefore, pra"ed that the co0plaint a1ainst hi0 be
dis0issedA that plaintiH be adFud1ed 1uilt" of violatin1 the
partnership contract and be ordered to pa" the defendant
the su0 of P*,EEE, as actual da0a1es, P&EE.EE as
attorne"Js fees and P%,&EE annuall" as actual da0a1esA that
the court order dissolution of the partnership, after the
accountin1 and li9uidation of the sa0e.
On Septe0ber %>, ()7&, the defendant :led a 0otion to
declare plaintiH in default on his counterclai0, but this !as
denied b" the court. Hearin1s on the case !ere conducted
on October %7, ()7& and Nove0ber 7, ()7&, and on the
latter date the Fud1e entered a decision declarin1 plaintiH
o!ner of the e9uip0ent and entitled to the possession
thereof, !ith costs a1ainst defendant. It is a1ainst this
Fud10ent that the defendant has appealed.
The above Fud10ent of the court !as rendered on a
stipulation of facts, !hich is as follo!sG
(. That on Nove0ber (&, ()7-, in the #it" of Iloilo, the
afore0entioned plaintiH, and the defendant entered into a
contract of Partnership, a cop" of !hich is attached as
$nne3 5$5 of defendantJs ans!er and counterclai0, for the
purpose set forth therein and under the national franchise
1ranted to Mrs. Piadosa BuenaIorA
%. That accordin1 to the afore0entioned Partnership
#ontract, the plaintiH Mr. Mauro ;o8ana, contributed the
a0ount of 2i1hteen Thousand Pesos 4P(.,EEE.EE6A said
contributions of both parties bein1 the appraised values of
their respective properties brou1ht into the partnershipA
*. That the said #erti:cate of Public #onvenience and
Necessit" !as revoed and cancelled b" order of the Public
Service #o00ission dated March (7, ()77, pro0ul1ated in
case No. 7.(.., entitled, 5Piadosa BuenaIor, applicant5,
!hich order has been appealed to the Supre0e #ourt b"
Mrs. BuenaIorA
-. That on October *E, ()77, the plaintiH sold properties
brou1ht into b" hi0 to the said partnership in favor of
Oli0pia Decolon1on in the a0ount of P(E,EEE.EE as per
Deed of Sale dated October *E, ()77 e3ecuted and rati:ed
before Notar" Public, Del:n De0aisip, in and for the
Municipalit" of Du0an1as, Iloilo and entered in his Notarial
Re1istr" as Doc. No. .*%A Pa1e No. &A Boo No. OIIIA and
Series of ()77, a cop" thereof is 0ade as $nne3 5B5 of
defendantJs ans!er and counterclai0A
7. That there !as no li9uidation of partnership and that at
the ti0e of said Sale on October *E, ()77, defendant !as
the 0ana1er thereofA
&. That b" virtue of the Order of this Honorable #ourt dated
Nove0ber (., ()77, those properties sold !ere taen b" the
Provincial SheriH on Nove0ber %E, ()77 and delivered to
the plaintiH on Nove0ber %7, ()77 upon the latter postin1
the re9uired bond e3ecuted b" hi0self and the ;u8on Suret"
#o., dated Nove0ber (>, ()77 and rati:ed before the
Notar" Public, 2leuterio del Rosario in and for the province of
Iloilo no!n as Doc. No. %EEA Pa1e )EA Boo No. VIIA and
Series of ()77A of said Notar" PublicA
>. That the said properties sold are no! in the possession of
Oli0pia Decolon1on, the purchaser, !ho is presentl"
operatin1 an electric li1ht plant in Du0an1as, IloiloA
.. That the defendant sold certain properties in favor of the
spouses, 'eli3 =i0enea and 'elisa Harder contributed b" hi0
to the partnership for P*,7EE.EE as per Deed of Sale
e3ecuted and rati:ed before the Notar" Public Rodri1o =.
Harder in and for the Province of Iloilo, no!n as Doc. No.
>&A Pa1e )-A Boo No. VA and Series of ()77, a certi:ed cop"
of !hich is hereto attached 0ared as $nne3 5$5, and 0ade
an inte1ral part hereofA 4pp, %>+%) RO$6.
$s it appears fro0 the above stipulation of facts that the
plaintiH and the defendant entered into the contract of
partnership, plaintiH contributin1 the a0ount of P(.,EEE,
and as it is not stated therein that there bas been a
li9uidation of the partnership assets at the ti0e plaintiH sold
the Buda Diesel 2n1ine on October (7, ()77, and since the
court belo! had found that the plaintiH had actuall"
contributed one en1ine and >E posts to the partnership, it
necessaril" follo!s that the Buda diesel en1ine contributed
b" the plaintiH had beco0e the propert" of the partnership.
$s properties of the partnership, the sa0e could not be
disposed of b" the part" contributin1 the sa0e !ithout the
consent or approval of the partnership or of the other
partner. 4#le0ente vs. ,alvan, &> Phil., 7&76.
The lo!er court declared that the contract of partnership
!as null and void, because b" the contract of partnership,
the parties thereto have beco0e du00ies of the o!ner of
the franchise. The reason for this holdin1 !as the ad0ission
b" defendant !hen bein1 cross+e3a0ined b" the court that
he and the plaintiH are du00ies. <e :nd that this
ad0ission b" the defendant is an error of la!, not a
state0ent of a fact. The $nti+Du00" la! has not been
violated as parties plaintiH and defendant are not aliens but
'ilipinos. The $nti+Du00" la! refers to aliens onl"
4#o00on!ealth $ct (E. as a0ended6.
Lpon e3a0inin1 the contract of partnership, especiall" the
provision thereon !herein the parties a1reed to 0aintain,
operate and distribute electric li1ht and po!er under the
franchise belon1in1 to Mrs. BuenaIor, !e do not :nd the
a1ree0ent to be ille1al, or contrar" to la! and public polic"
such as to 0ae the contract of partnership, null and
void ab initio. The a1ree0ent could have been sub0itted to
the Public Service #o00ission if the rules of the latter
re9uire the0 to be so presented. But the fact of furnishin1
the current to the holder of the franchise alone, !ithout the
previous approval of the Public Service #o00ission, does
not per se 0ae the contract of partnership null and void
fro0 the be1innin1 and render the partnership entered into
b" the parties for the purpose also void and non+e3istent.
Lnder the circu0stances, therefore, the court erred in
declarin1 that the contract !as ille1al fro0 the be1innin1
and that parties to the partnership are not bound therefor,
such that the contribution of the plaintiH to the partnership
did not pass to it as its propert". It also follo!s that the clai0
of the defendant in his counterclai0 that the partnership be
dissolved and its assets li9uidated is the proper re0ed", not
for each contributin1 partner to clai0 bac !hat he had
contributed.
'or the fore1oin1 considerations, the Fud10ent appealed
fro0 as !ell as the order of the court for the tain1 of the
propert" into custod" b" the sheriH 0ust be, as the" hereb"
are set aside and the case re0anded to the court belo! for
further proceedin1s in accordance !ith la!.
Republic of the Philippines
SUPREME COURT
Manila
'IRST DIVISION
G.R. No. +5995) O45o-,. 31, 1984
ISA$EO MORAN, JR., petitioner,
vs.
T%E %ON. COURT OF APPEAS !"# MARIANO E.
PECSON, respondents.

GUTIERRE/, JR., J.:
This is a petition for revie! on certiorari of the decision of
the respondent #ourt of $ppeals !hich ordered petitioner
Isabelo Moran, =r. to pa" da0a1es to respondent Mariano 2,
Pecson.
$s found b" the respondent #ourt of $ppeals, the
undisputed facts indicate thatG t#$.%&h'w(%
333 333 333
... on 'ebruar" %%, ()>( Pecson and Moran entered into an
a1ree0ent !hereb" both !ould contribute P(7,EEE each for
the purpose of printin1 )7,EEE posters 4featurin1 the
dele1ates to the ()>( #onstitutional #onvention6, !ith
Moran actuall" supervisin1 the !orA that Pecson !ould
receive a co00ission of P l,EEE a 0onth startin1 on $pril
(7, ()>( up to Dece0ber (7, ()>(A that on Dece0ber (7,
()>(, a li9uidation of the accounts in the distribution and
printin1 of the )7,EEE posters !ould be 0ade, that Pecson
1ave Moran P(E,EEE for !hich the latter issued a receiptA
that onl" a fe! posters !ere printedA that on or about Ma"
%., ()>(, Moran e3ecuted in favor of Pecson a pro0issor"
note in the a0ount of P%E,EEE pa"able in t!o e9ual
install0ents 4P(E,EEE pa"able on or before =une (7, ()>(
and P(E,EEE pa"able on or before =une *E, ()>(6, the !hole
su0 beco0in1 due upon default in the pa"0ent of the :rst
install0ent on the date due, co0plete !ith the costs of
collection.
Private respondent Pecson :led !ith the #ourt of 'irst
Instance of Manila an action for the recover" of a su0 of
0one" and alle1ed in his co0plaint three 4*6 causes of
action, na0el"G 4(6 on the alle1ed partnership a1ree0ent,
the return of his contribution of P(E,EEE.EE, pa"0ent of his
share in the pro:ts that the partnership !ould have earned,
and, pa"0ent of unpaid co00issionA 4%6 on the alle1ed
pro0issor" note, pa"0ent of the su0 of P%E,EEE.EEA and,
4*6 0oral and e3e0plar" da0a1es and attorne"Js fees.
$fter the trial, the #ourt of 'irst Instance held thatG t#$.
%&h'w(%
'ro0 the evidence presented it is clear in the 0ind of the
court that b" virtue of the partnership a1ree0ent entered
into b" the parties+plaintiH and defendant the plaintiH did
contribute P(E,EEE.EE, and another su0 of P>,EEE.EE for
the Voice of the Veteran or Dele1ate Ma1a8ine. Of the
e3pected )7,EEE copies of the posters, the defendant !as
able to print %,EEE copies onl" authori8ed of !hich,
ho!ever, !ere sold at P7.EE each. Nothin1 0ore !as done
after this and it can be said that the venture did not reall"
1et oH the 1round. On the other hand, the plaintiH failed to
1ive his full contribution of P(7,EEE.EE. Thus, each part" is
entitled to rescind the contract !hich ri1ht is i0plied in
reciprocal obli1ations under $rticle (*.7 of the #ivil #ode
!hereunder Jrescission creates the obli1ation to return the
thin1s !hich !ere the obFect of the contract ...
<H2R2'OR2, the court hereb" renders Fud10ent orderin1
defendant Isabelo #. Moran, =r. to return to plaintiH Mariano
2. Pecson the su0 of P(>,EEE.EE, !ith interest at the le1al
rate fro0 the :lin1 of the co0plaint on =une (), ()>%, and
the costs of the suit.
'or insu/cienc" of evidence, the counterclai0 is hereb"
dis0issed.
'ro0 this decision, both parties appealed to the respondent
#ourt of $ppeals. The latter lie!ise rendered a decision
a1ainst the petitioner. The dispositive portion of the decision
readsG t#$.%&h'w(%
PR2MIS2S #ONSID2R2D, the decision appealed fro0 is
hereb" S2T $SID2, and a ne! one is hereb" rendered,
orderin1 defendant+appellant Isabelo #. Moran, =r. to pa"
plaintiH+ appellant Mariano 2. PecsonG
4a6 'ort"+seven thousand :ve hundred 4P->,7EE6 4the
a0ount that could have accrued to Pecson under their
a1ree0ent6A
4b6 2i1ht thousand 4P.,EEE6, 4the co00ission for ei1ht
0onths6A
4c6 Seven thousand 4P>,EEE6 4as a return of PecsonJs
invest0ent for the VeteranJs ProFect6A
4d6 ;e1al interest on 4a6, 4b6 and 4c6 fro0 the date the
co0plaint !as :led 4up to the ti0e pa"0ent is 0ade6
The petitioner contends that the respondent #ourt of
$ppeals decided 9uestions of substance in a !a" not in
accord !ith la! and !ith Supre0e #ourt decisions !hen it
co00itted the follo!in1 errorsG
I
TH2 HONOR$B;2 #OLRT O' $PP2$;S ,RI2VOLS;P 2RR2D IN
HO;DIN, P2TITION2R IS$B2;O #. MOR$N, =R. ;I$B;2 TO
R2SPOND2NT M$RI$NO 2. P2#SON IN TH2 SLM O' P->,7EE
$S TH2 SLPPOS2D 2OP2#T2D PRO'ITS DL2 HIM.
II
TH2 HONOR$B;2 #OLRT O' $PP2$;S ,RI2VOLS;P 2RR2D IN
HO;DIN, P2TITION2R IS$B2;O #. MOR$N, =R. ;I$B;2 TO
R2SPOND2NT M$RI$NO 2. P2#SON IN TH2 SLM O' P.,EEE,
$S SLPPOS2D #OMMISSION IN TH2 P$RTN2RSHIP $RISIN,
OLT O' P2#SONJS INV2STM2NT.
III
TH2 HONOR$B;2 #OLRT O' $PP2$;S ,RI2VOLS;P 2RR2D IN
HO;DIN, P2TITION2R IS$B2;O #. MOR$N, =R. ;I$B;2 TO
R2SPOND2NT M$RI$NO 2. P2#SON IN TH2 SLM O' P>,EEE
$S $ SLPPOS2D R2TLRN O' INV2STM2NT IN $ M$,$DIN2
V2NTLR2.
IV
$SSLMIN, <ITHOLT $DMITTIN, TH$T P2TITION2R IS $T $;;
;I$B;2 'OR $NP $MOLNT, TH2 HONOR$B;2 #OLRT O'
$PP2$;S DID NOT 2V2N O''S2T P$PM2NTS $DMITT2D;P
R2#2IV2D BP P2#SON 'ROM MOR$N.
V
TH2 HONOR$B;2 #OLRT O' $PP2$;S ,RI2VOLS;P 2RR2D IN
NOT ,R$NTIN, TH2 P2TITION2RJS #OMPL;SORP
#OLNT2R#;$IM 'OR D$M$,2S.
The :rst 9uestion raised in this petition refers to the a!ard
of P->,7EE.EE as the private respondentJs share in the
unreali8ed pro:ts of the partnership. The petitioner
contends that the a!ard is hi1hl" speculative. The petitioner
0aintains that the respondent court did not tae into
account the 1reat riss involved in the business
undertain1.
<e a1ree !ith the petitioner that the a!ard of speculative
da0a1es has no basis in fact and la!.
There is no dispute over the nature of the a1ree0ent
bet!een the petitioner and the private respondent. It is a
contract of partnership. The latter in his co0plaint alle1ed
that he !as induced b" the petitioner to enter into a
partnership !ith hi0 under the follo!in1 ter0s and
conditionsG t#$.%&h'w(%
(. That the partnership !ill print colored posters of the
dele1ates to the #onstitutional #onventionA
%. That the" !ill invest the a0ount of 'ifteen Thousand
Pesos 4P(7,EEE.EE6 eachA
*. That the" !ill print Ninet" 'ive Thousand 4)7,EEE6 copies
of the said postersA
-. That plaintiH !ill receive a co00ission of One Thousand
Pesos 4P(,EEE.EE6 a 0onth startin1 $pril (7, ()>( up to
Dece0ber (7, ()>(A
7. That upon the ter0ination of the partnership on
Dece0ber (7, ()>(, a li9uidation of the account pertainin1
to the distribution and printin1 of the said )7,EEE posters
shall be 0ade.
The petitioner on the other hand ad0itted in his ans!er the
e3istence of the partnership.
The rule is, !hen a partner !ho has undertaen to
contribute a su0 of 0one" fails to do so, he beco0es a
debtor of the partnership for !hatever he 0a" have
pro0ised to contribute 4$rt. (>.&, #ivil #ode6 and for
interests and da0a1es fro0 the ti0e he should have
co0plied !ith his obli1ation 4$rt. (>.., #ivil #ode6. Thus
in )* v. Puzon 4>) S#R$ 7).6, !hich interpreted $rt. %%EE of
the #ivil #ode of the Philippines, !e allo!ed a total of
P%EE,EEE.EE co0pensator" da0a1es in favor of the
appellee because the appellant therein !as re0iss in his
obli1ations as a partner and as pri0e contractor of the
construction proFects in 9uestion. This case !as decided on
a particular set of facts. <e a!arded co0pensator"
da0a1es in the )* case because there !as a :ndin1 that
the constructin1 business is a pro:table one and that the LP
construction co0pan" derived so0e pro:ts fro0 its
contractors in the construction of roads and brid1es despite
its de:cient capital.5 Besides, there !as evidence to sho!
that the partnership 0ade so0e pro:ts durin1 the periods
fro0 =ul" %, ()7& to Dece0ber *(, ()7> and fro0 =anuar" (,
()7. up to Septe0ber *E, ()7). The pro:ts on t!o
1overn0ent contracts !orth P%,*%>,**7.>& !ere not
speculative. In the instant case, there is no evidence
!hatsoever that the partnership bet!een the petitioner and
the private respondent !ould have been a pro:table
venture. In fact, it !as a failure doo0ed fro0 the start.
There is therefore no basis for the a!ard of speculative
da0a1es in favor of the private respondent.
'urther0ore, in the )* case, onl" Pu8on failed to 1ive his full
contribution !hile L" contributed 0uch 0ore than !hat !as
e3pected of hi0. In this case, ho!ever, there !as 0utual
breach. Private respondent failed to 1ive his entire
contribution in the a0ount of P(7,EEE.EE. He contributed
onl" P(E,EEE.EE. The petitioner lie!ise failed to 1ive an" of
the a0ount e3pected of hi0. He further failed to co0pl"
!ith the a1ree0ent to print )7,EEE copies of the posters.
Instead, he printed onl" %,EEE copies.
$rticle (>)> of the #ivil #ode providesG t#$.%&h'w(%
The losses and pro:ts shall be distributed in confor0it" !ith
the a1ree0ent. If onl" the share of each partner in the
pro:ts has been a1reed upon, the share of each in the
losses shall be in the sa0e proportion.
Bein1 a contract of partnership, each partner 0ust share in
the pro:ts and losses of the venture. That is the essence of
a partnership. $nd even !ith an assurance 0ade b" one of
the partners that the" !ould earn a hu1e a0ount of pro:ts,
in the absence of fraud, the other partner cannot clai0 a
ri1ht to recover the hi1hl" speculative pro:ts. It is a rare
business venture 1uaranteed to 1ive (EEK pro:ts. In this
case, on an invest0ent of P(7,EEE.EE, the respondent !as
supposed to earn a 1uaranteed P(,EEE.EE a 0onth for ei1ht
0onths and around P(-%,7EE.EE on )7,EEE posters costin1
P%.EE each but %,EEE of !hich !ere sold at P7.EE each. The
fantastic nature of e3pected pro:ts is obvious. <e have to
tae various factors into account. The failure of the
#o00ission on 2lections to proclai0 all the *%E candidates
of the #onstitutional #onvention on ti0e !as a 0aFor factor.
The petitioner undesirable his best business Fud10ent and
felt that it !ould be a losin1 venture to 1o on !ith the
printin1 of the a1reed )7,EEE copies of the posters. Hidden
riss in an" business venture have to be considered.
It does not follo! ho!ever that the private respondent is not
entitled to recover an" a0ount fro0 the petitioner. The
records sho! that the private respondent 1ave P(E,EEE.EE
to the petitioner. The latter used this a0ount for the printin1
of %,EEE posters at a cost of P%.EE per poster or a total
printin1 cost of P-,EEE.EE. The records further sho! that the
%,EEE copies !ere sold at P7.EE each. The 1ross inco0e
therefore !as P(E,EEE.EE. Deductin1 the printin1 costs of
P-,EEE.EE fro0 the 1ross inco0e of P(E,EEE.EE and !ith no
evidence on the cost of distribution, the net pro:ts a0ount
to onl" P&,EEE.EE. This net pro:t of P&,EEE.EE should be
divided bet!een the petitioner and the private respondent.
$nd since onl" P-,EEE.EE !as undesirable b" the petitioner
in printin1 the %,EEE copies, the re0ainin1 P&,EEE.EE should
therefore be returned to the private respondent.
Relative to the second alle1ed error, the petitioner sub0its
that the a!ard of P.,EEE.EE as PecsonJs supposed
co00ission has no Fusti:able basis in la!.
$1ain, !e a1ree !ith the petitioner.
The partnership a1ree0ent stipulated that the petitioner
!ould 1ive the private respondent a 0onthl" co00ission of
Pl,EEE.EE fro0 $pril (7, ()>( to Dece0ber (7, ()>( for a
total of ei1ht 4.6 0onthl" co00issions. The a1ree0ent does
not state the basis of the co00ission. The pa"0ent of the
co00ission could onl" have been predicated on relativel"
e3trava1ant pro:ts. The parties could not have intended the
1ivin1 of a co00ission inspite of loss or failure of the
venture. Since the venture !as a failure, the private
respondent is not entitled to the P.,EEE.EE co00ission.
$nent the third assi1ned error, the petitioner 0aintains that
the respondent #ourt of $ppeals erred in holdin1 hi0 liable
to the private respondent in the su0 of P>,EEE.EE as a
supposed return of invest0ent in a 0a1a8ine venture.
In a!ardin1 P>,EEE.EE to the private respondent as his
supposed return of invest0ent in the 5Voice of the Veterans5
0a1a8ine venture, the respondent court ruled thatG t#$.
%&h'w(%
333 333 333
... Moran ad0ittedl" si1ned the pro0issor" note of P%E,EEE
in favor of Pecson. Moran does not 9uestion the due
e3ecution of said note. Must Moran therefore pa" the
a0ount of P%E,EEEQ The evidence indicates that the
P%E,EEE !as assi1ned b" Moran to cover the follo!in1G t#$.
%&h'w(%
4a6 P >,EEE R the a0ount of the PNB chec 1iven b" Pecson
to Moran representin1 PecsonJs invest0ent in MoranJs other
proFect 4the publication and printin1 of the JVoice of the
VeteransJ6A
4b6 P(E,EEE R to cover the return of PecsonJs contribution in
the proFect of the PostersA
4c6 P*,EEE R representin1 PecsonJs co00ission for three
0onths 4$pril, Ma", =une, ()>(6.
Of said P%E,EEE Moran has to pa" P>,EEE 4as a return of
PecsonJs invest0ent for the VeteransJ proFect, for this
proFect never left the 1round6 ...
$s a rule, the :ndin1s of facts of the #ourt of $ppeals are
:nal and conclusive and cannot be revie!ed on appeal to
this #ourt 4A!igo v. Teves, )& Phil. %7%6, provided the" are
borne out b" the record or are based on substantial
evidence 4Alsua+,etts v. -ourt of Appeals, )% S#R$ **%6.
Ho!ever, this rule ad0its of certain e3ceptions. Thus,
in-arolina .ndustries .nc. v. -S Stoc/ ,ro/erage, .nc., et al.,
4)> S#R$ >*-6, !e held that this #ourt retains the po!er to
revie! and rectif" the :ndin1s of fact of the #ourt of
$ppeals !hen 4(6 the conclusion is a :ndin1 1rounded
entirel" on speculation, sur0ises and conFecturesA 4%6 !hen
the inference 0ade is 0anifestl" 0istaen absurd and
i0possibleA 4*6 !here there is 1rave abuse of discretionA 4-6
!hen the Fud10ent is based on a 0isapprehension of factsA
and 476 !hen the court, in 0ain1 its :ndin1s, !ent be"ond
the issues of the case and the sa0e are contrar" to the
ad0issions of both the appellant and the appellee.
In this case, there is 0isapprehension of facts. The evidence
of the private respondent hi0self sho!s that his invest0ent
in the 5Voice of Veterans5 proFect a0ounted to onl"
P*,EEE.EE. The re0ainin1 P-,EEE.EE !as the a0ount of
pro:t that the private respondent e3pected to receive.
The records sho! the follo!in1 e3hibits+ t#$.%&h'w(%
2 R Oero3 cop" of PNB Mana1erJs #hec No. %*-%&7 dated
March %%, ()>( in favor of defendant. Defendant ad0itted
the authenticit" of this chec and of his receipt of the
proceeds thereof 4t.s.n., pp. *+-, Nov. %), ()>%6. This e3hibit
is bein1 oHered for the purpose of sho!in1 plaintiHJs capital
invest0ent in the printin1 of the 5Voice of the Veterans5 for
!hich he !as pro0ised a :3ed pro:t of P.,EEE. This
invest0ent of P&,EEE.EE and the pro0ised pro:t of P.,EEE
are covered b" defendantJs pro0issor" note for P(-,EEE
dated March *(, ()>( 0ared b" defendant as 23hibit %
4t.s.n., pp. %E+%(, Nov. %), ()>%6, and b" plaintiH as 23hibit
P. ;ater, defendant returned P*,EEE.EE of the P&,EEE.EE
invest0ent thereb" proportionatel" reducin1 the pro0ised
pro:t to P-,EEE. <ith the balance of P*,EEE 4capital6 and
P-,EEE 4pro0ised pro:t6, defendant si1ned and e3ecuted
the pro0issor" note for P>,EEE 0ared 23hibit * for the
defendant and 23hibit M for plaintiH. Of this P>,EEE,
defendant paid P-,EEE representin1 full return of the capital
invest0ent and P(,EEE partial pa"0ent of the pro0ised
pro:t. The P*,EEE balance of the pro0ised pro:t !as 0ade
part consideration of the P%E,EEE pro0issor" note 4t.s.n.,
pp. %%+%-, Nov. %), ()>%6. It is, therefore, bein1 presented to
sho! the consideration for the P%E,EEE pro0issor" note.
' R Oero3 cop" of PNB Mana1erJs chec dated Ma" %), ()>(
for P>,EEE in favor of defendant. The authenticit" of the
chec and his receipt of the proceeds thereof !ere ad0itted
b" the defendant 4t.s.n., pp. *+-, Nov. %), ()>%6. This P
>,EEE is part consideration, and in cash, of the P%E,EEE
pro0issor" note 4t.s.n., p. %7, Nov. %), ()>%6, and it is bein1
presented to sho! the consideration for the P%E,EEE note
and the e3istence and validit" of the obli1ation.
333 333 333
;+Boo entitled 5Voice of the Veterans5 !hich is bein1
oHered for the purpose of sho!in1 the subFect 0atter of the
other partnership a1ree0ent and in !hich plaintiH invested
the P&,EEE 423hibit 26 !hich, to1ether !ith the pro0ised
pro:t of P.,EEE 0ade up for the consideration of the
P(-,EEE pro0issor" note 423hibit %A 23hibit P6. $s e3plained
in connection !ith 23hibit 2. the P*,EEE balance of the
pro0ised pro:t !as later 0ade part consideration of the
P%E,EEE pro0issor" note.
M+Pro0issor" note for P>,EEE dated March *E, ()>(. This is
also defendantJs 23hibit 2. This docu0ent is bein1 oHered
for the purpose of further sho!in1 the transaction as
e3plained in connection !ith 23hibits 2 and ;.
N+Receipt of plaintiH dated March *E, ()>( for the return of
his P*,EEE out of his capital invest0ent of P&,EEE 423h. 26 in
the P(-,EEE pro0issor" note 423h. %A P6. This is also
defendantJs 23hibit -. This docu0ent is bein1 oHered in
support of plaintiHJs e3planation in connection !ith 23hibits
2, ;, and M to sho! the transaction 0entioned therein.
333 333 333
P+Pro0issor" note for P(-,EEE.EE. This is also defendantJs
23hibit %. It is bein1 oHered for the purpose of sho!in1 the
transaction as e3plained in connection !ith 23hibits 2, ;, M,
and N above.
23plainin1 the above+9uoted e3hibits, respondent Pecson
testi:ed thatG t#$.%&h'w(%
S Durin1 the pre+trial of this case, Mr. Pecson, the defendant
presented a pro0issor" note in the a0ount of P(-,EEE.EE
!hich has been 0ared as 23hibit %. Do "ou no! this
pro0issor" noteQ
$ Pes, sir.
S <hat is this pro0issor" note, in connection !ith "our
transaction !ith the defendantQ
$ This pro0issor" note is for the printin1 of the 5Voice of the
Veterans5.
S <hat is this 5Voice of the Veterans5, Mr. PecsonQ
$ It is a boo.t#$.%&h'w(%
4T.S.N., p. (), Nov. %), ()>%6
S $nd !hat does the a0ount of P(-,EEE.EE indicated in the
pro0issor" note, 23hibit %, representQ
$ It represents the P&,EEE.EE cash !hich I 1ave to Mr.
Moran, as evidenced b" the Philippine National Ban
Mana1erJs chec and the P.,EEE.EE pro:t assured 0e b" Mr.
Moran !hich I !ill derive fro0 the printin1 of this 5Voice of
the Veterans5 boo.
S Pou said that the P&,EEE.EE of this P(-,EEE.EE is covered
b", a Mana1erJs chec. I sho! "ou 23hibit 2, is this the
Mana1erJs chec that 0entionedQ
$ Pes, sir.
S <hat happened to this pro0issor" note of P(-,EEE.EE
!hich "ou said represented P&,EEE.EE of "our invest0ent
and P.,EEE.EE pro0ised pro:tsQ
$ ;atter, Mr. Moran returned to 0e P*,EEE.EE !hich
represented one+half 4(T%6 of the P&,EEE.EE capital I 1ave to
hi0.
S $s a conse9uence of the return b" Mr. Moran of one+half
4(T%6 of the P&,EEE.EE capital "ou 1ave to hi0, !hat
happened to the pro0ised pro:t of P.,EEE.EEQ
$ It !as reduced to one+half 4(T%6 !hich is P-,EEE.EE.
S <as there an" docu0ent e3ecuted b" Mr. Moran in
connection !ith the Balance of P*,EEE.EE of "our capital
invest0ent and the P-,EEE.EE pro0ised pro:tsQ
$ Pes, sir, he e3ecuted a pro0issor" note.
S I sho! "ou a pro0issor" note in the a0ount of P>,EEE.EE
dated March *E, ()>( !hich for purposes of Identi:cation I
re9uest the sa0e to be 0ared as 23hibit M. . .
#ourt t#$.%&h'w(%
Mar it as 23hibit M.
S 4continuin16 is this the pro0issor" note !hich "ou said
!as e3ecuted b" Mr. Moran in connection !ith "our
transaction re1ardin1 the printin1 of the 5Voice of the
Veterans5Q
$ Pes, sir. 4T.S.N., pp. %E+%%, Nov. %), ()>%6.
S <hat happened to this pro0issor" note e3ecuted b" Mr.
Moran, Mr. PecsonQ
$ Mr. Moran paid 0e P-,EEE.EE out of the P>,EEE.EE as
sho!n b" the pro0issor" note.
S <as there a receipt issued b" "ou coverin1 this pa"0ent
of P-,EEE.EE in favor of Mr. MoranQ
$ Pes, sir.
4T.S.N., p. %*, Nov. %), ()>%6.
S Pou stated that Mr. Moran paid the a0ount of P-,EEE.EE
on account of the P>,EEE.EE covered b" the pro0issor"
note, 23hibit M. <hat does this P-,EEE.EE covered b"
23hibit N representQ
$ This P-,EEE.EE represents the P*,EEE.EE !hich he has
returned of 0" P&,EEE.EE capital invest0ent and the
P(,EEE.EE represents partial pa"0ent of the P-,EEE.EE pro:t
that !as pro0ised to 0e b" Mr. Moran.
S $nd !hat happened to the balance of P*,EEE.EE under the
pro0issor" note, 23hibit MQ
$ The balance of P*,EEE.EE and the rest of the pro:t !as
applied as part of the consideration of the pro0issor" note
of P%E,EEE.EE.
4T.S.N., pp. %*+%-, Nov. %), ()>%6.
The respondent court erred !hen it concluded that the
proFect never left the 1round because the proFect did tae
place. Onl" it failed. It !as the private respondent hi0self
!ho presented a cop" of the boo entitled 5Voice of the
Veterans5 in the lo!er court as 23hibit 5;5. Therefore, it
!ould be error to state that the proFect never too place and
on this basis decree the return of the private respondentJs
invest0ent.
$s alread" 0entioned, there are riss in an" business
venture and the failure of the undertain1 cannot entirel" be
bla0ed on the 0ana1in1 partner alone, speciall" if the
latter e3ercised his best business Fud10ent, !hich see0s to
be true in this case. In vie! of the fore1oin1, there is no
reason to pass upon the fourth and :fth assi1n0ents of
errors raised b" the petitioner. <e lie!ise :nd no valid
basis for the 1rant of the counterclai0.
<H2R2'OR2, the petition is ,R$NT2D. The decision of the
respondent #ourt of $ppeals 4no! Inter0ediate $ppellate
#ourt6 is hereb" S2T $SID2 and a ne! one is rendered
orderin1 the petitioner Isabelo Moran, =r., to pa" private
respondent Mariano Pecson SIO THOLS$ND 4P&,EEE.EE6
P2SOS representin1 the a0ount of the private respondentJs
contribution to the partnership but !hich re0ained unusedA
and THR22 THOLS$ND 4P*,EEE.EE6 P2SOS representin1 one
half 4(T%6 of the net pro:ts 1ained b" the partnership in the
sale of the t!o thousand 4%,EEE6 copies of the posters, !ith
interests at the le1al rate on both a0ounts fro0 the date
the co0plaint !as :led until full pa"0ent is 0ade.
SO ORD2R2D.
Republic of the Philippines
SUPREME COURT
Manila
'IRST DIVISION
G.R. No. +5539* F,-.u!.y 29, 1988
TAI TONG C%UAC%E 6 CO., petitioner,
vs.
T%E INSURANCE COMMISSION !"# TRA(EERS
MUTI+INDEMNIT7 CORPORATION, respondents.
GANCA7CO, J.:
This petition for revie! on certiorari sees the reversal of
the decision of the Insurance #o00ission in I# #ase
U*&>
1
dis0issin1 the co0plaint
2
for recover" of the alle1ed
unpaid balance of the proceeds of the 'ire Insurance Policies
issued b" herein respondent insurance co0pan" in favor of
petitioner+intervenor.
The facts of the case as found b" respondent Insurance
#o00ission are as follo!sG
#o0plainants ac9uired fro0 a certain Rolando ,on8ales a
parcel of land and a buildin1 located at San Rafael Villa1e,
Davao #it". #o0plainants assu0ed the 0ort1a1e of the
buildin1 in favor of S.S.S., !hich buildin1 !as insured !ith
respondent S.S.S. $ccredited ,roup of Insurers for
P%7,EEE.EE.
0n April 12, 1234, Azucena Palo!o obtained a loan fro! Tai
Tong -huache .nc. in the a0ount of P(EE,EEE.EE. To secure
the pa"0ent of the loan, a 0ort1a1e !as e3ecuted over the
land and the buildin1 in favor of Tai Ton1 #huache C #o.
4E5hibit 616 and 61+A66. On $pril %7, ()>7, $rsenio
#hua, representative of Thai Tong -huache 7 -o. insured
the latterJs interest !ith Travellers Multi+Inde0nit"
#orporation for P(EE,EEE.EE 4P>E,EEE.EE for the buildin1
and P*E,EEE.EE for the contents thereof6 423hibit 5$+a,5
contents thereof6 423hibit 5$+a56.
On =une ((, ()>7, Pedro Palo0o secured a 'ire Insurance
Polic" No. '+ E%7EE 423hibit 5$56, coverin1 the buildin1 for
P7E,EEE.EE !ith respondent Denith Insurance #orporation.
On =ul" (&, ()>7, another 'ire Insurance Polic" No. .-7)
423hibit 5B56 !as procured fro0 respondent Philippine British
$ssurance #o0pan", coverin1 the sa0e buildin1 for
P7E,EEE.EE and the contents thereof for P>E,EEE.EE.
On =ul" *(, ()>7, the buildin1 and the contents !ere totall"
ra8ed b" :re.
$dFust0ent Standard #orporation sub0itted a report as
follo!
333 333 333
... Thus the apportioned share of each co0pan" is as
follo!sG
Polic" No.. #o0pan" Ris Insures Pa"s
MIRO Denith Buildin1 P7E,EEE P(>,&(E.)*
'+E%7EE Insurance
#orp.
'+.-7)E Phil. Household >E,EEE %-,&77.*(
British
$ssco. #o.
Inc. ''' C '7 7E,EEE *),(.&.(E
Polic" No. #o0pan" Ris Insures Pa"s
'I#+(7*.( SSS$ccre
dited ,roup
of Insurers Buildin1 P%7,EEE P.,.E7.->
Totals P()7,EEE P)E,%7>..(
<e are sho!in1 hereunder another apportion0ent of the
loss !hich includes the Travellers Multi+Inde0nit" polic" for
reference purposes.
Polic" No. #o0pan" Ris InFures Pa"s
MIROT Denith
'+E%7EE Insurance
#orp. Buildin1 P7E,EEE P((,.>>.(-
'+.-7)E Phil.
British
$ssco. #o. I+Buildin1 >E,EEE (&,&%..EE
II+Buildin1
''' C P2 7E,EEE %-,)(..>)
PV#+(7(.( SSS $ccredited
,roup of
Insurers Buildin1 %7,EEE 7,)*..7E
'+7)) DV Insurers I+Ref *E,EEE (-,-&>.*(
Multi II+Buildin1 >E,EEE (&,&%..EE
Totals P%)7.EEE P)E,%7>..(
Based on the co0putation of the loss, includin1 the
Travellers Multi+ Inde0nit", respondents, Denith Insurance,
Phil. British $ssurance and S.S.S. $ccredited ,roup of
Insurers, paid their correspondin1 shares of the loss.
#o0plainants !ere paid the follo!in1G P-(,7-&.>) b"
Philippine British $ssurance #o., P((,.>>.(- b" Denith
Insurance #orporation, and P7,)*&.7> b" S.S.S. ,roup of
$ccredited Insurers 4Par. &. $0ended #o0plaint6. De0and
!as 0ade fro0 respondent Travellers Multi+Inde0nit" for its
share in the loss but the sa0e !as refused. Hence,
co0plainants de0anded fro0 the other three 4*6
respondents the balance of each share in the loss based on
the co0putation of the $dFust0ent Standards Report
e3cludin1 Travellers Multi+Inde0nit" in the a0ount of
P*E,.)-.*( 4P7,>*%.>)+Denith InsuranceG P%%,%)-.&%, Phil.
BritishG and P%,.&&.)E, SSS $ccredited6 but the sa0e !as
refused, hence, this action.
In their ans!ers, Philippine British $ssurance and Denith
Insurance #orporation ad0itted the 0aterial alle1ations in
the co0plaint, but denied liabilit" on the 1round that the
clai0 of the co0plainants had alread" been !aived,
e3tin1uished or paid. Both co0panies set up counterclai0 in
the total a0ount of P )(,7-&.>).
Instead of :lin1 an ans!er, SSS $ccredited ,roup of Insurers
infor0ed the #o00ission in its letter of =ul" %%, ()>> that
the herein clai0 of co0plainants for the balance had been
paid in the a0ount of P 7,)*..7> in full, based on the
$dFust0ent Standards #orporation Report of Septe0ber %%,
()>7.
Travellers Insurance, on its part, ad0itted the issuance of
the Polic" 8o. 422 "9 and alle1ed as its special and
a/r0ative defenses the follo!in1, to !itG that 'ire Polic" 8o.
422 "9, coverin1 the furniture and buildin1 of co0plainants
!as secured b" a certain Arsenio -hua, 0ort1a1e creditor,
for the purpose of protectin1 his 0ort1a1e credit a1ainst the
co0plainantsA that the said polic" !as issued in the na0e of
$8ucena Palo0o, onl" to indicate that she o!ns the insured
pre0isesA that the polic" contains an endorse0ent in favor
of $rsenio #hua as his 0ort1a1e interest 0a" appear to
indicate that insured !as $rsenio #hua and the
co0plainantsA that the pre0iu0 due on said :re polic" !as
paid b" $rsenio #huaA that respondent Travellers is not liable
to pa" co0plainants.
On Ma" *(, ()>>, Tai Ton1 #huache C #o. :led a co0plaint
in intervention clai0in1 the proceeds of the :re Insurance
Polic" No. '+77) DV, issued b" respondent Travellers Multi+
Inde0nit".
Travellers Insurance, in ans!er to the co0plaint in
intervention, alle1ed that the Intervenor is not entitled to
inde0nit" under its 'ire Insurance Polic" for lac of insurable
interest before the loss of the insured pre0ises and that the
co0plainants, spouses Pedro and $8ucena Palo0o, had
alread* paid in full their !ortgage indebtedness to the
intervenor.
3
$s adverted to above respondent Insurance #o00ission
dis0issed spouses Palo0osJ co0plaint on the 1round that
the insurance polic" subFect of the co0plaint !as taen out
b" Tai Ton1 #huache C #o0pan", petitioner herein, for its
o!n interest onl" as 0ort1a1ee of the insured propert" and
thus co0plainant as 0ort1a1ors of the insured propert"
have no ri1ht of action a1ainst herein respondent. It lie!ise
dis0issed petitionerJs co0plaint in intervention in the
follo!in1 !ordsG
<e 0ove on the issue of liabilit" of respondent Travellers
Multi+Inde0nit" to the Intervenor+0ort1a1ee. The
co0plainant testi:ed that she !as still indebted to
Intervenor in the a0ount of P(EE,EEE.EE. Such alle1ation
has not ho!ever, been su/cientl" proven b" docu0entar"
evidence. The certi:cation 423hibit J2+eJ6 issued b" the #ourt
of 'irst Instance of Davao, Branch ((, indicate that the
co0plainant !as $ntonio ;ope8 #hua and not Tai Ton1
#huache C #o0pan".
4
'ro0 the above decision, onl" intervenor Tai Ton1 #huache
:led a 0otion for reconsideration but it !as lie!ise denied
hence, the present petition.
It is the contention of the petitioner that respondent
Insurance #o00ission decided an issue not raised in the
pleadin1s of the parties in that it ruled that a certain $rsenio
;ope8 #hua is the one entitled to the insurance proceeds
and not Tai Ton1 #huache C #o0pan".
This #ourt cannot fault petitioner for the above erroneous
interpretation of the decision appealed fro0 considerin1 the
0anner it !as !ritten.
5
$s correctl" pointed out b"
respondent insurance co00ission in their co00ent, the
decision did not pronounce that it !as $rsenio ;ope8 #hua
!ho has insurable interest over the insured propert". Perusal
of the decision reveals ho!ever that it readil" absolved
respondent insurance co0pan" fro0 liabilit" on the basis of
the co00issionerJs conclusion that at the ti0e of the
occurrence of the peril insured a1ainst petitioner as
0ort1a1ee had no 0ore insurable interest over the insured
propert". It !as based on the inference that the credit
secured b" the 0ort1a1ed propert" !as alread" paid b" the
Palo0os before the said propert" !as 1utted do!n b" :re.
The fore1oin1 conclusion !as arrived at on the basis of the
certi:cation issued b" the then #ourt of 'irst Instance of
Davao, Branch II that in a certain civil action a1ainst the
Palo0os, $ntonio ;ope8 #hua stands as the co0plainant and
not petitioner Tai Ton1 #huache C #o0pan".
<e :nd the petition to be i0pressed !ith 0erit. It is a !ell
no!n postulate that the case of a part" is constituted b"
his o!n a/r0ative alle1ations. Lnder Section (, Rule
(*(
)
each part" 0ust prove his o!n a/r0ative alle1ations
b" the a0ount of evidence re9uired b" la! !hich in civil
cases as in the present case is preponderance of evidence.
The part", !hether plaintiH or defendant, !ho asserts the
a/r0ative of the issue has the burden of presentin1 at the
trial such a0ount of evidence as re9uired b" la! to obtain
favorable Fud10ent.
*
Thus, petitioner !ho is clai0in1 a
ri1ht over the insurance 0ust prove its case. ;ie!ise,
respondent insurance co0pan" to avoid liabilit" under the
polic" b" settin1 up an a/r0ative defense of lac of
insurable interest on the part of the petitioner 0ust prove its
o!n a/r0ative alle1ations.
It !ill be recalled that respondent insurance co0pan" did
not assail the validit" of the insurance polic" taen out b"
petitioner over the 0ort1a1ed propert". Neither did it den"
that the said propert" !as totall" ra8ed b" :re !ithin the
period covered b" the insurance. Respondent, as 0entioned
earlier advanced an a/r0ative defense of lac of insurable
interest on the part of the petitioner that before the
occurrence of the peril insured a1ainst the Palo0os had
alread" paid their credit due the petitioner. Respondent
havin1 ad0itted the 0aterial alle1ations in the co0plaint,
has the burden of proof to sho! that petitioner has no
insurable interest over the insured propert" at the ti0e the
contin1enc" too place. Lpon that point, there is a failure of
proof. Respondent, it !ill be noted, e3erted no eHort to
present an" evidence to substantiate its clai0, !hile
petitioner did. 'or said respondentJs failure, the decision
0ust be adverse to it.
Ho!ever, as adverted to earlier, respondent Insurance
#o00ission absolved respondent insurance co0pan" fro0
liabilit" on the basis of the certi:cation issued b" the then
#ourt of 'irst Instance of Davao, Branch II, that in a certain
civil action a1ainst the Palo0os, $rsenio ;ope8 #hua stands
as the co0plainant and not Tai Ton1 #huache. 'ro0 said
evidence respondent co00ission inferred that the credit
e3tended b" herein petitioner to the Palo0os secured b" the
insured propert" 0ust have been paid. Such is a 1larin1
error !hich this #ourt cannot sanction. Respondent
#o00issionJs :ndin1s are based upon a 0ere inference.
The record of the case sho!s that the petitioner to support
its clai0 for the insurance proceeds oHered as evidence the
contract of 0ort1a1e 423h. (6 !hich has not been cancelled
nor released. It has been held in a lon1 line of cases that
!hen the creditor is in possession of the docu0ent of credit,
he need not prove non+pa"0ent for it is presu0ed.
8
The
validit" of the insurance polic" taen b petitioner !as not
assailed b" private respondent. Moreover, petitionerJs clai0
that the loan e3tended to the Palo0os has not "et been paid
!as corroborated b" $8ucena Palo0o !ho testi:ed that the"
are still indebted to herein petitioner.
9
Public respondent ar1ues ho!ever, that if the civil case
reall" ste00ed fro0 the loan 1ranted to $8ucena Palo0o b"
petitioner the sa0e should have been brou1ht b" Tai Ton1
#huache or b" its representative in its o!n behalf. 'ro0 the
above pre0ise respondent concluded that the obli1ation
secured b" the insured propert" 0ust have been paid.
The pre0ise is correct but the conclusion is !ron1. #itin1
Rule *, Sec. %
10
respondent pointed out that the action
0ust be brou1ht in the na0e of the real part" in interest.
<e a1ree. Ho!ever, it should be borne in 0ind that
petitioner bein1 a partnership 0a" sue and be sued in its
na0e or b" its dul" authori8ed representative. The fact that
$rsenio ;ope8 #hua is the representative of petitioner is not
9uestioned. PetitionerJs declaration that $rsenio ;ope8 #hua
acts as the 0ana1in1 partner of the partnership !as
corroborated b" respondent insurance co0pan".
11
Thus
#hua as the 0ana1in1 partner of the partnership 0a"
e3ecute all acts of ad0inistration
12
includin1 the ri1ht to
sue debtors of the partnership in case of their failure to pa"
their obli1ations !hen it beca0e due and de0andable. Or at
the ver" least, #hua bein1 a partner of petitioner Tai Ton1
#huache C #o0pan" is an a1ent of the partnership. Bein1
an a1ent, it is understood that he acted for and in behalf of
the :r0.
13
Public respondentJs alle1ation that the civil case
Iied b" $rsenio #hua !as in his capacit" as personal
creditor of spouses Palo0o has no basis.
The respondent insurance co0pan" havin1 issued a polic"
in favor of herein petitioner !hich polic" !as of le1al force
and eHect at the ti0e of the :re, it is bound b" its ter0s and
conditions. Lpon its failure to prove the alle1ation of lac of
insurable interest on the part of the petitioner, respondent
insurance co0pan" is and 0ust be held liable.
IN VI2< O' TH2 'OR2,OIN,, the decision appealed fro0 is
hereb" S2T $SID2 and $NOTH2R Fud10ent is rendered order
private respondent Travellers Multi+Inde0nit" #orporation to
pa" petitioner the face value of Insurance Polic" No. 7))+DV
in the a0ount of P(EE,EEE.EE. #osts a1ainst said private
respondent.
SO ORD2R2D.
Republic of the Philippines
SUPREME COURT
Manila
2N B$N#
G.R. No. +1)318 O45o-,. 21, 1921
PANG IM !"# $ENITO GA(E/, plaintiHs+appellees,
vs.
O SENG, defendant+appellant.
-ohn, Fisher and "e:itt for appellant.
8o appearance for appellees.

STREET, J.:
'or several "ears prior to =une (, ()(&, t!o of the liti1atin1
parties herein, na0el", ;o Sen1 and Pan1 ;i0, #hinese
residents of the #it" of Manila, !ere partners, under the :r0
na0e of ;o Sen1 and #o., in the business of runnin1 a
distiller", no!n as 52l Pro1reso,5 in the Municipalit" of
Pao0bon1, in the Province of Bulacan. The land on !hich
said distiller" is located as !ell as the buildin1s and
i0prove0ents ori1inall" used in the business !ere, at the
ti0e to !hich reference is no! 0ade, the propert" of
another #hina0an, !ho resides in Hon1on1, na0ed ;o Pao,
!ho, in Septe0ber, ()((, leased the sa0e to the :r0 of ;o
Sen1 and #o. for the ter0 of three "ears.
Lpon the e3piration of this lease a ne! !ritten contract, in
the 0ain1 of !hich ;o Pao !as represented b" one ;o Shui
as attorne" in fact, beca0e eHective !hereb" the lease !as
e3tended for :fteen "ears. The reason !h" the contract !as
0ade for so lon1 a period of ti0e appears to have been that
the Bureau of Internal Revenue had re9uired sundr"
e3pensive i0prove0ents to be 0ade in the distiller", and it
!as a1reed that these i0prove0ents should be eHected at
the e3pense of the lessees. In confor0it" !ith this
understandin1 0an" thousands of pesos !ere e3pended b"
;o Sen1 and #o., and later b" ;o Sen1 alone, in enlar1in1
and i0provin1 the plant.
$0on1 the provisions contained in said lease !e note the
follo!in1G
;now all !en b* these presents<
3 3 3 3 3 3 3 3 3
(. That I, ;o Shui, as attorne" in fact in char1e of the
properties of Mr. ;o Pao of Hon1on1, cede b" !a" of lease
for :fteen "ears 0ore said distiller" 52l Pro1reso5 to Messrs.
Pan1 ;i0 and ;o Sen1 4doin1 business under the :r0 na0e
of ;o Sen1 and #o.6, after the ter0ination of the previous
contract, because of the fact that the" are re9uired, b" the
Bureau of Internal Revenue, to rearran1e, alter and clean up
the distiller".
%. That all the i0prove0ents and better0ents !hich the"
0a" introduce, such as 0achiner", apparatus, tans,
pu0ps, boilers and buildin1s !hich the business 0a"
re9uire, shall be, after the ter0ination of the :fteen "ears of
lease, for the bene:t of Mr. ;o Pao, 0" principal, the
buildin1s bein1 considered as i0prove0ents.
*. That the 0onthl" rent of said distiller" is P%EE, as a1reed
upon in the previous contract of Septe0ber ((, ()((,
acno!led1ed before the notar" public D. Vicente SantosA
and all 0odi:cations and repairs !hich 0a" be needed shall
be paid for b" Messrs. Pan1 ;i0 and ;o Sen1.
<e, Pan1 ;i0 and ;o Sen1, as partners in said distiller" 52l
Pro1reso,5 !hich !e are at present conductin1, hereb"
accept this contract in each and all its parts, said contract to
be eHective upon the ter0ination of the contract of
Septe0ber ((, ()((.
Neither the ori1inal contract of lease nor the a1ree0ent
e3tendin1 the sa0e !as inscribed in the propert" re1istr",
for the reason that the estate !hich is the subFect of the
lease has never at an" ti0e been so inscribed.
On =une (, ()(&, Pan1 ;i0 sold all his interest in the
distiller" to his partner ;o Sen1, thus placin1 the latter in
the position of sole o!nerA and on =une %., ()(., ;o Shui,
a1ain actin1 as attorne" in fact of ;o Pao, e3ecuted and
acno!led1ed before a notar" public a deed purportin1 to
conve" to Pan1 ;i0 and another #hina0an na0ed Benito
,alve8, the entire distiller" plant includin1 the land used in
connection there!ith. $s in case of the lease this docu0ent
also !as never recorded in the re1istr" of propert".
Thereafter Pan1 ;i0 and Benito ,alve8 de0anded
possession fro0 ;o Sen1, but the latter refused to "ieldA and
the present action of unla!ful detainer !as thereupon
initiated b" Pan1 ;i0 and Benito ,alve8 in the court of the
Fustice of the peace of Pao0bon1 to recover possession of
the pre0ises. 'ro0 the decision of the Fustice of the peace
the case !as appealed to the #ourt of 'irst Instance, !here
Fud10ent !as rendered for the plaintiHsA and the defendant
thereupon appealed to the Supre0e #ourt.
The case for the plaintiHs is rested e3clusivel" on the
provisions of article (7>( of the #ivil #ode, !hich reads in
part as follo!sG
$RT. (7>(. The purchaser of a leased estate shall be entitled
to ter0inate an" lease in force at the ti0e of 0ain1 the
sale, unless the contrar" is stipulated, and subFect to the
provisions of the Mort1a1e ;a!.
In considerin1 this provision it 0a" be pre0ised that a
contract of lease is personall" bindin1 on all !ho participate
in it re1ardless of !hether it is recorded or not, thou1h of
course the unrecorded lease creates no real char1e upon
the land to !hich it relates. The Mort1a1e ;a! !as devised
for the protection of third parties, or those !ho have not
participated in the contracts !hich are b" that la! re9uired
to be re1isteredA and none of its provisions !ith reference to
leases interpose an" obstacle !hatever to the 1ivin1 of full
eHect to the personal obli1ations incident to such contracts,
so far as concerns the i00ediate parties thereto. This is
rudi0entar", and the la! appears to be so understood b" all
co00entators, there bein1, so far as !e are a!are, no
authorit" su11estin1 the contrar". Thus, in the
co00entaries of the authors ,alindo and 2scosura, on the
Mort1a1e ;a!, !e :nd the follo!in1 pertinent observationG
5The Mort1a1e ;a! is enacted in aid of and in respect to
third persons onl"A it does not aHect the relations bet!een
the contractin1 parties, nor their capacit" to contract. $n"
9uestion aHectin1 the for0er !ill be deter0ined b" the
dispositions of the special la! ?i.e., the Mort1a1e ;a!@, !hile
an" 9uestion aHectin1 the latter !ill be deter0ined b" the
1eneral la!.5 4=alindo * Escosura, -o!entarios a la
Legislacion >ipotecaria, vol. I, p. -&(.6
$lthou1h it is thus 0anifest that, under the Mort1a1e ;a!,
as re1ards the personal obli1ations e3pressed therein, the
lease in 9uestion !as fro0 the be1innin1, and has
re0ained, bindin1 upon all the parties thereto R a0on1
!ho0 is to be nu0bered Pan1 ;i0, then a 0e0ber of the
:r0 of ;o Sen1 and #o. R this does not reall" solve the
proble0 no! before us, !hich is, !hether the plaintiHs
herein, as purchasers of the estate, are at libert" to
ter0inate the lease, assu0in1 that it !as ori1inall" bindin1
upon all parties participatin1 in it.
Lpon this point the plaintiHs are undoubtedl"
supported, pri!a facie, b" the letter of article (7>( of the
#ivil #odeA and the position of the defendant derives no
assistance fro0 the 0ere circu0stance that the lease !as
ad0ittedl" bindin1 as bet!een the parties thereto.
The !ords 5subFect to the provisions of the Mort1a1e ;a!,5
contained in article (7>(, e3press a 9uali:cation !hich
evidentl" has reference to the fa0iliar proposition that
recorded instru0ents are eHective a1ainst third persons
fro0 the date of re1istration 4#o+Tion1co vs. #o+,uia, ( Phil.,
%(E6A fro0 !hence it follo!s that a recorded lease 0ust be
respected b" an" purchaser of the estate !ho0soever. But
there is nothin1 in the Mort1a1e ;a! !hich, so far as !e
no! see, !ould prevent a purchaser fro0 e3ercisin1 the
precise po!er conferred in article (7>( of the #ivil #ode,
na0el", of ter0inatin1 an" lease !hich is unrecordedA
nothin1 in that la! that can be considered as arrestin1 the
force of article (7>( as applied to the lease no! before us.
$rticle (7-) of the #ivil #ode has also been cited b" the
attorne"s for the appellant as suppl"in1 authorit" for the
proposition that the lease in 9uestion cannot be ter0inated
b" one !ho, lie Pan1 ;i0, has taen part in the contract.
That provision is practicall" identical in ter0s !ith the :rst
para1raph of article %* of the Mort1a1e ;a!, bein1 to the
eHect that unrecorded leases shall be of no eHect as a1ainst
third personsA and the sa0e observation !ill su/ce to
dispose of it that !as 0ade b" us above in discussin1 the
Mort1a1e ;a!, na0el", that !hile it reco1ni8es the fact that
an unrecorded lease is bindin1 on all persons !ho
participate therein, this does not deter0ine the 9uestion
!hether, ad0ittin1 the lease to be so bindin1, it can be
ter0inated b" the plaintiHs under article (7>(.
Havin1 thus disposed of the considerations !hich arise in
relation !ith the Mort1a1e ;a!, as !ell as article (7-) of
the #ivil #oded R all of !hich, as !e have seen, are
undecisive R !e are brou1ht to consider the aspect of the
case !hich see0s to us conclusive. This is found in the
circu0stance that the plaintiH Pan1 ;i0 has occupied a
double role in the transactions !hich 1ave rise to this
liti1ation, na0el", :rst, as one of the lesseesA and secondl",
as one of the purchasers no! seein1 to ter0inate the
lease. These t!o positions are essentiall" anta1onistic and
inco0patible. 2ver" co0petent person is b" la! bond to
0aintain in all 1ood faith the inte1rit" of his o!n obli1ationsA
and no less certainl" is he bound to respect the ri1hts of an"
person !ho0 he has placed in his o!n shoes as re1ards an"
contract previousl" entered into b" hi0self.
<hile "et a partner in the :r0 of ;o Sen1 and #o., Pan1 ;i0
participated in the creation of this lease, and !hen he sold
out his interest in that :r0 to ;o Sen1 this operated as a
transfer to ;o Sen1 of Pan1 ;i0Js interest in the :r0 assets,
includin1 the leaseA and Pan1 ;i0 cannot no! be per0itted,
in the 1uise of a purchaser of the estate, to destro" an
interest derived fro0 hi0self, and for !hich he has received
full value.
The bad faith of the plaintiHs in seein1 to deprive the
defendant of this lease is striin1l" revealed in the
circu0stance that prior to the ac9uisition of this propert"
Pan1 ;i0 had been partner !ith ;o Sen1 and Benito ,alve8
an e0plo"ee. Both therefore had been in relations of
con:dence !ith ;o Sen1 and in that position had ac9uired
no!led1e of the possibilities of the propert" and possibl"
an e3perience !hich !ould have enabled the0, in case the"
had ac9uired possession, to e3ploit the distiller" !ith pro:t.
On account of his status as partner in the :r0 of ;o Sen1
and #o., Pan1 ;i0 ne! that the ori1inal lease had been
e3tended for :fteen "earsA and he ne! the e3tent of
valuable i0prove0ents that had been 0ade thereon.
#ertainl", as observed in the appellantJs brief, it !ould be
shocin1 to the 0oral sense if the condition of the la! !ere
found to be such that Pan1 ;i0, after pro:tin1 b" the sale of
his interest in a business, !orthless !ithout the lease, could
intervene as purchaser of the propert" and con:scate for his
o!n bene:t the propert" !hich he had sold for a valuable
consideration to ;o Sen1. The sense of Fustice recoils before
the 0ere possibilit" of such eventualit".
$bove all other persons in business relations, partners are
re9uired to e3hibit to!ards each other the hi1hest de1ree of
1ood faith. In fact the relation bet!een partners is
essentiall" :duciar", each bein1 considered in la!, as he is
in fact, the con:dential a1ent of the other. It is therefore
accepted as funda0ental in e9uit" Furisprudence that one
partner cannot, to the detri0ent of another, appl"
e3clusivel" to his o!n bene:t the results of the no!led1e
and infor0ation 1ained in the character of partner. Thus, it
has been held that if one partner obtains in his o!n na0e
and for his o!n bene:t the rene!al of a lease on propert"
used b" the :r0, to co00ence at a date subse9uent to the
e3piration of the :r0Js lease, the partner obtainin1 the
rene!al is held to be a constructive trustee of the :r0 as to
such lease. 4%E R. #. ;., .>.+..%.6 $nd this rule has even
been applied to a rene!al taen in the na0e of one partner
after the dissolution of the :r0 and pendin1 its li9uidation.
4(& R. #. ;., )E&A Nnapp vs.Reed, .. Neb., >7-A *% ;. R. $.
?N. S.@, .&)A Mitchell vs. Reed &( N. P., (%*A () $0. Rep.,
%7%.6
$n additional consideration sho!in1 that the position of the
plaintiH Pan1 ;i0 in this case is untenable is deducible fro0
articles (-&( and (->- of the #ivil #ode, !hich declare that
ever" person !ho sells an"thin1 is bound to deliver and
!arrant the subFect+0atter of the sale and is responsible to
the vendee for the le1al and la!ful possession of the thin1
sold. The pertinence of these provisions to the case no!
under consideration is undeniable, for a0on1 the assets of
the partnership !hich Pan1 ;i0 transferred to ;o Sen1, upon
sellin1 out his interest in the :r0 to the latter, !as this ver"
leaseA and !hile it cannot be supposed that the obli1ation to
!arrant reco1ni8ed in the articles cited !ould nullif" article
(7>(, if the latter article had actuall" conferred on the
plaintiHs the ri1ht to ter0inate this lease, nevertheless said
articles 4(-&(, (->-6, in relation !ith other considerations,
reveal the basis of an estoppel !hich in our opinion
precludes Pan1 ;i0 fro0 settin1 up his interest as purchaser
of the estate to the detri0ent of ;o Sen1.
It !ill not escape observation that the doctrine thus applied
is analo1ous to the doctrine reco1ni8ed in courts of co00on
la! under the head of estoppel b" deed, in accordance !ith
!hich it is held that if a person, havin1 no title to land,
conve"s the sa0e to another b" so0e one or another of the
reco1ni8ed 0odes of conve"ance at co00on la!, an" title
after!ards ac9uired b" the vendor !ill pass to the
purchaserA and the vendor is estopped as a1ainst such
purchaser fro0 assertin1 such after+ac9uired title. The
indenture of lease, it 0a" be further noted, !as reco1ni8ed
as one of the 0odes of conve"ance at co00on la! !hich
created this estoppel. 4. R. #. ;., (E7., (E7).6
'ro0 !hat has been said it is clear that Pan1 ;i0, havin1
been a participant in the contract of lease no! in 9uestion,
is not in a position to ter0inate itG and this is a fatal obstacle
to the 0aintenance of the action of unla!ful detainer b"
hi0. Moreover, it is fatal to the 0aintenance of the action
brou1ht Fointl" b" Pan1 ;i0 and Benito ,alve8. The reason is
that in the action of unla!ful detainer, under section .E of
the #ode of #ivil Procedure, the onl" 9uestion that can be
adFudicated is the ri1ht to possessionA and in order to
0aintain the action, in the for0 in !hich it is here
presented, the proof 0ust sho! that occupantJs possession
is unla!ful, i. e., that he is unla!full" !ithholdin1 possession
after the deter0ination of the ri1ht to hold possession. In
the case before us 9uite the contrar" appearsA for, even
ad0ittin1 that Pan1 ;i0 and Benito ,alve8 have purchased
the estate fro0 ;o Pao, the ori1inal landlord, the" are, as
bet!een the0selves, in the position of tenants in co00on
or o!ners pro indiviso, accordin1 to the proportion of their
respective contribution to the purchase price. But it is !ell
reco1ni8ed that one tenant in co00on cannot 0aintain a
possessor" action a1ainst his cotenant, since one is as 0uch
entitled to have possession as the other. The re0ed" is
ordinaril" b" an action for partition. 4#ornista vs. Ticson, %>
Phil., .E.6 It follo!s that as ;o Sen1 is vested !ith the
possessor" ri1ht as a1ainst Pan1 ;i0, he cannot be ousted
either b" Pan1 ;i0 or Benito ,alve8. Havin1 la!ful
possession as a1ainst one cotenant, he is entitled to retain it
a1ainst both. 'urther0ore, it is obvious that partition
proceedin1s could not be 0aintained at the instance of
Benito ,alve8 as a1ainst ;o Sen1, since partition can onl" be
eHected !here the partitioners are cotenants, that is, have
an interest of an identical character as a0on1 the0selves.
4*E #"c., (>.+(.E.6 The practical result is that both Pan1 ;i0
and Benito ,alve8 are bound to respect ;o Sen1Js lease, at
least in so far as the present action is concerned.
<e have assu0ed in the course of the precedin1 discussion
that the deed of sale under !hich the plaintiHs ac9uired the
ri1ht of ;o Pao, the o!ner of the fee, is co0petent proof in
behalf of the plaintiHs. It is, ho!ever, earnestl" insisted b"
the attorne" for ;o Sen1 that this docu0ent, havin1 never
been recorded in the propert" re1istr", cannot under article
*.) of the Mort1a1e ;a!, be used in court a1ainst hi0
because as to said instru0ent he is a third part". The
i0portant 9uestion thus raised is not absolutel" necessar"
to the decision of this case, and !e are inclined to pass it
!ithout decision, not onl" because the 9uestion does not
see0 to have been ventilated in the #ourt of 'irst Instance
but for the further reason that !e have not had the bene:t
of an" !ritten brief in this case in behalf of the appellees.
The Fud10ent appealed fro0 !ill be reversed, and the
defendant !ill be absolved fro0 the co0plaint. It is so
ordered, !ithout e3press adFudication as to costs.