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PARTNERSHIP LAST PART

G.R. No. 97212 June 30, 1993


BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HO-FU, respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered partnership with
the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain").
The partnership was originally organized on 28 June 1984 with Lea Bendal and
Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu
Chang, all citizens of the Republic of China (Taiwan), as limited partners. The
partnership business consisted of exploiting a marble deposit found on land
owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province,
under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March
1985, as Assistant General Manager with a monthly salary of P4,000.00.
According to petitioner Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the partners
that the balance would be paid when the firm shall have secured additional
operating funds from abroad. Benjamin Yu actually managed the operations and
finances of the business; he had overall supervision of the workers at the marble
quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners
Lea Bendal and Rhodora Bendal sold and transferred their interests in the
partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu
Chang, a limited partner, also sold and transferred his interest in the partnership
to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent
Willy Co acquired the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old
firm name of Jade Mountain, though they moved the firm's main office from
Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with

the Cruz spouses in February of 1988. 2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued
working in the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office
from Makati to Mandaluyong, petitioner Benjamin Yu reported to the
Mandaluyong office for work and there met private respondent Willy Co for the
first time. Petitioner was informed by Willy Co that the latter had bought the
business from the original partners and that it was for him to decide whether or
not he was responsible for the obligations of the old partnership, including
petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore
in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and
recovery of unpaid salaries accruing from November 1984 to October 1988, moral
and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and Willy Co denied
petitioner's charges, contending in the main that Benjamin Yu was never hired as
an employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding
that petitioner had been illegally dismissed. The Labor Arbiter decreed his
reinstatement and awarded him his claim for unpaid salaries, backwages and
attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the
decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution
dated 29 November 1990. The NLRC held that a new partnership consisting of Mr.
Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that
the new partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the new
partnership to absorb the employees of the old partnership. Benjamin Yu,
therefore, had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages
should be asserted against the original members of the preceding partnership,
but these though impleaded had, apparently, not been served with summons in
the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari,
asking us to set aside and annul the Resolution of the NLRC as a product of grave
abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle
that a partnership has a juridical personality separate and distinct from that of
each of its members. Such independent legal personality subsists, petitioner
claims, notwithstanding changes in the identities of the partners. Consequently,
the employment contract between Benjamin Yu and the partnership Jade
Mountain could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1)
whether the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnerships composed of
Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come
into existence, whether petitioner Yu could nonetheless assert his rights under
his employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that
is, that the legal effect of the changes in the membership of the partnership was
the dissolution of the old partnership which had hired petitioner in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite
unaware is found in the Civil Code provisions relating to partnerships. Article
1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding
up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
xxx xxx xxx

(2) in contravention of the agreement between the partners, where


the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any
time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and
Emmanuel Zapanta. The record does not show what happened to the remaining
18% of the original partnership interest. The acquisition of 82% of the partnership
interest by new partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was enough to constitute a
new partnership.
The occurrence of events which precipitate the legal consequence of dissolution
of a partnership do not, however, automatically result in the termination of the
legal personality of the old partnership. Article 1829 of the Civil Code states
that:
[o]n dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership
persists for the limited purpose of winding up and closing of the affairs of the
partnership. In the case at bar, it is important to underscore the fact that the
business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and then reassembling the said assets or most of them and opening a new business
enterprise. There were, no doubt, powerful tax considerations which underlay
such an informal approach to business on the part of the retiring and the
incoming partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also the
new partnership itself which continued the business of the old, dissolved, one,

are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela
Saw Mill, et al, 8 the Court held that under facts very similar to those in the case
at bar, a withdrawing partner remains liable to a third party creditor of the old
partnership. 9 The liability of the new partnership, upon the other hand, in the
set of circumstances obtaining in the case at bar, is established in Article 1840 of
the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership
are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or more
third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with
the consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay
the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the businessunder the provisions of article 1837,
second paragraph, No. 2, either alone or with others, andwithout
liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the
partnership affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the

dissolved partnership shall be satisfied out of the partnership property


only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under
any conditions set forth in this article the creditors of the retiring or
deceased partner or the representative of the deceased partner, have a
prior right to any claim of the retired partner or the representative of the
deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for
such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to
set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors
of the new Jade Mountain which continued the business of the old one without
liquidation of the partnership affairs. Indeed, a creditor of the old Jade
Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is
entitled to priority vis-a-visany claim of any retired or previous partner insofar
as such retired partner's interest in the dissolved partnership is concerned. It is
not necessary for the Court to determine under which one or mare of the above
six (6) paragraphs, the case at bar would fall, if only because the facts on record
are not detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu is
entitled to enforce his claim for unpaid salaries, as well as other claims relating
to his employment with the previous partnership, against the new Jade
Mountain.
It is at the same time also evident to the Court that the new partnership was
entitled to appoint and hire a new general or assistant general manager to run
the affairs of the business enterprise take over. An assistant general manager
belongs to the most senior ranks of management and a new partnership is
entitled to appoint a top manager of its own choice and confidence. The nonretention of Benjamin Yu as Assistant General Manager did not therefore
constitute unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for termination in the case at
bar was redundancy. 10 The new partnership had its own new General Manager,
apparently Mr. Willy Co, the principal new owner himself, who personally ran the

business of Jade Mountain. Benjamin Yu's old position as Assistant General


Manager thus became superfluous or redundant. 11 It follows that petitioner
Benjamin Yu is entitled to separation pay at the rate of one month's pay for each
year of service that he had rendered to the old partnership, a fraction of at least
six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner
Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily
treated by the new partnership. The old partnership certainly benefitted from
the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added
to the business itself and therefore, the new partnership similarly benefitted
from the labors of Benjamin Yu. It is worthy of note that the new partnership did
not try to suggest that there was any cause consisting of some blameworthy act
or omission on the part of Mr. Yu which compelled the new partnership to
terminate his services. Nonetheless, the new Jade Mountain did not notify him of
the change in ownership of the business, the relocation of the main office of
Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co
of control of operations. The treatment (including the refusal to honor his claim
for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so
summary and cavalier as to amount to arbitrary, bad faith treatment, for which
the new Jade Mountain may legitimately be required to respond by paying moral
damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in the
amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the
legal rate of six percent (6%) per annum on the amount of unpaid wages, and of
his separation pay, computed from the date of promulgation of the award of the
Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu
to resort to litigation to protect his rights in the premises, he is entitled to
attorney's fees in the amount of ten percent (10%) of the total amount due from
private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE
COURSE, the Comment filed by private respondents is treated as their Answer to
the Petition for Certiorari, and the Decision of the NLRC dated 29 November
1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED
requiring private respondent Jade Mountain Products Company Limited to pay to
petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-

six (36) months (November 1984 to December 1987) in the total


amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay
multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully
paid; and
(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. L-27343 February 28, 1979


MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L.
ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN,
INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO
and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First
Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G.
Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which
reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held.


(1) that the contract, Appendix "F", of the Partial Stipulation of
Facts, Exh. "A", has not created a chattel mortgage lien on the
machineries and other chattels mentioned therein, all of which
are property of the defendant partnership "Isabela Sawmill", (2)
that the plaintiffs, as creditors of the defendant partnership,
have a preferred right over the assets of the said partnership and
over the proceeds of their sale at public auction, superior to the
right of the defendant Margarita G. Saldajeno, as creditor of the
partners Leon Garibay and Timoteo Tubungbanua; (3) that the
defendant Isabela Sawmill' is indebted to the plaintiff Oppen,
Esteban, Inc. in the amount of P1,288.89, with legal interest
thereon from the filing of the complaint on June 5, 1959; (4)
that the same defendant is indebted to the plaintiff Manuel G.
Singsong in the total amount of P5,723.50, with interest thereon
at the rate of 1 % per month from May 6, 1959, (the date of the
statements of account, Exhs. "L" and "M"), and 25% of the total
indebtedness at the time of payment, for attorneys' fees, both
interest and attorneys fees being stipulated in Exhs. "I" to "17",
inclusive; (5) that the same defendant is indebted to the
plaintiff Agustin E. Tonsay in the amount of P933.73, with legal
interest thereon from the filing of the complaint on June 5,
1959; (6) that the same defendant is indebted to the plaintiff
Jose L. Espinos in the amount of P1,579.44, with legal interest
thereon from the filing of the complaint on June 5, 1959; (7)
that the same defendant is indebted to the plaintiff Bacolod
Southern Lumber Yard in the amount of Pl,048.78, with legal
interest thereon from the filing of the complaint on June 5,
1959; (8) that the same defendant is indebted to the plaintiff
Jose Belzunce in the amount of P2,052.10, with legal interest
thereon from the filing of the complaint on June 5. 1959; (9)
that the defendant Margarita G. Saldajeno, having purchased at
public auction the assets of the defendant partnership over
which the plaintiffs have a preferred right, and having sold said
assets for P 45,000.00, is bound to pay to each of the plaintiffs
the respective amounts for which the defendant partnership is
held indebted to, them, as above indicated and she is hereby
ordered to pay the said amounts, plus attorneys fees equivalent
to 25% of the judgment in favor of the plaintiff Manuel G.
Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of
the respective judgments in favor of the other plaintiffs,
pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of
the Philippines; (10) The defendants Leon Garibay and Timoteo
Tibungbanua are hereby ordered to pay to the plaintiffs the
respective amounts adjudged in their favor in the event that said

plaintiffs cannot recover them from the defendant Margarita G.


Saldajeno and the surety on the bond that she has filed for the
lifting of the injunction ordered by this court upon the
commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against
the defendants Leon Garibay arid Timoteo Tubungbanua is
hereby discussed Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified
the records of this case to the Supreme Court "considering that the resolution of
this appeal involves purely questions or question of law over which this Court has
no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L.
Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the
Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill",
Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay,
Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a
complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the
defendant Provincial Sheriff of Negros Occidental from proceeding with
the sales at public auction that he advertised in two notices issued by him
on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable
Court, until further orders of this Court; and to make said injunction
permanent after hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to
the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly
interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's
fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum
of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and
costs:

(3) That the so-called Chattel Mortgage executed by the


defendant Leon Garibay and Timoteo Tubungbanua in favor of
the defendant Margarita G. Saldajeno on May 26, 1958 be
declared null and void being in fraud of creditors of the
defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of
the assets of the defendnat partnership in case the latter fails to
pay the judgment that the plaintiffs may recover in the action,
with instructions that the proceeds of the sale b e applied in
payment of said judgment before any part of saod proceeds is
paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and
Margarita G. Saldajeno be declared jointly liable to the plaintifs
for whatever deficiency may remain unpaid after the proceeds of
the sale of the assets of the defendnt partnership are supplied in
payment of the judgment that said plaintiffs may recover in this
action;
(6) The plaintiffs further pray for all other remedies to which the
Honorable Court will find them entitled to, with costs to the
defendants.

the successors-in-interest to the said defunct partnership and have bound


themselves to answere for any and all obligations of the defunct
partnership to its creditors and third persons;
4. That to secure the performance of the obligations of the other
defendants Leon Garibay and Timoteo Tubungbanua to the answering
defendant herein, the former have constituted a chattel mortgage over
the properties mentioned in the annexes to that instrument entitled
"Assignment of Rights with Chattel Mortgage" entered into on May 26, 1968
and duly registered in the Register of Deeds of Negros Occidental on the
same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have
no cause of action against answering defendant herein and the defendant
Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban,
Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and
nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;

Bacolod City, June 4, 1959. 3


The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her
husband, Cecilio Saldajeno, alleged the following special and affirmative
defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an
action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of
First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became

7. That this Honorable Court has no jurisdictionover the claims of the


plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be
recovered by them in this action is less than P2,000.00 each, exclusive of
interests;
8. That in so far as the claims of these alleged creditors plaintiffs are
concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims
for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go
beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil
Code, and are therefor unenforceable, even assuming that there were such
credits and claims;

10. That this Honorable Court has no jurisdiction in this case for
it is well settled in law and in jurisprudence that a court of first
instance has no power or jurisdiction to annul judgments or
decrees of a coordinate court because other function devolves
upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et
al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del
Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124),
as it appears from the complaint in this case to annul the
decision of this same court, but of another branch (Branch II,
Judge Querubin presiding). 4

GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G.


SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.
V

Said defendants interposed a cross-claim against the defendsants Leon Garibay


and Timoteo Tubungbanua praying "that in the event that judgment be rendered
ordering defendant cross claimant to pay to the plaintiffs the amount claimed in
the latter's complaint, that the cross claimant whatever amount is paid by the
latter to the plaintiff in accordance to the said judgment. ... 5

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL


MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE
JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED
IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE
OF NEGROS OCCIDENTAL) WAS NULL AND VOID.

After trial, judgment was rendered in favor of the plaintiffs and against the
defendants.

VI

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,


appealed to the Court of Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE
CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH
REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED
THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP
"ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES


ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED
'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANTAPPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE
TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE
MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED
IN CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED
BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL',
AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH
SAID MARGARITA G. SALDAJENO WAS A PARTNER.
IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT


MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF
THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST
CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits
the plaintiffs and the defendant Cecilio and Margarita g.
Saldajeno submittee a Partial Stipulation of Facts that was
marked as Exh. "A". Said stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and Timoteo Tubungbanua
entered into a Contract of Partnership under the firm
name "Isabela Sawmill", a copy of which is hereto
attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold
a Motor Truck and two Tractors to the partnership Isabela Sawmill
for the sum of P20,500.00. In order to pay the said purcahse price,
the said partnership agreed to make arrangements with the
International Harvester Company at Bacolod City so that the latter
would sell farm machinery to Oppen, Esteban, Inc. with the
understanding that the price was to be paid by the partnership. A
copy of the corresponding contract of sle is attached hereto as
Appendix "B".
3. That through the method of payment stipulated in the contract
marked as Appendix "B" herein, the International Harvester
Company has been paid a total of P19,211.11, leaving an unpaid

balance of P1,288.89 as shown in the statements hereto attached


as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the
spouses Cecilio Saldajeno and Margarita G. Saldajeno against the
Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy
of which Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo
Tubungbanua and Margarita G. Saldajeno entered into a
"Memorandum Agreement", a copy of which is hereto attached as
Appendix 'E' in Civil Case 4797 of the Court of First Instance of
Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo
Tubungbanua and Margarita G. Saldajeno executed a document
entitled "Assignment of Rights with Chattel Mortgage", a copy of
which documents and its Annexes "A" to "A-5" forming a part of the
record of the above mentioned Civil Case No. 4797, which deed
was referred to in the Decision of the Court ofFirst Instance of
Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a
copy of which is hereto attached as Appendix "F" and "F-1"
respectively.
7. That thereafter the defendants Leon Garibay and Timoteo
Tubungbanua did not divide the assets and properties of the
"Isabela Sawmill" between them, but they continued the business
of said partnership under the same firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell at
public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery,
officeequipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of
Negros Occidental, entitled "Margarita G. Saldajeno vs.
Leon Garibay, et al." See Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of
Negros Occidental executed a Certificate ofSale in favor
of the defendant Margarita G. Saldajeno, as a result of
the sale conducted by him on October 14 and 15, 1959 for
the enforcement of the judgment rendered in Civil Case

No. 5223 of the Court of First Instance of Negros


Occidental, a certified copy of which certificte of sale is
hereto attached as Appendix "H".
10. That on October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
Oriental Lumber Company transfering to the latter for the
sum of P45,000.00 the trucks, tractors, machinery, and
other things that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified true
copy of which Deed of Sale is hereto attached as
Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno
and Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents
that were marked as Appendices "A", "B", "C", "C-1", "C-2", "D",
"E", "F", "F-1", "G", "G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G.
Saldajeno presented additional evidence, mostly documentary,
while the cross-defendants did not present any evidence. The
case hardly involves quetions of fact at all, but only questions of
law.
The fact that the defendnat 'Isabela Sawmill' is indebted to
theplaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as
the unpaid balance of an obligation of P20,500.00 contracted on
February 3, 10956 is expressly admitted in paragraph 2 and 3 of
the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and
"C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and
his Exhs. "B" to"G" that from October 6, 1958 to November 8,
1958 he advanced a total of P4,200.00 to the defendant 'Isabela
Sawmill'. Agaist the said advances said defendant delivered to
Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of
P933.73, which balance was confirmed on May 15, 1959 by the
defendant Leon Garibay, as Manager of the defendant
partnership.

The plaintiff Manuel G. Singsong proved by his own testimony


and by his Exhs. "J" to "L" that from May 25, 1988 to January 13,
1959 he sold on credit to the defendnat "Isabela Sawmill" rice
and bran, on account of which business transaction there
remains an unpaid balance of P3,580.50. The same plaintiff also
proved that the partnership ownes him the sum of P143.00 for
nipa shingles bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his
witness Cayetano Palmares and his Exhs. "N" to "O-3" that he
owns the "Guia Lumber Yard", that on October 11, 1958 said
lumber yard advanced the sum of P2,500.00 to the defendant
"Isabela Sawmill", that against the said cash advance, the
defendant partnership delivered to Guia Lumber Yard P920.56
worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the
testimony of the witness Cayetano Palmares an its Exhs. "P" to
"Q-1" that on October 11, 1958 said plaintiff advanced the sum of
P1,500.00 to the defendsant 'Isabela Sawmill', that against the
said cash advance, the defendant partnership delivered to the
said plaintiff on November 19, 1958 P377.72 worth of lumber,
and P73.54 worth of lumber on January 27, 1959, leaving an
outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon
Garibay whom he called as his witness, and through the Exhs. "R"
to "E" that from September 14, 1958 to November 27, 1958 he
sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and
lubricating oils, and that on account of said transactions, the
defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13
and 14, 1959 the Provincial Sheriff sold to the defendant
Margrita G. Saldajeno for P38,040.00 the assets of the
defendsant "Isabela Sawmill" which the defendants Leon G.
Garibay and Timoteo Tubungbanua had mortgaged to her, and
said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this
Court.
Appendix "I" of the same stipulation Exh. "A" shows that on
October 20, 1959 the defendant Margarita G. Saldajeno sold to
the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the

said properties that she had bought at public aucton one week
before.
xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros
Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of moeny, the biggest amount of
which was less than P2,000.00 and, therefore, within the jurisdiction of the
municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the
nullity of the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay and
Timoteo Tubungbanua. This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court of First Instnace. Where
the basic issue is something more than the right to recover a sum of money and
where the money claim is purely incidental to or a consequence of the principal
relief sought, the action is as a case where the subject of the litigation is not
capable of pecuniary estimation and is cognizable exclusively by the Court of
First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof
depends upon the nature of litigation, is defined in the amended Judiciary Act,
pursuant to which courts of first instance shall have exclusive original
jurisdiction over any case the subject matter of which is not capable of
pecuniary estimation. An action for the annulment of a judgment and an order of
a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not
capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is primarily
for the recovery of a sum of money, the cliam is considered capable of pecuniary
estimation, and whether jurisdiciton is in the municipal courts or in the courts of
first instance would depend on the amount of the claim. However, where the
basic issue is something other than the right to recover a sum of money, where
the money claim is purely incidental to, or a consequence of, the principal relief
sought, this Court has considered such actions as cases where the subject ogf the
litigation may not be estimated in terms of money, and are cognizable
exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:

Actions for specific performance of contracts have been


expressly prounounced to be exclusively cognizable by courts of
first instance: De Jesus vs. Judge Garcia, L-26816, February 28,
1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285,
April 29, 1966. And no cogent reason appears, and none is here
advanced by the parties, why an actin for rescission (or
resolution) should be differently treated, a "rescission" being a
counterpart, so to speak, of "specific performance'. In both
cases, the court would certainly have to undertake an
investigation into facts that would justify one act of the other.
No award for damages may be had in an action for resicssion
without first conducting an inquiry into matters which would
justify the setting aside of a contract, in the same manner that
courts of first instance would have to make findings of fact and
law in actions not capable of pecuniary estimnation espressly
held to be so by this Court, arising from issues like those arised
in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality
or illegality of the conveyance sought for and the determination
of the validity of the money deposit made); De Ursua v. Pelayo,
L-13285, April 18, 1950 (validity of a judgment); Bunayog v.
Tunas, L-12707, December 23, 1959 (validity of a
mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the
relations of the parties, the right to support created by the
relation, etc., in actions for support); De Rivera, et al. v. Halili,
L-15159, September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues of the
same nature may be raised by a party against whom an action for
rescission has been brought, or by the plaintiff himself. It is,
therefore, difficult to see why a prayer for damages in an action
for rescission should be taken as the basis for concluding such
action for resiccison should be taken as the basis for concluding
such action as one cpable of pecuniary estimation - a prayer
which must be included in the main action if plaintiff is to be
compensated for what he may have suffered as a result of the
breach committed by defendant, and not later on precluded
from recovering damages by the rule against splitting a cause of
action and discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled therein that although
the purposes of an action is to recover an amount plus interest

which comes within the original jurisidction of the Justice of the


Peace Court, yet when said action involves the foreclosure of a
chattel mortgage covering personal properties valued at more
than P2,000, (now P10,000.00) the action should be instituted
before the Court of First Instance.
In the instanct, case, the action is to recover the amount of
P1,520.00 plus interest and costs, and involves the foreclosure of
a chattel mortgage of personal properties valued at P15,340.00,
so that it is clearly within the competence of the respondent
court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros
Occidental did no err in exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be
annulled because it had been judicially approved in Civil Case No. 4797 of the
Court of First Instance of Negros Occidental and said chattel mortgage had been
ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court
of co-equal, concurrent and coordinate jusridiction, this Court originally ruled
that:
A court has no power to interfere with the judgments or decrees
of a court of concurrent or coordinate jurisdiction having equal
power to grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are
in a sense coordinate courts and cannot be allowed to interfere
with each others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case

12

where this Court said:

The rule which prohibits a Judge from intertering with the


actuations of the Judge of another branch of the same court is
not infringed when the Judge who modifies or annuls the order
isued by the other Judge acts in the same case and belongs to
the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule
is infringed when the Judge of a branch of the court issues a writ
of preliminary injunction in a case to enjoint the sheriff from
carrying out an order by execution issued in another case by the

Judge of another branch of the same court. (Cabigao and


Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought
to be annulled was rendered by the Court of First Instance of Iloilo and the
action for annullment was filed with the Court of First Instance of Antique, both
courts belonging to the same Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only
possessed by but restricted to the court in which the judgment
was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a
court of competent jurisdiction may not be interfered with by
any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a
branch of the court of First Instance belongs solely to the very same branch
which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment
case. 15
In December 1971, however, this court re-examined and reversed its earlier
doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking
through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case,
the policy of judicial stability, to the end that the judgment of a
court of competent jurisdiction may not be interfered with by
any court of concurrent jurisdiction may not be interfered with
by any court of concurrent jurisdiciton, this Court feels that this
is as good an occasion as any to re-examine the doctrine laid
down ...
In an action to annul the judgment of a court, the plaintiff's
cause of action springs from the alleged nullity of the judgment
based on one ground or another, particularly fraud, which fact
affords the plaintiff a right to judicial interference in his behalf.
In such a suit the cause of action is entirely different from that
in the actgion which grave rise to the judgment sought to be

annulled, for a direct attack against a final and executory


judgment is not a incidental to, but is the main object of the
proceeding. The cause of action in the two cases being distinct
and separate from each other, there is no plausible reason why
the venue of the action to annul the judgment should necessarily
follow the venue of the previous action ...
The present doctrine which postulate that one court or one
branch of a court may not annul the judgment of another court
or branch, not only opens the door to a violation of Section 2 of
Rule 4, (of the Rules of Court) but also limit the opportunity for
the application of said rule.
Our conclusion must therefore be that a court of first instance or
a branch thereof has the authority and jurisdiction to take
cognizance of, and to act in, suit to annul final and executory
judgment or order rendered by another court of first instance or
by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one
branch of the Court of First Instance of Negros Occidental can take cognizance of
an action to nullify a final judgment of the other two branches of the same
court.
It is true that the dissolution of a partnership is caused by any partner ceasing to
be associated in the carrying on of the business. 18 However, on dissolution, the
partnershop is not terminated but continuous until the winding up to the
business. 19
The remaining partners did not terminate the business of the partnership
"Isabela Sawmill". Instead of winding up the business of the partnership, they
continued the business still in the name of said partnership. It is expressly
stipulated in the memorandum-agreement that the remaining partners had
constituted themselves as the partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining
partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business
of the partnership in the name of "Isabela Sawmill". They used the properties of
said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners,


Leon Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela
Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the
trial court because she purchased at public auction the properties of the
partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the
partnership was published in the newspapers. The appellees and the public in
general had a right to expect that whatever, credit they extended to Leon
Garibay and Timoteo Tubungbanua doing the business in the name of the
partnership "Isabela Sawmill" could be enforced against the proeprties of said
partnership. The judicial foreclosure of the chattel mortgage executed in favor
of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame
for not insisting on the liquidaiton of the assets of the partnership. She even
agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the
business of the partnership "Isabela Sawmill" by entering into the memorandumagreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good
faith, the appellees aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences. Had
Margarita G. Saldajeno not entered into the memorandum-agreement allowing
Leon Garibay and Timoteo Tubungbanua to continue doing the business of the
aprtnership, the applees would not have been misled into thinking that they
were still dealing with the partnership "Isabela Sawmill". Under the facts, it is of
no moment that technically speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The
partnership was not terminated and it continued doping business through the
two remaining partners.
The contention of the appellant that the appleees cannot bring an action to
annul the chattel mortgage of the propertiesof the partnership executed by Leon
Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no
merit.
As a rule, a contract cannot be assailed by one who is not a party thereto.
However, when a contract prejudices the rights of a third person, he may file an
action to annul the contract.

This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercised an action for nullity of the contract
if he is prejudiced in his rights with respect to one of the contracting parties,
and can show detriment which would positively result to him from the contract
in which he has no intervention. 21

Gil Sta. Maria for plaintiff-appellant.

The plaintiffs-appellees were prejudiced in their rights by the execution of the


chattel mortgage over the properties of the partnership "Isabela Sawmill" in
favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua. Hence, said appelees have a right to file the action to
nullify the chattel mortgage in question.

BARREDO, J.:

The portion of the decision appealed from ordering the appellants to pay
attorney's fees to the plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton disregard of the rights of the
plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that
they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they
shall pay the appellees by their co-defendants Leon Garibay and Timoteo
Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo
Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of
"Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination
of the portion ordering appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay and Timoteo Tubungbanua,
should reimburse the defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees,
without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-Herrera,
JJ., concur.

G.R. No. L-23232 June 17, 1970


VICENTE DIRA, plaintiff-appellant,
vs.
PABLO D. TAEGA, defendant-appellee.

Ambrosio Padilla Law Offices and Lope Quimpo for defendant-appellee.

Direct appeal by plaintiff-appellant Vicente Dira from a decision of the Court of


First Instance of Leyte, dated February 13, 1964, dismissing, on the grounds of
prescription and laches, the complaint in its Civil Case No. 2886, an action for
accounting of a share in an alleged partnership, payment of salaries and other
money claims, without pronouncement as to costs.
The material facts as found by the trial judge are as follows:
That sometime in March 1946, plaintiff and defendant together
with Francisco Pagulayan entered into a partnership for the
purpose of engaging in the printing business in the City of
Tacloban and that the terms of the said partnership was for a
period of five (5) years from the organization thereof; that this
fact was admitted by the defendant in his answer; that, in the
articles of co-partnership, the plaintiff was designated as
President and his salary as such was P150.00 a month, that,
during his incumbency as President until the expiration of the
period, the defendant who was the manager-treasurer of the
partnership never paid him his salary; that at the time the
plaintiff was also the editor of the Leyte-Samar Tribune and in
accordance with their Articles of Partnership established the said
periodicals, the plaintiff as editor was to receive a salary of
P100.00 a month; that this salary and the accrued amount
therein was not also paid by the defendant, who was the
business manager of the enterprise; that the capital of the said
partnership was P5,000.00 equally divided among the partners;
that this amount was used by the partnership to purchase
printing equipment from the 64th Naval Construction Battalion,
U.S.N. and which printing equipment are in the possession of the
defendant up to now; that, before the purchase by the three of
them of the printing equipment, the plaintiff obtained a
personal loan from Francisco Pagulayan in the amount of
P1,100.00 and he pledged his share in the said equipment to pay
the same; that upon the request of the plaintiff, the defendant
paid the said amount to Francisco Pagulayan and this time

plaintiff used his share in the partnership as guarantee for the


defendant's payment; that on June 3, 1946, Francisco Pagulayan
sold his share of the partnership to the defendant and who by
virtue thereof became 2/3 owner of the business; that the
defendant presented Exhibit "5" which purports to be a letter of
demand to plaintiff asking him to settle his account, but due to
his failure to do so, he (defendant) assumed full ownership of
the business, he changed the name from the Leyte-Samar Press
to Taega Press; that from the time the partnership was
organized and went into business, the defendant as ManagerTreasurer never rendered any accounting of the business
operations, or paid the share of the plaintiff in the profits; and
that the present action of partnership accounting and sum of
money was only filed in Court by the plaintiff against the
defendant on February 10, 1961, that is after a lapse of 9 years,
10 months and 11 days after the expiration of the contract of
partnership, Exhibit 'A' on February 28, 1951. (Pp. 49-51, R. on
A.)
xxx xxx xxx
It is undisputed that the defendant had been in the exclusive
possession of all the printing equipment since 1946. Plaintiff
himself admitted that the defendant conducted himself as
absolute owner of the printing equipment. He testified that
defendant changed location of the printing press which place he
(Dira) did not know. According to defendant himself, he believed
in good faith and acted accordingly since 1947 that he was the
sole owner of the printing press, after the refusal of the plaintiff
to pay his indebtedness of P1,100.00 to him. From the above
facts, it can be deduced that defendant had acquired ownership
of the printing equipment and accessories in question as Article
1132 of the Civil Code provides that the ownership of movables
prescribes through uninterrupted possession of eight years,
without need of any condition. Surely 1946 or 1947 to 1961,
more than four and/or eight years had elapsed.
Plaintiff stated that defendant ignored him and did not give him
any participation, since 1947, in the business, yet he did not
demand an immediate accounting of the business. For his failure
to demand accounting five years before February 10, 1961, from
the defendant, he had forfeited his right by prescription. In
support, Article 1153 of the Civil Code, among other things,
provides that the period for prescription of actions to demand

accounting runs from the day the persons who should render
same cease in their functions, and Article 1149 of the Civil Code
provides that "all other actions whose periods are not fixed in
this Code or in other laws within five years from the time the
right of action accrues."
It is an incontrovertible fact that the plaintiff had filed this
action against the defendant on February 10, 1961, nearly ten
years after the expiration of the contract of partnership between
them on March, 1951. ... (Pp, 56-57, R. on A.)
In his complaint, plaintiff-appellant prayed for payment of his salaries not only
as President of the partnership but also as editor of the Leyte-Samar Tribune
which admittedly he had not been paid from the start, for accounting of the
partnership affairs, for payment of his alleged share in the rental value of the
printing equipment and accessories used by the partnership, of which he also
claimed part-ownership proportionally to his share in the partnership, and for
damages, attorney's fees and costs. The defendant-appellee admitted practically
all the material allegations of the complaint about the organization of the
partnership and the terms thereof as well as the non-payment of the salaries
claimed by appellant, but, in defense, he alleged that the whole business of the
partnership became his alone in 1947 after he had acquired by purchase the
share of Francisco Pagulayan and had taken over the share of appellant, since
the latter failed to pay the P1,100 he had requested appellee to pay to
Pagulayan, as security for the payment of which, he had pledge his said share to
appellee; that since 1947, the place of the business was transferred by him, he
had its name changed to Taega Press and he had always been operating openly
and publicly the said printing business from 1947 without any intervention or
participation of appellant and without said appellant making any claim of any
kind in connection therewith until the filing of the complaint on February 10,
1961, hence, all the claims and causes of action of the appellant had already
prescribed.
Upon the facts found by His Honor quoted above, We agree with His Honor in
upholding appellee's defense of prescription. From any angle that this case may
be viewed, it is obvious that appellant's causes of action barred by the statute of
limitations.
Appellee took exclusive control of the partnership affairs since 1947, publicly
and openly and after having notified appellant that he would do so should the
latter fail to comply with his letter of demand, Exhibit "5", dated April 19, 1947.
Nowhere in the facts found by the trial judge does it appear that appellant did
anything about said demand or that he ever contested the action of the appellee
of transferring the place of business and changing its name to Taega Press.

There is nothing to show that he had taken any move for the payment to him of
his unpaid salaries both as President of the business and as editor of the LeyteSamar Tribune.
Under these circumstances, it would be giving premium to inaction and
indifference to still hold that appellant could sue appellee, almost fourteen
years after the latter, with prior notice to the former, had openly and publicly
taken over exclusive control of the partnership business as if it were his own and
only a little short of ten years after the expiration of the stipulated term of
partnership. His claims for salaries accrued after each month they were unpaid.
Whether we assume that these claims lost basis in 1947 when appellee took over
the businesses of the printing press and the newspaper or in 1951, upon the
expiration of the term of the agreements, by all standards, these claims had
already prescribed when the present suit was filed. On the other hand, under
Article 1153 of the Civil Code, a demand for "accounting runs from the day the
persons who should render the same ceases in their functions," which in this case
as in 1947, when the appellee began to operate the businesses as exclusively his
own. Again, inasmuch as the longest period in the chapter on prescription of the
Civil Code is ten years, it is evident that appellant's action for accounting is
already barred. The same is true with the claim for rentals and recovery of
proportional ownership of the printing equipment and accessories, as to which,
appellant's period to bring his actions accrued also in 1947, fourteen years
before this suit was filed.
As a matter of fact, appellant impliedly admits the correctness of this position,
since in this appeal his only contention is that both as his partner and as pledgee
of his share, the appellee became his trustee, in legal contemplation, or that, in
the eyes of the law, a relationship of trusteeship arose between him and
appellee, hence his actions against him are imprescriptible. Appellant's pose is
without merit. In bad faith or in good faith, after eight years of actual adverse
possession, appellee acquired clear ownership of appellant's share by acquisitive
prescription. According to Art. 1132 of the Civil Code, "the ownership of personal
property also prescribes through uninterrupted possession for eight years,
without need of any other condition." So, appellee became undisputed owner of
appellant's share since 1955 or six years before this action was filed and since
said year the allegation of trusteeship had already lost any basis whatsoever.
Under Article 1140 of same Code, "Actions to recover movables shall prescribe
eight years from the time the possession thereof is lost, unless the possessor has
acquired the ownership by prescription for a less period" or for an equal period,
in which latter case, the right to sue prescribes together with the title.
Equally untenable is appellant's reliance on the theory that as a member of the
partnership, appellee continued as a trustee even after 1947, when said appellee

took the business for himself and even after 1951, the expiry date of the
agreements. The provisions of Article 1785 to the effect that: .
When a partnership for a fixed term or particular undertaking is
continued after the termination of such term or particular
undertaking without any express agreement, the rights and
duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as
habitually acted therein during the term, without any settlement
or liquidation of the partnership affairs, is prima facie evidence
of a continuation of the partnership.
and Article 1829 thus:
On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed.
are clearly inapplicable here, for the simple reason that those
articles are premised on a continuation of the partnership as
such, which is not our case, because here appellee repudiated
the partnership as early as 1947 with either actual or presumed
knowledge of the appellant. By analogy, at least, with the rule
as to a co-ownership, which a partnership essentially is,
prescription does not run in favor of any of the co-owners only as
long as the co-owner claiming against the others "expressly or
impliedly recognizes the co-ownership," a circumstance
irreconcilably inconsistent with appellee's conduct of
transferring the place of business, changing its name and not
paying appellant any of the salaries agreed upon in the articles
of partnership.
What is more, this case may well be decided on the basis of laches as was done
by the trial judge. In other words, even if prescription were not properly
applicable, We could still hold that under the facts proven in the record and
found by the lower court, appellant has been guilty of laches and his stale
demands may not gain the ears of the court. We note, however, that in his
answer, the appellee limit his defense specifically to prescription which is a
separate defense from laches. Not that such particularity of appellee's defense is
fatal, because, after all, it does not appear that the evidence proving laches
were objected to by appellant, (Section 5, Rule 10, Rules of Court) but We do
not feel that in this case We need to go beyond the specific defense expressly

invoked by the appellant. This is mentioned only, lest appellant may still
entertain any hope regarding this case.
WHEREFORE, the judgment of the lower court is affirmed, with costs against
appellant.

In G. R. No. 94285, the petitioners assail the Resolution[1] dated June 27,
1990 of the Court of Appeals granting the Motion for Reconsideration interposed
by the petitioners (now the private respondents) of its Decision [2], promulgated
on January 15, 1990, which affirmed the Order [3] issued on January 16, 1989 by
the Securities and Exchange Commission (SEC) en banc and the Order[4] of SEC
Hearing Officer Felipe Tongco, dated October 5, 1988,
The facts that matter are as follows:

G.R. No. 94285. August 31, 1999]

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy,
Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the
SEC on March 29, 1962, with Jose Sy as managing partner. The partners and their
respective shares are reflected in the Amended Articles of Partnership [5] as
follows:
NAMES AMOUNT CONTRIBUTED

JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE SY, HEIR OF
MARCIANO SY represented by JUSTINA VDA. DE SY and WILLIE
SY,petitioners, vs. THE COURT OF APPEALS, INTESTATE ESTATE OF SY
YONG HU, SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND
EXCHANGE COMMISSION, respondents.

SY YONG HU P 31, 000. 00


JOSE S. SY 205, 000. 00
JAYME S. SY 112, 000. 00
MARCIANO S. SY 143, 000. 00

[G.R. No. 100313. August 31, 1999]

WILLIE S. SY 85, 000. 00


VICENTE SY 85, 000. 00

SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY SUPPLY
CO., AND NEGROS ISUZU SALES, petitioners, vs. HONORABLE COURT
OF APPEALS (11th Division), INTESTATE ESTATE OF THE LATE SY
YONG HU, JOSE FALSIS, JR., AND HON. BETHEL KATALBASMOSCARDON, RTC OF NEGROS OCCIDENTAL, Branch 51, respondents.
DECISION
PURISIMA, J.:
At bar are two consolidated petitions for review on certiorari under Rule 45
of the Revised Rules of Court, docketed as G. R. Nos. 94285 and G.R. No.
100313, respectively, seeking to reinstate the Resolution of the Court of Appeals
in CA - G. R. SP No. 17070 and its Decision in CA-G. R. SP No. 24189.

JESUS SY 88, 000. 00


Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978,
August 12, 1978, December 30, 1979 and August 7, 1987, respectively.[6] At
present, the partnership has valuable assets such as tracts of lands planted to
sugar cane and commercial lots in the business district of Bacolod City.
Sometime in September, 1977, during the lifetime of all the partners, Keng
Sian brought an action,[7] docketed as Civil Case No. 13388 before the then Court
of First Instance of Negros Occidental, against the partnership as well as against
the individual partners for accounting of all the properties allegedly owned in
common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or
reconveyance of her one-half (1/2) share in said properties and in the fruits
thereof. Keng Sian averred that she was the common law wife of partner Sy Yong
Hu, that Sy Yong Hu, together with his children,[8] who were partners in the

partnership, connived to deprive her of her share in the properties acquired


during her cohabitation with Sy Yong Hu, by diverting such properties to the
partnership.[9]
In their answer dated November 3, 1977, the defendants, including Sy Yong
Hu himself, countered that Keng Sian is only a house helper of Sy Yong Hu and
his wife, subject properties are exclusively owned by defendant partnership, and
plaintiff has absolutely no right to or interest therein.[10]
On September 20, 1978, during the pendency of said civil case, Marciano Sy
filed a petition for declaratory relief against partners Vicente Sy, Jesus Sy and
Jayme Sy, docketed as SEC Case No. 1648, praying that he be appointed
managing partner of the partnership, to replace Jose Sy who died on August 12,
1978. Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to
represent the majority interest in the partnership, sought the dissolution of the
partnership and the appointment of Vicente Sy as managing partner. In due time,
Hearing Officer Emmanuel Sison came out with a decision [11] (Sison Decision)
dismissing the petition, dissolving the partnership and naming Jesus Sy, in lieu of
Vicente Sy who had died earlier, as the managing partner in charge of winding
the affairs of the partnership.
The Sison decision was affirmed in toto by the SEC en banc in a
decision[12] (Abello decision) dated June 8, 1982, disposing thus:
WHEREFORE, the Commission en banc affirms the dispositive portion of the
decision of the Hearing Officer, but clarifies that: (1) the partnership was
dissolved by express will of the majority and not ipso facto because of the death
of any partner in view of the stipulation of Articles of Partnership and the
provisions of the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2) The
Managing Partner designated by the majority, namely Jesus Sy, vice Vicente Sy
(deceased) shall only act as a manager in liquidation and he shall submit to the
Hearing Officer an accounting and a project of partition, within 90 days from
receipt of this decision. (3) The petitioner is also required within the same
period to submit his counter-project of partition, from date of receipt of the
Managing Partners project of partition. (4) The case is remanded to the Hearing
Officer for evaluation and approval of the accounting and project of partition.

Espejo in an Order, dated January 11, 1984, which Order became final since no
appeal was taken therefrom.[14]
After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to
intervene in SEC Case No. 1648 but their motion to so intervene was denied in an
Order dated May 9, 1985. There was no appeal from said order.[15]
In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental
appointed one Felix Ferrer as a Special Administrator for the Intestate Estate of
Sy Yong Hu in Civil Case No. 13388. Then, on August 30, 1985, Alex Ferrer moved
to intervene in the proceedings in SEC Case No. 1648, for the partition and
distribution of the partnership assets, on behalf of the respondent Intestate
Estate.[16]
It appears that sometime in December, 1985, Special Administrator Ferrer
filed an Amended Complaint on behalf of respondent Intestate Estate in Civil
Case No. 13388, wherein he joined Keng Sian as plaintiff and thereby withdrew
as defendant in the case. Special Administrator Ferrer adopted the theory of
Keng Sian that the assets of the partnership belong to Keng Sian and Sy Yong Hu
(now represented by the Estate of Sy Yong Hu) in co-ownership, which assets
were wrongfully diverted in favor of the defendants.[17]
The motion to intervene in SEC Case No. 1648, filed by Special
Administrator Alex Ferrer on behalf of the respondent Estate, was denied in the
order issued on May 9, 1986 by Hearing Officer Sison.With the denial of the
motion for reconsideration, private respondent Intestate Estate of Sy Yong Hu
appealed to the Commission en banc.
In its decision (Sulit decision) on the aforesaid appeal from the Order dated
May 9, 1986, and the Order dated December 2, 1986, the SEC en banc[18] ruled:

On the basis of the above decision of the SEC en banc, Hearing Officer Sison
approved a partial partition of certain partnership assets in an order [13] dated
December 2, 1986. Therefrom, respondents seasonably appealed.

WHEREFORE, in the interest of Justice and equity, substantive rights of due


process being paramount over the rules of procedure, and in order to avoid
multiplicity of suits; the order of the hearing officer below dated May 9, 1986
denying the motion to intervene in SEC Case No. 1648 of appellant herein as well
as the order dated December 2, 1986[19] denying the motion for reconsideration
are hereby reversed and the motion to intervene given due course. The instant
case is hereby remanded to the hearing officer below for further proceeding on
the aspect of partition and/or distribution of partnership assets. The urgent
motion for the issuance of a restraining order is likewise hereby remanded to the
hearing officer below for appropriate action.[20]

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng
Seng, Carlos Keng Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a petition,
docketed as SEC Case No 2338, to revoke the certificate of registration of Sy
Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong
Hu. After hearings, the petition was dismissed by Hearing Officer Bernardo T.

The said decision of the SEC en banc reiterated that the Abello decision of June
8, 1982, which upheld the order of dissolution of the partnership, had long
become final and executory. No further appeal was taken from the Sulit
Decision.

During the continuation of the proceedings in SEC Case No. 1648, now
presided over by Hearing Officer Felipe S. Tongco who had substituted Hearing
Officer Sison, the propriety of placing the Partnership under receivership was
taken up. The parties brought to the attention of the Hearing Officer the fact of
existence of Civil Case No. 903 (formerly Civil Case No. 13388) pending before
the Regional Trial Court of Negros Occidental. They also agreed that during the
pendency of the aforesaid court case, there will be no disposition of the
partnership assets.[21] On October 5, 1988, Hearing Officer Tongco came out with
an Order[22] (Tongco Order) incorporating the above submissions of the parties
and placing[23] the partnership under a receivership committee, explaining that it
is the most equitable fair and just manner to preserve the assets of the
partnership during the pendency of the civil case in the Regional Trial Court of
Bacolod City.
On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed
by herein petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy,
Heirs of Marciano Sy (represented by Justina Vda. de Sy), and Willie Sy, against
the Intervenor (now private respondent). In an order (Lopez Order) dated
January 16, 1989, the SEC en banc[24]affirmed the Tongco Order.
With the denial of their Motion for Reconsideration,
special civil action for certiorari with the Court of Appeals.

[25]

petitioners filed a

On January 15, 1990, the Court of Appeals granted the petition and set
aside the Tongco and Lopez Orders, and remanded the case for further execution
of the 1982 Abello and 1988 Sulit Decisions, ordering the partition and
distribution of the partnership properties.[26]
Private respondent seasonably interposed a motion for reconsideration of
such decision of the Court of Appeals.
Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed
Resolution, reversing its Decision of January 15, 1990, and remanding the case to
the SEC for the formation of a receivership committee, as envisioned in the
Tongco Order.
G. R. No. 100313 came about in view of the dismissal by the Court of
Appeals[27] of the Petition for Certiorari with a Prayer for Preliminary Injunction,
docketed as CA-G. R. SP No. 24189, seeking to annul and set aside the orders,
dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No. 5326
before the Regional Trial Court of Bacolod City.
The antecedent facts are as follows:
Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its
Managing Partner, Jesus Sy, applied for a building permit to reconstruct its
building called Sy Yong Hu & Sons Building, located in the central business
district of Bacolod City, which had been destroyed by fire in the late 70s. On

July 5, 1988, respondent City Engineer issued Building Permit No. 4936 for the
reconstruction of the first two floors of the building. Soon thereafter,
reconstruction work began. In January, 1989, upon completion of its
reconstruction, the building was occupied by the herein petitioners, Bacolod and
Upholstery Supply Company and Negros Isuzu Sales, which businesses are owned
by successors-in-interest of the deceased partners Jose Sy and Vicente
Sy. Petitioner John Tan, who is also an occupant of the reconstructed building, is
the brother-in-law of deceased partner Marciano Sy.[28]
From the records on hand, it can be gleaned that the Tongco Order[29],
dated October 5, 1988, in SEC Case No. 1648, had, among others, denied a
similar petition of the intervenors therein (now private respondents) for a
restraining order and/or injunction to enjoin the reconstruction of the same
building. However, on October 10, 1988, respondent Intestate Estate sent a
letter to the City Engineer claiming that Jesus Sy is not authorized to act for
petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of
the property of the partnership. This was followed by a letter dated November
11, 1988, requesting the revocation of Building Permit No. 4936.
Respondent City Engineer inquired[30] later from Jesus Sy for an authority to
sign for and on behalf of Sy Yong Hu & Sons to justify the latters signature in the
application for the building permit, informing him that absent any proof of his
authority, he would not be issued an occupancy permit.[31] On December 27,
1988, respondent Intestate Estate reiterated its objection to the authority of
Jesus Sy to apply for a building permit and pointing out that in view of the
creation of a receivership committee, Jesus Sy no longer had any authority to act
for the partnership.[32]
In reply, Jesus Sy informed the City Engineer that the Tongco Order had
been elevated to the SEC en banc, making him still the authorized manager of
the partnership. He then requested that an occupancy permit be issued as Sy
Yong Hu & Sons had complied with the requirements of the City Engineers Office
and the National Building Code.[33]
Unable to convince the respondent City Engineer to revoke subject building
permit, respondent Intestate Estate brought a Petition for Mandamus with
prayer for a Writ of Preliminary Injunction,docketed as Civil Case No 5326
before the Regional Trial Court of Bacolod City and entitled Intestate Estate of
the Late Sy Yong Hu vs. Engineer Jose P. Falsis, Jr. [34] The Complaint concluded
with the following prayer:
WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable
Court that:
1. A writ of Preliminary Injunction be issued to the respondent, after preliminary
hearing is had. compelling his office to padlock the premises occupied, without

the requisite Certificate of Occupancy; to stop all construction activities, and


barricade the same premises so that the unwary public will not be subject to
undue hazards due to lack of requisite safety precaution;
2. The Respondent be ordered to enforce without exemption every requisite
provision of the Building Code as so mandated by it.[35]
Petitioners Sy Yong Hu & Sons, the owners of the building sought to be
padlocked were not impleaded as party to the petition dated February 22,
1989. Neither were the lessees-occupants thereon so impleaded. Thus, they
were not notified of the hearing scheduled for April 5, 1989, on which date the
Petition was heard. Subsequently, however, the Regional Trial Court issued an
order dated April 19, 1989 for the issuance of a Writ of Preliminary Mandatory
Injunction ordering the City Engineer to padlock the building.[36]
On May 9, 1989, upon learning of the issuance of the Writ of Preliminary
Injunction, dated May 4, 1989, petitioners immediately filed the: (1) Motion for
Intervention; (2) Answer in Intervention; and (3) Motion to set aside order of
mandatory injunction. In its order dated June 22, 1989, the Motion for
Intervention was granted by the lower court through Acting Presiding Judge
Porfirio A. Parian.
On August 3, 1989, respondent Intestate Estate presented a Motion to cite
Engineer Jose Falsis, Jr. in contempt of court for failure to implement the
injunctive relief.
On August 15, 1989, petitioners submitted an Amended Answer in
Intervention. Reacting thereto, respondent Intestate Estate filed a Motion to
Strike or Expunge from the Record the Amended Answer in Intervention.[37]
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the
respondent City Engineer to reiterate its request for the immediate issuance of a
certificate of occupancy, alleging that the Court of Appeals in its Decision of
January 15, 1990 in CA-G. R. No. 17070 had reversed the SEC decision which
approved the appointment of a receivership committee. However, the City
Engineer refused to issue the Occupancy Permit without the conformity of the
respondent Intestate Estate and one John Keng Seng who claims to be an
Illegitimate son of the Late Sy Yong Hu.[38]
In an order issued on January 24, 1991 upon an Ex Parte Motion to Have All
Pending Incidents Resolved filed by respondent Intestate Estate, Judge Bethel
Katalbas-Moscardon issued an order modifying the Writ of Preliminary Mandatory
Injunction, and directing the respondent City Engineer to:
x x x immediately order stoppage of any work affecting the construction of the
said building under Lot 259-A-2 located at Gonzaga Street adjacent to the

present Banco de Oro Building, BACOLOD City, to cancel or cause to be cancelled


the Building Permit it had issued; to order the discontinuance of the occupancy
or use of said building or structure or portion thereof found to be occupied or
used, the same being contrary and violative of the provisions of the Code; and to
desist from issuing any certificate of Occupancy until the merits of this case can
finally be resolved by this Court. x x x
Again, it is emphasized that the issue involved is solely question of law and the
Court cannot see any logical reason that the intervenors should be allowed to
intervene as earlier granted in the Order of the then Presiding Judge Porfirio A.
Parian, of June 22, 1989. Much less for said intervenors to move for presentation
of additional parties, only on the argument of Intervenors that any restraining
order to be issued by this Court upon the respondent would prejudice their
present occupancy which is self serving, whimsical and in fact immoral. It is
axiomatic that the means would not justify the end nor the end justify the
means. Assuming damage to the present occupants will occur and assuming
further that they are entitled, the same should be ventilated in a different
action against the lessor or landlord, and the present petition cannot be the
proper forum, otherwise, while it maybe argued that there is a multiplicity of
suit which actually is groundless, on the other hand, there will be only confusion
of the issues to be resolved by the Court. Well valid enough is to reiterate that
the present petition is not the proper forum for the intervenors to shop for
whatever relief.
In view of the above, the Order allowing the intervenors in this case is likewise
hereby withdrawn for the purposes above discussed. Consequently, the Motion to
present additional parties is deemed denied, and the Motion to Strike Or
Expunge From The Records the Amended Answer In Intervention is deemed
granted as in fact the same become moot and academic with the elimination of
the Intervenors in this case.[39]
Pursuant to the above Order of January 24, 1991, respondent City Engineer
served a notice upon petitioners revoking Building Permit No. 4936, ordering the
stoppage of all construction work on the building, and commanding
discontinuance of the occupancy thereof.
On February 15, 1991, the aggrieved petitioners filed a Petition
for Certiorari with Prayer for Preliminary Injunction with the Court of Appeals,
docketed as CA-G. R. SP No. 24189.
On February 27, 1991, the Court of Appeals issued a Temporary Restraining
Order enjoining the respondent Judge from implementing the questioned orders
dated January 24, 1991 and April 19, 1989.[40]

After the respondents had sent in their answer, petitioners filed a Reply
with a prayer for the issuance of a writ of mandamus directing the respondent
City Engineer to reissue the building permit previously issued in favor of
petitioner Sy Yong Hu & Sons, and to issue a certificate of occupancy on the
basis of the admission by respondent City Engineer that petitioner had complied
with the provisions of the National Building Code.[41]
On May 31, 1991, the Court of Appeals rendered its questioned decision
denying the petition.[42]
From the Resolution of the Court of Appeals granting the motion for
reconsideration in CA-G. R. SP No. 17070 and the Decision in CA-G. R. SP No.
24189, petitioners have come to this Court for relief.
In G. R. No. 94285, petitioners contend by way of assignment of
errors,[43] that:
I
RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN
DECISION IN CA-G. R. No. 17070, WHICH DECISION HAD REMANDED TO
THE SEC THE CASE FOR THE PROPER IMPLEMENTATION OF THE 1982
ABELLO AND 1988 SULIT DECISIONS WHICH IN TURN ORDERED THE
DISTRIBUTION AND PARTITION OF THE PARTNERSHIP PROPERTIES.
II
RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO
ORDER, WHICH HAD SUSPENDED THE DISSOLUTION OF THE
PARTNERSHIP AND THE DISTRIBUTION OF ITS ASSETS, AND IN PLACING
THE PARTNERSHIP PROPERTIES UNDER RECEIVERSHIP PENDING THE
RESOLUTION OF CIVIL CASE NO. 903 (13388), ON A GROUND NOT MADE
THE BASIS OF THE SEC RESOLUTION UNDER REVIEW, I. E., THE
DISPOSITION BY A PARTNER OF SMALL PROPERTIES ALREADY
ADJUDICATED TO HIM BY A FINAL SEC ORDER DATED DECEMBER 2,
1986 AND MADE LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF
THE PETITIONERS NOT TO DISPOSE OF THE PARTNERSHIP ASSETS.
In G. R. No. 100313, Petitioners assign as errors, that:

[44]

I
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN
HOLDING THAT RESPONDENT JUDGE DID NOT ACT WITHOUT

JURISDICTION AND WITH GRAVE ABUSE OF JURISDICTION IN ISSUING


THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.
II
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN
HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT WITHOUT
JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN
DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO.
5326.
III
THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN
ISSUING AND ORDERING THE IMPLEMENTATION OF THE WRIT OF
PRELIMINARY MANDATORY INJUNCTION DESPITE THE ABSENCE OR
LACK OF AN INJUNCTION BOND.[45]
On the two (2) issues raised in G. R. No. 94285, the Court rules for
respondents.
Petitioners fault the Court of Appeals for affirming the 1989 Decision of the
SEC which approved the appointment of a receivership committee as ordered by
Hearing Officer Felipe Tongco. They theorize that the 1988 Tongco Decision
varied the 1982 Abello Decision affirming the dissolution of the partnership,
contrary to the final and executory tenor of the said judgment. To buttress their
theory, petitioners offer the 1988 Sulit Decision which, among others, expressly
confirmed the finality of the Abello Decision.
On the same premise, petitioners aver that when Hearing Officer Tongco
took over from Hearing Officer Sison, he was left with no course of action as far
as the proceedings in the SEC Case were concerned other than to continue with
the partition and distribution of the partnership assets. Thus, the Order placing
the partnership under a receivership committee was erroneous and tainted with
excess of jurisdiction.
The contentions are untenable. Petitioners fail to recognize the basic
distinctions underlying the principles of dissolution, winding up and partition or
distribution. The dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying on, as
might be distinguished from the winding up, of its business. Upon its dissolution,
the partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination.[46]

The dissolution of the partnership did not mean that the juridical entity was
immediately terminated and that the distribution of the assets to its partners
should perfunctorily follow. On the contrary, the dissolution simply effected a
change in the relationship among the partners. The partnership, although
dissolved, continues to exist until its termination, at which time the winding up
of its affairs should have been completed and the net partnership assets are
partitioned and distributed to the partners.[47]
The error, therefore, ascribed to the Court of Appeals is devoid of any
sustainable basis. The Abello Decision though, indeed, final and executory, did
not pose any obstacle to the Hearing Officer to issue orders not inconsistent
therewith. From the time a dissolution is ordered until the actual termination of
the partnership, the SEC retained jurisdiction to adjudicate all incidents relative
thereto. Thus, the disputed order placing the partnership under a receivership
committee cannot be said to have varied the final order of dissolution. Neither
did it suspend the dissolution of the partnership. If at all, it only suspended the
partition and distribution of the partnership assets pending disposition of Civil
Case No. 903 on the basis of the agreement by the parties and under the
circumstances of the case. It bears stressing that, like the appointment of a
manager in charge of the winding up of the affairs of the partnership, said
appointment of a receiver during the pendency of the dissolution is interlocutory
in nature, well within the jurisdiction of the SEC.
Furthermore, having agreed with the respondents not to dispose of the
partnership assets, petitioners effectively consented to the suspension of the
winding up or, more specifically, the partition and distribution of subject
assets. Petitioners are now estopped from questioning the order of the Hearing
Officer issued in accordance with the said agreement. [48]
Petitioners also assail the propriety of the receivership theorizing that there
was no necessity therefor, and that such remedy should be granted only in
extreme cases, with respondent being duty-bound to adduce evidence of the
grave and irremediable loss or damage which it would suffer if the same was not
granted. It is further theorized that, at any rate, the rights of respondent
Intestate Estate are adequately protected since notices of lis pendens of the
aforesaid civil case have been annotated on the real properties of the
partnership.[49]
To bolster petitioners' contention, they maintain that they are the majority
partners of the partnership Sy Yong Hu & Sons controlling Ninety Six per cent
(96%) of its equity. As such, they have the greatest interest in preserving the
partnership properties for themselves,[50] and therefore, keeping the said
properties in their possession will not bring about any feared damage or
dissipation of such properties, petitioners stressed.
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall


possess the following powers:
xxx xxx xxx
(c) To appoint one or more receivers of the property, real or personal, which is
the subject of the action pending before the commission in accordance with the
pertinent provisions of the Rules of Court, and in such other cases, whenever
necessary in order to preserve the rights of parties-litigants and/or protect the
interest of the investing public and creditors; xxx.
The findings of the Court of Appeals accord with existing rules and
jurisprudence on receivership. Conformably, it stated that:[51]
x x x From a reexamination of the issues and the evidences involved, We find
merit in respondents motion for reconsideration.
This Court notes with special attention the order dated June 28, 1988 issued by
Hearing Officer Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation,
June 16, 1990) wherein all the parties agreed on the following:
1. That there is a pending case in court wherein the plaintiffs are claiming in
their complaint that all the assets of the partnership belong to Sy Yong Hu;
2. That the parties likewise agreed that during the pendency of the court case,
there will be no disposition of the partnership assets and further hearing is
suspended. x x x
As observed by the SEC Commission (sic) in its Order dated January 16, 1989:
Ordinarily, appellants contention would be correct, except that the en banc
order of April 29th appears to have been overtaken, and accordingly, rendered
inappropriate, by subsequent developments in SEC Case No. 1648, particularly
the entry in that proceedings, as of April 29, 1988, of an intervenor who claims a
superior and exclusive ownership right to all the partnership assets and
property. This claim of superior ownership right is presently pending
adjudication before the Regional Trial Court of Negros Occidental, And precisely
because if this supervening development, it would appear that the parties in SEC
Case No. 1648 agreed among themselves, as of June 28, 1988, that during the
pendency of the Negros Occidental case just mentioned, there should be no
disposition of partnership assets or property, and further, that the proceedings
in SEC Case No. 1648 should be suspended in the meantime (p. 2, Order; p. 12,
Rollo)

As alleged by the respondents and as shown by the records there is now pending
civil case entitled Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy,
Marciano Sy, Willy Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong Hu &
co and Sy Yong Hu & Sons denominated as Civil Case No. 903 before Branch 50 of
the Regional Trial Court of Bacolod City.
Moreover, a review of the records reveal that certain properties in question have
already been sold as of 1987, as evidenced by deeds of absolute sale executed by
Jesus in favor of Reynaldo Navarro (p. 331, Rollo), among others.
To ensure that no further disposition shall be made of the questioned assets and
in view of the pending civil case in the lower court, there is a compelling
necessity to place all these properties and assets under the management of a
receivership committee. The receivership committee, which will provide active
participation, through a designated representative, on the part of all interested
parties, can best protect the properties involved and assure fairness and equity
for all.
Receivership, which is admittedly a harsh remedy, should be granted with
extreme caution.[52] Sound bases therefor must appear on record, and there
should be a clear showing of its necessity.[53] The need for a receivership in the
case under consideration can be gleaned from the aforecited disquisition by the
Court of Appeals finding that the properties of the partnership were in danger of
being damaged or lost on account of certain acts of the appointed manager in
liquidation.
The dispositions of certain properties by the said manager, on the basis of
an order of partial partition, dated December 2, 1986, by Hearing Officer Sison,
which was not yet final and executory, indicated that the feared irreparable
injury to the properties of the partnership might happen again. So also, the
failure of the manager in liquidation to submit to the SEC an accounting of all
the partnership assets as required in its order of April 29, 1988, justified the SEC
in placing the subject assets under receivership.
Moreover, it has been held by this Court that an order placing the
partnership under receivership so as to wind up its affairs in an orderly manner
and to protect the interest of the plaintiff (herein private respondent) was not
tainted with grave abuse of discretion.[54] The allegation that respondents rights
are adequately protected by the notices of lis pendens in Civil Case 903 is
inaccurate. As pointed out in their Comment to the Petition, the private
respondents claim that the partnership assets include the income and fruits
thereof. Therefore, protection of such rights and preservation of the properties
involved are best left to a receivership committee in which the opposing parties
are represented.

What is more, as held in Go Tecson vs. Macaraig:

[55]

The power to appoint a receiver pendente lite is discretionary with the judge of
the court of first instance; and once the discretion is exercised, the appellate
court will not interfere, except in a clear case of abuse thereof, or an extra
limitation of jurisdiction.
Here, no clear abuse of discretion in the appointment of a receiver in the case
under consideration can be discerned.
With respect to G. R. No. 100313.[56]
Petitioners argue in this case that the failure of the private respondents to
implead them in Civil Case No. 5326 constituted a violation of due process. It is
their submission that the ex parte grant of said petition by the trial court worked
to their prejudice as they were deprived of an opportunity to be heard on the
allegations of the petition concerning subject property and assets. The recall of
the order granting their Motion to Intervene was done without the observance of
due process and consequently without jurisdiction on the part of the lower
court.
Commenting on the Petition, private respondents maintain that the only
issue in the present case is whether or not there was a violation of the Building
Code. They contend that after due and proper hearing before the lower court, it
was fully established that the provisions of the said Code had been violated,
warranting issuance of the Writ of Preliminary Injunction dated April 19,
1989. They further asseverate that the petitioners, who are the owner and
lessees in the building under controversy, have nothing to do with the case
for mandamus since it is directed against the respondent building official to
perform a specific duty mandated by the provisions of the Building Code.
In his Comment, the respondent City Engineer, relying on the validity of the
order of the trial court to padlock the building, denied any impropriety in his
compliance with the said order.
After a careful examination of the records on hand, the Court finds merit in
the petition.
In opposing the petition, respondent intestate estate anchors its stance on
the existence of violations of pertinent provisions of the aforesaid Code. As
regards due process, however, a distinction must be made between matters of
substance.[57] In essence, procedural due process refers to the method or manner
by which the law is enforced, while substantive due process requires that the
law itself, not merely the procedure by which the law would be enforced, is fair,
reasonable, and just.[58] Although private respondent upholds the substantive
aspect of due process, it, in the same breath, brushes aside its procedural

aspect, which is just as important, if the constitutional injunction against


deprivation of property without due process is to be observed.
Settled is the rule that the essence of due process is the opportunity to be
heard. Thus, in Legarda vs. Court of Appeals et al.,[59] the Court held that as
long as a party was given the opportunity to defend her interest in due course,
he cannot be said to have been denied due process of law.
Contrary to these basic tenets, the trial court gave due course to the
petition for mandamus, and granted the prayer for the issuance of a writ of
preliminary injunction on May 4, 1989, notwithstanding the fact that the owner
(herein petitioner Sy Yong Hu) of the building and its occupants [60] were not
impleaded as parties in the case. Affirming the same, the Court of Appeals
acknowledged that the lower court came out with the said order upon the
testimony of the lone witness for the respondent, in the person of the City
Engineer, whose testimony was not effectively traversed by the petitioners. This
conclusion arrived at by the Court of Appeals is erroneous in the face of the
irrefutable fact that the herein petitioners were not made parties in the said
case and, consequently, had absolutely no opportunity to cross examine the
witness of private respondent and to present contradicting evidence.
To be sure, the petitioners are indispensable parties in Civil Case No. 5326,
which sought to close subject building. Such being the case, no final
determination of the claims thereover could be had.[61]That the petition
for mandamus with a prayer for the issuance of a writ of preliminary mandatory
injunction was only directed against the City Engineer is of no moment. No
matter how private respondent justifies its failure to implead the petitioners,
the alleged violation of the provisions of the Building Code relative to the
reconstruction of the building in question, by petitioners, did not warrant an ex
parteand summary resolution of the petition. The violation of a substantive law
should not be confused with punishment of the violator for such violation. The
former merely gives rise to a cause of action while the latter is its effect, after
compliance with the requirements of due process.
The trial court failed to give petitioners their day in court to be heard
before they were condemned for the alleged violation of certain provisions of
the Building Code. Being the owner of the building in question and lessees
thereon, petitioners possess property rights entitled to be protected by
law. Their property rights cannot be arbitrarily interfered with without running
afoul with the due process rule enshrined in the Bill of Rights.
For failure to observe due process, the herein respondent court acted
without jurisdiction. As a result, petitioners cannot be bound by its
orders. Generally accepted is the principle that no man shall be affected by any
proceeding to which he is a stranger, and strangers to a case are not bound by
judgment rendered by the court.[62]

In similar fashion, the respondent court acted with grave abuse of discretion
when it disallowed the intervention of petitioners in Civil Case No. 5326. As it
was, the issuance of the Writ of Preliminary Injunction directing the padlocking
of the building was improper for non-conformity with the rudiments of due
process.
Parenthetically, the trial court, in issuing the questioned order, ignored
established principles relative to the issuance of a Writ of Preliminary
Injunction. For the issuance of the writ of preliminary injunction to be proper, it
must be shown that the invasion of the right sought to be protected is material
and substantial, that the right of complainant is clear and unmistakable and that
there is an urgent and paramount necessity for the writ to prevent serious
damage.[63]
In light of the allegations supporting the prayer for the issuance of a writ of
preliminary injunction, the Court is at a loss as to the basis of the respondent
judge in issuing the same. What is clear is that complainant (now private
respondent) therein, which happens to be a juridical person (Estate of Sy Yong
Hu), made general allegations of hazard and serious damage to the public due to
violations of various provisions of the Building Code, but without any showing of
any grave damage or injury it was bound to suffer should the writ not issue.
Finally, the Court notes, with disapproval, what the respondent court did in
ordering the ejectment of the lawful owner and the occupants of the building,
and disposed of the case before him even before it was heard on the merits by
the simple expedient of issuing the said writ of preliminary injunction. In Ortigas
& Company Limited Partnership vs. Court of Appeals et al. this Court held that
courts should avoid issuing a writ of preliminary injunction which in effect
disposes of the main case without trial.[64]
Resolution of the third issue has become moot and academic in view of the
Courts finding of grave abuse of discretion tainting the issuance of the Writ of
Preliminary Injunction in question.
WHEREFORE, the Resolution of the Court of Appeals in CA-G. R. No. 17070
is AFFIRMED and its Decision in CA-G. R. No. 24189 REVERSED. No pronouncement
as to costs.
SO ORDERED.
G.R. No. L-20341

May 14, 1966

DR. SIMEON S. CLARIDADES, plaintiff and appellant,


vs.
VICENTE C. MERCADER and PERFECTO FERNANDEZ, defendants and appellees,
GUILLERMO REYES, intervenor and appellant,

ARMANDO H. ASUNCION, intervenor and appellee,


ALFREDO J. ZULUETA and YAP LEDING, intervenors and appellees.
Francisco S. Dizon for plaintiffs and appellants.
Gonzales, Sr. and Munsayac for defendants and appellees.
Jose F. Tiburcio for intervenors and appellees Zulueta and Leding.
Toribio T. Bella for intervenor and appellee Asuncion.
CONCEPCION, J.:
Appeal from an order of dismissal of the Court of First Instance of Bulacan based
upon the ground that venue had been improperly laid.
Petitioner, Dr. Simeon S. Claridades brought this action against Vicente C.
Mercader and Perfecto Fernandez for the dissolution of a partnership allegedly
existing between them and an accounting of the operation of the partnership,
particularly a fishpond located in Sta. Cruz, Marinduque, which was the main
asset of the partnership, from September 1954, as well as to recover moral and
exemplary damages, in addition to attorney's fees and costs.
In their answer the defendants admitted the existence of the partnership and
alleged that its operation had been so far unproductive. By way of special
defense, they alleged, also, that there is an impending auction sale of said
fishpond due to delinquency in the payment of taxes owing to lack of funds and
plaintiff's failure to contribute what is due from him. Defendants, likewise, set
up a counter-claim for damages, by reason of the institution of this action, and
for attorney's fees and costs.
Subsequently, Guillermo Reyes was allowed to intervene for the purpose of
recovering a sum of money allegedly due him for services rendered as foreman of
said fishpond, plus damages. Later, one Armando Asuncion succeeded in
intervening as the alleged assignee of the interest of defendant. Mercader in said
partnership and fishpond. Thereafter, on plaintiff's motion, the lower court
appointed a receiver of the fishpond. Upon the other hand, Alfredo Zulueta and
his wife Yap Leding sought permission to intervene, still later, alleging that they
are the owners of said fishpond, having bought one-half ()of it from Benito
Regencia, who, in turn, had acquired it from Asuncion, who had purchased the
fishpond from defendant Mercader, and the other half having been assigned to
him directly by Asuncion.
Despite plaintiff's opposition thereto, said permission was granted in an order
dated February 8, 1962, which, likewise gave the Zuluetas ten (10) days within
which to file such pleading as they may deem necessary for the protection of

their rights. Soon thereafter, or on February 12, 1962, the Zuluetas filed a
motion to dismiss upon the ground that the complaint states no cause of action;
that venue has been improperly laid; and that plaintiff complaint is moot and
academic. Acting upon the motion, on March 2, 1962, the lower court granted
the same upon the ground of improper venue. A reconsideration of this order
having been denied, plaintiff and intervenor Reyes have interposed the present
appeal.
The only question for determination before us is whether or not this action
should have been instituted, not in the Court of First Instance of Bulacan, but in
that of Marinduque, where the aforementioned fishpond is located. The lower
court answered this question in the affirmative, upon the ground that the
subject matter of this case is the possessor of said fishpond, because plaintiff
prays in the complaint that the assets of the partnership, including said fishpond
be sold, that the proceeds of the sale be applied to the payment of the debts of
the partnership, and that the residue be distributed equally among the partners;
that, as intervenor, Asuncion claims to have an interest in said fishpond; that the
same has been placed under a receivership; and that the Zuluetas claim to be
the exclusive owners of the fishpond aforementioned.
The conclusion drawn from these premises is erroneous. Plaintiff's complaint
merely seeks the liquidation of his partnership with defendants Fernandez and
Mercader. This is obviously a personal action, which may be brought in the place
of residence of either the plaintiff or the defendants. Since plaintiff is a resident
of Bulacan, he had the right to bring the action in the court of first instance of
that province.1 What is more, although defendants Fernandez and Mercader
reside in Marinduque, they did not object to the venue. In other words, they
waived whatever rights they had, if any, to question it.2
The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or character of
action, such sale being merely a necessary incident of the liquidation of the
partnership, which should precede and/or is part of its process of dissolution.
Neither plaintiff's complaint nor the answer filed by defendants Fernandez and
Mercader questioned the title to said property or the possession thereof.
Again, the situation was not changed materially by the Intervention either of
Asuncion or of the Zuluetas, for, as alleged successors to the interest Mercader
in the fishpond, they, at best, stepped into his shoes. Again, the nature of an
action is determined by the allegations of the complaint.3 At any rate, since the
venue was properly laid when the complaint was filed, said venue cannot,
subsequently, become improper in consequence of issues later raised by any of
the intervenors. The court having legally acquired authority to hear and decide
the case, it can not be divested of that authority by said intervenors. "An

intervention cannot alter the nature of the action and the issues joined by the
original parties thereto."4
Wherefore, the order appealed from should be as it is hereby set aside and the
case remanded to the lower court for further proceedings, with costs against
intervenors appellees, Armando H. Asuncion and Mr. and Mrs. Alfredo J. Zulueta.
It is so ordered.

G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.


LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO
T. LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
69200 and its Resolution2 denying petitioners motion for reconsideration
thereof.

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his
capacity as President, entered into a Joint Venture Agreement 5 (JVA) for the
development of the aforementioned property into a residential subdivision to be
known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged
themselves to contribute the two parcels of land as their share in the joint
venture. For its part, Primelink undertook to contribute money, labor,
personnel, machineries, equipment, contractors pool, marketing activities,
managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound
itself to accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering
designs, structural and architectural plans, site development plans, and
such other need plans in accordance with existing laws and the rules and
regulations of appropriate government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed
for the projects;
c.) Furnish all materials, equipment, labor and services for the
development of the land in preparation for the construction and sale of
the different types of units (single-detached, duplex/twin, cluster and
row house);
d.) Guarantee completion of the land development work if not prevented
by force majeure or fortuitous event or by competent authority, or other
unavoidable circumstances beyond the DEVELOPERS control, not to
exceed three years from the date of the signing of this Joint Venture
Agreement, except the installation of the electrical facilities which is
solely MERALCOS responsibility;

The factual and procedural antecedents are as follows:


Primelink Properties and Development Corporation (Primelink for brevity) is a
domestic corporation engaged in real estate development. Rafaelito W. Lopez is
its President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T.
Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of
two (2) adjoining parcels of land, with a combined area of 30,000 square meters,
located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No.
T-108484of the Register of Deeds of Tagaytay City.

e.) Provide necessary manpower resources, like executive and


managerial officers, support personnel and marketing staff, to handle all
services related to land and housing development (administrative and
construction) and marketing (sales, advertising and promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the
LANDOWNER can draw allowances or make advances not exceeding a
total of twenty percent (20%) of the net revenue for that period, on the

basis of sixty percent (60%) for the DEVELOPER and forty percent (40%)
for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of
the net revenue for the first two years, in order to have sufficient
reserves or funds to protect and/or guarantee the construction and
completion of the different types of units mentioned above.

C1 3,500,000 -

C2 1,400,000

2,100,000 x
=
16

33,600,000.00

900,000 x 24 =

21,600,000.00

ROW-TYPE TOWNHOMES:
D1 1,600,000 -

D2 700,000

P138,720,000.00
2. After two years, the DEVELOPER and the LANDOWNERS shall be
entitled to drawing allowances and/or advances equivalent to sixty
percent (60%) and forty percent (40%), respectively, of the total net
revenue or income of the sale of the units.7

(GROSS)

Total Cash Price (A1+B1+C1+D1)

P231,200,000.00

Total Building Expense


(A2+B2+C2+D2)

92,480,000.00

COMPUTATION OF ADDL. INCOME ON INTEREST

They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net
revenue or income of the Joint Venture project, after deducting all
expenses incurred in connection with the land development (such as
administrative management and construction expenses), and marketing
(such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net
revenue or income of the Joint Venture project, after deducting all the
above-mentioned expenses.8

TCP x 30%
D/P

P 69,360,000

Balance =
70%

161,840,000

x .03069 x 48 =

P238,409,740

Total Amount (TCP + int. earn.)

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of


the project:

B Commission (8% of TCP)

SALES-INCOME-COST PROJECTION
lawphil.net
COST PRICE

DIFFERENCE

A2 1,260,000

1,940,000 x
=
24

P 46,560,000.00

TWIN:
B1 2,500,000 SINGLE:

P307,769,740.00

P 92,480,000.00
18,496,000.00

C Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

D Advertising & Promo exp. (2% of TCP)

4,624,000.00

E Building expenses for the open


spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000
sqms.

INCOME

CLUSTER:
A1 3,200,000 -

238,409,740.00

EXPENSES:
less: A Building expenses

SELLING PRICE

P 69,360,000.00

TOTAL EXPENSES (A+B+C+D+E)

12,000,000.00
P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES


B2 960,000

1,540,000 x
=
24

36,960,000.00

Total Projected Income (incl. income from interest


earn.)
less:

P307,769,740.00
132,224,000.00

Total Expenses

P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or


conflicting opinions between the parties relative to the interpretation, scope
and reach, and the enforcement/implementation of any provision of the
agreement shall be referred to Voluntary Arbitration in accordance with the
Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owners duplicate of
the title was deposited with the China Banking Corporation.11However, Primelink
failed to immediately secure a Development Permit from Tagaytay City, and
applied the permit only on August 30, 1995. On October 12, 1995, the City issued
a Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
Primelink comply with its obligations under the JVA, otherwise the appropriate
action would be filed against it to protect their rights and interests. This
impelled the officers of Primelink to meet with the Lazatins and enabled the
latter to review its business records/papers. In another Letter14 dated October
22, 1997, the Lazatins informed Primelink that they had decided to rescind the
JVA effective upon its receipt of the said letter. The Lazatins demanded that
Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial
Court (RTC) of Tagaytay City, Branch 18, a complaint for rescission accounting
and damages, with prayer for temporary restraining order and/or preliminary
injunction against Primelink and Lopez. The case was docketed as Civil Case No.
TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four
(4) years from the execution of the JVA and the delivery of the title and
possession of the land to defendants, the land development aspect of the
project had not yet been completed, and the construction of the housing units
had not yet made any headway, based on the following facts, namely: (a) of the
50 housing units programmed for Phase I, only the following types of houses
appear on the site in these condition: (aa) single detached, one completed and
two units uncompleted; (bb) cluster houses, one unit nearing completion; (cc)
duplex, two units completed and two units unfinished; and (dd) row houses, two
units, completed; (b) in Phase II thereof, all that was done by the defendants
was to grade the area; the units so far constructed had been the object of
numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the
projects marketability. Plaintiffs also alleged that defendants had, without
justifiable reason, completely disregarded previously agreed accounting and

auditing procedures, checks and balances system installed for the mutual
protection of both parties, and the scheduled regular meetings were seldom held
to the detriment and disadvantage of plaintiffs. They averred that they sent a
letter through counsel, demanding compliance of what was agreed upon under
the agreement but defendants refused to heed said demand. After a succession
of letters with still no action from defendants, plaintiffs sent a letter on October
22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and
submitted by defendants, they (plaintiffs) stood to receive the amount
of P70,218,296.00 as their net share in the joint venture project; to date,
however, after almost four (4) years and despite the undertaking in the JVA that
plaintiffs shall initially get 20% of the agreed net revenue during the first two (2)
years (on the basis of the 60%-40% sharing) and their full 40% share thereafter,
defendants had yet to deliver these shares to plaintiffs which by conservative
estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their
favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary
restraining order be forthwith issued enjoining the defendants to immediately
stop their land development, construction and marketing of the housing units in
the aforesaid project; after due proceedings, to issue a writ of preliminary
injunction enjoining and prohibiting said land development, construction and
marketing of housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the
plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject
parcels of land;
3. Ordering the defendants to render an accounting of all income
generated as well as expenses incurred and disbursement made in
connection with the project;
4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs


the amount Forty Million Pesos (P40,000,000.00) in actual and/or
compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs
the amount of Two Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs
the amount equivalent to ten percent (10%) of the total amount due as
and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed
for.16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the
ground that plaintiffs complaint was premature, due to their failure to refer
their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to
Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules
of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the
aforecited Rules of Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing
the demand to arbitrate, and then asking the parties to resolve their
controversies, pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the
completion of the arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary
restraining order or writ of preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for. 17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsels heavy workload, prayed for a 15-

day extension18 within which to file their answer. The additional time prayed for
was granted by the RTC.19 However, instead of filing their answer, defendants
prayed for a series of 15-day extensions in eight (8) successive motions for
extensions on the same justification.20 The RTC again granted the additional
time prayed for, but in granting the last extension, it warned against further
extension.21Despite the admonition, defendants again moved for another 15-day
extension,22 which, this time, the RTC denied. No answer having been filed,
plaintiffs moved to declare the defendants in default, 23 which the RTC granted in
its Order24 dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with
Counterclaim and Opposition to the Prayer for the Issuance of a Writ of
Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set Aside
the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July
14, 1998, the RTC denied defendants motion to set aside the order of default
and ordered the reception of plaintiffs evidence ex parte. Defendants filed a
motion for reconsideration29 of the July 14, 1998 Order, which the RTC denied in
its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order
declaring them in default, as well as the Order denying their motion to set aside
the order of default, alleging that these were contrary to facts of the case, the
law and jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from
were interlocutory in character and, therefore, not appealable. No motion for
reconsideration of the Order of the dismissal was filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary
evidence. On April 17, 2000, the RTC rendered a Decision, the dispositive part of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
the defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date
of filing of this complaint;
2. Ordering the defendants to return possession, including all
improvements therein, of the real estate property belonging to the
plaintiffs which is described in, and covered by Transfer Certificate of
Title No. T-10848 of the Register of Deeds of Tagaytay City, and located
in Barangay Anulin, City of Tagaytay;

3. Ordering the defendants to turn over all documents, records or papers


that have been executed, prepared and retained in connection with any
contract to sell or deed of sale of all lots/units sold during the
effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum
of P1,041,524.26 representing their share of the net income of
the P2,603,810.64 as of September 30, 1995, as stipulated in the joint
venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the
amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.

33

The trial court anchored its decision on the following findings:


x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant)
undertakings, as well as paragraph III and paragraph V of the JVA. These
violations are not limited to those made against the plaintiffs alone as it appears
that some of the unit buyers themselves have their own separate gripes against
the defendants as typified by the letters (Exhibits "G" and "H") of Mr. Emmanuel
Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of
Mrs. Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as
submarkings, pp. 60 to 62, TSN August 6, 1998) this court has observed, and is
thus convinced, that a pattern of what appears to be a scheme or plot to reduce
and eventually blot out the net income generated from sales of housing units by
defendants, has been established. Exhibit "P-2" is explicit in declaring that, as of
September 30, 1995, the joint venture project earned a net income of
aboutP2,603,810.64. This amount, however, was drastically reduced in a
subsequent financial report submitted by the defendants to P1,954,216.39.
Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted
an income statement and a balance sheet (Exhibits "R" and "R-1") indicating a net
loss of P5,122,906.39 as of June 30, 1997.

Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should
have received the sum ofP1,041,524.26 representing their 40% share under
paragraph II and V of the JVA. But this was not to be so. Even before the
plaintiffs could get hold of their share as indicated above, the defendants closed
the chance altogether by declaring a net loss. The court perceives this to be one
calculated coup-de-grace that would put to thin air plaintiffs hope of getting
their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The
way the defendants treated the JVA and the manner by which they handled the
project itself vis--vis their partners, the plaintiffs herein, there is bound to be
certain conflict as the latter repeatedly would received the losing end of the
bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for
some other recourse but to file the present action to enforce their rights. x x x 34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging
defendants dilatory tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in
favor of plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of
execution pending appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of
errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE
MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE
AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT
CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA
814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL
EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID
ISSUANCE, AND DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III

THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH


THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO
RULE ON ALL QUESTIONS RELATED TO EXECUTION.

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing


Corporation,41 the appellate court ruled that, under Philippine law, a joint
venture is a form of partnership and is to be governed by the laws of
partnership. The aggrieved parties filed a motion for reconsideration,42 which
the CA denied in its Resolution43dated March 7, 2005.

IV
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS
SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE
TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO
TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE
EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID
RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS
PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE
OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with
modification, the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial
Court of Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case
No. TG-1776, is hereby AFFIRMED. Accordingly, Transfer Certificate of Title No.
T-10848 held for safekeeping by Chinabank pursuant to the Escrow Agreement is
ordered released for return to the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of Deeds of Tagaytay City of
whatever annotation in TCT No. 10848 by virtue of the Joint Venture Agreement,
is now proper.
SO ORDERED.40

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND


REVERSIBLE LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN
ORDERING THE RETURN TO THE RESPONDENTS OF THE PROPERTY WITH
ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING
THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL
EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS
THE ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE
RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE
PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE
AND UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN
RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON
JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL
APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which
unconditionally awards to respondents "all improvements" on the project without
requiring them to pay the value thereof or to reimburse Primelink for all
expenses incurred therefore is inherently and essentially illegal and confiscatory,
oppressive and unconscionable, contrary to the tenets of good human relations,
and will allow respondents to unjustly enrich themselves at Primelinks expense.
At the time respondents contributed the two parcels of land, consisting of
30,000 square meters to the joint venture project when the JVA was signed on
March 10, 1994, the said properties were worth not more than P500.00 per
square meter, the "price tag" agreed upon the parties for the purpose of the JVA.
Moreover, before respondents rescinded the JVA sometime in October/November
1997, the property had already been substantially developed as improvements
had already been introduced thereon; petitioners had likewise incurred
administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they
be declared the owners and entitled to the possession of the improvements
made by petitioner Primelink on the property; neither did they adduce evidence

to prove their entitlement to said improvements. It follows, petitioners argue,


that respondents were not entitled to the improvements although petitioner
Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be
only to the extent necessary to cover the damages caused and that, under
Article 1385 of the same Code, rescission creates the obligation to return the
things which were not object of the contract, together with their fruits, and the
price with its interest; consequently, it can be effected only when respondents
can return whatever they may be obliged to return. Respondents who sought the
rescission of the JVA must place petitioner Primelink in the status quo. They
insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot
have the benefits of rescission without assuming its burden. All parties must be
restored to their original positions as nearly as possible upon the rescission of a
contract. In the event that restoration to the status quo is impossible, rescission
may be granted if the Court can balance the equities and fashion an appropriate
remedy that would be equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat
their claim for reimbursement because "[w]hat matters is that the improvements
exist and they cannot be denied."46 Moreover, they point out, the ruling of this
Court in Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA
is not in point.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements
because, as found by the RTC and the CA, it was petitioner Primelink that
enriched itself at the expense of respondents. Respondents reiterate the ruling
of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not
prove and did not pray that they are and should be entitled to take over the
development of the project, and that the improvements and existing structures
which were introduced by PRIMELINK after spending more or less Forty Million
Pesos be awarded to them. They merely asked in the complaint that the joint
venture agreement be rescinded, and that the parcels of land they contributed
to the project be returned to them.

On the other hand, the CA ruled that although respondents therein (plaintiffs
below) did not specifically pray for their takeover of the property and for the
possession of the improvements on the parcels of land, nevertheless,
respondents were entitled to said relief as a necessary consequence of the ruling
of the trial court ordering the rescission of the JVA. The appellate court cited
the ruling of this Court in the Aurbach case and Article 1838 of the New Civil
Code, to wit:

PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to
return possession of the real estate property belonging to the LAZATINs including
all improvements thereon was not a judgment that was different in kind than
what was prayed for by the LAZATINs. The order to return the property with all
the improvements thereon is just a necessary consequence to the order of
rescission.

As a general rule, the relation of the parties in joint ventures is governed by


their agreement. When the agreement is silent on any particular issue, the
general principles of partnership may be resorted to. 48

As a general rule, the relation of the parties in joint ventures is governed by


their agreement. When the agreement is silent on any particular issue, the
general principles of partnership may be resorted to. In Aurbach v. Sanitary
Wares Manufacturing Corporation, the Supreme Court discussed the following
points regarding joint ventures and partnership:

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil
Code deal with rescissible contracts. What applies is Article 1191 of the New
Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is, in fact, hardly distinguishable from the partnership, since elements are
similar community of interest in the business, sharing of profits and losses, and

a mutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949];


Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183,
288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general business
with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tuffs v.
Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71
N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore
that, under Philippine law, a joint venture is a form of partnership and should
thus be governed by the laws of partnership. The Supreme Court has, however,
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may,
however, engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95
Phil. 906 [1954]; Campos and Lopez Campos Comments, Notes and Selected
Cases, Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in
the words of the court a quo, was a pattern of what appears to be a scheme or
plot to reduce and eventually blot out the net incomes generated from sales of
housing units by the defendants. Under Article 1838 of the Civil Code, where the
partnership contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the party entitled to rescind is,
without prejudice to any other right is entitled to a lien on, or right of retention
of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of
an interest in the partnership and for any capital or advance contributed by him.
In the instant case, the joint venture still has outstanding liabilities to third
parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now
held by Chinabank for safekeeping pursuant to the Escrow Agreement executed
between Primelink Properties and Development Corporation and Ma. Clara T.
Lazatin-Magat should also be returned to the LAZATINs as a necessary
consequence of the order of rescission of contract. The reason for the existence
of the Escrow Agreement has ceased to exist when the joint venture agreement
was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may
have suffered. They likewise stress that they did not enrich themselves at the
expense of petitioners.

In reply, petitioners assert that it is unjust and inequitable for respondents to


retain the improvements even if their share in the P1,041,524.26 of the net
income of the property and the sale of the land were to be deducted from the
value of the improvements, plus administrative and marketing expenses in the
total amount ofP40,000,000.00. Petitioners will still be entitled to an accounting
from respondents. Respondents cannot deny the existence and nature of said
improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to
the possession of the parcels of land covered by the JVA and the improvements
thereon introduced by petitioners as their contribution to the JVA; (2) whether
petitioners are entitled to reimbursement for the value of the improvements on
the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically
pray in their complaint below that possession of the improvements on the
parcels of land which they contributed to the JVA be transferred to them.
Respondents made a specific prayer in their complaint that, upon the rescission
of the JVA, they be placed in possession of the parcels of land subject of the
agreement, and for other "reliefs and such other remedies as are just and
equitable in the premises." However, the trial court was not precluded from
awarding possession of the improvements on the parcels of land to respondents
in its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading
shall specify the relief sought but it may add as general prayer for such further
or other relief as may be deemed just and equitable. Even without the prayer for
a specific remedy, proper relief may be granted by the court if the facts alleged
in the complaint and the evidence introduced so warrant.50 The court shall grant
relief warranted by the allegations and the proof even if no such relief is prayed
for.51 The prayer in the complaint for other reliefs equitable and just in the
premises justifies the grant of a relief not otherwise specifically prayed for. 52
The trial court was not proscribed from placing respondents in possession of the
parcels of land and the improvements on the said parcels of land. It bears
stressing that the parcels of land, as well as the improvements made thereon,
were contributed by the parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture.53 The trial court declared that
respondents were entitled to the possession not only of the parcels of land but
also of the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of the net
income under the JVA.

On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under
the Courts ruling in Aurbach, is a form of partnership, and as such is to be
governed by the laws on partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when
dissolution is caused in contravention of the partnership agreement are as
follows:
(1) Each partner who has not caused dissolution wrongfully shall have:

When the RTC rescinded the JVA on complaint of respondents based on the
evidence on record that petitioners willfully and persistently committed a
breach of the JVA, the court thereby dissolved/cancelled the partnership. 54With
the rescission of the JVA on account of petitioners fraudulent acts, all authority
of any partner to act for the partnership is terminated except so far as may be
necessary to wind up the partnership affairs or to complete transactions begun
but not yet finished.55 On dissolution, the partnership is not terminated but
continues until the winding up of partnership affairs is completed. 56 Winding up
means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements
thereon to respondents was only for a specific purpose: the winding up of
partnership affairs, and the partition and distribution of the net partnership
assets as provided by law.57 After all, Article 1836 of the New Civil Code provides
that unless otherwise agreed by the parties in their JVA, respondents have the
right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the partnership affairs, provided,
however, that any partner, his legal representative or his assignee, upon cause
shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the
lands and the improvements thereon, the said lands and improvements remained
partnership property, subject to the rights and obligations of the parties, inter
se, of the creditors and of third parties under Articles 1837 and 1838 of the New
Civil Code, and subject to the outcome of the settlement of the accounts
between the parties as provided in Article 1839 of the New Civil Code, absent
any agreement of the parties in their JVA to the contrary.58 Until the partnership
accounts are determined, it cannot be ascertained how much any of the parties
is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be
indemnified for the value of the improvements on the parcels of land owned by
the joint venture/partnership. Notably, the JVA of the parties does not contain
any provision designating any party to wind up the affairs of the partnership.

(a) All the rights specified in the first paragraph of this article,
and
(b) The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they
all desire to continue the business in the same name either by
themselves or jointly with others, may do so, during the agreed term for
the partnership and for that purpose may possess the partnership
property, provided they secure the payment by bond approved by the
court, or pay to any partner who has caused the dissolution wrongfully,
the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1(b) of this
article, and in like manner indemnify him against all present or future
partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the
second paragraph, No. 2, all the rights of a partner under the
first paragraph, subject to liability for damages in the second
paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No.
2, of this article, the right as against his co-partners and all
claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership,
less any damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment secured by
a bond approved by the court, and to be released from all
existing liabilities of the partnership; but in ascertaining the
value of the partners interest the value of the good-will of the
business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is,
without prejudice to any other right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for
any sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in
the place of the creditors of the partnership for any payments made by
him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as
provided in Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:

(5) An assignee for the benefit of creditors or any person appointed by


the court shall have the right to enforce the contributions specified in
the preceding number.
(6) Any partner or his legal representative shall have the right to enforce
the contributions specified in No. 4, to the extent of the amount which
he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the
partners are in possession of a court for distribution, partnership
creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured
creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall rank in the following order:

(a) The partnership property,

(a) Those owing to separate creditors;

(b) The contributions of the partners necessary for the payment


of all the liabilities specified in No. 2.

(b) Those owing to partnership creditors;


(c) Those owing to partners by way of contribution.

(2) The liabilities of the partnership shall rank in order of payment, as


follows:
(a) Those owing to creditors other than partners,

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED
insofar as they conform to this Decision of the Court.

(b) Those owing to partners other than for capital and profits,

Costs against petitioners.

(c) Those owing to partners in respect of capital,

SO ORDERED.

(d) Those owing to partners in respect of profits.


(3) The assets shall be applied in the order of their declaration in No. 1
of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.