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G.R. No.

153788 November 27, 2009

ROGER V. NAVARRO, Petitioner,


vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and
KAREN T. GO, doing business under the name KARGO ENTERPRISES, Respondents.

DECISION

BRION, J.:

This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals (CA)
Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701.
These CA rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court
(RTC), Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarros (Navarro)
motion to dismiss.

BACKGROUND FACTS

On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos.
98-599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of
money with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue
writs of replevin for the seizure of two (2) motor vehicles in Navarros possession.

The first complaint stated:

1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a


resident of Cagayan de Oro City and doing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing under and by virtue of the laws of the
Republic of the Philippines, which has its business address at Bulua, Cagayan de Oro City;
that defendant ROGER NAVARRO is a Filipino, of legal age, a resident of 62 Dolores Street,
Nazareth, Cagayan de Oro City, where he may be served with summons and other
processes of the Honorable Court; that defendant "JOHN DOE" whose real name and
address are at present unknown to plaintiff is hereby joined as party defendant as he may be
the person in whose possession and custody the personal property subject matter of this suit
may be found if the same is not in the possession of defendant ROGER NAVARRO;

2. That KARGO ENTERPRISES is in the business of, among others, buying and selling
motor vehicles, including hauling trucks and other heavy equipment;

3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated that
on August 8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle which is
more particularly described as follows

Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-51680


Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and
between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O.
GO, and defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above
LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered
unto plaintiff six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE
HUNDRED THIRTY-THREE & 33/100 PESOS (66,333.33) which were supposedly in payment of
the agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and 017113,
respectively dated January 8, 1998 and February 8, 1998, were presented for payment and/or credit,
the same were dishonored and/or returned by the drawee bank for the common reason that the
current deposit account against which the said checks were issued did not have sufficient funds to
cover the amounts thereof; that the total amount of the two (2) checks, i.e. the sum of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (132,666.66)
therefore represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the basis
of the provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE; that demands,
written and oral, were made of defendant ROGER NAVARRO to pay the amount of ONE HUNDRED
THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (132,666.66), or to return
the subject motor vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage and injury of herein
plaintiff; xxx

4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine
pursuant to law, or seized under an execution or an attachment as against herein plaintiff;

xxx

8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate
delivery of the above-described motor vehicle from defendants unto plaintiff pending the final
determination of this case on the merits and, for that purpose, there is attached hereto an affidavit
duly executed and bond double the value of the personal property subject matter hereof to answer
for damages and costs which defendants may suffer in the event that the order for replevin prayed
for may be found out to having not been properly issued.

The second complaint contained essentially the same allegations as the first complaint, except that
the Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor
vehicle leased is described as follows:

Make/Type FUSO WITH MOUNTED CRANE


Serial No. FK416K-510528
Motor No. 6D14-423403

The second complaint also alleged that Navarro delivered three post-dated checks, each for the
amount of 100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was
dishonored when presented for payment.8

On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.

In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no
cause of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase
(collectively, the lease agreements) the actionable documents on which the complaints were
based.
On Navarros motion, both cases were duly consolidated on December 13, 1999.

In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state
a cause of action.

In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11 the RTC issued
another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption
that Glenn Gos leasing business is a conjugal property, the RTC held that Karen Go had sufficient
interest in his leasing business to file the action against Navarro. However, the RTC held that Karen
Go should have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.1avv phi1

When the RTC denied Navarros motion for reconsideration on March 7, 2001, Navarro filed a
petition for certiorari with the CA, essentially contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the case and directed Karen Go to amend her
complaints by including her husband Glenn Go as co-plaintiff. According to Navarro, a complaint
which failed to state a cause of action could not be converted into one with a cause of action by
mere amendment or supplemental pleading.

On October 16, 2001, the CA denied Navarros petition and affirmed the RTCs order.13 The CA also
denied Navarros motion for reconsideration in its resolution of May 29, 2002,14 leading to the filing of
the present petition.

THE PETITION

Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it
did not have the requisite juridical personality to sue, the actual parties to the agreement are himself
and Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real
party-in-interest and the complaints failed to state a cause of action.

Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn
Go as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not
state a cause of action cannot be converted into one with a cause of action by a mere amendment or
a supplemental pleading. In effect, the lower court created a cause of action for Karen Go when
there was none at the time she filed the complaints.

Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the
theory of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused
its discretion when it assumed that the leased vehicles are part of the conjugal property of Glenn and
Karen Go. Since Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the
complaint are her paraphernal properties and the RTC gravely erred when it ordered the inclusion of
Glenn Go as a co-plaintiff.

Navarro likewise faults the lower court for setting the trial of the case in the same order that required
Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule
10 of the Rules.

Even assuming the complaints stated a cause of action against him, Navarro maintains that the
complaints were premature because no prior demand was made on him to comply with the
provisions of the lease agreements before the complaints for replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints,
the vehicles were illegally seized from his possession and should be returned to him immediately.

Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real
interest in the subject of the complaint, even if the lease agreements were signed only by her
husband, Glenn Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease
agreements merely as the manager of Kargo Enterprises. Moreover, Karen Go maintains that
Navarros insistence that Kargo Enterprises is Karen Gos paraphernal property is without basis.
Based on the law and jurisprudence on the matter, all property acquired during the marriage is
presumed to be conjugal property. Finally, Karen Go insists that her complaints sufficiently
established a cause of action against Navarro. Thus, when the RTC ordered her to include her
husband as co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and
was not meant to cure the complaints lack of cause of action.

THE COURTS RULING

We find the petition devoid of merit.

Karen Go is the real party-in-interest

The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the
name of the real party-in-interest, i.e., the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit.15

Interestingly, although Navarro admits that Karen Go is the registered owner of the business name
Kargo Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According
to Navarro, while the lease contracts were in Kargo Enterprises name, this was merely a trade
name without a juridical personality, so the actual parties to the lease agreements were Navarro and
Glenn Go, to the exclusion of Karen Go.

As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered
the inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.

We do not find Navarros arguments persuasive.

The central factor in appreciating the issues presented in this case is the business name Kargo
Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as
"KAREN T. GO doing business under the name KARGO ENTERPRISES," and this identification was
repeated in the first paragraph of the Complaint. Paragraph 2 defined the business KARGO
ENTERPRISES undertakes. Paragraph 3 continued with the allegation that the defendant "leased
from plaintiff a certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the transaction
between the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the
picture as this Lease Agreement provides:

This agreement, made and entered into by and between:

GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the
LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,
xxx

thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented.
In other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement
only as the manager of Kargo Enterprises and the latter is clearly the real party to the lease
agreements.

As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural
person, nor a juridical person, as defined by Article 44 of the Civil Code:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law;
their personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner
or member.

Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil
action. This legal reality leads to the question: who then is the proper party to file an action based on
a contract in the name of Kargo Enterprises?

We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:

Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law
merely recognizes the existence of a sole proprietorship as a form of business organization
conducted for profit by a single individual, and requires the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the national government. It does
not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an
action in court.

Thus, the complaint in the court below should have been filed in the name of the owner of Juasing
Hardware. The allegation in the body of the complaint would show that the suit is brought by such
person as proprietor or owner of the business conducted under the name and style Juasing
Hardware. The descriptive words "doing business as Juasing Hardware" may be added to the title of
the case, as is customarily done.18 [Emphasis supplied.]

This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:

SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized
by law or these Rules, every action must be prosecuted or defended in the name of the real party in
interest.

As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or
be injured by a judgment in this case. Thus, contrary to Navarros contention, Karen Go is the real
party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action
because her name did not appear in the Lease Agreement that her husband signed in behalf of
Kargo Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a
manager of Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a
matter for the trial court to consider in a trial on the merits.

Glenn Gos Role in the Case

We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go,19 who
described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City, and doing business under the trade name KARGO
ENTERPRISES."20 That Glenn Go and Karen Go are married to each other is a fact never brought in
issue in the case. Thus, the business name KARGO ENTERPRISES is registered in the name of a
married woman, a fact material to the side issue of whether Kargo Enterprises and its properties are
paraphernal or conjugal properties. To restate the parties positions, Navarro alleges that Kargo
Enterprises is Karen Gos paraphernal property, emphasizing the fact that the business is registered
solely in Karen Gos name. On the other hand, Karen Go contends that while the business is
registered in her name, it is in fact part of their conjugal property.

The registration of the trade name in the name of one person a woman does not necessarily lead
to the conclusion that the trade name as a property is hers alone, particularly when the woman is
married. By law, all property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved.21 Our examination of the records of the case does not show
any proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all,
only the bare allegation of Navarro to this effect exists in the records of the case. As we emphasized
in Castro v. Miat:22

Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the
marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to
the husband or to the wife." This article does not require proof that the property was acquired
with funds of the partnership. The presumption applies even when the manner in which the
property was acquired does not appear.23 [Emphasis supplied.]

Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a
sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.

Article 124 of the Family Code, on the administration of the conjugal property, provides:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong
to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must be availed of within five years from
the date of the contract implementing such decision.

xxx

This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in
managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain
the consent of the other before performing an act of administration or any act that does not dispose
of or encumber their conjugal property.

Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the
contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or
by the spouses in their marriage settlements. In other words, the property relations of the husband
and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family
Code and, suppletorily, by the spouses marriage settlement and by the rules on partnership under
the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go,
we look at the Civil Code provision on partnership for guidance.

A rule on partnership applicable to the spouses circumstances is Article 1811 of the Civil Code,
which states:

Art. 1811. A partner is a co-owner with the other partners of specific partnership property.

The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has
an equal right with his partners to possess specific partnership property for partnership
purposes; xxx

Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the provisions of this Title," we find further support in
Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with
respect to the co-owned property.

While ejectment is normally associated with actions involving real property, we find that this rule can
be applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other spouse in the action. In resolving the issue
of whether the other spouse was required to be included as a co-plaintiff in the action for the
recovery of the credit, we said:

Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the
spouses Carandang, seems to be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section
9, Rule 3.

Article 108 of the Family Code provides:

Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter or by the spouses in their
marriage settlements.

This provision is practically the same as the Civil Code provision it superseded:

Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter.

In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the
other partners of specific partnership property." Taken with the presumption of the conjugal nature of
the funds used to finance the four checks used to pay for petitioners stock subscriptions, and with
the presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino
and Milagros de Guzman co-owners of the alleged credit.

Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an
action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v.
Adlawan, we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned
property without the necessity of joining all the other co-owners as co-plaintiffs because the suit is
presumed to have been filed for the benefit of his co-owners. In the latter case and in that of De Guia
v. Court of Appeals, we also held that Article 487 of the Civil Code, which provides that any of the
co-owners may bring an action for ejectment, covers all kinds of action for the recovery of
possession.

In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any
kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely
the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party
thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for
a complete relief can be accorded in the suit even without their participation, since the suit is
presumed to have been filed for the benefit of all co-owners.25 [Emphasis supplied.]

Under this ruling, either of the spouses Go may bring an action against Navarro to recover
possession of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is
consistent with Article 124 of the Family Code, supporting as it does the position that either spouse
may act on behalf of the conjugal partnership, so long as they do not dispose of or encumber the
property in question without the other spouses consent.

On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to
recover possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to
the suit, based on Section 4, Rule 4 of the Rules, which states:

Section 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as provided
by law.

Non-joinder of indispensable parties not ground to dismiss action

Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v. Masirag:27

Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is
a ground for the dismissal of an action, thus:

Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by order of the court on motion of any
party or on its own initiative at any stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with separately.

In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead
the indispensable party at any stage of the action. The court, either motu proprio or upon the motion
of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to
amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to
include the indispensable party is directed refuses to comply with the order of the court, the
complaint may be dismissed upon motion of the defendant or upon the court's own motion. Only
upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed.

In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a
party plaintiff is fully in order.

Demand not required prior


to filing of replevin action

In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro
apparently likens a replevin action to an unlawful detainer.

For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant
to Section 2, Rule 60 of the Rules, which states:

Sec. 2. Affidavit and bond.

The applicant must show by his own affidavit or that of some other person who personally knows the
facts:

(a) That the applicant is the owner of the property claimed, particularly describing it, or is
entitled to the possession thereof;

(b) That the property is wrongfully detained by the adverse party, alleging the cause of
detention thereof according to the best of his knowledge, information, and belief;

(c) That the property has not been distrained or taken for a tax assessment or a fine
pursuant to law, or seized under a writ of execution or preliminary attachment, or otherwise
placed under custodia legis, or if so seized, that it is exempt from such seizure or custody;
and

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the value of the
property as stated in the affidavit aforementioned, for the return of the property to the adverse party
if such return be adjudged, and for the payment to the adverse party of such sum as he may recover
from the applicant in the action.

We see nothing in these provisions which requires the applicant to make a prior demand on the
possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not
a condition precedent to an action for a writ of replevin.

More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as
he has already admitted in his Answers that he had received the letters that Karen Go sent him,
demanding that he either pay his unpaid obligations or return the leased motor vehicles. Navarros
position that a demand is necessary and has not been made is therefore totally unmeritorious.

WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs
against petitioner Roger V. Navarro.

SO ORDERED.
G.R. No. L-45662 April 26, 1939

ENRIQUE CLEMENTE, plaintiff-appellee,


vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.

Engracio F. Clemea and Celedonio Bernardo for appellant.


Vicente Bengson for defendant-appellee.
No appearance for other party.

DIAZ, J.:

The intervenor Jose Echevarria having lost in the Court of First Instance of manila which rendered
judgment against him, the pertinent portion of which reads: "and with respect to the complaint of the
intervenor, the mortgage executed in his favor by plaintiff is declared null and void, and said
complaint in intervention, as well as the counterclaim filed by the defendant against the intervenor, is
dismissed, without pronouncement as to costs," he appealed to this court on the ground that,
according to him, the lower court committed the errors assigned in his brief as follows:

I. The court a quo erred in finding in the appealed decision that plaintiff was unable to take
possession of the machines subject of the deed of mortgage Exhibit B either before or after
the execution thereof.

II. The court a quo likewise erred in deciding the present case against the intervenor-
appellant, on the ground, among others, that "plaintiff has not adduced any evidence nor has
he testified to show that the machines mortgaged by him to the intervenor have ever
belonged to him, notwithstanding that said intervenor is his close relative.".

III. The lower court also erred in declaring null and void the mortgage executed by plaintiff in
favor of the intervenor and, thereby, dismissing the complaint in intervention.

IV. The lower court lastly erred in ordering the receiver J. D. Mencarini to deliver to the
defendant the aforesaid machines upon petition of the plaintiff.

In order to have a clear idea of the question, it is proper to state the facts bearing on the case as
they appear in the decision and judgment of the lower court and in the documents which constitute
all the evidence adduced by the parties during the trial.

On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan y
Compaia" to engage in the manufacture and sale of paper and other stationery. they agreed to
invest therein a capital of P100,000, but as a matter of fact they did not cover more than one-fifth
thereof, each contributing P10,000. Hardly a year after such organization, the plaintiff commenced
the present case in the above-mentioned court to ask for the dissolution of the partnership and to
compel defendant to whom the management thereof was entrusted to submit an accounting of his
administration and to deliver to him his share as such partner. In his answer defendant expressed
his conformity to the dissolution of the partnership and the liquidation of its affairs; but by way of
counterclaim he asked that, having covered a deficit incurred by the partnership amounting to
P4,000 with his own money, plaintiff reimburse him of one-half of said sum. On petition of the plaintiff
a receiver and liquidator to take charge of the properties and business for the partnership while the
same was not yet definitely dissolved, was appointed, the person chosen being Juan D. Mencarini.
The latter was already discharging the duties of his office when the court, by virtue of a petition ex
parte of the plaintiff, issued the order of May 24, 1933, requiring said receiver to deliver to him
(plaintiff) certain machines which were then at Nos. 705-707 Ylaya Street, Manila but authorizing him
to charge their value of P4,500 against the portion which may eventually be due to said plaintiff. To
comply with said order, the receiver delivered to plaintiff the keys to the place where the machines
were found, which was the same place where defendant had his home; but before he could take
actual possession of said machines, upon the strong opposition of defendant, the court, on motion of
the latter, suspended the effects of its order of May 24, 1933. In the meantime the judgments
rendered in cases Nos. 42794 and 43070 entitled "Philippine Education Co., Inc. vs. Enrique
Clemente" for the recovery of a sum of money, and "Jose Echevarria vs. Enrique Clemente", also for
the recovery of a sum of money, respectively, were made executory; and in order to avoid the
attachment and subsequent sale of the machines by the sheriff for the satisfaction from the proceeds
thereof of the judgments rendered in the two cases aforecited, plaintiff agreed with the intervenor,
who is his nephew, to execute, as he in fact executed in favor of the latter, a deed of mortgage
Exhibit B encumbering the machines described in said deed in which it is stated that "they are
situated on Singalong Street No. 1163", which is a place entirely different from the house Nos. 705
and 707 on Ylaya Street hereinbefore mentioned. The one year agreed upon in the deed of
mortgage for the fulfillment by the plaintiff of the obligation he had contracted with the intervenor,
having expired, the latter commenced case No. 49629 to collect his mortgage credit. The intervenor,
as plaintiff in the said case, obtained judgment in his favor because the defendant did not interpose
any defense or objection, and, moreover, admitted being really indebted to the intervenor in the
amount set forth in the deed of mortgage Exhibit B. The machines which the intervenor said were
mortgaged to him were then in fact in custodia legis, as they were under the control of the receiver
and liquidator Juan D. Mencarini. It was, therefore, useless for the intervenor to attach the same in
view of the receiver's opposition; and the question having been brought to court, it decided that
nothing could be done because the receiver was not a party to the case which the intervenor
instituted to collect his aforesaid credit. (Civil case No. 49629.) The question ended thus because
the intervenor did not take any other step until he thought of joining in this case as intervenor.

1. From the foregoing facts, it is clear that plaintiff could not obtain possession of the
machines in question. The constructive possession deducible from the fact that he had the
keys to the place where the machines were found (Ylaya Street Nos. 705-707), as they had
been delivered to him by the receiver, does not help him any because the lower court
suspended the effects of the other whereby the keys were delivered to him a few days after
its issuance; and thereafter revoked it entirely in the appealed decision. Furthermore, when
he attempted to take actual possession of the machines, the defendant did not allow him to
do so. Consequently, if he did not have actual possession of the machines, he could not in
any manner mortgage them, for while it is true that the oft-mentioned deed of mortgage
Exhibit B was annotated in the registry of property, it is no less true the machines to which it
refers are not the same as those in question because the latter are on Ylaya Street Nos.
705-707 and the former are on Singalong Street No. 1163. It can not be said that Exhibit B-1,
allegedly a supplementary contract between the plaintiff and the intervenor, shows that the
machines referred to in the deed of mortgage are the same as those in dispute and which
are found on Ylaya Street because said exhibit being merely a private document, the same
cannot vary or alter the terms of a public document which is Exhibit B or the deed of
mortgage.

2. The second error attributed to the lower court is baseless. The evidence of record shows
that the machines in contention originally belonged to the defendant and from him were
transferred to the partnership Galvan y Compania. This being the case, said machines
belong to the partnership and not to him, and shall belong to it until partition is effected
according to the result thereof after the liquidation.
3. The last two errors attributed by the appellant to the lower court have already been
disposed of by the considerations above set forth. they are as baseless as the previous
ones.

In view of all the foregoing, the judgment appealed from is affirmed, with costs against the appellant.
So ordered.

[G.R. No. 144214. July 14, 2003]

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO


JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and
Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ, respondents.

DECISION
PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the


latters dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23,
2000 Decision and the July 26, 2000 Resolution of the Court of
[1] [2]

Appeals (CA) in CA-GR CV No. 41026.The assailed Decision disposed as


[3]

follows:

WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992
rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE
and NULLIFIED and in lieu thereof a new decision is rendered ordering the
[petitioners] jointly and severally to pay and reimburse to [respondents] the amount
of P253,114.00. No pronouncement as to costs. [4]

Reconsideration was denied in the impugned Resolution.


The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name Aquarius Food House and
Catering Services. Villareal was appointed general manager and Carmelito
[5]

Jose, operations manager.


Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by his
parents, Respondents Cesar and Carmelita Ramirez. [6]

After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by agreement of
the partners. [7]

In the same month, without prior knowledge of respondents, petitioners


closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents house
for storage.
[8]

On March 1, 1987, respondent spouses wrote petitioners, saying that they


were no longer interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latters offer to return their capital
contribution.[9]

On October 13, 1987, Carmelita Ramirez wrote another letter informing


petitioners of the deterioration of the restaurant furniture and equipment
stored in their house. She also reiterated the request for the return of their
one-third share in the equity of the partnership. The repeated oral and written
requests were, however, left unheeded. [10]

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint dated November 10, 1987, for the collection
[11]

of a sum of money from petitioners.


In their Answer, petitioners contended that respondents had expressed a
desire to withdraw from the partnership and had called for its dissolution under
Articles 1830 and 1831 of the Civil Code; that respondents had been paid,
upon the turnover to them of furniture and equipment worth over P400,000;
and that the latter had no right to demand a return of their equity because their
share, together with the rest of the capital of the partnership, had been spent
as a result of irreversible business losses. [12]
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were
true, then the loans incurred by petitioners should be regarded as purely
personal and, as such, not chargeable to the partnership. The former further
averred that they had not received any regular report or accounting from the
latter, who had solely managed the business. Respondents also alleged that
they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the
restaurant. [13]

Respondents filed an Urgent Motion for Leave to Sell or Otherwise


Dispose of Restaurant Furniture and Equipment on July 8, 1988. The
[14]

furniture and the equipment stored in their house were inventoried and
appraised at P29,000. The display freezer was sold for P5,000 and the
[15]

proceeds were paid to them. [16]

After trial, the RTC ruled that the parties had voluntarily entered into a
[17]

partnership, which could be dissolved at any time. Petitioners clearly intended


to dissolve it when they stopped operating the restaurant. Hence, the trial
court, in its July 21, 1992 Decision, held them liable as follows: [18]

WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the


[petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorneys fee in the amount of P30,000.00

(c) Costs of suit.

The CA Ruling

The CA held that, although respondents had no right to demand the return
of their capital contribution, the partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant business with
them. Because petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient evidence was
presented to show financial losses, the CA computed their liability as follows:

Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership
before [respondents] have joined the partnership but in accordance with Article 1826
of the New Civil Code, they are liable which must have to be deducted from the
remaining capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share
of [respondents], this amount of P759,342.00 must be divided into three (3) shares or
in the amount of P253,114.00 for each share and which is the only amount which
[petitioner] will return to [respondents] representing the contribution to the
partnership minus the outstanding debt thereof. [19]

Hence, this Petition. [20]

Issues

In their Memorandum, petitioners submit the following issues for our


[21]

consideration:

9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the
capital contribution, instead of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan, is in accordance with
law and jurisprudence;

9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to
jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by
the evidence on record; and

9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs. [22]

On closer scrutiny, the issues are as follows: (1) whether petitioners are
liable to respondents for the latters share in the partnership; (2) whether the
CAs computation of P253,114 as respondents share is correct; and (3)
whether the CA was likewise correct in not assessing costs.

This Courts Ruling

The Petition has merit.

First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed
existed, and that it was dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed petitioners of the intention
to discontinue it because of the formers dissatisfaction with, and loss of trust
in, the latters management of the partnership affairs. These findings were
amply supported by the evidence on record. Respondents consequently
demanded from petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand from petitioners the
return of their equity share. Except as managers of the partnership, petitioners
did not personally hold its equity or assets. The partnership has a juridical
personality separate and distinct from that of each of the partners. Since the
[23]

capital was contributed to the partnership, not to petitioners, it is the


partnership that must refund the equity of the retiring partners.
[24]

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must


refund the shares of the partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only pay out what it has in
its coffers, which consists of all its assets. However, before the partners can
be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the
[25]

partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated -- in other words, sold and
converted to cash -- and all partnership creditors, if any, paid. The CAs
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial court showed
that the business had made meager profits. However, notable therefrom is
[26]

the omission of any provision for the depreciation of the furniture and the
[27]

equipment. The amortization of the goodwill (initially valued at P500,000) is


[28]

not reflected either.Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership.Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to
almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.
Second, the CAs finding that the partnership had an outstanding obligation
in the amount of P240,658 was not supported by evidence. We sustain the
contrary finding of the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following reason:

x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement
(Exh. A) par. 6 shows an outstanding obligation of P240,055.00 which the partnership
owes to different creditors, while the Certification issued by Mercator Finance (Exh.
8) shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the
former being the nominal party defendant in the instant case, who obtained a loan
of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.

Third, the CA failed to reduce the capitalization by P250,000, which was


the amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was
actually reduced. When petitioners and respondents ventured into business
together, they should have prepared for the fact that their investment would
either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had
invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from
the effects of unwise, foolish or disastrous contracts they have entered into
with all the required formalities and with full awareness of what they were
doing. Courts have no power to relieve them from obligations they have
voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments. [29]

Petitioners further argue that respondents acted negligently by permitting


the partnership assets in their custody to deteriorate to the point of being
almost worthless. Supposedly, the latter should have liquidated these sole
tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in


these rules, costs shall be allowed to the prevailing party as a matter of course, but the
court shall have power, for special reasons, to adjudge that either party shall pay the
costs of an action, or that the same be divided, as may be equitable. No costs shall be
allowed against the Republic of the Philippines unless otherwise provided by law.

Although, as a rule, costs are adjudged against the losing party, courts
have discretion, for special reasons, to decree otherwise. When a lower court
is reversed, the higher court normally does not award costs, because the
losing party relied on the lower courts judgment which is presumed to have
been issued in good faith, even if found later on to be erroneous.Unless
shown to be patently capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper
proceedings for the accounting, the liquidation and the distribution of the
remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.
JOSEFINA P. REALUBIT, G.R. No. 178782
Petitioner,

Present:

- versus - VELASCO, JR.,* J.,


BRION,**
Acting Chairperson,
ABAD,***
PEREZ, and
SERENO, JJ.

PROSENCIO D. JASO Promulgated:


and EDENG. JASO,
Respondents. September 21, 2011

x----------------------------------------------------------
- -x

DECISION

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a joint


venture are at issue in this petition for review filed pursuant to Rule 45 of the 1997
Rules of Civil Procedure,[1] assailing the 30 April 2007 Decision[2] rendered by the
Court of Appeals (CA) then Twelfth Division in CA-G.R. CV No. 73861,[3] the
dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order


the dissolution of the joint venture between defendant-appellant Josefina
Realubit and Francis Eric Amaury Biondo and the subsequent conduct of
accounting, liquidation of assets and division of shares of the joint
venture business.

Let a copy hereof and the records of the case be remanded to the trial
court for appropriate proceedings.[4]

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint


Venture Agreement with Francis Eric Amaury Biondo (Biondo), a French national,
for the operation of an ice manufacturing business. With Josefina as the industrial
partner and Biondo as the capitalist partner, the parties agreed that they would each
receive 40% of the net profit, with the remaining 20% to be used for the payment
of the ice making machine which was purchased for the business.[5] For and in
consideration of the sum of P500,000.00, however, Biondo subsequently executed
a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in
the business in favor of respondent Eden Jaso (Eden), the wife of respondent
Prosencio Jaso.[6] With Biondos eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising
her of their acquisition of said Frenchmans share in the business and formally
demanding an accounting and inventory thereof as well as the remittance of their
portion of its profits.[7]

Faulting Josefina with unjustified failure to heed their demand, the Spouses
Jaso commenced the instant suit with the filing of their 3 August 1998 Complaint
against Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for
specific performance, accounting, examination, audit and inventory of assets and
properties, dissolution of the joint venture, appointment of a receiver and
damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of
the Regional Trial Court (RTC) of Paraaque City, said complaint alleged, among
other matters, that the Spouses Realubit had no gainful occupation or business
prior to their joint venture with Biondo; that with the income of the business which
earned not less than P3,000.00 per day, they were, however, able to acquire the
two-storey building as well as the land on which the joint ventures ice plant stands,
another building which they used as their office and/or residence and six (6)
delivery vans; and, that aside from appropriating for themselves the income of the
business, the Spouses Realubit have fraudulently concealed the funds and assets
thereof thru their relatives, associates or dummies.[8]

Served with summons, the Spouses Realubit filed their Answer dated 21
October 1998, specifically denying the material allegations of the foregoing
complaint. Claiming that they have been engaged in the tube ice trading business
under a single proprietorship even before their dealings with Biondo, the Spouses
Realubit, in turn, averred that their said business partner had left the country in
May 1997 and could not have executed the Deed of Assignment which bears a
signature markedly different from that which he affixed on their Joint Venture
Agreement; that they refused the Spouses Jasos demand in view of the dubious
circumstances surrounding their acquisition of Biondos share in the business which
was established at Don Antonio Heights, Commonwealth Avenue, Quezon City;
that said business had already stopped operations on 13 January 1996 when its
plant shut down after its power supply was disconnected by MERALCO for non-
payment of utility bills; and, that it was their own tube ice trading business which
had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon
City that the Spouses Jaso mistook for the ice manufacturing business established
in partnership with Biondo.[9]

The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render
its Decision dated 17 September 2001, discounting the existence of sufficient
evidence from which the income, assets and the supposed dissolution of the joint
venture can be adequately reckoned. Upon the finding, however, that the Spouses
Jaso had been nevertheless subrogated to Biondos rights in the business in view of
their valid acquisition of the latters share as capitalist partner, [10] the RTC disposed
of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete


accounting and inventory of the assets and liabilities of the joint venture
from its inception to the present, to allow plaintiffs access to the books
and accounting records of the joint venture, to deliver to plaintiffs their
share in the profits, if any, and to pay the plaintiffs the amount
of P20,000. for moral damages. The claims for exemplary damages and
attorneys fees are denied for lack of basis.[11]

On appeal before the CA, the foregoing decision was set aside in the herein
assailed Decision dated 30 April 2007, upon the following findings and
conclusions: (a) the Spouses Jaso validly acquired Biondos share in the business
which had been transferred to and continued its operations at 66-C Cenacle Drive,
Sanville Subdivision, Project 6, Quezon City and not dissolved as claimed by the
Spouses Realubit; (b) absent showing of Josefinas knowledge and consent to the
transfer of Biondos share, Eden cannot be considered as a partner in the business,
pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to
Biondos share in the profits of the business, Eden cannot, however, interfere with
the management of the partnership, require information or account of its
transactions and inspect its books; (d) the partnership should first be dissolved
before Eden can seek an accounting of its transactions and demand Biondos share
in the business; and, (e) the evidence adduced before the RTC do not support the
award of moral damages in favor of the Spouses Jaso.[12]

The Spouses Realubits motion for reconsideration of the foregoing decision


was denied for lack of merit in the CAs 28 June 2007 Resolution,[13] hence, this
petition.

The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the
negative of the following issues, to wit:

A. WHETHER OR NOT THERE WAS A


VALID ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER


[JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT VENTURE.

C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO]


HAVE ANY RIGHT IN THE JOINT VENTURE AND IN
THE SEPARATE ICE BUSINESS OF PETITIONER[S].[14]

The Courts Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and
the CA inordinately gave premium to the notarization of the 27 June 1997 Deed of
Assignmentexecuted by Biondo in favor of the Spouses Jaso. Calling attention to
the latters failure to present before the RTC said assignor or, at the very least, the
witnesses to said document, the Spouses Realubit maintain that the testimony of
Rolando Diaz, the Notary Public before whom the same was acknowledged, did
not suffice to establish its authenticity and/or validity. They insist that notarization
did not automatically and conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or, for that matter, appear
before said notary public.[15] The dearth of merit in the Spouses Realubits position
is, however, immediately evident from the settled rule that documents
acknowledged before notaries public are public documents which are admissible in
evidence without necessity of preliminary proof as to their authenticity and due
execution.[16]

It cannot be gainsaid that, as a public document, the Deed of


Assignment Biondo executed in favor of Eden not only enjoys a presumption of
regularity[17] but is also considered prima facie evidence of the facts therein
stated.[18] A party assailing the authenticity and due execution of a notarized
document is, consequently, required to present evidence that is clear, convincing
and more than merely preponderant.[19] In view of the Spouses Realubits failure to
discharge this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined strength of
the above-discussed disputable presumptions and the testimonies elicited from
Eden[20] and Notary Public Rolando Diaz.[21] As for the Spouses Realubits bare
assertion that Biondos signature on the same document appears to be forged,
suffice it to say that, like fraud,[22] forgery is never presumed and must likewise be
proved by clear and convincing evidence by the party alleging the same.[23] Aside
from not being borne out by a comparison of Biondos signatures on the Joint
Venture Agreement[24] and the Deed of Assignment,[25] said forgery is, moreover
debunked by Biondos duly authenticated certification dated 17 November 1998,
confirming the transfer of his interest in the business in favor of Eden.[26]

Generally understood to mean an organization formed for some temporary


purpose, a joint venture is likened to a particular partnership or one which has for
its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation.[27] The rule is settled that joint ventures are
governed by the law on partnerships[28] which are, in turn, based on mutual agency
or delectus personae.[29] Insofar as a partners conveyance of the entirety of his
interest in the partnership is concerned, Article 1813 of the Civil Code provides as
follows:
Art. 1813. A conveyance by a partner of his whole interest in the
partnership does not itself dissolve the partnership, or, as against the
other partners in the absence of agreement, entitle the assignee, during
the continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners
would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the
usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to


receive his assignors interest and may require an account from the date
only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that (t)he transfer by a partner of


his partnership interest does not make the assignee of such interest a partner of the
firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.[30] Since a partners
interest in the partnership includes his share in the profits,[31] we find that the CA
committed no reversible error in ruling that the Spouses Jaso are entitled to
Biondos share in the profits, despite Juanitas lack of consent to the assignment of
said Frenchmans interest in the joint venture. Although Eden did not, moreover,
become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her
prayer for dissolution of the joint venture conformably with the right granted to the
purchaser of a partners interest under Article 1831 of the Civil Code.[32]

Considering that they involve questions of fact, neither are we inclined to


hospitably entertain the Spouses Realubits insistence on the supposed fact that
Josefinas joint venture with Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City was merely a continuation of the same business they previously
operated under a single proprietorship. It is well-entrenched doctrine that questions
of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of
Court as this mode of appeal is confined to questions of law.[33] Upon the principle
that this Court is not a trier of facts, we are not duty bound to examine the evidence
introduced by the parties below to determine if the trial and the appellate courts
correctly assessed and evaluated the evidence on record.[34]Absent showing that the
factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts, the Court will limit
itself to reviewing only errors of law.[35]

Based on the evidence on record, moreover, both the RTC[36] and the
CA[37] ruled out the dissolution of the joint venture and concluded that the ice
manufacturing business at the aforesaid address was the same one established by
Juanita and Biondo. As a rule, findings of fact of the CA are binding and
conclusive upon this Court,[38] and will not be reviewed or disturbed on
appeal[39] unless the case falls under any of the following recognized exceptions:
(1) when the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the CA, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the findings of fact of
the CA are premised on the supposed absence of evidence and contradicted by the
evidence on record.[40] Unfortunately for the Spouses Realubits cause, not one of
the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed
CA Decision dated 30 April 2007 is, accordingly, AFFIRMED in toto.
July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR,
FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN,
JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN,
ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A.
CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME
"OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M.
DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE
LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

RESOLUTION

MELENCIO-HERRERA, J.: +. wph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander
Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died
on February 14, 1976, praying that they be allowed to continue using, in the names of their firms, the
names of partners who had passed away. In the Court's Resolution of September 2, 1976, both
Petitions were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name
which includes the name of a deceased partner; in fact, Article 1840 of the Civil Code explicitly
sanctions the practice when it provides in the last paragraph that:t.hqw

The use by the person or partnership continuing the business of the partnership
name, or the name of a deceased partner as part thereof, shall not of itself make the
individual property of the deceased partner liable for any debts contracted by such
person or partnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature has
authorized the adoption of firm names without any restriction as to the use, in such firm name, of the
name of a deceased partner; 2 the legislative authorization given to those engaged in the practice of
accountancy a profession requiring the same degree of trust and confidence in respect of clients
as that implicit in the relationship of attorney and client to acquire and use a trade name, strongly
indicates that there is no fundamental policy that is offended by the continued use by a firm of
professionals of a firm name which includes the name of a deceased partner, at least where such
firm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a
deceased partner in the firm name of a law partnership because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar Association declares that: t.hqw
... The continued use of the name of a deceased or former partner when permissible
by local custom, is not unethical but care should be taken that no imposition or
deception is practiced through this use. ... 4

4. There is no possibility of imposition or deception because the deaths of their respective deceased
partners were well-publicized in all newspapers of general circulation for several days; the
stationeries now being used by them carry new letterheads indicating the years when their
respective deceased partners were connected with the firm; petitioners will notify all leading national
and international law directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's
name; 6 there is no custom or usage in the Philippines, or at least in the Greater Manila Area, which
recognizes that the name of a law firm necessarily Identifies the individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has been
consistently allowed by U.S. Courts and is an accepted practice in the legal profession of most
countries in the world.8

The question involved in these Petitions first came under consideration by this Court in 1953 when a
law firm in Cebu (the Deen case) continued its practice of including in its firm name that of a
deceased partner, C.D. Johnston. The matter was resolved with this Court advising the firm to desist
from including in their firm designation the name of C. D. Johnston, who has long been dead."

The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled
Register of Deeds of Manila vs. China Banking Corporation. The law firm of Perkins & Ponce Enrile
moved to intervene as amicus curiae. Before acting thereon, the Court, in a Resolution of April 15,
1957, stated that it "would like to be informed why the name of Perkins is still being used although
Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perkins
and Ponce Enrile, raising substantially the same arguments as those now being raised by
petitioners, prayed that the continued use of the firm name "Perkins & Ponce Enrile" be held proper.

On June 16, 1958, this Court resolved: t.hqw

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and
Associates for their continued use of the name of the deceased E. G. Perkins, the
Court found no reason to depart from the policy it adopted in June 1953 when it
required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from
including in their firm designation, the name of C. D. Johnston, deceased. The Court
believes that, in view of the personal and confidential nature of the relations between
attorney and client, and the high standards demanded in the canons of professional
ethics, no practice should be allowed which even in a remote degree could give rise
to the possibility of deception. Said attorneys are accordingly advised to drop the
name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.

The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon,
Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceased
partners will run counter to Article 1815 of the Civil Code which provides:t.hqw
Art. 1815. Every partnership shall operate under a firm name, which may or may not
include the name of one or more of the partners.

Those who, not being members of the partnership, include their names in the firm
name, shall be subject to the liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be
those of living partners and. in the case of non-partners, should be living persons who can be
subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his
name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased
partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly
where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits an
agreement for the payment to the widow and heirs of a deceased lawyer of a percentage, either
gross or net, of the fees received from the future business of the deceased lawyer's clients, both
because the recipients of such division are not lawyers and because such payments will not
represent service or responsibility on the part of the recipient. " Accordingly, neither the widow nor
the heirs can be held liable for transactions entered into after the death of their lawyer-predecessor.
There being no benefits accruing, there ran be no corresponding liability.

Prescinding the law, there could be practical objections to allowing the use by law firms of the names
of deceased partners. The public relations value of the use of an old firm name can tend to create
undue advantages and disadvantages in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting from scratch. Another able lawyer, who
can join an old firm, can initially ride on that old firm's reputation established by deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the
first factor to consider is that it is within Chapter 3 of Title IX of the Code entitled "Dissolution and
Winding Up." The Article primarily deals with the exemption from liability in cases of a dissolved
partnership, of the individual property of the deceased partner for debts contracted by the person or
partnership which continues the business using the partnership name or the name of the deceased
partner as part thereof. What the law contemplates therein is a hold-over situation preparatory to
formal reorganization.

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than
of a professional partnership, with no saleable good will but whose reputation depends on the
personal qualifications of its individual members. Thus, it has been held that a saleable goodwill can
exist only in a commercial partnership and cannot arise in a professional partnership consisting of
lawyers. 9t.hqw

As a general rule, upon the dissolution of a commercial partnership the succeeding


partners or parties have the right to carry on the business under the old name, in the
absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is
a partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s
204, p. 115) (Emphasis supplied)

On the other hand, t.hqw

... a professional partnership the reputation of which depends or; the individual skill of
the members, such as partnerships of attorneys or physicians, has no good win to be
distributed as a firm asset on its dissolution, however intrinsically valuable such skill
and reputation may be, especially where there is no provision in the partnership
agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis
supplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business. For one thing, the law on accountancy specifically allows the use of a
trade name in connection with the practice of accountancy.10 t.hqw

A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. ... It is not a partnership formed for the purpose
of carrying on trade or business or of holding property." 11 Thus, it has been stated
that "the use of a nom de plume, assumed or trade name in law practice is
improper. 12

The usual reason given for different standards of conduct being applicable to the
practice of law from those pertaining to business is that the law is a profession.

Dean Pound, in his recently published contribution to the Survey of the Legal
Profession, (The Lawyer from Antiquity to Modern Times, p. 5) defines a profession
as "a group of men pursuing a learned art as a common calling in the spirit of public
service, no less a public service because it may incidentally be a means of
livelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which one
may attain the highest eminence without making much money.

2. A relation as an "officer of court" to the administration of justice involving thorough


sincerity, integrity, and reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and


unwillingness to resort to current business methods of advertising and encroachment
on their practice, or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or
franchise. 14 It is limited to persons of good moral character with special qualifications duly
ascertained and certified. 15 The right does not only presuppose in its possessor integrity, legal
standing and attainment, but also the exercise of a special privilege, highly personal and partaking of
the nature of a public trust." 16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association"
in support of their petitions.

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased
or former partner in the firm name of a law partnership when such a practice is permissible by local
custom but the Canon warns that care should be taken that no imposition or deception is practiced
through this use.
It must be conceded that in the Philippines, no local custom permits or allows the continued use of a
deceased or former partner's name in the firm names of law partnerships. Firm names, under our
custom, Identify the more active and/or more senior members or partners of the law firm. A glimpse
at the history of the firms of petitioners and of other law firms in this country would show how their
firm names have evolved and changed from time to time as the composition of the partnership
changed. t.hqw

The continued use of a firm name after the death of one or more of the partners
designated by it is proper only where sustained by local custom and not where by
custom this purports to Identify the active members. ...

There would seem to be a question, under the working of the Canon, as to the
propriety of adding the name of a new partner and at the same time retaining that of
a deceased partner who was never a partner with the new one. (H.S. Drinker, op.
cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceased
partner continues to be used cannot be ruled out. A person in search of legal counsel might be
guided by the familiar ring of a distinguished name appearing in a firm title.

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased
partner's name in the firm name of law partnerships. But that is so because it is sanctioned by
custom.

In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners
Salazar, et al. quoted in their memorandum, the New York Supreme Court sustained the use of the
firm name Alexander & Green even if none of the present ten partners of the firm bears either
name because the practice was sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The Court stated therein: t.hqw

The practice sought to be proscribed has the sanction of custom and offends no
statutory provision or legislative policy. Canon 33 of the Canons of Professional
Ethics of both the American Bar Association and the New York State Bar Association
provides in part as follows: "The continued use of the name of a deceased or former
partner, when permissible by local custom is not unethical, but care should be taken
that no imposition or deception is practiced through this use." There is no question as
to local custom. Many firms in the city use the names of deceased members with the
approval of other attorneys, bar associations and the courts. The Appellate Division
of the First Department has considered the matter and reached The conclusion that
such practice should not be prohibited. (Emphasis supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The
use of the firm name herein is also sustainable by reason of agreement between the
partners. 18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has
been defined as a rule of conduct formed by repetition of acts, uniformly observed (practiced) as a
social rule, legally binding and obligatory. 19 Courts take no judicial notice of custom. A custom must
be proved as a fact, according to the rules of evidence. 20 A local custom as a source of right cannot
be considered by a court of justice unless such custom is properly established by competent
evidence like any other fact. 21 We find such proof of the existence of a local custom, and of the
elements requisite to constitute the same, wanting herein. Merely because something is done as a
matter of practice does not mean that Courts can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated from social custom. The former can
supplement statutory law or be applied in the absence of such statute. Not so with the latter.

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. 22 When
the Supreme Court in the Deen and Perkins cases issued its Resolutions directing lawyers to desist
from including the names of deceased partners in their firm designation, it laid down a legal rule
against which no custom or practice to the contrary, even if proven, can prevail. This is not to speak
of our civil law which clearly ordains that a partnership is dissolved by the death of any
partner. 23 Custom which are contrary to law, public order or public policy shall not be
countenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should not
be considered like an ordinary "money-making trade." t.hqw

... It is of the essence of a profession that it is practiced in a spirit of public service. A


trade ... aims primarily at personal gain; a profession at the exercise of powers
beneficial to mankind. If, as in the era of wide free opportunity, we think of free
competitive self assertion as the highest good, lawyer and grocer and farmer may
seem to be freely competing with their fellows in their calling in order each to acquire
as much of the world's good as he may within the allowed him by law. But the
member of a profession does not regard himself as in competition with his
professional brethren. He is not bartering his services as is the artisan nor
exchanging the products of his skill and learning as the farmer sells wheat or corn.
There should be no such thing as a lawyers' or physicians' strike. The best service of
the professional man is often rendered for no equivalent or for a trifling equivalent
and it is his pride to do what he does in a way worthy of his profession even if done
with no expectation of reward, This spirit of public service in which the profession of
law is and ought to be exercised is a prerequisite of sound administration of justice
according to law. The other two elements of a profession, namely, organization and
pursuit of a learned art have their justification in that they secure and maintain that
spirit. 25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to
legal and ethical impediment.

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names
"SYCIP" and "OZAETA" from their respective firm names. Those names may, however, be included
in the listing of individuals who have been partners in their firms indicating the years during which
they served as such.

SO ORDERED.

G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.


SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.

MALCOLM, J.:

Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil,


Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol & Company, Riu
Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was prayed to enter
an order: "(A) Declaring the individual partners as described in paragraph 5 parties to this
proceeding; (B) to require each of said partners to file an inventory of his property in the manner
required by section 51 of Act No. 1956; and (C) that each of said partners be adjudicated insolvent
debtors in this proceeding." The trial judge first granted the motion, but, subsequently, on opposition
being renewed, denied it. It is from this last order that an appeal was taken in accordance with
section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some importance and of
some intricacy. The issue in the case relates to a determination of the nature of the mercantile
establishment which operated under the name of Teck Seing & co., Ltd., and this issue requires us
to look into, and analyze, the document constituting Teck Seing & Co., Ltd. It reads:

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y residente del
municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu Provincia de Cebu, Islas Filipinas,
Yap Gueco, mayor de edad, comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas,
hacemos constar por la presente, que constituimos y formamos una sociedad mercantil
limitada, bajo las leyes vigentes en las Islas Filipinas y para ser registrada de acuerdo con
los reglamentos vigentes del Codigo de Comercio en Filipinas.

Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio principal
en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.

Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas Filipinas,
dividido en cinco acciones de a P6,000 como sigue:

Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00

Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
.
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
.

Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00

Que la duracion de la sociedad sera la de seis aos, a contar de la fecha de esta escritura,
pudiendo prorrogarse este tiempo a discrecion unanime de todos los accionistas.

El objeto de la sociedad sera la compra y venta de mercaderias en general.

El administrador o administradores de la sociedad podran, previa conformidad de los


accionistas, establecer cuantas sucursales o establecimientos considere necesarios para
facilitar sus negocios y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el fomento de su capital.

Las ganancias o perdidas que resultaren durante cada ao comercial, se distribuiran


proporcionalmente entre los accionistas, de acuerdo con el capital aportado por cada uno de
los mismos.

Las ganancias que resultaren en cada ao comercial, si resultaren algunas ganancias, no


podran ser retiradas pors los accionistas hasta dentro del termino de tres aos a contar de la
fecha del primer balance anual del negocio, quedadno por tanto estas ganancias en reserva,
para ampliar el capital aportado opor los accionistas y ampliar por tanto la esfera de accion
emprendida por la misma sociedad. Al pasar o expirar el termino de tres aos, cada
accionista podra retirar o depositar en poder de la sociedad, las ganancias que le debiera
corresponder durante dicho termino de tres aos.

Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera cantidad o
cantidades de la sociedad, que haya sido aportado por los mismos, para atender sus gastos
particulares ni aun pagando redito alguno sobre la cantidad que intenen disponer o extraer
de dicha sociedad.

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la
administracion de la Compaia, quienes podran usar indistintamente la firma social,
quedando por consiguiente autorizados amobs para hacer en nombre de ella toda calse de
operaciones, negocios y especulaciones mercantiles, practicando judicial y extra-
judicialment cuantos actos se requieran para el bien de la sociedad, nombrar procuradores o
abogados para reclamaciones y cobro de creditos y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia,
enfermedad o cualquier otro impedimento del accionista administrador Sr. Lim Yogsing, este
podra conferir poder general o especial al accionista que crea conveniente para que en
union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar
convenientemente los negocios de la sociedad. Que los administradores podran tener los
empleados necesarios para el mejor que debieran percibir dichos empleados por servicios
rendidos a la sociedad.
Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda
filipina, anualmente, para sus gastos particulares, siendo dicha cantidad de P1,200 la que
corresponde a cada uno de dichos administradores, como emolumentos o salarios que se
les asigna a cas uno, por sus trabajos en la administracion de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de aola gratificacion quese concedera a cada
administrador, si los negocios del ao fueran boyantes y justifiquen la concesion de una
gratificacion especial, aparte del salario aqui dispuesto y especificado.

Que pasado el termino de seis aos, y es de la conveniencia de los accionistas la


continuacion del negocio de esta sociedad, dicho termino sera prorrogado por igual numero
de aos, sin necesidas del otorgamiento de ulteriores escrituras, quedando la presente en
vigor hasta el termino dispuesto por todos los accionistas.

Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo
estipulado en esta en ella comprendidos, se procurara arreglar entre los mismos amistosa y
extrajudicialmente, y si no se consiguiere un arreglo de este modo, dichos accionistas
nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando ulteriores recursos.

En cuyos terminos dejamos formalizada esta escritura de sociedad mercantillimitada, y


prometemos cumplirla fiel y estrictamente segun los pactos que hemos establecido.

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas


Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.

(Fdos.) "LIM YOGSING


"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO

Firnando en presencia de:


(Fdos.) "ATILANO LEYSON
"JULIO DIAZ

"ESTADOS UNIDOS DE AMERCA


"ISLAS FILIPINAS
"PROVINCIA DE CEBU

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de 1919,


A.D., ante mi, Notario Publico que subscribe, comprecieron personalmente Santiago Jo
Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado este ultimo por
Ho Seng Sian, segun autorizacion hecha en telegrama de fecha 27 de septiembre de 1919
que se me ha presentado en este mismo acto, de quienes doy fe de que les conozco por ser
las mismas personas que otorgaron el preinserto documento, ratificando ant emi su
contenido y manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr.
Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F. el dia
19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien me exhibio la suya
expedida en Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. G2042490, Yap
Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero de 1919
bajo el No. F1452296, Lim Yogsing tambien me exhibio la suya expedida en Cebu, Cebu,
I.F., el dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng Sian representante de Jo
Ybec, me exhibio su cedula personal expedida en Cebu, Cebu, I.f. el dia 4 de febrero de
1919 bajo el No. F1453733.

Ante mi,

(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1. de enero de 1920

"Asiento No. 157


Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.

Presentado a las diez y cuarenta y tres minutos de la maana de hoy, segun el asiento No.
125, pagina 9 del Tomo 1. del Libro Diario. Cebu, 11 de febrero de 1920.

(Fdo.) "QUIRICO ABETO


[SELLO] "Registrador Mercantil Ex-Officio"

Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo 3. del
Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta
pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo Administrativo.

(Fdo.) "QUIRICO ABETO


[SELLO] "Registrador Mercantil Ex-Officio"

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is accidental partnership
denominated cuenta en participacion (joint account association).

Counsel for the petitioner and appellee described his client in once place in his opposition to the
motion of the creditors as "una verdadera sociedad anonima" (a true sociedad anonima). The
provisions of the Code of Commerce relating to sociedades anonimas were, however, repealed by
section 191 of the Corporation Law (Act No. 1459), with the exceptions the sociedades
anonimas lawfully organized at the time of the passage of the Corporation Law were recognized,
which is not our case.

The document providing for the partnership contract purported to form "una sociedad mercantil
limitada," and counsel for the petitioner's first contention was that Teck Seing & Co., Ltd., was
not "una sociedad regular colectiva, ni siquiera comanditaria, sino una sociedad mercantil
limitada." Let us see if the partnership contract created a "sociedad en comandita," or, as it is known
in English, and will hereafter be spoken of, "a limited partnership."

To establish a limited partnership there must be, at least, one general partner and the name of the
least one of the general partners must appear in the firm name. (Code of Commerce, arts. 122 [2],
146, 148.) But neither of these requirements have been fulfilled. The general rule is, that those who
seek to avail themselves of the protection of laws permitting the creation of limited partnerships must
show a substantially full compliance with such laws. A limited partnership that has not complied with
the law of its creation is not considered a limited partnership at all, but a general partnership in which
all the members are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp.
499, 595; 20 R C. L. 1064.)

The contention of the creditors and appellants is that the partnership contract established a general
partnership.

Article 125 of the Code of Commerce provides that the articles of general copartnership must estate
the names, surnames, and domiciles of the partners; the firm name; the names, and surnames of
the partners to whom the management of the firm and the use of its signature is instrusted; the
capital which each partner contributes in cash, credits, or property, stating the value given the latter
or the basis on which their appraisement is to be made; the duration of the copartnership; and the
amounts which, in a proper case, are to be given to each managing partner annually for his private
expenses, while the succeeding article of the Code provides that the general copartnership must
transact business under the name of all its members, of several of them, or of one only. Turning to
the document before us, it will be noted that all of the requirements of the Code have been met, with
the sole exception of that relating to the composition of the firm name. We leave consideration of this
phase of the case for later discussion.

The remaining possibility is the revised contention of counsel for the petitioners to the effect that
Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto" solamente" (only a de facto commercial
association), and that the decision of the Supreme court in the case of Hung-Man-Yoc vs. Kieng-
Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this argument which convinced the trial
judge, who gave effect to his understanding of the case last cited and which here must be given
serious attention.

The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm Kieng-Chiong-
Seng was not organized by means of any public document; that the partnership had not been
recorded in the mercantile registry; and that Kieng-Chiong-Seng was not proven to be the firm name,
but rather the designation of the partnership. The conclusion then was, that the partnership in
question was merely de facto and that, therefore, giving effect to the provisions of article 120 of the
Code of Commerce, the right of action was against the persons in charge of the management of the
association.

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side with the
facts before us, a marked difference is at once disclosed. In the cited case, the organization of the
partnership was not evidenced by any public document; here, it is by a public document. In the cited
case, the partnership naturally could not present a public instrument for record in the mercantile
registry; here, the contract of partnership has been duly registered. But the two cases are similar in
that the firm name failed to include the name of any of the partners.

We come then to the ultimate question, which is, whether we should follow the decision in Hung-
Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the two cases, holding
Teck Seing & Co., Ltd., a general copartnership, notwithstanding the failure of the firm name to
include the name of one of the partners. Let us now notice this decisive point in the case.

Article 119 of the Code of Commerce requires every commercial association before beginning its
business to state its article, agreements, and conditions in a public instrument, which shall be
presented for record in the mercantile registry. Article 120, next following, provides that the persons
in charge of the management of the association who violate the provisions of the foregoing article
shall be responsible in solidum to the persons not members of the association with whom they may
have transacted business in the name of the association. Applied to the facts before us, it would
seem that Teck Seing & Co., Ltd. has fulfilled the provisions of article 119. Moreover, to permit the
creditors only to look to the person in charge of the management of the association, the partner Lim
Yogsing, would not prove very helpful to them.

What is said in article 126 of the Code of Commerce relating to the general copartnership
transacting business under the name of all its members or of several of them or of one only, is wisely
included in our commercial law. It would appear, however, that this provision was inserted more for
the protection of the creditors than of the partners themselves. A distinction could well be drawn
between the right of the alleged partnership to institute action when failing to live up to the provisions
of the law, or even the rights of the partners as among themselves, and the right of a third person to
hold responsible a general copartnership which merely lacks a legal firm name in order to make it a
partnership de jure.

The civil law and the common law alike seem to point to a difference between the rights of the
partners who have failed to comply with the law and the rights of third persons who have dealt with
the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members
to register the articles of association in the commercial registry, agreements containing all the
essential requisites are valid as between the contracting parties, whatever the form adopted, and
that, while the failure to register in the commercial registry necessarily precludes the members from
enforcing rights acquired by them against third persons, such failure cannot prejudice the rights of
third persons. (See decisions of December 6, 1887, January 25, 1888, November 10, 1890, and
January 26, 1900.) The same reasoning would be applicable to the less formal requisite pertaining to
the firm name.

The common law is to the same effect. The State of Michigan had a statute prohibiting the
transaction of business under an assumed name or any other than the real name of the individual
conducting the same, unless such person shall file with the county clerk a certificate setting forth the
name under which the business is to be conducted and the real name of each of the partners, with
their residences and post-office addresses, and making a violation thereof a misdemeanor. The
supreme Court of Michigan said:

The one object of the act is manifestly to protect the public against imposition and fraud,
prohibiting persons from concealing their identity by doing business under an assumed
name, making it unlawful to use other than their real names in transacting business without a
public record of who they are, available for use in courts, and to punish those who violate the
prohibition. The object of this act is not limited to facilitating the collection of debts, or the
protection of those giving credit to persons doing business under an assumed name. It is not
unilateral in its application. It applies to debtor and creditor, contractor and contractee, alike.
Parties doing business with those acting under an assumed name, whether they buy or sell,
have a right, under the law, to know who they are, and who to hold responsible, in case the
question of damages for failure to perform or breach of warranty should arise.

The general rule is well settled that, where statutes enacted to protect the public against
fraud or imposition, or to safeguard the public health or morals, contain a prohibition and
impose a penalty, all contracts in violation thereof are void. . . .

As this act involves purely business transactions, and affects only money interests, we think
it should be construed as rendering contracts made in violation of it unlawful and unforceable
at the instance of the offending party only, but not as designed to take away the rights of
innocent parties who may have dealt with the offenders in ignorance of their having violated
the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)

The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs. Hernandez
[1903], 1 Phil., 705), contains the following pertinent observations:

Another case may be supposed. A partnership is organized for commercial purposes. It fails
to comply with the requirements of article 119. A creditor sues the partnership for a debt
contracted by it, claiming to hold the partners severally. They answer that their failure to
comply with the Code of Commerce makes them a civil partnership and that they are in
accordance with article 1698 of the Civil Code only liable jointly. To allow such liberty of
action would be to permit the parties by a violation of the Code to escape a liability which the
law has seen fit to impose upon persons who organized commercial partnership; "Because it
would be contrary to all legal principles that the nonperformance of a duty should redound to
the benefit of the person in default either intentional or unintentional." (Mercantile Law,
Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33 Phil., 350, 360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment after
articles 121 and 126 of the Code:

From the decisions cited in this and in the previous comments, the following is deduced: 1st.
Defects in the organization cannot affect relations with third persons. 2d. Members who
contract with other persons before the association is lawfully organized are liable to these
persons. 3d. The intention to form an association is necessary, so that if the intention of
mutual participation in the profits and losses in a particular business is proved, and there are
no articles of association, there is no association. 4th. An association, the articles of which
have not been registered, is valid in favor of third persons. 5th. The private pact or
agreement to form a commercial association is governed not by the commercial law but by
the civil law. 6th. Secret stipulations expressed in a public instrument, but not inserted in the
articles of association, do not affect third persons, but are binding on the parties themselves.
7th. An agreement made in a public instrument, other than the articles of association, by
means of which one of the partners guarantees to another certain profits or secures him from
losses, is valid between them, without affecting the association. 8th. Contracts entered into
by commercial associations defectively organized are valid when they are voluntarily
executed by the parties, if the only controversy relates to whether or not they complied with
the agreement.

xxx xxx xxx

The name of the collective merchant is called firm name. By this name, the new being is
distinguished from others, its sphere of action fixed, and the juridical personality better
determined, without constituting an exclusive character of the general partnership to such an
extent as to serve the purpose of giving a definition of said kind of a mercantile partnership,
as is the case in our Code.

Having in mind that these partnerships are prevailingly of a personal character, article 126
says that they must transact business under the name of all its members, of some of them,
or of one only, the words "and company" to be added in the latter two cases.

It is rendered impossible for the general partnership to adopt a firm name appropriate to its
commercial object; the law wants to link, and does link, the solidary and unlimited
responsibility of the members of this partnership with the formation of its name, and imposes
a limitation upon personal liberty in its selection, not only by prescribing the requisites, but
also by prohibiting persons not members of the company from including their names in its
firm name under penalty of civil solidary responsibility.

Of course, the form required by the Code for the adoption of the firm name does not prevent
the addition thereto of any other title connected with the commercial purpose of the
association. The reader may see our commentaries on the mercantile registry about the
business names and firm names of associations, but it is proper to establish here that, while
the business name may be alienated by any of the means admitted by the law, it seems
impossible to separate the firm names of general partnerships from the juridical entity for the
creation of which it was formed. (Vol. 2, pp. 197, 213.)

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the
name of all or any of the partners as prescribed by the Code of Commerce prevents the creation of a
general partnership, Professor Jose A. Espiritu, as amicus curi, states:

My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing
the formation of a general partnership, especially if the other requisites are present and the
requisite regarding registration of the articles of association in the Commercial Registry has
been complied with, as in the present case. I do not believe that the adoption of a wrong
name is a material fact to be taken into consideration in this case; first, because the mere
fact that a person uses a name not his own does not prevent him from being bound in a
contract or an obligation he voluntarily entered into; second, because such a requirement of
the law is merely a formal and not necessarily an essential one to the existence of the
partnership, and as long as the name adopted sufficiently identity the firm or partnership
intended to use it, the acts and contracts done and entered into under such a name bind the
firm to third persons; and third, because the failure of the partners herein to adopt the correct
name prescribed by law cannot shield them from their personal liabilities, as neither law nor
equity will permit them to utilize their own mistake in order to put the blame on third persons,
and much less, on the firm creditors in order to avoid their personal possibility.

The legal intention deducible from the acts of the parties controls in determining the existence of a
partnership. If they intend to do a thing which in law constitutes a partnership, they are partners,
although their purpose was to avoid the creation of such relation. Here, the intention of the persons
making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously
denominated a limited partnership. If this was their purpose, all subterfuges resorted to in order to
evade liability for possible losses, while assuming their enjoyment of the advantages to be derived
from the relation, must be disregarded. The partners who have disguised their identity under a
designation distinct from that of any of the members of the firm should be penalized, and not the
creditors who presumably have dealt with the partnership in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the general copartnership
liable personally and in solidum with all their property for the results of the transactions made in the
name and for the account of the partnership. Section 51 of the Insolvency Law, likewise, makes all
the property of the partnership and also all the separate property of each of the partners liable. In
other words, if a firm be insolvent, but one or more partners thereof are solvent, the creditors may
proceed both against the firm and against the solvent partner or partners, first exhausting the assets
of the firm before seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De
los Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda &
Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document hereinbefore quoted
established a general partnership or, to be more exact, a partnership as this word is used in the
Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court of
origin for further proceedings pursuant to the motion presented by the creditors, in conformity with
the provisions of the Insolvency Law. Without special findings as to the costs in this instance, it is
ordered.

G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC., plaintiff-appellee,


vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.

Grey, Buenaventura and Santiago for plaintiff-appellee.

Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer General Construction


Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per
annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding that the
judgment against these individual defendants shall be enforced only if the defendant
company has no more leviable properties with which to satisfy the judgment against
it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under the laws of
the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this
purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure
to pay any of said installments as they fall due would render the whole unpaid balance immediately
due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant
company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their
capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant
Romulo B. Lumauig is concerned.2

When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte3 , after which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that
since there are five (5) general partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5 ) of the obligations of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and
Sim to only one-fifth (1/5 ) of the obligations of the defendant company.4 Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the
general partners of a partnership increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of the partnership, under
its signature and by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership contract.

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:

The partnership of Yulo and Palacios was engaged in the operation of a sugar estate
in Negros. It was, therefore, a civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles l698 and
1137 of the Civil Code, the partners are not liable each for the whole debt of the
partnership. The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios,
had left the country cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in
the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without
pronouncement as to costs.

SO ORDERED.

G.R. No. L-39780 November 11, 1985

ELMO MUASQUE, petitioner,


vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents.

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of
Appeals affirming the existence of a partnership between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the partnership.

Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging
that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or expecting any consideration from
Galan although the latter was casually named as partner in the contract; that by virtue of his having
introduced the petitioner to the employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical, under the terms of the
contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total
sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00
not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be deposited in a joint account;
that on January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to
indorse said cheek presented to him by Galan but through later manipulations, respondent Pons
succeeded in changing the payee's name from Elmo Muasque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials, the payment of which
should have been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that because of
the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to
Galan petitioner demanded that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.

The respondents answered the complaint by denying some and admitting some of the material
averments and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that the issues to be
resolved are:

(1) Whether or not there existed a partners between Celestino Galan and Elmo
Muasque; and

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical
to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were
allowed to intervene, both having legal interest in the matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass
Palace the amount of P6,229.34 and P2,213.51, respectively;

(2) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.

On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as
follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's
fees jointly and severally to Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,

No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification
that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern
Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly."

Not satisfied, Mr. Muasque filed this petition.

The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and
Muasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract
for the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%)
of the whole amount upon the signing of the contract and the balance thereof divided into three
equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the
name of the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to
enable the latter to deposit it in the bank and pay for the materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when
the second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it
again, the petitioner refused.

The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that
there was a"misunderstanding" between him and petitioner, respondent Tropical changed the name
of the payee in the second check from Muasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under which name a permit to
do construction business was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He
stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses
had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was finished ahead of schedule
with the total expenditure reaching P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the
petitioner alone with the last check being given pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against
the respondents,seeking to recover the following: the amounts covered by the first and second
checks which fell into the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager,
Pons, from any liability but they also held the petitioner together with respondent Galan, hable to the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which
the intervenors extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the
appellate court erred in holding that a partnership existed between petitioner and respondent Galan.
(2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks and therefore,
accountable to the petitioner for the said amount; and (3) Whether or not the court committed grave
abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan
was "good payment, "

Petitioner contends that the appellate court erred in holding that he and respondent Galan were
partners, the truth being that Galan was a sham and a perfidious partner who misappropriated the
amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made by Tropical to Galan was
"good" payment when the same gave occasion for the latter to misappropriate the proceeds of such
payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of
the latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the
first paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and
Muasque hereinafter called the Contractor, and Tropical Commercial Co., Inc.,
hereinafter called the owner do hereby for and in consideration agree on the
following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.

Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a
check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical
therefore, had every right to presume that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to blame for making the relationship
appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good faith,
the appellees also acted in good faith in extending credit to the partnership. Where
one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.

No error was committed by the appellate court in holding that the payment made by Tropical to
Galan was a good payment which binds both Galan and the petitioner. Since the two were partners
when the debts were incurred, they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

There is a general presumption that each individual partner is an authorized agent for
the firm and that he has authority to bind the firm in carrying on the partnership
transactions. (Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.),
391.)

Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding
Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that
although this was not one of the issues agreed upon by the parties during the pretrial, he,
nevertheless, alleged the same in his amended complaint which was, duly admitted by the court.

When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons
in his personal capacity. Although the petitioner made allegations as to the alleged malversations of
Galan, these were the same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged connivance of Pons with
Galan as a means to serve the latter's personal purposes.

The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial
because he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26
SCRA 336), we ruled:

xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the trial
court's order issued on the very day the pre-trial conference was held. Such an order
controls the subsequent course of the action, unless modified before trial to prevent
manifest injustice.In the case at bar, modification of the pre-trial order was never
sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he
vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is
the contention of Muasque that the amounts payable to the intervenors should be shouldered
exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their
illstarred partnership. The records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit
to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's ordering
petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and
severally" is plain error since the liability of partners under the law to third persons for contracts
executed inconnection with partnership business is only pro rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall
be liable prorate with all their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-ship. ...". this provision should be
construed together with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short,
while the liability of the partners are merely joint in transactions entered into by the partnership, a
third person who transacted with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partner-ship or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the partnership
or any penalty is incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of
a third person and t he money or property so received is misapplied by any partner
while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority
of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil
Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are
solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed
between the petitioner and Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole

However. as between the partners Muasque and Galan,justice also dictates that Muasque be
reimbursed by Galan for the payments made by the former representing the liability of their
partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in
his dealings with Muasque as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the
liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors,

SO ORDERED.

G.R. No. L-26937 October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,


vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.

VILLAMOR, J.:

On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A.
Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership
under the name of "Tai Sing and Co.," with a capital of P40,000 contributed by said partners. In the
articles of copartnership, Exhibit A, it appears that the partnership was to last for five years from after
the date of its organization, and that its purpose was to do business in the City of Iloilo, Province of
Iloilo, or in any other part of the Philippine Islands the partners might desire, under the name of "Tai
Sing & Co.," for the purchase and sale of merchandise, goods, and native, as well as Chinese and
Japanese, products, and to carry on such business and speculations as they might consider
profitable. One of the partners, J. A. Say Lian Ping was appointed general manager of the
partnership, with the appointed general manager of the partnership, with the powers specified in said
articles of copartnership.

On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1) in
favor of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing &
Co.," on July 26, 1918, for, and obtained a loan of P8,000 in current account from the plaintiff bank.
(Exhibit C). As security for said loan, he mortgaged certain personal property of "Tai Sing & Co.,
(Exhibit C.)

This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai
Sing & Co., executed a chattel mortgage in favor of plaintiff bank as security for a loan of P20,000
with interest (Exhibit D). This mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as
attorney-in-fact of "Tai Sing & Co., executed another chattel mortgage for the said sum of P20,000 in
favor of plaintiff bank. (Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn
9 per cent interest per annum.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter
represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of which
Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank on January 7,
1921, executing a chattel mortgage on certain personal property belonging to "Tai Sing & Co.

Defendants had been using this commercial credit in a current account with the plaintiff bank, from
the year 1918, to May 22, 1921, and the debit balance of this account, with interest to December 31,
1924, is as follows:

TAI SING & CO.


To your outstanding account (C. O. D.) with us on June
30, 1922 P16,518.74
Interest on same from June 30, 1922 to December
31,1924, at 9 per cent per annum 3,720.86

Total
20, 239.00
=========

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per
cent per annum from January 1, 1925 until fully paid, with the costs of the trial.

Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general
partnership, and that the commercial credit in current account which "Tai Sing & Co. obtained from
the plaintiff bank had not been authorized by the board of directors of the company, nor was the
person who subscribed said contract authorized to make the same, under the article of
copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered the complaint denying
each and every one of the allegations contained therein.

After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to
plaintiff Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily interest
of P4.14 on the balance on account of the partnership "Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;

(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank the
sum of P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on the
principal; and

(3) The defendants are furthermore ordered to pay the costs of the action. 1awph!l.net

Defendants appealed, making the following assignments of error:

I. The trial court erred in finding that article 126 of the Code of Commerce at present in force
is not mandatory.

II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit
A), is in accordance with the requirements of article 125 of the Code of Commerce for the
organization of a regular partnership.

III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November,
1917, as a proven fact.

IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the
defendants' obligation to the plaintiff bank, because the last debt incurred by the commercial
partnership "Tai Sing & Co., was that evidence by Exhibit F, signed by Sy Tit as attorney-in-
fact of the members of "Tai Sing & Co., by virtue of Exhibit G.

V. The trial court erred in not finding that plaintiff bank was not able to collect its credit from
the goods of "Tai Sing & Co., given as security therefor through its own fault and negligence;
and that the action brought by plaintiff is a manifest violation of article 237 of the present
Code of Commerce.

VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff
bank shows a debit balance of P16,518.74, which in addition to interest at 9 per cent per
annum from July 29, 1926, amount to P16,595.26, with a daily interest of P4.14 on the sum
of P16,518.74.

VII. The trial court erred in ordering the defendants appellants to pay jointly and severally to
the Philippine National Bank the sum of P22,727.74 up to August 31, 1926, and interest on
P16,518.74 from that date until fully paid, with the costs of the action.

VIII. The trial court erred in denying the motion for a new trial filed by defendants-appellants.

Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed
by the defendants is a general partnership, as defined in article 126 of the Code Commerce. This
partnership was registered in the mercantile register of the Province of Iloilo. The only anomaly
noted in its organization is that instead of adopting for their firm name the names of all of the
partners, of several of them, or only one of them, to be followed in the last two cases, by the words
"and to be followed in the last two cases, by the words "and company" the partners agreed upon "Tai
Sing & Co." as the firm name.

In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company formed by defendants had existed in fact, though not
in law due to the fact that it was not recorded in the register, and having operated and contracted
debts in favor of the plaintiff, the same must be paid by someone. This applies more strongly to the
obligations contracted by the defendants, for they formed a partnership which was registered in the
mercantile register, and carried on business contracting debts with the plaintiff bank. The anomalous
adoption of the firm name above noted does not affect the liability of the general partners to third
parties under article 127 of the Code of Commerce. And the Supreme Court so held in the case
of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which it said that the object of
article 126 of the Code of Commerce in requiring a general partnership to transact business under
the name of all its members, of several of them, or of one only, is to protect the public from
imposition and fraud; and that the provision of said article 126 is for the protection of the creditors
rather than of the partners themselves. And consequently the doctrine was enunciated that the law
must be unlawful and unenforceable only as between the partners and at the instance of the
violating party, but not in the sense of depriving innocent parties of their rights who may have dealt
with the offenders in ignorance of the latter having violated the law; and that contracts entered into
by commercial associations defectively organized are valid when voluntarily executed by the parties,
and the only question is whether or not they complied with the agreement. Therefore, the defendants
cannot invoke in their defense the anomaly in the firm name which they themselves adopted.

As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-fact
Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact proven at the
hearing. But even supposing that the court had erred, such an error would not justify the reversal of
the judgment, for two reasons at least: (1) Because Ou Yong Kelam was a partner who contracted in
the name of the partnership, without any objection of the other partners; and (2) because it appears
in the record that the appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed
Sy Tit as manager, and he obtained from the plaintiff bank the credit in current account, the debit
balance of which is sought to be recovered in this action.

Appellants allege that such of their property as is not included in the partnership assets cannot-be
seized for the payment of the debts contracted by the partnership until after the partnership property
has been exhausted. The court found that the partnership property described in the mortgage Exhibit
F no loner existed at the time of the filing of the herein complaint nor has its existence been proven,
nor was it offered to the plaintiff for sale. We find no just reason to reverse this conclusion of the trial
court, and this being so, it follows that article 237 of the Code of Commerce, invoked by the
appellant, can in no way have any application here.

Appellants also assign error to the action of the trial court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest on P16,518.74, owing from them.

The judgment against the appellants is in accordance with article 127 of the Code of Commerce
which provides that all the members of a general partnership, be they managing partners thereof or
not, shall be personally and solidarily liable with all their property, for the results of the transactions
made in the name and for the account of the partnership, under the signature of the latter, and by a
person authorized to use it.

As to the amount of the interest suffice it to remember that the credit in current account sued on in
this case as been renewed by the parties in such a way that while it appears in the mortgage Exhibit
D executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on April 16, 1920, Exhibit E, it appears that
the P20,000 would earn 9 per cent interest per annum. The credit was renewed in January, 1921,
and in the deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-
fact Sy Tit, it appears that this security is for the payment of the sums received by the partnership,
not to exceed P20,000 with interest and collection fees. There can be no doubt that the parties
agreed upon the rate of interest fixed in the document Exhibit E, namely 9 per cent per annum.

The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby,
affirmed with costs against the appellants. So ordered.

ZENAIDA G. MENDOZA, G.R. No. 175885


Petitioner,
Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Chico-Nazario,
Nachura, and
Peralta, JJ.
ENGR. EDUARDO PAULE,
ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION
ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA),
Respondents.

x ------------------------------------------------------ x

MANUEL DELA CRUZ, G.R. No. 176271


Petitioner,
- versus -
ENGR. EDUARDO M. PAULE,
ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION Promulgated:
ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA),
Respondents. February 13, 2009

x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:

These consolidated petitions assail the August 28, 2006 Decision[1] of the
Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil
Case No. 18-SD (2000),[2] and its December 11, 2006 Resolution[3] denying the
herein petitioners motion for reconsideration.

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule


Construction and Trading (EMPCT). On May 24, 1999, PAULE executed a special
power of attorney (SPA) authorizing Zenaida G. Mendoza (MENDOZA) to
participate in the pre-qualification and bidding of a National Irrigation
Administration (NIA) project and to represent him in all transactions related
thereto, to wit:

1. To represent E.M. PAULE CONSTRUCTION & TRADING of which


I (PAULE) am the General Manager in all my business
transactions with National Irrigation Authority, Muoz, Nueva
Ecija.

2. To participate in the bidding, to secure bid bonds and other documents


pre-requisite in the bidding of Casicnan Multi-Purpose Irrigation
and Power Plant (CMIPPL 04-99), National Irrigation Authority,
Muoz, Nueva Ecija.

3. To receive and collect payment in check in behalf of E.M. PAULE


CONSTRUCTION & TRADING.

4. To do and perform such acts and things that may be necessary and/or
required to make the herein authority effective.[4]

On September 29, 1999, EMPCT, through MENDOZA, participated in the


bidding of the NIA-Casecnan Multi-Purpose Irrigation and Power Project (NIA-
CMIPP) and was awarded Packages A-10 and B-11 of the NIA-CMIPP Schedule
A. On November 16, 1999, MENDOZA received the Notice of Award which was
signed by Engineer Alexander M. Coloma (COLOMA), then Acting Project
Manager for the NIA-CMIPP. Packages A-10 and B-11 involved the construction
of a road system, canal structures and drainage box culverts with a project cost of
P5,613,591.69.

When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of


heavy equipment for use in the NIA project, he met up with MENDOZA in
Bayuga, Muoz, Nueva Ecija, in an apartment where the latter was holding office
under an EMPCT signboard. A series of meetings followed in said EMPCT office
among CRUZ, MENDOZA and PAULE.

On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job
Orders/Agreements[5] for the lease of the latters heavy equipment (dump trucks for
hauling purposes) to EMPCT.

On April 27, 2000, PAULE revoked[6] the SPA he previously issued in favor
of MENDOZA; consequently, NIA refused to make payment to MENDOZA on
her billings. CRUZ, therefore, could not be paid for the rent of the
equipment. Upon advice of MENDOZA, CRUZ addressed his demands for
payment of lease rentals directly to NIA but the latter refused to acknowledge the
same and informed CRUZ that it would be remitting payment only to EMPCT as
the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or
EMPCT payment of the outstanding rentals which amounted to P726,000.00 as of
March 31, 2000.

On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37
of the Regional Trial Court of Nueva Ecija, for collection of sum of money with
damages and a prayer for the issuance of a writ of preliminary injunction against
PAULE, COLOMA and the NIA. PAULE in turn filed a third-party complaint
against MENDOZA, who filed her answer thereto, with a cross-claim against
PAULE.

MENDOZA alleged in her cross-claim that because of PAULEs whimsical


revocation of the SPA, she was barred from collecting payments from NIA, thus
resulting in her inability to fund her checks which she had issued to suppliers of
materials, equipment and labor for the project. She claimed that estafa and B.P.
Blg. 22 cases were filed against her; that she could no longer finance her childrens
education; that she was evicted from her home; that her vehicle was foreclosed
upon; and that her reputation was destroyed, thus entitling her to actual and moral
damages in the respective amounts of P3 million and P1 million.

Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as


his attorney-in-fact

1. To represent me (PAULE), in my capacity as General Manager


of the E.M. PAULE CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions exclusively for the construction
of the projects known as Package A-10 of Schedule A and Package No.
B-11 Schedule B, which are 38.61% and 63.18% finished as of June 21,
2000, per attached Accomplishment Reports x x x;

2. To implement, execute, administer and supervise the said


projects in whatever stage they are in as of to date, to collect checks and
other payments due on said projects and act as the Project Manager for
E.M. PAULE CONSTRUCTION AND TRADING;

3. To do and perform such acts and things that may be necessary


and required to make the herein power and authority effective.[7]
At the pre-trial conference, the other parties were declared as in default and
CRUZ was allowed to present his evidence ex parte. Among the witnesses he
presented was MENDOZA, who was impleaded as defendant in PAULEs third-
party complaint.

On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff


PAULE non-suited with prayer that she be allowed to present her
evidence ex parte.

However, without resolving MENDOZAs motion to declare PAULE non-


suited, and without granting her the opportunity to present her evidence ex parte,
the trial court rendered its decision dated August 7, 2003, the dispositive portion of
which states, as follows:

WHEREFORE, judgment is hereby rendered in favor of the


plaintiff as follows:

1. Ordering defendant Paule to pay the plaintiff the sum of


P726,000.00 by way of actual damages or compensation for the services
rendered by him;

2. Ordering defendant Paule to pay plaintiff the sum of


P500,000.00 by way of moral damages;

3. Ordering defendant Paule to pay plaintiff the sum of


P50,000.00 by way of reasonable attorneys fees;

4. Ordering defendant Paule to pay the costs of suit; and

5. Ordering defendant National Irrigation Administration (NIA) to


withhold the balance still due from it to defendant Paule/E.M. Paule
Construction and Trading under NIA-CMIPP Contract Package A-10
and to pay plaintiff therefrom to the extent of defendant Paules liability
herein adjudged.

SO ORDERED.[8]
In holding PAULE liable, the trial court found that MENDOZA was duly
constituted as EMPCTs agent for purposes of the NIA project and that MENDOZA
validly contracted with CRUZ for the rental of heavy equipment that was to be
used therefor. It found unavailing PAULEs assertion that MENDOZA merely
borrowed and used his contractors license in exchange for a consideration of 3% of
the aggregate amount of the project. The trial court held that through the SPAs he
executed, PAULE clothed MENDOZA with apparent authority and held her out to
the public as his agent; as principal, PAULE must comply with the obligations
which MENDOZA contracted within the scope of her authority and for his
benefit. Furthermore, PAULE knew of the transactions which MENDOZA entered
into since at various times when she and CRUZ met at the EMPCT office, PAULE
was present and offered no objections. The trial court declared that it would be
unfair to allow PAULE to enrich himself and disown his acts at the expense of
CRUZ.

PAULE and MENDOZA both appealed the trial courts decision to the Court
of Appeals.

PAULE claimed that he did not receive a copy of the order of default; that it
was improper for MENDOZA, as third-party defendant, to have taken the stand as
plaintiff CRUZs witness; and that the trial court erred in finding that an agency
was created between him and MENDOZA, and that he was liable as principal
thereunder.

On the other hand, MENDOZA argued that the trial court erred in deciding
the case without affording her the opportunity to present evidence on her cross-
claim against PAULE; that, as a result, her cross-claim against PAULE was not
resolved, leaving her unable to collect the amounts of P3,018,864.04, P500,000.00,
and P839,450.88 which allegedly represent the unpaid costs of the project and the
amount PAULE received in excess of payments made by NIA.

On August 28, 2006, the Court of Appeals rendered the assailed Decision
which dismissed CRUZs complaint, as well as MENDOZAs appeal. The appellate
court held that the SPAs issued in MENDOZAs favor did not grant the latter the
authority to enter into contract with CRUZ for hauling services; the SPAs limit
MENDOZAs authority to only represent EMPCT in its business transactions with
NIA, to participate in the bidding of the project, to receive and collect payment in
behalf of EMPCT, and to perform such acts as may be necessary and/or required to
make the said authority effective. Thus, the engagement of CRUZs hauling
services was done beyond the scope of MENDOZAs authority.

As for CRUZ, the Court of Appeals held that he knew the limits of
MENDOZAs authority under the SPAs yet he still transacted with
her. Citing Manila Memorial Park Cemetery, Inc. v. Linsangan,[9] the appellate
court declared that the principal (PAULE) may not be bound by the acts of the
agent (MENDOZA) where the third person (CRUZ) transacting with the agent
knew that the latter was acting beyond the scope of her power or authority under
the agency.

With respect to MENDOZAs appeal, the Court of Appeals held that when
the trial court rendered judgment, not only did it rule on the plaintiffs complaint; in
effect, it resolved the third-party complaint as well;[10] that the trial court correctly
dismissed the cross-claim and did not unduly ignore or disregard it; that
MENDOZA may not claim, on appeal, the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly represent the unpaid costs of the
project and the amount PAULE received in excess of payments made by NIA, as
these are not covered by her cross-claim in the court a quo, which seeks
reimbursement only of the amounts of P3 million and P1 million, respectively, for
actual damages (debts to suppliers, laborers, lessors of heavy equipment, lost
personal property) and moral damages she claims she suffered as a result of
PAULEs revocation of the SPAs; and that the revocation of the SPAs is a
prerogative that is allowed to PAULE under Article 1920[11] of the Civil Code.

CRUZ and MENDOZAs motions for reconsideration were denied; hence,


these consolidated petitions:

G.R. No. 175885 (MENDOZA PETITION)

a) The Court of Appeals erred in sustaining the trial courts


failure to resolve her motion praying that PAULE be declared non-
suited on his third-party complaint, as well as her motion seeking that
she be allowed to present evidence ex parte on her cross-claim;

b) The Court of Appeals erred when it sanctioned the trial


courts failure to resolve her cross-claim against PAULE; and,

c) The Court of Appeals erred in its application of Article 1920


of the Civil Code, and in adjudging that MENDOZA had no right to
claim actual damages from PAULE for debts incurred on account of
the SPAs issued to her.

G.R. No. 176271 (CRUZ PETITION)

CRUZ argues that the decision of the Court of Appeals is


contrary to the provisions of law on agency, and conflicts with the
Resolution of the Court in G.R. No. 173275, which affirmed the Court
of Appeals decision in CA-G.R. CV No. 81175, finding the existence
of an agency relation and where PAULE was declared as
MENDOZAs principal under the subject SPAs and, thus, liable for
obligations (unpaid construction materials, fuel and heavy equipment
rentals) incurred by the latter for the purpose of implementing and
carrying out the NIA project awarded to EMPCT.

CRUZ argues that MENDOZA was acting within the scope of her authority
when she hired his services as hauler of debris because the NIA project (both
Packages A-10 and B-11 of the NIA-CMIPP) consisted of construction of canal
structures, which involved the clearing and disposal of waste, acts that are
necessary and incidental to PAULEs obligation under the NIA project; and that the
decision in a civil case involving the same SPAs, where PAULE was found liable
as MENDOZAs principal already became final and executory; that in Civil Case
No. 90-SD filed by MENDOZA against PAULE,[12] the latter was adjudged liable
to the former for unpaid rentals of heavy equipment and for construction materials
which MENDOZA obtained for use in the subject NIA project. On September 15,
2003, judgment was rendered in said civil case against PAULE, to wit:

WHEREFORE, judgment is hereby rendered in favor of the


plaintiff (MENDOZA) and against the defendant (PAULE) as follows:
1. Ordering defendant Paule to pay plaintiff the sum of
P138,304.00 representing the obligation incurred by the plaintiff with
LGH Construction;

2. Ordering defendant Paule to pay plaintiff the sum of


P200,000.00 representing the balance of the obligation incurred by the
plaintiff with Artemio Alejandrino;

3. Ordering defendant Paule to pay plaintiff the sum of


P520,000.00 by way of moral damages, and further sum of P100,000.00
by way of exemplary damages;

4. Ordering defendant Paule to pay plaintiff the sum of


P25,000.00 as for attorneys fees; and

5. To pay the cost of suit.[13]

PAULE appealed[14] the above decision, but it was dismissed by the Court of
Appeals in a Decision[15] which reads, in part:

As to the finding of the trial court that the principle of agency is


applicable in this case, this Court agrees therewith. It must be
emphasized that appellant (PAULE) authorized appellee (MENDOZA)
to perform any and all acts necessary to make the business transaction of
EMPCT with NIA effective. Needless to state, said business transaction
pertained to the construction of canal structures which necessitated the
utilization of construction materials and equipments. Having given said
authority, appellant cannot be allowed to turn its back on the transactions
entered into by appellee in behalf of EMPCT.

The amount of moral damages and attorneys fees awarded by the


trial court being justifiable and commensurate to the damage suffered by
appellee, this Court shall not disturb the same. It is well-settled that the
award of damages as well as attorneys fees lies upon the discretion of the
court in the context of the facts and circumstances of each case.

WHEREFORE, the appeal is DISMISSED and the appealed


Decision is AFFIRMED.

SO ORDERED.[16]
PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was
denied with finality on September 13, 2006.

MENDOZA, for her part, claims that she has a right to be heard on her cause
of action as stated in her cross-claim against PAULE; that the trial courts failure to
resolve the cross-claim was a violation of her constitutional right to be apprised of
the facts or the law on which the trial courts decision is based; that PAULE may
not revoke her appointment as attorney-in-fact for and in behalf of EMPCT
because, as manager of their partnership in the NIA project, she was obligated to
collect from NIA the funds to be used for the payment of suppliers and contractors
with whom she had earlier contracted for labor, materials and equipment.

PAULE, on the other hand, argues in his Comment that MENDOZAs


authority under the SPAs was for the limited purpose of securing the NIA project;
that MENDOZA was not authorized to contract with other parties with regard to
the works and services required for the project, such as CRUZs hauling services;
that MENDOZA acted beyond her authority in contracting with CRUZ, and
PAULE, as principal, should not be made civilly liable to CRUZ under the SPAs;
and that MENDOZA has no cause of action against him for actual and moral
damages since the latter exceeded her authority under the agency.

We grant the consolidated petitions.

Records show that PAULE (or, more appropriately, EMPCT) and


MENDOZA had entered into a partnership in regard to the NIA project. PAULEs
contribution thereto is his contractors license and expertise, while MENDOZA
would provide and secure the needed funds for labor, materials and services; deal
with the suppliers and sub-contractors; and in general and together with PAULE,
oversee the effective implementation of the project. For this, PAULE would
receive as his share three per cent (3%) of the project cost while the rest of the
profits shall go to MENDOZA. PAULE admits to this arrangement in all his
pleadings.[17]

Although the SPAs limit MENDOZAs authority to such acts as representing


EMPCT in its business transactions with NIA, participating in the bidding of the
project, receiving and collecting payment in behalf of EMPCT, and performing
other acts in furtherance thereof, the evidence shows that when MENDOZA and
CRUZ met and discussed (at the EMPCT office in Bayuga, Muoz, Nueva Ecija)
the lease of the latters heavy equipment for use in the project, PAULE was present
and interposed no objection to MENDOZAs actuations. In his pleadings, PAULE
does not even deny this. Quite the contrary, MENDOZAs actions were in accord
with what she and PAULE originally agreed upon, as to division of labor and
delineation of functions within their partnership. Under the Civil Code, every
partner is an agent of the partnership for the purpose of its business;[18] each one
may separately execute all acts of administration, unless a specification of their
respective duties has been agreed upon, or else it is stipulated that any one of them
shall not act without the consent of all the others.[19] At any rate, PAULE does not
have any valid cause for opposition because his only role in the partnership is to
provide his contractors license and expertise, while the sourcing of funds,
materials, labor and equipment has been relegated to MENDOZA.

Moreover, it does not speak well for PAULE that he reinstated MENDOZA
as his attorney-in-fact, this time with broader powers to implement, execute,
administer and supervise the NIA project, to collect checks and other payments due
on said project, and act as the Project Manager for EMPCT, even after CRUZ has
already filed his complaint. Despite knowledge that he was already being sued on
the SPAs, he proceeded to execute another in MENDOZAs favor, and even
granted her broader powers of administration than in those being sued upon. If he
truly believed that MENDOZA exceeded her authority with respect to the initial
SPA, then he would not have issued another SPA. If he thought that his trust had
been violated, then he should not have executed another SPA in favor of
MENDOZA, much less grant her broader authority.

Given the present factual milieu, CRUZ has a cause of action against
PAULE and MENDOZA. Thus, the Court of Appeals erred in dismissing CRUZs
complaint on a finding of exceeded agency. Besides, that PAULE could be held
liable under the SPAs for transactions entered into by MENDOZA with laborers,
suppliers of materials and services for use in the NIA project, has been settled with
finality in G.R. No. 173275. What has been adjudged in said case as regards the
SPAs should be made to apply to the instant case. Although the said case involves
different parties and transactions, it finally disposed of the matter regarding the
SPAs specifically their effect as among PAULE, MENDOZA and third parties
with whom MENDOZA had contracted with by virtue of the SPAs a disposition
that should apply to CRUZ as well. If a particular point or question is in issue in
the second action, and the judgment will depend on the determination of that
particular point or question, a former judgment between the same parties or their
privies will be final and conclusive in the second if that same point or question was
in issue and adjudicated in the first suit. Identity of cause of action is not required
but merely identity of issues.[20]

There was no valid reason for PAULE to revoke MENDOZAs SPAs. Since
MENDOZA took care of the funding and sourcing of labor, materials and
equipment for the project, it is only logical that she controls the finances, which
means that the SPAs issued to her were necessary for the proper performance of
her role in the partnership, and to discharge the obligations she had already
contracted prior to revocation. Without the SPAs, she could not collect from NIA,
because as far as it is concerned, EMPCT and not the PAULE-MENDOZA
partnership is the entity it had contracted with. Without these payments from NIA,
there would be no source of funds to complete the project and to pay off
obligations incurred. As MENDOZA correctly argues, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a partnership
in the contract of partnership and his removal from the management is
unjustifiable.[21]

PAULEs revocation of the SPAs was done in evident bad faith. Admitting
all throughout that his only entitlement in the partnership with MENDOZA is his
3% royalty for the use of his contractors license, he knew that the rest of the
amounts collected from NIA was owing to MENDOZA and suppliers of materials
and services, as well as the laborers. Yet, he deliberately revoked MENDOZAs
authority such that the latter could no longer collect from NIA the amounts
necessary to proceed with the project and settle outstanding obligations.

From the way he conducted himself, PAULE committed a willful and


deliberate breach of his contractual duty to his partner and those with whom the
partnership had contracted. Thus, PAULE should be made liable for moral
damages.
Bad faith does not simply connote bad judgment or negligence; it
imputes a dishonest purpose or some moral obliquity and conscious
doing of a wrong; a breach of a sworn duty through some motive or
intent or ill-will; it partakes of the nature of fraud (Spiegel v. Beacon
Participation, 8 NE 2nd Series, 895, 1007). It contemplates a state of
mind affirmatively operating with furtive design or some motive of self-
interest or ill will for ulterior purposes (Air France v. Carrascoso, 18
SCRA 155, 166-167). Evident bad faith connotes a manifest deliberate
intent on the part of the accused to do wrong or cause damage.[22]

Moreover, PAULE should be made civilly liable for abandoning the


partnership, leaving MENDOZA to fend for her own, and for unduly revoking her
authority to collect payments from NIA, payments which were necessary for the
settlement of obligations contracted for and already owing to laborers and suppliers
of materials and equipment like CRUZ, not to mention the agreed profits to be
derived from the venture that are owing to MENDOZA by reason of their
partnership agreement. Thus, the trial court erred in disregarding and dismissing
MENDOZAs cross-claim which is properly a counterclaim, since it is a claim
made by her as defendant in a third-party complaint against PAULE, just as the
appellate court erred in sustaining it on the justification that PAULEs revocation of
the SPAs was within the bounds of his discretion under Article 1920 of the Civil
Code.

Where the defendant has interposed a counterclaim (whether compulsory or


permissive) or is seeking affirmative relief by a cross-complaint, the plaintiff
cannot dismiss the action so as to affect the right of the defendant in his
counterclaim or prayer for affirmative relief. The reason for that exception is
clear. When the answer sets up an independent action against the plaintiff, it then
becomes an action by the defendant against the plaintiff, and, of course, the
plaintiff has no right to ask for a dismissal of the defendants action. The present
rule embodied in Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure
ordains a more equitable disposition of the counterclaims by ensuring that any
judgment thereon is based on the merit of the counterclaim itself and not on the
survival of the main complaint. Certainly, if the counterclaim is palpably without
merit or suffers jurisdictional flaws which stand independent of the complaint, the
trial court is not precluded from dismissing it under the amended rules, provided
that the judgment or order dismissing the counterclaim is premised on those
defects. At the same time, if the counterclaim is justified, the amended rules now
unequivocally protect such counterclaim from peremptory dismissal by reason of
the dismissal of the complaint.[23]

Notwithstanding the immutable character of PAULEs liability to


MENDOZA, however, the exact amount thereof is yet to be determined by the trial
court, after receiving evidence for and in behalf of MENDOZA on her
counterclaim, which must be considered pending and unresolved.

WHEREFORE, the petitions are GRANTED. The August 28, 2006


Decision of the Court of Appeals in CA-G.R. CV No. 80819 dismissing the
complaint in Civil Case No. 18-SD (2000) and its December 11, 2006 Resolution
denying the motion for reconsideration are REVERSED and SET ASIDE. The
August 7, 2003 Decision of the Regional Trial Court of Nueva Ecija, Branch 37 in
Civil Case No. 18-SD (2000) finding PAULE liable is REINSTATED, with
the MODIFICATION that the trial court is ORDERED to receive evidence on
the counterclaim of petitioner Zenaida G. Mendoza.

SO ORDERED.

G.R. No. L-11840 July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.


GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.

REYES, J. B. L., J.:

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being
more than P200,00) dismissing the plaintiffs-appellants' complaint.

From the stipulation of facts of the parties and the evidence on record, it would appear that on May
29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general commercial partnership
under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in
real state. The partnership had a capital of P30,000.00, P18,000.00 of which was contributed by
Goquiolay and P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the sole
management of the partnership affairs, stipulating that

III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner
(sic), and Antonio C. Goquiolay as co-partner.

IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner
(sic) or by his authorized agent, and it is expressly stipulated that the managing and partner
(sic) may delegate the entire management of the affairs of the co-partnership by irrevocable
power of attorney to any person, firm or corporation he may select upon such terms as
regards compensation as he may deem proper, and vest in such persons, firm or corporation
full power and authority, as the agent of the co-partnership and in his name, place and stead
to do anything for it or on his behalf which he as such managing and partner (sic) might do or
cause to be done.

V. The co-partner shall have no voice or participation in the management of the affairs of the
co-partnership; but he may examine its accounts once every six (6) months at any time
during ordinary business hours, and in accordance with the provisions of the Code of
Commerce. (Article of Co-Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that

In the event of the death of any of the partners at any time before the expiration of said term,
the co-partnership shall not be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of
Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any time upon mutual
agreement in writing of the partners (Art. XIII, articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:

That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An
should act as the Manager for said co-partnership for the full period of the term for which
said co-partnership was organized or until the whole period that the said capital of
P30,000.00 of the co-partnership should last, to carry on to the best advantage and interest
of the said co-partnership, to make and execute, sign, seal and deliver for the co-partnership,
and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments or
documents in writing whatsoever kind or nature which shall be necessary to the proper
conduction of the said businesses, including the power to mortgage and pledge real and
personal properties, to secure the obligation of the co-partnership, to buy real or personal
properties for cash or upon such terms as he may deem advisable, to sell personal or real
properties, such as lands and buildings of the co-partnership in any manner he may deem
advisable for the best interest of said co-partnership, to borrow money on behalf of the co-
partnership and to issue promissory notes for the repayment thereof, to deposit the funds of
the co-partnership in any local bank or elsewhere and to draw checks against funds so
deposited ... .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3)
parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-
matter of the instant litigation, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a period of ten (10) years,
with 10% interest per annum. Another 46 parcels were purchased by Tan Sin An in his individual
capacity, and he assumed payment of a mortgage debt thereon for P35,000.00 with interest. The
downpayment and the amortization were advanced by Yutivo and Co., for the account of the
purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed
by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to
pay, jointly and severally, the remaining balance of their unpaid accounts amounting to P52,282.80
within eight 8 years, with 8% annual interest, payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four
minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong
Chai Pin was appointed administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sans Hardware Co., paid the remaining balance of the mortgage debt,
and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged
obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances,
interest and taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco
Hipotecario". Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the claims
in her amended answer and they were accordingly approved by the Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the
49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling
the aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees' assuming
payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in
July, 1949, defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a
deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about
July 25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate
court approving the sale in so far as his interest over the parcels of land sold was concerned. In its
order of December 29, 1949, the probate court annulled the sale executed by the administratrix with
respect to the 60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed
to the Court of Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7]
2307). On June 30, 1953, we rendered decision setting aside the orders of the probate court
complained of and remanding the case for new trial, due to the non-inclusion
of indispensable parties. Thereafter, new pleadings were filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of
the sale in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of
Insular Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are
concerned. The answer averred the validity of the sale by Kong Chai Pin as successor partner, in
lieu of the late Tan Sin An. After hearing, the complaint was dismissed by the lower court in its
decision dated October 30, 1956; hence, this appeal taken directly to us by the plaintiffs, as the
amount involved is more than P200,000.00. Plaintiffs-appellants assign as errors that

I The lower court erred in holding that Kong Chai Pin became the managing partner of the
partnership upon the death of her husband, Tan Sin An, by virtue of the articles of
Partnership executed between Tan Sin An and Antonio Goquiolay, and the general power of
attorney granted by Antonio Goquiolay.

II The lower court erred in holding that Kong Chai Pin could act alone as sole managing
partner in view of the minority of the other heirs.

III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as
managing partner.

IV The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
properties by virtue of the articles of partnership and the general power of attorney granted to
Tan Sin An in order to pay the partnership indebtedness.

V The lower court erred in finding that the partnership did not pay its obligation to the
Banco Hipotecario.

VI The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.

VII The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.

VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
management of the partnership by Kong Chai Pin estops him now from attacking the validity
of the sale of the partnership properties.

IX The lower court erred in holding that the buyers of the partnership properties acted in
good faith.

X The lower court erred in holding that the sale was not fraudulent against the partnership
and Antonio Goquiolay.

XI The lower court erred in holding that the sale was not only necessary but beneficial to
the partnership.

XII The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to
pay the costs of suit.

There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin,
succeeded her husband, Tan Sin An, in the sole management of the partnership, upon the latter's
death. While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the
power of attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive
management of the business, such power, premised as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise. The provision in the articles stating that "in the
event of death of any one of the partners within the 10-year term of the partnership, the deceased
partner shall be represented by his heirs", could not have referred to the managerial right given to
Tan Sin An; more appropriately, it related to the succession in the proprietary interest of each
partner. The covenant that Antonio Goquiolay shall have no voice or participation in the
management of the partnership, being a limitation upon his right as a general partner, must be held
coextensive only with Tan's right to manage the affairs, the contrary not being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing for the continuation of
the firm notwithstanding the death of one of the partners, the heirs of the deceased, by never
repudiating or refusing to be bound under the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The validity of like clauses in partnership
agreements is expressly sanctioned under Article 222 of the Code of Commerce.2

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2
Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).

Appellants argue, however, that since the "new" members' liability in the partnership was limited
merely to the value of the share or estate left by the deceased Tan Sin An, they became no more
than limited partners and, as such, were disqualified from the management of the business under
Article 148 of the Code of Commerce. Although ordinarily, this effect follows from the continuance of
the heirs in the partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her
affirmative actions, manifested her intent to be bound by the partnership agreement not only as a
limited but as a general partner. Thus, she managed and retained possession of the partnership
properties and was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in
dispute in the name of the partnership, she was acting no less than as a managing partner. Having
thus preferred to act as such, she could be held liable for the partnership debts and liabilities as a
general partner, beyond what she might have derived only from the estate of her deceased husband.
By allowing her to retain control of the firm's property from 1942 to 1949, plaintiff estopped himself to
deny her legal representation of the partnership, with the power to bind it by the proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to
perfect the sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we
believe, in the negative. Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co-partnership agreement, that every general partner has power
to bind the partnership, specially those partners acting with ostensible authority. And so, we held in
one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the
two partners, to ascertain whether or not this partner with whom the transaction is made has
the consent of the other partner. The public need not make inquiries as to the agreements
had between the partners. Its knowledge is enough that it is contracting with the partnership
which is represented by one of the managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that
he has authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle,
112 Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of the members of the firm acting apparently in its behalf and within the
scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill &
Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that

If the management of the general partnership has not been limited by special agreement to
any of the members, all shall have the power to take part in the direction and management of
the common business, and the members present shall come to an agreement for all
contracts or obligations which may concern the association. (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves, that does not
necessarily affect the validity of the acts of a partner, while acting within the scope of the ordinary
course of business of the partnership, as regards third persons without notice. The latter may
rightfully assume that the contracting partner was duly authorized to contract for and in behalf of the
firm and that, furthermore, he would not ordinarily act to the prejudice of his co-partners. The regular
course of business procedure does not require that each time a third person contracts with one of
the managing partners, he should inquire as to the latter's authority to do so, or that he should first
ascertain whether or not the other partners had given their consent thereto. In fact, Article 130 of the
same Code of Commerce provides that even if a new obligation was contracted against the express
will of one of the managing partners, "it shall not be annulled for such reason, and it shall produce its
effects without prejudice to the responsibility of the member or members who contracted it, for the
damages they may have caused to the common fund."

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:

367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar


corresponde a cada socio personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un
sistema eficaz que evite los inconvenientes. Pero, ante el silencio del contrato, debia quiza
el legislador privar de la administracion a uno de los socios en beneficio del otro? Seria una
arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido Administrador? El
remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran en
todo acto de la Sociedad? Pero este concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Codigo, el cual se confia al espiritu
de reciproca confianza que deberia animar la colaboracion de los socios, y en la ley
inflexible de responsabilidad que implica comunidad en los intereses de los mismos.

En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato
social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la administracion en
la totalidad de sus relaciones, salvo su responsabilidad en el caso de una administracion
culpable. Si debiera dar noticia, el beneficio de su simultania actividad, frecuentemente
distribuida en lugares y en tiempos diferentes, se echaria a perder. Se objetara el que de
esta forma, el derecho de oposicion de cada uno de los socios puede quedar frustrado. Pero
se puede contestar que este derecho de oposicion concedido por la ley como un remedio
excepcional, debe subordinarse al derecho de ejercer el oficio de Administrador, que el
Codigo concede sin limite: "se presume que los socios se han concedido reciprocamente la
facultad de administrar uno para otro." Se haria precipitar esta hipotesis en la otra de una
administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento,
a lo menos tacito, de todos los socios lo que el Codigo excluye ........, si se obligase al
socio Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del Codigo), no es bastante que
los actos y contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino
que es preciso el concurso de estos dos elementos, uno, que el socio o socios tengan
reconocida la facultad de administrar la Compaia, y otro, que el acto o contrato haya sido
ejecutado en nombre de la Sociedad y usando de su firma social. Asi se que toda obligacion
contraida bajo la razon social, se presume contraida por la Compaia. Esta presunion es
impuesta por motivos de necesidad practica. El tercero no puede cada vez que trata con la
Compaia, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris
tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razon social una
obligacion que no interesa a la Sociedad, este podra rechazar la accion del tercero
probando que el acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si
tales actos y contratos no comportasen la concurrencia de ambos elementos, seria nulos y
podria decretarse la responsabilidad civil o penal contra sus autores.

En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compaia,
o contabilizados en sus libros, si el acto o contrato ha sido convalidado sin protesta y se
trata de acto o contrato que ha producido beneficio social, tendria plena validez, aun cuando
le faltase algunos o ambos de aquellos requisitos antes sealados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al


nombramiento o designacion de uno o mas de un socio para administrar la Compaia (art.
129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y manejo de
los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and, therefore, to be


governed by the Code of Commerce, the provisions of the old Civil Code may give us some light on
the right of one partner to bind the partnership. States Art. 1695 thereof:

Should no agreement have been made with respect to the form of management, the
following rules shall be observed:

1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others before
it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of conveyance was executed and approved
by the probate court, and, consequently, his opposition came too late to be effective.

Appellants assails the correctness of the amounts paid for the account of the partnership as found
by the trial court. This question, however, need not be resolved here, as in the deed of conveyance
executed by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and
Yutivo Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it,
in effect, threw the partnership into dissolution, which requires consent of all the partners. This view
is untenable. That the partnership was left without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these precise lots but to engage in buying
and selling real estate, and "in general real estate agency and brokerage business". Incidentally, it is
to be noted that the payment of the solidary obligation of both the partnership and the late Tan Sin
An, leaves open the question of accounting and contribution between the co-debtors, that should be
ventilated separately.

Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device
by the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the
partnership. The "devise", according to the appellants, started way back sometime in 1945, when
one Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his share in the
partnership; and upon his refusal to sell, was followed by the filing of the claims of Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An.
As creditors of Tan Sin An and the plaintiff partnership (whose liability was alleged to be joint and
several), Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their claims
in the intestate proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient
knowledge) negatives any conspiracy on her part in the alleged fraudulent scheme, even if she
subsequently decided to admit their validity after studying the claims and finding it best to admit the
same. It may not be amiss to remark that the probate court approved the questioned claims.

There is complete failure of proof, moreover, that the price for which the properties were sold was
unreasonably low, or in any way unfair, since appellants presented no evidence of the market value
of the lots as of the time of their sale to appellees Sycip and Lee. The alleged value of P31,056.58 in
May of 1955 is no proof of the market value in 1949, specially because in the interval, the new
owners appear to have converted the land into a subdivision, which they could not do without
opening roads and otherwise improving the property at their own expense. Upon the other hand,
Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears that the
partnership had neither cash nor other properties with which to pay its obligations. Anyway, we
cannot consider seriously the inferences freely indulged in by the appellants as allegedly indicating
fraud in the questioned transactions, leading to the conveyance of the lots in dispute to the appellee
Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs
against appellant Antonio Goquiolay.

G.R. No. 70403 July 7, 1989

SANTIAGO SYJUCO, INC., petitioner,


vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE
NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY SHERIFF
OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA,
EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.

Doroteo B. Daguna and Felix D. Carao for petitioner.

Paterno Canlas for private respondents.

NARVASA, J.:

This case may well serve as a textbook example of how judicial processes, designed to promote the
swift and efficient disposition of disputes at law, can be so grossly abused and manipulated as to
produce precisely the opposite result; how they can be utilized by parties with small scruples to
forestall for an unconscionably long time so essentially simple a matter as making the security given
for a just debt answer for its payment.

The records of the present proceedings and of two other cases already decided by this Court expose
how indeed the routine procedure of an extrajudicial foreclosure came by dint of brazen forum
shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the
mortgagee has been trying to extricate itself for the last twenty years.

Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his
mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together with his other
brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00.
The loan was given on the security of a first mortgage on property registered in the names of said
borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of
the Registry of Deeds of Manila. Thereafter additional loans on the same security were obtained by
the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and
75418 of the Manila Registry.

There is no dispute about these facts, nor about the additional circumstance that as stipulated in the
mortgage deed the obligation matured on November 8, 1967; that the Lims failed to pay it despite
demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of
the mortgage to be commenced by the Sheriff of Manila; and that the latter scheduled the auction
sale of the mortgaged property on December 27, 1968. 1 The attempt to foreclose triggered off a
legal battle that has dragged on for more than twenty years now, fought through five (5) cases in the
trial courts, 2 two (2) in the Court of Appeals, 3 and three (3) more in this Court, 4 with the end only
now in sight.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-
R; G.R. NO. L-34683

To stop the foreclosure, the Lims through Atty. Marcial G. Mendiola, who was later joined by Atty.
Raul Correa filed Civil Case No. 75180 on December 24,1968 in the Court of First Instance of
Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for
stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." An order
restraining the auction sale was issued two days later, on December 26,1968, premised inter alia on
the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which
may be conducted at some future date." 5

On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M.
Vasquez 6 rendered judgment finding that usury tained the mortgage without, however, rendering it
void, declaring the amount due to be only Pl,136,235.00 and allowing the foreclosure to proceed for
satisfaction of the obligation reckoned at only said amount .7

Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of
usury, and the Court ordered the case reopened for that purpose. The Lims tried to negate that order
of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R.
They failed. The Court of Appeals upheld the Trial Court. The Lims then sought to nullify this action
of the Appellate Court; towards that end, they filed with this Court a petition for certiorari and
prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed.8
Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case
from this Court, the Trial Court promulgated an amended decision on August 16, 1972, reversing its
previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said
obligation indeed amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum
from November 8, 1967, and, that obligation being already due, the defendants (Syjuco and the
Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its
satisfaction.9

2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752;


G.R. NO. L-45752

On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as
counsel for the Lims in collaboration with Atty. Raul Correa, and on the same date appealed to the
Court of Appeals from the amended decision of August 16, 1972. 10 In that appeal, which was
docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared
usurious; that the principal of the loans be found to be in the total amount of Pl,269,505.00 only, and
the interest thereon fixed at only 6% per annum from the filing of the complaint; and that the
mortgage be also pronounced void ab initio. 11

The appeal met with no success. In a decision promulgated on October 25,1976, the Court of
Appeals affirmed in toto the Trial Court's amended decision. 12

The Lims came to this Court seeking reversal of the appellate Court's decision. However, their
petition for review-filed in their behalf by Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No.
L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion
for reconsideration was denied and entry of judgment was made on September 24,1977. 13 Here the
matter should have ended; it marked only the beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the
mortgaged property to be scheduled on December 20, 1977, only to be frustrated again by another
action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of
First Instance of Manila. 14 The action sought to stop the sale on the ground that the notice of
foreclosure had not been republished; this, notwithstanding that as earlier stressed, the restraining
order of December 26, 1968 issued in Civil Case No 75180 explicitly declared itself to be predicated
on the Lims' waiver of "their rights to the notice and republication of the notice of sale which may be
conducted at some future date." 15 An order restraining the sale issued in the case, although the
petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed
by the Lims seeking recovery of some Pl million in damages allegedly suffered by reason of said
lack of republication. 16

4. CIVIL CASE NO. 75180

That very same claim that there had been no republication of the notice of sale, which was the
foundation of the Lims' action in Civil Case No. 112762 as aforesaid was made by the Lims the
basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier
narrated, the judgement authorizing the foreclosure had been affirmed by both the Court of Appeals
and this Court, and had become final and executory. And that motion sought exactly the same
remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19,
1977), i.e., the prevention of the auction sale. The Court -- Branch 5, then presided over by Judge
Jose H. Tecson granted the restraining order on December 19, 1977, 17 the very same day that
the Lims commenced Civil Case No. 112762 in the same Court and in which subsequent action they
asked for and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed
against the same auction sale, based on the same ground, issued by different courts having
cognizance of two (2) separate proceedings instituted for identical objectives. This situation lasted
for all of three (3) years, despite the republication of the notice of sale caused by Syjuco in January,
1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having been made
aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was
nothing more to be done in Civil Case No. 75180 except to enforce the judgment, already final and
executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to
repeat, by both the Court of Appeals and the Supreme Court; that there was in truth no need for
another publication of the notice since the Lims had precisely waived such republication, this waiver
having been the condition under which they had earlier obtained an order restraining the first
scheduled sale; that, in any event, the republication effected by Syjuco had removed the only
asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith:
they were maintaining proceedings in two (2) different courts for essentially the same
relief. 18 Incredibly, not only did Judge Tecson refuse to allow the holding of the auction sale, as was
the only just and lawful course indicated by the circumstances, 19 he authorized the Lims to sell the
mortgaged property in a private sale,20 with the evident intention that the proceeds of the sale, which
he directed to be deposited in court, would be divided between Syjuco and the Lims; this, in line with
the patently specious theory advocated by the Lims' counsel that the bond flied by them for the
postponement of the sale, set at P6 million by the Court (later increased by P 3 million) had
superseded and caused novation of the mortgage. 21 The case lay fallow for a year, certain other,
incidents arising and remaining unresolved on account of numerous postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to
await Judge Tecson's pleasure or the Lims' convenience. It filed a petition for certiorari and
prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had
gravely abused discretion in:

(1) unreasonably delaying the foreclosure of the mortgage;

(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory
that it had been superseded and novated by the Lims' act of filing the bond required
by Judge Tecson in connection with the postponement of the foreclosure sale, and
unreasonably delaying resolution of the issue; and

(3) authorizing the Lims to negotiate and consummate the private sale of the
mortgaged property and motu proprio extending the period granted the Lims for the
purpose, in disregard of the final and executory judgment rendered in the case.

By judgment rendered on September 21, 1982, after due proceedings, this


Court 22 issued the writ prayed for and nullified the orders and actuations of Judge
Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the
complaint in Civil Case No. 112762 moot and academic; hence, said case could not
operate to bar the sale;
(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been
given to guarantee payment of damages to Syjuco and the Sheriff of Manila resulting
from the suspension of the auction sale, could not in any sense and from any aspect
have the effect of superseding the mortgage or novating it;

(3) in fact, the bonds had become worthless when, as shown by the record, the
bondsman's authority to transact non-life insurance business in the Philippines was
not renewed, for cause, as of July 1, 1981.

The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage
sale, there being no further impediment thereto.23

Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion
for reconsideration was filed, 24 but the same was denied with finality for lack of merit and entry of
final judgment was made on March 22,1983. 25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE


REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P.
CASTRO, PRESIDING

Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's
judgment in G.R. No. 56014, or on October 14,1982, they caused the filing with the Regional Trial
Court of Quezon City of still another action, the third, also designed, like the first two, to preclude
enforcement of the mortgage held by Syjuco.

This time the complaint was presented, not in their individual names, but in the name of a
partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The complaint
advocated the theory that the mortgage which they, together with their mother, had individually
constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in
their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at
that time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more
precisely, on March 30, 1959, hence, said mortgage was void because executed by them without
authority from the partnership.

The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty.
Canlas took over as counsel as of November 4,1982. The case, docketed as Civil Case No. Q-
39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by
Judge Jose P. Castro.

Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin
submitted a return of summons to the effect that on December 6, 1982 he

.. served personally and left a copy of summons together with a copy of Complaint
and its annexes x x upon defendant's office formerly at 313 Quirino Ave., Paranaque,
Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft
Avenue, Manila, through the Manager, a person of sufficient age and discretion duly
authorized to receive service of such nature, but who refused to accept service and
signed receipt thereof.26

A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons
was served, whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable
that the name of the person that the sheriff had been able to identify as the manager is not stated,
the latter being described merely as "a person of sufficient age and discretion." In any event, as it
was to claim later, Syjuco asserts that it was never so served with summons, or with any other
notice, pleading, or motion relative to the case, for that matter.

On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order
of default issued the next day, also directing the plaintiff partnership to present evidence ex parte
within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the
mortgage in question because executed by the Lims without authority from the partnership which
was and had been since March 30,1959 the exclusive owner of the mortgaged property, and making
permanent an injunction against the foreclosure sale that had issued on January 14,1983. 27 Service
of notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin,
effected on the following day, February 23, 1983. His return is a virtual copy of his earlier one
regarding service of summons: it also states the place of service as the defendant's office, either at
its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco
Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made,
describing him only as "the clerk or person in charge" of the office. 28

Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-
twelve (12) days from February 10, 1983, when the motion to declare defendant Syjuco in default
was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17)
months. He made no effort to have the judgment executed, or to avail of it in other actions instituted
by him against Syjuco. The judgment was not to be invoked until sometime in or after July, 1984,
again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of
Syjuco, as shall presently be recounted.

7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the
sala of Judge Castro, as above narrated, Syjuco once again tried to proceed with the foreclosure
after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the
auction sale on July 30, 1983. But once again it was frustrated. Another obstacle was put up by the
Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial
Court. The case was filed to stop the sale on the theory that what was sought to be realized from the
sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence of
the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil
Case No. Q-36485 was not asserted as additional ground to support the cause of action. Be this as
it may, a restraining order was issued on July 20,1983 in said Civil Case No. 83-9018. 29

b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale
was re-scheduled for September 20, 1983, (2) that it was aborted because the Lims managed to
obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil
Case No. Q-32924 of the Court of First Instance of Quezon City, grounded on the proposition that
the publication of the notice of sale was defective; and (3) that the action was dismissed by the
Regional Trial Court on February 3, 1984. 30

No other salient details about these two (2) cases are available in the voluminous records before the
Court, except that it was Atty. Canlas who had filed them. He admits having done so unequivocally:
"Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No.
39294, Regional Trial Courts of Manila and Quezon City. ... " 31

7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q


QUEZON CITY, BRANCH XXXV

Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its efforts to effect the
mortgage sale which had already been stymied for more than fifteen (15) years. At its instance, the
sheriff once again set a date for the auction sale. But on the date of the sale, a letter of Atty. Canlas
was handed to the sheriff drawing attention to the permanent injunction of the sale embodied in the
judgment by default rendered by Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no time in
inquiring about Civil Case No. Q-36485, and was very quickly made aware of the judgment by
default therein promulgated and the antecedent events leading thereto. It was also made known that
on July 9, 1984, Judge Castro had ordered execution of the judgment; that Judge Castro had on July
16, 1984 granted Atty. Canlas' motion to declare cancelled the titles to the Lims' mortgaged
properties and as nun and void the annotation of the mortgage and its amendments on said titles,
and to direct the Register of Deeds of Manila to issue new titles, in lieu of the old, in the name of the
partnership, "Heirs of Hugo Lim." 33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for reconsideration of the
decision and for dismissal of the action, alleging that it had never been served with summons; that
granting arguendo that service had somehow been made, it had never received notice of the
decision and therefore the same had not and could not have become final; and that the action
should be dismissed on the ground of bar by prior judgment premised on the final decisions of the
Supreme Court in G.R. No. L-45752 and G.R. No. 56014.

Two other motions by Syjuco quickly followed. The first, dated July 20, 1984, prayed for abatement
of Judge Castro's order decreeing the issuance of new certificates of title over the mortgaged lands
in the name of the plaintiff partnership. 34 The second, filed on July 24, 1984, was a supplement to
the motion to dismiss earlier filed, asserting another ground for the dismissal of the action, i.e.,
failure to state a cause of action, it appearing that the mortgaged property remained registered in the
names of the individual members of the Lim family notwithstanding that the property had supposedly
been conveyed to the plaintiff partnership long before the execution of the mortgage and its
amendments,-and that even assuming ownership of the property by the partnership, the mortgage
executed by all the partners was valid and binding under Articles 1811 and 1819 of the Civil Code.35

The motions having been opposed in due course by the plaintiff partnership, they remained pending
until January 31, 1985 when Syjuco moved for their immediate resolution. Syjuco now claims that
Judge Castro never acted on the motions. The latter however states that that he did issue an order
on February 22, 1985 declaring that he had lost jurisdiction to act thereon because, petitio principii,
his decision had already become final and executory.

8. G.R.NO.L-70403; THE PROCEEDING AT BAR

For the third time Syjuco is now before this Court on the same matter. It filed on April 3, 1985 the
instant petition for certiorari, prohibition and mandamus. It prays in its petition that the default
judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be annulled on the
ground of lack of service of summons, res judicata and laches, and failure of the complaint to state a
cause of action; that the sheriff be commanded to proceed with the foreclosure of the mortgage on
the property covered by Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of
the Manila Registry; and that the respondents the Lims, Judge Castro, the Sheriff and the Register
of Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas,
counsel for-the Lims and their partnership-be perpetually enjoined from taking any further steps to
prevent the foreclosure.

The comment filed for the respondents by Atty. Canlas in substance alleged that (a) Syjuco was
validly served with summons in Civil Case No. Q-36485, hence, that the decision rendered by
default therein was also valid and, having been also duly served on said petitioner, became final by
operation of law after the lapse of the reglementary appeal period; (b) finality of said decision
removed the case from the jurisdiction of the trial court, which was powerless to entertain and act on
the motion for reconsideration and motion to dismiss; (c) the petition was in effect an action to annul
a judgment, a proceeding within the original jurisdiction of the Court of Appeals; (d) the plea of res
judicata came too late because raised after the decision had already become final; moreover, no
Identity of parties existed between the cases invoked, on the one hand, and Civil Case No. Q-36485,
on the other, the parties in the former being the Lims in their personal capacities and in the latter, the
Lim Partnership, a separate and distinct juridical entity; and the pleaded causes of action being
different, usury in the earlier cases and authority of the parties to encumber partnership property in
the case under review; (e) the plea of laches also came too late, not having been invoked in the
lower court; and (f) the property involved constituted assets of the Lim partnership, being registered
as such with the Securities and Exchange Commission. 36

On his own behalf Atty. Canlas submitted that he had no knowledge of the institution of Civil Case
No. Q-36485 (though he admitted being collaborating counsel in said case); that he did not
represent the Lims in all their cases against Syjuco, having been counsel for the former only since
1977, not for the last seventeen years as claimed by Syjuco; and that he had no duty to inform
opposing counsel of the pendency of Civil Case No. Q-36485. 37

Respondent Judge Castro also filed a comment 38 disclaiming knowledge of previous controversies
regarding the mortgaged property. He asserted that Syjuco had been properly declared in default for
having failed to answer the complaint despite service of summons upon it, and that his decision in
said case which was also properly served on Syjuco became final when it was not timely appealed,
after which he lost jurisdiction to entertain the motion for reconsideration and motion to dismiss. He
also denied having failed to act on said motions, adverting to an alleged order of February 22, 1985
where he declared his lack of jurisdiction to act thereon.

The respondent Register of Deeds for his part presented a comment wherein he stated that by virtue
of an order of execution in Civil Case No. Q-36485, he had cancelled TCTs Nos. 75413, 75415,
75416 and 75418 of his Registry and prepared new certificates of title in lieu thereof, but that
cancellation had been held in abeyance for lack of certain registration requirements and by reason
also of the motion of Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial court's
order of July 16, 1984 as well as of the temporary restraining order subsequently issued by the
Court. 39

It is time to write finis to this unedifying narrative which is notable chiefly for the deception,
deviousness and trickery which have marked the private respondents' thus far successful attempts
to avoid the payment of a just obligation. The record of the present proceeding and the other records
already referred to, which the Court has examined at length, make it clear that the dispute should
have been laid to rest more than eleven years ago, with entry of judgment of this Court (on
September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal against the amended
decision in Civil Case No. 75180 where they had originally questioned the validity of the mortgage
and its foreclosure. That result, the records also show, had itself been nine (9) years in coming, Civil
Case No. 75180 having been instituted in December 1968 and, after trial and judgment, gone
through the Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683), both at
the instance of the Lims, on the question of reopening before the amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case No. 75180) to stop the
foreclosure sale on the ground of lack of republication. On December 19,1977 they obtained a
restraining order in said case, but this notwithstanding, on the very same date they filed another
action (Civil Case No. 117262) in a different branch of the same Court of First Instance of Manila to
enjoin the foreclosure sale on the same ground of alleged lack of republication. At about this time,
Syjuco republished the notice of sale in order, as it was later to manifest, to end all further dispute.

That move met with no success. The Lims managed to persuade the judge in Civil Case No. 75180,
notwithstanding his conviction that the amended decision in said case had already become final, not
only to halt the foreclosure sale but also to authorize said respondents to dispose of the mortgaged
property at a private sale upon posting a bond of P6,000,000.00 (later increased by P3,000,000.00)
to guarantee payment of Syjuco's mortgage credit. This gave the Lims a convenient excuse for
further suspension of the foreclosure sale by introducing a new wrinkle into their contentions-that the
bond superseded the mortgage which should, they claimed, therefore be discharged instead of
foreclosed.

Thus from the final months of 1977 until the end of 1980, a period of three years, Syjuco found itself
fighting a legal battle on two fronts: in the already finally decided Civil Case No. 75180 and in Civil
Case No. 117262, upon the single issue of alleged lack of republication, an issue already mooted by
the Lims' earlier waiver of republication as a condition for the issuance of the original restraining
order of December 26,1968 in Civil Case No. 75180, not to mention the fact that said petitioner had
also tried to put an end to it by actually republishing the notice of sale.

With the advent of 1981, its pleas for early resolution having apparently fallen on deaf ears, Syjuco
went to this Court (in G.R. No. L-56014) from which, on September 21, 1982, it obtained the decision
already referred to holding, in fine, that there existed no further impediment to the foreclosure sale
and that the sheriff could proceed with the same.

Said decision, instead of deterring further attempts to derail the foreclosure, apparently gave the
signal for the clandestine filing this time by the Partnership of the Heirs of Hugo Lim -on October
14,1982 of Civil Case No. Q-36485, the subject of the present petition, which for the first time
asserted the claim that the mortgaged property had been contributed to the plaintiff partnership long
before the execution of the Syjuco's mortgage in order to defeat the foreclosure.

Syjuco now maintains that it had no actual knowledge of the existence and pendency of Civil Case
No. Q-36485 until confronted, in the manner already adverted to, with the fait accompli of a "final"
judgment with permanent injunction therein, and nothing in the record disabuses the Court about the
truth of this disclaimer. Indeed, considering what had transpired up to that denouement, it becomes
quite evident that actuations of the Lims and their lawyer had been geared to keeping Syjuco in the
dark about said case. Their filing of two other cases also seeking to enjoin the foreclosure sale (Civil
Case No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil Case No. Q-32924,
Regional Trial Court of Quezon City in September of the same year) after said sale had already
been permanently enjoined by default judgment in Civil Case No. Q-36485, appears in retrospect to
be nothing but a brace of feints calculated to keep Syjuco in that state of ignorance and to lull any
apprehensions it mat may have harbored about encountering further surprises from any other
quarter.

Further credence is lent to this appraisal by the unusually rapid movement of Civil Case No. Q-
36485 itself in its earlier stages, which saw the motion to declare Syjuco in default filed, an order of
default issued, evidence ex partefor the plaintiffs received and judgment by default rendered, all
within the brief span of twelve days, February 10-22, 1983. Notice of said judgment was "served" on
February 23, 1983, the day after it was handed down, only to be followed by an unaccountable lull of
well over a year before it was ordered executed on July 9, 1984 unaccountable, considering that
previous flurry of activity, except in the context of a plan to rush the case to judgment and then divert
Syjuco's attention to the Lims' moves in other directions so as to prevent discovery of the existence
of the case until it was too late.

The Court cannot but condemn in the strongest terms this trifling with the judicial process which
degrades the administration of justice, mocks, subverts and misuses that process for purely dilatory
purposes, thus tending to bring it into disrepute, and seriously erodes public confidence in the will
and competence of the courts to dispense swift justice.

Upon the facts, the only defense to the foreclosure that could possibly have merited the full-blown
trial and appeal proceedings it actually went through was that of alleged usury pleaded in Civil Case
No. 75180 and finally decided against the respondent Lims in G.R. No. L-45752 in September 1977.
The other issues of failure to republish and discharge of mortgage by guarantee set up in
succeeding actions were sham issues, questions without substance raised only for purposes of
delay by the private respondents, in which they succeeded only too well. The claim urged in this
latest case: that the mortgaged property had been contributed to the respondent partnership and
was already property of said partnership when the individual Lims unauthorizedly mortgaged it to
Syjuco, is of no better stripe, and this, too, is clear from the undisputed facts and the legal
conclusions to be drawn therefrom.

The record shows that the respondent partnership is composed exclusively of the individual Lims in
whose name all the cases herein referred to, with the sole exception of Civil Case No. Q-36485,
were brought and prosecuted, their contribution to the partnership consisting chiefly, if not solely, of
the property subject of the Syjuco mortgage. It is also a fact that despite its having been contributed
to the partnership, allegedly on March 30, 1959, the property was never registered with the Register
of Deeds in the name of the partnership, but to this date remains registered in the names of the Lims
as owners in common. The original mortgage deed of November 14,1964 was executed by the Lims
as such owners, as were all subsequent amendments of the mortgage. There can be no dispute that
in those circumstances, the respondent partnership was chargeable with knowledge of the mortgage
from the moment of its execution. The legal fiction of a separate juridical personality and existence
will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows
from the undenied facts. It would violate all precepts of reason, ordinary experience and common
sense to propose that a partnership, as commonly known to all the partners or of acts in which all of
the latter, without exception, have taken part, where such matters or acts affect property claimed as
its own by said partnership.

If, therefore, the respondent partnership was inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage within
a reasonable time, let alone a space of more than seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.

The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by
Art. 1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains here and
as to which it has been held that:

... an estoppel may arise from silence as well as from words. 'Estoppel by silence'
arises where a person, who by force of circumstances is under a duty to another to
speak, refrains from doing so and thereby leads the other to believe in the existence
of a state of facts in reliance on which he acts to his prejudice. Silence may support
an estoppel whether the failure to speak is intentional or negligent.
Inaction or silence may under some circumstances amount to a misrepresentation
and concealment of the facts, so as to raise an equitable estoppel. When the silence
is of such a character and under such circumstances that it would become a fraud on
the other party to permit the party who has kept silent to deny what his silence has
induced the other to believe and act on, it will operate as an estoppel. This doctrine
rests on the principle that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience he ought to remain
silent. He who remains silent when he ought to speak cannot be heard to speak
when he should be silent. 40

And more to the point:

A property owner who knowingly permits another to sell or encumber the property,
without disclosing his title or objecting to the transaction, is estopped to set up his
title or interest as against a person who has been thereby misled to his injury.

xxx

An owner of real property who stands by and sees a third person selling or
mortgaging it under claim of title without asserting his own title or giving the
purchaser or mortgagee any notice thereof is estopped, as against such purchaser or
mortgagee, afterward to assert his title; and, although title does not pass under these
circumstances, a conveyance will be decreed by a court of equity. Especially is the
rule applicable where the party against whom the estoppel is claimed, in addition to
standing by, takes part in malting the sale or mortgage. 41

More specifically, the concept to which that species of estoppel which results from
the non-disclosure of an estate or interest in real property has ordinarily been
referred is fraud, actual or constructive. ... Although fraud is not an essential element
of the original conduct working the estoppel, it may with perfect property be said that
it would be fraudulent for the party to repudiate his conduct, and to assert a right or
claim in contravention thereof. 42

Equally or even more preclusive of the respondent partnership's claim to the mortgaged property is
the last paragraph of Article 1819 of the Civil Code, which contemplates a situation duplicating the
circumstances that attended the execution of the mortgage in favor of Syjuco and therefore applies
foursquare thereto:

Where the title to real property is in the names of all the partners a conveyance
executed by all the partners passes all their rights in such property.

The term "conveyance" used in said provision, which is taken from Section 10 of the American
Uniform Partnership Act, includes a mortgage.

Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the right to
mortgage is included in the right to convey. This is different from the rule in agency
that a special power to sell excludes the power to mortgage (Art. 1879). 43

As indisputable as the propositions and principles just stated is that the cause of action in Civil Case
No. Q-36485 is barred by prior judgment. The right subsumed in that cause is the negation of the
mortgage, postulated on the claim that the parcels of land mortgaged by the Lims to Syjuco did not
in truth belong to them but to the partnership. Assuming this to be so, the right could have been
asserted at the time that the Lims instituted their first action on December 24, 1968 in the Manila
Court of First Instance, Civil Case No. 75180, or when they filed their subsequent actions: Civil Case
No. 112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case No. Q-39294,
also in 1983. The claim could have been set up by the Lims, as members composing the
partnership, "Heirs of Hugo Lim." It could very well have been put forth by the partnership itself, as
co-plaintiff in the corresponding complaints, considering that the actions involved property
supposedly belonging to it and were being prosecuted by the entire membership of the partnership,
and therefore, the partnership was in actuality, the real party in interest. In fact, consistently with the
Lims' theory, they should be regarded, in all the actions presented by them, as having sued for
vindication, not of their individual rights over the property mortgaged, but those of the partnership.
There is thus no reason to distinguish between the Lims, as individuals, and the partnership itself,
since the former constituted the entire membership of the latter. In other words, despite the
concealment of the existence of the partnership, for all intents and purposes and consistently with
the Lims' own theory, it was that partnership which was the real party in interest in all the actions; it
was actually represented in said actions by all the individual members thereof, and consequently,
those members' acts, declarations and omissions cannot be deemed to be simply the individual acts
of said members, but in fact and in law, those of the partnership.

What was done by the Lims or by the partnership of which they were the only members-was to
split their cause of action in violation of the well known rule that only one suit may be instituted for a
single cause of action. 44 The right sought to be enforced by them in all their actions was, at bottom,
to strike down the mortgage constituted in favor of Syjuco, a right which, in their view, resulted from
several circumstances, namely that the mortgage was constituted over property belonging to the
partnership without the latter's authority; that the principal obligation thereby secured was usurious;
that the publication of the notice of foreclosure sale was fatally defective, circumstances which had
already taken place at the time of the institution of the actions. They instituted four (4) actions for the
same purpose on one ground or the other, making each ground the subject of a separate action.
Upon these premises, application of the sanction indicated by law is caned for, i.e., the judgment on
the merits in any one is available as a bar in the others. 45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both the Court of Appeals (CA-
G.R. No. 51752) and this Court (G.R. No. L-45752) should therefore have barred all the others, all
the requisites of res judicata being present. The judgment was a final and executory judgment; it had
been rendered by a competent court; and there was, between the first and subsequent cases, not
only identity of subject-matter and of cause of action, but also of parties. As already pointed out, the
plaintiffs in the first four (4) actions, the Lims, were representing exactly the same claims as those of
the partnership, the plaintiff in the fifth and last action, of which partnership they were the only
members, and there was hence no substantial difference as regards the parties plaintiff in all the
actions. Under the doctrine of res judicata, the judgment in the first was and should have been
regarded as conclusive in all other, actions not only "with respect to the matter directly adjudged,"
but also "as to any other matter that could have been raised in relation thereto. " 46 It being
indisputable that the matter of the partnership's being the owner of the mortgaged properties "could
have been raised in relation" to those expressly made issuable in the first action, it follows that that
matter could not be re-litigated in the last action, the fifth.

Though confronted with the facts thus precluding the respondent partnership's claim to the property
under both the principle of estoppel and the provisions of Article 1819, last paragraph, of the Civil
Code, as well as the familiar doctrine of res judicata, the respondent Judge refused to act on
Syjuco's motions on the ground that he no longer had jurisdiction to do so because they were filed
after judgment by default against Syjuco, which failed to answer the complaint despite valid service
of summons, had been rendered and become final. The sheriffs return, however, creates grave
doubts about the correctness of the Judge's basic premise that summons had been validly served on
Syjuco. For one thing, the return 47 is unspecific about where service was effected. No safe
conclusion about the place of service can be made from its reference to a former and a present
office of Syjuco in widely separate locations, with nothing to indicate whether service was effected at
one address or the other, or even at both. A more serious defect is the failure to name the person
served who is, with equal ambiguity, identified only as "the Manager" of the defendant corporation
(petitioner herein). Since the sheriffs return constitutes primary evidence of the manner and incidents
of personal service of a summons, the Rules are quite specific about what such a document should
contain:

SEC. 20. Proof of service. The proof of service of a summons shall be made in
writing by the server and shall set forth the manner, place and date of service; shall
specify any papers which have been served with the process and the name of the
person who received the same; and shall be sworn to when made by a person other
than a sheriff or his deputy. 48

In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held that:"

(a) strict compliance with the mode of service is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must be one who is named in the statute;
otherwise the service is insufficient. So, where the statute requires that in the case of a domestic
corporation summons should be served on 'the president or head of the corporation, secretary,
treasurer, cashier or managing agent thereof, service of summons on the secretary's wife did not
confer jurisdiction over the corporation in the foreclosure proceeding against it. Hence, the decree of
foreclosure and the deficiency judgment were void and should be vacated (Reader vs. District Court,
94 Pacific 2nd 858).

The purpose is to render it reasonably certain that the corporation will receive prompt
and proper notice in an action against it or to insure that the summons be served on
a representative so integrated with the corporation that such person will know what to
do with the legal papers served on him. In other words, 'to bring home to the
corporation notice of the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes
Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).

The liberal construction rule cannot be invoked and utilized as a substitute for the
plain legal requirements as to the manner in which summons should be served on a
domestic corporation (U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd
260).'

The rule cannot be any less exacting as regards adherence to the requirements of proof of service, it
being usually by such proof that sufficiency of compliance with the prescribed mode of service is
measured. Here the only proof of service of summons is the questioned sheriff's return which, as
already pointed out, is not only vague and unspecific as to the place of service, but also neglects to
Identify by name the recipient of the summons as required by Rule 20, Section 14, of the Rules of
Court. Where the sheriffs return is defective the presumption of regularity in the performance of
official functions will not lie. 50 The defective sheriffs return thus being insufficient and incompetent to
prove that summons was served in the manner prescribed for service upon corporations, there is no
alternative to affirming the petitioner's claim that it had not been validly summoned in Civil Case No.
Q-36485. It goes without saying that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void all subsequent proceedings and
issuances in the action from the order of default up to and including the judgment by default and the
order for its execution. 51
The respondents' contention that the petition is in effect an action to annul a judgment which is within
the exclusive original jurisdiction of the Court of Appeals52 has already been answered
in Matanguihan vs. Tengco 53 where, by declaring that an action for annulment of judgment is not a
plain, speedy and adequate remedy, this Court in effect affirmed that certiorari is an appropriate
remedy against judgments or proceedings alleged to have been rendered or had without valid
service of summons. 54

Respondent Judge Castro begged the question when, instead of resolving on the merits the issue of
the invalidity of his default judgment and of the proceedings leading thereto because of absence of
valid service of summons on the defendant, which had been expressly raised in the defendant's
motion for reconsideration, he simply refused to do so on the excuse that he had lost jurisdiction
over the case. This refusal was, in the premises, a grave abuse of judicial discretion which must be
rectified.

What has been said makes unnecessary any further proceedings in the Court below, which might
otherwise be indicated by the consideration that two of the postulates of petitioner's unresolved
motions which the Court considers equally as decisive as res judicata, to wit: estoppel by silence
and Article 1819, last paragraph, of the Civil Code, do not constitute grounds for a motion to dismiss
under rule 16, of the Rules of Court. Such a step would only cause further delay. And delay has
been the bane of petitioner's cause, defying through all these years all its efforts to collect on a just
debt.

The undenied and undisputable facts make it perfectly clear that the claim to the mortgaged property
belatedly and in apparent bad faith pressed by the respondent partnership is foreclosed by both law
and equity. Further proceedings will not make this any clearer than it already is. The Court is clothed
with ample authority, in such a case, to call a halt to all further proceedings and pronounce judgment
on the basis of what is already manifestly of record.

So much for the merits; the consequences that should attend the inexcusable and indefensible
conduct of the respondents Lims, the respondent partnership and their counsel, Atty. Paterno R.
Canlas, should now be addressed. That the Lims and their partnership acted in bad faith and with
intent to defraud is manifest in the record of their actuations, presenting as they did, piecemeal and
in one case after another, defenses to the foreclosure or claims in derogation thereof that were
available to them from the very beginning actuations that were to stave off the liquidation of an
undenied debt for more than twenty years and culminated in the clandestine filing and prosecution of
the action subject of the present petition.

What has happened here, it bears repeating, is nothing less than an abuse of process, a trifling with
the courts and with the rights of access thereto, for which Atty. Canlas must share responsibility
equally with his clients. The latter could not have succeeded so well in obstructing the course of
justice without his aid and advice and his tireless espousal of their claims and pretensions made in
the various cases chronicled here. That the cause to which he lent his advocacy was less than just
or worthy could not have escaped him, if not at the start of his engagement, in the years that
followed when with his willing assistance, if not instigation, it was shuttled from one forum to another
after each setback. This Court merely stated what is obvious and cannot be gainsaid when,
in Surigao Mineral Reservation Board vs. Cloribel, 55 it held that a party's lawyer of record has control
of the proceedings and that '(w)hatever steps his client takes should be within his knowledge and
responsibility."

In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which are described in the
following paragraph taken from this Court's decision therein:
Respondents' foregoing actuations reveal an 'unholy alliance' between them and a
clear indication of partiality for the party represented by the other to the detriment of
the objective dispensation of justice. Writs of Attachment and Execution were issued
and implemented with lightning speed; the case itself was railroaded to a swift
conclusion through a similar judgment; astronomical sums were awarded as
damages and attorney's fees; and topping it all, the right to appeal was foreclosed by
clever maneuvers," and which, the Court found, followed a pattern of conduct in other
cases of which judicial notice was taken, were deemed sufficient cause for
disbarment.

Atty. Canlas even tried to mislead this Court by claiming that he became the Lims' lawyer only in
1977, 57 when the record indubitably shows that he has represented them since September 9, 1972
when he first appeared for them to prosecute their appeal in Civil Case No. 75180. 58 He has also
quite impenitently disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of the
existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even while the former,
which involved the same mortgage, was already being litigated when the latter was filed, although in
the circumstances such disclosure was required by the ethics of his profession, if not indeed by his
lawyer's oath.

A clear case also exists for awarding at least nominal damages to petitioner, though damages are
not expressly prayed for, under the general prayer of the petition for "such other reliefs as may be
just and equitable under the premises," and the action being not only of certiorari and prohibition, but
also of mandamus-in which the payment of "damages sustained by the petitioner by reason of the
wrongful acts of the defendant' is expressly authorized. 59

There is no question in the Court's mind that such interests as may have accumulated on the
mortgage loan will not offset the prejudice visited upon the petitioner by the excruciatingly long delay
in the satisfaction of said debt that the private respondents have engineered and fomented.

These very same considerations dictate the imposition of exemplary damages in accordance with
Art. 2229 of the Civil Code.

WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that
end, all the matters and incidents with which these proceedings are concerned may be brought to a
swift conclusion:

(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution
and all other orders issued in implementation thereof, and all proceedings in the case
leading to said judgment after the filing of the complaint are DECLARED null and
void and are hereby SET ASIDE; and the complaint in said case is DISMISSED for
being barred by prior judgment and estoppel, and for lack of merit;

(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule
forthwith and thereafter conduct with all due dispatch the sale at public auction of the
mortgaged property in question for the satisfaction of the mortgage debt of the
respondents Lims to petitioner, in the principal amount of P2,460,000.00 as found in
the amended decision in Civil Case No. 75180 of the Court of First Instance of
Manila, interests thereon at the rate of twelve (12%) percent per annum from
November 8, 1967 until the date of sale, plus such other and additional sums for
commissions, expenses, fees, etc. as may be lawfully chargeable in extrajudicial
foreclosure and sale proceedings;
(3) the private respondents, their successors and assigns, are PERPETUALLY
ENJOINED from taking any action whatsoever to obstruct, delay or prevent said
auction sale;

(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and
Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay the petitioner
P25,000.00 as nominal damages and P100,000.00 as exemplary damages, as well
as treble costs; and

(5) let this matter be referred to the Integrated Bar of the Philippines for investigation,
report, and recommendation insofar as the conduct of Atty. Canlas as counsel in this
case and in the other cases hereinabove referred to is concerned.

SO ORDERED.

G.R. No. 206147, January 13, 2016

MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C. GACOTT, Respondent.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioner Michael C. Guy (Guy), assailing the June 25, 2012 Decision1 and the March 5, 2013
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28,
20093and February 19, 20104 Orders of the Regional Trial Court, Branch 52, Puerto Princesa City,
Palawan (RTC), in Civil Case No. 3108, a case for damages. The assailed RTC orders denied
Guy's Motion to Lift Attachment Upon Personalty5 on the ground that he was not a judgment
debtor.

The Facts

It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan
purchased two (2) brand new transreceivers from Quantech Systems Corporation (QSC) in
Manila through its employee Rey Medestomas (Medestomas), amounting to a total of PI
8,000.00. On May 10, 1997, due to major defects, Gacott personally returned the transreceivers
to QSC and requested that they be replaced. Medestomas received the returned transreceivers
and promised to send him the replacement units within two (2) weeks from May 10, 1997.

Time passed and Gacott did not receive the replacement units as promised. QSC informed him
that there were no available units and that it could not refund the purchased price. Despite
several demands, both oral and written, Gacott was never given a replacement or a refund. The
demands caused Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott filed
a complaint for damages. Summons was served upon QSC and Medestomas, afterwhich they
filed their Answer, verified by Medestomas himself and a certain Elton Ong (Ong). QSC and
Medestomas did not present any evidence during the trial.6

In a Decision,7 dated March 16, 2007, the RTC found that the two (2) transreceivers were
defective and that QSC and Medestomas failed to replace the same or return Gacott's money.
The dispositive portion of the decision reads: chanRoblesvirtualLawlibrary
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants to
jointly and severally pay plaintiff the following: chanRoblesvirtualLawlibrary

1. Purchase price plus 6% per annum from March 3,1997 up to and until fully paid ----------------
---------------------------------------- P 18,000.00
2. Actual Damages ----------------------------------- 40,936.44
3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ---------------------------- 100,000.00
5. Attorney's Fees ------------------------------------ 60,000.00
6. Costs.

SO ORDERED.
cralawlawlibrary

The decision became final as QSC and Medestomas did not interpose an appeal. Gacott then
secured a Writ of Execution,8 dated September 26, 2007.

During the execution stage, Gacott learned that QSC was not a corporation, but was in fact a
general partnership registered with the Securities and Exchange Commission (SEC). In the
articles of partnership,9 Guy was appointed as General Manager of QSC.

To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to the main
office of the Department of Transportation and Communications, Land Transportation Office
(DOTC-LTO), Quezon City, and verified whether Medestomas, QSC and Guy had personal
properties registered therein.10 Upon learning that Guy had vehicles registered in his name,
Gacott instructed the sheriff to proceed with the attachment of one of the motor vehicles of Guy
based on the certification issued by the DOTC-LTO.11

On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the Notice of
Attachment/Levy upon Personalty12 served upon the record custodian of the DOTC-LTO of
Mandaluyong City. A similar notice was served to Guy through his housemaid at his residence.

Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he was not a
judgment debtor and, therefore, his vehicle could not be attached.13 Gacott filed an opposition to
the motion.

The RTC Order

On June 28, 2009, the RTC issued an order denying Guy's motion. It explained that considering
QSC was not a corporation, but a registered partnership, Guy should be treated as a general
partner pursuant to Section 21 of the Corporation Code, and he may be held jointly and severally
liable with QSC and Medestomas. The trial court wrote: chanRoblesvirtualLawlibrary

All persons who assume to act as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof x x x. Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the partnership x x x, loss or injury is caused to any person, not being
a partner in the partnership, or any penalty is incurred, the partnership is liable therefore to the
same extent as the partner so acting or omitting to act. All partners are liable solidarity with the
partnership for everything chargeable to the partnership under Article 1822 and 1823. 14 cralawlawlibrary

Accordingly, it disposed: chanRoblesvirtualLawlibrary

WHEREFORE, with the ample discussion of the matter, this Court finds and so holds that the
property of movant Michael Guy may be validly attached in satisfaction of the liabilities adjudged
by this Court against Quantech Co., the latter being an ostensible Corporation and the movant
being considered by this Court as a general partner therein in accordance with the order of this
court impressed in its decision to this case imposing joint and several liability to the defendants.
The Motion to Lift Attachment Upon Personalty submitted by the movant is therefore DENIED for
lack of merit.

SO ORDERED.15 cralawlawlibrary

Not satisfied, Guy moved for reconsideration of the denial of his motion. He argued that he was
neither impleaded as a defendant nor validly served with summons and, thus, the trial court did
not acquire jurisdiction over his person; that under Article 1824 of the Civil Code, the partners
were only solidarily liable for the partnership liability under exceptional circumstances; and that
in order for a partner to be liable for the debts of the partnership, it must be shown that all
partnership assets had first been exhausted.16

On February 19, 2010, the RTC issued an order17 denying his motion.

The denial prompted Guy to seek relief before the CA.

The CA Ruling

On June 25, 2012, the CA rendered the assailed decision dismissing Guy's appeal for the same
reasons given by the trial court. In addition thereto, the appellate court stated: chanRoblesvirtualLawlibrary

We hold that Michael Guy, being listed as a general partner of QSC during that time, cannot feign
ignorance of the existence of the court summons. The verified Answer filed by one of the
partners, Elton Ong, binds him as a partner because the Rules of Court does not require that
summons be served on all the partners. It is sufficient that service be made on the "president,
managing partner, general manager, corporate secretary, treasurer or in-house counsel." To Our
mind, it is immaterial whether the summons to QSC was served on the theory that it was a
corporation. What is important is that the summons was served on QSC's authorized officer
xxx.18
cralawlawlibrary
ChanRoblesVirtualawlibrary

The CA stressed that Guy, being a partner in QSC, was bound by the summons served upon QSC
based on Article 1821 of the Civil Code. The CA further opined that the law did not require a
partner to be actually involved in a suit in order for him to be made liable. He remained
"solidarity liable whether he participated or not, whether he ratified it or not, or whether he had
knowledge of the act or omission."19

Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA in its assailed
resolution, dated March 5, 2013.

Hence, the present petition raising the following

ISSUE

THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING


THAT PETITIONER GUY IS SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR
DAMAGES ARISING FROM THE BREACH OF THE CONTRACT OF SALE WITH RESPONDENT
GACOTT.20
cralawlawlibrary
ChanRoblesVirtualawlibrary

Guy argues that he is not solidarity liable with the partnership because the solidary liability of the
partners under Articles 1822, 1823 and 1824 of the Civil Code only applies when it stemmed
from the act of a partner. In this case, the alleged lapses were not attributable to any of the
partners. Guy further invokes Article 1816 of the Civil Code which states that the liability of the
partners to the partnership is merely joint and subsidiary in nature.

In his Comment,21 Gacott countered, among others, that because Guy was a general and
managing partner of QSC, he could not feign ignorance of the transactions undertaken by QSC.
Gacott insisted that notice to one partner must be considered as notice to the whole partnership,
which included the pendency of the civil suit against it.

In his Reply,22 Guy contended that jurisdiction over the person of the partnership was not
acquired because the summons was never served upon it or through any of its authorized office.
He also reiterated that a partner's liability was joint and subsidiary, and not solidary.

The Court's Ruling

The petition is meritorious.

The service of summons was


flawed; voluntary appearance
cured the defect

Jurisdiction over the person, or jurisdiction in personam - the power of the court to render a
personal judgment or to subject the parties in a particular action to the judgment and other
rulings rendered in the action - is an element of due process that is essential in all actions, civil
as well as criminal, except in actions in rem or quasi in rem.23 Jurisdiction over the person of the
plaintiff is acquired by the mere filing of the complaint in court. As the initiating party, the
plaintiff in a civil action voluntarily submits himself to the jurisdiction of the court. As to the
defendant, the court acquires jurisdiction over his person either by the proper service of the
summons, or by his voluntary appearance in the action.24

Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the defendant is a
corporation, partnership or association organized under the laws of the Philippines with a juridical
personality, the service of summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence is replete with
pronouncements that such provision provides an exclusive enumeration of the persons
authorized to receive summons for juridical entities.25 cralawred

The records of this case reveal that QSC was never shown to have been served with the
summons through any of the enumerated authorized persons to receive such, namely: president,
managing partner, general manager, corporate secretary, treasurer or in-house counsel. Service
of summons upon persons other than those officers enumerated in Section 11 is invalid.
Even substantial compliance is not sufficient service of summons. The CA was obviously
mistaken when it opined that it was immaterial whether the summons to QSC was served on the
theory that it was a corporation.27

Nevertheless, while proper service of summons is necessary to vest the court jurisdiction over
the defendant, the same is merely procedural in nature and the lack of or defect in the service of
summons may be cured by the defendant's subsequent voluntary submission to the court's
jurisdiction through his filing a responsive pleading such as an answer. In this case, it is not
disputed that QSC filed its Answer despite the defective summons. Thus, jurisdiction over its
person was acquired through voluntary appearance.

A partner must be separately


and distinctly impleaded before
he can be bound by a judgment

The next question posed is whether the trial court's jurisdiction over QSC extended to the person
of Guy insofar as holding him solidarity liable with the partnership. After a thorough study of the
relevant laws and jurisprudence, the Court answers in the negative.

Although a partnership is based on delectus personae or mutual agency, whereby any partner
can generally represent the partnership in its business affairs, it is non sequitur that a suit
against the partnership is necessarily a suit impleading each and every partner. It must be
remembered that a partnership is a juridical entity that has a distinct and separate personality
from the persons composing it.28

In relation to the rules of civil procedure, it is elementary that a judgment of a court is


conclusive and binding only upon the parties and their successors-in-interest after the
commencement of the action in court.29 A decision rendered on a complaint in a civil action or
proceeding does not bind or prejudice a person not impleaded therein, for no person shall be
adversely affected by the outcome of a civil action or proceeding in which he is not a party. 30 The
principle that a person cannot be prejudiced by a ruling rendered in an action or proceeding in
which he has not been made a party conforms to the constitutional guarantee of due process of
law.31

In Muoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and given the
opportunity to take part in the proceedings was not bound by the decision declaring as null and
void the title from which his title to the property had been derived. The effect of a judgment
could not be extended to non-parties by simply issuing an alias writ of execution against them,
for no man should be prejudiced by any proceeding to which he was a stranger.

In Aguila v. Court of Appeals33 the complainant had a cause of action against the partnership.
Nevertheless, it was the partners themselves that were impleaded in the complaint. The Court
dismissed the complaint and held that it was the partnership, not its partners, officers or agents,
which should be impleaded for a cause of action against the partnership itself. The Court added
that the partners could not be held liable for the obligations of the partnership unless it was
shown that the legal fiction of a different juridical personality was being used for fraudulent,
unfair, or illegal purposes.34

Here, Guy was never made a party to the case. He did not have any participation in the entire
proceeding until his vehicle was levied upon and he suddenly became QSC's "co-defendant
debtor" during the judgment execution stage. It is a basic principle of law that money judgments
are enforceable only against the property incontrovertibly belonging to the judgment
debtor.35 Indeed, the power of the court in executing judgments extends only to properties
unquestionably belonging to the judgment debtor alone. An execution can be issued only against
a party and not against one who did not have his day in court. The duty of the sheriff is to levy
the property of the judgment debtor not that of a third person. For, as the saying goes, one
man's goods shall not be sold for another man's debts.36

In the spirit of fair play, it is a better rule that a partner must first be impleaded before he could
be prejudiced by the judgment against the partnership. As will be discussed later, a partner may
raise several defenses during the trial to avoid or mitigate his obligation to the partnership
liability. Necessarily, before he could present evidence during the trial, he must first be
impleaded and informed of the case against him. It would be the height of injustice to rob an
innocent partner of his hard-earned personal belongings without giving him an opportunity to be
heard. Without any showing that Guy himself acted maliciously on behalf of the company,
causing damage or injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment debtor, because he
was not a party to the case.

Further, Article 1821 of the Civil Code does not state that there is no need to implead a
partner in order to be bound by the partnership liability. It provides that: chanRoblesvirtualLawlibrary
Notice to any partner of any matter relating to partnership affairs, and the knowledge
of the partner acting in the particular matter, acquired while a partner or then present to
his mind, and the knowledge of any other partner who reasonably could and should have
communicated it to the acting partner, operate as notice to or knowledge of the
partnership, except in the case of fraud on the partnership, committed by or with the consent
of that partner.

cralawlawlibrary
[Emphases and Underscoring Supplied]

A careful reading of the provision shows that notice to any partner, under certain circumstances,
operates as notice to or knowledge to the partnership only. Evidently, it does not provide for the
reverse situation, or that notice to the partnership is notice to the partners. Unless there is an
unequivocal law which states that a partner is automatically charged in a complaint against the
partnership, the constitutional right to due process takes precedence and a partner must first be
impleaded before he can be considered as a judgment debtor. To rule otherwise would be a
dangerous precedent, harping in favor of the deprivation of property without ample notice and
hearing, which the Court certainly cannot countenance.

Partners' liability is subsidiary


and generally joint; immediate levy
upon the property of a partner
cannot be made

Granting that Guy was properly impleaded in the complaint, the execution of judgment would be
improper. Article 1816 of the Civil Code governs the liability of the partners to third persons,
which states that: chanRoblesvirtualLawlibrary

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However, any partner may enter
into a separate obligation to perform a partnership contract.

cralawlawlibrary
[Emphasis supplied]

This provision clearly states that, first, the partners' obligation with respect to the partnership
liabilities is subsidiary in nature. It provides that the partners shall only be liable with their
property after all the partnership assets have been exhausted. To say that one's liability is
subsidiary means that it merely becomes secondary and only arises if the one primarily liable
fails to sufficiently satisfy the obligation. Resort to the properties of a partner may be made only
after efforts in exhausting partnership assets have failed or that such partnership assets are
insufficient to cover the entire obligation. The subsidiary nature of the partners' liability with the
partnership is one of the valid defenses against a premature execution of judgment directed to a
partner.

In this case, had he been properly impleaded, Guy's liability would only arise after the properties
of QSC would have been exhausted. The records, however, miserably failed to show that the
partnership's properties were exhausted. The report37 of the sheriff showed that the latter went
to the main office of the DOTC-LTO in Quezon City and verified whether Medestomas, QSC and
Guy had personal properties registered therein. Gaeott then instructed the sheriff to proceed
with the attachment of one of the motor vehicles of Guy.38 The sheriff then served the Notice of
Attachment/Levy upon Personalty to the record custodian of the DOTC-LTO of Mandaluyong City.
A similar notice was served to Guy through his housemaid at his residence.

Clearly, no genuine efforts were made to locate the properties of QSC that could have been
attached to satisfy the judgment - contrary to the clear mandate of Article 1816. Being
subsidiarily liable, Guy could only be held personally liable if properly impleaded and after all
partnership assets had been exhausted.

Second, Article 1816 provides that the partners' obligation to third persons with respect to the
partnership liability is pro rata or joint. Liability is joint when a debtor is liable only for the
payment of only a proportionate part of the debt. In contrast, a solidary liability makes a debtor
liable for the payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law or nature
requires solidarity. With regard to partnerships, ordinarily, the liability of the partners is not
solidary.39 The joint liability of the partners is a defense that can be raised by a partner
impleaded in a complaint against the partnership.

In other words, only in exceptional circumstances shall the partners' liability be solidary in
nature. Articles 1822, 1823 and 1824 of the Civil Code provide for these exceptional conditions,
to wit: chanRoblesvirtualLawlibrary

Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course
of the business of the partnership or with the authority of his co-partners, loss or injury is caused
to any person, not being a partner in the partnership, or any penalty is incurred, the partnership
is liable therefor to the same extent as the partner so acting or omitting to act.

Article 1823. The partnership is bound to make good the loss: chanRoblesvirtualLawlibrary

(1) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the
custody of the partnership.

Article 1824. All partners are liable solidarity with the partnership for everything chargeable to
the partnership under Articles 1822 and 1823.

cralawlawlibrary
[Emphases Supplied]

In essence, these provisions articulate that it is the act of a partner which caused loss or injury
to a third person that makes all other partners solidarity liable with the partnership because of
the words "any wrongful act or omission of any partner acting in the ordinary course of the
business, " "one partneracting within the scope of his apparent authority" and "misapplied by
any partner while it is in the custody of the partnership." The obligation is solidary because the
law protects the third person, who in good faith relied upon the authority of a partner, whether
such authority is real or apparent.40

In the case at bench, it was not shown that Guy or the other partners did a wrongful act or
misapplied the money or property he or the partnership received from Gacott. A third person
who transacted with said partnership can hold the partners solidarity liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.41 Gacott's
claim stemmed from the alleged defective transreceivers he bought from QSC, through the
latter's employee, Medestomas. It was for a breach of warranty in a contractual obligation
entered into in the name and for the account of QSC, not due to the acts of any of the partners.
For said reason, it is the general rule under Article 1816 that governs the joint liability of such
breach, and not the exceptions under Articles 1822 to 1824. Thus, it was improper to hold Guy
solidarity liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot be applied to
sustain Guy's liability. The said provision states that a general partner shall be liable for all
debts, liabilities and damages incurred by an ostensible corporation. It must be read, however, in
conjunction with Article 1816 of the Civil Code, which governs the liabilities of partners against
third persons. Accordingly, whether QSC was an alleged ostensible corporation or a duly
registered partnership, the liability of Guy, if any, would remain to be joint and subsidiary
because, as previously stated, all partners shall be liable pro rata with all their property and
after all the partnership assets have been exhausted for the contracts which may be entered into
in the name and for the account of the partnership.

WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and the March 5, 2013
Resolution of the Court of Appeals in CA-G.R. CV No. 94816 are hereby REVERSED and SET
ASIDE. Accordingly, the Regional Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO
RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the Notice of Levy/Attachment upon
Personalty.

SO ORDERED. chanroblesvirtuallawlibrary

G.R. No. L-39780 November 11, 1985

ELMO MUASQUE, petitioner,


vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents.

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of
Appeals affirming the existence of a partnership between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the partnership.

Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging
that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or expecting any consideration from
Galan although the latter was casually named as partner in the contract; that by virtue of his having
introduced the petitioner to the employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical, under the terms of the
contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total
sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00
not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be deposited in a joint account;
that on January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to
indorse said cheek presented to him by Galan but through later manipulations, respondent Pons
succeeded in changing the payee's name from Elmo Muasque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials, the payment of which
should have been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that because of
the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to
Galan petitioner demanded that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.

The respondents answered the complaint by denying some and admitting some of the material
averments and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that the issues to be
resolved are:

(1) Whether or not there existed a partners between Celestino Galan and Elmo
Muasque; and

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical
to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were
allowed to intervene, both having legal interest in the matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass
Palace the amount of P6,229.34 and P2,213.51, respectively;

(2) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as
follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's
fees jointly and severally to Intervenor Cebu Southern Hardware Company:

(4) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,

No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification
that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern
Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly."

Not satisfied, Mr. Muasque filed this petition.

The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and
Muasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract
for the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%)
of the whole amount upon the signing of the contract and the balance thereof divided into three
equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the
name of the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to
enable the latter to deposit it in the bank and pay for the materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when
the second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it
again, the petitioner refused.

The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that
there was a"misunderstanding" between him and petitioner, respondent Tropical changed the name
of the payee in the second check from Muasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under which name a permit to
do construction business was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He
stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses
had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was finished ahead of schedule
with the total expenditure reaching P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the
petitioner alone with the last check being given pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against
the respondents,seeking to recover the following: the amounts covered by the first and second
checks which fell into the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager,
Pons, from any liability but they also held the petitioner together with respondent Galan, hable to the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which
the intervenors extended to the partnership of petitioner and Galan

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the
appellate court erred in holding that a partnership existed between petitioner and respondent Galan.
(2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks and therefore,
accountable to the petitioner for the said amount; and (3) Whether or not the court committed grave
abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan
was "good payment, "

Petitioner contends that the appellate court erred in holding that he and respondent Galan were
partners, the truth being that Galan was a sham and a perfidious partner who misappropriated the
amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made by Tropical to Galan was
"good" payment when the same gave occasion for the latter to misappropriate the proceeds of such
payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of
the latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the
first paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and
Muasque hereinafter called the Contractor, and Tropical Commercial Co., Inc.,
hereinafter called the owner do hereby for and in consideration agree on the
following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.

Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a
check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical
therefore, had every right to presume that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to blame for making the relationship
appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good faith,
the appellees also acted in good faith in extending credit to the partnership. Where
one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.

No error was committed by the appellate court in holding that the payment made by Tropical to
Galan was a good payment which binds both Galan and the petitioner. Since the two were partners
when the debts were incurred, they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

There is a general presumption that each individual partner is an authorized agent for
the firm and that he has authority to bind the firm in carrying on the partnership
transactions. (Mills vs. Riggle,112 Pan, 617).

The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.),
391.)

Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding
Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that
although this was not one of the issues agreed upon by the parties during the pretrial, he,
nevertheless, alleged the same in his amended complaint which was, duly admitted by the court.

When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons
in his personal capacity. Although the petitioner made allegations as to the alleged malversations of
Galan, these were the same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged connivance of Pons with
Galan as a means to serve the latter's personal purposes.

The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial
because he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26
SCRA 336), we ruled:

xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the trial
court's order issued on the very day the pre-trial conference was held. Such an order
controls the subsequent course of the action, unless modified before trial to prevent
manifest injustice.In the case at bar, modification of the pre-trial order was never
sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he
vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is
the contention of Muasque that the amounts payable to the intervenors should be shouldered
exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their
illstarred partnership. The records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit
to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's ordering
petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and
severally" is plain error since the liability of partners under the law to third persons for contracts
executed inconnection with partnership business is only pro rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall
be liable prorate with all their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-ship. ...". this provision should be
construed together with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short,
while the liability of the partners are merely joint in transactions entered into by the partnership, a
third person who transacted with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partner-ship or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the partnership
or any penalty is incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of
a third person and t he money or property so received is misapplied by any partner
while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority
of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil
Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are
solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed
between the petitioner and Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole
However. as between the partners Muasque and Galan,justice also dictates that Muasque be
reimbursed by Galan for the payments made by the former representing the liability of their
partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in
his dealings with Muasque as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the
liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors,

SO ORDERED.