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[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty.

Paolo Dimayuga

1. COMMISSIONER OF INTERNAL similarly with corporations, Suter was not bound to


REVENUE vs. WILLIAM J. SUTER and THE include in his individual return the income of the limited
COURT OF TAX APPEALS partnership.

Facts: A husband and a wife may not enter into a contract


of general copartnership, because under the Civil Code,
A limited partnership, named "William J. Suter which applies in the absence of express provision in the
'Morcoin' Co., Ltd.," was formed by William J. Suter as the Code of Commerce, persons prohibited from making
general partner, and Julia Spirig and Gustav Carlson, as the donations to each other are prohibited from entering
limited partners. However, general partner Suter and into universal partnerships.
limited partner Spirig got married and, thereafter, limited
partner Carlson sold his share in the partnership to Suter William J. Suter "Morcoin" Co., Ltd. was not such a
and his wife. The limited partnership had been filing its universal partnership, since the contributions of the
income tax returns as a corporation, without objection by partners were fixed sums of money, P20,000.00 by William
the herein petitioner, Commissioner of Internal Revenue, Suter and P18,000.00 by Julia Spirig and neither one of
until in 1959 when the latter, in an assessment, them was an industrial partner. It follows that William J.
consolidated the income of the firm and the individual Suter "Morcoin" Co., Ltd. was not a partnership that
incomes of the partners-spouses Suter and Spirig resulting spouses were forbidden to enter.
in a determination of a deficiency income tax. Respondent
Suter protested the assessment, and requested its The capital contributions of partners William J. Suter and
cancellation. CTA rendered a decision in favor of Suter. Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in
Issue: wedlock, such contributions remained their respective
separate property. The individual interest of each consort
1) Is the corporate personality of William J. Suter Co. in William J. Suter "Morcoin" Co., Ltd. did not become
be disregarded for income tax purposes, common property of both after their marriage.
considering that respondent William J. Suter and
his wife, Julia Spirig Suter actually formed a single
taxable unit?
2) Should the partnership of Julia and William be 2. JM Tuason vs Bolanos (1954)
dissolved after the marriage?
Facts:
Held:
- JM Tuason & Co, Inc. filed an action to recover
1) YES. possession of registered land in Quezon City
against Quirino Bolanos. In his answer, Bolanos
claimed that he and his predecessor-in-interest
have possessed the lance since time immemorial,
The theory of the petitioner, Commissioner of Internal and that JM Tuason was able to secure registration
Revenue, is that the marriage of Suter and Spirig and their over the land by fraud.
subsequent acquisition of the interests of remaining - The trial court ruled in favor of JM Tuason.
partner Carlson in the partnership dissolved the limited - In his appeal to the Supreme Court, one of
partnership, and if they did not, the fiction of juridical Bolanos assignment of error was on the ground
personality of the partnership should be disregarded for that the case was not brought by the real party in
income tax purposes because the spouses have exclusive interest. According to Bolanos, JM Tuasons
ownership and control of the business; complaint states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta,
The case of married persons, whether citizens, residents or Inc."
non-residents, only one consolidated return for the taxable
year shall be filed by either spouse to cover the income of Issue: Whether or not the case was brought by the real
both spouses. party in interest.

2) NO Held: Yes.

Suter maintains, as the Court of Tax Appeals held, that his As to the first assigned error, there is nothing to the
marriage with limited partner Spirig and their acquisition contention that the present action is not brought by the
of Carlson's interests in the partnership in 1948 is not a real party in interest, that is, by J. M. Tuason and Co., Inc.
ground for dissolution of the partnership, Since its What the Rules of Court require is that an action be
juridical personality had not been affected and since, as a brought in the name of, but not necessarily by, the real
limited partnership, as contra distinguished from a duly party in interest. (Section 2, Rule 2.) In fact the practice is
registered general partnership, it is taxable on its income for an attorney-at-law to bring the action, that is to file the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

complaint, in the name of the plaintiff. That practice and continued to refuse and let her examine the
appears to have been followed in this case, since the partnership books or to give her information regarding the
complaint is signed by the law firm of Araneta and partnership affairs to pay her any share in the dividends
Araneta, "counsel for plaintiff" and commences with the declared by the partnership. She therefore prayed that the
statement "comes now plaintiff, through its undersigned defendants be ordered to render accounting to her of the
counsel." It is true that the complaint also states that the partnership business and to pay her corresponding share
plaintiff is "represented herein by its Managing Partner in the partnership profits after such accounting, plus
Gregorio Araneta, Inc.", another corporation, but there is attorney's fees and costs.
nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The The defendants (petitioners), in their answer,
contention that Gregorio Araneta, Inc. can not act as denied ever having declared dividends or distributed
managing partner for plaintiff on the theory that it is illegal profits of the partnership; denied likewise that the plaintiff
for two corporations to enter into a partnership is without ever demanded that she be allowed to examine the
merit, for the true rule is that "though a corporation has no partnership books; and byway of affirmative defense
power to enter into a partnership, it may nevertheless alleged that the amended Articles of Co-partnership did
enter into a joint venture with another where the nature of not express the true agreement of the parties, which was
that venture is in line with the business authorized by its that the plaintiff was not an industrial partner; that she did
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. not in fact contribute industry to the partnership; and that
R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is her share of 30% was to be based on the profits which
nothing in the record to indicate that the venture in which might be realized by the partnership only until full
plaintiff is represented by Gregorio Araneta, Inc. as "its payment of the loan which it had obtained in December,
managing partner" is not in line with the corporate 1955 from the Rehabilitation Finance Corporation in the
business of either of them. sum of P30,000, for which the plaintiff had signed a
promissory note as co-maker and mortgaged her property
as security.

The CFI ruled in favor of respondent and rendered


judgment declaring her an industrial partner of
3. EVANGELISTA & CO., DOMINGO C.
Evangelista & Co.; ordering petitioners to render an
EVANGELISTA, JR., CONCHITA B. NAVARRO and
accounting of the business operations of the partnership;
LEONARDA ATIENZA ABAD
to pay respondent such amounts as may be due as her
SANTOS, petitioners, vs. ESTRELLA ABAD
share in the partnership profits and/or dividends after
SANTOS, respondent. (G.R. No. L-31684 June 28,
such an accounting has been properly made; to pay
1973)
respondent attorney's fees and the costs of the suit. The
CA affirmed the ruling of the CFI.
FACTS:
ISSUE: WON the respondent was an industrial partner.
A co-partnership was formed under the name of
"Evangelista & Co." The Articles of Co-partnership was
HELD: YES.
amended as to include respondent, Estrella Abad Santos,
as industrial partner, with petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and The Court of Appeals did not hold that the Articles
Conchita P. Navarro, the original capitalist partners, of Co-partnership was conclusive evidence that the
remaining in that capacity, with a contribution of P17,500 respondent was an industrial partner of the said company,
each. The amended Articles provided that "the but considered it together with other factors, consisting of
contribution of Estrella Abad Santos consists of her both testimonial and documentary evidences, in arriving at
industry being an industrial partner", and that the profits the factual conclusion expressed in the decision.
and losses "shall be divided and distributed among the
partners ... in the proportion of 70% for the first three It is an admitted fact that since before the
partners, Domingo C. Evangelista, Jr., Conchita P. Navarro execution of the amended articles of partnership,
and Leonardo Atienza Abad Santos to be divided among respondent Estrella Abad Santos has been, and up to the
them equally; and 30% for the fourth partner Estrella present time still is, one of the judges of the City Court of
Abad Santos." Manila, devoting all her time to the performance of the
duties of her public office. This fact proves beyond
Respondent filed suit against the three other peradventure that it was never contemplated between the
partners in the CFI of Manila, alleging that the partnership, parties, for she could not lawfully contribute her full time
which was also made a party-defendant, had been paying and industry which is the obligation of an industrial
dividends to the partners except to her; and that partner pursuant to Art. 1789 of the Civil Code:
notwithstanding her demands the defendants had refused
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

ART. 1789. An industrial partner cannot engage in business Second. After a consideration of the facts adduced during
for himself, unless the partnership expressly permits him to the trial, the Honorable Judge Rohde, then one of the
do so; and if he should do so, the capitalist partners may judges of the Court of First Instance of the city of Manila,
either exclude him from the firm or avail themselves of the rendered a judgment against the said Francisco Gambe, for
benefits which he may have obtained in violation of this the sum of $1,300, United States currency, and for the
provision, with a right to damages in either case. costs.
Third. Francisco Gambe was a pilot and member of the
It is not disputed that the provision against the Pilot's Association of Manila and was at the time of the
industrial partner engaging in business for himself seeks alleged accident and injury in charge of said
to prevent any conflict of interest between the industrial steamship Alfred. Judge Rohde dismissed the cause as to
partner and the partnership, and to insure faithful the other defendants.
compliance by said partner with this prestation. There is Fourth. From this judgment of the lower court the
no pretense, however, even on the part of petitioners that defendant Gambe appealed to the Supreme Court.
respondent is engaged in any business antagonistic to that Fifth. After a consideration of the facts, the Supreme Court
of company, since being a Judge of one of the branches of on the 31st day of March, 1906, affirmed with costs the
the City Court of Manila can hardly be characterized as a judgment of the lower court.
business. That respondent has faithfully complied with Sixth. The judgment thus affirmed was returned to the
her prestation with respect to petitioners is clearly shown lower court for an execution of the same.
by the fact that it was only after the filing of the complaint Seventh. On the 26th day of May, 1906, an execution was
in this case and the answer thereto that petitioners issued upon the said judgment against the said defendant,
exercised their right of exclusion under Art. 1789 of the Francisco Gambe, and was returned upon the 23d day of
Civil Code. June, 1906, unsatisfied.
Eighth. Later, upon the 11th day of July, 1906, another
Having always known respondent as a City judge execution was issued out of the Court of First Instance
even before she joined appellant company as an industrial against the defendant, Francisco Gambe, which was
partner, why did it take petitioners many years before returned upon the 17th day of August, 1906, unsatisfied.
excluding her from said company as stated in their Ninth. On the same day, or the 11th day of July, 1906, in
allegations? accordance with the provisions of section 431 of the Code
of Procedure in Civil Actions, the plaintiff attempted to
attach whatever money or effects which the defendant had
The Court held that respondent is an industrial in the said Pilots' Association of Manila. These attachments
partner of appellant company, with the right to demand for were directed to the Hongkong and Shanghai Banking
a formal accounting and to receive her share in the net Corporation, the Hon. W. Morgan Shuster, Collector of
profit that may result from such an accounting. The ruling Customs, as well as Francisco Aguado, who was the chief of
is based on the following article of the New Civil Code: the said Pilot's Association.
Tenth. On the 22d day of August, 1906, the attorney for the
ART. 1899. Any partner shall have the right to a formal plaintiff presented in the lower court an affidavit stating
account as to partnership affairs: that affiant is informed and believes that an organization
(1) If he is wrongfully excluded from the partnership or association known as the "Manila Pilots' Association," of
business or possession of its property by his co-partners; which Francisco Aguado is the chief pilot, Manuel Goitia is
(2) If the right exists under the terms of any agreement; the treasurer and custodian of its funds, and of which W.
(3) As provided by article 1807; Morgan Shuster, Francisco Gambe, and other pilots of the
(4) Whenever other circumstance render it just and port of Manila are members, has property in its possession
reasonable. dedicated to and for the purpose of payment of damages
caused through negligence of the pilots of said association,
or any of them, to third persons.
#4 Upon this affidavit, the Hon. A. S. Crossfield, one of the
THE CITY OF MANILA, plaintiff-appellant, vs. judges of the Court of First Instance of the city of Manila,
FRANCISCO GAMBE, ET AL., defendants-appellees. do hereby order the said Francisco Aguado, Francisco
Gambe, Manuel Goitia, and W. Morgan Shuster personally
FACTS: First. That upon the 31st day of August, 1903, the to appear before me in the said city of Manila, on the 10th
plaintiff commenced an action in the Court of First day of September, at 10 o'clock in the morning of that day,
Instance of the city of Manila against the defendants, to answer concerning the said property.
Francisco Gambe, Manuel Perez, Antonio Herranz, and
Florencio Garriz, who constitute the commercial firm of Eleventh. In accordance with the above order, the said
Herranz & Garriz, for the purpose of recovering the sum of parties appeared before the said court and testified
five thousand dollars ($5,000), United States currency, for relating to the money, property, credits or effects which
certain damages occasioned by the steamship Alfred to the the said Pilots' Association had in its possession belonging
"Spanish Bridge" in the city of Manila. to the said defendants.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

After hearing the evidence of these parties, the said Hon. A. which the plaintiff here is attempting to get possession of
S. Crossfield rendered that Francisco Aguado as chief pilot, by virtue of the action, that said plaintiff could not recover
Manuel Goitia as treasurer, and Francisco Gambe and W. the same under the form of action adopted by it. If Gambe
Morgan Shuster as members of the Pilots' Association to could successfully maintain an action against the said
answer as to any property they may have in their Pilots' Association for the recovery of a specific sum of
possession or under their control, belonging to the money or specific personal property, then, in our opinion,
defendant, Francisco Gambe. Execution having been issued his judgment creditors, or the plaintiff in this case, might
in the above-named respondents having been attached, as also by the procedure provided for under said section 431
in garnishee proceedings, all of the above-named maintain the present action, but not otherwise.
respondents appeared and the two first-named made
declarations as to the property in their hands. A "debt," as used in said section, means some definite
From the declaration made it appears: That each member amount of money, ascertained or capable of being
of the Pilots' Association before becoming such, must ascertained, which may be paid over to the sheriff or the
deposit with the association the sum of P800, to be court under an order, while "credits " and "personal
retained by the association for the purpose of satisfying property" are something belonging to the defendant, but in
damages which may be incurred by others by reason of possession and under the control of the person attached.
negligence or fault on the part of the association in the In our opinion it is also essential that the debt, credit, or
transaction of its business. the personal property which is attempted to be subjected
It further appears from the declarations that persons thus to the payment of the obligation of the defendant, and
depositing the money could not withdraw it; that it is which is alleged to be in the possession of the person
property of the association and may not be withdrawn, attached, must exist in some definite and ascertainable
even in case of the death of a member, and that said form at the time of the attachment.
Francisco Gambe is a member.
I therefore find that the above-named respondents, either The said Pilots' Association is purely a voluntary
as officers of the association or members thereof, have not association of the pilots of the city of Manila. The
in their control, nor do they possess any property, money, association is expressly recognized under the law. No one
or effects which would be the subject of a levy under can become a member of said association who has not
execution against said Gambe, and the order to appear is shown special qualifications as a pilot, and no one can act
discharged. as a pilot who has not been expressly recommended and
From this decision of the lower court the plaintiff approved by the collector of the port of Manila, and no one
appealed. can become a member of said association without having
paid a certain sum of money into the treasury of said
ISSUE: association. This funds becomes the property of the
WON said Pilots' Association owe to the defendant, a debt association for the purpose of protecting its members
or have in its possession and under its control credits and against losses occasioned by its members to ships while
other personal property, belonging to the defendant, said ships are under the control of a member or members
subject to be attached in accordance with the provisions of of said association. The money paid in by one member of
said section 431. said association becomes a part of a general fund of said
association, subject to be paid out for damages done to
RULING: No. ships by any member of the association. The fund created
Section 431 of the Code of Procedure in Civil Actions by the contributions of the members no longer belongs to
provides: Debts and credits, and other personal property the members of the association; it belongs to the
not capable of manual delivery, shall be attached by association. The association has a distinct and separate
leaving with the person owing such debts or having in his entity from the individual members who make it up. The
possession or under his control such credits and other fund is created for a specific purpose. Under the
personal property, a copy of the order of attachment, and a regulations of said association it has assumed a certain
notice that the debts owing by him to the defendant, or the responsibility for its members. Whether the damage
credits and other personal property in his possession or caused by the defendant in this case is of such a character
under his control, belonging to the defendant, are attached for which the said association assumed the responsibility
in pursuance of such order. is a question which the person injured has a right to test in
a special action against said association.
The test whether or not the interests of the defendant, if he
has any, in said association may be attached by virtue of
said section is whether said Gambe could maintain an
action against the said association for the recovery of the #5 ELIGIO ESTANISLAO, JR. v. COURT OF APPEALS, et
specific debt, credit, or personal property. It would seem al.
clear and conclusive that if Gambe himself could not G.R. No. L-49982, 27 April 1988, FIRST DIVISION,
maintain an action against the said association for the (Gancayco, J.)
recovery of the specific debt, credit, or personal property
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

FACTS: or less covering said P15000. In the subsequent


- Eligio Estanislao, Jr. and private respondents, document entitled "Additional Cash Pledge
Remedios, Emilio and Leocadio Santiago, are siblings Agreement, the private respondents and Eligio
who are co-owners of certain lots in Annapolis and assigned to Shell the monthly rentals due them
Aurora, Blvd., Q.C. These properties were then being commencing the 24th of May 1966 until such time that
leased to the Shell Company of the Philippines Ltd. the monthly rentals accumulated equal P 15,000.00
(Shell). The siblings agreed to open and operate a gas which private respondents agree to be a cash deposit
station (Estanislao Shell Service Station) thereat w/ an of petitioner in favor of Shell to increase his credit
initial investment of P15000 to be taken from the limit as dealer. It provided therein that "This
advance rental payments of Shell. agreement, therefore, cancels and supersedes the Joint
- In a joint affidavit, the private respondents agreed to Affidavit dated 11 April 1966 executed by the CO-
help Eligio by allowing him to operate and manage the OWNERS."
gasoline service station of the family. Upon - Eligio contends that because of the said stipulation
negotiations w/ Shell, it was agreed that Eligio will be cancelling and superseding that previous Joint
the dealer for the transactions. Remedios helped in Affidavit, whatever partnership agreement there was
managing the business w/ Eligio for less than a year. in said previous agreement had thereby been
They also entered into an Additional Cash Pledge abrogated. The Supreme Court finds no merit in this
Agreement w/ Shell, wherein the P15000 advance argument. Said cancelling provision was necessary for
rental fee was deposited w/ Shell to cover advances of the Joint Affidavit speaks of P15000 advance rentals
fuel to Eligio as dealer w/ a proviso that said starting May 25, 1966 while the latter agreement also
agreement cancels and supersedes the previous joint refers to advance rentals of the same amount starting
affidavit executed by the co-owners. May 24, 1966. There is, therefore, a duplication of
- For sometime, Eligio submitted financial statements to reference to the P15000 hence the need to provide in
the private respondents regarding their businesss the subsequent document that it "cancels and
operations, but thereafter, failed to render subsequent supersedes" the previous one. It is true in the latter
accounting. A demand was made on Eligio to render an document that it is silent as to the statement in the
accounting on profits. By the end of 1968, the financial Joint Affidavit that the P 15000 represents the "capital
report showed a profit amounting to P87293.79 and investment" of the parties in the gasoline station
on 1969, P150000. Private respondents filed a business, and it speaks of petitioner as the sole dealer,
complaint in the Court of First Instance (CFI) against but this is as it should be for in the latter document,
Eligio, praying for (1) the execution of a public Shell was a signatory and it would be against its policy,
document embodying their partnership agreement, if in the agreement, it should be stated that the
(2) the rendering of a formal accounting of the business is a partnership with private respondents
business operation from 1966-1969 and up to the time and not a sole proprietorship of petitioner.
the order is issued, and (3) to pay the private - Other evidence also shows that there was in fact such
respondents their lawful shares in the net profits and partnership agreement between the parties. This is
attorneys fees and costs of the suit. attested by the testimonies of private respondent
- CFI dismissed the complaint and Eligios counterclaim, Remedies Estanislao and her lawyer. Eligio submitted
ordering private respondents to pay Eligio attorneys to private respondents periodic accounting of the
fees and costs. When the private respondents moved business and gave a written authority to private
for reconsideration, the ruling was set aside (by the respondent Remedies Estanislao, his sister, to examine
newly-appointed presiding judge of CFI who was then and audit the books of their "common business
the judge of the original complaint). The Court of (aming negosyo). Remedios assisted in the running of
Appeals (CA) affirmed the CFI decision in toto. Eligios the business. There is no doubt that the parties hereto
Motion for Reconsideration was denied. Note that formed a partnership when they bound themselves to
petitioner heavily relied on the executed joint affidavit contribute money to a common fund with the
in forwarding his appeal. intention of dividing the profits among themselves.
The sole dealership by the petitioner and the issuance
ISSUE: Does a partnership exist between members of the of all government permits and licenses in the name of
same family, arising from their joint ownership of certain petitioner was in compliance with the afore-stated
properties? policy of Shell and the understanding of the parties of
having only 1 dealer of the Shell products.
RULING: YES
- In the stated joint affidavit, it is clearly stipulated by
the parties that the P1500 advance rental due to them #6 Fernandez vs. De La Rosa
from Shell shall augment their "capital investment" in
the operation of the gasoline station, which advance Facts: the plaintiff alleges that he entered into a verbal
rentals shall be credited as rentals from May 25, 1966 agreement with the defendant to form a partnership for
up to 4 and 1/2 mos. or until 10 October 1966, more the purchase of cascoes and cascoes for hire whereby the
defendant will buy the cascoes and the profits will be
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

divided proportionately. On several occasions, plaintiff Where parties fail to agree upon articles of copartnership
Fernandez gave 300 then 300 then another 825 to the and some of the contributions of one partner, less than all,
defendant and that the defendant bought the carcoes and are returned to him and accepted with an express
placed the title in his name. reservation of his rights as partner, the partnership is not
dissolved nor does he waive his right to an accounting of
The parties undertook to draw up articles of the profits.
partnership but they were unable to agree on certain
articles. So, the plaintiff made a demand for an accounting
but defendant denied the existence of the partnership. The
defendant then returned to the plaintiff 1,125 pesos.
7. Tai Tong Chuache & Co. v. Insurance Commission
Issue: WON partnership exists?

Ruling: YES Facts:


Complainants acquired from a certain Rolando
Partnership is a contract by which two or more persons
Gonzales a parcel of land and a building located at San
bind themselves to contribute money, property, or
Rafael Village, Davao City. Complainants assumed the
industry to a common fund, with the intention of dividing
mortgage of the building in favor of S.S.S., which building
the profits among themselves.
was insured with respondent S.S.S. Accredited Group of
There are two elements of partnership: mutual Insurers for P25,000.00.
contribution to a common fund/stock and joint
interest in the profits. On April 19, 1975, Azucena Palomo obtained a loan
from Tai Tong Chuache Inc. in the amount of P100,000.00.
The first element is present in the case at bar. The money To secure the payment of the loan, a mortgage was
was furnished by the plaintiff and received by the executed over the land and the building in favor of Tai
defendant with the understanding that it was to be used Tong Chuache & Co. On April 25, 1975, Arsenio
for the purchase of the cascoes in question. Chua, representative of Thai Tong Chuache & Co. insured
the latter's interest with Travellers Multi-Indemnity
The second element is also present in the case at bar. The Corporation for P100,000.00 (P70,000.00 for the building
court assumed such. Where the fact is established that and P30,000.00 for the contents thereof) (Exhibit "A-a,"
parties have mutually contributed to the purchase of a contents thereof)
common stock under circumstances which afford no
different explanation of their object, it must be On June 11, 1975, Pedro Palomo secured a Fire
deduced that they intended a joint interest in the Insurance Policy No. F- 02500 covering the building for
profits therefrom. The court added that if for instance, P50,000.00 with respondent Zenith Insurance
the object of the parties in purchasing in company had Corporation. On July 16, 1975, another Fire Insurance
been to make a more favourable bargain for the two Policy No. 8459 was procured from respondent Philippine
cascoes than they could have done by purchasing them British Assurance Company, covering the same building
separately and that they had no ulterior object except to for P50,000.00 and the contents thereof for P70,000.00.
effect a division of the common property when once that
had acquired it, the affection societatis would be lacking
On July 31, 1975, the building and the contents were
and the parties would have become joint tenants only.
totally razed by fire.
Thus, there was a complete and perfect contract of
partnership was entered into by the parties. This is true Based on the computation of the loss, including
despite the fact that they alleged that there must be the Travellers Multi- Indemnity, respondents, Zenith
partnership articles first but the fact that defendant Insurance, Phil. British Assurance and S.S.S. Accredited
purchase the carcoes strongly discountenances the theory. Group of Insurers, paid their corresponding shares of the
The execution of a written agreement was not loss. Complainants were paid the following: P41,546.79 by
necessary in order to give efficacy to the verbal Philippine British Assurance Co., P11,877.14 by Zenith
contract of partnership as a civil contract, the Insurance Corporation, and P5,936.57 by S.S.S. Group of
contributions of the partners not having been in the Accredited Insurers. Demand was made from respondent
form of immovable or rights in immovables. Travellers Multi-Indemnity for its share in the loss but the
same was refused. Hence, complainants demanded from
Issue: WON the partnership terminated as a result of the other three (3) respondents the balance of each share
the act of the defendant in receiving back the 1,125 in the loss based on the computation of the Adjustment
pesos? Standards Report excluding Travellers Multi-Indemnity in
the amount of P30,894.31 (P5,732.79-Zenith Insurance:
Ruling: NO. P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In their answers, Philippine British Assurance and It is the contention of the petitioner that respondent
Zenith Insurance Corporation admitted the material Insurance Commission decided an issue not raised in
allegations in the complaint, but denied liability on the the pleadings of the parties in that it ruled that a
ground that the claim of the complainants had already certain Arsenio Lopez Chua is the one entitled to the
been waived, extinguished or paid. Both companies set up insurance proceeds and not Tai Tong Chuache &
counterclaim in the total amount of P 91,546.79. Company.

Instead of filing an answer, SSS Accredited Group


of Insurers informed the Commission in its letter of July
22, 1977 that the herein claim of complainants for the Issue:
balance had been paid in the amount of P 5,938.57 in full,
based on the Adjustment Standards Corporation Report of Whether or not Arsenio Chua as a representative of a
September 22, 1975. partnership (Tai Tong Chuache & Company) has the
capacity to commence an action against the respondent
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged as its special Ruling: YES
and affirmative defenses the following, to wit: that Fire
Policy No. 599 DV, covering the furniture and building of
It is a well known postulate that the case of a party
complainants was secured by a certain Arsenio Chua,
is constituted by his own affirmative allegations. Under
mortgage creditor, for the purpose of protecting his
Section 1, Rule 131 each party must prove his own
mortgage credit against the complainants; that the said
affirmative allegations by the amount of evidence required
policy was issued in the name of Azucena Palomo, only to
by law which in civil cases as in the present case is
indicate that she owns the insured premises; that the
preponderance of evidence. The party, whether plaintiff or
policy contains an endorsement in favor of Arsenio Chua
defendant, who asserts the affirmative of the issue has the
as his mortgage interest may appear to indicate that
burden of presenting at the trial such amount of evidence
insured was Arsenio Chua and the complainants; that the
as required by law to obtain favorable judgment. Thus,
premium due on said fire policy was paid by Arsenio Chua;
petitioner who is claiming a right over the insurance must
that respondent Travellers is not liable to pay
prove its case. Likewise, respondent insurance company to
complainants.
avoid liability under the policy by setting up an affirmative
defense of lack of insurable interest on the part of the
On May 31, 1977, Tai Tong Chuache & Co. filed petitioner must prove its own affirmative allegations.
a complaint in intervention claiming the proceeds of
the fire Insurance Policy No. F-559 DV, issued by
It will be recalled that respondent insurance
respondent Travellers Multi-Indemnity.
company did not assail the validity of the insurance policy
taken out by petitioner over the mortgaged property.
Travellers Insurance, in answer to the complaint Neither did it deny that the said property was totally razed
in intervention, alleged that the Intervenor is not entitled by fire within the period covered by the insurance.
to indemnity under its Fire Insurance Policy for lack of Respondent, as mentioned earlier advanced an
insurable interest before the loss of the insured premises affirmative defense of lack of insurable interest on the
and that the complainants, spouses Pedro and Azucena part of the petitioner that before the occurrence of the
Palomo, had already paid in full their mortgage peril insured against the Palomos had already paid
indebtedness to the intervenor. 3 their credit due the petitioner. Respondent having
admitted the material allegations in the complaint, has
As adverted to above respondent Insurance the burden of proof to show that petitioner has no
Commission dismissed spouses Palomos' complaint on insurable interest over the insured property at the
the ground that the insurance policy subject of the time the contingency took place. Upon that point, there
complaint was taken out by Tai Tong Chuache & is a failure of proof. Respondent, it will be noted,
Company, petitioner herein, for its own interest only exerted no effort to present any evidence to
as mortgagee of the insured property and thus substantiate its claim, while petitioner did. For said
complainant as mortgagors of the insured property respondent's failure, the decision must be adverse to
have no right of action against herein respondent. It it.
likewise dismissed petitioner's complaint in intervention
However, as adverted to earlier, respondent
From the above decision, only intervenor Tai Tong Insurance Commission absolved respondent insurance
Chuache filed a motion for reconsideration but it was company from liability on the basis of the certification
likewise denied hence, the present petition. issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the
Palomos, Arsenio Lopez Chua stands as the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

complainant and not Tai Tong Chuache. From said its terms and conditions. Upon its failure to prove the
evidence respondent commission inferred that the credit allegation of lack of insurable interest on the part of the
extended by herein petitioner to the Palomos secured by petitioner, respondent insurance company is and must be
the insured property must have been paid. Such is a held liable.
glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere
inference.
8. LORENZO T. OA and HEIRS OF JULIA BUALES,
The record of the case shows that the petitioner to namely: RODOLFO B. OA, MARIANO B. OA, LUZ B.
support its claim for the insurance proceeds offered as OA, VIRGINIA B. OA and LORENZO B. OA,
evidence the contract of mortgage which has not been JR., petitioners,
cancelled nor released. It has been held in a long line of vs.
cases that when the creditor is in possession of the THE COMMISSIONER OF INTERNAL
document of credit, he need not prove non-payment for it REVENUE, respondent.
is presumed. The validity of the insurance policy taken b
petitioner was not assailed by private respondent. FACTS
Moreover, petitioner's claim that the loan extended to the
Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted Julia Buales died on March 23, 1944, leaving as heirs her
to herein petitioner. surviving spouse, Lorenzo T. Oa and her five children. In
1948, Civil Case No. 4519 was instituted in the Court of
First Instance of Manila for the settlement of her estate.
Public respondent argues however, that if the Later, Lorenzo T. Oa the surviving spouse was appointed
civil case really stemmed from the loan granted to administrator of the estate of said deceased. On April 14,
Azucena Palomo by petitioner the same should have 1949, the administrator submitted the project of partition,
been brought by Tai Tong Chuache or by its which was approved by the Court on May 16, 1949.
representative in its own behalf. From the above Because three of the heirs, namely Luz, Virginia and
premise respondent concluded that the obligation Lorenzo, Jr., all surnamed Oa, were still minors when the
secured by the insured property must have been project of partition was approved, Lorenzo T. Oa, their
paid.(The premise is correct but the conclusion is father and administrator of the estate, filed a petition in
wrong.) Civil Case No. 9637 of the Court of First Instance of Manila
for appointment as guardian of said minors. On November
Citing Rule 3, Sec. 2 respondent pointed out that 14, 1949, the Court appointed him guardian of the persons
the action must be brought in the name of the real party in and property of the aforenamed minors.
interest. We agree. However, it should be borne in mind
that petitioner being a partnership may sue and be The project of partition.) shows that the heirs have
sued in its name or by its duly authorized undivided one-half (1/2) interest in ten parcels of land
representative. The fact that Arsenio Lopez Chua is the with a total assessed value of P87,860.00, six houses with a
representative of petitioner is not questioned. total assessed value of P17,590.00 and an undetermined
amount to be collected from the War Damage Commission.
Petitioner's declaration that Arsenio Lopez Later, they received from said Commission the amount of
Chua acts as the managing partner of the partnership P50,000.00, more or less. This amount was not divided
was corroborated by respondent insurance among them but was used in the rehabilitation of
company. Thus Chua as the managing partner of the properties owned by them in common. Of the ten parcels
partnership may execute all acts of of land aforementioned, two were acquired after the death
administration including the right to sue debtors of of the decedent with money borrowed from the Philippine
the partnership in case of their failure to pay their Trust Company in the amount of P72,173.00.
obligations when it became due and demandable. Or at
the very least, Chua being a partner of petitioner Tai The project of partition also shows that the estate shares
Tong Chuache & Company is an agent of the equally with Lorenzo T. Oa, the administrator thereof, in
partnership. Being an agent, it is understood that he the obligation of P94,973.00, consisting of loans contracted
acted for and in behalf of the firm. Public respondent's by the latter with the approval of the Court.
allegation that the civil case filed by Arsenio Chua was
in his capacity as personal creditor of spouses Palomo
has no basis. Although the project of partition was approved by the
Court on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained
The respondent insurance company having issued under the management of Lorenzo T. Oa who used said
a policy in favor of herein petitioner which policy was of properties in business by leasing or selling them and
legal force and effect at the time of the fire, it is bound by investing the income derived therefrom and the proceeds
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

from the sales thereof in real properties and securities. As "building account" in 1956. And all these became possible
a result, petitioners' properties and investments gradually because, admittedly, petitioners never actually received
increased from P105,450.00 in 1949 to P480,005.20 in any share of the income or profits from Lorenzo T. Oa and
1956 as can be gleaned from the following year-end instead, they allowed him to continue using said shares as
balances: part of the common fund for their ventures, even as they
paid the corresponding income taxes on the basis of their
From said investments and properties petitioners derived respective shares of the profits of their common business
such incomes as profits from installment sales of as reported by the said Lorenzo T. Oa.
subdivided lots, profits from sales of stocks, dividends,
rentals and interests. The said incomes are recorded in the It is thus incontrovertible that petitioners did not,
books of account kept by Lorenzo T. Oa where the contrary to their contention, merely limit themselves
corresponding shares of the petitioners in the net income to holding the properties inherited by them. Indeed, it
for the year are also known. Every year, petitioners is admitted that during the material years herein
returned for income tax purposes their shares in the net involved, some of the said properties were sold at
income derived from said properties and securities and/or considerable profit, and that with said profit,
from transactions involving them. However, petitioners petitioners engaged, thru Lorenzo T. Oa, in the
did not actually receive their shares in the yearly income. purchase and sale of corporate securities. It is likewise
The income was always left in the hands of Lorenzo T. Oa admitted that all the profits from these ventures were
who, as heretofore pointed out, invested them in real divided among petitioners proportionately in
properties and securities. accordance with their respective shares in the
inheritance. In these circumstances, it is Our
On the basis of the foregoing facts, respondent considered view that from the moment petitioners
(Commissioner of Internal Revenue) decided that allowed not only the incomes from their respective
petitioners formed an unregistered partnership and shares of the inheritance but even the inherited
therefore, subject to the corporate income tax, pursuant to properties themselves to be used by Lorenzo T. Oa as
Section 24, in relation to Section 84(b), of the Tax Code. a common fund in undertaking several transactions or
Accordingly, he assessed against the petitioners the in business, with the intention of deriving profit to be
amounts of P8,092.00 and P13,899.00 as corporate income shared by them proportionally, such act was
taxes for 1955 and 1956, respectively.. Petitioners tantamount to actually contributing such incomes to a
protested against the assessment and asked for common fund and, in effect, they thereby formed an
reconsideration of the ruling of respondent that they have unregistered partnership within the purview of the
formed an unregistered partnership. Finding no merit in above-mentioned provisions of the Tax Code.
petitioners' request, respondent denied it.
It is but logical that in cases of inheritance, there should be
ISSUE a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the
Whether or not petitioners should be considered as co- contemplation of our corporate tax laws aforementioned.
owners of the properties inherited by them from the Before the partition and distribution of the estate of the
deceased Julia Buales and the profits derived from deceased, all the income thereof does belong commonly to
transactions involving the same, or, must they be deemed all the heirs, obviously, without them becoming thereby
to have formed an unregistered partnership subject to tax unregistered co-partners, but it does not necessarily follow
under Sections 24 and 84(b) of the National Internal that such status as co-owners continues until the
Revenue Code? inheritance is actually and physically distributed among
the heirs, for it is easily conceivable that after knowing
their respective shares in the partition, they might decide
RULING to continue holding said shares under the common
management of the administrator or executor or of anyone
The Tax Court found that instead of actually distributing chosen by them and engage in business on that basis.
the estate of the deceased among themselves pursuant to Withal, if this were to be allowed, it would be the easiest
the project of partition approved in 1949, "the properties thing for heirs in any inheritance to circumvent and render
remained under the management of Lorenzo T. Oa who meaningless Sections 24 and 84(b) of the National Internal
used said properties in business by leasing or selling them Revenue Code.
and investing the income derived therefrom and the
proceed from the sales thereof in real properties and It is true that in Evangelista vs. Collector, 102 Phil. 140, it
securities," as a result of which said properties and was stated, among the reasons for holding the appellants
investments steadily increased yearly from P87,860.00 in therein to be unregistered co-partners for tax purposes,
"land account" and P17,590.00 in "building account" in that their common fund "was not something they found
1949 to P175,028.68 in "investment account," already in existence" and that "it was not a property
P135.714.68 in "land account" and P169,262.52 in inherited by them pro indiviso," but it is certainly far
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

fetched to argue therefrom, as petitioners are doing here, venture need not be undertaken in any of the standard
that ergo, in all instances where an inheritance is not forms, or in confirmity with the usual requirements of
actually divided, there can be no unregistered co- the law on partnerships, in order that one could be
partnership. As already indicated, for tax purposes, the co- deemed constituted for purposes of the tax on
ownership of inherited properties is automatically corporation. Again, pursuant to said section 84(b),the
converted into an unregistered partnership the moment term "corporation" includes, among others, "joint
the said common properties and/or the incomes derived accounts,(cuentas en participacion)" and
therefrom are used as a common fund with intent to "associations", none of which has a legal personality of
produce profits for the heirs in proportion to their its own, independent of that of its members.
respective shares in the inheritance as determined in a Accordingly, the lawmaker could not have regarded
project partition either duly executed in an extrajudicial that personality as a condition essential to the
settlement or approved by the court in the corresponding existence of the partnerships therein referred to. In
testate or intestate proceeding. The reason for this is fact, as above stated, "duly registered general co-
simple. From the moment of such partition, the heirs are partnerships" which are possessed of the
entitled already to their respective definite shares of the aforementioned personality have been expressly
estate and the incomes thereof, for each of them to manage excluded by law (sections 24 and 84[b]) from the
and dispose of as exclusively his own without the connotation of the term "corporation." ....
intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection Similarly, the American Law
therewith. If after such partition, he allows his share to be
held in common with his co-heirs under a single ... provides its own concept of a partnership. Under the
management to be used with the intent of making profit term "partnership" it includes not only a partnership as
thereby in proportion to his share, there can be no doubt known in common law but, as well, a syndicate, group,
that, even if no document or instrument were executed for pool, joint Venture, or other unincorporated organization
the purpose, for tax purposes, at least, an unregistered which carries on any business, financial operation, or
partnership is formed. This is exactly what happened to venture, and which is not, within the meaning of the Code,
petitioners in this case. a trust, estate, or a corporation. ... . (7A Merten's Law of
Federal Income Taxation, p. 789; emphasis ours.)
In this connection, petitioners' reliance on Article
1769, paragraph (3), of the Civil Code, providing that: The term "partnership" includes a syndicate, group,
"The sharing of gross returns does not of itself pool, joint venture or other unincorporated organization,
establish a partnership, whether or not the persons through or by means of which any business, financial
sharing them have a joint or common right or interest operation, or venture is carried on. ... . (8 Merten's Law of
in any property from which the returns are derived," Federal Income Taxation, p. 562 Note 63; emphasis ours.)
and, for that matter, on any other provision of said
code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated For purposes of the tax on
the concept of partnerships under the Civil Code from corporations, our National Internal
that of unregistered partnerships which are Revenue Code includes these
considered as "corporations" under Sections 24 and partnerships with the exception only of
84(b) of the National Internal Revenue Code. Mr. duly registered general copartnerships
Justice Roberto Concepcion, now Chief Justice, within the purview of the term
elucidated on this point thus: "corporation." It is, therefore, clear to our
mind that petitioners herein constitute a
It is, therefore, clear to our mind that
To begin with, the tax in question is one imposed upon petitioners herein constitute a
"corporations", which, strictly speaking, are distinct partnership, insofar as said Code is
and different from "partnerships". When our Internal concerned, and are subject to the income
Revenue Code includes "partnerships" among the tax for corporations.
entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly #9
registered general partnerships," which constitute
precisely one of the most typical forms of partnerships
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.
in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes THE COLLECTOR OF INTERNAL REVENUE, defendant-
partnerships, no matter how created or organized."
appellee
This qualifying expression clearly indicates that a joint
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Whether the plaintiffs formed a partnership, or merely a


Facts: community of property without a personality of its own

***If partnership is thus formed, the same is liable for the


Plaintiffs, 15 of them, in order for them to payment of income tax as provided for by Section 10 of Act
purchase one sweepstakes ticket valued at two No. 2833, as last amended by section 2 of Act No. 3761,
pesos (P2), each subscribed and paid therefor
whereas if there was merely a community of property,
amounts totaling P2.
Plaintiffs purchased, in the ordinary course of they are exempt from such payment.
business, from one of the duly authorized agents
of the National Charity Sweepstakes Office (NCSO) Ruling: Plaintiffs formed a partnership.
one ticket for the sum of P2, said ticket was
registered in the name of Jose Gatchalian & There is no doubt that if the plaintiffs merely formed a
Company. community of property the latter is exempt from the
Said ticket won one of the third prizes in the
payment of income tax under the law. But according to the
amount of P50,000 and that the corresponding
check covering the prize was drawn by the NCSO stipulation facts the plaintiffs organized a PARTNERSHIP
in favor of Jose Gatchalian & Company against the of a civil nature because each of them put up money to buy
Philippine National Bank, which check was cashed a sweepstakes ticket for the sole purpose of dividing
by Jose Gatchalian & Company. equally the prize which they may win, as they did in fact in
Jose Gatchalian was required to file the the amount of P50,000 (article 1665, Civil Code).
corresponding income tax return covering the
prize won.
The partnership was not only formed, but upon the
Defendant CIR made an assessment against Jose
Gatchalian & Company requesting the payment of organization thereof and the winning of the prize, Jose
the sum of P1,499.94 to the deputy provincial Gatchalian personally appeared in the office of the
treasurer of Pulilan, Bulacan. Philippines Charity Sweepstakes, in his capacity as co-
Plaintiffs, in a reply through counsel, made a partner, as such collection the prize, the office issued the
request for exemption from payment of the check for P50,000 in favor of Jose Gatchalian and company,
income tax to which reply there were enclosed 15 and the said partner, in the same capacity, collected the
separate individual income tax returns filed
said check. All these circumstances repel the idea that the
separately by each one of the plaintiffs. However,
it was denied. Defendant then reiterated his plaintiffs organized and formed a community of property
demand for the payment of the sum of P1,499.94 only.
as income tax.
In view of the failure of the plaintiffs to pay the Having organized and constituted a partnership of a civil
amount of tax demanded by the defendant, the nature, the said entity is the one bound to pay the income
latter issued a warrant of distraint and levy tax which the defendant collected under the aforesaid
against the property of the plaintiffs.
section 10 (a) of Act No. 2833, as amended by section 2 of
Plaintiffs paid under protest the sum of P601.51 as
Act No. 3761. There is no merit in plaintiff's contention
part of the tax and penalties to the municipal
treasurer to avoid the effects of the warrant. that the tax should be prorated among them and paid
A request that the balance be paid by plaintiffs in individually, resulting in their exemption from the tax.
installments was made. This was granted by
defendant on the condition that a bond be filed.
Plaintiff filed a bond.
Plaintiffs failed in their installment payments. 10. G.R. Nos. L-24020-21 July 29, 1968
Hence, defendant ordered the municipal treasurer
to execute the warrant of distraint and levy. FLORENCIO REYES and ANGEL REYES, petitioners,
In order to avoid annoyance and embarrassment vs.
arising from the levy of their property, the COMMISSIONER OF INTERNAL REVENUE and HON.
plaintiffs paid the balance of P1,260.93. COURT OF TAX APPEALS, respondents.
Plaintiffs made a claim for refund which as denied
by defendant.
FACTS:
Hence, the appeal.

Issue: On October 31, 1950, petitioners, father and son,


purchased a lot and building, known as the Gibbs Building,
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

situated at 671 Dasmarias Street, Manila, for property or industry to a common fund; and (b) intent
P835,000.00, of which they paid the sum of P375,000.00, to divide the profits among the contracting parties. The
leaving a balance of P460,000.00, representing the first element is undoubtedly present in the case at bar, for,
mortgage obligation of the vendors with the China Banking admittedly, petitioners have agreed to and did, contribute
Corporation, which mortgage obligations were assumed by money and property to a common fund. Hence, the issue
the vendees. The initial payment of P375,000.00 was narrows down to their intent in acting as they did. Upon
shared equally by petitioners. At the time of the purchase, consideration of all the facts and circumstances
the building was leased to various tenants, whose rights surrounding the case, we are fully satisfied that their
under the lease contracts with the original owners, the purpose was to engage in real estate transactions for
purchasers, petitioners herein, agreed to respect. The monetary gain and then divide the same among
administration of the building was entrusted to an themselves.
administrator who collected the rents; kept its books and
records and rendered statements of accounts to the In support of the above conclusion, reference was made to
owners; negotiated leases; made necessary repairs and the following circumstances, namely, the common fund
disbursed payments, whenever necessary, after approval being created purposely not something already found in
by the owners; and performed such other functions existence, the investment of the same not merely in one
necessary for the conservation and preservation of the transaction but in a series of transactions; the lots thus
building. Petitioners divided equally the income of acquired not being devoted to residential purposes or to
operation and maintenance. The gross income from rentals other personal uses of petitioners in that case; such
of the building amounted to about P90,000.00 annually. properties having been under the management of one
person with full power to lease, to collect rents, to issue
From the above facts, the respondent Court of Tax Appeals receipts, to bring suits, to sign letters and contracts and to
applying the appropriate provisions of the National endorse notes and checks; the above conditions having
Internal Revenue Code, the first of which imposes an existed for more than 10 years since the acquisition of the
income tax on corporations "organized in, or existing above properties; and no testimony having been
under the laws of the Philippines, no matter how introduced as to the purpose "in creating the set up
created or organized but not including duly registered already adverted to, or on the causes for its continued
general co-partnerships (companias colectivas), ...,"6 a existence."11 The conclusion that emerged had all the
term, which according to the second provision cited, imprint of inevitability. Thus: "Although, taken singly, they
includes partnerships "no matter how created or might not suffice to establish the intent necessary to
organized, ...,"7 and applying the leading case of Evangelista constitute a partnership, the collective effect of these
v. Collector of Internal Revenue,8 sustained the action of circumstances is such as to leave no room for doubt on the
respondent Commissioner of Internal Revenue, but existence of said intent in petitioners herein."12
reduced the tax liability of petitioners, as previously noted.
It may be said that there could be a differentiation made
Petitioners maintain the view that the Evangelista ruling between the circumstances above detailed and those
does not apply; for them, the situation is existing in the present case. It does not suffice though to
dissimilar.1wph1.tConsequently they allege that the preclude the applicability of the Evangelista decision.
reliance by respondent Court of Tax Appeals was Petitioners could harp on these being only one transaction.
unwarranted and the decision should be set aside. They could stress that an affidavit of one of them found in
the Bureau of Internal Revenue records would indicate
ISSUE: that their intention was to house in the building acquired
by them the respective enterprises, coupled with a plan of
Whether petitioners are subject to the tax on corporations effecting a division in 10 years. It is a little surprising then
provided for in section 24 of Commonwealth Act No. 466, that while the purchase was made on October 31, 1950
otherwise known as the National Internal Revenue Code and their brief as petitioners filed on October 20, 1965,
almost 15 years later, there was no allegation that such
division as between them was in fact made. Moreover, the
RULING: facts as found and as submitted in the brief made clear that
the building in question continued to be leased by other
YES parties with petitioners dividing "equally the income ...
after deducting the expenses of operation and
After referring to another section of the National Internal maintenance. Differences of such slight significance do not
Revenue Code, which explicitly provides that the term call for a different ruling.
corporation "includes partnerships" and then to Article
1767 of the Civil Code of the Philippines, defining what a The first alleged error committed by respondent Court of
contract of partnership is, the opinion goes on to state that Tax Appeals in holding that petitioners, in acquiring the
"the essential elements of a partnership are two, Gibbs Building, established a partnership subject to
namely: (a) an agreement to contribute money, income tax as a corporation under the National Internal
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Revenue Code is likewise untenable. In their discussion in corresponding surcharge and interest in case of
their brief of this alleged error, stress is laid on their being delinquency," is affirmed. With costs against petitioners.
co-owners and not partners.
.
This is the way it was disposed of in the opinion of the
present Chief Justice: "This pretense was correctly rejected 11. In the matter of the Testate Estate of the deceased
by the Court of Tax Appeals."14 Then came the explanation Edward E. Christensen, ADOLFO CRUZ
why: "To begin with, the tax in question is one imposed AZNAR, Petitioner. MARIA LUCY CHRISTENSEN DANEY
upon "corporations", which, strictly speaking, are
and ADOLFO CRUZ AZNAR, Petitioners-Appellants, v.
distinct and different from "partnerships". When our
Internal Revenue Code includes "partnerships" among the MARIA HELEN CHRISTENSEN GARCIA and BERNARDA
entities subject to the tax on "corporations", said Code CAMPOREDONDO,Oppositors-Appellees.
must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the BERNARDA CAMPOREDONDO, Plaintiff-Appellee, v.
term. Thus, for instance, section 24 of said ADOLFO CRUZ AZNAR, as Executor of the Deceased
Code exempts from the aforementioned tax "duly EDWARD E. CHRISTENSEN, Defendant-Appellant.
registered general partnerships", which constitute
precisely one of the most typical forms of partnerships in Facts:
this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no It appears that as of 1913, Edward E. Christensen, an
matter how created or organized." This qualifying
American citizen, was already residing in Davao and on the
expression clearly indicates that a joint venture need not
be undertaken in any of the standard forms, or in following year became the manager of the Mindanao
conformity with the usual requirements of the law on Estates located in the municipality of Padada of the same
partnerships, in order that one could be deemed province. At a certain time, which the lower court placed at
constituted for purposes of the tax on corporations. Again, 1917, a group of laborers recruited from Argao, Cebu,
pursuant to said section 84(b), the term "corporation" arrived to work in the said plantation. Among the group
includes, among others, "joint accounts, (cuentas en was a young girl, Bernarda Camporedondo, who became
participacion)" and "associations", none of which has a
an assistant to the cook. Thereafter, this girl and Edward E.
legal personality of its own, independent of that of its
members. Accordingly, the lawmaker could not have Christensen, who was also unmarried started living
regarded that personality as a condition essential to the together as husband and wife and although the records
existence of the partnerships therein referred to. In fact, as failed to establish the exact date when such relationship
above stated, "duly registered general copartnerships" commenced, the lower court found the same to have been
which are possessed of the aforementioned personality - continuous for over 30 years until the death of Christensen
have been expressly excluded by law (sections 24 and
occurred on April 30, 1953. Out of said relations, 2
84[b]) from the connotation of the term
"corporation"."15 The opinion went on to summarize the children, Lucy and Helen Christensen, were allegedly born.
matter aptly: "For purposes of the tax on corporations,our
National Internal Revenue Code, include these Upon the demise of the American, who had left a
partnerships with the exception only of duly registered considerable amount of properties, his will naming Adolfo
general co-partnerships within the purview of the term Cruz Aznar as executor was duly presented for probate in
"corporation." It is, therefore, clear to our mind that court.
petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for Oppositions to the probate of this will were separately
corporations."16 filed by Maria Helen Christensen Garcia and Bernarda
Camporedondo, the first contending that the will lacked
In the light of the above, it cannot be said that the the formalities required by law; that granting that it had,
respondent Court of Tax Appeals decided the matter
the dispositions made therein were illegal because
incorrectly. There is no warrant for the assertion that it
failed to apply the settled law to uncontroverted facts. although she and Lucy Christensen were both children had
by the deceased with Bernarda Camporedondo, yet she
WHEREFORE, the decision of the respondent Court of Tax was given only a meager sum of P3,600 out of an estate
Appeals ordering petitioners "to pay the sums of valued at $485,000 while Lucy would get the rest of the
P37,128.00 as income tax due from the partnership properties; and that the petitioner Adolfo Cruz Aznar was
formed by herein petitioners for the years 1951 to 1954 not qualified to be appointed as administrator of the estate
and P20,619.00 for the years 1955 and 1956 within thirty because he had an interest adverse to that of the estate. It
days from the date this decision becomes final, plus the
was therefore prayed by this oppositor that the application
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

for probate be denied and the will disallowed; that the Christensen had been in continuous possession of the
proceeding be declared intestate and that another status of a natural child of the deceased Edward
disinterested person be appointed as administrator. Christensen notwithstanding the fact that she was
disowned by him in his will, for such action must have
Bernarda Camporedondo, on the other hand, claimed been brought about by the latters disapproval of said
ownership over one-half of the entire estate in virtue of oppositors marriage to a man he did not like. But taking
her relationship with the deceased, it being alleged that into consideration that such possession of the status of a
she and the testator having lived together as husband and natural child did not of itself constitute acknowledgment
wife continuously for a period of over 30 years, the but may only be availed of to compel acknowledgment, the
properties acquired during such cohabitation should be lower Court directed Maria Lucy Christensen Daney to
governed by the rules on co-ownership. acknowledge the oppositor as a natural child of Edward E.
Christensen. The will was, however, allowed and letters
This opposition was dismissed by the probate court on the
testamentary consequently issued to Adolfo Cruz Aznar,
ground that she had no right to intervene in said
the executor named therein.
proceeding, for as such common-law wife she had no
successional right that might be affected by the probate of Lucy and the executor appealed but the appellate tribunal
the will, and likewise, she could not be allowed to establish elevated the same to Us on the ground that the case
her title and co- ownership over the properties therein for involves an estate the value of which far exceeds
such questions must be ventilated in a court of general P50,000.00 and thus falls within the exclusive appellate
jurisdiction. jurisdiction of this Court.

The records further show that subsequent to her original Issue:


opposition, Helen Christensen Garcia filed a supplemental
opposition and motion to declare her an acknowledged 1. Whether the lower Court erred in finding that the
natural child of Edward E. Christensen, alleging that she oppositor Maria Helen Christensen Garcia had
was conceived during the time when her mother Bernarda been in continuous possession of the status of a
natural child of the deceased Edward E.
Camporedondo was living with the deceased as his
Christensen and in directing Maria Lucy
common-law wife; that she had been in continuous Christensen Daney, recognized daughter and
possession of the status of a natural child of the deceased; instituted heir of the decedent, to acknowledge
that she had in her favor evidence and/or proof that the former as such natural child
Edward Christensen was her father; and that she and Lucy 2. Whether Bernarda Camporedondo, by reason of
had the same civil status as children of the decedent and her relatioship with Edward E. Christensen may
Bernarda Camporedondo. be considered as a co-owner of the properties
acquired by the deceased during said period and
This motion was opposed jointly by the executor and thus entitled to one- half thereof after the latters
death.
Maria Lucy Christensen Daney asserting that before,
during and after the conception and birth of Helen Ruling:
Christensen Garcia, her mother was generally known to be
carrying relations with 3 different men; that during the 1.
lifetime of the decedent and even years before his death,
Edward Christensen verbally as well as in writing Maria Lucy Christensen was born on April 25, 1922, and
disavowed relationship with said oppositor, that oppositor Maria Helen Christensen on July 2, 1934, of the same
appropriated and used the surname Christensen illegally mother, Bernarda Camporedondo, during the period when
and without permission from the deceased. Thus they the latter was publicly known to have been living as
prayed the Court that the will be allowed; that Maria Helen common-law wife of Edward E. Christensen. From the facts
Christensen Garcia be declared not in any way related to of the case there can be no question as to Lucys parentage,
the deceased; and that the motion of said oppositor be but controversy arose when Edward Christensen, in
denied. making his last will and testament, disavowed such
paternity to Helen and gave her only a legacy of P3,600. In
the course of the proceeding for the probate of the will
(Exh. A), Helen introduced documentary and testimonial
After due hearing, the lower court in a decision dated evidence to support her claim that she, like Lucy, was a
February 28, 1953, found that oppositor Maria Helen natural child of the deceased and, therefore, entitled to the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

hereditary share corresponding to such descendant. continuous possession of the status of a natural child of the
Several witnesses testified in her favor, including her deceased. Considering the preponderant evidence on
mother Bernarda Camporedondo, her former teachers and record, We see no reason to reverse said ruling. The
other residents of the community, tending to prove that testators last acts cannot be made the criterion in
she was known in the locality as a child of the testator and determining whether oppositor was his child or not, for
was introduced by the latter to the circle of his friends and human frailty and parental arrogance sometimes may
acquaintances as his daughter. Family portraits, greeting draw a person to adopt unnatural or harsh measures
cards and letters were likewise presented to bolster her against an erring child or one who displeases him just so
assertion that she had always been treated by the the weight of his authority could be felt.
deceased and by Lucy herself as a member of the family.
The lower Court, however, after making its finding
Lucy Christensen and Adolfo Cruz Aznar, as executor, tried directed Maria Lucy Christensen Daney, an heir of the
to repudiate her claim by introducing evidence to prove decedent, to recognize oppositor as a natural child of the
that on or about the period when she was conceived and deceased. This seems improper. The Civil Code provides
born, her mother was carrying an affair with another man, for 2 kinds of acknowledgment of a natural child:
Zosimo Silva, a former laborer in her Paligue plantation. voluntary and compulsory. In the first instance, which may
be effected in the record of birth, a will, a statement before
Going over the evidence adduced during the trial, It a court of record or in an authentic writing (Art. 278, Civil
appears indubitable that on or about the period when Code), court intervention is very nil if not altogether
Helen was born, Bernarda Camporedondo had established wanting, whereas in the second, judicial pronouncement is
residence at her plantation at Paligue, Davao, and that essential, and while it is true that the effect of a voluntary
although Edward Christensen stayed in Davao City to and a compulsory acknowledgment on the rights of the
manage his merchandising business, he spent the child so recognized is the same, to maintain the view of the
weekends with the former and their child Lucy in the lower Court would eliminate the distinction between
Christensen plantation. Even granting that Zosimo Silva at voluntary acts and those brought about by judicial dicta.
this stage fitted himself into the picture, it cannot be
denied that Helens mother and the deceased were Therefore, We hold that in cases of compulsory
generally and publicly known to be living together as recognition, as in the case at bar, it would be sufficient that
husband and wife. This must have been the reason why a competent court, after taking into account all the
Christensen from Helens birth in 1934 provided for her evidence on record, would declare that under any of the
maintenance; shouldered the expenses for her education circumstances specified by Article 283 of the Civil Code, a
to the extent that she was even enrolled as an intern in an child has acquired the status of a natural child of the
exclusive college for girls in Manila; tolerated or allowed presumptive parent and such is entitled to all rights
her carrying the surname "Christensen", and in effect gave granted to it by law, for such declaration is by itself already
her the attention and care that a father would only do to a judicial recognition of the paternity of the parent
his offspring. concerned which is hers against whom the action is
directed, are bound to respect.
We should take note that nothing appears on record to
show that Christensen ever entertained any doubt or 2.
disputed Helens paternity. His repudiations of her
relationship with him came about only after he and Presumably taking judicial notice of the existence in our
Bernarda Camporedondo parted ways in March, 1950, and society of a certain kind of relationship brought about by
apparently after Helen took sides with her mother. couples living together as husbands and wives without the
Furthermore, it seems that despite the decedents desire benefit of marriage, acquiring and bringing properties
that she continue her studies, Helen ignored the same and unto said union, and probably realizing that while same
got married to a man for whom Christensen held no high may not be acceptable from the moral point of view they
esteem. We may state at this juncture that while it is true are as much entitled to the protection of the laws as any
that herein appellants introduced witnesses to disprove other property owners, the lawmakers incorporated
oppositors claim, the lower Court that had the opportunity Article 144 in Republic Act No. 386 (Civil Code of the
to observe the conduct of the witnesses while testifying Philippines) to govern their property relations. Said article
and could better gauge their credibility and impartiality in read as follows:chanrob1es virtual 1aw library
the case, arrived at the conclusion that Maria Helen
Christensen had established that she had been in
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Art. 114. When a man and a woman live together as or she took a hand in the management and/or acquisition
husband and wife, but they are not married, or their of the same.
marriage is void from the beginning, the property acquired
by either or both of them through their work or industry But such assertion appears incredible if We consider that
or their wages and salaries shall be governed by the rules she was observed by the trial Court as an illiterate woman
on co-ownership. who cannot even remember simple things as the date
when she arrived at the Mindanao Estate, when she
It must be noted that such form of co-ownership requires commenced relationship with the deceased, not even her
that the man and the woman thus living together must not approximate age or that of her children. And considering
in any way be incapacitated to contract marriage and that that aside from her own declaration, which We find to be
the properties realized during their cohabitation be highly improbable, there appears no evidence to prove her
acquired through the work, industry, employment or alleged contribution or participation in the acquisition of
occupation of both or either of them. And the same thing the properties involved therein, and that in view of the
may be said of those whose marriages are by provision of holding of this Court that for a claim to one-half of such
law declared void ab initio. While it is true that these property to be allowed it must be proved that same was
requisites are fully met and satisfied in the case at bar, We acquired through their joint efforts and labor.
must remember that the deceased and herein appellee
were already estranged as of March, 1950. There being no We have no recourse but reverse the holding of the lower
provision of law governing the cessation of such informal Court and deny the claim of Bernarda Camporedondo.
civil partnership, if it ever existed, same may be
We may further state that, even granting, for the sake of
considered terminated upon their separation or desistance
argument, that this case falls under the provisions of
to continue said relations. The Spanish Civil Code which
Article 144 of the Civil Code, same would be applicable
was then in force contains to counterpart of Article 144
only as far as properties acquired after the effectivity of
and as the records in the instant case failed to show that a
Republic Act 386 are concerned and to no other, for such
subsequent reconciliation ever took place and considering
law cannot be given retroactive effect to govern those
that Republic Act No. 386 which recognized such form of
already possessed before August 30, 1950. It may be
co-ownership went into operation only on August 30,
argued, however, that being a newly created right, the
1950, evidently, this later enactment cannot be invoked as
provisions of Section 144 should be made to retroact if
basis for appellees claim.
only to enforce such right. Article 2252 of the same Code is
In determining the question poised by this action We may explicit in this respect when it states:chanrob1es virtual
look upon the jurisprudence then obtaining on the matter. 1aw library
As early as 1925, this Court already declared that where a
SEC. 2252. Changes made and new provisions and rules
man and a woman, not suffering from any impediment
laid down by this Code which may prejudice or impair
to: contract marriage, live together as husband and
vested or acquired rights in accordance with the old
wife, an informal civil partnership exists and made the
legislation, shall have no retroactive effect.
pronouncement that each of them has an interest in
the properties acquired during said union and is x x x
entitled to participate therein if said properties were
the product of their JOINT efforts (Marata v. Dionio G. R. As it cannot be denied that the rights and legitimes of the
No. 24449, Dec. 31, 1925). In another case, this Court compulsory heirs of the deceased Edward Christensen
similarly held that although there is no technical would be impaired or diminished if the claim of herein
marital partnership between persons living maritally appellee would succeed, the answer to such argument
without being lawfully married, nevertheless there is would be simply obvious.
between them an informal civil partnership, and the
parties would be entitled to an equal interest where
the property is acquired through their JOINT efforts
12. Fortis v Gutierrez Hermanos
(Lesaca v. Felix Vda. de Lesaca, 91 Phil., 135).
FACTS:
Appellee, claiming that the properties in controversy were
the product of their joint industry apparently in her desire Plaintiff Fortis is an employee of defendants Gutierrez
to tread on the doctrine laid down in the aforementioned Hermanos during the years 1900, 1901, and 1902
cases, would lead Us to believe that her help was solicited
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The plaintiff brought this action to recover a balance due (3) It is claimed by the appellants that the contract alleged
him as salary for the year 1902. in the complaint made the plaintiff a copartner of the
defendants in the business which they were carrying on.
He alleged that he was entitled, as salary, to 5 per cent
of the net profits of the business of the defendants for
said year.
(4) It was no necessary that the contract between the
The complaint also contained a cause of action for the sum plaintiff and the defendants should be made in writing.
of 600 pesos, money expended by plaintiff for the
defendants during the year 1903.

The court below, in its judgment, found that the contract (5) It appearred that Miguel Alonzo Gutierrez, with whom
had been made as claimed by the plaintiff; that 5 per cent the plaintiff had made the contract, had died prior to the
of the net profits of the business for the year 1902 trial of the action, and the defendants claim that by reasons
amounted to 26,378.68 pesos, Mexican currency; that the of the provisions of section 383, paragraph 7, of the Code
plaintiff had received on account of such salary 12,811.75 of Civil Procedure, plaintiff could not be a witness at the
pesos, Mexican currency, and ordered judgment against trial. That paragraph provides that parties to an action
the defendants for the sum 13,566.93 pesos, Mexican against an executor or aministrator upon a claim or
currency, with interest thereon from December 31, 1904. demand against the estate of a deceased person can not
testify as to any matter of fact occurring before the death
The court also ordered judgment against the defendants of such deceased person. This action was not brought
for the 600 pesos mentioned in the complaint, and intereat against the administrator of Miguel Alonzo, nor was it
thereon. The total judgment rendered against the brought upon a claim against his estate. It was brought
defendants in favor of the plaintiff, reduced to Philippine against a partnership which was in existence at the time of
currency, amounted to P13,025.40. the trial of the action, and which was juridical person. The
fact that Miguel Alonzo had been a partner in this
The defendants moved for a new trial, which was denied, company, and that his interest therein might be affected by
and they have brought the case here by bill of exceptions. the result of this suit, is not sufficient to bring the case
within the provisions of the section above cited.

(1) The evidence is sufficient to support the finding of


the court below to the effect that the plaintiff
(6) The plaintiff was allowed to testify against the
worked for the defendants during the year 1902
under a contract by which he was to receive as objection and exception of the defendants,
compensation 5 per cent of the net profits of the
business. The contract was made on the part of that he had been paid as salary for the year 1900 a part of
the defendants by Miguel Alonzo Gutierrez. By the the profits of the business. This evidence was competent
provisions of the articles of partnership he was for the purpose of corroborating the testimony of the
made one of the managers of the company, with plaintiff as to the existence of the contract set out in the
full power to transact all of the business thereof. complaint.
As such manager he had authority to make a
contract of employment with the plaintiff.

(7) The plaintiff was allowed to testify as to the contents of


(2) Before answering in the court below, the a certain letter written by Miguel Glutierrez, one of the
defendants presented a motion that the complaint
partners in the defendant company, to Miguel Alonzo
be made more definite and certain. This motion
was denied. To the order denying it the Gutierrez, another partner, which letter was read to
defendants excepted, and they have assigned as plaintiff by Miguel Alonzo. It is not necessary to inquire
error such ruling of the court below. There is whether the court committed an error in admitting this
nothing in the record to show that the defendants evidence. The case already made by the plaintiff was in
were in any way prejudiced by this ruling of the itself sufficient to prove the contract without reference to
court below. If it were error it was error without this letter. The error, if any there were, was not prejudicial,
prejudice, and not ground for reversal. (Sec. 503,
and is not ground for revesal. (Sec. 503, Code of Civil
Code of Civil Procedure.)
Procedure.)
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(8) For the purpose of proving what the profits of the


defendants were for the year 1902, the plaintiff presented
in evidence the ledger of defendants, which contained an The articles of partnership between the defendants
entry made on the 31st of December, 1902, as follows: provided that the profits should be divided among the
partners named in a certain proportion. The contract made
between the plaintiff and the then manager of the
defendant partnership did not in any way vary or modify
Perdidas y Ganancias ...................................... a Varios Ps. this provision of the articles of partnership.
527,573.66 Utilidades liquidas obtenidas durante el ano y
que abonamos conforme a la proporcion que hemos The profits of the business could not be determined until
establecido segun el convenio de sociedad. all of the expenses had been paid. A part of the expenses to
be paid for the year 1902 was the salary of the plaintiff.
That salary had to be deducted before the net profits of the
business, which were to be divided among the partners,
The defendant presented as a witness on, the subject of
could be ascertained. It was undoubtedly necessary in
profits Miguel Gutierrez, one of the defendants, who
order to determine what the salary of the plaintiff was, to
testiffied, among other things, that there were no profits
determine what the profits of the business were, after
during the year 1902, but, on the contrary, that the
paying all of the expenses except his, but that
company suffered considerable loss during that year. We
determination was not the final determination of the net
do not think the evidence of this witnees sufficiently
profits of the business. It was made for the purpose of
definite and certain to overcome the positive evidence
fixing the basis upon which his compensation should be
furnished by the books of the defendants themselves.
determined.

---------------END 1ST-----------------
(9) In reference to the cause of action relating to the 600
13.
pesos, it appears that the plaintiff left the employ of the
defendants on the 19th of Macrh, 1903; that at their PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM
request he went to Hongkong, and was there for about two NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.
months looking after the business of the defendants in the
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
matter of the repair of a certain steamship. The appellants CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR.,
in their brief say that the plaintiff is entitled to no ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
compensation for his services thus rendered, because by LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG,
the provisions of article 1711 of the Civil Code, in the ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.
absence of an agreement to the contrary, the contract of
agency is supposed to be gratuitous. That article i not Two firms ask that they be allowed to continue using the names
applicable to this case, because the amount of 600 pesos of their firms despite the fact that Attys. Sycip and Ozaeta died.
not claimed as compensation for services but as a PETITIONERS ARGUMENTS
reimbursment for money expended by the plaintiff in the
business of the defendants. 1. Under the law, a partnership is not prohibited from
continuing its business under a firm name that includes
the name of a deceased partner. NCC 1840 explicitly
ISSUE: WON the plaintiff is a co-partner of the defendants
sanctions the practice.
in the business.
The use by the person or partnership continuing the
RULING: business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
No the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
It was a mere contract of employnent. The plaintiff
2. In regulating other professions (accountancy and
had no voice nor vote in the management of the affairs engineering), the legislature has authorized the
of the company. The fact that the compensation adoption of firm names without any restriction as to
received by him was to be determined with reference the use of the name of a deceased partner. There is
no fundamental policy that is offended by the
to the profits made by the defendants in their business
continued use by a firm of professionals of a firm
did not in any sense make by a partner therein. name, which includes the name of a deceased partner,
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

at least where such firm name has acquired the speak of our civil law which clearly ordains that a partnership is
characteristics of a "trade name." dissolved by the death of any partner. Custom which are contrary
to law, public order or public policy shall not be countenanced.
3. The Canons of Professional Ethics are not The use in their partnership names of the names of deceased
transgressed by the continued use of the name of a partners will run counter to NCC 1815.
deceased partner because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar Art. 1815. Every partnership shall operate under a firm name,
Association declares that: which may or may not include the name of one or more of the
partners. Those who, not being members of the partnership, include
The continued use of the name of a deceased or former their names in the firm name shall be subject to the liability of a
partner when permissible by local custom, is not partner.
unethical but care should be taken that no imposition or
deception is practiced through this use. Names in a firm name of a partnership must either be those of
living partners and in the case of non-partners, should be
4. There is no possibility of imposition or deception living persons who can be subjected to liability. NCC 1825
because the deaths of their respective deceased prohibits a third person from including his name in the firm
partners were well- publicized in all newspapers of name under pain of assuming the liability of a partner.
general circulation for several days. The stationeries
now being used by them carry new letterheads The heirs of a deceased partner in a law firm cannot be held
indicating the years when their respective deceased liable as the old members to the creditors of a firm particularly
partners were connected with the firm. where they are non-lawyers. Canon 34 of the Canons of
Professional Ethics prohibits an agreement for the payment to
Petitioners will notify all leading national and the widow and heirs of a deceased lawyer of a percentage, either
international law directories of the fact of their gross or net, of the fees received from the future business of the
deceased partners' deaths. deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not
5. No local custom prohibits the continued use of a represent service or responsibility on the part of the recipient.
deceased partner's name in a professional firm's Neither the widow nor the heirs can be held liable for
name. There is no Philippine custom or usage that transactions entered into after the death of their lawyer-
recognizes that the name of a law firm identifies the predecessor. There being no benefits accruing, there can be no
firms individual members. corresponding liability.

6. The continued use of a deceased partner's name in The public relations value of the use of an old firm name can
the firm name of law partnerships has been tend to create undue advantages and disadvantages in the
consistently allowed byU.S. Courts and is an practice of the profession. An able lawyer without connections
accepted practice in the legal profession of most will have to make a name for himself starting from scratch.
countries. Another able lawyer, who can join an old firm, can initially ride
on that old firm's reputation established by deceased partners.
Issue: WON they may be allowed to continue using the
current names of their firms. ON ARGUMENT #1
NCC 1840 is within Chapter 3 of Title IX entitled "Dissolution
Ruling: and Winding Up." It primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual
NO. Petitioners advised to drop the names SYCIP and OZAETA property of the deceased partner for debts contracted by the
from their respective firm names. Names may be included in the person or partnership, which continues the business using the
listing of individuals who have been partners, indicating the partnership name or the name of the deceased partner as part
years during which they served. thereof. What the law contemplates therein is a hold-over
situation preparatory to formal reorganization.
The Deen case [1953] Court advised the firm to desist from
including in their firm designation the name of C. D.Johnston, who Secondly, NCC 1840 treats more of a commercial partnership
has long been dead with a good will to protect rather than of a professional
partnership [with no saleable goodwill but whose reputation
Register of Deeds of Manila v. China Banking Corporation depends on the personal qualifications of its individual
[1958] In this case, the law firm of Perkins & Ponce Enrile members]. A saleable goodwill can exist only in a commercial
moved to intervene as amicus curiae. The Court in a Resolution partnership, not in a professional partnership consisting of
stated that it "would like to be informed why the name of Perkins lawyers.
is still being used although Atty. E. A. Perkins is already dead."
The Court advised the firm to drop the name of E.A. Perkins from ON ARGUMENT #2
the firm name, and ruled that no practice should be allowed A partnership for the practice of law cannot be likened to
which even in a remote degree could give rise to the possibility of partnerships formed by other professionals or for business.
deception. The law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy.
Judicial decisions applying or interpreting the laws form
part of the legal system. The Supreme Court in the Deen and A partnership for the practice of law is not a legal entity. It is a
Perkins cases laid down a legal rule against which no custom or mere relationship or association for a particular purpose. It is not
practice to the contrary, even if proven, can prevail. This is not to a partnership formed to carry on trade or business or of holding
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

property. The use of a nom de plume, assumed or trade name in


law practice is improper.
14.
Primary characteristics which distinguish the legal
profession from business
G.R. No. L-4811 July 31, 1953
1. A duty of public service, of which the emolument is a
byproduct, and in which one may attain the highest eminence CHARLES F. WOODHOUSE, plaintiff-appellant,
without making much money vs.
2. A relation as an "officer of court" to the administration of FORTUNATO F. HALILI, defendant-appellant.
justice involving thorough sincerity, integrity, and reliability
3. A relation to clients in the highest degree fiduciary LABRADOR, J.:
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods
Plaintiff Woodhouse entered on a written agreement with the
of advertising and encroachment on their practice, or dealing
defendant Halili, wherein they shall organize a partnership for
directly with their clients
the bottling and distribution of Mision soft drinks, Woodhouse to
The right to practice law does not only presuppose in its
act as industrial partner or manager, and Halili as a capitalist,
possessor integrity, legal standing and attainment, but also the
furnishing the capital necessary there for and that Woodhouse
exercise of a special privilege, highly personal and partaking of
was to secure the Mission Soft Drinks franchise for and in behalf
the nature of a public trust.
of the proposed partnership, to which Woodhouse was to receive
30 per cent of the net profits of the business.
ON ARGUMENT #3
Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner when such a practice is Prior to entering into this agreement, Woodhouse requested the
permissible by local custom, but the Canon warns that care Mission Dry Corporation that the right to bottle and distribute be
should be taken that no imposition or deception is practiced. granted to him for a limited time in order that he may close the
deal with Halili, under the condition that it will finally be
In the Philippines, no local custom permits or allows the transferred to the corporation. Pursuant for this request, plaintiff
continued use of a deceased or former partner's name. Firm was given "a thirty-days" option on exclusive bottling and
names, under our custom, identify the more active and/or distribution rights for the Philippines".
more senior members or partners of the law firm.
The contract was finally signed by plaintiff on December 3, 1947.
The possibility of deception upon the public, real or On that day plaintiff and defendant went to the United States, and
consequential, where the name of a deceased partner continues on December 10, 1947, a franchise agreement (Exhibit V) was
to be used cannot be ruled out. A person in search of legal entered into the Mission Dry Corporation and Fortunato F. Halili
counsel might be guided by the familiar ring of a distinguished and/or Charles F. Woodhouse, granted defendant the exclusive
name appearing in a firm title. right, license, and authority to produce, bottle, distribute, and sell
Mision beverages in the Philippines.
ON ARGUMENT #6
U.S. Courts have allowed the continued use of a deceased
When the bottling plant was already on operation, plaintiff
partner's name because it is sanctioned by custom. Not so in
demanded of defendant that the partnership papers be executed.
this jurisdiction where there is no local custom that
At first defendant executed himself, saying there was no hurry.
sanctions the practice.
Then he promised to do so after the sales of the product had been
increased to P50,000. The defendant also reduced the plaintiffs
Custom has been defined as a rule of conduct formed by
share from 30 percent to 15 percent after learning that the latter
repetition of acts, uniformly observed (practiced) as a social rule,
did not have the exclusive franchise.
legally binding and obligatory. Courts take no judicial notice of
custom. A custom must be proved as a fact, according to the rules
of evidence. A local custom as a source of right cannot be TRIAL COURT: held that the execution of the contract of
considered by a court of justice unless such custom is properly partnership could not be enforced upon the parties, but it also
established by competent evidence like any other fact. Merely held that the defense of fraud was not proved since it is
because something is done as a matter of practice does not mean improbable that defendant was never shown the letter ("a thirty-
that Courts can rely on the same for purposes of adjudication as a days" option on exclusive bottling and distribution rights)
juridical custom. Juridical custom must be differentiated from
social custom. The former can supplement statutory law or be On this appeal the defendant, as appellant, insists that plaintiff
applied in the absence of such statute. Not so with the latter. did represent to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its execution, he no longer
The practice of law is related to the administration of justice and had it as the same had expired, and that, therefore, the consent of
should not be considered like an ordinary "money-making the defendant to the contract was vitiated by fraud and it is,
trade."Petitioners' desire to preserve the identity of their consequently, null and void.
firms in the eyes of the public must bow to legal and ethical
impediment.
ISSUE:Did Woodhouse falsely represent that he had an exclusive
franchise to bottle Mission beverages?
Petitions DENIED
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

HELD: Yes. It is improbable and incredible for him to have which courts may not compel compliance, as it is considered an
disclosed the fact that he had only an option to the exclusive act of violence to do so.
franchise, which was to last thirty days only, and still more
improbable for him to have disclosed that, at the time of the
signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself. 15.

Plaintiff's attorney, Mr. Laurea, testified that Woodhouse ISABELO MORAN, JR. vs. CA and MARIANO E. PECSON
presented himself as being the exclusive grantee of a franchise.
As a matter of fact, the first draft that Mr. Laurea prepared, which Facts:
was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise.
On February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
ISSUE: Did plaintiffs false representation amount to a fraud that purpose of printing 95,000 posters (featuring the delegates to the
would vitiate the contract? 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of
HELD:No. The agreement may not be declared null and void. P l,000 a month starting on April 15, 1971 up to December 15,
1971; that on December 15, 1971, a liquidation of the accounts in
the distribution and printing of the 95,000 posters would be
The principal obligation that the plaintiff assumed or undertook
made, that Pecson gave Moran P10,000 for which the latter
was to secure said franchise for the partnership, as the bottler
issued a receipt; that only a few posters were printed; that on or
and distributor for the Mission Dry Corporation. We declare,
about May 28, 1971, Moran executed in favor of Pecson a
therefore, that if he was guilty of a false representation, this was
promissory note in the amount of P20,000 payable in two equal
not the causal consideration, or the principal inducement, that
installments (P10,000 payable on or before June 15, 1971 and
led plaintiff to enter into the partnership agreement.
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment
But, on the other hand, this supposed ownership of an exclusive on the date due, complete with the costs of collection.
franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net
Private respondent Pecson filed with the CFI of Manila an action
profits of the partnership business. Defendant agreed to give
for the recovery of a sum of money and alleged in his complaint
plaintiff 30 per cent share in the net profits because he was
three (3) causes of action, namely: (1) on the alleged partnership
transferring his exclusive franchise to the partnership.
agreement, the return of his contribution of P10,000.00, payment
of his share in the profits that the partnership would have
We conclude from the above that while the representation that earned, and, payment of unpaid commission; (2) on the alleged
plaintiff had the exclusive franchise did not vitiate defendant's promissory note, payment of the sum of P20,000.00; and, (3)
consent to the contract, it was used by plaintiff to get from moral and exemplary damages and attorney's fees.
defendant a share of 30 per cent of the net profits.
The CFI held that by virtue of the partnership agreement entered
By pretending that he had the exclusive franchise and promising into by the parties-plaintiff and defendant the plaintiff did
to transfer it to defendant, he obtained the consent of the latter to contribute P10,000.00, and another sum of P7,000.00 for the
give him (plaintiff) a big slice in the net profits. This is the dolo Voice of the Veteran or Delegate Magazine. Of the expected
incidente defined in article 1270 of the Spanish Civil Code, 95,000 copies of the posters, the defendant was able to print
because it was used to get the other party's consent to a big share 2,000 copies only authorized of which, however, were sold at
in the profits, an incidental matter in the agreement. P5.00 each. Nothing more was done after this and it can be said
that the venture did not really get off the ground. On the other
In consequence, article 1270 of the Spanish Civil Code hand, the plaintiff failed to give his full contribution of
distinguishes two kinds of (civil) fraud, the causal fraud, which P15,000.00. Thus, each party is entitled to rescind the contract
may be a ground for the annulment of a contract, and the which right is implied in reciprocal obligations under Article
incidental deceit, which only renders the party who employs it 1385 of the Civil Code where under 'rescission creates the
liable for damages. This Court had held that in order that fraud obligation to return the things which were the object of the
may vitiate consent, it must be the causal (dolo causante), not contract. The CA likewise rendered a decision against the
merely the incidental (dolo causante), inducement to the making petitioner.
of the contract.
Issues: WON petitioner is liable to respondent for the supposed
ISSUE: May the agreement be executed? expected profits due him.

HELD: As the trial court correctly concluded, the defendant may Held:
not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the The rule is, when a partner who has undertaken to
defendant has an obligation to do, not to give. The law recognizes contribute a sum of money fails to do so, he becomes a
the individual's freedom or liberty to do an act he has promised debtor of the partnership for whatever he may have
to do, or not to do it, as he pleases. It falls within what Spanish promised to contribute (Art. 1786, Civil Code) and for
commentators call a very personal act (actopersonalismo), of
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

interests and damages from the time he should have FACTS:


complied with his obligation (Art. 1788, Civil Code).
Fleischer instituted an action before the CFI of the Province of
Being a contract of partnership, each partner must share in the Oriental Negros. against the board of directors of the Botica
profits and losses of the venture. That is the essence of a Nolasco, Inc., a corporation duly organized and existing under the
partnership. And even with an assurance made by one of the laws of the Philippine Islands. The plaintiff prayed that said
partners that they would earn a huge amount of profits, in the board of directors be ordered to register in the books of the
absence of fraud, the other partner cannot claim a right to
corporation five shares of its stock in his name and to pay him the
recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an sum of P500 for damages sustained by him resulting from the
investment of P15,000.00, the respondent was supposed to earn refusal of said body to register the shares of stock in question. .
a guaranteed P1,000.00 a month for eight months and around The defendant filed a demurrer on the ground that the facts
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of alleged in the complaint did not constitute sufficient cause of
which were sold at P5.00 each. The fantastic nature of expected action, and that the action was not brought against the proper
profits is obvious. We have to take various factors into account.
party, which was the Botica Nolasco, Inc. The demurrer was
The failure of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on time was a sustained, and the plaintiff was granted five days to amend his
major factor. The petitioner undesirable his best business complaint.
judgment and felt that it would be a losing venture to go on with
the printing of the agreed 95,000 copies of the posters. Hidden The plaintiff filed an amended complaint against the Botica
risks in any business venture have to be considered. Nolasco. The defendant again filed a demurrer on the ground that
the amended complaint did not state facts sufficient to constitute
It does not follow however that the private respondent is not a cause of action, and that said amended complaint was
entitled to recover any amount from the petitioner. The records ambiguous, unintelligible, uncertain, which demurrer was
show that the private respondent gave P10,000.00 to the overruled by the court.
petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of The defendant answered the amended complaint denying
P4,000.00. The records further show that the 2,000 copies were
generally and specifically each and every one of the material
sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income allegations thereof, and, as a special defense, alleged that the
of P10,000.00 and with no evidence on the cost of distribution, defendant, pursuant to article 12 of its by-laws, had preferential
the net profits amount to only P6,000.00. This net profit of right to buy from the plaintiff said shares at the par value of P100
P6,000.00 should be divided between the petitioner and the a share, plus P90 as dividends corresponding to the year 1922,
private respondent. And since only P4,000.00 was undesirable by and that said offer was refused by the plaintiff.
the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private
respondent. Upon the issue presented by the pleadings above stated, the
cause was brought on for trial, at the conclusion of which, and on
Relative to the second alleged error, the petitioner submits that August 21, 1924, the Honorable N. Capistrano, judge, held that, in
the award of P8,000.00 as Pecson's supposed commission has no his opinion, article 12 of the by-laws of the corporation which
justifiable basis in law. gives it preferential right to buy its shares from retiring
stockholders, is in conflict with Act No. 1459 (Corporation Law),
Again, we agree with the petitioner. especially with section 35 thereof; and rendered a judgment
ordering the defendant corporation, through its board of
The partnership agreement stipulated that the petitioner would directors, to register in the books of said corporation the said five
give the private respondent a monthly commission of Pl,000.00 shares of stock in the name of the plaintiff, Henry Fleischer, as the
from April 15, 1971 to December 15, 1971 for a total of eight (8) shareholder or owner thereof, instead of the original owner,
monthly commissions. The agreement does not state the basis of Manuel Gonzalez, with costs against the defendant.
the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties
could not have intended the giving of a commission inspite of loss ISSUE: Whether or not article 12 of the by-laws of the
or failure of the venture. Since the venture was a failure, the corporation is in conflict with the provisions of the Corporation
private respondent is not entitled to the P8,000.00 commission. Law (Act No. 1459).

RULING: YES

16.
Article 12 of the by-laws of the corporationgoverns the
transfer of shares of stock of defendant corporation. It also
G.R. No. L-23241 March 14, 1925
creates a preferential right to buy, under the same
conditions, the share or shares of stock of a retiring
HENRY FLEISCHER, plaintiff-appellee, shareholder.
vs.
BOTICA NOLASCO CO., INC., defendant-appellant
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

On the on the other hand, Section 13, paragraph 7 of the Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate
Corporation Law, empowers a corporation to make by-laws, not to defeat his rights as a purchaser.
inconsistent with any existing law, for the transferring of its
stock.It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony
with the law on the subject of transfer of stock. The law on this 17.
subject is found in section 35 of Act No. 1459. Said section
specifically provides that the shares of stock "are personal LAGUNA TRANSPORTATION CO., INC. vs. SOCIAL SECURITY
property and may be transferred by delivery of the certificate SYSTEM
indorsed by the owner, etc." Said section 35 defines the nature,
character and transferability of shares of stock. Under said On January 24, 1958, petitioner Laguna Transportation Co., Inc.
filed with the Court of First Instance of Laguna petition praying
section they are personal property and may be transferred as
that an order be issued by the court declaring that it is not bound
therein provided. Said section contemplates no restriction as to to register as a member of respondent Social Security System
whom they may be transferred or sold. It does not suggest that and, therefore, not obliged to pay to the latter the contributions
any discrimination may be created by the corporation in favor or required under the Social Security Act. To this petition,
against a certain purchaser. The holder of shares, as owner of respondent filed its answer on February 11, 1958 praying for its
personal property, is at liberty, under said section, to dispose of dismissal due to petitioner's failure to exhaust administrative
them in favor of whomsoever he pleases, without any other remedies, and for a declaration that petitioner is covered by said
Act, since the latter's business has been in operation for at least 2
limitation in this respect, than the general provisions of law.
years prior to September 1, 1957. The facts are as follows:
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into
1. That petitioner is a domestic corporation duly organized and
consideration the specific provisions of section 35 of Act No. existing under the laws of the Philippines, with principal place of
1459, and said by-law should be made to harmonize with business at Bian, Laguna;
said provisions. It should not be inconsistent therewith. 2. That respondent has served notice upon the petitioner
requiring it to register as member of the System and to remit the
The by-law now in question was adopted under the power premiums due from all the employees of the petitioner and the
conferred upon the corporation by section 13, paragraph 7, contribution of the latter to the System beginning the month of
above quoted; but in adopting said by-law the corporation September, 1957;
3. That sometime in 1949, the Bian Transportation Co., a
has transcended the limits fixed by law in the same section,
corporation duly registered with the Securities and Exchange
and has not taken into consideration the provisions of Commission, sold part of the lines and equipment it operates to
section 35 of Act No. 1459. Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz;
As a general rule, the by-laws of a corporation are valid if they are 4. That after the sale, the said vendees formed an unregistered
reasonable and calculated to carry into effect the objects of the partnership under the name of Laguna Transportation Company
corporation, and are not contradictory to the general policy of the which continued to operate the lines and equipment bought from
laws of the land. the Bian Transportation Company, in addition to new lines
which it was able to secure from the Public Service Commission;
5. That the original partners forming the Laguna Transportation
The only restraint imposed by the Corporation Law upon
Company, with the addition of two new members, organized a
transfer of shares is found in section 35 of Act No. 1459, quoted corporation known as the Laguna Transportation Company, Inc.,
above, as follows: "No transfer, however, shall be valid, except which was registered with the Securities and Exchange
as between the parties, until the transfer is entered and Commission on June 20, 1956, and which corporation is the
noted upon the books of the corporation so as to show the plaintiff now in this case;
names of the parties to the transaction, the date of the 6. That the corporation continued the same transportation
transfer, the number of the certificate, and the number of business of the unregistered partnership;
7. That prior to November 11, 1957, plaintiff requested for
shares transferred." This restriction is necessary in order that
exemption from coverage by the System on the ground that it
the officers of the corporation may know who are the started operation only on June 20, 1956, when it was registered
stockholders, which is essential in conducting elections of with the Securities and Exchange Commission but on November
officers, in calling meeting of stockholders, and for other 11, 1957, the Social Security System notified plaintiff that it was
purposes. but any restriction of the nature of that imposed in the covered;
by-law now in question, is ultra vires, violative of the property 8. On November 14, 1957, plaintiff through counsel sent a letter
to the Social Security System contesting the claim of the System
rights of shareholders, and in restraint of trade.
that plaintiff was covered, . . .
9. On November 27, 1957, Carlos Sanchez, Manager of the
And moreover, the by-laws now in question cannot have any
Production Department of the respondent System for and in
effect on the appellee. He had no knowledge of such by-law when behalf of the Acting Administrator, informed plaintiff that
the shares were assigned to him. He obtained them in good faith plaintiff's business has been in actual operation for at least two
and for a valuable consideration. He was not a privy to the years, . . .
contract created by said by-law between the shareholder Manuel
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

TC rendered a decision in favor of SSS, it was subject to


compulsory coverage under said law. . . .
18.
From this decision, petitioner appealed directly to us, raising
purely questions of law. Evagelista vs Commissioner of internal revenue

Petitioner claims that the lower court erred in holding that it is Facts: Petitioners borrowed money from their father and
an employer engaged in business as a common carrier which had purchased several lands. For several years, these lands were
been in operation for at least 2 years prior to the enactment of leased to tenants by the petitioners. In 1954, respondent
the Social Security Act and, therefore, subject to compulsory Collector of Internal Revenue demanded from petitioners the
coverage thereunder. SEC. 9 Compulsory Coverage. Coverage in payment of income tax on corporations, real estate dealer's fixed
the System shall be compulsory upon all employees between the tax and corporation residence tax for the years 1945-1949. A
ages of sixteen and sixty years, inclusive, if they have been for at
letter of demand and corresponding assessments were delivered
least six months in the service of an employer who is a member
of the System. Provided, That the Commission may not compel any to petitioners. Petitioners claim that they should be absolved
employer to become a member of the System unless he shall have from paying said taxes since they are not a corporation.
been in operation for at least two years . . . . (Italics supplied.).
Issue: Whether petitioners are subject to the tax on corporations
ISSUE: WON Laguna Transportation Co is exempt from SSS provided for in section 24 of Commonwealth Act. No. 466,
coverage otherwise known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real estate
Held: No dealers fixed tax.

While it is true that a corporation once formed is conferred a Held: Yes. Petitioners are subject to the income tax and residence
juridical personality separate and district from the persons tax for corporation.
composing it, it is but a legal fiction introduced for purposes of
convenience and to subserve the ends of justice. The concept As defined in section 84 (b) of the Internal Revenue Code, "the
cannot be extended to a point beyond its reasons and policy, and term corporation includes partnerships, no matter how created
when invoked in support of an end subversive of this policy, will or organized." This qualifying expression clearly indicates that a
be disregarded by the courts. joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on
To adopt petitioner's argument would defeat, rather than partnerships, in order that one could be deemed constituted for
promote, the ends for which the Social Security Act was enacted.
purposes of the tax on corporations. Partnership, as has been
An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then defined in the civil code refers to two or more persons who bind
claim exemption from contribution to the System as required, on themselves to contribute money, properly, or industry to a
the theory that, as a new entity, it has not been in operation for a common fund, with the intention of dividing the profits among
period of at least 2 years. the door to fraudulent circumvention of themselves. Thus, petitioners, being engaged in the real estate
the statute would, thereby, be opened. transactions for monetary gain and dividing the same among
themselves constitute a partnership so far as the Code is
Moreover, petitioner admitted that as an employer engaged in concerned and are subject to income tax for corporation.
the business of a common carrier, its operation commenced on
April 1, 1949 while it was a partnership and continued by the Since Sec 2 of the Code in defining corporations also includes
corporation upon its formation on June 20, 1956. Unlike in the
joint-stock company, partnership, joint account, association or
conveyance made by the Bian Transportation Company to the
partners Gonzalo Mercado, Artemio Mercado, Florentino Mata, insurance company, no matter how created or organized, it
and Dominador Vera Cruz, no mention whatsoever is made either follows that petitioners, regardless of how their partnership was
in the pleadings or in the stipulation of facts that the lines and created is also subject to the residence tax for corporations.
equipment of the unregistered partnership had been sold and
transferred to the corporation, petitioner herein. This omission,
to our mind, clearly indicates that there was, in fact, no transfer
of interest, but a mere change in the form of the organization of 19.
the employer engaged in the transportation business, i.e., from an
unregistered partnership to that of a corporation. As a rule, Lyons v. Rosenstock
courts will look to the substance and not to the form.
FACTS
Finally, the weight of authority supports the view that where a
corporation was formed by, and consisted of members of a
Prior to his death on June 18, 1923, Henry W. Elser had been a
partnership whose business and property was conveyed and
resident of the City of Manila where he was engaged during the
transferred to the corporation for the purpose of continuing its
years with which we are here concerned in buying, selling, and
business, in payment for which corporate capital stock was
administering real estate. In several ventures which he had made
issued, such corporation is presumed to have assumed
in buying and selling property of this kind the plaintiff, E. S.
partnership debts, and is prima facie liable therefor.
Lyons, had joined with him, the profits being shared by the two in
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

equal parts. In April, 1919, Lyons, whose regular vocation was and added "have advised in my cable that you resign and I hope
that of a missionary, or missionary agent, of the Methodist you can do so immediately and will come and join me on the lines
Episcopal Church, went on leave to the United States and was we have so often spoken about. . . . There is plenty of business for
gone for nearly a year and a half, returning on September 21, us all now and I believe we have started something that will keep
1920. On the eve of his departure Elser made a written us going for some time." In one or more communications prior to
statements showing that Lyons was, at that time, half owner with this, Elser had sought to impress Lyons with the idea that he
Elser of three particular pieces of real property. Concurrently should raise all the money he could for the purpose of giving the
with this act Lyons execute in favor of Elser a general power of necessary assistance in future deals in real estate.
attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the The enthusiasm of Elser did not communicate itself in any
mutual advantage of both. During the absence of Lyons two of the marked degree to Lyons, and found him averse from joining in
pieces of property above referred to were sold by Elser, leaving the purchase of the San Juan Estate. In fact upon this visit of
in his hands a single piece of property located at 616-618 Carried Lyons to the United States a grave doubt had arisen as to whether
Street, in the City of Manila, containing about 282 square meters he would ever return to Manila, and it was only in the summer of
of land, with the improvements thereon. 1920 that the board of missions of his church prevailed upon him
to return to Manila and resume his position as managing
In the spring of 1920 the attention of Elser was drawn to a piece treasurer and one of its trustees. Accordingly, on June 21, 1920,
of land, containing about 1,500,000 square meters, near the City Lyons wrote a letter from New York thanking Elser for his offer
of Manila, and he discerned therein a fine opportunity for the to take Lyons into his new project and adding that from the
promotion and development of a suburban improvement. This standpoint of making money, he had passed up a good thing.
property, which will be herein referred to as the San Juan Estate,
was offered by its owners for P570,000. To afford a little time for When Elser was concluding the transaction for the purchase of
maturing his plans, Elser purchased an option on this property the San Juan Estate, his book showed that he was indebted to
for P5,000, and when this option was about to expire without his Lyons to the extent of, possibly, P11,669.72, which had accrued to
having been able to raise the necessary funds, he paid P15,000 Lyons from profits and earnings derived from other properties;
more for an extension of the option, with the understanding in and when the J. K. Pickering & Company was organized and stock
both cases that, in case the option should be exercised, the issued, Elser indorsed to Lyons 200 of the shares allocated to
amounts thus paid should be credited as part of the first himself, as he then believed that Lyons would be one of his
payment. The amounts paid for this option and its extension associates in the deal. It will be noted that the par value of these
were supplied by Elser entirely from his own funds. In the end he 200 shares was more than P8,000 in excess of the amount which
was able from his own means, and with the assistance which he Elser in fact owed to Lyons; and when the latter returned to the
obtained from others, to acquire said estate. The amount Philippine Islands, he accepted these shares and sold them for his
required for the first payment was P150,000, and as Elser had own benefit. It seems to be supposed in the appellant's brief that
available only about P120,000, including the P20,000 advanced the transfer of these shares to Lyons by Elser supplies some sort
upon the option, it was necessary to raise the remainder by of basis for the present action, or at least strengthens the
obtaining a loan for P50,000. This amount was finally obtained considerations involved in a feature of the case to be presently
from a Chinese merchant of the city named Uy Siuliong. This loan explained. This view is manifestly untenable, since the
was secured through Uy Cho Yee, a son of the lender; and in order ratification of the transaction by Lyons and the appropriation by
to get the money it was necessary for Elser not only to give a him of the shares which were issued to him leaves no ground
personal note signed by himself and his two associates in the whatever for treating the transaction as a source of further
projected enterprise, but also by the Fidelity & Surety Company. equitable rights in Lyons. We should perhaps add that after
The money thus raised was delivered to Elser by Uy Siuliong on Lyons' return to the Philippine Islands he acted for a time as one
June 24, 1920. With this money and what he already had in bank of the members of the board of directors of the J. K. Pickering &
Elser purchased the San Juan Estate on or about June 28, 1920. Company, his qualification for this office being derived precisely
For the purpose of the further development of the property a from the ownership of these shares.
limited partnership had, about this time, been organized by Elser
and three associates, under the name of J. K. Pickering &
Company; and when the transfer of the property was effected the
deed was made directly to this company. As Elser was the
principal capitalist in the enterprise he received by far the ISSUE
greater number of the shares issued, his portion amount in the
beginning to 3,290 shares. Whether or not there was a partnership between Elser and
Lyons?
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced to come in RULING
with him and supply part of the means necessary to carry the
enterprise through. In this connection it appears that on May 20,
We now turn to the incident which supplies the main basis of this
1920, Elser wrote Lyons a letter, informing him that he had made
action. It will be remembered that, when Elser obtained the loan
an offer for a big subdivision and that, if it should be acquired and
of P50,000 to complete the amount needed for the first payment
Lyons would come in, the two would be well fixed. On June 3,
on the San Juan Estate, the lender, Uy Siuliong, insisted that he
1920, eight days before the first option expired, Elser cabled
should procure the signature of the Fidelity & Surety Co. on the
Lyons that he had bought the San Juan Estate and thought it
note to be given for said loan. But before signing the note with
advisable for Lyons to resign, meaning that he should resign his
Elser and his associates, the Fidelity & Surety Co. insisted upon
position with the mission board in New York. On the same date
having security for the liability thus assumed by it. To meet this
he wrote Lyons a letter explaining some details of the purchase,
requirements Elser mortgaged to the Fidelity & Surety Co. the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

equity of redemption in the property owned by himself and Estate. What really happened was the Elser merely subjected the
Lyons on Carriedo Street. This mortgage was executed on June property to a contingent liability, and no actual liability ever
30, 1920, at which time Elser expected that Lyons would come in resulted therefrom. The financing of the purchase of the San Juan
on the purchase of the San Juan Estate. But when he learned from Estate, apart from the modest financial participation of his three
the letter from Lyons of July 21, 1920, that the latter had associates in the San Juan deal, was the work of Elser
determined not to come into this deal, Elser began to cast around accomplished entirely upon his own account.
for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9, The case for the plaintiff supposes that, when Elser placed a
1920, he addressed a letter to the Fidelity & Surety Co., asking it mortgage for P50,000 upon the equity of redemption in the
to permit him to substitute a property owned by himself at 644 Carriedo property, Lyons, as half owner of said property, became,
M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. as it were, involuntarily the owner of an undivided interest in the
Pickering & Company, in lieu of the Carriedo property, as property acquired partly by that money; and it is insisted for him
security. The Fidelity & Surety Co. agreed to the proposition; and that, in consideration of this fact, he is entitled to the four
on September 15, 1920, Elser executed in favor of the Fidelity & hundred forty-six and two-thirds shares of J. K. Pickering &
Surety Co. a new mortgage on the M. H. del Pillar property and Company, with the earnings thereon, as claimed in his complaint.
delivered the same, with 1,000 shares of J. K. Pickering &
Company, to said company. The latter thereupon in turn executed
a cancellation of the mortgage on the Carriedo property and Lyons tells us that he did not know until after Elser's death that
delivered it to Elser. But notwithstanding the fact that these the money obtained from Uy Siuliong in the manner already
documents were executed and delivered, the new mortgage and explained had been used to held finance the purchase of the San
the release of the old were never registered; and on September Juan Estate. He seems to have supposed that the Carried property
25, 1920, thereafter, Elser returned the cancellation of the had been mortgaged to aid in putting through another deal,
mortgage on the Carriedo property and took back from the namely, the purchase of a property referred to in the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar correspondence as the "Ronquillo property"; and in this
property, together with the 1,000 shares of the J. K. Pickering & connection a letter of Elser of the latter part of May, 1920, can be
Company which he had delivered to it. quoted in which he uses this language:

The explanation of this change of purpose is undoubtedly to be As stated in cablegram I have arranged for P50,000 loan
found in the fact that Lyons had arrived in Manila on September on Carriedo property. Will use part of the money for
21, 1920, and shortly thereafter, in the course of a conversation Ronquillo buy (P60,000) if the owner comes through.
with Elser told him to let the Carriedo mortgage remain on the
property ("Let the Carriedo mortgage ride"). Mrs. Elser Other correspondence shows that Elser had apparently been
testified to the conversation in which Lyons used the words trying to buy the Ronquillo property, and Lyons leads us to infer
above quoted, and as that conversation supplies the most that he thought that the money obtained by mortgaging the
reasonable explanation of Elser's recession from his purpose of Carriedo property had been used in the purchase of this
relieving the Carriedo property, the trial court was, in our property. It doubtedless appeared so to him in the retrospect, but
opinion, well justified in accepting as a proven fact the consent of certain consideration show that he was inattentive to the
Lyons for the mortgage to remain on the Carriedo property. This contents of the quotation from the letter above given. He had
concession was not only reasonable under the circumstances, in already been informed that, although Elser was angling for the
view of the abundant solvency of Elser, but in view of the further Ronquillo property, its price had gone up, thus introducing a
fact that Elser had given to Lyons 200 shares of the stock of the J. doubt as to whether he could get it; and the quotation above
K. Pickering & Co., having a value of nearly P8,000 in excess of the given shows that the intended use of the money obtained by
indebtedness which Elser had owed to Lyons upon statement of mortgaging the Carriedo property was that only part of the
account. The trial court found in effect that the excess value of P50,000 thus obtained would be used in this way, if the deal went
these shares over Elser's actual indebtedness was conceded by through. Naturally, upon the arrival of Lyons in September, 1920,
Elser to Lyons in consideration of the assistance that had been one of his first inquiries would have been, if he did not know
derived from the mortgage placed upon Lyon's interest in the before, what was the status of the proposed trade for the
Carriedo property. Whether the agreement was reached exactly Ronquillo property.
upon this precise line of thought is of little moment, but the
relations of the parties had been such that it was to be expected Elser's widow and one of his clerks testified that about June 15,
that Elser would be generous; and he could scarcely have failed 1920, Elser cabled Lyons something to this effect;: "I have
to take account of the use he had made of the joint property of mortgaged the property on Carriedo Street, secured by my
the two. personal note. You are amply protected. I wish you to join me in
the San Juan Subdivision. Borrow all money you can." Lyons says
As the development of the San Juan Estate was a success from the that no such cablegram was received by him, and we consider
start, Elser paid the note of P50,000 to Uy Siuliong on January 18, this point of fact of little moment, since the proof shows that
1921, although it was not due until more than five months later. Lyons knew that the Carriedo mortgage had been executed, and
It will thus be seen that the mortgaging of the Carriedo after his arrival in Manila he consented for the mortgage to
property never resulted in damage to Lyons to the extent of a remain on the property until it was paid off, as shortly occurred.
single cent; and although the court refused to allow the It may well be that Lyons did not at first clearly understand all
defendant to prove the Elser was solvent at this time in an the ramifications of the situation, but he knew enough, we think,
amount much greater than the entire encumbrance placed upon to apprise him of the material factors in the situation, and we
the property, it is evident that the risk imposed upon Lyons was concur in the conclusion of the trial court that Elser did not act in
negligible. It is also plain that no money actually deriving from bad faith and was guilty of no fraud.
this mortgage was ever applied to the purchase of the San Juan
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In the purely legal aspect of the case, the position of the appellant The day following the issuance of the last renewal license, or on
is, in our opinion, untenable. If Elser had used any money actually October 28, 1965, Kittilstvedt transferred the same to Industrial.
belonging to Lyons in this deal, he would under article 1724 of Industrial thus obtained its own Ordinary Timber License 981-
the Civil Code and article 264 of the Code of Commerce, be 103166 (New).
obligated to pay interest upon the money so applied to his own
use. Under the law prevailing in this jurisdiction a trust does not On December 21, 1965, Eastern lodged a complaint with the
ordinarily attach with respect to property acquired by a person Director of Forestry against R.B. Mining Co., Ltd. (instead of
who uses money belonging to another. Of course, if an actual Industrial) and Kittilstvedt, praying for (1) the cancellation of
relation of partnership had existed in the money used, the Industrials ordinary timber license and (2) the issuance in lieu
case might be difference; and much emphasis is laid in the thereof of another license in the name of Eastern; and (3) in the
appellant's brief upon the relation of partnership which, it is meantime, for an order stopping Industrial from conducting
claimed, existed. But there was clearly no general relation of logging operations within the forest area. But the remedy
partnership, under article 1678 of the Civil Code. It is clear pursued in the Bureau of Forestry was thereafter abandoned.
that Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons, and the law
cannot be distorted into a proposition which would make On February 4, 1966 Eastern filed a case against Kittilstvedt and
Lyons a participant in this deal contrary to his express Industrial before the CFI of Agusan asking for the following
determination. reliefs: (1) preliminary injunction to stop logging operations in
the area under Industrial's timber license; (2) nullification of the
transfer of Kittilstvedt to Industrial; (3) declaration that plaintiff
It seems to be supposed that the doctrines of equity worked out is the owner of the said timber license appearing in the name of
in the jurisprudence of England and the United States with Industrial; (4) directing defendants to transfer said license in
reference to trust supply a basis for this action. The doctrines Eastern's name; and, (5) accounting by defendants of logs and
referred to operate, however, only where money belonging to forest products, damages, attorneys' fees, and costs.
one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment
to see that the situation here involved is not one for the The defendants filed motion to dismiss saying that Eastern has no
application of that doctrine, for no money belonging to Lyons cause of action against them and that the court has no
or any partnership composed of Elser and Lyons was in fact jurisdiction over the said case. The court held in abeyance
used by Elser in the purchase of the San Juan Estate. Of resolution on the motion to dismiss. Defendants moved to
course, if any damage had been caused to Lyons by the placing of reconsider. On May 2, 1967, the trial court issued an order (1)
the mortgage upon the equity of redemption in the Carriedo denying the motion to reconsider; (2) denying plaintiff's ex-
property, Elser's estate would be liable for such damage. But it is parte motion to declare defendants in default; (3) ordering
evident that Lyons was not prejudice by that act. defendants to answer the complaint within the reglementary
period; and (4) setting for on June 5, 1967 plaintiff's urgent
motion for preliminary injunction.

On June 1, 1967, defendants went to the Court of Appeals


20.
on certiorari. Since jurisdiction was the main question involved
therein, cognizable only by the Supreme Court, the Court of
G.R. No. L-27741 July 29, 1968 Appeals, on June 14, 1967, dismissed the petition.

R.B. INDUSTRIAL DEVELOPMENT COMPANY, LIMITED, and Meanwhile, on June 5, 1967, at a time when the certiorari petition
RAY N. KITTILSTVEDT, petitioners, was pending consideration by the Court of Appeals, respondent
vs. judge issued two orders: the first, declaring defendants in default
HON. MANUEL LOPEZ ENAGE, Judge of the Court of First and denying their counsel's request to defer the proceedings, and
Instance of Agusan, Branch II, and EASTERN TIMBER giving leave to plaintiff to present evidence before the deputy
CORPORATION, respondents. clerk of court; the second, authorizing the deputy clerk of court to
receive plaintiff's evidence in connection with the latter's
Facts: (Eastern's) application for a preliminary injunction, hence this
petition.
On January 22, 1959, Ray Kittilstvedt was granted by the Bureau
of Forestry a forest concession involving 6,850 hectares located Issue: WON Eastern has a cause of action against Industrial and
in Cabadbaran, Agusan. The license was non-transferable and WON the court has jurisdiction to try the case
was to expire on June 30, 1959. On December 22, 1959, more
than five months after the license expired, Kittilsvedt assigned On the first issue, the Court ruled that Eastern has no cause of
said license to Eastern Timber Corporation for 400 shares of action against the defendants. First, the license had already
stocks with a par value of Php 40,000 and was made vice- expired, thus, there was no license to transfer. Second, the license
president of the corporation. Soon thereafter, Kittilsvedt sold his itself says that it was non-transferable. Third, the conveyance
400 shares to Democrito O. Plaza for the same consideration. was illegal as provided for in Forestry Administrative Order No.
21 (Sept. 18, 1954) which expressly prohibits such transfer.
Kittilstvedt's timber license was extended on March 6, 1963, and
was again renewed, likewise in his name, on October 27, 1965. The transfer, sale or conveyance of any license, permit
While the license appears in Kittilstvedt's name, averment is or lease issued by the Director of Forestry, now or
made by Eastern that the expenses for the renewal and other hereafter authorized under the forest laws, rules and
incidental expenses were paid for by Eastern.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

regulations in favor of any individual, companies or The petition for certiorari and prohibition was granted;
private corporations within the period of three years the writ of preliminary injunction was made permanent; and the
after the issuance of such license, permit or lease, or any respondent judge was directed to dismiss Civil Case 1087 of the
transaction under any guise which will allow or permit Court of First Instance of Agusan entitled "Eastern Timber
others to enjoy the privilege granted therein, is hereby Corporation, Plaintiff, vs. Ray N. Kittilstvedt and R. B. Industrial
prohibited. Development Company, Limited, Defendants".

After the period of three years from the issuance of the


license, permit or lease, the licensee, permittee or lessee
may, with the approval of the Secretary of Agriculture 21.
and Natural Resources, be allowed to transfer, sell or
convey his license, permit or lease in favor of qualified
G.R. No. L-929 October 8, 1903 WILLARD, J.:
persons, companies or corporations, provided that the
licensee, permittee or lessee has fully complied with all THUNGA CHUI vs. QUE BENTEC
the requirements of the law and the rules and
regulations thereunder promulgated by the Director of FACTS:
Forestry; and provided further, that there is no evidence
THUNGA CHUI contributed to the partnership P1,000 and
that such transfer, sale or conveyance is being made for
QUE BENTEC gave P2,000
purposes of speculation.
QUE BENTEC claims that:
1) their case falls under Article 1280 (All other
Eastern seeks relief in the court below upon a deed of contracts, on which the amount of the prestaciones of one
conveyance of a forest license 11 months after the issuance or the two contracting parties exceed 1,500 pesetas, must
thereof, and after its term has expired. This is contrary to the also be drawn in writing, even when they are private
prohibition in Forestry Administrative Order No. 21. It is illegal. documents), and
Eastern cannot compel Kittilstvedt to comply with the terms of 2) Before the plaintiff can maintain any action
that contract. For, there is no duty where the law forbids. And on the verbal contract he must proceed under Article
even if we concede that the transfer were valid, the same would 1279 to compel the defendant to reduce it to writing
not produce any effect until and unless approved by the Director from the moment in which consent and the other
of Forestry and the Secretary of Agriculture and Natural requirements, necessary for their validity, have taken
Resources. The suit below being one for specific performance of place.
an illegal conveyance will not prosper for lack of cause of action. On May 3, 1897, the trial court held that, Article 1279 does
not impose an obligation, but confers a privilege upon
On the second issue, the Court ruled that the court has both contracting parties, and the fact that plaintiff has not
no jurisdiction to try the case, the jurisdiction being lodged with made use of same does not bar his action.
the Bureau of Forestry. The thrust of the reliefs sought by Eastern On Oct 19, 1901, the Audiencia ruled in favor of the plaintiff,
is that it be, declared owner of the timber license now in the Doa Ana Laborda, who agreed verbally with the defendant,
name of Industrial, and that, in consequence, the transfer thereof Don Nemesio Alamanzon, to leave the employment which
by Kittilstvedt to Industrial be annulled. But the question of she then had and to enter the defendant's service, and he
whether or not Industrial's timber license should be cancelled agreed that if she left his service he would pay her during life
and a new one issue in Eastern's name in lieu thereof is one, upon an annuity equal to the salary which she was receiving in her
the facts of record, beyond the reach of the courts. Such a former employment. Having been dismissed, she sued for
prerogative is vested in the Bureau of Forestry by Section 1816 of several months' salary and the annuity.
the Revised Administrative Code. This codal provision reads:
ISSUE:
SEC. 1816. Jurisdiction of Bureau of Forestry. The WON THE COURT HAD INFRINGED ART. 1280 WHICH
Bureau of Forestry shall have jurisdiction and authority REQUIRED THAT THE PARTNERSHIP CONTRACT BE IN
over the demarcation protection, management, WRITING.
reproduction, reforestation, occupancy, and use of all
public forests and forest reserves and over the granting HELD: NO, even supposing that the contract upon which this
of licenses for game, and fish, and for the taking of case turns is one of the class which should be reduced to
forest products, including stone and earth, therefrom. writing.
General rule, Art. 1278: Contracts are binding and therefore
enforceable reciprocally by the contracting parties, whatever
A doctrine long recognized is that where the law may be the form in which the contract has been entered into,
confines in an administrative office the power to determine provided that the essential conditions for their validity are
particular questions or matters, upon the facts to be presented, present,which is not in opposition with the following:
the jurisdiction of such office shall prevail over the 1) Art. 1279, which is far from making the enforceability
courts. Respondent Eastern had gone to the Bureau of Forestry. It of the contract dependent upon any special extrinsic form. It
withdrew its complaint. Eastern may not go to the courts of recognizes its enforceability by the mere act of granting to
justice which have no jurisdiction in the first instance to approve the contracting parties an adequate remedy whereby to
the alleged transfer and to direct the issuance of the license in compel the execution of a public writing, or any other special
favor of Eastern. At this stage, the jurisdiction of the court may form, whenever such form is necessary in order that the
not be invoked. contract may produce the effect which is desired, according
to whatever may be its object.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

2) Art. 1280, which is limited to an enumeration of the


acts contracts which should be reduced to writing, in a
public or private document. 22.
Those provisions establishes an implied condition of every
contract that these formal requisites shall be complied with, ENCARNACION MAGALONA, ET AL., vs. JUAN PESAYCO
notwithstanding the absence of any express agreement by
the contracting parties to that effect, but does not FACTS:
subordinate the principal action for the enforcement of
the agreement to the bringing of the secondary action The plaintiffs, Encarnacion, Magalona, Juan Sermeno,
concerning the form. Such subordination would be and the defendant, Juan Pesayco, formed a partnership
unnecessary, as the cause of action would be the same in for the purpose of catching semilias de bangus o aua
both cases, i.e., the existence of a valid contract. in San Jose, Antique.
On June 18, 1902 the court laid down same doctrine: The It was agreed that the defendant should put in a bid for
enforceability of contracts does not depend upon their this privilege and that the partners should each supply
extrinsic form, but solely upon the presence of the one third of the capital in case the defendant was
conditions necessary for their validity which it is not awarded the desired privilege.
denied are present in the contract in question that The defendant having had experience in this line, was to
contracts are binding whatever may be the form of their be the manager in case his bid was accepted.
celebration. The reduction to writing in a public or private The defendant offered the sum of P5,550.09. This bid
document, required by the law with respect to certain being the highest, the privilege was awarded to the
contracts, is not an essential requisite of their existence, but is defendant. The latter entered upon his duties under the
simply a coercive power granted to the contracting parties contract and gave an account of two sales of semilias
by which they can reciprocally compel the observance of de bangus, to TiburcioLutero as representative of the
these formal requisites. plaintiff Magalona.
The appellant, however, assigns as error the infringement of The defendant managed the business from January 1,
articles 119 and 51 of the Code of Commerce. Article 117 of 1931 and with the exception of the two sales above
the Code of Commerce is as follows: The contract of mentioned, never gave any account of his catches or
mercantile partnership entered into with the essential sales to his partners.
requisites of the law shall be valid and binding upon the
A complaint was filed, in which it was prayed that a
parties thereto, whatever may be its form, or whatever
receiver be appointed by the court to take charge of the
lawful and fair conditions and combinations may enter into it,
funds of the partnership and the management of its
provided they are not expressly prohibited by this Code . . . .
affairs; that the defendant be ordered to render an
We hold that under this article a verbal contract of
account of his management and to pay to the plaintiff
partnership is good as between the parties themselves. The
their participation in the profits thereof; that the
phrase "essential requisites of the law" means those
defendant be required to turn over to the receiver all of
general requirements of the law which are of the essence
the funds of the partnership and that the defendant be
of every contract, namely, parties who are capable of
condemned to pay the costs.
contracting, the meeting of the minds, the absence of fraud,
The plaintiff put up a bond of P5,000 and a receiver was
and those enumerated in article 1261 of the Civil Code.
appointed who also put up a bond for the same amount.
"Form" refers to the manner in which the contract is made, The receiver took over the management and took
whether by parol or in writing, and not the class to which it
possession of all the devices and implements used in the
may belong as general, limited, or corporate. Article, 117, is
catching of semillias de bangus.
expressly limited to partners, and as to them it is declared
At the trial, it was proven that before April 20, 1931, the
that a verbal contract is sufficient. But when third persons
defendant obtained and sold a total of 975,000
are involved, the Code has established a different rule,
semillias de bangus the market value of which was P3
Article 118 and 119.
per thousand. The defendant made no report of this nor
There being no provision of the Code of Commerce which did he pay the plaintiffs any part of the P2,925 realized
requires the contract of partnership to be in any particular
by him on the sales thereof. This was not denied.
form as between the partners, this case does not fall within
Defendant denies that there was a partnership and
the terms of article 52 of this Code, and that article is not
depends principally upon the fact that the partnership
applicable.
agreement was not in writing.
Article 117, expressly authorizing, as we hold, a verbal
The partnership was conclusively proven by the oral
contract of partnership as between the partners, such a
testimony of the plaintiffs and other witnesses.
contract is thereby excepted from the operations of article
51. The case at bar is covered by Art. 117.
ISSUE:
Whether, therefore, this be a civil partnership (oral
contract of partnership under the Civil Code is valid and
binding between the parties, even if the amount of capital Whether or not there was a partnership between the
contributed is in excess of P1500) and so governed by the parties despite the fact that the said partnership
Civil Code, or a commercial partnership (by which, to affect agreement was not in writing.
persons, must be reduced to writing and recorded in RULING:
mercantile registry, a verbal contract of partnership is good
between the parties themselves) and so governed by the Code YES.
of Commerce, in neither case can the objections made by The court ruled that it cannot agree with the appellant
the appellant be sustained. that one of the requisites of a partnership agreement
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

such as the one under consideration, is that it should be dual capacity as Administratrix of her husbands estates
in writing.
Art. 1667 of the Civil Code provides that; and as partner in lieu of her husband. She sold these to
Civil partnerships may be established in any
form whatever, unless real property or real respondents Washington Sycip and Betty Lee.
rights are contributed to the same, in which
case a public instrument shall be necessary. We note the following in this situation:
Articles of partnership are not required to be in writing
except in the cases mentioned in article 1667, Civil
Code, which controls article 1280 of the same Code. We are dealing with the transfer of partnership
(Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the property by one partner, acting in behalf of the
parties even though more than 1,500 pesetas are
involved and can be enforced without bringing action
firm, to a stranger. There is no question between
under article 1279, Civil Code, to compel execution of a the partners inter se.
written instrument. (Arts. 1261, 1278-1280, 1667, Civil
Code; arts. 116-119, 51, Code of Commerce.) Thunga
Chui vs. QueBentec. The partnership was expressly organized to
engage in real estate business, either by buying
--------------END 2ND------------------- and selling real estate. These are expressly
provided for in the Articles of co-partnership.
1.

Goquiolay v. Sycip108 Phil 947 The properties sold were not part of the
contributed capital but land precisely acquired to
Facts: be sold, although subject to a mortgage in favor
of the original owners, from whom the
1940: Goquiolay and Tan Sin An were partners who
partnership had acquired them
owned 3parcels of land. On the same date that
the partnership acquired these, Tan Sin An purchased 46 Regardless of the previous ruling by the
parcels of land. Both the partnership and Tan Sin An Supreme Court for the respondents, the
alone executed mortgages in favor of the same company, petitioners still filed this motion for
La Urbanidad Sociedad Mutua de Construccion. For reconsideration.
the partnership, it was P25,000 while for Tan Sin An, it
was P35,000. A few months later, the two mortgage Issue:

obligations were consolidated and transferred to the


W/N Tan Sin Ans widow, Kong Chai Pin, became
Banco Hipote cario de Filipinas and as a result, Tan Sin
partner when her husband died, allowing her to validly
An, in his individual capacity, and the partnership bound
sell the property that belongs to the partnership.
themselves to pay jointly and severally the total amount
of P52,282.20, with 8% annual interest thereon within a HELD: YES.

period of eight years mortgaging in favor of said entity


Goquiolay insists that Kong Chai Pin never became
the 3 parcels of land belonging to the partnership and the
more than a limited partner, incapacitated by law to
46 parcels of land belonging individually to Tan Sin An.
manage the affairs of partnership; that the testimony of
1942: Tan Sin An died, his widow, Kong Chai Pin was Kongs witnesses belie that she

made Administratrix of his estates in 1944. In 1949, she


executed a sale of these lands. This was executed in her
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

took over the administration of the partnership property; cannot continue if the partnership would be converted to
and that, in any event, the sale should be set aside a limited one upon death of one of the partners.
because it was executed with the intent to defraud
And even though she only became a limited partner at
Goquiolay of his share in the properties sold.
her husbands death as Goquiolay claims, Goquilays
Based on the sequence of events (as taken from the authorization to manage the property was proof that he
testimonies of Goquiolay and Kong Chai Pins considered her and recognized her as a general partner,
witnesses, Young at least since 1945. Takenote that if she were only a
limited partner, under the Code of Commerce, Art. 148,
and Lim), Young and Lim observed that most of the
last paragraph
properties were undeveloped and some were occupied by
the Japanese Army during the Japanese Occupation from Limited partners may not perform any act of
1942-1944.Goquiolay then admitted that in 1945, after administration with respect to the interest of the co-
the Japanese Occupation, he allowed the widow to partnership, not even in the capacity of agents of the
continue managing the properties. The sale made by managing partners.
Kong Chai Pin was in 1949. Clearly, the testimonies of
Goquiolay is estopped from saying that Kong Chai Pin is
the widows witnesses do not contradict Goquiolays
not a general partner because he granted her the
admission. He had given her authority after the
authority to manage the partnership properties. Also, the
occupation while witnesses were referring to the time of
heir ordinarily becomes a limited partner for his own
the Japanese period. And this authority was never
protection, because he would normally prefer to avoid
revoked until now.
any liability in excess of the value of the estate inherited
Goquiolay tried to argue that Kong Chai Pin only had so as not to jeopardize his personal assets, however, he
the authority to manage the property and did not include may also elect to become general partner instead. This is
the power to alienate, citing Art. 1713 of the Civil Code a choice exclusively to be made by the heir, because as
of 1889.What this argument overlooks is that the widow general partner, he may have all the rights and privileges
was not a mere agent because she had become partner of one, and answering got the debts of the firm not only
upon her husbands death (In the event of the death of with the inheritance but also with the heirs personal
any of the partners at any time before the expiration of fortune. In addition to this authority, the Court had yet
said term, the co-partnership shall not be dissolved but again stressed the fact that he had 7 years between the
willhave to be continued and the deceased partner shall death of his partner and the sale made by his partners
be represented by his heirs or assigns in said co- widow to take up the management of the properties
partnership (Art. XII, Articles of Co-Partnership), which himself, which he clearly failed to do.
was expressly stipulated in the articles of co-partnership.
General Rule:
The stipulation in the articles of co-partnership imply
that there is a general partnership, and not merely a Stipulations made between partners in the articles of co-
limited one, because since the co-partnershipwill partnership which require that any of the two managing
have to be continued with the heirs and assigns, it partners may contract in the name of the partnership with
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the consent of the other, creates an obligation between obligations to him. And when Goquiolay refused to sell
the two partners BUT shall not impose the same his interest to the companies, these went after the
obligation to a third person who contracts with the deceased partners estate1948: It appears that Goquiolay
partnership. This means that a third person has the actually refused to grant Kong Chai Pin a power of
right to resume that the partner he contracts with already attorney when she requested for one .1949: Kong Chai
has the consent of his partner when they both enter into a Pin filed a petition in the probate court to sell the
contract. properties of the partnership and some conjugal
properties for the purpose of paying these claims. This
In a partnership that deals with real estate, it is presumed
was approved by the court and then she then begun to
that every partner already has ample power, as a general
presume the role of managing partner. The dissenting
agent of the firm, to enter into an executory contract for
opinion stresses on the following points:
the sale of real estate. (American cases: Rosen v. Rose,
Chester v. Dickerson, Revelsky v. Brown) In this case, (1) There is no sufficient factual basis to conclude
since the articles of co-partnership expressly stipulate that Kong Chai Pin executed acts of management to
that the business of the partnership is in the buying and give her the character of general manager of the
selling of real estate, it cannot be maintained that the sale partnership, or to serve as basis for estoppel that may
Kong Chai Pin made was in excess of her power as a benefit the purchasers of the partnership properties;
general partner.
we may conclude that the sale of the partnership
Obiter: properties by Kong Chai Pin cannot be upheld on the
ground of estoppel, first, because the alleged acts
There is no fraud: first of all, the price was already
of management have not been clearly proven; second,
approved by the Court in the previous case, even if the
because the record clearly shows that the defendants, or
petitioners claim it to be much too low. The relationship
the buyers, were not misled nor did they rely on the acts
between the buyers of the lands and Kong Chai Pin
of management, but instead they acted solely on the
alone cannot be a badge of fraud. There is no proof that
opinion of their counsel, Atty. Quisumbing, to the effect
the buyers were without independent means to purchase
that she succeeded her husband in the partnership as
the property. Goquiolay has no proof that he was a
managing partner by operation of law; and third, because
victim of a conspiracy because he has no proof.
the defendants are themselves estopped to invoke a
Dispositive: Premises considered, the motion for defense which they tried to dispute and repudiate.
reconsideration is denied.

DISSENT (Bautista Angelo, J.):


(2) The alleged acts of management, even if proven,
The facts of the case were told a bit differently in the could not give Kong Chai Pin the character of
dissent.1946: Two companies (Yutivo Sons Hardware general manager for the same contrary to law and
co. and Sing, Yee and Cuan Co. filed claims in the well-known authorities;
intestate proceeding in Tan Sin An because Tan Sin An
himself and the partnership with Goquiolay had
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Garrigues, a well-known commentator, is clearly of the anything for it or on his behalf which he as such
opinion that mere acceptance of the inheritance does not managing partner might do or cause to be done.
make the heir of a general partner a general partner
The law says that an agency created in general terms
himself. He emphasized that heir must declare that he is
includes only acts of administrations, but with regard to
entering the partnership as a general partner unless the
the power to compromise, sell mortgage, and other acts
deceased partner has made it an express condition in his
of strict ownership, an express power of attorney is
will that the heir accepts the condition of entering the
required. Here Kong Chai Pin did not have such power
partnership as a prerequisite of inheritance, in which
when she sold the properties of the partnership.
case acceptance of the inheritance is enough. But here
Tan Sin An died intestate. (4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership
(3) Even if Kong Chai Pin acted as general manager
and if she did so it was merely to favor the
she had no authority to sell the partnership
purchasers who were close relatives to the prejudice
properties as to make it legal and valid; and
of Goquiolay.
Article 129 of the Code of Commerce says:

If the management of the general partnership has


not been limited by special agreement to any of the 2.

members, all shall have the power to take part in the


WILLIAM UY, plaintiff-appellee,
direction and management of the common business, and
vs.
the members present shall come to an agreement for all
BARTOLOME PUZON, substituted by FRANCO
contracts or obligations which may concern the
PUZON, defendant-appellant.
association

FACTS

the pertinent portions of the articles of partnership It is of record that the defendant Bartolome Puzon had a
provides: contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the
VII. The affairs of the co-partnership shall be managed
Pagadian Zamboanga City Road, province of
exclusively by the managing partner or by his authorized
Zamboanga del Sur and of five (5) bridges in the
agent, and it is expressly stipulated that the managing
Malangas-Ganyangan Road. Finding difficulty in
partner may delegate the entire management of the
accomplishing both projects, Bartolome Puzon sought
affairs of the co-partnership by irrevocable power of
the financial assistance of the plaintiff, William Uy. As
attorney to any person, firm or corporation he may
an inducement, Puzon proposed the creation of a
select, upon such terms as regards compensation as he
partnership between them which would be the sub-
may deem proper, and vest in such person, firm or
contractor of the projects and the profits to be divided
corporation full power and authority, as the agent of the
equally between them. William Uy inspected the
co-partnership and in his name, place and stead to do
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

projects in question and, expecting to derive Although the partnership agreement was signed by the
considerable profits therefrom, agreed to the proposition, parties on January 18, 1957, work on the projects was
thus resulting in the formation of the "U.P. Construction started by the partnership on October 1, 1956 in view of
Company" which was subsequently engaged as the insistence of the Bureau of Public Highways to
subcontractor of the construction projects. complete the project right away. Since Puzon was busy
with his other projects, William Uy was entrusted with
The partners agreed that the capital of the partnership the management of the projects and whatever expense
would be P100,000.00 of which each partner shall the latter might incur, would be considered as part of his
contribute the amount of P50,000.00 in cash. But, as contribution. At the end of December, 1957, William
heretofore stated, Puzon was short of cash and he Uy had contributed to the partnership the amount of
promised to contribute his share in the partnership P115,453.39, including his capital.
capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 The loan of Puzon was approved by the Philippine
shall have been approved. However, before his loan National Bank in November, 1956 and he gave to
application could be acted upon, he had to clear his William Uy the amount of P60,000.00. Of this amount,
collaterals of its incumbrances first. For this purpose, on P40,000.00 was for the reimbursement of Uy's
October 24, 1956, Wilham Uy gave Bartolome Puzon contribution to the partnership which was used to clear
the amount of P10,000.00 as advance contribution of his the title to Puzon's property, and the P20,000.00 as
share in the partnership to be organized between them Puzon's contribution to the partnership capital.
under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be To guarantee the repayment of the above-mentioned

used by Puzon to pay his obligations with the Philippine loan, Bartolome Puzon, without the knowledge and

National Bank to effect the release of his mortgages with consent of William Uy, assigned to the Philippine

the said Bank. On October 29, 1956, William Uy again National Bank all the payments to be received on

gave Puzon the amount of P30,000.00 as his partial account of the contracts with the Bureau of Public

contribution to the proposed partnership and which the Highways for the construction of the afore-mentioned

said Puzon was to use in payment of his obligation to the projects. By virtue of said assignment, the Bureau of

Rehabilitation Finance Corporation. Puzon promised Public Highways paid the money due on the partial

William Uy that the amount of P150,000.00 would be accomplishments on the government projects in question

given to the partnership to be applied thusly: to the Philippine National Bank which, in turn, applied

P40,000.00, as reimbursement of the capital contribution portions of it in payment of Puzon's loan. Of the amount

of William Uy which the said Uy had advanced to clear of P1,047,181.07, released by the Bureau of Public

the title of Puzon's property; P50,000.00, as Puzon's Highways in payment of the partial work completed by

contribution to the partnership; and the balance of the partnership on the projects, the amount of

P60,000.00 as Puzon's personal loan to the partnership. P332,539.60 was applied in payment of Puzon's loan and
only the amount of P27,820.80 was deposited in the
partnership funds, which, for all practical purposes, was
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

also under Puzon's account since Puzon was the ISSUE


custodian of the common funds.
1. Whether or not Puzon failed to make contributions to

As time passed and the financial demands of the projects the partnership?

increased, William Uy, who supervised the said projects,


2. Whether or not Puzon misapplied the partnership
found difficulty in obtaining the necessary funds with
profits?
which to pursue the construction projects. William Uy
correspondingly called on Bartolome Puzon to comply RULING
with his obligations under the terms of their partnership
1. Yes
agreement and to place, at lest, his capital contribution at
the disposal of the partnership. Despite several promises, The findings of the trial court that the appellant failed to
Puzon, however, failed to do so. Realizing that his contribute his share in the capital of the partnership is
verbal demands were to no avail, William Uy clear incontrovertible. The record shows that after the
consequently wrote Bartolome Puzon pormal letters of appellant's loan the amount of P150,000.00 was
demand, to which Puzon replied that he is unable to put approved by the Philippin National Bank in November,
in additional capital to continue with the projects. 1956, he gave the amount P60,000.00 to the appellee
who was then managing the construction projects. Of
Failing to reach an agreement with William Uy,
this amount, P40,000.00 was to be applied a
Bartolome Puzon, as prime contractor of the
reimbursement of the appellee's contribution to the
construction projects, wrote the subcontractor, U.P.
partnership which was used to clear the title to the
Construction Company, on November 20, 1957,
appellant's property, and the balance of P20,000.00, as
advising the partnership, of which he is also a partner,
Puzon's contribution to the partnership. Thereafter, the
that unless they presented an immediate solution and
appellant failed to make any further contributions the
capacity to prosecute the work effectively, he would be
partnership funds as shown in his letters to the appellee
constrained to consider the sub-contract terminated and,
wherein he confessed his inability to put in additional
thereafter, to assume all responsibilities in the
capital to continue with the projects.
construction of the projects in accordance with his
original contract with the Bureau of Public Parenthetically, the claim of the appellant that the
Highways. On November 27, 1957, Bartolome Puzon appellee is equally guilty of not contributing his share in
again wrote the U.P.Construction Company finally the partnership capital inasmuch as the amount of
terminating their subcontract agreement as of December P40,000.00, allegedly given to him in October, 1956 as
1, 1957. partial contribution of the appellee is merely a personal
loan of the appellant which he had paid to the appellee,
Thereafter, William Uy was not allowed to hold office in
is plainly untenable. The terms of the receipts signed by
the U.P. Construction Company and his authority to deal
the appellant are clear and unequivocal that the sums of
with the Bureau of Public Highways in behalf of the
money given by the appellee are appellee's partial
partnership was revoked by Bartolome Puzon who
contributions to the partnership capital. Thus, in the
continued with the construction projects alone.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

receipt for P10,000.00 dated October 24, 1956, the competent evidence. It is of record that the appellant
appellant stated:+.wph!1 assigned to the Philippine National Bank all the
payments to be received on account of the contracts with
Received from Mr. William Uy the sum the Bureau of Public Highways for the construction of
of TEN THOUSAND PESOS the aforementioned projects to guarantee the repayment
(P10,000.00) in Check No. SC 423285 of the bank. By virtue of the said appelant's personal
Equitable Banking Corporation, dated loan with the said bank assignment, the Bureau of Public
October 24, 1956, as advance Highways paid the money due on the partial
contribution of the share of said William accomplishments on the construction projects in
Uy in the partnership to be organized question to the Philippine National Bank who, in turn,
between us under the firm name U.P. applied portions of it in payment of the appellant's loan.
CONSTRUCTION COMPANY which
amount mentioned above will be used The appellant claims, however, that the said assignment
by the undersigned to pay his was made with the consent of the appellee and that the
obligations with the Philippine National assignment not prejudice the partnership as it was
Bank to effect the release of his reimbursed by the appellant.
mortgages with the said bank.
(Emphasis supplied) But, the appellee categorically stated that the assignment
to the Philippine National Bank was made without his
In the receipt for the amount of P30,000.00 dated prior knowledge and consent and that when he learned of
October 29, 1956, the appellant also said:+.wph!1 said assignment, he cal the attention of the appellant who
assured him that the assignment was only temporary as
Received from William Uy the sum of he would transfer the loan to the Rehabilitation Finance
THIRTY THOUSAND PESOS Corporation within three (3) months time.
(P30,000.00) in Check No. SC423287,
of the Equitable Banking The question of whom to believe being a matter large
Corporation, as partial contribution of dependent on the trier's discretion, the findings of the
the share of the said William Uy to the trial court who had the better opportunity to examine and
U.P. CONSTRUCTION COMPANY for appraise the fact issue, certainly deserve respect.
which the undersigned will use the said
amount in payment of his obligation to That the assignment to the Philippine National Bank

the Rehabilitation Finance Corporation. prejudicial to the partnership cannot be denied. The
record show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon
received from the Bureau of Public highways, in
2. Yes
payment of the work accomplished on the construction

The findings of the trial court that the appellant projects, the amount of P1,047,181.01, which amount

misapplied partnership funds is, likewise, sustained by rightfully and legally belongs to the partnership by virtue
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

of the subcontract agreements between the appellant and from the liquidation of the partnership to Garcia. And
the U.P. Construction Company. In view of the Garcia assigned the share to Machuca. Machuca is now
assignment made by Puzon to the Philippine National claiming his purported share against the partnership
Bank, the latter withheld and applied the amount of while its liquidation is pending. The lower court held
P332,539,60 in payment of the appellant's personal loan for him while the SC held otherwise because the Clause
with the said bank. The balance was deposited in Puzon's 19 of the partnership agreement stipulated that upon
current account and only the amount of P27,820.80 was dissolution, outside parties were to be satisfied first,
deposited in the current account of the partnership. For funds allotted for the Chuidian minors second, and
sure, if the appellant gave to the partnership all that were whatever is to be left is to be paid to each one of those
earned and due it under the subcontract agreements, the who had put in money.
money would have been used as a safe reserve for the
discharge of all obligations of the firm and the DOCTRINE: Thus, it follows that Vicente
partnership would have been able to successfully and Buenaventura, whose rights are those of his father, is in
profitably prosecute the projects it subcontracted. no case entitled to receive any part of the assets until the
creditors who are non-partners and the Chuidian minors
When did the appellant make the reimbursement claimed are paid. Whatever rights he had either as creditor or
by him? partner, he could only transfer subject to this condition.

For the same period, the appellant actually disbursed for


FACTS:
the partnership, in connection with the construction
The defendants are a regular general partnership,
projects, the amount of P952,839.77. Since the appellant
organized in Manila, December 29, 1882, as a
received from the Bureau of Public Highways the sum of
continuation of a prior partnership of the same
P1,047,181.01, the appellant has a deficit balance of
name. The original partners constituting the
P94,342.24. The appellant, therefore, did not make
partnership of 1882 were D. TelesforoChuidian,
complete restitution.
Doa RaymundaChuidian, Doa
CandelariaChuidian, and D. Mariano
Buenaventura.
4.

The capital was fixed in the partnership


JOSE MACHUCA, plaintiff-appellee, v. CHUIDIAN,
agreement at 16,000 pesos, of which the first
BUENAVENTURA & CO., defendants-appellants
three partners named contributed 50,000 pesos
(G.R. No. 1011, May 13, 1903) (LADD, J.)
each, and the last named 10,000 pesos, and it
was stipulated that the liability of the partners
SUMMARY: One of the heirs (Vicente Buenaventura)
should be "limited to the amounts brought in by
of the partners of Messrs. Chuisian, Buenaventura & Co.
them to form the partnership stock.
assigned a 25% share of the part pertaining to him in all
that may be obtained by whatever right in whatever form
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In addition to the amounts contributed by the


partners to the capital, it appears from the On December 15, 1898, D. Vicente
partnership agreement that each one of them had Buenaventura executed a public instrument in
advanced money to the preexisting partnership, which for a valuable consideration he assigned
which advances were assumed or accounts- to D. Jose Gervasio Garcia a 25%share in all
current aggregated something over 665,000 that may be obtained by whatever right in
pesos, of which sum about 569,000 pesos whatever form from the liquidation of the
represented the advances from the Chuidians partnership of Chuidian, Buenaventura & Co., in
and the balance that balance that from D. the part pertaining to him in said partnership.
Mariano Buenaventura.
Jose Machuca claims that Garcia had
Doa RaymundaChuidian retired from the subsequently assigned the right to claim from
partnership November 4, 1885. On January 1, the partnership, which has been notified to the
1888, the partnership went into liquidation, and liquidator of the partnership.
it does not appear that the liquidation had been
terminated when this action was brought. The liquidator of the partnership declined to
record in the books of the partnership the
Down to the time the partnership went into plaintiff's claim under the assignment as a credit
liquidation the accounts-current of D. due him in the books of the partnership.
TelesforoChuidian and Doa
CandelariaChuidian had been diminished in an Machuca brought this action to compel such
amount aggregating about 288,000 pesos, while record to be made, and that he be adjudicated to
that of D. Mariano Buenaventura had been be a creditor of the partnership in an amount
increased about 51,000 pesos. During the period equal to 25% of D. Vicente Buenaventura's
from the commencement of the liquidation down share in his father's account-current, with
to January 1, 1896, the account-current of each interest, less the liability to which the plaintiff is
of the Chuidians had been still further decreased, subject by reason of his share in the capital. He
while that of D. Mariano Buenaventura had been also asks to recover the damages caused by
still further increased. reason of the failure of the liquidator to record
his credit in the books of partnership.
On January 1, 1894, D. Mariano Buenaventura
died,among his heirs was D. Vicente The lower court had the credit assigned to the
Buenaventura. Upon the partition of the estate, plaintiff recorded in the books of the
the amount of the interest of D. Vicente partnership. And also had him receive 25% of
Buenaventura in his father's account-current and an amount representing the share he claims, with
in the capital was ascertained and recorded in interest, the payment of the 25% of
the books of the firm.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Buenaventura's share in the capital to be Such being the basis upon which by agreement
postponed till the termination of the liquidation. of the partners the assets of the partnership are to be
applied to the discharge of the various classes of the
ISSUE: WON Machuca was entitled to receive his claim firm's liabilities, it follows that D. Vicente
over the partnership pending liquidation. Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
HELD: NO. creditors who are nonpartners and the Chuidian minors
Clause 19 of the partnership agreement stipulate are paid. Whatever rights he had either as creditor or
that: "upon the dissolution of the company, the pending partner, he could only transfer subject to this condition.
obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco It is clear, from the language of the instrument
Chuidian [it does not appear what their interest in the under which the plaintiff claims, that this conditional
partnership was or when or how it was acquired] should interest was all that D. Vicente Buenaventura ever
be taken out, and afterwards the resulting balance of the intended to transfer. By that instrument he undertakes to
account-current of each one of those who had put in assign to Garcia not a present interest in the assets of the
money (imponentes) should be paid." partnership but an interest in whatever "may be obtained
from the liquidation of the partnership," which Garcia is
A construction of the clause establishes that the to receive "in the same form in which it may be obtained
liabilities to noncompartners are to be first discharged; from said partnership.
that the claims of the Chuidian minors are to be next
satisfied; and that what is due to the respective partners The assignment by its terms is not to take effect
on account of their advances to the firm is to be paid last until all the liabilities of the partnership have been
of all, leaving the ultimate residue, of course, if there be discharged and nothing remains to be done except to
any, to be distributed, among the partners in the distribute the assets, if there should be any, among the
proportions in which they may be entitled thereto. partners. Meanwhile the assignor, Buenaventura, is to
continue in the enjoyment of the rights and is to remain
A distinction is made in this clause between subject to the liabilities of a partner as though no
creditors who were partners and creditors who were not assignment had been made. In other words, the
partners, and that the expression "outside parties" refers assignment does not purport to transfer an interest in the
to the latter class. And the words "pending obligations" partnership, but only a future contingent right to 25% of
clearly comprehend outstanding obligations of every such portion of the ultimate residue of the partnership
kind in favor of such outside parties, and do not refer property as the assignor may become entitled to receive
merely, as claimed by counsel for the plaintiff, to the by virtue of his proportionate interest in the capital.
completion of mercantile operations unfinished at the
time of the dissolution of the partnership, such as There is nothing in the case to show either that
consignments of goods and the like. the nonpartner creditors of the partnership have been
paid or that the claims of the Chuidian minors have been
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

satisfied. Such rights as the plaintiff has acquired against The judgment of the lower court is reversed and the case
the partnership under the assignment still remain, is remanded to that court with directions to enter a
therefore, subject to the condition which attached to judgment of dismissal.
them in their origin, a condition wholly uncertain of
realization, since it may be that the entire assets of the
5.
partnership will be exhausted in the payment of the
creditors entitled to preference under the partnership
PAUL MACDONALD, ET AL., Petitioners, vs. THE
agreement, thus extinguishing the plaintiff's right to
NATIONAL CITY BANK OF NEW
receive anything from the liquidation.
YORK,Respondent.[G.R. No. L-7991. May 21, 1956.]

It is contended by the plaintiff that, as the


FACTS:
partnership was without authority to enter upon new
STASIKINOCEY is a partnership doing
mercantile operations after the liquidation commenced,
business at No. 58, Aurora Boulevard, San Juan,
the increase in D. Mariano Buenaventura's account-
Rizal, and formed by Alan W. Gorcey, Louis F.
current during that period was the result of a void
da Costa, Jr., William Kusik and Emma
transaction, and that therefore the plaintiff is entitled to
BadongGavino. This partnership was denied
withdraw at once the proportion of such increase to
registration in the Securities and Exchange
which he is entitled under the assignment. With
Commission, and while it is confusing to see in
reference to this contention, it is sufficient to say that it
this case that the CARDINAL RATTAN,
nowhere appears in the case that the increase in D.
sometimes called the CARDINAL RATTAN
Mariano Buenaventura's account-current during the
FACTORY, is treated as a copartnership, of
period of liquidation was the result of new advances to
which Defendants Gorcey and da Costa are
the firm, and the figures would appear to indicate that it
considered general partners, we are satisfied
resulted from the accumulation of interest.
that, as alleged in various instruments appearing
of record, said Cardinal Rattan is merely the
The plaintiff having acquired no rights under the
business name or style used by the partnership
assignment which are now enforceable against the
Stasikinocey.
defendant, the action can not be maintained. The
liquidator of the defendant having been notified of the
assignment, the plaintiff will be entitled to receive from Defendant Stasikinocey had an overdraft

the assets of the partnership, if any remain, at the account with The National City Bank of New

termination of the liquidation, 25% of D. Vicente's York, a foreign banking association duly

resulting interest, both as partner and creditor. The licensed to do business in the Philippines. The

judgment in this case should not affect the plaintiff's overdraft showed a balance of P6,134.92 against

right to bring another action against the partnership the Defendant Stasikinocey or the Cardinal

when the affairs of the same are finally wound up. The Rattan, which account, due to the failure of the

proper judgment will be that the action be dismissed. partnership to make the required payment, was
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

converted into an ordinary loan for which the by them and Defendant partnership to the latter,
corresponding promissory joint note non- which transaction is said to be in violation of the
negotiable was executed by Louis F. da Costa Bulk Sales Law (Act No. 3952 of the Philippine
for and in the name of the Cardinal Rattan, Legislature).
Louis F. da Costa and Alan Gorcey. This While the said loan was still unpaid and the
promissory note was secured by a chattel chattel mortgage
mortgage executed by Louis F. da Costa, Jr., subsisting, Defendant partnership,
General Partner for and in the name of through Defendants Gorcey and Da Costa
Stasikinocey, alleged to be a duly registered transferred to Defendant McDonald the Fargo
Philippine partnership, doing business under the truck and Plymouth sedan. The Fargo pickup
name and style of Cardinal Rattan, with was also sold by William Shaeffer to Paul
principal office at 69 Riverside, San Juan, Rizal. McDonald.
The chattels mortgaged were the following
motor vehicles:(a) Fargo truck Paul Mcdonald, notwithstanding Plaintiffs
(1949);(b) Plymouth Sedan existing mortgage lien, in turn transferred the
automobile; and(c) Fargo Pick-Up FKI-16 Fargo truck and the Plymouth sedan to Benjamin
(1949). Gonzales.

The mortgage deed was fully registered by the The National City Bank of New
mortgagee, in the Office of the Register of York, Respondent herein, upon learning of the
Deeds for the province of Rizal, at Pasig, and transfers made by the partnership Stasikinocey
among other provisions it contained the to William Shaeffer, from the latter to Paul
following:(a) That the mortgagor shall not sell McDonald, and from Paul McDonald to
or otherwise dispose of the said chattels without Benjamin Gonzales, of the vehicles previously
the mortgagees written consent; and(b) That pledged by Stasikinocey to theRespondent, filed
the mortgagee may foreclose the mortgage at an action against Stasikinocey and its alleged
any time, after breach of any condition thereof, partners Gorcey and Da Costa, as well as Paul
the mortgagor waiving the 30- day notice of McDonald and Benjamin Gonzales, to recover
foreclosure. its credit and to foreclose the corresponding
chattel mortgage. McDonald and Gonzales were
On June 7, 1949, the same day of the execution made Defendants because they claimed to have a
of the chattel mortgage aforementioned, Gorcey better right over the pledged vehicle.
and Da Costa executed an agreement purporting
to convey and transfer all their rights, title and CFI Manila ruled in favor of National City
participation in Defendant partnership to Bank.
Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Only Paul McDonald and Benjamin Gonzales RESIDENCE OF THE MEMBERS WHO EXECUTED
appealed to the CA. SAME; AND, AS A CONSEQUENCE THEREOF, IN
NOT MAKING ANY FINDING OF FACT AS TO THE
CA modified the decision of the trial court, ACTUAL RESIDENCE OF SAID CHATTEL
relieving Appellant William Shaeffer of the MORTGAGOR, DESPITEAPPELLANTS RAISING
obligation of paying, jointly and severally, THAT QUESTION PROPERLY BEFORE IT AND
together with Alan W. Gorcey and Louis F. da REQUESTING A RULING THEREON.
Costa, Jr., any deficiency that may remain (3) WON WHEN A CHATTEL MORTGAGOR
unpaid after applying the proceeds of the sale of EXECUTES AN AFFIDAVIT OF GOOD FAITH
the said motor vehicles which shall be BEFORE A NOTARY PUBLIC OUTSIDE OF THE
undertaken upon the lapse of 90 days from the TERRITORIAL JURISDICTION OF THE LATTER,
date this decision becomes final, if by THE AFFIDAVIT IS VOID AND THE CHATTEL
then Defendants Louis F. da Costa, Jr., and Alan MORTGAGE IS NOT BINDING ON THIRD
W. Gorcey had not paid the amount of the PERSONS WHO ARE INNOCENT PURCHASERS
judgment debt. This decision is without FOR VALUE; AND, AS A CONSEQUENCE
prejudice to whatever action Louis F. da Costa, THEREOF, IN NOT MAKING ANY FINDING OF
Jr., and Alan W. Gorcey may take against their FACT AS TO WHERE THE DEED WAS IN FACT
co-partners in the Stasikinocey unregistered EXECUTED, DESPITE APPELLANTS RAISING
partnership. THAT QUESTION PROPERLY BEFORE IT AND
EXPRESSLY REQUESTING A RULING THEREON.
An appeal by certiorari was taken by Paul
(4) WON A LETTER AUTHORIZING ONE MEMBER
McDonald and Benjamin
OF AN UNREGISTERED COMMERCIAL CO-
Gonzales, Petitioners herein.
PARTNERSHIP TO MAKE ALL OFFICIAL AND
ISSUES: (1) WONAN UNREGISTERED BUSINESS ARRANGEMENTS .. WITH THE
COMMERCIAL CO-PARTNERSHIP WHICH HAS NATIONAL CITY BANK OF NEW YORK IN
NO INDEPENDENT JURIDICAL PERSONALITY ORDER TO SIMPLIFY ALL MATTERS RELATIVE
CAN HAVE A DOMICILE SO THAT A CHATTEL TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER
MORTGAGE REGISTERED IN THAT DOMICILE BANKING MEDIUMS, WAS SUFFICIENT
WOULD BIND THIRD PERSONS WHO ARE AUTHORITY FOR THE SAID MEMBER TO
INNOCENT PURCHASERS FOR VALUE. EXECUTE A CHATTEL MORTGAGE IN ORDER TO
(2) WONWHEN A CHATTEL MORTGAGE IS GIVE THE BANK SECURITY FOR A PRE-
EXECUTED BY ONE OF THE MEMBERS OF AN EXISTING OVERDRAFT, GRANTED WITHOUT
UNREGISTERED COMMERCIAL CO- SECURITY. WHICH THE BANK HAD CONVERTED
PARTNERSHIP WITHOUT JURIDICAL INTO A DEMAND LOAN UPON FAILURE TO PAY
PERSONALITY INDEPENDENT OF ITS MEMBERS, SAME AND BEFORE THE CHATTEL MORTGAGE
IT NEED NOT BE REGISTERED IN THE ACTUAL WAS EXECUTED.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

are concerned, for purposes of its de facto existence it


RULING: (1) While an unregistered commercial should have such attribute of a partnership as domicile.
partnership has no juridical personality, In Hung-Man Yoc vs. Kieng-Chiong-Seng, it was held
nevertheless, where two or more persons attempt to that although it has no legal standing, it is a
create a partnership failing to comply with all the partnership de facto and the general provisions of the
legal formalities, the law considers them as partners Code applicable to all partnerships apply to it. The
and the association is a partnership in so far as it is a registration of the chattel mortgage in question with the
favorable to third persons, by reason of the equitable Office of the Register of Deeds of Rizal, the residence or
principle of estoppel. place of business of the partnership Stasikinocey being
San Juan, Rizal, was therefore in accordance with
In Jo Chung Chang vs. Pacific Commercial Co., it section 4 of the Chattel Mortgage Law.
was held that although the partnership with the firm
name of TeckSeing and Co. Ltd., could not be regarded (2) These have become academic by reason of the
as a partnership de jure, yet with respect to third persons answer to the first question, namely, that as a de facto
it will be considered a partnership with all the partnership, Stasikinocey had its domicile in San
consequent obligations for the purpose of enforcing the Juan, Rizal.
rights of such third persons. Da Costa and Gorcey
cannot deny that they are partners of the partnership (3) It is noteworthy that the chattel mortgage in
Stasikinocey, because in all their transactions with question is in the form required by law, and there is
theRespondent they represented themselves as such. therefore the presumption of its due execution which
cannot be easily destroyed by the biased testimony of
Petitioner McDonald cannot disclaim knowledge of the the one who executed it. The interested version of Da
partnership Stasikinoceybecause he dealt with said Costa that the affidavit of good faith appearing in the
entity in purchasing two of the vehicles in question chattel mortgage was executed in Quezon City before a
through Gorcey and Da Costa. As was held in Behn notary public for and in the City of Manila was correctly
Meyer & Co. vs. Rosatzin, where a partnership not rejected by the trial court and the Court of Appeals.
duly organized has been recognized as such in its Indeed, cumbersome legal formalities are imposed to
dealings with certain persons, it shall be considered prevent fraud. As aptly pointed out in El Hogar Filipino
as partnership by estoppel and the persons dealing vs. Olviga, If the biased and interested testimony of
with it are estopped from denying its partnership a grantor and the vague and uncertain testimony of
existence. The sale of the vehicles in question being his son are deemed sufficient to overcome a public
void as to Petitioner McDonald, the transfer from the instrument drawn up with all the formalities
latter to Petitioner Benjamin Gonzales is also void, as prescribed by the law then there will have been
the buyer cannot have a better right than the seller. established a very dangerous doctrine which would
throw wide open the doors to fraud.
It results that if the law recognizes a defectively
organized partnership as de facto as far as third persons
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(4) In view of the conclusion that Stasikinocey is a de 6.


facto partnership, and Da Costa appears as a co-manager
in the letter of Gorcey to the Respondent and in the E. WALCH v. LIM CHAI SENG
promissory note executed by Da Costa, and that even the G.R. No. L-37160, 2 March 1933, EN BANC, (Hull,
partners considered him as such, as stated in the J.)
affidavit, to the effect that That we as the majority
partners hereby agree to appoint Louis da Costa co- FACTS:
managing partner of Alan W. Gorcey, duly approved - A limited co-partnership was formed b/w Lim Hai
managing partner of the said firm, the partner who Tao (LHT) and Lim Chai Seng (LCS) under the firm
executed the chattel mortgage in question must be name Lim Hai Tao, S. en C., and doing business
deemed to be so fully authorized.Section 6 of the under the Chinese name of Guan Hoo. The
Chattel Mortgage Law provides that when a partnership was duly registered in the Bureau of
partnership is a party to the mortgage, the affidavit Commerce and Industry (BCI) and accdg. to its
may be made and subscribed by one member thereof. articles, the general partner was LHT w/ a capital of
In this case the affidavit was executed and subscribed P20,000, and the limited partner was LCS w/ a
by Da Costa, not only as a partner but as a managing capital of P40,000, thereby making the sum of
partner. P60,000 as its capital. The term of the partnership
was for an indefinite period but it could be dissolved
There is no merit in Petitioners pretense that the motor by the agreement of the parties. LHT was the
vehicles in question are the common property of Da manager of the business and LCS had no
Costa and Gorcey. Petitioners invoke article 24 of the intervention in its management w/ the exception of
Code of Commerce in arguing that an unregistered his right to examine the books of the partnership
commercial partnership has no juridical personality and during the days of January each year.
cannot execute any act that would adversely affect
innocent third persons. Petitioners forget that - Accdg. to the balance sheet of the partnership for the
theRespondent is a third person with respect to the ending year of 1929, its assets amounted to
partnership, and the chattel mortgage executed by P130,723.14, while its obligations totaled
Da Costa cannot therefore be impugned by Gorcey P94,435.43. The participation of LCS in the capital
on the ground that there is no partnership between was P24,191.81 while his credit against the
them and that the vehicles in question belonged to partnership was P6,937.46. When LCS agreed to
them in common. As a matter of fact, LiongKee Hos (LKH) proposal of buying his
the Respondent and the Petitioners are all third participation in the partnership, a written agreement
persons as regards the partnership Stasikinocey;and was entered into by and b/w LCS and LHT, by
even assuming that the Petitioners are purchasers in virtue of w/c the former retired and separated from
good faith and for value, the Respondent having the partnership effective on the same date. This was
transacted with Stasikinocey earlier than the Petitioners, duly filed for registry in the BCI. Before the
it should enjoy and be given priority. execution of this agreement, LKH delivered to LHT
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the sum of P31,129.27 to be paid to LCS as purchase creditors were actually w/ the individual LHT,
price of his participation. This transaction appeared instead of w/ the co-partnership, and (3) the
in the books of the partnership as a loan, but this money w/c LCS received was paid in by a 3rd
circumstance was explained by LCS in that, at time party, LKH, for LCSs interest in the co-
of the delivery of the money to LHT by LKH, the partnership and that the assets of the latter
deed of separation had not yet been formally suffered no diminution and therefore, the
executed. When the deed was made, the sum of creditors of the firm were not injuriously affected
P31,129.27 was paid to LCS in the partnership by the said transaction.
capital and P6,937.36 to his credit against the
partnership. This transaction likewise appears in the - The CFI based its decision on the 2nd and 3rd
books. grounds, that the transactions of the present creditors
were only w/ LHT and that the money received by
- An insolvency proceeding was instituted in the CFI LCS was in his own interest and not that of the co-
of Manila by Guan Hoos creditors (Menzi& Co, partnership. The 2nd ground being more of a question
Inc, Otto Gmur, Inc. and Pacific Commercial Co.), of fact than of law, should not be tackled here as it
all of whom are doing business individually under requires a lengthy opinion. No matter what
the name and style of Guan Hoo.LHT was duly conclusion might be reached on the 2nd defense, the
adjudged insolvent by the court and E. Walch was SC is convinced that recovery cannot be had in view
elected by the creditors as assignee of the insolvent of the 1st and 3rd defenses mentioned, that the co-
estate. In his aforesaid capacity as assignee, has sued partnership was never declared insolvent, and that
LCS for the purpose of recovering from him the sum upon payment to LCS, the partnership and its
of 24,191.81. This amount being a part of the money creditors were prejudiced.
paid to him by LKH for his participation in the
business of the partnership. This claim was
7. TESTATE ESTATE OF LAZARO MOTA,
grounded on the theory that the payment of the sum
deceased, ET AL.vs. SALVADOR SERRA
to LCS was in fraud of the creditors of both the
partnership and LHT. The CFI rendered a decision G.R. No. L-22825 February 14, 1925
in favor of LCS. When Walchs motion for new trial
Art. 1829. On dissolution the partnership is not
was denied, he perfected the appeal to the SC.
terminated, but continues until the winding up of
partnership affairs is completed.
ISSUE: Is Walchs claim, in representation of the estate
of the insolvent LHT, meritorious? Doctrine:The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the
RULING: NO. termination of the object for which it was created the
- The principal defenses relied upon by LCS are the partnership is extinguished.
ff: (1) the co-partnership has never been declared
insolvent, (2) the transactions of the present
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

After dissolution, the partnership as a business Afterwards, Venancio Concepcion and Phil. C. Whitaker
enterprise remains viable only for the purpose of bought from the plaintiffs the one-half of the railroad
winding up its affairs. The principal signicance of line pertaining to the latter. Of the purchase price,
dissolution is that thereafter, no new partnership Venancio Concepcion and Phil. C. Whitaker paid the
business should be undertaken, but affairs should be sum of P47,544.43 only. The plaintiffs and Concepcion
liquidated and distribution made to those entitled to the and Whitaker agreed, among other things, that the
partners interest. partnership "Palma" and "San Isidro," between Serra,
Lazaro Mota, now deceased, and Juan J. Vidaurrazaga
Facts: plaintiffs and defendant entered into a contract of
for himself and in behalf of his brother, Felix and
partnership for the construction and exploitation of a
Dionisio Vidaurrazaga, should be dissolved upon the
railroad line from the "San Isidro" and "Palma" centrals
execution of this contract, and that the said partnership
to the place known as "Nandong." The original capital
agreement should be totally cancelled and of no force
stipulated was P150,000. It was covenanted that the
and effect whatever.
parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the So it results that the "Hacienda Palma," with the entire
partnership. When the capital was proved to be railroad, the subject-matter of the contract of partnership
insufficient, the defendant entered into a contract of sale between plaintiffs and defendant, became the property of
with Venancio Concepcion, Phil. C. Whitaker, and Whitaker and Concepcion. Phil. C. Whitaker and
Eusebio R. de Luzuriaga, whereby he sold to the latter Venancio Concepcion having failed to pay to the
the estate and central known as "Palma" with its running defendant a part of the purchase price, that is, P750,000,
business, as well as all the improvements, machineries the vendor, the herein defendant, foreclosed the
and buildings, real and personal properties, rights, mortgage upon the said hacienda, which was adjudicated
choses in action and interests, including the sugar to him at the public sale held by the sheriff for the
plantation of the harvest year of 1920 to 1921, covering amount of P500,000, and the defendant put in possession
all the property of the vendor. thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C.
Before the delivery to the purchasers of the hacienda Whitaker and Venancio Concepcion.
thus sold, Eusebio R. de Luzuriaga renounced all his
rights in favor of Messrs. Venancio Concepcion and Since the defendant Salvador Serra failed to pay one-half
Phil. C. Whitaker. The purchasers guaranteed the unpaid of the amount expended by the plaintiffs upon the
balance of the purchase price by a first and special construction of the railroad line, that is, P113,046.46, as
mortgage in favor of the vendor upon the hacienda and well as Phil. C. Whitaker and Venancio Concepcion, the
the central with all the improvements, buildings, plaintiffs instituted the present action.
machineries, and appurtenances then existing on the said
hacienda. Defendant set up three special defenses: (1) The
novation of the contract by the substitution of the debtor
with the conformity of the creditors; (2) the confusion of
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the rights of the creditor and debtor; and (3) the The dissolution of a partnership must not be understood
extinguishment of the contract in the absolute and strict sense so that at the termination
of the object for which it was created the partnership is
Arguments: Testate estate of Mota assigns also as a extinguished, pending the winding up of some incidents
ground of their appeal the holding of the court that by and obligations of the partnership, but in such case, the
the termination of the partnership, no legal rights can be partnership will be reputed as existing until the juridical
derived therefrom. relations arising out of the contract are dissolved. This
doctrine has been upheld by the supreme court of Spain
By virtue of the contract Exhibit 5, the plaintiffs and in its decision of February 6, 1903, in the following case:
Phil. C. Whitaker and Venancio Concepcion, by There was a partnership formed between several persons
common consent, decided to dissolve the partnership to purchase some lands sold by the state. The partnership
between the "Hacienda Palma" and "Hacienda San paid the purchase price and distributed among its
Isidro," thus cancelling the contract of partnership of members the lands so acquired, but after the lapse of
February 1, 1919. some time, one of the partners instituted an action in the
court of Badajoz, praying that he be accepted as a
Counsel for appellee (Serra) in his brief and oral partner with the same rights and obligations as the
argument maintains that the plaintiffs cannot enforce any others, for the reason that he had not been allowed all
right arising out of that contract of partnership, which that he had a right to. The court granted the petition,
has been annulled, such as the right to claim now a part which judgment was affirmed by the Audiencia de
of the cost of the construction of the railroad line Caceres.
stipulated in that contract. From that decision the defendant sued out a writ of error
alleging infringement of articles 1680 and 1700 of the
Defendant's contention signifies that any person, who Civil Code, on the proposition that all contracts are
has contracted a valid obligation with a partnership, is reputed consummated and therefore extinguished, when
exempt from complying with his obligation by the mere the contracting parties fulfill all the obligations arising
fact of the dissolution of the partnership. Defendant's therefrom and that by the payment of the money and the
contention is untenable. granting and distribution of the lands without any
opposition, the juridical relations between the
contracting parties become extinguished and none of the
Main Issue: WON the partnership is terminated, parties has any right of action under the contract. The
hence, no legal rights can be derived therefrom? supreme court, holding that some corrections and
liquidations asked by the actor were still pending,
Ruling: the partnership is terminated but continues denied the writ, ruling that the articles cited were not
until the winding up of partnership affairs is infringed because a partnership cannot be considered
completed. (Art. 1829) as extinguished until all the obligations pertaining to
it are fulfilled. (11 Manresa, page 312.)
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The dissolution of a firm does not relieve any of its The fact that Phil. C. Whitaker and Venancio
members from liability for existing obligations, Concepcion were willing to assume the defendant's
although it does save them from new obligations to obligation to the plaintiffs is of no avail, if the latter have
which they have not expressly or impliedly assented, not expressly consented to the substitution of the first
and any of them may be discharged from old debtor. Neither can the letter, Exhibit 6, on page 87 of
obligations by novation of other form of release. It is the record be considered as proof of the consent of the
often said that a partnership continues, even after plaintiffs to the substitution of the debtor, because that
dissolution, for the purpose of winding up its affairs. exhibit is a letter written by plaintiffs to Phil. C.
(30 Cyc., page 659.) Whitaker and Venancio Concepcion for the very reason
that the defendant had told them (plaintiffs) that after the
sale of the "Hacienda Palma" to Messrs. Phil. C.
For all of the foregoing, the judgment appealed from Whitaker and Venancio Concepcion, the latter from then
is reversed, and we hold that the defendant Salvador on would bear the cost of the repairs and maintenance of
Serra is indebted to the plaintiffs, the Testate Estate the railroad line and of the construction of whatever
of Lazaro Mota, et al., in the amount of P113,046.46, addition thereto might be necessary.
and said defendant is hereby sentenced to pay the
But in all of the evidence presented, there was nothing to
plaintiffs the said amount, together with the agreed
show the express consent, the manifest and deliberate
interest at the rate of 10 per cent per annum from the
intention of the plaintiffs to exempt the defendant from
date of the filing of the complaint.
his obligation and to transfer it to his successors in
interest, Messrs. Phil. C. Whitaker and Venancio
1st issue: WON there was novation?
Concepcion.

Ruling: NO. 2nd issue: WON there was a merger of the rights of
debtor and creditor?
It should be noted that in order to give novation its legal
Ruling: NO.
effect, the law requires that the creditor should consent
to the substitution of a new debtor. This consent must be Phil. C. Whitaker and Venancio Concepcion mortgaged
given expressly for the reason that, since novation unto the plaintiffs what they had bought from the
extinguishes the personality of the first debtor who is to plaintiffs and also what they had bought from Salvador
be substituted by new one, it implies on the part of the Serra. If Messrs. Phil. C. Whitaker and Venancio
creditor a waiver of the right that he had before the Concepcion had purchased something from Mr.
novation which waiver must be express under the Salvador Serra, the herein defendant, regarding the
principle that renuntiatio non praesumitur, recognized by railroad line, it was undoubtedly the one-half thereof
the law in declaring that a waiver of right may not be pertaining to Mr. Salvador Serra. This clearly shows
performed unless the will to waive is indisputably shown that the rights and titles transferred by the plaintiffs
by him who holds the right. to Phil. C. Whitaker and Venancio Concepcion were
only those they had over the other half of the railroad
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

line. Therefore, as already stated, since there was no On April 25, 1958 Civil Case No. 4797 was filed by the
novation of the contract between the plaintiffs and the spouses CecilioSaldajeno and Margarita G. Saldajeno
defendant, as regards the obligation of the latter to pay against the Isabela Sawmill, Leon Garibay, and
the former one-half of the cost of the construction of the TimoteoTubungbanua.
said railroad line, and since the plaintiffs did not include
On April 27, 1958 the defendants Leon Garibay,
in the sale, evidenced by Exhibit 5, the credit that they
TimoteoTubungbanua and Margarita G. Saldajeno
had against the defendant, the allegation that the
entered into a "Memorandum Agreement" allowing the
obligation of the defendant became extinguished by the
former to continue the business under the name of the
merger of the rights of creditor and debtor by the
partnership after the withdrawal of Margarita from the
purchase of Messrs. Phil. C. Whitaker and Venancio
same.
Concepcion is wholly untenable.
On May 26, 1958 the defendants Leon Garibay,
TimoteoTubungbanua and Margarita G. Saldajeno
8. executed a document entitled "Assignment of Rights
with Chattel Mortgage". Thereafter the defendants Leon
Singsonvs Isabella Sawmill
Garibay and TimoteoTubungbanua did not divide the
Facts: assets and properties of the "Isabela Sawmill" between
them, but they continued the business of said partnership
On January 30, 1951 the defendants Leon Garibay,
under the same firm name "Isabela Sawmill".
Margarita G. Saldejeno, and TimoteoTubungbanua
entered into a Contract of Partnership under the firm On May 18, 1959 the Provincial Sheriff of Negros
name "Isabela Sawmill. Occidental published two (2) notices that he would sell
at public auction on June 5, 1959 at Isabela, Negros
On February 3, 1956 the plaintiff Oppen, Esteban, Inc.
Occidental certain trucks, tractors, machinery, office
sold a Motor Truck and two Tractors to the partnership
equipment and other things that were involved in Civil
Isabela Sawmill for the sum of P20,500.00. In order to
Case No. 5223 of the Court of First Instance of Negros
pay the said purcahse price, the said partnership agreed
Occidental, entitled "Margarita G. Saldajeno vs. Leon
to make arrangements with the International Harvester
Garibay, et al
Company at Bacolod City so that the latter would sell
farm machinery to Oppen, Esteban, Inc. with the On October 15, 1969 the Provincial Sheriff of Negros
understanding that the price was to be paid by the Occidental executed a Certificate of Sale in favor of the
partnership. defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the
The International Harvester Company has been paid a
enforcement of the judgment rendered in Civil Case No.
total of P19,211.11, leaving an unpaid balance of
5223 of the Court of First Instance of Negros Occidental.
P1,288.89. Other creditors also claimed for unpaid
balance by the partnership. On October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Oriental Lumber Company transfering to the latter for the remaining partners had constituted themselves as the
the sum of P45,000.00 the trucks, tractors, machinery, partnership entity, the "Isabela Sawmill".
and other things that she had purchased at a public
There was no liquidation of the assets of the partnership.
auction referred to in the foregoing paragraph.
The remaining partners, Leon Garibay and
The plaintiffs and the defendants CecilioSaldajeno and TimoteoTubungbanua, continued doing the business of
Margarita G. Saldajeno reserve the right to present the partnership in the name of "Isabela Sawmill". They
additional evidence at the hearing of this case. used the properties of said partnership.

The plaintiffs and the defendants Cecilio and Margarita The properties mortgaged to Margarita G. Saldajeno by
G. Saldajeno presented additional evidence, mostly the remaining partners, Leon Garibay and
documentary, while the cross-defendants did not present TimoteoTubungbanua, belonged to the partnership
any evidence. The case hardly involves questions of fact "Isabela Sawmill." The appellant, Margarita G.
at all, but only questions of law. Saldajeno, was correctly held liable by the trial court
because she purchased at public auction the properties of
The fact that the defendnat 'Isabela Sawmill' is indebted
the partnership which were mortgaged to her.
to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an obligation of It does not appear that the withdrawal of Margarita G.
P20,500.00 contracted on February 3, 10956 is expressly Saldajeno from the partnership was published in the
admitted in paragraph 2 and 3 of the Stipulation. newspapers. The appellees and the public in general had
a right to expect that whatever, credit they extended to
Issue: Whether or not Isabela Sawmill ceased to be a
Leon Garibay and TimoteoTubungbanua doing the
partnership and that the creditors could no longer
business in the name of the partnership "Isabela
demand payment
Sawmill" could be enforced against the properties of said
Ruling: No. Isabella Sawmill remains a partnership partnership. The judicial foreclosure of the chattel
despite the withdrawal of Margarita G. Saldajeno and mortgage executed in favor of Margarita G. Saldajeno
the creditors can demand payment from them. did not relieve her from liability to the creditors of the
partnership.
It is true that the dissolution of a partnership is caused by
any partner ceasing to be associated in the carrying on of The appellant, Margrita G. Saldajeno, cannot complain.
the business. However, on dissolution, the partnership is She is partly to blame for not insisting on the liquidaiton
not terminated but continuous until the winding up to the of the assets of the partnership. She even agreed to let
business. Leon Garibay and TimoteoTubungbanua continue doing
the business of the partnership "Isabela Sawmill" by
The remaining partners did not terminate the business of
entering into the memorandum-agreement with them.
the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the Although it may be presumed that Margarita G.
business still in the name of said partnership. It is Saldajeno had action in good faith, the appellees aslo
expressly stipulated in the memorandum-agreement that acted in good faith in extending credit to the partnership.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Where one of two innocent persons must suffer, that appelees have a right to file the action to nullify the
person who gave occasion for the damages to be caused chattel mortgage in question.
must bear the consequences. Had Margarita G. Saldajeno
The portion of the decision appealed from ordering the
not entered into the memorandum-agreement allowing
appellants to pay attorney's fees to the plaintiffs-
Leon Garibay and TimoteoTubungbanua to continue
appellees cannot be sustained. There is no showing that
doing the business of the partnership, the appellees
the appellants displayed a wanton disregard of the rights
would not have been misled into thinking that they were
of the plaintiffs. Indeed, the appellants believed in good
still dealing with the partnership "Isabela Sawmill".
faith, albeit erroneously, that they are not liable to pay
Under the facts, it is of no moment that technically
the claims.
speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. The defendants-appellants have a right to be reimbursed
Saldajeno. The partnership was not terminated and it whatever amounts they shall pay the appellees by their
continued doping business through the two remaining co-defendants Leon Garibay and TimoteoTubungbanua.
partners. In the memorandum-agreement, Leon Garibay and
TimoteoTubungbaun undertook to release Margarita G.
The contention of the appellant that the appllees cannot
Saldajeno from any obligation of "Isabela Sawmill" to
bring an action to annul the chattel mortgage of the
third persons.
propertiesof the partnership executed by Leon Garibay
and TimoteoTubungbanua in favor of Margarita G.
Saldajeno has no merit.
9.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract prejudices NG CHO CIO ET AL., plaintiffs-appellants,
the rights of a third person, he may file an action to vs.
annul the contract. NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
This Court has held that a person, who is not a party
obliged principally or subsidiarily under a contract, may FACTS:
exercised an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng
contracting parties, and can show detriment which would Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng
positively result to him from the contract in which he has Due King(6 people) entered into a contract of general
no intervention. co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period
The plaintiffs-appellees were prejudiced in their rights
of 10 years from May 23, 1925 and Ng Diong was
by the execution of the chattel mortgage over the
named as managing partner. On May 10, 1935, the
properties of the partnership "Isabela Sawmill" in favor
articles of co-partnership were amended by extending its
of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and TimoteoTubungbanua. Hence, said
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

life to 16 years more to be counted from May 23, 1925, aggregate amount of P80,000.00 in favor of C.N.
or up to May 23, 1941. Hodges, together with the right and interest in the
mortgage executed to secure the loans. Since said loans
On January 5, 1938, the partnership obtained from the became due and no payment was forthcoming, Hodges
National Loan and Investment Board a loan in the asked permission from the insolvency court to file a
amount of P30,000.00, and to guarantee its payment it complaint against the assignee to foreclose the mortgage
executed in its favor a mortgage on Lots Nos. 236-B, executed to secure the same in a separate proceeding,
317-A, 233 and 540 (4 parcels) of the cadastral survey of and permission having been granted, Hodges filed a
Iloilo. On the same date, the partnership also obtained complaint for that purpose on May 13, 1941. In his
from the same entity another loan in the amount of complaint, Hodges prayed that the assignee be ordered
P50,000.00 to secure which it also executed in its favor a to pay him the sum of P75,622.90, with interest at 8%
mortgage on Lots Nos. 386, 829 and 237 (3 parcels) of per annum thereon from March 6, 1941, plus P8,000.00
the same cadastral survey. attorney's fees, exclusive of costs and charges.
Meanwhile, war broke out and nothing appears to have
Sometime in 1938, the partnership was declared
been done in the insolvency proceedings. The court
insolvent upon petition of its creditors in the Court of
records were destroyed. However, they were
First Instance of Iloilo wherein one Crispino Melocoton
reconstituted later and given due course.
was elected as assignee. As a consequence, on June 21,
1939, the titles to the seven parcels of land On August 15, 1945, the partners of the insolvent firm
abovementioned were issued in his name as assignee. In and Julian Go, who acquired most of the claims of the
due time, the creditors filed their claims in said creditors, filed a petition with the insolvency court
proceeding which totalled P192,901.12. praying at the insolvency proceedings be closed or
terminated cause the composition agreement the
On August 9, 1940, a majority of the creditors with
creditors had submitted relative to the settlement of the
claims amounting to P139,704.81, and the partners of
claims had already been approved on October 10, 1940.
the firm, acting thru counsel, entered into a composition
And on October 6, 1946, the court, acting favorably on
agreement whereby it was agreed that said creditors
the petition, ordered, closure of the proceedings directing
would receive 20% of the amount of their claims in full
the assignee to turn and reconvey all the properties of the
payment thereof. Prior to this agreement, however,
partnership back to the latter as required by law. In
defendant Julian Go had already acquired the rights of
accordance with this order of the court, the assignee
24 of the creditors of the insolvent whose total claims
executed a deed of reconveyance of the properties to the
amounted to P139,323.10. Said composition agreement
partnership on April 2, 1946 and by virtue thereof, the
was approved by the insolvency court.
register of deeds cancelled the titles issued in the name

On January 30, 1941, the Agricultural and Industrial of the assignee and issued new ones in lieu thereof in the

Bank which had succeeded the National Loan and name of the partnership.

Investment Board assigned its rights and interests in the


loans obtained from it by the partnership in the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

As of said date, April 2, 1946, the indebtedness of the to the Bank of the Philippine Islands to secure a loan of
partnership to C. N. Hodges which was the subject of the P126,000.00 to be used in the construction of a
foreclosure proceedings in a separate case was commercial building on said lots.
P103,883.34. In order to pay off the same and raise
necessary funds to pay the other obligations of the ISSUE:

partnership, it was deemed proper and wise by Ng


(1) The sale made by Ng Diong in behalf of the
Diong, who continued to be the manager of the
partnership NG CHIN BENG HERMANOS of the seven
partnership, to sell all its properties mortgaged to
lots belonging to it in favor of C. N. Hodges on April 2,
Hodges in order that the excess may be applied to the
1946 is null and void because at that time said parcels
Payment of said other obligations, and to that effect Ng
were still in the custody of the assignee of the insolvency
Diong executed on April 2, 1946 a deed of sale thereof
proceedings, or in custodia legis, and, hence, the same is
in favor of Hodges for the sum of P124,580.00. Out of
null and void;
this price; the sum of P103,883.34 was applied to the
payment of the debt of the partnership to Hodges and the (2) Said sale is also null and void "because of the
balance was paid to the other creditors of the disparity, irrationality and unreasonableness between the
partnership. On the same date, Hodges executed another consideration and the real value of the properties when
contract giving the partnership the right to repurchase sold"; and
Lots Nos. 237, 386 and 829 in installments for the sum
of P26,000.00 within three years with interest the rate of (3) The lower court erred in not finding that the two
1% Per annum, Payable monthly. deeds of mortgage executed by the partnership in favor
of the National Loan and Investment Board which were
On May 23, 1947, the partnership had not yet paid its later assigned to C. N. Hodges can no longer be enforced
indebtedness to Julian Go in the amount of P24,864.62 because the action to foreclose the same has already
under the composition agreement, nor did it have any prescribed.
money to repurchase Lots Nos. 237, 386 and 829 and so
Ng Diong, in behalf of the partnership, transferred the RULING:
right of the latter to repurchase the same from Hodges to
(1) NO.
Julian Go in full payment of the partnership's
indebtedness to him. And having Julian Go exercised the
Anent the first issue, it would be well to state the
option January 6, 1948, Hodges executed a deed of sale
following facts by way of clarification: It should be
of the properties in his favor, and pursuant thereto the
recalled that on August 8, 1940 the majority of the
register of deeds issued new titles' in his name covering
creditors of the partnership, as well as the representatives
said lots. On May 29, 1948, Hodges executed another
of the latter, submitted to the court taking cognizance of
deed of sale covering Lots Nos. 317-A, 236-B, 233 and
the insolvency proceedings a composition
540 for the sum of P119,067.79 in favor of Jose C.
agreement whereby it was agreed that said creditors
Tayengco. And on August 31, 1948, Tayengco
would receive 20% of the amount of their claims in full
mortgaged said lots, together with three other lots of his,
payment thereof. This agreement was approved on
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

October 10, 1940 which, in contemplation of law, has managing partner of the partnership and he had the
the effect of putting an end to the insolvency necessary authority to liquidate its affairs under its
proceedings. However, no further step was taken thereon articles of co-partnership. And considering that war had
because of the outbreak of the war. Later, the record of intervened and the affairs of the partnership were placed
the case was reconstituted and the parties on August 15, under receivership up to October 6, 1945, we are of the
1945 filed a petition with the court praying for the opinion that Ng Diong could still exercise his power as
dismissal and closure of the proceedings in view of the liquidator when he executed the sale in question in favor
approval of the aforesaid composition agreement, and of C. N. Hodges. This is sanctioned by Article 228 of the
acting favorably thereon, the court on October 6, 1945, Code of Commerce which was the law in force at the
issued an order declaring the proceedings terminated and time.1
ordering the assignee to return and reconvey the
properties the partnership. The actual re-conveyance was (2) NO.

done by an assignee on April 2, 1946.


With regard to the second issue, it is contended that the

It would, therefore, appear that for legal and practical trial court should have declared the sale of the lots made

purposes the insolvency ended on said date. Since then to C. N. Hodges null and void "because of the disparity,

partnership became, restored to its status quo. It again irrationality and unreasonableness between the

reacquired its personality as such with Ng Diong as its consideration and real value of the properties when

general manager. From that date on its properties ceased sold." In stressing his point, counsel contends that the

to be in custodia legis. Such being the case, it is obvious lands in question, which are located in a commercial

that when Ng Diong as manager of the partnership sold section of the City of Iloilo, were frittered away only for

the seven parcels of land to C. N. Hodges on April 2, a "pittance of P124,580.00" when, borrowing his words

1946 by virtue of a deed of sale acknowledged before a they could have been sold like hot cakes to any resident

notary public on April 6, 1946, the properties were of the city of regular financial standing upon proper

already was at liberty to do what it may deem convenient approaches and representations, because at that time

and proper to protect its interest. And acting accordingly, those properties were fairly worth one-half of a million

Ng Diong made the sale in the exercise of the power pesos."

granted to him by the partnership in its articles of co-


This claim may be true, but the same is unsupported.
partnership. We do not, therefore, find anything irregular
Appellants have failed to introduce any evidence to
in this actuation of Ng Diong.
show that they could have secured better offers for the

Since at the time of the sale the life of the partnership properties if given a chance to do so and that they

had already expired, the question may be fixed: Who advance now is a mere speculation or conjecture which

shall wind up it business affairs? May its manager still had no place in our judicial system. Since every claim

execute the sale of its properties to C. N. Hodges as was must be substantiated by sufficient evidence, and this

done by Ng Diong? The answer to this question cannot appellants have failed to do, their pretense cannot be

but be in the affirmative because Ng Diong was still the entertained.


[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(3) NO. and C, there being no questions as to the


location or identity of the same under the proofs
Neither can we give any value to the claim that the offered by either party. The objection to the
action for the foreclosure of the mortgage executed by registration of these two parcels is based
the partnership in favor of C. N. Hodges has already principally on the following notarial
prescribed not only because the same is immaterial but instrument.
because it is an issue that appellants are raising for the
first time in this appeal. Such issue has never been raised
The undersigned scriptory creditors of the
in their pleadings, nor in the trial court. Verily, this
spouses Don Ramon Henson and Doa
claim has no merit.
MatildeMagdagal, residents of the pueblo of
Arayat, Province of Pampanga, have entered
With regard to the appeal taken by the heirs of defendant
into the following agreement for effecting the
Ng Diong whose main claim is that the trial court failed
transfer by sale and delivery of their
to adjudicate to the partnership the properties which
property, as payment, on the grounds:
were bought by Julian Go from C. N. Hodges, suffice it
to say that the same could not be done, firstly, because
o 1. Don Ceferino Revilla, in
no such claim was made by them in their pleadings in
representation of the spouses Don Lino
the trial court, and, secondly, because the evidence
Cardenas Reyes, and Doa Raymunda
shows that said properties were bought by Julian Go by
Soriano under power of attorney duly
virtue of the option given to him by the partnership for a
acknowledged, obligates himself to
valuable consideration in full payment of the credits
withdraw the complaint in the court of
assigned to him by a good number of creditors of said
the Province of Pampanga, which Don
partnership. There is no evidence that he promised to
Manuel Murciano filed, raising the
reconvey the same to the partnership.
attachment levied on the hacienda
belonging to those spouses, Don Ramon
Henson and Doa MatildeMagdagal
situated in the barrio of Lacmit of the
pueblo of Arayat, and leaving it free to
10.
the disposition of the undersigned.
CRISANTO LICHAUCO, ET AL., vs. RAYMUNDA
SORIANOG.R. No. L-8450January 29, 1914
o 2. The amount of P7400, the subject
matter of Don Manuel Murciano's
FACTS:
complaint wherein Don Lino Cardenas
This is an appeal from a judgment of the Court
Reyes was subrogated, shall fix the
of Land Registration, ordering the registration of
proportion in which he shall participate
several parcels of land in the names of the
in both the expenses and the assets of
petitioners. The appeal is limited to parcels A
said hacienda; likewise, Doa
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

JoaquinaCaldes shall participate in attachment levied in part on the products


proportion to her P2090; Doa of said land, leaving them free to the
Concepcion Gruet de Atayde and Doa disposition of the interested parties
Cornelia Laochanco, in both expenses themselves.
and assets, and these last two credits
shall be liquidated on the current thirty- o 7. A book of minutes shall be kept for
first of December, and all these credits administration and management of the
shall be passed upon the creditors hacienda, which book shall be in care of
themselves in order to determine the a person chosen by the creditors
total liabilities, as the joint partnership themselves; and they will submit,
capital. without appeal, to the decision of
friendly arbitrators, whenever they may
o 3. After the expenses have been disagree in a tie vote on subjects not
deducted, Messrs. Cardenas and Caldes expressly provided for in this
shall take note from the net profits the agreement, each partner to have in the
proportionate part corresponding to meeting only one vote, regardless of the
each, while the remainder shall be amount of his credit; and all are
divided equally between the two obligated to perform what the majority
creditors, Doa Concepcion Gruet de decides.
Atayde and Doa Cornelia Laochanco,
without reference to the amounts of their o 8. With reference to his general credit of
credits. P8000, Mr. Cardenas agrees to collect
the same after the undersigned shall
o 4. These allotments of assets shall serve have secured their respective credits.
for extinguisher their respective credits,
with the rate of interest made uniform at o 9. As the first expense charged against
six per cent a year. the products of the hacienda, there shall
o 5. Care shall be taken by all the be assigned to the spouses Henson and
interested parties that the management Magdagal a pension of P30/month
be the most economical possible, with from the first of January, 1889.
the maximum of production, and sale of
the products of the hacienda at the best o 10. When everything shall have been
price. paidthe hacienda and its dependencies
shall be restored to the spouses Henson
o 6. Doa JoaquinaCaldes also agrees to and Magdagal.
withdraw the complaint she has filed in
the said court of Pampanga, raising the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

o 11. Spouses Henson and Magdagal conditions shall be liable on his


shall be obligated to direct and to aid in proportionate share of profits and on his
the care of the hacienda, if the credit for the damages his negligence or
partnership so deem expedient, in order opposition may cause.
to utilize the knowledge and experience
they may have of it. o 16. The parties to this agreement shall
o 12. In case need should arise for an seek the best method of arranging with
administrator or manager of said Messrs. Smith, Bell & Co. in regard to
hacienda to look after the cultivation the debt of Don Ramon Henson for the
and kindred labors, including milling, machinery installed on the hacienda.
with the status of a genuine manager,
action shall likewise be taken by vote o 17. The present instrument shall be
among the creditors. made a public document after execution
of the instrument of sale and delivery.
o 13. Each partner in person or by proxy
shall have the same intervention and By a notarial document of the same date,
inspection for all the operations of the numbered 16, the two spouses attempted to
hacienda, but shall cease to have any make an absolute sale of parcels A and C to
right or participation under this Concepcion Gruet and Cornelia Laochanco. The
agreement after his credit has been paid. former assigned her rights in the premises to the
latter, who was the mother of the present
o 14. If, as is not to be expected in view of petitioners.
the new management and resources the
hacienda will have, and there should not ISSUE: WON the subject parcels of land in question
have intervened any public calamity may be registered under the name of petitioners.
or force majeure, it should be seen that
in two and excluding the present one, RULING: The claim of ownership on the part of the
not even enough should have been petitioners to parcels A and C cannot be sustained.
produced to pay the indispensable cost The document copied above, constituted a novation of
of cultivation, with merely unproductive the preexisting claims of the creditors who affixed their
expense to the undersigned, the creditors names thereto, regardless of whether such claims were
shall agree among themselves upon the secured by mortgage liens on the real property of the
best plan they may deem expedient in spouses, or were merely personal debts. It is a self-
accord with the instrument of delivery. evident from this document, that a contract of
antichresis was created upon the property of the
o 15. Any one failing to comply with the spouses; and that, as between the creditors
decisions reached and with these themselves, a partnership was formed, as is
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

specifically stated in clause No. 2 thereof. The Plaintiff Maximo Guidote brought an action against
attempted sale of the property to two of these creditors Romana Borja, the administratrix of the estate of
shortly thereafter appears to have been made, on the part Narciso Santos, deceased, to recover P9,534.14, a part of
of the spouses, under a misunderstanding of its which was alleged to be the net profits due the plaintiff
signification. It was made without the consent of the in a partnership business conducted under the name of
other parties to the original contract. The fact that at the "Taller Sinukuan," in which Santos was the capitalist
time this contract of sale entered in the property registry, partner and the plaintiff the industrial partner
the original contract did not appear therein, can make no
The defendant in her answer admitted the existence of
difference under the facts of this case. The original
the partnership and in a cross-complaint and counter-
contract was binding on the parties thereto and their
claim prayed that the plaintiff be ordered to render an
privies, without registration.
accounting of the partnership business and to pay to the
estate of the deceased the sum of P25,000 as net profits,
The sale of January 12, 1889, was an attempt on the
credits, and property pertaining to said deceased.
part of two of the partners to withdraw from the
partnership for their own personal profit before the Due to the plaintiffs failure to liquidate the affairs of the
termination of the partnership at the expense of the partnership and to render an account thereof to the
partnership, an act which was expressly prohibited administratrix of Santos estate, the trial court dismissed
by Law 12, Title 10, Fifth Partida, and is now the case and absolved Borja. After rendering an account
prohibited by article 1706, of the Civil Code. The prepared by Tomas Alfonso (public accountant) in
notarial document of January 12, 1889, did not therefore behalf of Guidote, the court disproved the account
convey the title to the land in dispute to the would-be stating that it was unreliable. The court then ordered that
purchasers, and as the claim of ownership of the Borja must submit to the court an accounting of the
petitioners is necessarily based on that document, it partnership business from the date of the commencement
results that the certificate of registration ought not to of the partnership, June 15, 1918, up to the time the
include those parcels. business was closed.

Borja presented an account and liquidation prepared by a


11. public accountant, Santiago A. Lindaya, showing a
balance of P29,088.95 in favor of the defendant. At the
G.R. No. L-28920 October 24, 1928
hearing, the defendant introduced the public accountant

MAXIMO-GUIDOTE, plaintiff-appellant, Jose Turiano Santiago to testify as to the results of an

vs. audit made by him of the accounts of the partnership.

ROMANA BORJA, as administratrix of the estate of Santiago testified that he had examined the exhibits

Narciso Santos, deceased, defendant-appellee. offered in evidence of the case by both parties and that
he had prepared a separate accounting or liquidation
OSTRAND, J.: similar in results to that prepared by Lindaya, but with a
few differences in the sums total.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The court therefore, found that the conclusions reached As to the other witnesses for the plaintiff His Honor
by Santiago A. Lindaya as modified by Jose Turinao further says:
Santiago were just and correct and ordered the plaintiff
The testimony of the other witnesses for the plaintiff
to pay the defendant the sum of P26,020.89, Philippine
deserves but scant consideration as evidence to
currency, with legal interest thereon from April 2, 1921,
overcome the testimony of Mr. Santiago, as a whole
the date of the defendant's answer, and to pay the costs
particularly that of the witness Chua Chak, who, after
In order to contradict the conclusions of Lindaya and identifying and testifying as to a certain exhibit shown
Jose Turiano Santiago, the plaintiff presented Tomas him by counsel for plaintiff, showed that he could
Alfonso and the bookkeeper, Pio Gaudier, as witnesses neither read nor write English, Spanish, or Tagalog, and
in his favor. In regard to the character of the testimony that of the witness Mr. Claro Reyes, who, after
of these witnesses, His Honor, the trial judge, says: positively assuring the court that a certain exhibit
tendered him for identification was an original
The testimony of these two witnesses is so unreliable
document, was forced to admit that it was but a mere
that the court can place no reliance thereon. Mr. Tomas
copy.
Alfonso is the same public accountant who filed the
liquidation Exhibit O on behalf of the plaintiff, in ISSUE: Do the legal representatives of the deceased
relation to the partnership business, which liquidation partner have the obligation to render accounts of the
was disapproved by this court in its decision of August operations of the partnership, as contended by Guidote?
20, 1923. It is also to be noted that Mr. Alfonso would
HELD: No. In the case of Wahl vs. Donaldson Sim &
have this court believe the proposition that the plaintiff,
Co. (5 Phil., 11, 14), it was held that the death of one of
a mere industrial partner, notwithstanding his having
the partners dissolves the partnership, but that the
received the sum of P21,649.61 on the various jobs and
liquidation of its affairs is by law entrusted, not to the
contracts of the "Taller Sinukuan," had actually
executors of the deceased partner, but to the surviving
expended and paid out the sum of P63,360.27, of
partners or the liquidators appointed by them. The same
P44,710.66 in excess of the gross receipts of the
rule is laid down by the Supreme Court of Spain in
business. This proposition is not only improbable on its
sentence of October 12, 1870.
face, but it materially contradicts the allegations of
plaintiff's complaint to the effect that the advances made The other assignments of error have reference only to
by the plaintiff only the amount to P2,017.50. questions of fact in regard to which the findings of the
court below seem to be as nearly correct as possible
Mr. Pio Gaudier is the same bookkeeper who prepared
upon the evidence presented. There may be errors in the
three entirely separate and distinct liquidation for the
interpretation of the accounts, and it is possible that the
same partnership business all of which were repeated by
amount of P26,020.89 charged against the plaintiff is
the court in its decisions of September 1, 1922 and the
excessive, but the evidence presented by him is so
court finds that the testimony given by him at the last
confusing and unreliable as to be practically of no
hearing is confusing, contradictory and
weight and cannot serve as a basis for a readjustment of
unreliable.1awph!l.net
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the accounts prepared by the accountant Lindaya and the vs.


apparently reliable witness, Jose Turiano Santiago. JOSE S. Y. PENG, assignee, appellant

We should, perhaps, have been more inclined to question FACTS:


the conclusions of Lindaya and Santiago if the plaintiff
It appears from the record that on June 13, 1925, the
had shown a disposition to render an honest account of
San Miguel Brewery, Porta Pueco& Co., and Ruiz
the business and to effect a fair liquidation of the
&Rementaria S. en C. instituted insolvency
partnership but instead of doing so, he has by means of
proceedings against LeonciaVda. de Chan Diaco (alias
very questionable, and apparently false, evidence sought
Lao LiongNaw), alleged to be the owner of a grocery
to mulct his deceased partner's estate to the extent of
store on Calle Nueva, Binondo, known as the store of
over P9,000. The rule for the conduct of a surviving
"La Viuda de G. G. Chan Diaco."
partner is thus stated in 20 R. C. L., 1003:
The above-mentioned firms alleged, among other things,
In equity surviving partners are treated as trustees of the
that Leoncia was indebted to them in the sum of
representatives of the deceased partner, in regard to the
P26,234.47, which debt was incurred within thirty days
interest of the deceased partner in the firm. As a
prior to the filing of said petition. It further appears that
consequence of this trusteeship, surviving partners are
other creditors have filed claims against the estate to the
held in their dealings with the firm assets and the
amount of P50,000.
representatives of the deceased to that nicety of dealing
and that strictness of accountability required of and The petition for the declaration of insolvency was set
incident to the position of one occupying a confidential down for hearing on June 25, 1925. Leoncia did not
relation. It is the duty of surviving partners to render an appear at the hearing, notwithstanding the fact that she
account of the performance of their trust to the personal was duly notified, and the court (CFI Manila) declared
representatives of the deceased partner, and to pay over her insolvent. Judge Simplicio del Rosario, in an order
to them the share of such deceased member in the dated September 12, 11925, appointed Ricardo
surplus of firm property, whether it consists of real or Summers, the clerk of the Court of First Instance of
personal assets. Manila, referee, authorizing him to take further evidence
in regard to the questions of fact raised by the motions of
The appellant has completely failed to observe the rule
August 5th and 19th. The report was approved by Judge
quoted, and he is not in position to complain if his
del Rosario on April 14, 1926.
testimony and that of his witnesses is discredited.
On April 22, 1926, the attorney for the insolvent filed
her exception to the report of the referee, which had

12. already been approved on April 14, and on July 23,


1926, the court rendered a decision, reaffirming its
G.R. No. L-29182 October 24, 1928 order of April 14, and ordered the insolvent to deliver to
the assignee the sum of P56,000, more or less.
LEONCIA VIUDA DE CHAN DIACO (alias LAO
LIONG NAW) appellee,
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

On August 4, 1926, attorney for the insolvent filed a therefore, the partners individually must, jointly and
motion asking the court to dismiss the proceedings severally, respond for its debts (Code of Commerce,
against her on the ground that they should have been art. 127). As the appellee is one of the partners and
brought against the partnership "Lao LiongNaw& Co.," admits that she is insolvent, we can see no reason for
of which she was only a member. The alleged the dismissal of the proceedings against her. It is
partnership was evidenced by an agreement dated July further to be noted that both the partnership and the
22, 1922, and from which it appeared that on that date separate partners thereof may be joined in the same
Lao LiongNaw (Leoncia), Chan ChiacoWa, Cua Yuk, action, though the private property of the latter
Chan Bun Suy, Cahn Bun Le, and Juan Maquitan cannot be taken in payment of the partnership debts
Chan(6 all in all) had formed a partnership with a capital until the common property of the concern is
of P21,000, of which only P4,000 was contributed by exhausted (ComapniaMaritima vs. Munoz, 9 Phil., 326)
Leoncia. and, under this rule, it seems clear that the alleged
partnership here in question may, if necessary, be
After several hearings in which various witnesses were
included in the case by amendments to the insolvency
examined and documents presented on behalf of both
petition.
sides, the referee, on February 28, 1927, rendered a
second report, in which he found as facts that the alleged We also call attention to the fact that the evidence
partnership between the insolvent and some of her clearly shows that the business, alleged to have been that
relatives and employees was only a fictitious of the partnership, was carried on under the name
organization created for the purpose of deceiving the "LeonciaVda. de Chan Diaco" or "La Vda. de G. G.
Bureau of Customs and enable some of the aforesaid Chan Diaco," both of which are names of the appellee,
relatives, who were mere coolies, to come to the and we think it can be safely held that a partnership may
Philippines under the status of merchants. He, therefore, be adjudged bankrupt in the name of an ostensible
recommended that the motion of the insolvent to dismiss partner, when such name is the name under which the
the proceedings against her be denied. partnership did business.

ISSUE: Whether or not the lower court erred in ordering The decision appealed from is hereby reversed, the
the filing of a new petition of insolvency against the reports and recommendations of the referee are
fictitious partnership Lao LiongNiew& Co. and the approved.
delivery to the sheriff of all the property of the
insolvency
13.
RULING:

As to the second and third assignments of error it is to be EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,

observed that conceding for the sake of the argument vs.

that the debts in question were incurred by the alleged FAUSTINO LICHAUCO, defendant-appellant. G.R.

partnership, it clearly appears from the record that No. L-10040 January 31, 1916

said partnership, as such, has no visible assets that,


[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In October, 1901, a notarial instrument was and the good will of the milling business formerly
executed in Manila, by the terms of which a partnership conducted at the place, the balance of the capital being
was duly organized for the purpose of carrying on a rice- contributed by the plaintiffs and others in cash, in the
cleaning business at Dagupan, and for the purchase and following proportions: Eugenia Lichauco, P13,000;
sale of "palay" and rice. CatalinoArevalo, P8,000; Mariano Nable Jose, P5,000;
Tomas Roux, P4,000; JulitaLichauco, P10,000.(5 all in
The articles of association, which were not all)(40k for these people)
recorded in the mercantile registry, contain, among
others, the following provisions: The business thus organized was carried on until
May, 1904, when it was found to be unprofitable and
2. The association will be named F. discontinued by the defendant manager (gestor); and
LichaucoHermanos and will be domiciled in the thereafter, the machinery of the rice mil was dismantled
center of its operations, that is, in the pueblo of by his orders, and offered for sale. No accounting ever
Dagupan, Province of Pangasinan. was made to his associates by the defendant until this
action was instituted in October, 1912. It further
3. The association cannot be dissolved
appears that during all that time the defendant manager
except by the consent and agreement of two-
of the defunct enterprise had in his possession not less
thirds of its partners and in the event of the death
than P20,000, the cash balance on hand, over and above
of any of the latter, the heirs of the deceased, if
all claims of indebtedness after suspending operations in
they be minors or otherwise incapacitated, shall
1904; and that since that time he received or should have
be represented in the association by their legal
received substantial sums of money from the sale of the
representatives or if two-thirds of the surviving
machinery of the dismantled mill.
partners agree thereto, the participation of the
deceased partner may be liquidated. The action was brought by two of the partners of
an enterprise of which the defendant was manager
4. The management and direction of the
(gestor), to secure an accounting of its affairs, and the
association shall be in charged of Don Faustino
payment to the plaintiffs of their respective shares of
Lichauco y Santos, who shall be domiciled in
capital and profits.
this city of Manila, with ample powers to direct
and manage the business; to carry out all manner The defendant admitted the allegations of the
of purchases and sales of "palay," rice, chattels, complaint as to the organization of the enterprise and the
machinery and whatsoever may be necessary participation of the plaintiffs therein, but he contended
and proper for the business of the association; that the plaintiffs could not maintain this action under
the terms of the written contract by virtue of which the
The articles disclose that the capital invested in
enterprise was organized.
the enterprise was fixed at P100,000, of which amount
P60,000 was contributed by the defendant and his The trial court ruled in favour on the plaintiffs
brothers in the form of machinery in a mill at Dagupan stating that there is doubt that from the time the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

defendant concluded the operations of the business in Chapter 3 of Title VIII [Book IV,] of the Civil
1904 until the date of the institution of this action in Code prescribes the means by which partnership
1912, the defendant made no attempt to account to his (sociedades) as defined in that code, may be
associates or to turn over to them the amount due them terminated. The first article of that chapter is as
on a proper accounting. follows:

ISSUE: 1700. Partnership is extinguished:

Isthe dissolution and liquidation of the (1) When the term for which it was constituted
association is absolutely prohibited by the articles of expires.
association,except by and with the conformity and (2) When the thing is lost, or the business for
agreement of two-thirds of the partners. which it was constituted ends.
(3) By the natural death, civil interdiction, or
RULING: NO. insolvency of any of the partners, and in the case
provided for in article 1699.
The contentions of counsels for the defendant
(4) By the will of any of the partners, subject to
take no account of the provisions of both the Civil and
the provisions of articles 1705 and 1707.
Commercial Codes for the dissolution and liquidation
of the different classes of partnerships and Partnerships, to which article 1670 refers, are
mercantile associations upon the occurrence of excepted from the provisions of Nos. 3 and 4 of
certain contingencies not within the control of the this article, in the cases in which they should
partners. The provisions of the articles of partnership exist, according to the Code of Commerce.
prohibiting the dissolution of the association under
review, except by the consent and agreement of two- 1670. Civil partnerships, on account of the
thirds of its partners, denied the right to a less number objects for which they are destined, may adopt
of the partners to effect a dissolution of the all the forms accepted by the Code of
partnership through judicial intervention or Commerce. In this case, the provisions of the
otherwise; but in no wise limited or restricted the rights same shall be applicable, in so far as they are not
of the individual partners in the event the dissolution of in conflict with those of the present Code.
the association was effected, not by any act of theirs, but
by the express mandate of statutory law. It would be Articles 221 and 222 of the Code of Commerce are as

absurd and unreasonable to hold that such an follows:

association could never be dissolved and liquidated


221. Associations of any kind whatsoever shall
without the consent and agreement of two-thirds of
be completely dissolved for the following
its partners notwithstanding that it had lost all its
reasons:
capital, or had become bankrupt, or that the
enterprise for which it had been organized had been
concluded or utterly abandoned.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(1) The termination of the period fixed in the termination and abandonment of the enterprise for which
articles of association of the conclusion of the it was organized, he owed this duty to liquidate and
enterprise which constitutes its purpose. account to all and to each of his associates, and upon his
(2) The entire loss of the capital. failure to perform that duty, all or any of them had a
(3) The failure of the association. clear legal right to compel him to fulfill it.

222. General and limited copartnerships shall Each of his associates had a perfect right to
furthermore be totally dissolved for the demand for himself a full, complete and satisfactory
following reasons: accounting, and in the event that he conceived
himself aggrieved in this regard, to institute the
(1) The death of one of the general partners if appropriate judicial proceedings to secure relief.
the articles of copartnership do not contain an Doubtless, in order to avoid a multiplicity of actions, the
express agreement that the heirs of deceased defendant in such an action could require all the
partner are to continue in the copartnership, or associates to be made parties, but the right of an
an agreement to the effect that said individual member of the association to recover his share
copartnership will continue between the in the enterprise and to assert his individual claim for
surviving partners. redress, wholly independent of the action or attitudes of
(2) The insanity of a managing partner or any his associates, could be in no wise affected thereby. The
other cause which renders him incapable of other associates would be proper, but not necessary,
administering his property. parties to an action of this kind; and when, as in the case
(3) The failure of any of the general partners. at bar, the defendant proceeds to trial without objection
on the express ground that all the associates in the
It cannot be doubted that under these provisions
enterprise have not been made parties to the action, he
of law the association of which the defendant was
cannot thereafter be heard to raise such an objection for
nominated manager (gestor) was totally dissolved in the
the purpose of challenging any judgment which may be
year 1904, when the rice mill for the operation of which
rendered therein.
it was organized was dismantled, the machinery offered
for sale and the whole enterprise concluded and Although the enterprise was organized in the
abandoned. year 1901 for the purpose of conducting mercantile
operations, including the buying and selling of "palay"
Upon the dissolution of the association in
and rice, the articles of partnership or association
1904, it became the duty of the defendant to liquidate
were not registered in the mercantile registry in
its affairs and account to his associates for their
accordance with the provisions of articles 17 and 119
respective shares in the capital invested this not
of the Commercial Code. It was therefore a mere
merely from the very nature of his relation to the
unregistered commercial partnership, and the
enterprise and of his duties to those associated with
association never became in the legal sense a juridical
him as partners, but also by the express mandate of
person, nor did it attain the dignity, rights or
the law. The association having been dissolved by the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

privileges accorded the different classes of POLICARPIA DE LOS SANTOS, interveners-


compaiasmercantiles(mercantile partnerships), appellants.
discussed in Title 1 of Book 2 of the Commercial
Code. Counsel for Nicolas Gatdula filed a complaint in the
Court of First Instance of Manila, alleging as a cause of
The duty of the defendant to liquidate the action that in the month of January, 1907, for the
affairs of the enterprise and to account to his purpose of securing the good name and interests thereof
associates promptly upon the dissolution of the the joint-account company denominated "Los Obreros
association in the year 1904 is expressly prescribed in Pescadores" was constituted; articles of partnership were
the Commercial Code, whether we regard the drawn up among the partners Simplicio Santos, Modesto
association, so far as it affects the mutual rights and Santos, Mateo Felix, Andres Antonio, and the plaintiff
obligations of the partners, as clothed with the forms Nicolas Gatdula(5 all in all), to engage in buying and
of a "sociedad de cuentas en participacion" (joint selling fish and shipping and selling same on
account partnership) or a "sociedad en comindata." commission; that the plaintiff, being a partner and
possessing stock of the value of P500, was eliminated as
We conclude that an express statutory such partner from the said company "Los Obreros
obligation imposed upon the defendant an imperative Pescadores" by the manager thereof, Simplicio Santos,
obligation to proceed without delay to the liquidation who put in his place third parties who were not
of the association in the year 1904 and the further legitimate partners; that notwithstanding the repeated
duty to account to his associates for the result of that demands of the other partners, the manager Simplicio
liquidation. While he appears to have gone forward Santos never distributed dividends among the
with the liquidation far enough to collect all the cash shareholders, because there were no funds to distribute,
resources of the association into his own hands, how as the former cashier, Mateo Felix, had embezzled over
utterly failed neglected to account therefor to his P25,000; that this alleged embezzlement of P25,000, the
associates or to make any attempt so to do, and we are of reason for the failure to distribute dividends, was wholly
opinion that the plaintiffs were clearly entitled to bring pretended and fictitious; that the manager, Simplicio
this action to compel an accounting, and the payment of Santos, in connivance with the present cashier, Modesto
their respective shares of the capital invested, together Santos, had falsely made debts to appear against the
with damages resulting from the failure of the defendant company to its prejudice; that the manager Simplicio
to perform the duty expressly imposed upon him by Santos and the cashier Modesto Santos made the fish-
statute. salting establishment, called "Umbuyan Katagalugan,"
located in the barrio of Bancusay of the Tondo district of
14.
the city of Manila, appear as a separate industry,

NICOLAS GATDULA, plaintiff-appellee, capitalized independently of the company, although it

vs.SIMPLICIO SANTOS and MODESTO SANTOS, was the property of the company "Los Obreros

defendants-appellants. JOSE SANTIAGO and Pescadores.


[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The defendants, Simplicio Santos and Modesto Santos, 1908 for a shortage of over P25,000 of the company's
in answer to the complaint, denied the facts therein funds, the complaint being afterwards dismissed.
contained, and alleged that the defendant Simplicio
Santos had never been required to distribute dividends; In the motion opposing the appointment of Mateo Felix

that he had never handled money of the company, nor as receiver, filed by the defendants on December 3,

had he ever had anything to do with the company funds, 1912, Jose Santiago set up a claim of intervention,

just as he had embezzled; that the plaintiff Nicolas alleging that he was a profit- sharing partner in "Los

Gatdula is not a partner in "Los Obreros Pescadores," Obreros Pescadores," he having two shares, worth

but a mere employee in said company on a fixed salary; P1,000.

that although it was true that the plaintiff Nicolas


After the property of the company had been turned over
Gatdula had been included as a partner in the articles of
to the receiver Mateo Felix, Policarpia de los Santos set
partnership it was at his own request, and that after said
up a claim of intervention, alleging that she was the
articles had been signed the plaintiff Gatdula informed
owner of said fish-salting establishment, she having
the defendants that he had given up the idea of becoming
expended in its construction the sum of P3,709.75,
a partner in said company, wherefore he did not pay any
which she had given her sons Simplicio and Modesto
part of the amount of his share. As a counterclaim, they
Santos for that purpose; that when the receiver Mateo
set forth that the plaintiff well knew that he was not a
Felix took over the said establishment the business was
partner in "Los Obreros Pescadores," although with
in bad repute with the public; that from December 3,
unheard-of audacity he had instituted this action against
1912, until the date of the filing of this claim of
the defendants, thereby damaging them in the sum of
intervention, scarcely any business could be transacted
P2,000, incurred for expenses of defense.
in said fish-salting establishment, owing to the discredit

The defendants, Andres Antonio, Jose Flor Mata, and caused by the receiver and by Jose Flor Mata and Andres

Mateo Felix, answered the complaint filed by Nicolas A. Felix, she having been damaged thereby in an amount

Gatdula, admitting that the latter is a partner in "Los not less than P2,500; wherefore she prayed that the court

Obreros Pescadores; that since its formation the said order the establishment "Umbayan Katagalugan" to be

company had never paid dividends among the excluded from the property of the company "Los

shareholders, the manager Simplicio Santos alleging that Obreros Pescadores".

there were no funds because the cashier Mateo Felix had


After trial of the case and examination of the evidence
embezzled over P25,000; as a special defense they
submitted by both parties, the court rendered the
alleged that they never had any share in the management
decision in favor of the plaintiff, Nicolas Gatdula,
of the business of the company, except that from the
declaring him to be a partner in the joint-account
year 1905 until August 4, 1907, Andres Antonio had
partnership "Los Obreros Pescadores," with an interest
held the office of collector, Jose Flor Mata that of
therein of P500; ordering the defendants, Simplicio
secretary, and Mateo Felix that of cashier, this last one
Santos, Modesto Santos, and Jose Santiago to make an
having been sued by the board of directors in the year
accounting of the management and administration of the
business of said company since the commencement
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

thereof, and ordering the said defendants, Simplicio contributed by each partner to the capital does not
Santos and Modesto Santos, to pay the costs; declaring appear, the plaintiff has shown by parol evidence that
the intervener Jose Santiago a partner in the said joint- each of the partners executing those articles contributed
account company with an interest of P1,000, without P500, Philippine currency, which added to the capital of
cost in his favor; declaring that the intervener Policarpia its predessor "La Consignataria," constituted the assets
de los Santos has an interest of P3,709.75, with a of the company "Los Obreros Pecadores." According to
mortgage for that amount on the building belonging to the evidence submitted by the plaintiff Nicolas Gatdula,
the company, which is now in the receiver's charged, that all the subscribers to the articles of partnership paid
without costs in her favour. their respective quotas or shares, since otherwise they
would not have been permitted to sign those articles. The
ISSUES: only partner who exhibited a receipt for payment to the
company of the value of his shares is the intervener Jose
1) WON the plaintiff Nicolas Gatdula and the intervener
Santiago. He presented the receipt Exhibit A-1 (p. 196)
Jose Santiago form part as members of the joint-stock
and treasurer respectively of the company "Los Obreros
company denominated "Los Obreros Pescadores"
Pescadore," showing that he had purchased two shares in

2) WON the defendants Simplicio Santos, Modesto the said company and had paid their value of 1,000. The

Santos and the said Jose Santiago should be ordered to existence of this receipt is examined by the simple

make an accounting, the company be dissolved, and the reason that Jose Santiago did not sign the articles of

property thereof be distributed among the stockholders. partnership, Exhibit B, and it does not appear therein
that he was a partner in "Los Obreros Pescadores," so
3) whether the other intervener, Policarpia de los Santos, when he purchased two shares in the company it was
is entitled to share in the property of said company to the necessary to issue a receipt for the two shares he had
extent of P3,709.75, as proprietor of the fishing-salt paid in, the receipt to serve at the same time as a
establishment in Bancusay, Tondo certificate of partnership in said company. From the
foregoing we must conclude that the partners executing
Held:
the articles of partnership of the company "Los Obreros
Pecadores" paid their respective shares, although no
1) Yes. It has been duly proven in the case that Nicolas
receipts were issued to them therefor, their fact that they
Gatdula is a member of the joint-account partnership
had executed and signed said instrument being sufficient
"Los Obreros Pescadores," for that is demonstrated by
as acknowledging them to be such partners and as
the articles of partnership of said company. It appears in
having paid in their respective quotas. This is the
the second clause of said articles of partnership that the
situation of the plaintiff Gatdula, who signed those
net capital of the company was P5,250 Philippine
articles.
currency; and according to the twelfth clause thereof the
plaintiff Nicolas Gatdula was elected a member of the
2) During the five years and a half and more that said
board of directors of "Los Obreros Pescadores" with
company was in operation, that is, from January 17,
voice and vote therein. Although the respective amounts
1907, until the filing of the complaint herein on August
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

28, 1912, no regular meeting of stockholders was held, appears to have been built by Santiago Reyes in 1911;
but there were two extraordinary meetings, the first in and that after its completion a notarial instrument was
the house of the bookkeeper Avellana on September 4, executed, in which it was set forth under date of
1907 (Exhibit 2, p. 206), and the second in the house of November 16, 1911, that the said building was the
the director Jose Santiago (sten. notes, 32), solely to property of the intervener Policarpia de los Santos. This
consider the alleged embezzlement of over P25,000 document is not inscribed in the property registry as
committed by the cashier Mateo A. Felix; that monthly proof of the intervener's claim.
and semi-annual balances were not struck, nor was the
cash counted, something which the cashier ought to have The witness Mateo Buson testified that the company

done three times a week, for it appears that the accounts "Los Obreros Pescadores" paid a monthly rental of P15

of the company were not properly kept, as the record for the use of the building, but aside from this testimony

shows; and that since the formation of the said company it has not been satisfactorily demonstrated that the

dividends were never paid, in spite of the demands company was her lessee in the occupation thereof. The

therefor made by various partners. For these reasons the mere fact that "Los Obreros Pescadores" occupied the

plaintiff Nicolas Gatdula and the defendants Andres building without paying rent gives rise to the

Antonio, Jose Flor Mata, and Mateo A. Felix prayed that presumption that it belongs to the said company.

the company be dissolved, and that an accounting be Policarpia de los Santos is entitled to collect the sum of

had, a prayer that has been opposed by the other P3,709.75, which she lent to the company for

defendants, Simplicio Santos and Modesto Santos, and constructing the building, but in the absence of proof of

the intervener Jose Santiago. There can be no question her claim she cannot be considered the owner thereof.

that the majority of the partners seek an accounting, and


the dissolution and liquidation of the company, because
of the violation of certain clauses in the articles of 15.
partnership, whereby the company and its members have
been damaged. The court found said claim to be just, Republic of the Philippines

since the grounds therefor were held to be established. SUPREME COURT


Manila
3) The intervener, Policarpia de los Santos, mother of
the defendants Simplicio and Modesto Santos, claims to EN BANC

be the exclusive owner of the building in question,


G.R. No. L-12371 March 23, 1918
although in her claim of intervention she alleged that her
sons Simplicio and Modesto Santos, as her LEOPOLDO CRIADO, plaintiff-appellant,
representatives, asked her permission to employ some of vs.
her capital in its erection. It is proven that the intervener GUTIERREZ HERMANOS, defendant-appellant.
has been paying the rental of the ground on which said
building is erected (pp. 231-236); that she spent the sum TORRES, J.:
of P3,709.75 in the construction thereof (p. 225), which
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Back ground: Leopoldo Criado filed a complaint court did not determine the issues raised in the first,
against the firm of Gutierrez Hermanos for the recovery second, third, fourth, sixth, seventh, eighth, ninth, and
of a sum of money. Criado wanted to recover his share tenth causes of action, and in defendant's cross-
of the capital stock of the firm of Gutierrez Hermanos, complaint.
since he began his connection therewith, on January 1,
1900, until his separation on December 31, 1911.

Leopoldo Criado alleged that accounts presented by the Second Cause of Action:

defendant referring to his capital in that firm were based


Facts: In the second cause of action Criado demands the
upon a false debit balance of P26,349.13 a balance
payment of P43,410.86, and alleges that, pursuant to a
which had been previously impeached by the affiant as
notarial instrument of March 29, 1900, he became a
well as the accounts from which said sum is sought to be
partner of the firm of Gutierrez Hermanos; and that said
derived. Wherefore he again assailed them in their
document stipulated that the partnership should last for
totality on the grounds that some of the entries thereof
four years from January 1, 1900, and, among other
were improper, other fraudulent, and still other false.
conditions, it contained the following:

Therefore Criados counsel moved that defendant be


Second. Therefore the partnership is organized
ordered to place immediately at the disposal of
among the parties to this instrument, Don
Commissioner Wicks all the books, accounts, bills,
Placido Gutierrez de Celis, Don Miguel
vouchers, and other documents that might be necessary,
Gutierrez de Celis, Don Miguel Alonso y
in order that said liquidation might be made by
Gutierrez, Don Daniel Perez y Alberto, and Don
defendants counsel, by an order of September 2, 1915,
Leopoldo Criado y Garcia,(5 all in all) the first
the court ruled in conformity therewith, authorizing the
three as capitalist partners, and the last two as
firm of Gutierrez Hermanos to appoint another expert
industrial partners.
accountant who, together with the one already
designated. Eighth. All earnings or profits that may be
obtained shall be distributed among the partners
After a rehearing of the case and an examination of
in the following proportion: 37 per cent shall go
George B. Wicks was made regarding the contents of the
to Don Placido Gutierrez de Celis; 37 per cent to
report that he submitted after studying for that purpose
Don Miguel Gutierrez de Celis; 16 per cent to
the books and other documents placed at his disposal by
Don Miguel Alfonso y Gutierrez; 5 per cent, to
the defendant. In view of the result and the evidence
Don Daniel Perez y Alberto; and 5 per cent to
adduced by the parties, and by the said commissioner's
Don Leopoldo Criado y Garcia. In the same
report duly supported by vouchers, the court rendered
proportion above established for the profits the
the judgment aforementioned, on September 11, 1916.
capitalist partners shall be liable for all losses or

Counsel for the firm of Gutierrez Hermanos assails in damages that may be sustained.

general the judgment appealed from because the trial


[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Plaintiff also alleged that his capital was P56,796.25 in inventory of the firm's business, made on December 31,
1902 and, according to the balance had on December 31, 1903, which was signed by Leopoldo Criado, Miguel
1903, the profits obtained amounted to P256,025.31, 5 Gutierrez de Celis and Daniel Perez de Celis, plaintiff
per cent of which, or P12,801.26, belonged to him, Criado's capital on that date was only P25,129.09 which
although the manager Miguel Gutierrez de Celis, by were in force during the second period from January,
means of false and erroneous entries in the books, 1904. From clause 7 of said contract, and according to
succeeded in concealing such profits, thereby injuring said inventory of December 31, 1903, it appears that the
him in said amount of P43,410.86. Plaintiff testified that firm's capital stock amounted to P1,605,497.30, of which
as soon as he learned of such entries, he at once the sum of P25,129.09 belonged to Leopoldo Criado.
protested, but that said manager assured him that as soon
as the probate proceedings concerning the estate of the In an affidavit plaintiff stated that when he learned of the

decedent Miguel Alfonso should be determined said contents of the firm's books, he protested against the

amount would be refunded although in spite of his entries therein, but that the manager Guiterrez de Celis

efforts said promise has not been fulfilled. assured him that he would lose nothing by those entries
made in connection with a serious matter then pending.
In its answer the defendant firm admitted that plaintiff Criado alleged that the reason why said false and
Criado was an industrial partner entitled to 5 per cent of erroneous entries were made in the firm's books by
the profits, but denied all the other averments of the Gutierrez de Celis was to show the family of the
complaint. In special defense it alleged that on deceased Miguel Alonso that the losses of the firm of
December 31, 1903, there was made a liquidation and Gutierrez Hermanos were due to his poor management
balance of the business of the firm operations which of the firm's business
were approved by all the partners with no protest made
by the plaintiff before or after said liquidation, but Where there appears an entry which reads thus:

contrary, he gave his assent thereto and without reserve


P501,513.57, amount of the bills cancelled in the
whatsoever he executed a new partnership contract,
books in this date which should have been
inasmuch as the sum shown by said liquidation and
cancelled in previous years on account of
balance of the business of the firm at the end of
difficulty in their collection, some of these bills
December, 1903, formed the basis of the capital
being of such a nature that they should be
mentioned in the articles of partnership executed before
charged to the account of the management as
a notary on May 9, 1904.
they are contrary to the provisions of the 5th and

In order to determine whether plaintiff still has a right to 10th clauses of the partnership contract . . . but,

demand the sum that is the subject of his complaint in in view of the fact that the author of these

the second cause of action, it becomes necessary first too irregularities is not living so that compliance

decide whether in fact the plaintiff is in estoppel and with the contract may be demanded of him, we

unable to oppose any valid objection against said have distributed the losses equally among the

liquidation and balance; inasmuch as, according to the three principal partners . . . and 5 per cent
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

against each of the industrial partners, Leopoldo liabilities P1,054.56, there being in his favor
Criado's share of the losses being P25,080.68. consequently a balance of P55,738.69; but as in the
instrument of May, 1904, he was credited with only
Issue: WON the losses of the firm of Gutierrez P25,129.09, as capital brought into the new company,
Hermanos was duly deducted from the share of Criado. the plaintiff is entitled to demand that the firm of
Gutierrez Hermanos pay him in the sum of P30,609.60.
Ruling: No, without doubt this entry was made for the
purpose of showing that Miguel Alonso, former manger Fifth Cause of Action:
of the partnership, was to blame for these losses. It is to
be noted that, according to the contract that plaintiff Facts: According to the document presented by the
Criado, as one of the industrial partners is not liable for defendant, which appears to be a copy of plaintiff's stock
the losses which the firm may have sustained according account, certified as authentic by the defendant's
to the eighth clause of the notarial instrument of May 29, bookkeeper, the capital stock of the plaintiff Leopoldo
1900. The allotment to the industrial partner Leopoldo Criado, prior to December 29, 1911, was P73,147.87, an
Criado of the amount of P25,080.68 as losses suffered amount which also appears in the document and tends to
by the firm in its business during the years 1900 to 1903 prove that on December 31, 1911, plaintiff's capital was
was notoriously illegal, inasmuch as he, being merely an the amount stated, before the annotation of the entries
industrial partner, was not liable for any loss whatever. assailed as false and fraudulent by plaintiff.

For the practical application and the fulfillment of the The eighth and sixteenth clauses of the articles of
stipulations made by the partners, in the second and partnership executed in May, 1904, which ratified and
eighth clauses of said articles of partnership of March approved the transactions of the firm of Gutierrez
29, 1900, it should be understood that, for the purpose of Hermanos from January of that year state the following:
determining the profits that correspond to an industrial
partner who shares in the profits from the different Eighth. The earnings or profits which may be

transactions carried on by the firm must be added obtained shall be distributed among the partners

together from which sum must be subtracted that of the in the following proportion:

losses sustained in its business, and in the difference


Forty per cent to D. Placido Gutierrez de Celis;
which represents the net profits if these are greater
Forty per cent to D. Miguel Gutierrez de Celis;
than the losses the industrial partner shares, i. e., in
Ten per cent to D. Daniel Perez Albertos; and
the sum total of the profits. But if, on the contrary, the
Ten per cent to D. Leopoldo Criado Garcia.
losses are greater and exceed the profits in said
difference the industrial partner should not be liable, for In the same proportion provided for the profits,
this constitutes a real loss to the firm. the partners shall be liable for the losses that
may be incurred.
Wherefore, according to the articles of partnership, it
follows that, at the termination of the partnership in Sixteenth. In case the partnership business
1903, plaintiff's assets were P56,793.25, and his should incur such losses as to prevent a
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

continuance of the business or to make a 16.


dissolution of the partnership advisable, same
URBANO LOTA (Substituted by SOLOMON LOTA
shall be liquidated, each capitalist partner
in his capacity as Administrator of the Estate of
bearing such loss in a pro rata proportion to the
URBANO LOTA), plaintiff-appellant,
capital he represents, the expenses necessary for
the prosecution of the business being chargeable vs.
to the firm as a whole. Notwithstanding these
BENIGNO TOLENTINO, defendant-appellee.
provisions the partners Don Placido and Don
Miguel as principal capitalist partners may FACTS:
liquidate the partnership or alienate its rights
On March 3, 1937, plaintiff filed an action against
whenever they deem proper so to do.
defendant to order the latter (a) to render an accounting
By a notarial instrument of January 2, 1908, the life of of his management of their partnership, and (b) to
the partnership was extended to another term of four deliver the plaintiff whatever share he may have in the
years, upon the same bases and conditions (Exh. X, p. assets of the partnership after the liquidation has been
100). approved by the Court.

The partnership above-mentioned was entered into by


Issue: WON Criado having a capital stock with the firm
and between plaintiff and defendant in the year 1918,
of Hermanos Gutierrez should be liable for the losses.
whereby they agreed to engage in general business in the
Ruling: Yes, from the two preinstated clauses of the municipality of Alabat, province of Batangas, both to
partnership contract it is deduced that the partners should divide the profits and losses share alike, and defendant to
be liable for all the losses incurred by the partnership in be manager of the partnership. Plaintiff alleges that from
the proportion fixed in the 8th clause; but that, in case 1918 until 1928 defendant had rendered an annual
such losses should be of so great importance as to accounting, but has refused to do so from 1929 to 1937,
prevent a continuation of the partnership business, or to hence, plaintiff's complaint.
make advisable the dissolution of the partnership, then
To plaintiff's complaint, defendant filed an answer,
due action should be taken in conformity with the
alleging that defendant was the industrial partner in said
provisions of said clause 16, and the partners should be
partnership; that he rendered a yearly accounting and
liable from the losses in a proportion pro rata to their
liquidation thereof from 1918 to 1932, and that in the
share in the partnership assets. The firm of Hermanos
latter year, 1932, the partnership was dissolved and
Gutierrez shows a loss of P56,716.57. Consequently,
defendant delivered all its properties and assets to the
there should be deducted from plaintiff's capital 10 per
plaintiff. Hence, defendant prays for the dismissal of
cent of this sum or P5,671.64 as his share of the loss.
plaintiff's complaint.

The plaintiff died in 1938, and on September 28, 1939,


he was substituted by the administrator of his estate,
Solomon Lota.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

On December 8, 1939, defendant's counsel made a maintained against deceased defendant. Under these
suggestion upon the record that defendant died on circumstances, the remedy and duty of the plaintiff are
November 26, 1939. On January 9, 1940, the Court gave as set out in the following ruling of the Supreme Court
plaintiff 30 days to amend the complaint by substituting in Po YengCheo vs. Lim Ka Yam, (44 Phil. 172, 178):
for the deceased defendant the administrator of his estate
In the first place, it is well settled that when a member of
or his legal representative.
a mercantile partnership dies, the duty of liquidating its
On January 28, 1941, the Court ordered the dismissal of affairs devolves upon the surviving member, or members
the case for lack of prosecution. This order was of the firm, not upon the legal representative of the
reconsidered and set aside upon a showing by plaintiff deceased partner. (Wahl vs. Donaldson Sim and Co., 5
that on March 28, 1941, he had filed a petition for the Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744). And
issuance of letters of administration to deceased the same rule must be equally applicable to a civil
defendant's surviving spouse, Marta Sadiasa, for the partnership clothed with the form of the commercial
purpose of substituting her for the deceased defendant, association (Art. 1670, Civil Code; Lichauco vs.
said petition being Special Proceedings No. 3859 of this Lichauco, 33 Phil., 350).
Court entitled "Intestate Estate of the late
If, as it appears of record, plaintiff died prior to
BenignoTolentino, Solomon Lota, petitioner." This
defendant's death, the duty to liquidate devolved upon
special proceedings was, however, dismissed for failure
the legal representative of the plaintiff because it was the
of the administratrix to file a bond and to take her oath.
latter who sought to establish a claim against the
It will thus be seen that from defendant's death on defendant.
November 26, 1939, to the present, or almost ten years,
2. If after such liquidation, there should be found money
no administrator or legal representative had been
or property due the partnership from the deceased
actually substituted to take the place of said defendant. It
defendant, a claim therefor should be filed against the
was only on April 6, 1949, that plaintiff made another
latter's estate in administration. Again, this is the
try to substitute said deceased by filing his motion,
procedure marked out in the case just cited:
referred to in the first paragraph of this resolution,
praying that defendant's heirs be substituted for him as Upon the death of Lim Ka Yam it therefore become the
parties defendant. duty of his surviving associates to take the proper steps
to settle the affairs of the firms, and any claim against
The following considerations stand in the way of
him, or his estate, for a sum of money due to the
plaintiff's motion for substitution:
partnership by reason of any misappropriation of its
1. It being undisputed that defendant was the manager of funds by him or damages resulting from his wrongful
the partnership formed by and between him and the acts as a manager, should be prosecuted against his
plaintiff, and that said defendant died on November 26, estate in administration in the manner pointed out in
1939, during the pendency of the present for accounting sections 686 to 701, inclusive, of the Code of Civil
and liquidation against defendant, the said action should Procedure. Moreover, when it appears, as here, that the
have been discontinued as it could no longer be property pertaining to Kwong Cheong Tay, like the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

shares in the YasiengChyipKonski and Manila Electric hardly in a position and hardly called upon to effect an
Railroad and Light Company, are in the possession of accounting of said partnership.
the deceased partner, the proper step for the surviving
5. Finally, it will be recalled that the partnership in
associates to take would be to make application to the
question was organized in 1918 and dissolved in 1932.
court having charge of the administration to require the
The action for accounting was commenced on March 3,
administration to surrender such property. (Po
1937. And the present motion for substitution was filed
YengCheo vs. Lim Ka Yam, supra.)
on April 6, 1949, only. Trial on the merits at this late
This procedure was not also followed in the case at bar date might prove futile and fruitless if no partnership
because plaintiff, or his legal representative, did not property is found in the possession of defendant's heirs,
procure the appointment and qualification of an let alone the allegation of said defendant in his answer to
administrator of the estate of deceased defendant, altho the complaint back in 1937 that he had already delivered
he had already filed a petition looking towards such all the properties and assets of the partnership to the
administration. This plaintiff was under a duty to do if plaintiff. If the principle of laches is ever to be applied, it
he considered himself a creditor with a legitimate claim should be applied to this case.
enforceable against the estate of deceased defendant.
Wherefore, the plaintiff's action for substitution is denied
3. What plaintiff, or his legal representative, insisted on and defendant's prayer for the dismissal for this case
doing in the present case is to continue and press his against the plaintiff.
action for accounting and liquidation against the heirs of
The present appellant is Solomon Lota, in his capacity as
deceased defendant, a procedure which, as above stated,
administrator of the estate of UrbanoLota, original
runs counter to that set out in the Po YengCheo vs. Lim
plaintiff, who died in l938.
Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he ISSUE:
only filed a petition for the appointment of an
Whether or not after the death of the defendant
administrator for the estate of deceased defendant, but
BenignoTolentino on November 22, 1939, plaintiff's
did not see to it that administrator filed a bond and
action for accounting and liquidation of the partnership
qualify as such. Hence, the said petition for
formed in l918 between UrbanoLota and
administration was dismissed.
BenignoTolentino, of which the latter was the industrial
4. Also, conceding, without admitting, that the present and managing partner, may be continued against the
action for accounting would lie against defendant, it is heirs of BenignoTolentino.
this Court's opinion that such a duty to account died with
RULING:
the defendant, was extinguished upon his death, and was
not shifted upon his heirs. The heirs of the defendant NO.
have never been partners in the partnership formed by
The applicable authority is the case of Po YengCheo vs.
and between plaintiff and defendant, and said heirs are
Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In the first place, it is well settled that when a member of discontinue the action against the administrator should
a mercantile partnership dies, the duty of liquidating its have been granted. (pp. 178-179.)
affairs devolves upon the surviving member, or
Another ground equally decisive against the appellant
members, of the firm, not upon the legal representatives
correctly advanced by the lower court in dismissing
of the deceased partner. (Wahl vs. Donaldson Sim and
the present action for accounting, is lack of prosecution
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
on the part of the appellant. It may be fittingly recalled
744.) And the same rule must be equally applicable to a
that the action for accounting and liquidation was filed
civil partnership clothed with the form of a commercial
on March 3, l937. No sooner had the defendant
association (art. 1670, Civil Code: Lichaucovs.Licahuco,
BenignoTolentino died on November 22, l939, than said
33 Phil., 350). Upon the death of Lim Ka Yam it
fact was made record by his attorney. On January 9,
therefore become the duty of his surviving associates to
1940, the lower court gave the plaintiff (who had then
take the proper steps to settle the affairs of the firm, and
died and was substituted on September 28, 1939, by the
any claim against him, or his state, for a sum of money
administrator of his estate, Solomon Lota), 30 days to
due to the partnership by reason of any misappropriation
amend the complaint by substituting the administrator or
of its funds by him, or for damages resulting from his
legal representative of the deceased defendant
wrongful acts as manager, should be prosecuted against
BenignoTolentino. On January 28, 1941, the lower court
his estate in administration in the manner pointed out in
dismissed the case for lack of prosecution on the part of
sections 686 to 701, inclusive, of the Code of Civil
the plaintiff, but the order of dismissal was reconsidered,
Procedure. Moreover, when it appears, as here, that the
upon a showing by the plaintiff that on March 28, 1941,
property pertaining to Kwong Cheong Tay, like the
an administration proceeding for the estate of
shares in the YutSiongChyipKonski and Manila Electric
BenignoTolentino was instituted by the plaintiff. On
Railroad and Light Company, are in the possession of
August 8, 1941 the lower court issued, at the instance of
the partner, the proper step for the surviving associates
the plaintiff, letters of administration to Tolentino's
to take would be to make application to the court having
surviving spouse, Marta Sadiasa, who however failed to
charge of the administration to require the administrator
qualify. Accordingly, the court dismissed the
to surrender such property.
administration proceeding on January 3, 1949, for lack
But in the second place, as already indicated, the of interest. It was only as late as April 6, l949, that the
proceedings in this cause, considered in the character of plaintiff filed the motion to substitute, not even the legal
an action for an accounting, were futile; and the court, representative of BenignoTolentino but his heirs.
abandoning entirely the effort to obtain an accounting,
If the plaintiff was genuinely interested in substituting
gave judgment against the administrator upon the
the proper party, assuming that plaintiff's action may still
supposed liability of his intestate to respond for the
be pursued after Tolentino's death, he should have taken
plaintiffs proportionate share of the capital and assets.
timely measures to have the administratrix appointed on
But of course the action was not maintenable in this
August 8, 1941, qualify or, in case of her failure or
aspect after the death of the defendant; and the motion to
refusal, to procure the appointment of another
administrator; because the plaintiff could have availed
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

himself of section 6, Rule 80, of the Rules of Court, Agreement (JVA) for the development of the aforementioned
property into a residential subdivision to be known as "Tagaytay
providing that "letters of administration may be granted Garden Villas." Under the JVA, the Lazatin siblings obliged
themselves to contribute the two parcels of land as their share in
to any qualified applicant, though it appears that there the joint venture. For its part, Primelink undertook to contribute
are other competent persons having better right to the money, labor, personnel, machineries, equipment, contractors pool,
marketing activities, managerial expertise and other needed
administration, if such persons fail to appear when resources to develop the property and construct therein the units
for sale to the public.
notified and claim the issuance of letters to themselves."
The Lazatins agreed to subject the title over the subject property to
Certainly, inaction for almost eight years (after the an escrow agreement. Conformably with the escrow agreement, the
issuance of letters of administration) on the part of the owners duplicate of the title was deposited with the China Banking
Corporation.
appellant, sufficiently implies indifference to or
The Lazatins, through counsel, demanded that Primelink comply
desistance from its suit. with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This
The theory of the appellant is that the heirs may properly impelled the officers of Primelink to meet with the Lazatins and
enabled the latter to review its business records/papers. In another
be substituted for the deceased BenignoTolentino, Letter dated October 22, 1997, the Lazatins informed Primelink that
they had decided to rescind the JVA effective upon its receipt of the
because they are in possession of property allegedly said letter. The Lazatins demanded that Primelink cease and desist
from further developing the property.
belonging to the partnership in question, and the
appellant seeks the recovery thereof. Apart from the fact The Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages,
that said allegation seems to refer to cause of action with prayer for temporary restraining order and/or preliminary
injunction against Primelink and Lopez. The case was docketed as
foreign to the claim for accounting and liquidation Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
against Tolentino, and should have been made in proper despite the lapse of almost four (4) years from the execution of the
JVA and the delivery of the title and possession of the land to
pleading to duly admitted by the lower court, the filing defendants, the land development aspect of the project had not yet
been completed, and the construction of the housing units had not
of appellant's motion for substitution more than twelve yet made any headway.
years after the institution of the complaint came too late The trial court has observed, that a pattern of what appears to be a
and already called for the prosecution. It is immaterial scheme or plot to reduce and eventually blot out the net income
generated from sales of housing units by defendants, has been
that, before the appealed resolution was issued by the established. As of September 30, 1995, the joint venture project
earned a net income of aboutP2,603,810.64. This amount, however,
lower court, the appellant attempted to have the deceased was drastically reduced in a subsequent financial report submitted
by the defendants to P1,954,216.39. Shortly thereafter, and to the
defendant had not yet been properly substituted.
dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet indicating a net loss of P5,122,906.39
-----------END 3RD------------ as of June 30, 1997.

Of the reported net income of P2,603,810.64, the plaintiffs should


#1 have received the sum ofP1,041,524.26 representing their 40%
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and share under paragraph II and V of the JVA. But this was not to be so.
RAFAELITO W. LOPEZ, Petitioners, vs.MA. CLARITA T. LAZATIN- Even before the plaintiffs could get hold of their share as indicated
MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN above, the defendants closed the chance altogether by declaring a
and JOSE MARCOS T. LAZATIN, Respondents. net loss. The court perceives this to be one calculated coup-de-grace
that would put to thin air plaintiffs hope of getting their share in the
FACTS profit under the JVA.
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin,
Jaime T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity), That this matter had reached the court is no longer a cause for
are co-owners of two (2) adjoining parcels of land, with a combined speculation. The way the defendants treated the JVA and the
area of 30,000 square meters, located in Tagaytay City and covered manner by which they handled the project itself vis--vis their
by Transfer Certificate of Title (TCT) No. T-10848 of the Register of partners, the plaintiffs herein, there is bound to be certain conflict
Deeds of Tagaytay City. as the latter repeatedly would received the losing end of the
bargain.
On March 10, 1994, the Lazatins and Primelink, represented by
Lopez, in his capacity as President, entered into a Joint Venture
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

CA affirmed the decision of the Trial Court and ordered Transfer also be returned to the LAZATINs as a necessary consequence of the
Certificate of Title held for safekeeping by Chinabank pursuant to order of rescission of contract. The reason for the existence of the
the Escrow Agreement is ordered released for return to the Escrow Agreement has ceased to exist when the joint venture
plaintiffs-appellees and conformably with the affirmed decision, the agreement was rescinded.
cancellation by the Register of Deeds of Tagaytay City of whatever
annotation in TCT No. 10848 by virtue of the Joint Venture The trial court was not proscribed from placing respondents in
Agreement, is now proper. possession of the parcels of land and the improvements on the said
parcels of land. It bears stressing that the parcels of land, as well as
Petitioners maintain that the aforesaid portion of the decision which the improvements made thereon, were contributed by the parties to
unconditionally awards to respondents "all improvements" on the the joint venture under the JVA, hence, formed part of the assets of
project without requiring them to pay the value thereof or to the joint venture. The trial court declared that respondents were
reimburse Primelink for all expenses incurred therefore is inherently entitled to the possession not only of the parcels of land but also of
and essentially illegal and confiscatory, oppressive and the improvements thereon as a consequence of its finding that
unconscionable, contrary to the tenets of good human relations, and petitioners breached their agreement and defrauded respondents of
will allow respondents to unjustly enrich themselves at Primelinks the net income under the JVA.
expense.
We agree with the CA ruling that petitioner Primelink and
ISSUE respondents entered into a joint venture as evidenced by their JVA
Whether or not the order of the court to release the TCT along with which, under the Courts ruling in Aurbach, is a form of
all the improvements to the LAZATINS proper? partnership, and as such is to be governed by the laws on
partnership.
RULING
When the RTC rescinded the JVA on complaint of respondents based
The legal concept of a joint venture is of common law origin. It has on the evidence on record that petitioners willfully and persistently
no precise legal definition, but it has been generally understood to committed a breach of the JVA, the court thereby
mean an organization formed for some temporary purpose. It is, in dissolved/cancelled the partnership. With the rescission of the JVA
fact, hardly distinguishable from the partnership, since elements are on account of petitioners fraudulent acts, all authority of any
similar community of interest in the business, sharing of profits partner to act for the partnership is terminated except so far as may
and losses, and a mutual right of control. The main distinction cited be necessary to wind up the partnership affairs or to complete
by most opinions in common law jurisdictions is that the partnership transactions begun but not yet finished. On dissolution, the
contemplates a general business with some degree of continuity, partnership is not terminated but continues until the winding up of
while the joint venture is formed for the execution of a single partnership affairs is completed. Winding up means the
transaction, and is thus of a temporary nature. This observation is administration of the assets of the partnership for the purpose of
not entirely accurate in this jurisdiction, since under the Civil Code, a terminating the business and discharging the obligations of the
partnership may be particular or universal, and a particular partnership.
partnership may have for its object a specific undertaking. (Art. The transfer of the possession of the parcels of land and the
1783, Civil Code). It would seem therefore that, under Philippine improvements thereon to respondents was only for a specific
law, a joint venture is a form of partnership and should thus be purpose: the winding up of partnership affairs, and the partition
governed by the laws of partnership. The Supreme Court has, and distribution of the net partnership assets as provided by
however, recognized a distinction between these two business law. After all, Article 1836 of the New Civil Code provides that
forms, and has held that although a corporation cannot enter into a unless otherwise agreed by the parties in their JVA, respondents
partnership contract, it may, however, engage in a joint venture have the right to wind up the partnership affairs:
with others.
Art. 1836. Unless otherwise agreed, the partners who have not
The LAZATINs were able to establish fraud on the part of PRIMELINK wrongfully dissolved the partnership or the legal representative of
which, in the words of the court a quo, was a pattern of what the last surviving partner, not insolvent, has the right to wind up the
appears to be a scheme or plot to reduce and eventually blot out the partnership affairs, provided, however, that any partner, his legal
net incomes generated from sales of housing units by the representative or his assignee, upon cause shown, may obtain
defendants. Under Article 1838 of the Civil Code, where the winding up by the court.
partnership contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the party entitled to It must be stressed, too, that although respondents acquired
rescind is, without prejudice to any other right is entitled to a lien possession of the lands and the improvements thereon, the said
on, or right of retention of, the surplus of the partnership lands and improvements remained partnership property, subject to
property after satisfying the partnership liabilities to third persons the rights and obligations of the parties, inter se, of the creditors
for any sum of money paid by him for the purchase of an interest in and of third parties under Articles 1837 and 1838 of the New Civil
the partnership and for any capital or advance contributed by him. Code, and subject to the outcome of the settlement of the accounts
In the instant case, the joint venture still has outstanding liabilities between the parties as provided in Article 1839 of the New Civil
to third parties or the buyers of the property. Code, absent any agreement of the parties in their JVA to the
contrary. Until the partnership accounts are determined, it cannot
It is not amiss to state that title to the land or TCT No. T-10848 be ascertained how much any of the parties is entitled to, if at all.
which is now held by Chinabank for safekeeping pursuant to the
Escrow Agreement executed between Primelink Properties and It was thus premature for petitioner Primelink to be demanding that
Development Corporation and Ma. Clara T. Lazatin-Magat should it be indemnified for the value of the improvements on the parcels
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

of land owned by the joint venture/partnership. Notably, the JVA of (3) To be indemnified by the person guilty of the fraud or
the parties does not contain any provision designating any party to making the representation against all debts and liabilities
wind up the affairs of the partnership. of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the The accounts between the parties after dissolution have to be
parties when dissolution is caused in contravention of the settled as provided in Article 1839 of the New Civil Code:
partnership agreement are as follows:
Art. 1839. In settling accounts between the partners after
(1) Each partner who has not caused dissolution dissolution, the following rules shall be observed, subject to any
wrongfully shall have: agreement to the contrary:
(a) All the rights specified in the first paragraph (1) The assets of the partnership are:
of this article, and (a) The partnership property,
(b) The right, as against each partner who has (b) The contributions of the partners necessary
caused the dissolution wrongfully, to damages for the payment of all the liabilities specified in
for breach of the agreement. No. 2.
(2) The liabilities of the partnership shall rank in order of
(2) The partners who have not caused the dissolution payment, as follows:
wrongfully, if they all desire to continue the business in (a) Those owing to creditors other than partners,
the same name either by themselves or jointly with others, (b) Those owing to partners other than for
may do so, during the agreed term for the partnership and capital and profits,
for that purpose may possess the partnership property, (c) Those owing to partners in respect of capital,
provided they secure the payment by bond approved by (d) Those owing to partners in respect of profits.
the court, or pay to any partner who has caused the (3) The assets shall be applied in the order of their
dissolution wrongfully, the value of his interest in the declaration in No. 1 of this article to the satisfaction of the
partnership at the dissolution, less any damages liabilities.
recoverable under the second paragraph, No. 1(b) of this (4) The partners shall contribute, as provided by article
article, and in like manner indemnify him against all 1797, the amount necessary to satisfy the liabilities.
present or future partnership liabilities. (5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
(3) A partner who has caused the dissolution wrongfully contributions specified in the preceding number.
shall have: (6) Any partner or his legal representative shall have the
(a) If the business is not continued under the right to enforce the contributions specified in No. 4, to the
provisions of the second paragraph, No. 2, all the extent of the amount which he has paid in excess of his
rights of a partner under the first paragraph, share of the liability.
subject to liability for damages in the second (7) The individual property of a deceased partner shall be
paragraph, No. 1(b), of this article. liable for the contributions specified in No. 4.
(8) When partnership property and the individual
(b) If the business is continued under the second properties of the partners are in possession of a court for
paragraph, No. 2, of this article, the right as distribution, partnership creditors shall have priority on
against his co-partners and all claiming through partnership property and separate creditors on individual
them in respect of their interests in the property, saving the rights of lien or secured creditors.
partnership, to have the value of his interest in (9) Where a partner has become insolvent or his estate is
the partnership, less any damage caused to his insolvent, the claims against his separate property shall
co-partners by the dissolution, ascertained and rank in the following order:
paid to him in cash, or the payment secured by a (a) Those owing to separate creditors;
bond approved by the court, and to be released (b) Those owing to partnership creditors;
from all existing liabilities of the partnership; but (c) Those owing to partners by way of
in ascertaining the value of the partners interest contribution.
the value of the good-will of the business shall
not be considered. #2
And under Article 1838 of the New Civil Code, the party entitled to MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
rescind is, without prejudice to any other right, entitled: APPEALS and NENITA A. ANAY, respondents.(G.R. No. 127405.
October 4, 2000, YNARES-SANTIAGO, J.)
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership FACTS:
liabilities to third persons for any sum of money paid by Fresh from her stint as marketing adviser of Technolux in
him for the purchase of an interest in the partnership and Bangkok, Thailand, private respondent Nenita A. Anay met
for any capital or advances contributed by him; petitioner William T. Belo, then the vice-president for operations of
(2) To stand, after all liabilities to third persons have been Ultra Clean Water Purifier, through her former employer in Bangkok.
satisfied, in the place of the creditors of the partnership Belo introduced Anay to petitioner Marjorie Tocao, who conveyed
for any payments made by him in respect of the her desire to enter into a joint venture with her for the importation
partnership liabilities; and and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the product considering her experience and established relationship not receive the same commission although the company netted a
with West Bend Company, a manufacturer of kitchen wares in gross sales of P13,300,360.00.
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist,
Tocao as president and general manager, and Anay as head of the On April 5, 1988, Nenita A. Anay filed a complaint for sum
marketing department and later, vice-president for sales. Anay of money with damages against Tocao and Belo. In their answer,
organized the administrative staff and sales force while Tocao hired Marjorie Tocao and Belo asserted that the alleged agreement with
and fired employees, determined commissions and/or salaries of the Anay that was neither reduced in writing, nor ratified, was either
employees, and assigned them to different branches. The parties unenforceable or void or inexistent. As far as Belo was concerned,
agreed that Belos name should not appear in any documents his only role was to introduce Anay to Marjorie Tocao.There could
relating to their transactions with West Bend Company. Instead, not have been a partnership because, as Anay herself admitted,
they agreed to use Anays name in securing distributorship of Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
cookware from that company. The parties agreed further that Anay Because Anay merely acted as marketing demonstrator of
would be entitled to: (1) ten percent (10%) of the annual net profits Geminesse Enterprise for an agreed remuneration, and her
of the business; (2) overriding commission of six percent (6%) of the complaint referred to either her compensation or dismissal, such
overall weekly production; (3) thirty percent (30%) of the sales she complaint should have been lodged with the Department of Labor
would make; and (4) two percent (2%) for her demonstration and not with the regular court.
services. The agreement was not reduced to writing on the strength
of Belos assurances that he was sincere, dependable and honest In their defense during pre-trial conference, Belo denied
when it came to financial commitments. that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay
Anay having secured the distributorship of cookware would receive a three to four percent (3-4%) share in the gross sales
products from the West Bend Company and organized the of the cookware. He denied contributing capital to the business or
administrative staff and the sales force, the cookware business took receiving a share in its profits as he merely served as a guarantor of
off successfully. They operated under the name of Geminesse Marjorie Tocao. He attended and/or presided over business
Enterprise, a sole proprietorship registered in Marjorie Tocaos meetings of the venture in his capacity as a guarantor but he never
name, with office at Makati City. Belo made good his monetary participated in decision-making.
commitments to Anay. Thereafter, West Bend Company invited
Anay to the distributor/dealer meeting in US. Anay accepted the Tocao denied having entered into an oral partnership
invitation with the consent of Marjorie Tocao who, as president and agreement with Anay. However, she admitted that Anay was an
general manager who even wrote a letter to the Visa Section of the expert in the cookware business and hence, they agreed to grant her
U.S. Embassy in Manila on July 13, 1987. A portion of the letter the following commissions: thirty-seven percent (37%) on personal
reads: sales; five percent (5%) on gross sales; two percent (2%) on product
Ms. Nenita D. demonstrations, and two percent (2%) for recruitment of personnel.
Anay (sic), who has been Marjorie denied that they agreed on a ten percent (10%)
patronizing and supporting commission on the net profits.
West Bend Co. for twenty
(20) years now, acquired the The trial court held that there was indeed an oral
distributorship of Royal partnership agreement between the plaintiff and the defendants,
Queen cookware for based on the following: (a) there was an intention to create a
Geminesse Enterprise, is the partnership; (b) a common fund was established through
Vice President Sales contributions consisting of money and industry, and (c) there was a
Marketing and a business joint interest in the profits. Belos claim that he was merely a
partner of our company, will guarantor has no basis since there was no written evidence thereof
attend in response to the as required by Article 2055 of the Civil Code. Moreover, his acts of
invitation. attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on
Anay arrived from the U.S.A. in mid-August 1987, and personal sales belied this. On the contrary, it demonstrated his
immediately undertook the task of saving the business on account of involvement as a partner.
the unsatisfactory sales record in the Makati and Cubao offices. Few
months later, Anay learned that Tocao had signed a letter addressed The trial court further held that it did not matter that the
to the Cubao sales office to the effect that she was no longer the agreement was not in writing because Article 1771 of the Civil Code
vice-president of Geminesse Enterprise. The following day, she provides that a partnership may be constituted in any form.
received a note from Lina T. Cruz, marketing manager, that Tocao
had barred her from holding office and conducting demonstrations The trial court finally held that a partner who is excluded
in both Makati and Cubao offices. Anay attempted to contact Belo. wrongfully from a partnership is an innocent partner. Hence, the
She wrote him twice to demand her overriding commission for the guilty partner must give him his due upon the dissolution of the
period of January 8, 1988 to February 5, 1988 and the audit of the partnership as well as damages or share in the profits realized from
company to determine her share in the net profits, however, the the appropriation of the partnership business and goodwill. An
leteers were unanswered. innocent partner thus possesses pecuniary interest in every existing
contract that was incomplete and in the trade name of the co-
Anay still received her five percent (5%) overriding partnership and assets at the time he was wrongfully expelled.
commission up to December 1987. The following year, 1988, she did Petitioners appeal to the Court of Appeals was dismissed.
Petitioners Belo and Marjorie Tocao are now before this Court on a
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

petition for review on certiorari, asserting that there was no petitioner Tocao under Article 2053 of the Civil Code, he should have
business partnership. presented documentary evidence therefor. While Article 2055 of the
Civil Code simply provides that guaranty must be express, Article
ISSUE: 1403, the Statute of Frauds, requires that a special promise to
1. WON a partnership exists between Belo, Anay and Tocao or is it answer for the debt, default or miscarriage of another be in writing.
a mere employer-employee relationship.
2. WON the partnership is deemed dissolved, in case there is a The business venture operated under Geminesse
partnership. Enterprise did not result in an employer- employee relationship
between petitioners and private respondent. While it is true that the
RULING: receipt of a percentage of net profits constitutes only prima facie
1. Partnership exists NOT an employer-employee relationship. The evidence that the recipient is a partner in the business, the evidence
issue of whether or not a partnership exists is a factual matter which in the case at bar controverts an employer-employee relationship
are within the exclusive domain of both the trial and appellate between the parties. In the first place, private respondent had a
courts. This Court cannot set aside factual findings of such courts voice in the management of the affairs of the cookware
absent any showing that there is no evidence to support the distributorship, including selection of people who would constitute
conclusion drawn by the court a quo. In this case, both the trial the administrative staff and the sales force. Secondly, petitioner
court and the Court of Appeals are one in ruling that petitioners and Tocaos admitted that, like herwho owned Geminesse
private respondent established a business partnership. This Court Enterprise,private respondent received only commissions and
finds no reason to rule otherwise. transportation and representation allowances and not a fixed salary.

To be considered a juridical personality, a partnership As an industrial partner, private respondent had the right
must fulfill these requisites: (1) two or more persons bind to demand for a formal accounting of the business and to receive
themselves to contribute money, property or industry to a common her share in the net profit.
fund; and (2) intention on the part of the partners to divide the
profits among themselves. It may be constituted in any form; a The fact that the cookware distributorship was operated
public instrument is necessary only where immovable property or under the name of Geminesse Enterprise, a sole proprietorship, is of
real rights are contributed thereto. This implies that since a contract no moment. What was registered with the Bureau of Domestic
of partnership is consensual, an oral contract of partnership is as Trade on August 19, 1987 was merely the name of that enterprise.
good as a written one. Where no immovable property or real rights Petitioner Tocao indicatedthat it would be engaged in retail of
are involved, what matters is that the parties have complied with kitchenwares, cookwares, utensils, skillet, she also admitted that the
the requisites of a partnership. Thefact that there appears to be no enterprise was only 60% to 70% for the cookware business, while
record in the Securities and Exchange Commission of a public 20% to 30% of its business activity was devoted to the sale of water
instrument embodying the partnership agreement pursuant to sterilizer or purifier. Indubitably then, the business name Geminesse
Article 1772 of the Civil Code did not cause the nullification of the Enterprise was used only for practical reasons - it was utilized as the
partnership. The pertinent provision of the Civil Code on the matter common name for petitioner Tocaos various business activities,
states: which included the distributorship of cookware.

Art. 1768. The partnership has a 2. NO. A mere falling out or misunderstanding between partners
juridical personality separate and does not convert the partnership into a sham organization. The
distinct from that of each of the partnership exists until dissolved under the law. Since the
partners, even in case of failure to partnership created by petitioners and private respondent has no
comply with the requirements of fixed term and is therefore a partnership at will predicated on their
article 1772, first paragraph. mutual desire and consent, it may be dissolved by the will of a
partner. Thus:
Petitioners admit that private respondent had the
expertise to engage in the business of distributorship of cookware. x xx. The right to choose with whom a person
Private respondent contributed such expertise to the partnership wishes to associate himself is the very
and hence, under the law, she was the industrial or managing foundation and essence of that partnership. Its
partner. It was through her reputation with the West Bend Company continued existence is, in turn, dependent on
that the partnership was able to open the business of distributorship the constancy of that mutual resolve, along
of that companys cookware products; it was through the same with each partners capability to give it, and the
efforts that the business was propelled to financial success. absence of cause for dissolution provided by
Petitioner Tocao herself admitted private respondents indispensable the law itself. Verily, any one of the partners
role in putting up the business when, upon being asked, the latter may, at his sole pleasure, dictate a dissolution
answered that the private respondent held the positions of of the partnership at will. He must, however,
marketing manager and later on, vice-president for sales. By the act in good faith, not that the attendance of
set-up of the business, third persons were made to believe that a bad faith can prevent the dissolution of the
partnership had indeed been forged between petitioners and partnership but that it can result in a liability for
private respondents. damages.

On the other hand, Belos claim that he was merely a An unjustified dissolution by a partner can subject him to action for
guarantor is belied by that personal act of proprietorship in the damages because by themutual agency that arises in a partnership,
business. Moreover, if he was indeed a guarantor of future debts of the doctrine of delectus personae allows the partners to have the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

power, although not necessarily the right to dissolve the On appeal, the CA also did not allow CBIC to disclaim
partnership. liability on the ground that Quinain exceeded his authority because
third persons had relied on Quinainsrepresentations. It based its
In this case, petitioner Tocaos unilateral exclusion of decision on Article 1911 of the Civil Code and found CBIC to have
private respondent from the partnership is shown by her memo to been negligent and less than prudent in conducting its insurance
the Cubao office plainly stating that private respondent was, as of business for its failure to supervise and monitor the acts of its
October9, 1987, no longer the vice-president for sales of Geminesse agents, to regulate the distribution of its insurance forms, and to
Enterprise. By that memo, petitioner Tocaoeffected her own devise schemes to prevent fraudulent misrepresentations of its
withdrawal from the partnership and considered herself as having agents.
ceased to be associated with the partnership in the carrying on of
the business. Nevertheless, thepartnership was not terminated In this petition, CBIC avers that the CA erred in interpreting
thereby; it continues until the winding up of the business. and applying the rules governing the contract of agency. It argued
that the SPA granted to Quinain clearly set forth the extent and
The winding up of partnership affairs has not yet been undertaken limits of his authority with regard to businesses he can transact for
by the partnership. and in behalf of CBIC. The latter said that the correct Civil Code
provision to apply in this case is Article 1898 in asserting that Cebu
#3 Shipyard was charged with knowledge of the extent of the power
COUNTRY BANKERS INSURANCE CORPORATION, PETITIONER, VS. and authority conferred on Quinain by its failure to perform due
KEPPEL CEBU SHIPYARD, et. al., RESPONDENTS. diligence investigations and that such power could not be simply
G.R. No. 166044, June 18, 2012, LEONARDO-DE CASTRO, J. assumed or inferred from the mere existence of an agency even if
Quianain was granted the authority to transact in the business of
Unimarine Shipping Lines, Inc. (Unimarine), a corporation insurance in general. To strengthen its case, CBIC claims that in
engaged in the shipping industry, contracted the services of Keppel order to hold the principal liable for transactions entered into by an
Cebu Shipyard, formerly known as Cebu Shipyard and Engineering agent, the fact or existence of the agency and the nature and extent
Works, Inc. (Cebu Shipyard), for dry docking and ship repair works of authority must first be established.
on its vessel for the amount of P3,850,000.00. Based on their
agreement, Unimarine will deposit post-dated checks of two ISSUE: Is CBIC liable on the surety bond issued by its agent, Quinain,
different dates and in the event that it fails to make full payment on to Unimarine?
the due dates stipulated, the post-dated checks will be deposited by
Cebu Shipyard in payment of the amounts owned by Unimarine.In RULING: NO.
compliance with the agreement, Unimarine secured from Country
Bankers Insurance Corp. (CBIC), through the latters agent, In a contract of agency, a person, the agent, binds himself
BethovenQuinain, a surety bond in the amount of P3,000,000.00. In to represent another, the principal, with the latters consent or
addition to this, Unimarine obtained another bond from Plaridel authority. Thus, agency is based on representation, where the agent
Surety and Insurance Co. (Plaridel) in the amount of P1,620,000.00. acts for and in behalf of the principal on matters within the scope of
the authority conferred upon him. Such acts have the same legal
Because Unimarine failed to remit the first installment effect as if they were personally done by the principal. By this legal
when it became due, Cebu Shipyard was constrained to deposit the fiction of representation, the actual or legal absence of the principal
peso check corresponding to the initial installment. The check, is converted into his legal or juridical presence.
however, was dishonored by the bank due to insufficient funds. Due
to the Unimarines failure to heed Cebu Shipyards repeated Art. 1898. If the agent contracts in the name of the principal,
demands, Cebu Shipyard wrote the sureties CBIC and Plaridel to exceeding the scope of his authority, and the principal does not
inform them of Unimarines nonpayment, and to ask them to fulfill ratify the contract, it shall be void if the party with whom the agent
their obligations as sureties. However, even the sureties failed to contracted is aware of the limits of the powers granted by the
discharge their obligations, and so Cebu Shipyard filed a Complaint principal. In this case, however, the agent is liable if he undertook to
with the RTC against Unimarine, CBIC, and Plaridel. secure the principals ratification.

CBIC, in its Answer, alleged among others that the surety Art. 1900. So far as third persons are concerned, an act is deemed
bond was issued by its agent, Quinain, in excess of his authority as to have been performed within the scope of the agents authority, if
stated in the Special Power of Attorney wherein he was authorized such act is within the terms of the power of attorney, as written,
to solicit business and issue surety bonds not exceeding P500,000.00 even if the agent has in fact exceeded the limits of his authority
but only in favor of the Department of Public Works and Highways, according to an understanding between the principal and the agent.
National Power Corporation, and other government agencies. Art. 1902. A third person with whom the agent wishes to contract
Moreover, the issuance of the surety bond was not reported, and on behalf of the principal may require the presentation of the power
the corresponding premiums were not remitted to CBIC. of attorney, or the instructions as regards the agency. Private or
secret orders and instructions of the principal do not prejudice third
The RTC rendered a judgment in favor of Cebu Shipyard. In persons who have relied upon the power of attorney or instructions
applying Articles 1900 and 1911 of the Civil Code, it held that CBIC is shown to them.
liable for the surety bond and the latter could not be allowed to
disclaim liability because Quinains actions were within the terms of Art. 1910. The principal must comply with all the obligations which
the SPA given to him. the agent may have contracted within the scope of his authority.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

As for any obligation wherein the agent has exceeded his power, the allowed him to act as though he had full powers. However, for an
principal is not bound except when he ratifies it expressly or tacitly. agency by estoppel to exist, the following must be established:

Art. 1911. Even when the agent has exceeded his authority, the 1. The principal manifested a representation of the agents
principal is solidarily liable with the agent if the former allowed the authority or knowingly allowed the agent to assume such
latter to act as though he had full powers. authority;
2. The third person, in good faith, relied upon such
Our law mandates an agent to act within the scope of his representation; and
authority. The scope of an agents authority is what appears in the 3. Relying upon such representation, such third person has
written terms of the power of attorney granted upon him. Under changed his position to his detriment.
Article 1878(11) of the Civil Code, an SPA is necessary to obligate the
principal as a guarantor or surety. An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the
In the case at bar, CBIC could be held liable even if Quinain representations, and that, in turn, needs proof that the
exceeded the scope of his authority only if Quinains act of issuing representations predated the action taken in reliance.
the surety bondis deemed to have been performed within the
written terms of the power of attorney he was granted.However, This Court cannot agree with the CAs pronouncement of
contrary to what the RTC held, the SPA accorded to Quinain clearly negligence on CBICs part. CBIC not only clearly stated the limits of
states the limits of his authority and particularly provides that in its agents powers in their contracts, it even stamped its surety
case of surety bonds, it can only be issued in favor of the DPWH, the bonds with the restrictions, in order to alert the concerned
NPC, and other government agencies; furthermore, the amount of parties. Moreover, its company procedures, such as reporting
the surety bond is limited to P500,000.00.CBIC does not anchor its requirements, show that it has designed a system to monitor the
defense on a secret agreement, mutual understanding, or any verbal insurance contracts issued by its agents. CBIC cannot be faulted for
instruction to Quinain. CBICs stance is grounded on its contract Quinains deliberate failure to notify it of his transactions with
with Quinain, and the clear, written terms therein. This Court finds Unimarine. In fact, CBIC did not even receive the premiums paid by
that the terms of the contract specifically provided for the extent Unimarine to Quinain.
and scope of Quinains authority, and Quinain has indeed exceeded
them. Furthermore, nowhere in the decisions of the lower courts
was it stated that CBIC let the public, or specifically Unimarine,
Under Articles 1898 and 1910, an agents act, even if done believe that Quinain had the authority to issue a surety bond in
beyond the scope of his authority, may bind the principal if he favor of companies other than the DPWH, the NPC, and other
ratifies them, whether expressly or tacitly. It must be stressed government agencies. Neither was it shown that CBIC knew of the
though that only the principal, and not the agent, can ratify the existence of the surety bond before the endorsement extending the
unauthorized acts, which the principal must have knowledge life of the bond, was issued to Unimarine. For one to successfully
of.Ratification in agency is the adoption or confirmation by one claim the benefit of estoppel on the ground that he has been misled
person of an act performed on his behalf by another without by the representations of another, he must show that he was not
authority. The substance of the doctrine is confirmation after misled through his own want of reasonable care and circumspection.
conduct, amounting to a substitute for a prior authority. Ordinarily,
the principal must have full knowledge at the time of ratification of It is apparent that Unimarine had been negligent or less
all the material facts and circumstances relating to the unauthorized than prudent in its dealings with Quinain.It is a settled rule that
act of the person who assumed to act as agent. Thus, if material persons dealing with an agent are bound at their peril, if they would
facts were suppressed or unknown, there can be no valid hold the principal liable, to ascertain not only the fact of agency but
ratification and this regardless of the purpose or lack thereof in also the nature and extent of authority, and in case either is
concealing such facts and regardless of the parties between whom controverted, the burden of proof is upon them to establish it. The
the question of ratification may arise. Nevertheless, this principle basis for agency is representation and a person dealing with an
does not apply if the principals ignorance of the material facts and agent is put upon inquiry and must discover upon his peril the
circumstances was willful, or that the principal chooses to act in authority of the agent. If he does not make such an inquiry, he is
ignorance of the facts. However, in the absence of circumstances chargeable with knowledge of the agents authority and his
putting a reasonably prudent man on inquiry, ratification cannot ignorance of that authority will not be any excuse.
be implied as against the principal who is ignorant of the facts.
Unimarine undoubtedly failed to establish that it even
Neither Unimarine nor Cebu Shipyard was able to bothered to inquire if Quinain was authorized to agree to terms
repudiate CBICs testimony that it was unaware of the existence of beyond the limits indicated in his SPA. The former was not able to
the surety bond. There were no allegations either that CBIC should show that he was misled by CBIC as to the extent of authority it
have been put on alert with regard to Quinains business granted Quinain and did not even allege that it asked for documents
transactions done on its behalf. It is clear, and undisputed to prove Quinains authority to contract business for CBIC, such as
therefore, that there can be no ratification in this case, whether their contract of agency and power of attorney.
express or implied.
#4
Article 1911, on the other hand, is based on the principle LITONJA V ETERNIT CORP.
of estoppel, which is necessary for the protection of third
persons. It states that the principal is solidarily liable with the agent FACTS:
even when the latter has exceeded his authority, if the principal
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The Eternit Corporation (EC) is a corporation duly organized and


registered under Philippine laws. Its manufacturing operations were The trial court declared that since the authority of the
conducted on eight parcels of land. 90% percent of the shares of agents/realtors was not in writing, the sale is void and not merely
stocks of EC were owned by Eteroutremer S.A. Corporation unenforceable, and as such, could not have been ratified by the
(ESACJack Glanville, was the General Manager and President of EC, principal.. The trial court also pointed out that the supposed sale
while Claude Frederick Delsaux was the Regional Director for Asia of involves substantially all the assets of defendant EC which would
ESAC. result in the eventual total cessation of its operation.

In 1986, the management of ESAC grew concerned about the The Litonjuas appealed the decision to the CA, alleging that "(1) the
political situation in the Philippines and wanted to stop its lower court erred in concluding that the real estate broker in the
operations in the country. The Committee for Asia of ESAC instant case needed a written authority from appellee corporation
instructed Michael Adams, a member of ECs Board of Directors, to and/or that said broker had no such written authority; and (2) the
dispose of the eight parcels of land. Adams engaged the services of lower court committed grave error of law in holding that appellee
realtor/broker Lauro G. Marquez so that the properties could be corporation is not legally bound for specific performance and/or
offered for sale to prospective buyers. Glanville later showed the damages in the absence of an enabling resolution of the board of
properties to Marquez. directors." They claimed that an agency by estoppel was created
when the corporation clothed Marquez with apparent authority to
Marquez offered the parcels of land and the improvements thereon negotiate for the sale of the properties. However, since it was a
to Eduardo B. Litonjua, Jr. of the Litonjua& Company, Inc. In a Letter, bilateral contract to buy and sell, it was equivalent to a perfected
Marquez declared that he was authorized to sell the properties contract of sale, which the corporation was obliged to consummate.
for P27,000,000.00 and that the terms of the sale were subject to
negotiation. In reply, EC alleged that Marquez had no written authority from the
Board of Directors to bind it; neither were Glanville and Delsaux
The Litonjua siblings offered to buy the property for P20,000,000.00 authorized by its board of directors to offer the property for sale.
cash. Marquez apprised Glanville of the Litonjua siblings offer and Since the sale involved substantially all of the corporations assets, it
relayed the same to Delsaux in Belgium, but the latter did not would necessarily need the authority from the stockholders.
respond. On October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the The CA ruled that Marquez, who was a real estate broker, was a
Litonjua siblings. It was only on February 12, 1987 that Delsaux sent special agent within the purview of Article 1874 of the New Civil
a telex to Glanville stating that, the final offer was "US$1,000,000.00 Code. Under Section 23 of the Corporation Code, he needed a
and P2,500,000.00 to cover all existing obligations prior to final special authority from ECs board of directors to bind such
liquidation." corporation to the sale of its properties. Delsaux, who was merely
the representative of ESAC (the majority stockholder of EC) had no
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex authority to bind the latter.
sent by Delsaux. Marquez confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. The Litonjua brothers ISSUE:
deposited the amount of US$1,000,000.00. WON the appellate court committed grave error of law in
holding that Marquez needed a written authority from respondent
Meanwhile, with the assumption of Corazon C. Aquino that the Eternit before the sale can be perfected.
political situation in the Philippines had improved. Marquez received
a telephone call from Glanville, advising that the sale would no RULING:
longer proceed. Glanville was instructed to inform Marquez that NO.
"the decision has been taken at a Board Meeting not to sell the By the contract of agency, a person binds himself to render some
properties on which Eternit Corporation is situated." service or to do something in representation on behalf of another,
with the consent or authority of the latter. Consent of both principal
When apprised of this development, the Litonjuas, through counsel, and agent is necessary to create an agency. The principal must
wrote EC, demanding payment for damages they had suffered on intend that the agent shall act for him; the agent must intend to
account of the aborted sale. EC, however, rejected their demand. accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.
The Litonjuas then filed a complaint for specific performance and
damages against EC (now the Eterton Multi-Resources Corporation) An agency may be expressed or implied from the act of the principal,
and the Far East Bank & Trust Company, and ESAC in the RTC of from his silence or lack of action, or his failure to repudiate the
Pasig City. EC and ESAC alleged that since Eteroutremer was not agency knowing that another person is acting on his behalf without
doing business in the Philippines, it cannot be subject to the authority. Acceptance by the agent may be expressed, or implied
jurisdiction of Philippine courts; the Board and stockholders of EC from his acts which carry out the agency, or from his silence or
never approved any resolution to sell subject properties nor inaction according to the circumstances. Agency may be oral unless
authorized Marquez to sell the same; and the telex dated October the law requires a specific form. However, to create or convey real
28, 1986 of Jack Glanville was his own personal making which did rights over immovable property, a special power of attorney is
not bind EC. necessary. Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in
The trial court rendered judgment in favor of defendants and writing, otherwise, the sale shall be void.
dismissed the amended complaint, on the ground that there is no
valid and binding sale between the plaintiffs and said defendants.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In this case, the petitioners as plaintiffs below, failed to adduce in respondents failure to abide by said final demand letter, petitioner
evidence any resolution of the Board of Directors of respondent EC instituted a complaint for sum of money, damages, with application
empowering Marquez, Glanville or Delsaux as its agents, to sell, let for preliminary attachment against herein respondents before the
alone offer for sale, for and in its behalf, the eight parcels of land Regional Trial Court of Cebu City.
owned by respondent EC including the improvements thereon.
By way of special and affirmative defenses, respondent EDWIN
The petitioners cannot feign ignorance of the absence of any regular alleged that he is not a real party in interest in this case. According
and valid authority of respondent EC empowering Adams, Glanville to him, he was acting as mere agent of his principal, which was the
or Delsaux to offer the properties for sale and to sell the said Impact Systems, in his transaction with petitioner and the latter was
properties to the petitioners. A person dealing with a known agent is very much aware of this fact. In support of this argument, petitioner
not authorized, under any circumstances, blindly to trust the agents; points to paragraph 1.3 of petitioners Complaint stating
statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino,
ascertain whether the agent acts within the scope of his authority. married, a resident of Cebu City. He is the Sales Manager
The settled rule is that, persons dealing with an assumed agent are of Impact Systems and is sued in this action in such
bound at their peril, and if they would hold the principal liable, to capacity.
ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof To support its argument, petitioner points to Article 1897 of the
is upon them to prove it. In this case, the petitioners failed to New Civil Code which states:
discharge their burden; hence, petitioners are not entitled to
damages from respondent EC. Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
#5 exceeds the limits of his authority without giving such party
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN sufficient notice of his powers.
CUIZON and ERWIN CUIZON, Respondents.
Petitioner contends that the Court of Appeals failed to appreciate
FACTS the effect of ERWINs act of collecting the receivables from the
Petitioner is engaged in the business of importation and distribution Toledo Power Corporation notwithstanding the existence of the
of various European industrial equipment for customers here in the Deed of Assignment signed by EDWIN on behalf of Impact Systems.
Philippines. It has as one of its customers Impact Systems Sales While said collection did not revoke the agency relations of
("Impact Systems") which is a sole proprietorship owned by respondents, petitioner insists that ERWINs action repudiated
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales EDWINs power to sign the Deed of Assignment. As EDWIN did not
manager of Impact Systems and was impleaded in the court a quo in sufficiently notify it of the extent of his powers as an agent,
said capacity. petitioner claims that he should be made personally liable for the
obligations of his principal.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three In his Comment, respondent EDWIN again posits the argument that
hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents he is not a real party in interest in this case and it was proper for the
sought to buy from petitioner one unit of sludge pump valued trial court to have him dropped as a defendant. He insists that he
at P250,000.00 with respondents making a down payment of fifty was a mere agent of Impact Systems which is owned by ERWIN and
thousand pesos (P50,000.00). When the sludge pump arrived from that his status as such is known even to petitioner as it is alleged in
the United Kingdom, petitioner refused to deliver the same to the Complaint that he is being sued in his capacity as the sales
respondents without their having fully settled their indebtedness to manager of the said business venture. Likewise, respondent EDWIN
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto points to the Deed of Assignment which clearly states that he was
de Jesus, general manager of petitioner, executed a Deed of acting as a representative of Impact Systems in said transaction.
Assignment of receivables in favor of petitioner, the pertinent part
of which states: RTC dropped EDWIN as party defendant which was affirmed by the
CA.
1.) That ASSIGNOR has an outstanding receivables from
Toledo Power Corporation in the amount of THREE ISSUE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as Whether or not EDWIN exceeded the limits of his authority as an
payment for the purchase of one unit of Selwood Spate agent without giving sufficient notice of his powers thus making him
100D Sludge Pump; personally liable?

Allegedly unbeknownst to petitioner, respondents, despite the RULING


existence of the Deed of Assignment, proceeded to collect from No. Edwin did exceed the limits of his authority as an agent
Toledo Power Company the amount of P365,135.29. Alarmed by this
development, petitioner made several demands upon respondents In a contract of agency, a person binds himself to render some
to pay their obligations. As a result, respondents were able to make service or to do something in representation or on behalf of another
partial payments to petitioner. On 7 October 1996, petitioners with the latters consent. The underlying principle of the contract of
counsel sent respondents a final demand letter wherein it was agency is to accomplish results by using the services of others to
stated that as of 11 June 1996, respondents total obligations stood do a great variety of things like selling, buying, manufacturing, and
at P295,000.00 excluding interests and attorneys fees. Because of transporting. Its purpose is to extend the personality of the principal
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

or the party for whom another acts and from whom he or she perseverance to get hold of the said equipment. There is, therefore,
derives the authority to act. It is said that the basis of agency is no doubt in our mind that respondent EDWINs participation in the
representation, that is, the agent acts for and on behalf of the Deed of Assignment was "reasonably necessary" or was required in
principal on matters within the scope of his authority and said acts order for him to protect the business of his principal. Had he not
have the same legal effect as if they were personally executed by acted in the way he did, the business of his principal would have
the principal. By this legal fiction, the actual or real absence of the been adversely affected and he would have violated his fiduciary
principal is converted into his legal or juridical presence qui facit relation with his principal.
per aliumfacit per se.
The elements of the contract of agency are: (1) consent, express or We likewise take note of the fact that in this case, petitioner is
implied, of the parties to establish the relationship; (2) the object is seeking to recover both from respondents ERWIN, the principal, and
the execution of a juridical act in relation to a third person; (3) the EDWIN, the agent. It is well to state here that Article 1897 of the
agent acts as a representative and not for himself; (4) the agent acts New Civil Code upon which petitioner anchors its claim against
within the scope of his authority. respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other
In this case, the parties do not dispute the existence of the agency contracting party." To reiterate, the first part of Article 1897
relationship between respondents ERWIN as principal and EDWIN as declares that the principal is liable in cases when the agent acted
agent. The only cause of the present dispute is whether respondent within the bounds of his authority. Under this, the agent is
EDWIN exceeded his authority when he signed the Deed of completely absolved of any liability. The second part of the said
Assignment thereby binding himself personally to pay the provision presents the situations when the agent himself becomes
obligations to petitioner. Petitioner firmly believes that respondent liable to a third party when he expressly binds himself or he exceeds
EDWIN acted beyond the authority granted by his principal and he the limits of his authority without giving notice of his powers to the
should therefore bear the effect of his deed pursuant to Article 1897 third person. However, it must be pointed out that in case of excess
of the New Civil Code. of authority by the agent, like what petitioner claims exists here, the
We disagree. law does not say that a third person can recover from both the
principal and the agent.
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he contracts. As we declare that respondent EDWIN acted within his authority as
The same provision, however, presents two instances when an agent an agent, who did not acquire any right nor incur any liability arising
becomes personally liable to a third person. The first is when he from the Deed of Assignment, it follows that he is not a real party in
expressly binds himself to the obligation and the second is when he interest who should be impleaded in this case. A real party in
exceeds his authority. In the last instance, the agent can be held interest is one who "stands to be benefited or injured by the
liable if he does not give the third party sufficient notice of his judgment in the suit, or the party entitled to the avails of the
powers. We hold that respondent EDWIN does not fall within any of suit." In this respect, we sustain his exclusion as a defendant in the
the exceptions contained in this provision. suit before the court a quo.

The Deed of Assignment clearly states that respondent EDWIN #6


signed thereon as the sales manager of Impact Systems. As G.R. No. 199990 February 4, 2015
discussed elsewhere, the position of manager is unique in that it SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners, vs.
presupposes the grant of broad powers with which to conduct the SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO
business of the principal, thus: GONZALES, Respondents.

The powers of an agent are particularly broad in the case of one Facts:
acting as a general agent or manager; such a position presupposes a In 1998, Spouses Rabaja learned that Spouses Salvador
degree of confidence reposed and investiture with liberal powers for were looking for a buyer for a parcel of land situated at No. 25,
the exercise of judgment and discretion in transactions and concerns Merryland Village, 375 Jose Rizal Street, Mandaluyong City. The
which are incidental or appurtenant to the business entrusted to his Spouses Rabaja were leasing an apartment in the subject lot From
care and management. In the absence of an agreement to the 1994 until 2002. Petitioner Herminia Salvador personally introduced
contrary, a managing agent may enter into any contracts that he Gonzales to them as the administrator of the said property.
deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. On July, 3, 1998, Spouses Rabaja made an initial payment
of P48,000 to Gonzales in the presence of Herminia. Gonzales then
Applying the foregoing to the present case, we hold that Edwin presented the SPA executed by Rolando Salvador. On the same day,
Cuizon acted well-within his authority when he signed the Deed of the parties executed the Contract to Sell which stipulated that for a
Assignment. To recall, petitioner refused to deliver the one unit of consideration of P 5 million, Spouses Salvador sold, transferred and
sludge pump unless it received, in full, the payment for Impact conveyed in favor of Spouses Rabaja the subject property. Spouses
Systems indebtedness. We may very well assume that Impact Rabaja made several payments totalling P950,000, which were
Systems desperately needed the sludge pump for its business since received by Gonzales pursuant to the SPA provided earlier as
after it paid the amount of fifty thousand pesos (P50,000.00) as evidenced by the check vouchers signed by Gonzales and the
down payment on 3 March 1995, it still persisted in negotiating with improvised receipts signed by Herminia.
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 In June 1999, Spouses Salvador complained to Spouses
June 1995. The significant amount of time spent on the negotiation Rabaja that they did not receive any payment from Gonzales. This
for the sale of the sludge pump underscores Impact Systems prompted Spouses Rabaja to suspend further payment of the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

purchase price; and as a consequence, they received a notice to in fact, introduced to Spouses Rabaja by Spouses Salvador as the
vacate the subject property from Spouses Salvador for non-payment administrator of the property. Spouses Rabaja could not be blamed
of rentals. if they had transacted with Gonzales. The CA then held that Spouses
Salvador should return the amount of P593,400 pursuant to a
Thereafter, Spouses Salvador instituted an action for separate ejectment case, reasoning that Spouses Salvador misled
ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an the court because an examination of CA-G.R. SP No. 89260 showed
action for rescission of contract against Spouses Salvador and that Spouses Rabaja were not involved in that case. CA-G.R. SP No.
Gonzales, the subject matter of the present petition. 89260 was an action between Spouses Salvador and Gonzales only
and involved a completely different residential apartment located at
In the action for ejectment, the MeTC of Mandaluyong 302-C Jupiter Street, Dreamland Subdivision, Mandaluyong City.
City, ruled in favor of Spouses Salvador and ordered the Spouses
Rabaja to pay back rentals. Spouses Salvador were able to garnish The CA, however, ruled that Gonzales was not solidarily
the amount of P593,400 from Spouses Rabajas time deposit liable with Spouses Salvador. The agent must expressly bind himself
account pursuant to a writ of execution. The RTC reversed the or exceed the limit of his authority in order to be solidarily liable. It
decision of the MeTC. However, on appeal, the CA reinstated the was not shown that Gonzales as agent of Spouses Salvador exceeded
decision of the MeTC. The CA decision became final and executory her authority or expressly bound herself to be solidarily liable.
on May 12, 2006.
Issue: WON Gonzales could validly receive payment of Spouses
Meanwhile, in the rescission case, the Spouses Salvador in Rabaja as agent of Spouses Salvador.
their answer alleged that there was no meeting of the minds
between the parties and that the SPA in favor of Gonzales was Held: Yes. The Supreme Court affirmed the ruling of the CA,
falsified. In fact, they filed a case for falsification against Gonzales, rescinding the sale, with modifications.
but it was dismissed because the original of the alleged falsified SPA
could not be produced. They further averred that they did not The Court agreed with the courts below in finding that the
receive any payment from Spouses Rabaja through Gonzales. In her contract entered into by the parties was essentially a contract of
defense, Gonzales filed her answer stating that the SPA was not sale which could be validly rescinded. Spouses Salvador insist that
falsified and that the payments of Spouses Rabaja amounting they did not receive the payments made by Spouses Rabaja from
to P950,000 were all handed over to Spouses Salvador. Gonzales which totalled P950,000 and that Gonzales was not their
duly authorized agent. These contentions, however, must fail in light
Because of the failure of Spouses Salvador and their of the applicable provisions of the New Civil Code which state:
counsel attend the pre-trial conference, the RTC issued the pre-trial
order declaring Spouses Salvador in default and allowing Spouses Art. 1900. So far as third persons are concerned,
Rabaja to present their evidence ex parte. A motion for an act is deemed to have been performed within
reconsideration was filed but it was subsequently denied. The trial the scope of the agent's authority, if such act is
proceeded and Spouses Rabaja and Gonzales presented their within the terms of the power of attorney, as
respective testimonial and documentary evidence. written, even if the agent has in fact exceeded
the limits of his authority according to an
The RTC ruled in favor of Spouses Rabaja and held that the understanding between the principal and the
signature of Spouses Salvador affixed in the contract to sell agent.
appeared to be authentic. It also held that the contract, although
denominated as "contract to sell," was actually a contract of sale Art. 1902. A third person with whom the agent
because Spouses Salvador, as vendors, did not reserve their title to wishes to contract on behalf of the principal may
the property until the vendees had fully paid the purchase price. require the presentation of the power of
Therefore, it could be validly rescinded by Spouses Rabaja, and in attorney, or the instructions as regards the
the process, recover the amount of P950,000 jointly and severally agency. Private or secret orders and instructions
from Spouses Salvador and Gonzales. The RTC stated that Gonzales of the principal do not prejudice third persons
was undoubtedly the attorney-in-fact of Spouses Salvador absent who have relied upon the power of attorney or
any taint of irregularity. Spouses Rabaja could not be faulted in instructions shown them.
dealing with Gonzales who was duly equipped with the SPA from
Spouses Salvador. Art. 1910. The principal must comply with all the
obligations which the agent may have
The RTC likewise ruled that the amount of P593,400 contracted within the scope of his authority.
garnished from the time deposit account of Spouses Rabaja,
representing the award of rental arrearages in the separate Persons dealing with an agent must ascertain not only the
ejectment suit, should be returned by Spouses Salvador. The court fact of agency, but also the nature and extent of the agents
viewed that such amount was part of the purchase price of the authority. A third person with whom the agent wishes to contract on
subject property which must be returned. It also awarded moral and behalf of the principal may require the presentation of the power of
exemplary damages in favor of Spouses Rabaja and attorneys fees attorney, or the instructions as regards the agency. The basis for
in favor of Gonzales agency is representation and a person dealing with an agent is put
upon inquiry and must discover on his own peril the authority of the
The CA affirmed the decision of the RTC with agent.
modifications. It ruled that the "contract to sell" was indeed a
contract of sale and that Gonzales was armed with an SPA and was,
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

According to Art 1990, insofar as third persons are approval, for him to verify the validity of the payment and
concerned, an act is deemed to have been performed within the make the proper arrangements to fund it.
scope of the agent's authority, if such act is within the terms of the
power of attorney, as written. In this case, Spouses Rabaja did not 1993: Gutierrez went to Marasigan (Patrimonios
recklessly enter into a contract to sell with Gonzales. They required teammate) to secure a P200,000 loan, saying that
her presentation of the power of attorney before they transacted Patrimonio needed the money for the construction of his
with her principal. And when Gonzales presented the SPA to house and that he would be paid an interest of 5%/month
Spouses Rabaja, the latter had no reason not to rely on it. from March to May 1994, without the Patrimonios
knowledge and consent.
The law mandates an agent to act within the scope of his
authority which what appears in the written terms of the power of FEB 1994: Marasigan gave P200,000.00 to Gutierrez, who
attorney granted upon him. The Court holds that, indeed, Gonzales simultaneously delivered to him one of the blank checks
acted within the scope of her authority. The SPA precisely stated Patrimonio had pre-signed with Pilipinas Bank, Greenhills
that she could administer the property, negotiate the sale and Branch, Check No. 21001764 with the blank portions filled
collect any document and all payments related to the subject out with the words "Cash" "Two Hundred Thousand Pesos
property. As the agent acted within the scope of his authority, the Only", amount of "P200,000.00", and "May 23, 1994" but
principal must comply with all the obligations. As correctly held by the Patrimonio contended that the same was not written
the CA, considering that it was not shown that Gonzales exceeded by Gutierrez.
her authority or that she expressly bound herself to be liable, then
she could not be considered personally and solidarily liable with the MAY 24, 1994: Marasigan deposited the check but it was
principal, Spouses Salvador. dishonored for the reason "ACCOUNT CLOSED."since May
28, 1993. He sought recovery and sent demand letters to
Most importantly, it was Herminia herself who personally Gutierrez, to no avail.
introduced Gonzalez to Spouses Rabaja as the administrator of the
subject property. By their own ostensible acts, Spouses Salvador He filed a criminal case for violation of B.P. 22 against the
made third persons believe that Gonzales was duly authorized to Patrimonio,
administer, negotiate and sell the subject property. This fact was
even affirmed by Spouses Salvador themselves in their petition SEPT 10, 1997:Patrimonio filed before RTC, a Complaint
where they stated that they had authorized Gonzales to look for a for Declaration of Nullity of Loan and Recovery of
buyer of their property. It is already too late in the day for Spouses Damages against Gutierrez (declared in default) and
Salvador to retract the representation to unjustifiably escape their Marasigan. He completely denied authorizing the loan or
principal obligation. the checks negotiation, and asserted that he was not privy
to the parties loan agreement.
Considering that there was a valid SPA, then Spouses RTC FEB 3, 2003:
Rabaja properly made payments to Gonzales, as agent of Spouses
Salvador; and it was as if they paid to Spouses Salvador. It is of no 1) Declared Marasigan as a holder in due course and dismissed
moment, insofar as Spouses Rabaja are concerned, whether or not Patrimonios complaint, because Patrimonio, in issuing the pre-
the payments were actually remitted to Spouses Salvador. Any signed blank checks, had the intention of issuing a negotiable
internal matter, arrangement, grievance or strife between the instrument, albeit with specific instructions. Under Sec 14, NIL,
principal and the agent is theirs alone and should not affect third Gutierrez had the prima facie authority to fill up the blanks, the
persons. If Spouses Salvador did not receive the payments or they RTC ruled that he deliberately violated instructions and took
wish to specifically revoke the SPA, then their recourse is to institute advantage of the trust reposed in him.
a separate action against Gonzales.
2) Ordered Patrimonio to pay Marasigan the face value of the
On the issue of return of the amount of P593,400 awarded check with a right to claim reimbursement from Gutierrez.
pursuant to a separate ejectment case, the Supreme Court held that
it cannot be returned anymore since that decision has attained CA SEPT 24, 2008: Patrimonio insisting that: 1)
finality. Likewise, the awards for moral and exemplary damages in Marasigan is not a holder in due course; 2) when
favor of Spouses Rabaja and attorneys fees in favor of Gonzales Marasigan received the check, he knew that the same was
should be deleted for failure to present evidence for their without a date, and hence, incomplete; and, 3) loan was
entitlement. between Marasigan and Gutierrez with his check being
used only as a security.
#7
ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ and OCTAVIO AFFIRMED RTC - CA agreed that Marasigan is not a holder in due
MARASIGAN III (June 4, 2014) Brion, J. course as he did not receive the check in good faith but concluded
that the check had been strictly filled out by Gutierrez with
Patrimonio and Gutierrez (sports columnist) entered into a Patrimonios authority. The loan may not be nullified since it is
business venture named Slam Dunk Corporation which grounded on an obligation arising from law and ruled that
produced mini-concerts and shows related to basketball, Patrimonio is still liable to pay Marasigan the sum of P200,000.00.
wherein Patrimonio entrusted to Gutierrez several pre- MR denied.
signed checks w/o payees name, date or amount, to
answer for the expenses, with an instruction not to fill ISSUES:
them out without previous notification to and his
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

1. Whether the contract of loan in the amount of P200,000.00 II: No Contract of Loan Was Perfected between Marasigan and
granted by respondent Marasigan to petitioner, through respondent Patrimonio,
Gutierrez, may be nullified for being void; as the Latters Consent was not obtained.
2. Whether there is basis to hold the petitioner liable for the Accdg to Art.1318, the essential requisites for a valid contract,
payment of the P200,000.00 loan; namely:
3. Whether respondent Gutierrez has completely filled out the 1. Consent of the contracting parties;
subject check strictly under the authority given by the petitioner; 2. Object certain which is the subject matter of the
and contract; and
4. Whether Marasigan is a holder in due course. 3. Cause of the obligation which is established.

SC - The petition is impressed with merit. Patrimonio denied liability on the ground that the contract lacked
the essential element of consent. The court agreed, Gutierrez did
I. Contracts of Agency May be Oral Unless the Law Requires a not have the petitioners written/verbal authority to enter into a
Specific Form. Contract of Loan Should be Nullified for Being Void; contract of loan. While there may be a meeting of the minds
Petitioner is Not Bound by the Contract of Loan. between Gutierrez and Marasigan, such agreement cannot bind the
In accordance with Art.1868, Agency may be express, or implied Patrimoniowhose consent was not obtained and who was not privy
from the acts of the principal, from his silence or lack of action, or to the loan agreement. Hence, only Gutierrez is bound by the
his failure to repudiate the agency, knowing that another person is contract of loan.
acting on his behalf without authority.
The fact that Patriminio issued several pre-signed checks to
Art.1878 (7), expressly requires a special power of Gutierrez, one of which fell into the hands of Marasigan does not
authority before an agent can loan or borrow money in constitute sufficient authority to borrow money in his behalf and
behalf of the principal, to wit: neither should it be construed as petitioners grant of consent to the
(7) To loan or borrow money, unless the latter act be parties loan agreement. Without any evidence to prove Gutierrez
urgent and indispensable for the preservation of the things authority, the Patrimoniossignature in the check cannot be taken as
which are under administration. sufficientauthorization or consent to the contract of loan. Without
the consent given by one party in a purported contract, such
It did not require being in writing. As long as the mandate is contract could not have been perfected; there simply was no
express, such authority may be either oral or written. It refers to the contract to speak of.
nature of the authorization and not to its form. The authority must
be duly established by competent and convincing evidence other III. Liability under the instrument
than the self serving assertion of the party claiming that such
authority was verbally given. Sec 14, NIL applies to an incomplete but delivered instrument. If the
maker or drawer delivers a pre-signed blank paper to another
The requirements are met if there is a clear mandate from the person for the purpose of converting it into a negotiable instrument,
principal specifically authorizing the performance of the act. that person is deemed to have prima facie authority to fill it up. It
Mandate may be either oral or written, the one vital thing being merely requires that the instrument be in the possession of a person
that it shall be express. If the special authority is not written, then it other than the drawer or maker and from such possession, together
must be duly established by evidence. with the fact that the instrument is wanting in a material particular,
the law presumes agency to fill up the blanks.
Records do not show that the Patrimonio executed any SPA in favor
of Gutierrez. His testimony confirmed that he never authorized However, in order that the one who is not a holder in due course
Gutierrez or anyone, whether verbally or in writing, to borrow can enforce the instrument against a party prior to the instruments
money in his behalf, nor was he aware of any such transaction. In completion, two requisites must exist, that the blank must be filled:
the absence of any authorization, Gutierrez could not enter into a 1) strictly in accordance with the authority given; and (2) within a
contract of loan in behalf of the petitioner. reasonable time.

Furthermore, that the petitioner entrusted the blank pre-signed If it was proven that the instrument had not been filled up strictly in
checks to Gutierrez is not legally sufficient because the authority to accordance with the authority given and within a reasonable time,
enter into a loan can never be presumed. The contract of agency the maker can set this up as a personal defense and avoid liability.
and the special fiduciary relationship inherent in this contract must However, if the holder is a holder in due course, there is a
exist as a matter of fact. The person alleging it has the burden of conclusive presumption that authority to fill it up had been given
proof to show, not only the fact of agency, but also its nature and and that the same was not in excess of authority
extent.
Since Marasigan knew that the underlying obligation was not
The records show that Marasigan merely relied on the words of actually for Patrimonio, the rule that a possessor of the instrument
Gutierrez without securing a copy of the SPA in favor of the latter is prima facie a holder in due course is inapplicable. His inaction and
and without verifying from the Patrimonio whether he had failure to verify, despite knowledge of that the petitioner was not a
authorized the borrowing of money or release of the check. He was party to the loan, may be construed as gross negligence amounting
thus bound by the risk accompanying his trust on the mere to bad faith. It does not mean that Marasigan is totally barred from
assurances of Gutierrez. recovery, the only disadvantage of a holder who is not in due course
is that the negotiable instrument is subject to defenses as if it were
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

non-negotiable. Among such defenses is the filling up blank not (P95,000.00), which was earlier issued to Naguiat by the
within the authority. Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check to the order of Queao, also dated 11
IV: Marasigan is Not a Holder in Due Course August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute
Sec. 52, NIL: A holder in due course is a holder who has taken the the loan granted by Naguiat to Queao.
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, To secure the loan, Queao executed a Deed of Real Estate
and without notice that it had been previously dishonored, Mortgage dated 11 August 1980 in favor of Naguiat, and
if such was the fact; surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties. On the same day, the
(c) That he took it in good faith and for value;
mortgage deed was notarized, and Queao issued to Naguiat a
(d) That at the time it was negotiated to him he had no
promissory note for the amount of TWO HUNDRED THOUSAND
notice of any infirmity in the instrument or defect in the
PESOS (P200,000.00), with interest at 12% per annum, payable
title of the person negotiating it. on 11 September 1980. Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the
Acquisition in good faith means taking without knowledge or notice amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and
of equities of any sort which could be set up against a prior holder of payable to the order of Naguiat.
the instrument. It means that he does not have any knowledge of
fact which would render it dishonest for him to take a negotiable Upon presentment on its maturity date, the Security Bank check
paper. The absence of the defense, when the instrument was taken, was dishonored for insufficiency of funds. On the following day,
is the essential element of good faith. 12 September 1980, Queao requested Security Bank to stop
payment of her postdated check, but the bank rejected the
Marasigans knowledge that the petitioner is not a party or a privy to request pursuant to its policy not to honor such requests if the
the contract of loan, and correspondingly had no obligation or check is drawn against insufficient funds.
liability to him, renders him dishonest, hence, in bad faith. (deduced
from AmbetNabus testimony) On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter,
V. Check Was Not Completed Strictly Under the Authority Given by Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with
The Petitioner Naguiat. At the meeting, Queao told Naguiat that she did not
receive the proceeds of the loan, adding that the checks were
Gutierrez has exceeded the authority to fill up the blanks and use retained by Ruebenfeldt, who purportedly was Naguiats agent.
the check. Instruction could not be any clearer as Gutierrez
authority was limited to the use of the checks for the operation of Ruebenfeldt was not a stranger or an unauthorized person.
their business, and on the condition that the petitioners prior Naguiat instructed Ruebenfeldt to withhold from Queao the
checks she issued or indorsed to Queao, pending delivery by the
approval be first secured.
latter of additional collateral. Ruebenfeldt served as agent of
Naguiat on the loan application of Queaos friend, Marilou
Although, Gutierrez had a prima facie authority to complete the
Farralese, and it was in connection with that transaction that
check, such prima facie authority does not extend to its use (i.e., Queao came to know Naguiat. It was also Ruebenfeldt who
subsequent transfer or negotiation)once the check is completed. accompanied Queao in her meeting with Naguiat and on that
Only the authority to complete the check is presumed. Further, the occasion, on her own and without Queao asking for it,
law used the term "prima facie" to underscore the fact that the Reubenfeldt actually drew a check for the sum ofP220,000.00
authority which the law accords to a holder is a presumption payable to Naguiat, to cover for Queaos alleged liability to
juristantumonly; hence, subject to subject to contrary proof to avoid Naguiat under the loan agreement.
liability.
ISSUE
No evidence that Gutierrez ever secured prior approval from the Whether or not Ruebenfeldt was an agent of Naguiat?
Patrimonio to fill up the blank or to use the check.
RULING
RULING: Marasigan has no right to enforce payment against the Yes. Ruebenfeldt was an agent of Naguiat.
Patrimonio, who cannot be obliged to pay the face value of the
check. Naguiat questions the admissibility of the various written
CA Decision - ANNULLED AND SET ASIDE. Costs against the representations made by Ruebenfeldt on the ground that they
respondents. could not bind her following the res inter alia acta alteri nocere
non debet rule. The Court of Appeals rejected the argument,
#8 holding that since Ruebenfeldt was an authorized representative
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS or agent of Naguiat the situation falls under a recognized
and AURORA QUEAO, respondents. exception to the rule. Still, Naguiat insists that Ruebenfeldt was
not her agent.
FACTS
Queao applied with Naguiat for a loan in the amount of Two The Court of Appeals recognized the existence of an "agency by
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. estoppel" citing Article 1873 of the Civil Code.Apparently, it
On 11 August 1980, Naguiat indorsed to Queao Associated Bank considered that at the very least, as a consequence of the
Check for the amount of Ninety Five Thousand Pesos interaction between Naguiat and Ruebenfeldt, Queao got the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

impression that Ruebenfeldt was the agent of Naguiat, but On October 16, 1974, the first delivery of 7,933 flags was made by
Naguiat did nothing to correct Queaos impression. In that the United Flag Industry. The next day, on October 17, 1974, the
situation, the rule is clear. One who clothes another with respondent's authority to represent the United Flag Industry was
apparent authority as his agent, and holds him out to the public revoked by petitioner Primitivo Siasat.
as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties According to the findings of the courts below, Siasat, after
dealing with such person in good faith, and in the honest belief receiving the payment of P469,980.00 on October 23, 1974 for
that he is what he appears to be. The Court of Appeals is correct the first delivery, tendered the amount of P23,900.00 or five
in invoking the said rule on agency by estoppel. percent (5%) of the amount received, to the respondent as
payment of her commission. The latter allegedly protested. She
Side Issue refused to accept the said amount insisting on the 30%
Queao never actually received the proceeds of the loan because commission agreed upon. The respondent was prevailed upon to
the checks were withheld by Ruebenfeldt. That being the case, it accept the same, however, because of the assurance of the
follows that the mortgage which is supposed to secure the loan is petitioners that they would pay the commission in full after they
null and void. The consideration of the mortgage contract is the delivered the other half of the order. The respondent states that
same as that of the principal contract from which it receives life, she later on learned that petitioner Siasat had already received
and without which it cannot exist as an independent contract. A payment for the second delivery of 7,833 flags. When she
mortgage contract being a mere accessory contract, its validity confronted the petitioners, they vehemently denied receipt of the
would depend on the validity of the loan secured by it. payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of
#9 flags and that the agency had already been revoked.
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs.
INTERMEDIATE APPELLATE COURT and TERESITA The respondent originally filed a complaint with the Complaints
NACIANCENO, respondents. and Investigation Office in Malacaang but when nothing came of
G.R. No. L-67889 October 10, 1985 the complaint, she filed an action in the Court of First Instance of
Manila to recover the following commissions: 25%, as balance on
FACTS: the first delivery and 30%, on the second delivery. The trial court
This is a petition for review of the decision of the Intermediate decided in favor of the respondent. Ordered Primitivo Siasat to
Appellate Court affirming in toto the judgment of the Court of pay to the plaintiff the sum of P281,988.00, with legal interest
First Instance of Manila, Branch XXI, which ordered the petitioner from the date of this decision, and ordering the defendants to pay
to pay respondent the thirty percent (30%) commission on jointly and solidarily the sum of P25,000.00 as moral damages,
15,666 pieces of Philippine flags worth P936,960.00, moral and P25,000.00 as attorney's fees, also with legal interest from
damages, attorney's fees and the costs of the suit. the date of this decision, and the costs.

Sometime in 1974, respondent Teresita Nacianceno succeeded in The decision was affirmed in toto by the Intermediate Appellate
convincing officials of the then Department of Education and Court. the petitioners went to this Court on a petition for review
Culture, hereinafter called Department, to purchase without on August 6, 1984.
public bidding, one million pesos worth of national flags for the
use of public schools throughout the country. The respondent ISSUE:WON Respondent Teresita Nacianceno is entitled to
was able to expedite the approval of the purchase by hand- recover the remaining 25% balance of her commission on her
carrying the different indorsements from one office to another, so first delivery and the 30% commission on Second delivery?
that by the first week of September, 1974, all the legal
requirements had been complied with, except the release of the RULING:
purchase orders. When Nacianceno was informed by the Chief of The decision of IAC is MODIFIED. Ordered petitioners to pay
the Budget Division of the Department that the purchase orders the respondent the amount of P140,994.00 as her
could not be released unless a formal offer to deliver the flags in commission on the second delivery of flags with legal
accordance with the required specifications was first submitted interest from the date of the trial court's decision. No
for approval, she contacted the owners of the United Flag pronouncement as to costs.
Industry on September 17, 1974. The next day, after the
transaction was discussed, the following document (Exhibit A) In assailing the appellate court's decision, the petition tenders the
was drawn up: following arguments: first, the authorization making the
respondent the petitioner's representative states that she could
Mrs. Tessie Nacianceno, deal with any entity of their products for a commission of 30%.
This is to formalize our agreement for you to There was no specific authorization for the sale of 15,666
represent United Flag Industry to deal with Philippine flags to the Department; second, there were two
any entity or organization, private or transactions involved evidenced by the separate purchase orders
government in connection with the marketing and separate delivery receipts, one for the purchase and deliver
of our products-flags and all its accessories. on October 16, 1974, and another for the purchase and delivery
For your service, you will be entitled to a on November 6, 1974. The revocation of agency effected by the
commission of thirty parties with mutual consent on October 17, 1974, therefore,
(30%) percent. forecloses the respondent's claim of 30% commission on the
Signed second transaction; and last, there was no basis for the granting
Mr. Primitive Siasat of attorney's fees and moral damages because there was no
Owner and Gen. Manager showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

commission on the first delivery. The petitioner's counterclaim, delivery. The fact that the respondent demanded only the
therefore, should have been granted. commission on the second delivery without reference to the
alleged unpaid balance which was only slightly less than the
We find respondent's argument regarding respondent's amount claimed can only mean that the commission on the first
incapacity to represent them in the transaction with the delivery was already fully paid.Moreover, the respondent's
Department untenable. There are several kinds of agents. To authorization letter (Exhibit "5") bears her signature with the
quote a commentator on the matter: handwritten words "Fully Paid", inscribed above it.

An agent may be (1) universal: (2) general, or (3) special. A The respondent contested her signature as a forgery,
universal agent is one authorized to do all acts for his principal Handwriting experts from two government agencies testified on
which can lawfully be delegated to an agent. So far as such a the matter. The reason given by the trial court in ruling for the
condition is possible, such an agent may be said to have universal respondent is too flimsy to warrant a finding of forgery. The
authority. A general agent is one authorized to do all acts court stated that the private respondent signed her name as
pertaining to a business of a certain kind or at a particular place, "Tessie Nacianceno" while in this particular instance, she signed
or all acts pertaining to a business of a particular class or series. as "T. Nacianceno." The stated basis is inadequate to sustain the
He has usually authority either expressly conferred in general respondent's allegation of forgery. The mere fact that the
terms or in effect made general by the usages, customs or nature respondent signed thirteen documents using her full name does
of the business which he is authorized to transact. An agent, not rule out the possibility of her having signed the notation
therefore, who is empowered to transact all the business of his "Fully Paid", with her initial for the given came and the surname
principal of a particular kind or in a particular place, would, for written in full. What she was signing was a mere
this reason, be ordinarily deemed a general agent. A special acknowledgment.
agent is one authorized to do some particular act or to act upon
some particular occasion. lie acts usually in accordance with This leaves the expert testimony as the sole basis for the verdict
specific instructions or under limitations necessarily implied of forgery. In support of their allegation of full payment, the
from the nature of the act to be done. petitioners presented as witness Mr. Francisco Cruz. Jr., a senior
document examiner of the Philippine Constabulary Crime
The power granted to the respondent was so broad that it laboratory. In rebuttal, the respondent presented Mr. Arcadio
practically covers the negotiations leading to, and the execution Ramos, a junior document examiner of the National Bureau of
of, a contract of sale of petitioners' merchandise with any entity Investigation.
or organization.
While the experts testified in a civil case, the principles in
There is no merit in petitioners' allegations that the contract of criminal cases involving forgery are applicable. Forgery cannot
agency between the parties was entered into under fraudulent be presumed. It must be proved. the circumstances mentioned
representation because respondent "would not disclose the taken with the testimony of the PC senior document examiner
agency with which she was supposed to transact and made the lead us to rule against forgery.
petitioner believe that she would be dealing with The Visayas",
and that "the petitioner had known of the transactions and/or We also rule against the respondent's allegation that the
project for the said purchase of the Philippine flags by the petitioners acted in bad faith when they revoked the agency
Department of Education and Culture and precisely it was the given to the respondent. Fraud and bad faith are matters not to
one being followed up also by the petitioner." be presumed but matters to be alleged with sufficient facts. To
support a judgment for damages, facts which justify the inference
Sec 7 Rule 130 of RRC states that "when the terms of an of a lack or absence of good faith must be alleged and proven.
agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be between There is no evidence on record from which to conclude that the
the parties and their successors-in-interest, no evidence of the revocation of the agency was deliberately effected by the
terms of the agreement other than the contents of the writing", petitioners to avoid payment of the respondent's commission.
except in cases specifically mentioned in the same rule. What appears before us is only the petitioner's use in court of
Petitioners have failed to show that their agreement falls under such a factual allegation as a defense against the respondent's
any of these exceptions. The respondent was given ample claim. This alone does not per se make the petitioners guilty of
authority to transact with the Department in behalf of the bad faith for that defense should have been fully litigated. Moral
petitioners damages cannot be awarded in the absence of a wrongful act or
omission or of fraud or bad faith.
There is merit, in the petitioners' contention that the agent's
commission on the first delivery was fully paid. The evidence We therefore, rule that the award of P25,000.00 as moral
does not sustain the respondent's claim that the petitioners paid damages is without basis. The additional award of P25,000.00
her only 5% and that their right to collect another 25% damages by way of attorney's fees, was given by the courts below
commission on the first delivery must be upheld. on the basis of Article 2208, Paragraph 2, of the Civil Code, which
provides: "When the defendant's act or omission has compelled
When respondent Nacianceno asked the Malacanang Complaints the plaintiff to litigate with third persons or to incur expenses to
and Investigation Office to help her collect her commission, her protect his interests;" attorney's fees may be awarded as
statement under oath referred exclusively to the 30% damages.
commission on the second delivery. The statement was emphatic
that "now" her demand was for the 30% commission on the The underlying circumstances of this case lead us to rule out any
(second) release of P469,980.00. The demand letter of the award of attorney's fees. For one thing, the respondent did not
respondent's lawyer dated November 13, 1984 asked petitioner come to court with completely clean hands. For another, the
Siasat only for the 30% commission due from the second petitioners apparently believed they could legally revoke the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

agency in the manner they did and deal directly with education
officials handling the purchase of Philippine flags. Issue:
whether or not there was a valid sale of the subject property?
There is no reason why a shocking 30% of the taxpayers' money
should go to an agent or facilitator who had no flags to sell and Held:
whose only work was to secure and handcarry the indorsements YES.
of education and budget officials. If public bidding was deemed We found, however, that the basis presented by the petitioner was
unnecessary, the Department should have negotiated directly inadequate to sustain his allegation of forgery. Mere variance of the
with flag manufacturers. A P300,000.00 fee for a P1,000,000.00 signatures cannot be considered as conclusive proof that the same
purchase of flags is not only clearly unnecessary but a scandalous were forged. Forgery cannot be presumed.
waste of public funds as well.
We agree with the conclusion of the lower court that private
#10
respondent was an innocent purchaser for value. Respondent
FRANCISCO A. VELOSO, vs. COURT OF APPEALS, AGLALOMA B.
Aglaloma relied on the power of attorney presented by petitioners
ESCARIO, Et. Al
wife, Irma. Being the wife of the owner and having with her the title
of the property, there was no reason for the private respondent not
Doctrine:
to believe in her authority. Moreover, the power of attorney was
Whether the instrument be denominated as general power of
notarized and as such, carried with it the presumption of its due
attorney or special power of attorney, what matters is the extent of
execution. Thus, having had no inkling on any irregularity and having
the power or powers contemplated upon the agent or attorney in
no participation thereof, private respondent was a buyer in good
fact. If the power is couched in general terms, then such power
faith.
cannot go beyond acts of administration.However, where the power
to sell is specific, it not being merely implied, much less couched in
An examination of the records showed that the assailed power of
general terms, there can not be any doubt that the attorney in fact
attorney was valid and regular on its face. It was notarized and as
may execute a valid sale.
such, it carries the evidentiary weight conferred upon it with respect
to its due execution.
Facts:
Francisco Veloso was the owner of a parcel of land situated in the
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate
district of Tondo, Manila, with an area of one hundred seventy
lands, tenements and hereditaments or other forms of real
seven (177) square meters and covered by Transfer Certificate of
property, more specifically TCT No. 49138, upon such terms and
Title.
conditions and under such covenants as my said attorney shall deem
fit and proper.[16]
The title was registered in the name of Francisco A. Veloso, single,on
October 4, 1957.] The said title was subsequently canceled and a
Thus, there was no need to execute a separate and special
new one, Transfer Certificate of Title No. 180685, was issued in the
power of attorney since the general power of attorney had expressly
name of Aglaloma B. Escario, married to Gregorio L. Escario, on May
authorized the agent or attorney in fact the power to sell the subject
24, 1988.
property. The special power of attorney can be included in the
general power when it is specified therein the act or transaction for
Veloso filed an action for annulment of documents, reconveyance of
which the special power is required.
property with damages and preliminary injunction and/or
restraining order.
Whether the instrument be denominated as general power of
attorney or special power of attorney, what matters is the extent of
Petitioner alleged therein that he was the absolute owner of the
the power or powers contemplated upon the agent or attorney in
subject property and he never authorized anybody, not even his
fact. If the power is couched in general terms, then such power
wife, to sell it. He alleged that he was in possession of the title but
cannot go beyond acts of administration.However, where the power
when his wife, Irma, left for abroad, he found out that his copy was
to sell is specific, it not being merely implied, much less couched in
missing. He then verified with the Registry of Deeds of Manila and
general terms, there can not be any doubt that the attorney in fact
there he discovered that his title was already canceled in favor of
may execute a valid sale. An instrument may be captioned as special
defendant Aglaloma Escario. The transfer of property was supported
power of attorney but if the powers granted are couched in general
by a General Power of Attorney.
terms without mentioning any specific power to sell or mortgage or
to do other specific acts of strict dominion, then in that case only
The transfer of property was supported by a General Power of
acts of administration may be deemed conferred.
Attorney dated November 29, 1985 and Deed of Absolute Sale,
dated November 2, 1987, executed by Irma Veloso, wife of the
#11
petitioner and appearing as his attorney-in-fact, and defendant
DR. TERESITO V. ORBETA, et al. v.PAUL B. SENDIONG (G.R. No.
AglalomaEscario. Francisco also denied having seen or even known
155236, July 8, 2005)
Rosemarie Reyes and Imelda Santos, the supposed witnesses in the
execution of the power of attorney.
FACTS:
1925:Simeona Montenegro sold to the spouses MaximoOrbeta and
Defendant AglalomaEscario in her answer alleged that she was a
BasilisaTeves (spouses Orbeta) the subject land, comprised of 4,622
buyer in good faith and denied any knowledge of the alleged
square meters, designated as Lot 606 of the Cadastral Survey of the
irregularity.
Municipality of Dumaguete. The subject land was exclusive of a 884-
TC ruled in favour of Escario. CA affirmed the decision in toto.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

square meter site occupied by the house of Simeona Montenegros estate of Luis Sendiong, had been in possession of the entire Lot
grandmother which was not included in the sale. 606. Pertinently to the present petition, they further alleged that
Lourdes Sendiong and herein respondent, Paul Sendiong, being the
1934:MaximoOrbeta, in turn, sold to the spouses Juan Sendiong and heirs of Luis Sendiong, should be impleaded as party defendants.
ExequilaCastellanes the subject land. Lourdes and Paul Sendiong were children of Luis Sendiong.

1968: Upon the instance of the heirs of the spouses Orbeta, Defendant spouses filed a motion to dismiss on the ground of lack of
Simeona Montenegro executed in their favor a Deed of Confirmation cause of action, in view of the fact that the heirs of Luis Sendiong
of Sale and Quitclaim, acknowledging and ratifying the sale of the have not been impleaded as indispensable parties. In their
subject land to the spouses Orbeta. On the same occasion, the said opposition, petitioners alleged that the heirs of Luis Sendiong are
heirs executed an Extra-judicial Settlement and Partition pertaining not indispensable parties as they are not in possession of the subject
to the estate of their mother, Basilisa Teves-Orbeta, which deed land which was the very issue in said case. The trial court denied the
included the latters alleged conjugal share in the subject land motion to dismiss.
consisting of 2,311 square meters.
Defendant spouses filed a Motion to Include Indispensable Parties,
In the meantime, the spouses Juan Sendiong and Exequila which was denied by the trial court. After petitioners had rested
Castellanes donated the subject land in favor of Luis Sendiong who their case, defendant spouses again filed a Motion to Include
thereafter sold the easternmost (1/2) undivided portion thereof to Indispensable Parties, which was denied again by the trial court.
the spouses Pretzylou Sendiong1 in 1973. Apparently, Luis Sendiong Thereafter, the trial ensued.
kept the other undivided half for himself.
RTC: found that what Simeona Montenegro had actually sold in
1972:Simeona Montenegro, having apparently lost possession over 1935 was the subject land, which did not include the 884-square
the 884-square meter portion that was excluded in the 1925 sale, meter portion claimed by her heirs. Accordingly, it recognized the
filed a complaint against Luis Sendiong for recovery of possession of absolute ownership of the Montenegro heirs over the said portion.
the said portion, and damages. The heirs of BasilisaTeves-Orbeta, The trial court also found that the spouses Juan Sendiong and
filed a complaint-in-intervention praying for the recovery of Exequila Castellanes could have only acquired ownership over the
possession of their portion in the subject land. However, during the conjugal share of Maximo Orbeta in the subject land considering
pendency of the case, the case records were destroyed in a fire that the latter had sold the same in 1934 without the consent of his
which razed the sala of the RTC hearing the complaint. Said records spouse, Basilia Teves-Orbeta. The trial court also declared null and
were not reconstituted, and the complaint was never pursued. void the sale made by Maximo Orbeta with respect to the conjugal
share of his spouse, and ordered the spouses Pretzylou and Genosa
1992:Petitioners (the heirs of Simeona Montenegro & the heirs of Sendiong to restore to petitioners the title to and possession of their
the spouses Orbeta) filed before the RTC of Negros Oriental a respective shares in the subject land.
complaint (Civil Case No. 10173) against Mr. & Mrs.
BenedictoPajulas, otherwise known as the spouses Pretzylou and Genosa Sendiong filed a Notice of Appeal,
PretzylouSendiong, for recovery of possession, quieting of title and but the same was denied by the RTC on the ground that the
damages, with a prayer for the issuance of a writ of preliminary certificate of non forum-shopping was signed by counsel and not by
injunction. Petitioners asserted that MaximoOrbeta, whom they the Sendiongs themselves. The disallowance of the Notice of
claim as having sold the subject property to the spouses Juan Appeal was challenged before the CA in a Petition for Certiorari(CA-
Sendiong and ExequilaCastellanes without the consent of his wife, G.R. SP No. 48943), but the petition was denied. The appeal not
could have conveyed only his conjugal share in the property which having been given due course, the decision in Civil Case No. 10173
comprised of 2,311 square meters or one-half of 4,622 square lapsed into finality.
meters of the subject land that Simeona Montenegro had actually
sold to spouses Orbeta. The heirs of Simeona Montenegro also 2000: Respondent, represented by his attorney-in-fact and daughter
reiterated their claim over the 884-square meter portion that had Mae A. Sendiong, filed a Petition for Annulment of Decision with a
been excluded in the 1925 sale. Prayer for a Temporary Restraining Order and Writ of Preliminary
Injunction with the Court of Appeals, in respect to the decision in
In their Answer, defendant spouses claimed that in the 1925 sale, Civil Case No. 10173. Respondent, as petitioner therein, alleged
Simeona Montenegro had actually sold Lot 606 in its entirety, having learned of the decision sought to be annulled only in 1999, as
including the aforementioned 884-square meters. Defendant he was not made a party thereto. Asserting his right to the property
spouses likewise claimed that since 1934, they, together with the as an heir of Luis Sendiong, respondent noted that the petitioners
did not implead him as a defendant in Civil Case No. 10173, and that
1Also identified in the records as spouses BenedictoPajulas.Pretzylou also the trial court had refused to implead him as an indispensable party
appears in other parts of the record as PretzyLou.It is alleged by despite repeated motions to that effect by the defendants in the
PretzylouSendiong that he (or she) is a child of Luis Sendiong, but the Court civil case. Private respondent argued that the decision in Civil Case
could not definitively ascertain such fact. Private respondent Paul Sendiong, No. 10173 encroached on the hereditary rights of himself and
a son of Luis Sendiong, does not aver before this Court that Lourdes Sendiong without having even given the elementary
PretzylouSendiong is an issue of Luis. Moreover, there is a genuine mystery courtesy of due process. Respondent invoked Rule 3, Section 7 of
as to the identity of PretzylouSendiong. It appears from the records that the Rules of Civil Procedure and jurisprudence in positing that the
PretzylouSendiong is apparently married to Genisa (or Genosa) Sendiong, but
RTC decision was null and void.
petitioners claimed in their complaint that PretzylouSendiong is actually
BenedictoPajulas. The mystery is further heightened by the unusual names of
the spouses Sendiong. In any event, the identity of PretzylouSendiong is not Petitioners argued that the petition for annulment of judgment was
material to the resolution of this petition, and this observation is adduced for fatally infirm as the certification on non-forum shopping was signed
clarificatory purposes only.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

by the attorney-in-fact by virtue of a General Power of Attorney. transmissions of the subject land from 1934 would be affected, and
Petitioners also alleged that the rule on res judicatashould apply the rights of ownership acquired by the various successors-in-
considering that the issue on whether respondent is an interest accordingly diminished. This includes the rights of Paul
indispensable party had already been passed upon by the CA in the Sendiong and Lourdes Sendiong, who derived their hereditary shares
petition for certiorari filed by Pretzylou and GenosaSendiong. in the property from Luis Sendiong.

CA: granted the petition for annulment of judgment and nullified the The Court could not see how or why respondent and
decision in Civil Case No. 10173. It ruled that respondent and Lourdes Sendiong could not have been impleaded in Civil Case No.
Lourdes Sendiong were indeed indispensable parties in Civil Case 10173 before the RTC. In the answer filed by the defendants in Civil
No. 10173, considering that the complaint had prayed that Case No. 10173, the matter of the indispensable inclusion of Paul
petitioners be declared as absolute co-owners of the subject and Lourdes Sendiong was already raised. Petitioners could have
property. Moreover, petitioners had challenged the validity of the easily amended their complaint to that effect, but they did not. The
donation of the subject property to Luis Sendiong, predecessor-in- RTC could have required the inclusion of Paul and Lourdes Sendiong
interest of respondent, and accordingly, any judgment regarding as party-defendants, as prayed for by the defendants in Civil Case
petitioners claims would affect respondents interests in the subject No. 10173, but it refused to do so. The shared intransigence of
land. The appellate court ruled that the absence of an indispensable petitioners and the RTC in refusing to implead Paul and Lourdes
party in a case renders ineffectual all the proceedings subsequent to Sendiong has resulted in the ignominy of a void decision.
the filing of the complaint, including the judgment, and that all
subsequent actuations of the court are null and void for want of Petitioners allege that the question in Civil Case No. 10173
authority to act, not only as to the absent parties, but even as to involves only the recovery of possession from Pretzylou Sendiong of
those present.The CA also ruled that the petition for annulment of property which they allege is rightfully theirs. However, such
judgment was barred neither by estoppel, laches, res judicata nor allegation is belied by the very complaint, which plainly prays that
forum-shopping, contrary to the stance of petitioners. petitioners be adjudged absolute co-owners of half of the subject
land. Besides, as pointed out by the Court of Appeals, the RTC itself
ISSUE: WON the CA erred in granting the petition for annulment of ruled against the validity of the conveyance by Maximo Orbeta to
judgment. Juan Sendiong and Exequila Castellanes of the whole property, a
declaration that indubitably affects the rights of all the successors-
HELD: NO. CAs Decision is AFFIRMED. in-interests, including respondent.

To be certain, annulment of judgment is not a relief to be Neither laches nor estoppel serves as a bar. The petition
granted indiscriminately by the courts. Annulment of judgment is a for annulment alleges that respondent learned of the existence of
recourse equitable in character, allowed only in exceptional cases as Civil Case No. 10173 only in 1999, or one year after the decision
where there is no available or other adequate remedy. Under therein had been rendered. Since he was not impleaded in Civil Case
Section 2, Rule 47 of the 1997 Rules of Civil Procedure, the only No. 10173, there is no basis to presume that respondent was aware
grounds for annulment of judgment are extrinsic fraud and lack of of the civil case during its pendency before the RTC. Moreover, at
jurisdiction. If the action is based on extrinsic fraud, it must be the time respondent according to petitioners learned of the civil
brought within four (4) years from discovery, and if based on lack of case, there was no pending appeal from the RTC decision therein,
jurisdiction, before it is barred by laches or estoppel. the Notice of Appeal having been earlier denied. Under these
circumstances, it would be difficult to discern how in 1999
Respondents petition for annulment is grounded on lack respondent could have still participated in Civil Case No. 10173.
of jurisdiction, owing to the failure to implead the indispensable There was no pending appeal to speak of which he could have
parties. The cited ground is ample basis for annulment of judgment. involved himself. Nor could have he participated in the special civil
It has been held that the joinder of all indispensable parties is a action for certiorari, an original action, then pending before the
condition sine qua non ofthe exercise of judicial power. The absence Court of Appeals.
of an indispensable party renders all subsequent actions of the court
null and void for want of authority to act, not only as to the absent Indeed, a petition for annulment of judgment was, at that
parties but even as to those present. point, the only viable remedy for respondent to avail of, and it was
utilized only one year after respondent learned of the existence of
Respondents Paul Sendiong and Lourdes Sendiong were Civil Case No. 10173. Laches has been defined as the failure or
indispensable parties to Civil Case No. 10173. Paul and Lourdes neglect for an unreasonable and unexplained length of time, to do
Sendiong derived their rights to the subject property from their that which, by exercising due diligence, could or should have been
father Luis Sendiong, who acquired the property by way of donation done earlier negligence or omission to assert a right within a
from the spouses Juan Sendiong and Exequila Castellanes, who in reasonable time, warranting presumption that the party entitled to
turn purchased the property from Maximo Orbeta in 1934. The assert it has abandoned it or declined to assert it. Considering that a
central thrust of the complaint in Civil Case No. 10173 was that petition for annulment of judgment based on extrinsic fraud may be
Orbeta could have sold only his one-half conjugal share, which of filed within four (4) years from discovery of the fraud, a similar
course is undivided, in the subject land as his wife did not consent to petition based on lack of jurisdiction is generally not barred by
the sale. Accordingly, the prayer in the complaint was that laches or estoppel if the petition is filed within one year after
petitioners be declared as the absolute co-owners of the subject petitioner learns of the questioned decision. This moreover holds
land, minus 2,311 square meters which they claimed was the true, as in this case, since respondent is a foreign resident restrained
maximum which Maximo Orbeta could have conveyed to Juan by time and distance to undertake an immediate and proximate
Sendiong and Exequila Castellanes. If such thrust and prayer were to response, such as judicial recourse.
be upheld, as it was by the RTC, then all the subsequent
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

ISSUE ON RES JUDICATA: There is no way the petition for annulment The signing of the verification and certification of non-
of judgment could be barred by res judicata.To begin with, it is the forum shopping are covered under the said provisions of
height of sophistry to argue that res judicata would bar a petition for the General Power of Attorney. A special power of attorney simply
annulment of judgment whose, as in this case, prior judgment refers to a clear mandate specifically authorizing the performance
happens to be that which is sought to be annulled. The petition for of a specific power and of express acts subsumed therein, and
annulment of judgment precisely challenges the validity of the first there is a specific authority given to Mae Sendiong to sign her
judgment, and to adopt petitioners argument would lead to name in behalf of Paul Sendiong in contracts and agreements and
permanent preclusion of annulment of judgment as a remedy. to institute suits in behalf of her father. Neither would the fact that
Significantly, the reverse is true for the rationale underlying the document is captioned General Power of Attorney militate
annulment of judgment is incongruent with the concept of res against its construction as granting specific powers to the agent
judicata. Hence, the action for annulment of judgment precludes the pertaining to the petition for annulment of judgment she instituted
defense of res judicata. The grounds for annulment of judgment are in behalf of her father. As Justice Paras has noted, a general power
either lack of jurisdiction or the presence of extrinsic fraud in the of attorney may include a special power if such special power is
rendition of the judgment sought to be annulled. On the other hand, mentioned or referred to in the general power.
among the requisites of res judicata are jurisdiction on the part of
the court rendering the first judgment over the parties and identity The certification of non-forum shopping in the petition for
of causes of action between the first and the second annulment did not mention any other pending case or claim,
actions. Ineluctably, said requisites are absent. The first judgment, in notwithstanding the fact that there was a pending motion for
Civil Case No. 10173, pertains to the merits of the action for reconsideration lodged before the Court ofAppeals in CA-G.R. SP No.
recovery of possession, quieting of title, and recovery of damages, 48943. Yet the Court of Appeals also adequately discussed, in
whereas the cause of action in the petition for annulment relates to disputing the claim that respondent had committed forum-
the lack of jurisdiction that marred the rendition of the first shopping, why there was no identity in rights or causes of action in
judgment.The element of identity of parties is likewise not present. the petition for annulment of judgment and in the special civil action
Respondent was not a party to either Civil Case No. 10173 or CA- for certiorari. Its conclusion is in concurrence with the earlier
G.R. SP No. 48943. discussion on this point in relation to res judicata. Accordingly,
owing to the segregate identity in rights and causes of action and
The judgment in CA-G.R. SP No. 48943 is no bar to the the fact that respondent was not a party to the certiorari petition,
petition for annulment as well. There is neither identity of parties or there was no indubitable need for him to mention CA-G.R. SP No.
identity of causes of action as between the certiorari petition and 48943 in the certification of non-forum shopping. In fact, there really
the petition for annulment of judgment. Petitioners claim that the is no cause to definitively presume that he was aware of the said
alleged exclusion of indispensable party Paul Sendiong had already case considering that he was not a party to its antecedent civil case.
been ventilated before the [Court of Appeals] in CA-G.R. SP No.
48943 which was TERSELY DISMISSED. The Decision of the CAin CA- Petitioners argue that the petition for annulment should
G.R. SP No. 48943 hardly constitutes a terse dismissal except have been dismissed outright for failing to cite the docket number of
perhaps in the land of the long-winded, but a perusal of the the case in the lower court,pursuant to A.C. No. 28-91, promulgated
said Decision reveals no discussion at all about impleading Paul as it was to prevent forum-shopping or multiple filing of petitions
Sendiong in Civil Case No. 10173.In fact, the only mention made of and complaints.This claim relies upon the mother of all
respondent in the aforesaid Decision was in the narration of facts. technicalities, but one which is not even supported by A.C. No. 28-
The adjudication of CA-G.R. SP No. 48943, as expressed in 91, which provides that any violation of this Circular shall be cause
the Decision, was limited to the propriety of the denial of the Notice for the summary dismissal of the multiple petition or complaint. In
of Appeal in Civil Case No. 10173. The appellate court upheld the short, dismissal of a petition for violation of A.C. No. 28-91 obtains
denial on the ground that there was no written explanation as to only if the petition can be considered a multiple petition or
why the Notice of Appeal was served by registered mail instead of complaint, and not simply because the docket number of the lower
personal service. No other matter was discussed by the Court of court case was not mentioned in the complaint. Besides, as pointed
Appeals therein, certainly none on the merits of the Civil Case. In out by respondent, the docket number of the lower court case is
fact, the Decision ends with the caveat: This Court is confronted only mentioned in the body of the petition.
with the procedural aspect of the case.
And even if A.C. No. 28-91 could be construed as
PAT-RELATED ISSUE: authorizing the dismissal of a petition for failing to state the docket
Petitioners assert that respondent submitted a false certification number of the lower court decision, the relative weight of all things
on non-forum shopping, primarily on the ground that the said must be considered, particularly the degree of distress on
certification was signed not by respondent, but by his daughter, respondent due to the deprivation of his property without being
Mae Sendiong, by authority of a General Power of Attorney, which afforded the opportunity to defend his claims. When gauged against
petitioners claim was not specified for the purpose of filing the denial of respondents right to due process of law, the purported
thepetition. However, a perusal of the General Power of violation by Paul Sendiong of A.C. No. 28-91 does not amount to a
Attorney shows that Mae Sendiong is empowered, among others, hill of beans.
to execute, sign, authenticate, and enter into any and all contracts
and agreements for me and in my name with any person or #12
entity, and to bring suit, defend and enter into compromises in
my name and stead, in connection with actions brought for or LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN
against me, of whatever nature and kind. MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M.
PEREZ, v. ALLIED BANKING CORPORATION
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

of clear and convincing evidence to that effect, would run afoul of


FACTS the express tenor of the SPA and thus defeat Perlas true intention.

Perla Mercado executed a Special Power of Attorney in favor of her A power of attorney must be strictly construed and pursued. The
husband, Julian, authorizing the latter to sell, alienate, mortgage, instrument will be held to grant only those powers which are
lease and deal with the different pieces of real and personal specified therein, and the agent may neither go beyond nor deviate
property enumerated therein. Julian obtained a loan from from the power of attorney. Where powers and duties are specified
Respondent Allied Banking which was secured by a property, with and defined in an instrument, all such powers and duties are limited
TCT A (TCT No. RT 18206). As Julian defaulted on the payment of his and are confined to those which are specified and defined, and all
loan obligations, Allied Banking initiated an extra-judicial foreclosure other powers and duties are excluded. This is but in accord with the
proceedings and was then declared as the highest bidder. disinclination of courts to enlarge the authority granted beyond the
powers expressly given and those which incidentally flow or derive
Petitioner Mercado as the heir of Perla, initiated an action therefrom as being usual and reasonably necessary and proper for
for the annulment of REM constituted over the subject property on the performance of such express powers.
the ground that the same was not covered by the SPA and that the
said SPA, at the time the loan obligations were contracted, no longer ISSUE: Is the revocation valid?
had force and effect since it was previously revoked by Perla as
evidenced by the Revocation of SPA signed by the latter. Perla, in a HELD: Yes.
letter, notified the Registry of Deeds of Quezon City that any
attempt to mortgage or sell the subject property must be with her Assuming arguendo that the subject property was indeed included
full consent documented in the form of an SPA duly authenticated in the SPA executed by Perla in favor of Julian, the said SPA was
before the Philippine Consulate General in New York. The revoked by virtue of a public instrument executed by Perla on 10
respondents averred that TCT A is merely a reconstitution of TCT B March 1993.
(TCT No. 106338), which is indicated in the SPA, thus the property
referred in the two TCTs are one and the same. The court quote with approval the following ruling of the RTC:

The RTC declared the REM null and void on the ground The Register of Deeds of Quezon City was even notified that any
that Julian was not authorized to mortgage the subject property. attempt to mortgage or sell the property covered by TCT No.
The Court of Appeals however, reversed the said decision and
upheld the validity of the REM constituted over the subject property The non-annotation of the revocation of the Special Power of
on the strength of the SPA, on the ground that Perlas subsequent Attorney on TCT No. RT-18206 is of no consequence as far as the
revocation of the said SPA, not being contained in a public revocations existence and legal effect is concerned since actual
instrument, cannot bind third persons. notice is always superior to constructive notice.

ISSUE: Is the mortgage enforceable? Given that Perla revoked the SPA as early as 10 March 1993, and
that she informed the Registry of Deeds of Quezon City of such
HELD: No. The court is not convinced that the property covered revocation in a letter dated 23 January 1996 and received by the
by TCT No. 106338 registered with the Registry of Deeds of Pasig latter on 7 February 1996, then third parties to the SPA are
(now Makati) is the same as the subject property covered by TCT constructively notified that the same had been revoked and Julian
No. RT-18206 (106338) registered with the Registry of Deeds of no longer had any authority to mortgage the subject
Quezon City. The records of the case are stripped of supporting property. Although the revocation may not be annotated on TCT No.
proofs to verify the respondents claim that the two titles cover the RT-18206 (106338), as the RTC pointed out, neither the Registry of
same property. It failed to present any certification from the Deeds of Quezon City nor respondent denied that Perlas 23 January
Registries of Deeds concerned to support its assertion. Neither did 1996letter was received by and filed with the Registry of Deeds of
respondent take the effort of submitting and making part of the Quezon City. Respondent would have undoubtedly come across said
records of this case copies of TCTs No. RT-106338 of the Registry of letter if it indeed diligently investigated the subject property and the
Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry circumstances surrounding its mortgage.
of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs. ISSUE: Is the respondent a mortgagee-in-good faith?

Under Article 1878 of the Civil Code, a special power of attorney is HELD: No. By putting blinders on its eyes, and by refusing to see the
necessary in cases where real rights over immovable property are patent defect in the scope of Julians authority, easily discernable
created or conveyed. In the SPA executed by Perla in favor of Julian from the plain terms of the SPA, respondent cannot now claim to be
on 28 May 1992, the latter was conferred with the authority to sell, an innocent mortgagee.
alienate, mortgage, lease and deal otherwise the different pieces of
real and personal property registered in Perlas name. The property listed in the real estate mortgages Julian executed in
favor of PNB is the one covered by TCT#RT-18206(106338). On the
However, there was nothing in the language of the SPA from which other hand, the Special Power of Attorney referred to TCT No. RT-
we could deduce the intention of Perla to include the subject 106338 805 Square Meters of the Registry of Deeds
property therein. We cannot attribute such alleged intention to of Pasig now Makati. The palpable difference between the TCT
Perla who executed the SPA when the language of the instrument is numbers referred to in the real estate mortgages and Julians SPA,
bare of any indication suggestive of such intention. Contrariwise, to coupled with the fact that the said TCTs are registered in the
adopt the intent theory advanced by the respondent, in the absence Registries of Deeds of different cities, should have put respondent
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

on guard. Respondents claim of prudence is debunked by the fact for his principal, as an assignee of such contract. The rule
that it had conveniently or otherwise overlooked the inconsistent requiring every action to be prosecuted in the name of the real
details appearing on the face of the documents, which it was relying party-in-interest recognizes the assignment of rights of action
on for its rights as mortgagee, and which significantly affected the and also recognizes that when one has a right assigned to him,
identification of the property being mortgaged. he is then the real party-in-interest and may maintain an action
upon such claim or right.
Moreover, where the mortgagee does not directly deal
with the registered owner of real property, the law requires that a - LETTER INDICATES AGENCY:Upon scrutiny of Gaudencios
higher degree of prudence be exercised by the mortgagee. This letter, it is apparent that Lizette was to act just as a
principle is applied more strenuously when the mortgagee is a bank "representative" of Gaudencio in the "w/drawal of rails," and
or a banking institution. not an assignee. Laureano makes much of the fact that the
terms "agent"/"attorney-in-fact" were not used in Gaudencios
letter. It bears to stress, however, that the words "principal"
#13 and "agent," are not the only terms used to designate the
LAUREANO ANGELES v. PHILIPPINE NATIONAL RAILWAYS parties in an agency relation. The agent may also be called an
G.R. No. 150128, 31 August 2006, SECOND DIVISION, (Garcia, J.) attorney, proxy, delegate or, as here, representative. It cannot
be over emphasized that Gaudencio's use of the active verb
FACTS: "authorized," instead of "assigned," indicated intent on his part
- Philippine National Railways (PNR) accepted to keep and retain his interest in the subject matter. Thus, he
GaudencioRomualdezs/San JuanicoEnterprisess AS IS, WHERE intended to limit Lizettes role in the scrap transaction to being
IS offer to buy PNRs scrap/unserviceable rails in Del Carmen the representative of his interest therein.
and Lubao, Pampanga for P96,600. After paying the purchase
price, Gaudencio sent a letter to PNR, authorizing Lizette - LETTER TO ENABLE AGENCY:Laureano submits that the 2nd
Angeles to be his lawful representative in the w/drawal of the paragraph of Gaudencios letter, stating - "I have given Lizette
scraps. He has also given her the original copy of the award, the original copy of the awardw/c will indicate my waiver of
indicating his waiver of rights, interests and participation in her rights, interests and participation in favor of Lizette - clarifies
favor. Lizette requested PNR to transfer the location of that Lizette was intended to be an assignee, and not a mere
w/drawal to Murcia, Carpas and San Miguel, Tarlac because agent. However, Laureano conveniently omitted an important
those in Pampanga were not ready for hauling. Initially, PNR phrase preceding the paragraph w/c would have put the whole
granted the request, but it subsequently suspended the matter in context. The phrase is "For this reason," and the
w/drawal in view of documentary discrepancies and reported antecedent thereof is Gaudencio having appointed Lizette as
pilferages of over P500,000 worth of PNR scrap in Tarlac. his representative in the matter of the w/drawal of the scrap
items. In fine, the key phrase clearly conveys the idea that
- Lizette demanded the refund of P96,600, but PNR refused to Lizette was given the original copy of the contract award to
pay on the ground that as per delivery receipt duly signed by enable her to withdraw the rails as Romualdezs authorized
Lizette, she has already w/drawn P114,781.80 worth of scraps, representative.
an amount exceeding the claim for refund. Lizette, w/ her
husband, Laureano Angeles, filed suit against PNR for specific - LETTER AS A WHOLE MUST BE READ: Art. 1374 of the Civil
performance and damages before the RTC of Q.C., alleging the Code provides that the various stipulations of a contract shall
delivery of 46 metric tons of scraps, among others. Since Lizette be read and interpreted together, attributing to the doubtful
passed away as the trial ensued, Laureano substituted her. RTC ones that sense w/c may result from all of them taken jointly. In
dismissed the complaint on the ground of lack of cause of fine, the real intention of the parties is primarily to be
action, postulating that the spouses were not the real parties- determined from the language used and gathered from the
in-interest in the case. The CA affirmed. Motion for whole instrument. When put into the context of the letter as a
Reconsideration denied. whole, it is abundantly clear that the rights which Gaudencio
waived/ceded in favor of Lizette were those in furtherance of
ISSUE: Was Lizette an agent or an assignee of Gaudencio? the agency relation that he had established for the w/drawal of
the rails.
RULING: AGENT ONLY.
- RIGHTS OF AN AGENT: Where agency exists, the 3rd party's (in - ACTS OF MAIN PARTIES INDICATE AGENCY:At any rate, any
this case, PNR's) liability on a contract is to the principal and not doubt as to the intent of Gaudencio generated by the way his
to the agent and the relationship of the 3rd party to the letter was couched could be clarified by the acts of the main
principal is the same as that in a contract in w/c there is no players themselves. Art. 1371 of the Civil Code provides that to
agent. Normally, the agent has neither rights nor liabilities as judge the intention of the contracting parties, their
against the 3rd party. He cannot thus sue/be sued on the contemporaneous and subsequent acts shall be principally
contract. Since a contract may be violated only by the parties considered. In other words, in case of doubt, resort may be
thereto as against each other, the real party-in-interest, either made to the situation, surroundings, and relations of the
as plaintiff/defendant in an action upon that contract must, parties. The fact of agency was confirmed in subsequent letters
generally, be a contracting party. from Angeles spouses in w/c they themselves refer to Lizette as
"authorized representative" of San Juanico Enterprises.
- RIGHTS OF AN ASSIGNEE:The legal situation is, however, Mention may also be made that the w/drawal receipt w/c
different where an agent is constituted as an assignee. In this Lizette had signed indicated that she was doing so in a
case, the agent may, in his own behalf, sue on a contract made representative capacity. One professing to act as agent for
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

another is estopped to deny his agency both as against his Roque constrained petitioner to deal with respondent
asserted principal and 3rd persons interested in the transaction Efren P. Roque, one of the surviving children of the late Dr.
w/c he engaged in. Roque, but the negotiations broke down due to some
disagreements. In a letter, respondent advised petitioner
- POWER OF ATTY. IS AN AGENCY:Laureano maintains that "to desist from any attempt to enforce the
Gaudencios letter was not in the form of a special power of aforementioned contract of lease and memorandum of
attorney, implying that the latter had not intended to merely agreement".
authorize his wife to perform an act for Gaudencio. The
contention is specious. In the absence of statute, no Respondent filed a case for annulment of the contract of
form/method of execution is required for a valid power of lease and the memorandum of agreement, with a prayer
attorney; it may be in any form clearly showing on its face the for the issuance of a preliminary injunction, before RTC of
agents authority. A power of attorney is only but an Quezon City.
instrument in writing by w/c a person, as principal, appoints
another as his agent and confers upon him the authority to Efren P. Roque alleged that:
perform certain specified acts on behalf of the principal. The 1. He had long been the absolute owner of the
written authorization itself is the power of attorney, and this is subject property by virtue of a deed of
clearly indicated by the fact that it has also been called a "letter donation inter vivos executed in his favor by
of attorney." Its primary purpose is not to define the authority his parents, Dr. Felipe Roque and Elisa
of the agent as between himself and his principal but to Roque, and;
evidence the authority of the agent to 3rd parties with whom
the agent deals. The letter under consideration is sufficient to 2. That the late Dr. Felipe Roque had no
constitute a power of attorney. Except as may be required by authority to enter into the assailed
statute, a power of attorney is valid although no notary public agreements with petitioner. The donation
intervened in its execution. was made in a public instrument duly
acknowledged by the donor-spouses before
- POWER OF ATTY. SPECIFIES AGENCY:A power of attorney must a notary public and duly accepted on the
be strictly construed and pursued. The instrument will be held same day by respondent before the notary
to grant only those powers which are specified therein, and the public in the same instrument of donation.
agent may neither go beyond nor deviate from the power of The title to the property, however, remained
attorney. Contextually, all that Lizette was authorized to do was in the name of Dr. Felipe C. Roque, and it
to w/draw the unserviceable/scrap railings. Allowing her was only transferred to and in the name of
authority to sue therefor, especially in her own name, would be respondent 16 years later, under TCT of the
to read something not intended, let alone written in RD of Quezon City. Respondent, while he
Gaudencios letter. resided in the United States of America,
delegated to his father the mere
administration of the property. Respondent
#14 came to know of the assailed contracts with
SHOPPERS PARADISE REALTY & DEVELOPMENT petitioner only after retiring to the
CORPORATIONvs.EFREN P. ROQUE Philippines upon the death of his father.
G.R. No. 148775 January 13, 2004
RTC dismissed the complaint of respondent. RTC ordered
FACTS: respondent to surrender TCT for the annotation of the
Petitioner Shoppers Paradise Realty & Development questioned Contract of Lease and Memorandum of
Corporation, represented by its president, Agreement.
VeredignoAtienza, entered into a twenty-five year lease
with Dr. Felipe C. Roque, now deceased, over a parcel of CA reversed the decision of the TC and held to be invalid
land, with an area of two thousand and thirty six (2,036) the Contract of Lease and Memorandum of Agreement. It
square meters, situated at Plaza Novaliches, Quezon City, concluded that petitioner was not a lessee in good faith
covered by TCT No. 30591 of the RD of Quezon City in the having had prior knowledge of the donation in favor of
name of Dr. Roque. respondent, and that such actual knowledge had the effect
of registration insofar as petitioner was concerned. The
Petitioner issued to Dr. Roque a check for P250,000.00 by appellate court based its findings largely on the testimony
way of "reservation payment." Simultaneously, petitioner of Veredigno Atienza during cross-examination.
and Dr. Roque likewise entered into a MOA for the
construction, development and operation of a commercial ISSUES:
building complex on the property. Conformably with the 1. WON presumption of good faith it so enjoys as a party dealing in
agreement, petitioner issued a check for another registered land has not been overturned by the aforequoted
P250,000.00 "downpayment" to Dr. Roque. testimonial evidence.
2. WON respondent is barred by laches and estoppel from denying
The contract of lease and the MOA, both notarized, were the contracts.
to be annotated on the TCT within 60 days. The
annotations, however, were never made because of the RULING:
untimely demise of Dr. Felipe C. Roque. The death of Dr. 1. NO.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The existence, albeit unregistered, of the donation in favor of


respondent is undisputed. TC and CA have not erred in holding that 2. NO.
the non-registration of a deed of donation does not affect its The Court cannot accept petitioners argument that respondent is
validity. As being itself a mode of acquiring ownership, donation guilty of laches. Laches, in its real sense, is the failure or neglect, for
results in an effective transfer of title over the property from the an unreasonable and unexplained length of time, to do that which,
donor to the done. In donations of immovable property, the law by exercising due diligence, could or should have been done earlier;
requires for its validity that it should be contained in a public it is negligence or omission to assert a right within a reasonable
document, specifying therein the property donated and the value of time, warranting a presumption that the party entitled to assert it
the charges which the donee must satisfy. The Civil Code provides, either has abandoned or declined to assert it.
however, that "titles of ownership, or other rights over immovable
property, which are not duly inscribed or annotated in the Registry Respondent learned of the contracts only after the death of his
of Property shall not prejudice third persons."It is enough, between father, and in the same year, during November, he assailed the
the parties to a donation of an immovable property, that the validity of the agreements. Hardly, could respondent then be said
donation be made in a public document but, in order to bind third to have neglected to assert his case for unreasonable length of
persons, the donation must be registered in the registry of Property. time.
Consistently, Section 50 of Act No. 496 (Land Registration Act), as so
amended by Section 51 of P.D. No. 1529 (Property Registration Neither is respondent estopped from repudiating the contracts.
Decree), states: The essential elements of estoppel in pais, in relation to the party
sought to be estopped, are: 1) a clear conduct amounting to false
"SECTION 51. Conveyance and other dealings by representation or concealment of material facts or, at least,
registered owner.- An owner of registered land may calculated to convey the impression that the facts are otherwise
convey, mortgage, lease, charge or otherwise deal with than, and inconsistent with, those which the party subsequently
the same in accordance with existing laws. He may use attempts to assert; 2) an intent or, at least, an expectation, that
such forms of deeds, mortgages, leases or other voluntary this conduct shall influence, or be acted upon by, the other party;
instruments as are sufficient in law. But no deed, and 3) the knowledge, actual or constructive, by him of the real
mortgage, lease, or other voluntary instrument, except a facts. With respect to the party claiming the estoppel, the
will purporting to convey or affect registered land shall conditions he must satisfy are: 1) lack of knowledge or of the
take effect as a conveyance or bind the land, but shall means of knowledge of the truth as to the facts in question; 2)
operate only as a contract between the parties and as reliance, in good faith, upon the conduct or statements of the
evidence of authority to the Register of Deeds to make party to be estopped; and 3) action or inaction based thereon of
registration. such character as to change his position or status calculated to
cause him injury or prejudice. It has not been shown that
"The act of registration shall be the operative act to convey respondent intended to conceal the actual facts concerning the
or affect the land insofar as third persons are property; more importantly, petitioner has been shown not to be
concerned, and in all cases under this Decree, the totally unaware of the real ownership of the subject property.
registration shall be made in the office of the Register of
Deeds for the province or city where the land lies." #15
MACARIA ARGUELLES AND THE HEIRS OF THE DECEASED PETRONIO
A person dealing with registered land may thus safely rely on the ARGUELLES VS. MALARAYAT RURAL BANK INC.
correctness of the certificate of title issued therefore, and he is not
required to go beyond the certificate to determine the condition of Facts:
the property but, where such party has knowledge of a prior Fermina M. Guia was the registered owner of a parcel of agricultural
existing interest which is unregistered at the time he acquired a land in Barrio Pinagkurusan, Alitagtag, Batangas, with an area of
right thereto, his knowledge of that prior unregistered interest 4,560 square meters. She sold the south portion of the land with an
would have the effect of registration as regards to him. approximate area of 1,350 square meters to the spouses Petronio
and Macaria Arguelles.Although the spouses Arguelles immediately
The appellate court was not without substantial basis when it acquired possession of the land, the Deed of Sale was neither
found petitioner to have had knowledge of the donation at the registered with the Register of Deeds nor annotated on the title. At
time it entered into the two agreements with Dr. Roque. During the same time, Fermina M. Guia ordered her son Eddie Guia and the
their negotiation, petitioner, through its representatives, was latter's wife TeresitaGuia to subdivide the land covered by the OCT
apprised of the fact that the subject property actually belonged to into three lots and to apply for the issuance of separate titles
respondent. therefore, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she
It was not shown that Dr. Felipe C. Roque had been an authorized directed the delivery of the TCT corresponding to Lot 3-C to the
agent of respondent. vendees of the unregistered sale or the spouses Arguelles. However,
despite their repeated demands, the spouses Arguelles claimed that
In a contract of agency, the agent acts in representation or in behalf they never received the TCT corresponding to Lot 3-C from the
of another with the consent of the latter. Article 1878 of the Civil spouses Guia.Nevertheless, in accordance with the instructions of
Code expresses that a special power of attorney is necessary to Fermina M. Guia, the spouses Guia succeeded in cancelling the OCT
lease any real property to another person for more than one year. and in subdividing the lot into three.
The lease of real property for more than one year is considered not
merely an act of administration but an act of strict dominion or of The spouses Guia obtained a loan in the amount of P240,000 from
ownership. A special power of attorney is thus necessary for its the respondent Malarayat Rural Banlc and secured the loan with a
execution through an agent. real estate mortgage over Lot 3-C, which were purportedly executed
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

by the registered owner of Lot 3-C, Fermina M. Guia, in favor of the right to the mortgaged land as compared to the vendees to the
mortgagors, spouses Guia. Moreover, the Real EstateMortgage and unregistered sale.
Special Power of Attorney were duly annotated in the
memorandum of encumbrances of the TCT covering Lot 3-C. At the outset, we note that the issue of whether a mortgagee is in
good faith generally cannot be entertained in a petition filed under
The spouses Arguelles alleged that it was only after seven years from Rule 45 of the 1997 Rules of Civil Procedure, as amended. This is
the date of the unregistered sale that they discovered from the because the ascertainment of good faith or the lack thereof, and the
Register of Deeds of Batangas City the following facts: (1) determination of negligence are factual matters which lay outside
subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of the scope of a petition for review on certiorari. However, a
separate TCTs for each lot; and (3) the annotation of the Real Estate recognized exception to this rule is when the RTC and the CA have
Mortgage and Special Power of Attorney over Lot 3-C covered by the divergent findings of fact as in the case at bar. We find that the
TCT. Two years thereafter, the spouses Arguelles registered their respondent Malarayat Rural Bank is not a mortgagee in good faith.
adverse claim based on the unregistered sale over Lot 3-C. Therefore, the spouses Arguelles as the vendees to the unregistered
sale have a superior right to the mortgaged land.
The spouses Arguelles filed a complaint for Annulment of Mortgage
and Cancellation of Mortgage Lien with Damages against the In Cavite Development Bank v. Spouses Lim, the Court explained the
respondent Malarayat Rural Bank with the RTC of Taal, Batangas. doctrine of mortgagee in good faith, thus:
They alleged ownership over the land that had been mortgaged in
favor of the respondent Malarayat Rural Bank. Malarayat Rural Bank There is, however, a situation where, despite the fact that the
filed an Answer with Counterclaim and Cross-claim wherein it mortgagor is not the owner of the mortgaged property, his title
argued that the failure of the spouses Arguelles to register the Deed being fraudulent, the mortgage contract and any foreclosure sale
of Sale dated December 1, 1990 was fatal to their claim of arising therefrom are given effect by reason of public policy. This is
ownership. the doctrine of "mortgagee in good faith" based on the rule that all
persons dealing with the property covered by a TCT, as buyers or
The RTC found that the spouses Guia were no longer the absolute mortgagees, are not required to go beyond what appears on the
owners of the land described as Lot 3-C and covered by the TCT at face of the title. The public interest in upholding the indefeasibility
the time they mortgaged the same to the respondent Malarayat of a certificate of title, as evidence of lawful ownership of the land
Rural Bank in view of the unregistered sale in favor of the vendee or of any encumbrance thereon, protects a buyer or mortgagee
spouses Arguelles. The RTC annulled the real estate mortgage, the who, in good faith, relied upon what appears on the face of the
subsequent foreclosure sale, and the corresponding issuance of the certificate of title.
certificate of title. The RTC declared that the respondent Malarayat
Rural Bank was not a mortgagee in good faith as it failed to exercise In Bank of Commerce v. Spouses San Pablo, Jr., we declared that
the exacting degree of diligence required from banking institutions. indeed, a mortgagee has a right to rely in good faith on the
The CA reversed and set aside the decision of the RTC, and held that certificate of title of the mortgagor of the property offered as
because of the failure of the spouses Arguelles to register their deed security, and in the absence of any sign that might arouse suspicion,
of sale, the unregistered sale could not affect the respondent the mortgagee has no obligation to undertake further investigation.
Malarayat Rural Bank. Thus, the respondent Malarayat Rural Bank
has a better right to the land mortgaged as compared to spouses However, in Bank of Commerce v. Spouses San Pablo, Jr., we also
Arguelles who were the vendees in the unregistered sale. The CA ruled that "[i]n cases where the mortgagee does not directly deal
found that the respondent Malarayat Rural Bank was a mortgagee in with the registered owner of real property, the law requires that a
good faith as it sufficiently demonstrated due diligence in approving higher degree of prudence be exercised by the mortgagee."
the loan application of the spouses Guia. Specifically, we cited Abad v. Sps. Guimbci where we held, "x xx
While one who buys from the registered owner does not need to
Issue: look behind the certificate of title, one who buys from one who is
WON Malarayat Rural Bank is a mortgagee in good faith who is not the registered owner is expected to examine not only the
entitled to protection on its mortgage lien. certificate of title but all factual circumstances necessary for [one]
to determine if there are any flaws in the title of the transferor, or
Held: in [the] capacity to transfer the land. " Although the instant case
The petition is meritorious. does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term
Petitioners imputed negligence on the part of respondent Malarayat "purchaser."
Rural Bank when it approved the loan application of the spouses
Guia. They pointed out that the bank failed to conduct a thorough Thus, where the mortgagor is not the registered owner of the
ocular inspection of the land mortgaged and an extensive property but is merely an attorney-in-fact of the same, it is
investigation of the title of the registered owner. And since the incumbent upon the mortgagee to exercise greater care and a
respondent Malarayat Rural Bank cannot be considered a higher degree of prudence in dealing with such mortgagor.
mortgagee in good faith, petitioners argued that the unregistered
sale in their favor takes precedence over the duly registered In Bank of Commerce v. San Pablo, Jr., we held that when "the
mortgage lien. Malarayat Rural Bank claimed that it exercised the person applying for the loan is other than the registered owner of
required degree of diligence before granting the loan application. In the real property being mortgaged, [such fact] should have already
particular, it asserted the absence of any facts or circumstances that raised a red flag and which should have induced the Bank xx x to
can reasonably arouse suspicion in a prudent person. Malarayat make inquiries into and confirm x xx [the] authority to mortgage x
Rural Bank argued that it is a mortgagee in good faith with a better xx. A person who deliberately ignores a significant fact that could
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

create suspicion in an otherwise reasonable person is not an Indeed, such fact should have immediately prompted the
innocent purchaser for value." respondent to conduct further inquiries, especially since the spouses
Guia were not the registered owners of the land being mortgaged.
Moreover, in a long line of cases, we have consistently enjoined They merely derived the authority to mortgage the lot from the
banks to exert a higher degree of diligence, care, and prudence than Special Power of Attorney allegedly executed by the late Fermina M.
individuals in handling real estate transactions. Guia. Hence, it was incumbent upon the respondent Malarayat Rural
Bank to be more cautious in dealing with the spouses Guia, and
In Cruz v. Bancom Finance Corporation, we declared: inquire further regarding the identity and possible adverse claim of
those in actual possession of the property.
Respondent, however, is not an ordinary mortgagee; it is a
mortgagee-bank. As such, unlike private individuals, it is expected to Pertinently, in Land Bank of the Philippines v. Poblete, we ruled that
exercise greater care and prudence in its dealings, including those "[w]here the mortgagee acted with haste in granting the mortgage
involving registered lands. A banking institution is expected to loan and did not ascertain the ownership of the land being
exercise due diligence before entering into a mortgage contract. The mortgaged, as well as the authority of the supposed agent executing
ascertainment of the status or condition of a property offered to it the mortgage, it cannot be considered an innocent mortgagee."
as security for a loan must be a standard and indispensable part of
its operations. Since the subject land was not mortgaged by the owner thereof and
since the respondent Malarayat Rural Bank is not a mortgagee in
In Ursal v. Court of Appeals, we held that where the mortgagee is a good faith, said bank is not entitled to protection under the law. The
bank, it cannot rely merely on the certificate of title offered by the unregistered sale in favor of the spouses Arguelles must prevail over
mortgagor in ascertaining the status of mortgaged properties. Since the mortgage lien of respondent Malarayat Rural Bank.
its business is impressed with public interest, the mortgagee-bank is
duty-bound to be more cautious even in dealing with registered #16
lands. Indeed, the rule that person dealing with registered lands can LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO,
rely solely on the certificate of title does not apply to banks. Thus, Petitioner,
before approving a loan application, it is a standard operating vs.
practice for these institutions to conduct an ocular inspection of the SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES
property offered for mortgage and to verify the genuineness of the LEON C. CASTILLO, JR., and TERESITA FLORESCASTILLO,
title to determine the real owners thereof. The apparent purpose of Respondents.
an ocular inspection is to protect the "true owner" of the property
as well as innocent third parties with a right, interest or claim FACTS:
thereon from a usurper who may have acquired a fraudulent Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr.
certificate of title thereto. are siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo)
were doing business under the name of JRC Poultry Farms.
In Metropolitan Bank and Trust Co. v. Cabilzo, we explained the Sometime in 1994, the Spouses Castillo obtained a loan from
socio-economic role of banks and the reason for bestowing public respondent SBC in the amount of P45,000,000.00. To secure said
interest on the banking system: loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the
We never fail to stress the remarkable significance of a banking Castillo family and which are all located in San Pablo City. They also
institution to commercial transactions, in particular, and to the procured a second loan amounting to P2,500,000.00, which was
country's economy in general. The banking system is an covered by a mortgage on a land in Pasay City. Subsequently, the
indispensable institution in the modem world and plays a vital role Spouses Castillo failed to settle the loan, prompting SBC to proceed
in the economic life of every civilized nation. Whether as mere with the foreclosure of the properties. SBC was then adjudged as the
passive entities for the safekeeping and saving of money or as active winning bidder in the foreclosure sale held on July 29, 1999.
instruments of business and commerce, banks have become an Thereafter, they were able to redeem the foreclosed properties,
ubiquitous presence among the people, who have come to regard with the exception of the lots covered by Torrens Certificate of
them with respect and even gratitude and, most of all, confidence. Title(TCT) Nos. 28302 and 28297.

In this case, we find that the respondent Malarayat Rural Bank fell On January 30, 2002, Leonardo filed a complaint for the partial
short of the required degree of diligence, prudence, and care in annulment of the real estate mortgage. He alleged that he owns the
approving the loan application of the spouses Guia. property covered by TCT No. 28297 and that the Spouses Castillo
used it as one of the collaterals for a loan without his consent. He
Respondent should have diligently conducted an investigation of the contested his supposed Special Power of Attorney (SPA) in Leons
land offered as collateral. Although the Report of Inspection and favor, claiming that it is falsified. According to him, the date of
Credit Investigation found at the dorsal portion of the Application issuance of his Community Tax Certificate (CTC) as indicated on the
for Agricultural Loan proved that the respondent Malarayat Rural notarization of said SPA is January 11, 1993, when he only secured
Bank inspected the land, the respondent turned a blind eye to the the same on May 17, 1993. He also assailed the foreclosure of the
finding therein that the "lot is planted [with] sugarcane with annual lots under TCT Nos.20030 and 10073 which were still registered in
yield (crops) in the amount of P15,000." the name of their deceased father. Lastly, Leonardo attacked SBCs
imposition of penalty and interest on the loans as being arbitrary
We disagree with respondent's stance that the mere planting and and unconscionable.
harvesting of sugarcane cannot reasonably trigger suspicion that
there is adverse possession over the land offered as mortgage.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

On the other hand, the Spouses Castillo insisted on the validity of turn was consistent with the rest of the writings on the document.
Leonardos SPA. They alleged that they incurred the loan not only He did not likewise attempt to show any evidence that would back
for themselves, but also for the other members of the Castillo family up his claim that at the time of the execution of the SPA on May 5,
who needed money at that time. Upon receipt of the proceeds of 1993, he was actually in America and therefore could not have
the loan, they distributed the same to their family members, as possibly appeared and signed the document before the notary.
agreed upon. However, when the loan became due, their relatives
failed to pay their respective shares such that Leon was forced to And even if the Court were to assume, simply for the sake of
use his own money until SBC had to finally foreclose the mortgage argument, that Leonardo indeed secured his CTC only on May 17,
over the lots. 1993, this does not automatically render the SPA invalid. The
appellate court aptly held that defective notarization will simply
In a Decision dated October 16, 2006, the RTC of San Pablo City strip the document of its public character and reduce it to a private
ruled in Leonardos favor. instrument, but nonetheless, binding, provided its validity is
established by preponderance of evidence. Article 1358 of the Civil
Both parties elevated the case to the CA. On November 26, 2010, Code requires that the form of a contract that transmits or
the CA denied Leonardos appeal and granted that of the Spouses extinguishes real rights over immovable property should be in a
Castillo and SBC. It reversed and set aside the RTC Decision, public document, yet the failure to observe the proper form does
essentially ruling that the August 5, 1994 real estate mortgage is not render the transaction invalid. The necessity of a public
valid. document for said contracts is only for convenience; it is not
essential for validity or enforceability. Even a sale of real property,
ISSUE: though not contained in a public instrument or formal writing, is
The main issue sought to be resolved here is whether or not the real nevertheless valid and binding, for even a verbal contract of sale or
estate mortgage constituted over the property under TCT No. T- real estate produces legal effects between the parties.
28297 is valid and binding. Consequently, when there is a defect in the notarization of a
RULING: document, the clear and convincing evidentiary standard originally
The Court finds the petition to be without merit. attached to a duly notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of
The following are the legal requisites for a mortgage to be valid: evidence.
(1) It must be constituted to secure the fulfillment of a
principal obligation; Here, the preponderance of evidence indubitably tilts in favor of the
(2) The mortgagor must be the absolute owner of the respondents, still making the SPA binding between the parties even
thing mortgaged; with the aforementioned assumed irregularity.1wphi1 There are
(3) The persons constituting the mortgage must have the several telling circumstances that would clearly demonstrate that
free disposal of their property, and in the absence thereof, Leonardo was aware of the mortgage and he indeed executed the
they should be legally authorized for the purpose. SPA to entrust Leon with the mortgage of his property. Leon had
inhis possession all the titles covering the eleven (11) properties
Leonardo asserts that his signature in the SPA authorizing his mortgaged, including that of Leonardo. Leonardo and the rest of
brother, Leon, to mortgage his property covered by TCT No. T-28297 their relatives could not have just blindly ceded their respective TCTs
was falsified. He claims that he was in America at the time of its to Leon. It is likewise ridiculous how Leonardo seemed to have been
execution. As proof of the forgery, he focuses on his alleged CTC totally oblivious to the status of his property for eight (8) long years,
used for the notarization of the SPA on May 5, 1993 and points out and would only find outabout the mortgage and foreclosure from a
that it appears to have been issued on January 11, 1993 when, in nephew who himself had consented to the mortgage of his own lot.
fact, he only obtained it on May 17, 1993. Considering the lapse of time from the alleged forgery on May 5,
1993 and the mortgage on August 5, 1994, to the foreclosure on July
But it is a settled rule that allegations of forgery, like all other 29, 1999, and to the supposed discovery in 2001, it appears that the
allegations, must be proved by clear, positive, and convincing suit is a mere afterthought or a last-ditch effort on Leonardos part
evidence by the party alleging it. It should not be presumed, but to extend his hold over his property and to prevent SBC from
must be established by comparing the alleged forged signature with consolidating ownership over the same. More importantly,
the genuine signatures. Leonardo himself admitted on cross-examination that he granted
Leon authority to mortgage, only that, according to him, he thought
Here, Leonardo simply relied on his self-serving declarations and it was going to be with China Bank, and not SBC. But as the CA
refused to present further corroborative evidence, saying that the noted, there is no mention of a certain bank in the subject SPA with
falsified document itself is the best evidence. He did not even bother which Leon must specifically deal. Leon, therefore, was simply acting
comparing the alleged forged signature on the SPA with samples of within the bounds of the SPAs authority when he mortgaged the lot
his real and actual signature. What he consistently utilized as lone to SBC.
support for his allegation was the supposed discrepancy on the date
of issuance of his CTC as reflected on the subject SPAs notarial -------------END 4TH-----------------
acknowledgment. On the contrary, in view of the great ease with
which CTCs are obtained these days, there is reasonable ground to VICTORIAS MILLING CO., INC., petitioner,
believe that, as the CA correctly observed, the CTC could have been vs.
issued with the space for the date left blank and Leonardo merely COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION,
filled it up to accommodate his assertions. Also, upon careful respondents.
examination, the handwriting appearing on the space for the date of
G.R. No. 117356 June 19, 2000
issuance is different from that on the computation of fees, which in
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

St. Therese Merchandising (hereafter STM) regularly CSC's complaint alleged that STM had fully paid petitioner
bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the for the sugar covered by SLDR No. 1214M. Therefore, the latter had
course of their dealings, petitioner issued several Shipping no justification for refusing delivery of the sugar. CSC prayed that
List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among petitioner be ordered to deliver the 23,000 bags covered by SLDR
these was SLDR No. 1214M, which gave rise to the instant case. No. 1214M and sought the award of P1,104,000.00 in unrealized
Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
sugar. Each bag contained 50 kilograms and priced at P638.00 per attorney's fees and litigation expenses.
bag as "per sales order VMC Marketing No. 042 dated October 16,
Petitioner's primary defense a quo was that it was an
1989." The transaction it covered was a "direct sale." The SLDR also
unpaid seller for the 23,000 bags. Since STM had already drawn in
contains an additional note which reads: "subject for (sic) availability
full all the sugar corresponding to the amount of its cleared checks,
of a (sic) stock at NAWACO (warehouse)."
it could no longer authorize further delivery of sugar to CSC.
On October 25, 1989, STM sold to private respondent Petitioner also contended that it had no privity of contract with CSC.
Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M
Petitioner explained that the SLDRs, which it had issued,
for P 14,750,000.00. CSC issued one check dated October 25, 1989
were not documents of title, but mere delivery receipts issued
and three checks postdated November 13, 1989 in payment. That
pursuant to a series of transactions entered into between it and
same day, CSC wrote petitioner that it had been authorized by STM
STM. The SLDRs prescribed delivery of the sugar to the party
to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the
specified therein and did not authorize the transfer of said party's
letter were a copy of SLDR No. 1214M and a letter of authority
rights and interests.
from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by Shipping List/Delivery Receipt-Refined Petitioner also alleged that CSC did not pay for the SLDR
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity and was actually STM's co-conspirator to defraud it through a
of 25,000 bags." misrepresentation that CSC was an innocent purchaser for value and
in good faith.
On October 27, 1989, STM issued 16 checks in the total
amount of P31,900,000.00 with petitioner as payee. The latter, in The trial court rendered its judgment favoring private
turn, issued Official Receipt No. 33743 dated October 27, 1989 respondent CSC ordering defendant Victorias Milling Company to
acknowledging receipt of the said checks in payment of 50,000 bags. deliver to the plaintiff 23,000 bags of refined sugar due under SLDR
Aside from SLDR No. 1214M, said checks also covered SLDR No. No. 1214.
1213.
On appeal, petitioner averred that the dealings between it
Private respondent CSC surrendered SLDR No. 1214M to and STM were part of a series of transactions involving only one
the petitioner's NAWACO warehouse and was allowed to withdraw account or one general contract of sale. Pursuant to this contract,
sugar. However, after 2,000 bags had been released, petitioner STM or any of its authorized agents could withdraw bags of sugar
refused to allow further withdrawals of sugar against SLDR No. only against cleared checks of STM. SLDR No. 21214M was only one
1214M. CSC then sent petitioner a letter dated January 23, 1990 of 22 SLDRs issued to STM and since the latter had already
informing it that SLDR No. 1214M had been "sold and endorsed" to withdrawn its full quota of sugar under the said SLDR, CSC was
it but that it had been refused further withdrawals of sugar from already precluded from seeking delivery of the 23,000 bags of sugar.
petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn. CSC thus inquired when it would be allowed to Private respondent CSC countered that the sugar
withdraw the remaining 23,000 bags. purchases involving SLDR No. 1214M were separate and
independent transactions and that the details of the series of
On January 31, 1990, petitioner replied that it could not purchases were contained in a single statement with a consolidated
allow any further withdrawals of sugar against SLDR No. 1214M summary of cleared check payments and sugar stock withdrawals
because STM had already withdrawn all the sugar covered by the because this a more convenient system than issuing separate
cleared checks. statements for each purchase.
On March 2, 1990, CSC sent petitioner a letter demanding The appellate court considered the following issues: (a)
the release of the balance of 23,000 bags. Whether or not the transaction between petitioner and STM
involving SLDR No. 1214M was a separate, independent, and single
Seven days later, petitioner reiterated that all the sugar
transaction; (b) Whether or not CSC had the capacity to sue on its
corresponding to the amount of STM's cleared checks had been fully
own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from
withdrawn and hence, there would be no more deliveries of the
STM of the rights to 25,000 bags of sugar covered by SLDR No.
commodity to STM's account. Petitioner also noted that CSC had
1214M could compel petitioner to deliver 23,000 bags allegedly
represented itself to be STM's agent as it had withdrawn the 2,000
unwithdrawn.
bags against SLDR No. 1214M "for and in behalf" of STM.
On February 24, 1994, the Court of Appeals rendered its
On April 27, 1990, CSC filed a complaint for specific
decision modifying the trial court's judgment, to wit:
performance against Defendants were Teresita Ng Sy (doing
business under the name of St. Therese Merchandising) and herein "1) Deliver to plaintiff-appellee 12,586 bags of sugar
petitioner. Since the former could not be served with summons, the covered by SLDR No. 1214M;
case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same Both parties then seasonably filed separate motions for
Teresita Ng Sy who could not be reached through summons. CSC, reconsideration.
however, did not bother to pursue its case against her, but instead In its resolution dated September 30, 1994, the appellate
used her as its witness. court modified its decision to read:
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

"WHEREFORE, the Court hereby modifies the assailed judgment and presumption of agency, and it is always a fact to be proved, with the
orders defendant-appellant to: burden of proof resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its nature and extent
"(1) Deliver to plaintiff-appellee 23,000 bags of refined
(Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
sugar under SLDR No. 1214M
failed to sufficiently establish the existence of an agency relation
ISSUE: between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our
(1)....Whether or not the Court of Appeals erred in not (STM's) behalf" should not be eyed as pointing to the existence of an
ruling that CSC was an agent of STM and hence, estopped agency relation ...It should be viewed in the context of all the
to sue upon SLDR No. 1214M as an assignee. circumstances obtaining. Although it would seem STM represented
(2)....Whether or not the Court of Appeals erred in plaintiff-appellee as being its agent by the use of the phrase "for and
applying the law on compensation to the transaction in our (STM's) behalf" the matter was cleared when on 23 January
under SLDR No. 1214M so as to preclude petitioner from 1990, plaintiff-appellee informed defendant-appellant that SLDFR
offsetting its credits on the other SLDRs. No. 1214M had been "sold and endorsed" to it by STM. Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered
(3)....Whether or not the Court of Appeals erred in not by the SLDR No. 1214M were sold and transferred by STM to it ...A
ruling that the sale of sugar under SLDR No. 1214M was a conclusion that there was a valid sale and transfer to plaintiff-
conditional sale or a contract to sell and hence freed appellee may, therefore, be made thus capacitating plaintiff-
petitioner from further obligations. appellee to sue in its own name, without need of joining its imputed
(4)....Whether or not the Court of Appeals committed an principal STM as co-plaintiff."
error of law in not applying the "clean hands doctrine" to In the instant case, it appears plain to us that private
preclude CSC from seeking judicial relief. respondent CSC was a buyer of the SLDFR form, and not an agent of
RULING: STM. Private respondent CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends on
Anent the first issue, we find from the records that the intention of the parties as gathered from the whole scope and
petitioner raised this issue for the first time on appeal. It is settled effect of the language employed. That the authorization given to
that an issue which was not raised during the trial in the court below CSC contained the phrase "for and in our (STM's) behalf" did not
could not be raised for the first time on appeal as to do so would be establish an agency. Ultimately, what is decisive is the intention of
offensive to the basic rules of fair play, justice, and due process. the parties. That no agency was meant to be established by the CSC
Nonetheless, the Court of Appeals opted to address this issue, and STM is clearly shown by CSC's communication to petitioner that
hence, now a matter for our consideration. SLDR No. 1214M had been "sold and endorsed" to it. The use of the
Petitioner heavily relies upon STM's letter of authority words "sold and endorsed" means that STM and CSC intended a
allowing CSC to withdraw sugar against SLDR No. 1214M to show contract of sale, and not an agency. Hence, on this score, no error
that the latter was STM's agent. The pertinent portion of said letter was committed by the respondent appellate court when it held that
reads: CSC was not STM's agent and could independently sue petitioner.

"This is to authorize Consolidated Sugar Corporation or its On the second issue, proceeding from the theory that the
representative to withdraw form and in our behalf (stress supplied) transactions entered into between petitioner and STM are but serial
the refined sugar covered by Shipping List/Delivery Receipt = parts of one account, petitioner insists that its debt has been offset
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total by its claim for STM's unpaid purchases, pursuant to Article 1279 of
quantity of 25, 000 bags." the Civil Code. However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No.
The Civil Code defines a contract of agency as follows: 1214M was a separate and independent transaction; it was not a
serial part of a single transaction or of one account contrary to
"Art. 1868. By the contract of agency a person binds
petitioner's insistence. Evidence on record shows, without being
himself to render some service or to do something in
rebutted, that petitioner had been paid for the sugar purchased
representation or on behalf of another, with the consent or
under SLDR No. 1214M. Petitioner clearly had the obligation to
authority of the latter."
deliver said commodity to STM or its assignee. Since said sugar had
It is clear from Article 1868 that the basis of agency is been fully paid for, petitioner and CSC, as assignee of STM, were not
representation. On the part of the principal, there must be an mutually creditors and debtors of each other. No reversible error
actual intention to appoint or an intention naturally inferable from could thereby be imputed to respondent appellate court when, it
his words or actions; and on the part of the agent, there must be refused to apply Article 1279 of the Civil Code to the present case.
an intention to accept the appointment and act on it, and in the
Regarding the third issue, petitioner contends that the sale
absence of such intent, there is generally no agency. One factor
of sugar under SLDR No. 1214M is a conditional sale or a contract to
which most clearly distinguishes agency from other legal concepts is
sell, with title to the sugar still remaining with the vendor.
control; one person - the agent - agrees to act under the control or
Noteworthy, SLDR No. 1214M contains the following terms and
direction of another - the principal. Indeed, the very word "agency"
conditions:
has come to connote control by the principal. The control factor,
more than any other, has caused the courts to put contracts "It is understood and agreed that by payment by
between principal and agent in a separate category. The Court of buyer/trader of refined sugar and/or receipt of this
Appeals, in finding that CSC, was not an agent of STM, opined: document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to
"This Court has ruled that where the relation of agency is
buyer/trader and delivery to him/it is deemed effected and
dependent upon the acts of the parties, the law makes no
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

completed (stress supplied) and buyer/trader assumes full Legaspi agreed to give Gutierrez 40% of the treasure that may be
responsibility therefore" found in the land.
The aforequoted terms and conditions clearly show that On February 29, 2000, Gutierrez filed a case for damages
petitioner transferred title to the sugar to the buyer or his assignee and injunction against petitioners for illegally entering Legaspis
upon payment of the purchase price. Said terms clearly establish a land. He hired the legal services of Atty. Homobono Adaza. Their
contract of sale, not a contract to sell. Petitioner is now estopped contract provided that as legal fees, Atty. Adaza shall be entitled to
from alleging the contrary. The contract is the law between the 30% of Legaspis share in whatever treasure may be found in the
contracting parties. And where the terms and conditions so land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as
stipulated are not contrary to law, morals, good customs, public appearance fee per court hearing and defray all expenses for the
policy or public order, the contract is valid and must be upheld. cost of the litigation. Upon the filing of the complaint, then
Having transferred title to the sugar in question, petitioner is now Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary
obliged to deliver it to the purchaser or its assignee. restraining order (TRO) against petitioners.
As to the fourth issue, petitioner submits that STM and The case was subsequently raffled to the RTC of Quezon
private respondent CSC have entered into a conspiracy to defraud it City, Branch 223, then presided by public respondent Judge
of its sugar. This conspiracy is allegedly evidenced by: (a) the fact Victorino P. Evangelista. On March 2, 2000, respondent judge issued
that STM's selling price to CSC was below its purchasing price; (b) another 72-hour TRO and a summary hearing for its extension was
CSC's refusal to pursue its case against Teresita Ng Go; and (c) the set on March 7, 2000.
authority given by the latter to other persons to withdraw sugar
On March 14, 2000, petitioners filed a Motion to Dismiss
against SLDR No. 1214M after she had sold her rights under said
contending: first, there is no real party-in-interest as the SPA of
SLDR to CSC. Petitioner prays that the doctrine of "clean hands"
Gutierrez to bring the suit was already revoked by Legaspi on March
should be applied to preclude CSC from seeking judicial relief.
7, 2000, as evidenced by a Deed of Revocation, and, second,
However, despite careful scrutiny, we find here the records bare of
Gutierrez failed to establish that the alleged armed men guarding
convincing evidence whatsoever to support the petitioner's
the area were acting on orders of petitioners.
allegations of fraud. We are now constrained to deem this matter
purely speculative, bereft of concrete proof. On March 23, 2000, the trial court granted private
respondents application for a writ of preliminary injunction on the
following grounds: (1) the diggings and blastings appear to have
been made on the land of Legaspi, hence, there is an urgent need to
maintain the status quo to prevent serious damage to Legaspis land;
REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M.
and, (2) the SPA granted to Gutierrez continues to be valid.
CALIMLIM, in his capacity as former Chief of the Intelligence
Service, Armed Forces of the Philippines (ISAFP), and former On even date, the trial court issued another Order denying
Commanding General, Presidential Security Group (PSG), and MAJ. petitioners motion to dismiss and requiring petitioners to answer
DAVID B. DICIANO, in his capacity as an Officer of ISAFP and former the complaint. On April 4, 2000, it likewise denied petitioners
member of the PSG, Petitioners, motion for inhibition. On appeal, the Court of Appeals affirmed the
decision of the trial court.
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, ISSUE:
Regional Trial Court, Branch 223, Quezon City, and DANTE LEGASPI,
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND
represented by his attorney-in-fact, Paul Gutierrez, Respondent.
PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED
G.R. No. 156015. August 11, 2005 BY LEGASPI.
RULING:
Private respondent Dante Legaspi is the owner of a land On the first issue, petitioners claim that the special power
located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner of attorney of Gutierrez to represent Legaspi has already been
Jose Calimlim, representing the Republic of the Philippines, and as revoked by the latter. Private respondent Gutierrez, however,
then head of the Intelligence Service of the Armed Forces of the contends that the unilateral revocation is invalid as his agency is
Philippines and the Presidential Security Group, entered into a coupled with interest.
Memorandum of Agreement (MOA) with one Ciriaco Reyes. The
We agree with private respondent.
MOA granted Reyes a permit to hunt for treasure in a land in Bigte,
Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a Art. 1868 of the Civil Code provides that by the contract of agency,
witness. It was further alleged that thereafter, Reyes, together with an agent binds himself to render some service or do something in
petitioners, started, digging, tunneling and blasting works on the representation or on behalf of another, known as the principal,
said land of Legaspi. The complaint also alleged that petitioner with the consent or authority of the latter.
Calimlim assigned about 80 military personnel to guard the area and
encamp thereon to intimidate Legaspi and other occupants of the A contract of agency is generally revocable as it is a
area from going near the subject land. personal contract of representation based on trust and confidence
reposed by the principal on his agent. As the power of the agent to
On February 15, 2000, Legaspi executed a special power of act depends on the will and license of the principal he represents,
attorney (SPA) appointing his nephew, private respondent Gutierrez, the power of the agent ceases when the will or permission is
as his attorney-in-fact. Gutierrez was given the power to deal with withdrawn by the principal. Thus, generally, the agency may be
the treasure hunting activities on Legaspis land and to file charges revoked by the principal at will.
against those who may enter it without the latters authority.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

However, an exception to the revocability of a contract of In the case at bar, we find that respondent judge had
agency is when it is coupled with interest, i.e., if a bilateral sufficient basis to issue the writ of preliminary injunction. It was
contract depends upon the agency. The reason for its irrevocability established, prima facie, that Legaspi has a right to peaceful
is because the agency becomes part of another obligation or possession of his land, pendente lite. Legaspi had title to the subject
agreement. It is not solely the rights of the principal but also that of land. It was likewise established that the diggings were conducted
the agent and third persons which are affected. Hence, the law by petitioners in the enclosed area of Legaspis land. Whether the
provides that in such cases, the agency cannot be revoked at the land fenced by Gutierrez and claimed to be included in the land of
sole will of the principal. Legaspi covered an area beyond that which is included in the title
of Legaspi is a factual issue still subject to litigation and proof by
In the case at bar, we agree with the finding of the trial
the parties in the main case for damages. It was necessary for the
and appellate courts that the agency granted by Legaspi to Gutierrez
trial court to issue the writ of preliminary injunction during the
is coupled with interest as a bilateral contract depends on it. It is
pendency of the main case in order to preserve the rights and
clear from the records that Gutierrez was given by Legaspi, inter
interests of private respondents Legaspi and Gutierrez.
alia, the power to manage the treasure hunting activities in the
subject land; to file any case against anyone who enters the land We have carefully examined the records and we find no
without authority from Legaspi; to engage the services of lawyers sufficient basis to hold that respondent judge should have recused
to carry out the agency; and, to dig for any treasure within the land himself from hearing the case. There is no discernible pattern of bias
and enter into agreements relative thereto. on the rulings of the respondent judge. Bias and partiality can never
be presumed. Bare allegations of partiality will not suffice in an
It was likewise agreed upon that Gutierrez shall be
absence of a clear showing that will overcome the presumption that
entitled to 40% of whatever treasure may be found in the land.
the judge dispensed justice without fear or favor. It bears to stress
Pursuant to this authority and to protect Legaspis land from the
again that a judges appreciation or misappreciation of the
alleged illegal entry of petitioners, agent Gutierrez hired the services
sufficiency of evidence adduced by the parties, or the correctness of
of Atty. Adaza to prosecute the case for damages and injunction
a judges orders or rulings on the objections of counsels during the
against petitioners. As payment for legal services, Gutierrez agreed
hearing, without proof of malice on the part of respondent judge, is
to assign to Atty. Adaza 30% of Legaspis share in whatever
not sufficient to show bias or partiality.
treasure may be recovered in the subject land. It is clear that the
treasure that may be found in the land is the subject matter of the As we held in the case of Webb vs. People, the adverse
agency; that under the SPA, Gutierrez can enter into contract for the and erroneous rulings of a judge on the various motions of a party
legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza do not sufficiently prove bias and prejudice to disqualify him. To be
have an interest in the subject matter of the agency, i.e., in the disqualifying, it must be shown that the bias and prejudice stemmed
treasures that may be found in the land. from an extrajudicial source and result in an opinion on the merits
on some basis other than what the judge learned from his
This bilateral contract depends on the agency and thus
participation in the case. Opinions formed in the course of judicial
renders it as one coupled with interest, irrevocable at the sole will of
proceedings, although erroneous, as long as based on the evidence
the principal Legaspi. When an agency is constituted as a clause in a
adduced, do not prove bias or prejudice. We also emphasized that
bilateral contract, that is, when the agency is inserted in another
repeated rulings against a litigant, no matter how erroneously,
agreement, the agency ceases to be revocable at the pleasure of the
vigorously and consistently expressed, do not amount to bias and
principal as the agency shall now follow the condition of the bilateral
prejudice which can be a bases for the disqualification of a judge.
agreement. Consequently, the Deed of Revocation executed by
Legaspi has no effect. The authority of Gutierrez to file and continue
with the prosecution of the case at bar is unaffected.
GENEVIEVE LIM, petitioner,
OTHER ISSUES: vs.
FLORENCIO SABAN, respondents.
On the second issue, we hold that the issuance of the writ
of preliminary injunction is justified. A writ of preliminary injunction FACTS
is an ancilliary or preventive remedy that is resorted to by a litigant
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square
to protect or preserve his rights or interests and for no other
meter lot in Cebu City (the "lot"), entered into anAgreement and
purpose during the pendency of the principal action. It is issued by
Authority to Negotiate and Sell (Agency Agreement) with
the court to prevent threatened or continuous irremediable injury to
respondent Florencio Saban (Saban) on February 8, 1994. Under the
the applicant before his claim can be thoroughly studied and
Agency Agreement, Ybaez authorized Saban to look for a buyer of
adjudicated. Its aim is to preserve the status quo ante until the
the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark
merits of the case can be heard fully, upon the applicants showing
up the selling price to include the amounts needed for payment of
of two important conditions, viz.: (1) the right to be protected prima
taxes, transfer of title and other expenses incident to the sale, as
facie exists; and, (2) the acts sought to be enjoined are violative of
well as Sabans commission for the sale.
that right.
Through Sabans efforts, Ybaez and his wife were able to sell the lot
It is crystal clear that at the hearing for the issuance of a
to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and
writ of preliminary injunction, mere prima facie evidence is needed
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the
to establish the applicants rights or interests in the subject matter
lot as indicated in theDeed of Absolute Sale is Two Hundred
of the main action. It is not required that the applicant should
Thousand Pesos (P200,000.00). It appears, however, that the
conclusively show that there was a violation of his rights as this
vendees agreed to purchase the lot at the price of Six Hundred
issue will still be fully litigated in the main case. Thus, an applicant
Thousand Pesos (P600,000.00), inclusive of taxes and other
for a writ is required only to show that he has an ostensible right to
incidental expenses of the sale. After the sale, Lim remitted to Saban
the final relief prayed for in his complaint.
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Seven Pesos (P113,257.00) for payment of taxes due on the would be entitled to any excess in the purchase price after
transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers deducting the P200,000.00 due to Ybaez and the transfer taxes and
commission. Lim also issued in the name of Saban four postdated other incidental expenses of the sale.
checks in the aggregate amount of Two Hundred Thirty Six Thousand
Saban had completely performed his obligations under his contract
Seven Hundred Forty Three Pesos (P236,743.00).
of agency with Ybaez by finding a suitable buyer to preparing
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to the Deed of Absolute Sale between Ybaez and Lim and her co-
Lim. In the letter Ybaez asked Lim to cancel all the checks issued by vendees. Moreover, the contract of agency very clearly states that
her in Sabans favor and to "extend another partial payment" for the Saban is entitled to the excess of the mark-up of the price of the lot
lot in his (Ybaezs) favor. after deducting Ybaezs share of P200,000.00 and the taxes and
other incidental expenses of the sale.
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of money However, the Court does not agree with the appellate courts
and damages against Ybaez and Lim with the Regional Trial Court pronouncement that Sabans agency was one coupled with an
(RTC) of Cebu City. interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means
Saban alleged that Ybaez told Lim that he (Saban) was not entitled
of fulfilling an obligation already contracted, or if a partner is
to any commission for the sale since he concealed the actual selling
appointed manager of a partnership in the contract of partnership
price of the lot from Ybaez and because he was not a licensed real
and his removal from the management is unjustifiable. Stated
estate broker. Ybaez was able to convince Lim to cancel all four
differently, an agency is deemed as one coupled with an interest
checks.
where it is established for the mutual benefit of the principal and
Saban further averred that Ybaez and Lim connived to deprive him of the agent, or for the interest of the principal and of third
of his sales commission by withholding payment of the first three persons, and it cannot be revoked by the principal so long as the
checks. He also claimed that Lim failed to make good the fourth interest of the agent or of a third person subsists. In an agency
check which was dishonored because the account against which it coupled with an interest, the agents interest must be in the
was drawn was closed. subject matter of the power conferred and not merely an interest
in the exercise of the power because it entitles him to
Ybaez died during the pendency of the case before the RTC. Upon compensation. When an agents interest is confined to earning his
motion of his counsel, the trial court dismissed the case only against agreed compensation, the agency is not one coupled with an
him without any objection from the other parties. interest, since an agents interest in obtaining his compensation as
On May 14, 1997, the RTC rendered its Decision dismissing Sabans such agent is an ordinary incident of the agency relationship.
complaint, declaring the four (4) checks issued by Lim as stale and Sabans entitlement to his commission having been settled, the
non-negotiable, and absolving Lim from any liability towards Saban. Court must now determine whether Lim is the proper party against
Saban appealed the trial courts Decision to the Court of Appeals. whom Saban should address his claim.

On October 27, 2003, the appellate court promulgated Sabans right to receive compensation for negotiating as broker for
its Decision reversing the trial courts ruling. It held that Saban was Ybaez arises from the Agency Agreement between them. Lim is not
entitled to his commission amounting to P236,743.00. a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot
The Court of Appeals ruled that Ybaezs revocation of his contract at P200,000.00 and that the P600,000.00the price agreed upon by
of agency with Saban was invalid because the agency was coupled her and Sabanwas more than the amount set by Ybaez because it
with an interest and Ybaez effected the revocation in bad faith in included the amount for payment of taxes and for Sabans
order to deprive Saban of his commission and to keep the profits for commission as broker for Ybaez.
himself.
Considering the circumstances surrounding the case, and the
ISSUE undisputed fact that Lim had not yet paid the balance
Whether or not the contract of agency between Ybaez and Saban is of P200,000.00 of the purchase price of P600,000.00, it is just and
coupled with interest? proper for her to pay Saban the balance ofP200,000.00.

RULING Furthermore, since Ybaez received a total of P230,000.00 from Lim,


or an excess of P30,000.00 from his asking price of P200,000.00,
No. Saban may claim such excess from Ybaezs estate, if that remedy is
The Court gives due course to the petition, but agrees with the still available, in view of the trial courts dismissal of Sabans
result reached by the Court of Appeals. complaint as against Ybaez, with Sabans express consent, due to
the latters demise on November 11, 1994.
The Court affirms the appellate courts finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his RAMON RALLOS, Administrator of the Estate of CONCEPCION
(Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the RALLOS, petitioner,
lot with Lim and the Spouses Lim. vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
To deprive Saban of his commission subsequent to the sale which APPEALS, respondents.
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban FACTS
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Concepcion and Gerundia both surnamed Rallos were sisters and (1) Those entered into in the name of another person by
registered co-owners of a parcel of land known as Lot No. 5983 of one who hi - been given no authority or legal
the Cadastral Survey of Cebu covered by Transfer Certificate of Title representation or who has acted beyond his powers; ...
No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters
Out of the above given principles, sprung the creation and
executed a special power of attorney in favor of their brother,
acceptance of the relationship of agency whereby one party, caged
Simeon Rallos, authorizing him to sell for and in their behalf lot
the principal (mandante), authorizes another, called the agent
5983. On March 3, 1955, Concepcion Rallos died. On September 12,
(mandatario), to act for and in his behalf in transactions with third
1955, Simeon Rallos sold the undivided shares of his sisters
persons. The essential elements of agency are: (1) there is consent,
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty
express or implied of the parties to establish the relationship; (2) the
Corporation for the sum of P10,686.90. The deed of sale was
object is the execution of a juridical act in relation to a third person;
registered in the Registry of Deeds of Cebu, TCT No. 11118 was
(3) the agents acts as a representative and not for himself, and (4)
cancelled, and a new transfer certificate of Title No. 12989 was
the agent acts within the scope of his authority. 5
issued in the named of the vendee.
Agency is basically personal representative, and derivative in nature.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
The authority of the agent to act emanates from the powers granted
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
to him by his principal; his act is the act of the principal if done
No. R-4530 of the Court of First Instance of Cebu, praying (1) that
within the scope of the authority. Qui facit per alium facit se. "He
the sale of the undivided share of the deceased Concepcion Rallos in
who acts through another acts himself".
lot 5983 be d unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of 'title issued in the name of Felix Go There are various ways of extinguishing agency, but here, we are
Chan & Sons Realty Corporation be cancelled and another title be concerned only with one cause death of the principal Paragraph 3
issued in the names of the corporation and the "Intestate estate of of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
Concepcion Rallos" in equal undivided and (3) that plaintiff be Spanish Civil Code provides:
indemnified by way of attorney's fees and payment of costs of suit.
While the case was pending in the trial court, both Simon and his ART. 1919. Agency is extinguished.
sister Gerundia died and they were substituted by the respective xxx xxx xxx
administrators of their estates.
3. By the death, civil interdiction, insanity or
What is the legal effect of an act performed by an agent after the insolvency of the principal or of the agent; ...
death of his principal? Applied more particularly to the instant case,
We have the query. is the sale of the undivided share of Concepcion By reason of the very nature of the relationship between Principal
Rallos in lot 5983 valid although it was executed by the agent after and agent, agency is extinguished by the death of the principal or
the death of his principal? What is the law in this jurisdiction as to the agent. This is the law in this jurisdiction.
the effect of the death of the principal on the authority of the agent Manresa commenting on Art. 1709 of the Spanish Civil Code explains
to act for and in behalf of the latter? Is the fact of knowledge of the that the rationale for the law is found in the juridical basis of agency
death of the principal a material factor in determining the legal which is representation Them being an in. integration of the
effect of an act performed after such death? personality of the principal integration that of the agent it is not
ISSUE possible for the representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa that by reason of
Whether or not the sale of Simeon Rallos (Agent) is valid after the the nature of agency, death is a necessary cause for its
death of his sister Concepcion (Principal)? extinction. Laurent says that the juridical tie between the principal
RULING and the agent is severed ipso jure upon the death of either without
necessity for the heirs of the fact to notify the agent of the fact of
No. death of the former.
The Civil Code, expressly provides for two exceptions to the general The same rule prevails at common law the death of the principal
rule that death of the principal revokes ipso jure the agency, to wit: effects instantaneous and absolute revocation of the authority of
(1) that the agency is coupled with an interest (Art 1930), and (2) the agent unless the Power be coupled with an interest. This is the
that the act of the agent was executed without knowledge of the prevalent rule in American Jurisprudence where it is well-settled
death of the principal and the third person who contracted with the that a power without an interest confer. red upon an agent is
agent acted also in good faith. dissolved by the principal's death, and any attempted execution of
the power afterward is not binding on the heirs or representatives of
It is a basic axiom in civil law embodied in our Civil Code that no one
the deceased.
may contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him. A Is the general rule provided for in Article 1919 that the death of the
contract entered into in the name of another by one who has no principal or of the agent extinguishes the agency, subject to any
authority or the legal representation or who has acted beyond his exception, and if so, is the instant case within that exception? That is
powers, shall be unenforceable, unless it is ratified, expressly or the determinative point in issue in this litigation. It is the contention
impliedly, by the person on whose behalf it has been executed, of respondent corporation which was sustained by respondent court
before it is revoked by the other contracting party. Article 1403 (1) that notwithstanding the death of the principal Concepcion Rallos
of the same Code also provides: the act of the attorney-in-fact, Simeon Rallos in selling the former's
sham in the property is valid and enforceable inasmuch as the
ART. 1403. The following contracts are unenforceable,
corporation acted in good faith in buying the property in question.
unless they are justified:
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Articles 1930 and 1931 of the Civil Code provide the exceptions to In case of a general power which does not specify the
the general rule afore-mentioned. persons to whom represents' on should be made, it is the
general opinion that all acts, executed with third persons
ART. 1930. The agency shall remain in full force
who contracted in good faith, Without knowledge of the
and effect even after the death of the principal,
revocation, are valid. In such case, the principal may
if it has been constituted in the common interest
exercise his right against the agent, who, knowing of the
of the latter and of the agent, or in the interest
revocation, continued to assume a personality which he no
of a third person who has accepted the
longer had.
stipulation in his favor.
The above discourse however, treats of revocation by an act of the
ART. 1931. Anything done by the agent, without
principal as a mode of terminating an agency which is to be
knowledge of the death of the principal or of any
distinguished from revocation by operation of law such as death of
other cause which extinguishes the agency, is
the principal which obtains in this case. On page six of this Opinion
valid and shall be fully effective with respect to
We stressed that by reason of the very nature of the relationship
third persons who may have contracted with him
between principal and agent, agency is extinguished ipso jure upon
in good. faith.
the death of either principal or agent. Although a revocation of a
Article 1930 is not involved because admittedly the special power of power of attorney to be effective must be communicated to the
attorney executed in favor of Simeon Rallos was not coupled with an parties concerned, yet a revocation by operation of law, such as by
interest. death of the principal is, as a rule, instantaneously effective
inasmuch as "by legal fiction the agent's exercise of authority is
Article 1931 is the applicable law. Under this provision, an act done regarded as an execution of the principal's continuing will. With
by the agent after the death of his principal is valid and effective death, the principal's will ceases or is the of authority is
only under two conditions, viz: (1) that the agent acted without extinguished.
knowledge of the death of the principal and (2) that the third person
who contracted with the agent himself acted in good faith. Good The Civil Code does not impose a duty on the heirs to notify the
faith here means that the third person was not aware of the death agent of the death of the principal. What the Code provides in
of the principal at the time he contracted with said agent. These two Article 1932 is that, if the agent die his heirs must notify the principal
requisites must concur the absence of one will render the act of the thereof, and in the meantime adopt such measures as the
agent invalid and unenforceable. circumstances may demand in the interest of the latter. Hence, the
fact that no notice of the death of the principal was registered on
In the instant case, it cannot be questioned that the agent, Simeon the certificate of title of the property in the Office of the Register of
Rallos, knew of the death of his principal at the time he sold the Deeds, is not fatal to the cause of the estate of the principal
latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simon Rallos before the trial court. That Simeon Rallos knew
of the death of his sister Concepcion is also a finding of fact of the
court a quo and of respondent appellate court when the latter
stated that Simon Rallos 'must have known of the death of his sister,
and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant
(the realty corporation) of the death of the former.
On the basis of the established knowledge of Simon Rallos
concerning the death of his principal Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death
of his principal; it is not enough that the third person acted in good
faith.
Another argument advanced by respondent court is that the vendee
acting in good faith relied on the power of attorney which was duly
registered on the original certificate of title recorded in the Register
of Deeds of the province of Cebu, that no notice of the death was
aver annotated on said certificate of title by the heirs of the principal
and accordingly they must suffer the consequences of such
omission.
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of
contracting with certain persons, the revocation must be
made known to them. But if the agency is general iii
nature, without reference to particular person with whom
the agent is to contract, it is sufficient that the principal
exercise due diligence to make the revocation of the
agency publicity known.