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EUFEMIA EVANGELISTA, et. al vs.

COLLECTOR OF INTERNAL REVENUE [October 15, 1957]

Eufemia, Manuela and Francisca Evangelista borrowed from their father P591,400, which amount together with their
personal monies was used by them for the purpose of buying real properties. In 1945, they appointed their brother,
Simeon Evangelista, to 'manage their properties with full power to lease; to collect and receive rents; to issue
receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters,
contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them. After having bought
their real properties, the petitioners had the same rented or leases to various tenants.

In 1954, Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's
fixed tax and corporation residence tax for the years 1945-1949. Said letter of demand and corresponding
assessments were delivered to petitioners, whereupon they instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in question, with costs against the respondent.

EVANGELISTA: insist that they are mere co-owners, not copartners, because a legal entity with a personality
independent of that of its members did not come into existence, and some of the characteristics of partnerships are
lacking in the case at bar.

CTA: held that the petitioners are liable for the income tax, real estate dealer's tax and the residence tax for the years
1945 to 1949, inclusive, in accordance with CIR's assessment for the same in the total amount of P6,878.34.

ISSUE: W/N petitioners are subject to the tax on corporations provided for in Section 24 of Commonwealth Act
466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers fixed tax.

HELD: YES. With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and
"partnership," as used in section 24 and 84 of the National Internal Revenue Code.

SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the total net income received in
the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general co-partnerships (compañias colectivas), a tax upon such income equal to the
sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but does not include duly registered general copartnerships. (compañias
colectivas).
Article 1767, Civil Code: By the contract of partnership two or more persons bind themselves to contribute money, properly, or industry to
a common fund, with the intention of dividing the profits among themselves.

Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar. Further, upon consideration of all the facts and
circumstances surrounding the case, petitioners’ purpose was to engage in real estate transactions for monetary gain
and then divide the same among themselves:
1. Said common fund was not something they found already in existence. It was not property inherited by them pro indiviso. They
created it purposely.
2. They invested the same, not merely in one transaction, but in a series of transactions. The 24 lots acquired and transactions
undertaken is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioners in February, 1943. In other words, one cannot but
perceive a character of habitually peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals.
4. Since August, 1945, the properties have been under the management of Simeon Evangelista, with full power to lease, to collect rents,
to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten years, or, to be exact, over fifteen years, since the first property was
acquired, and over twelve years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the
causes for its continued existence. They did not even try to offer an explanation therefor.
The collective effect of these circumstances is such as to leave no room for doubt on the existence of said INTENT
in petitioners herein.

SC: The tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from
"partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude to organizations which are not necessarily "partnerships", in the technical
sense of the term.

Section 24 of the NIRC exempts from the aforementioned tax "duly-registered general partnerships which constitute
precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression
clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the
usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the
tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint
accounts, (cuentas en participation)" and "associations," none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general co-partnerships" — which are possessed of the aforementioned personality — have been expressly excluded
by law (sections 24 and 84 [b] from the connotation of the term "corporation").

Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By
specific provisions of said laws, such "corporations" include "associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the aforementioned laws.

PARTNERSHIP - includes not only a partnership as known at common law but, as well, a syndicate, group, pool, joint
venture or other unincorporated organizations which carries on any business financial operation, or venture, and
which is not, within the meaning of the Code, a trust, estate, or a corporation.

For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships — with
the exception only of duly registered general copartnerships — within the purview of the term "corporation." It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject
to the income tax for corporations.

As regards the residence of tax for corporations, The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion), association or insurance company, no matter how
created or organized.

Section 2 of Commonwealth Act No. 465: Entities liable to residence tax.-Every corporation, no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which in no case, shall exceed one thousand pesos, in accordance with the following schedule: . . .

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National
Internal Revenue Code, and that the latter was approved on June 15, 1939, the day immediately after the approval of
said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership" are
used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the
residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a
period of over twelve years, and that the yearly gross rentals of said properties from June 1945 to 1948 ranged from
P9,599 to P17,453. Thus, they are subject to the tax provided in section 193 (q) of our National Internal Revenue
Code, for "real estate dealers,"
Section 194(s), NIRC: 'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting
property or his own account as principal and holding himself out as a full or part time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of P3,000 or more a year.

Wherefore, the appealed decision of the Court of Tax appeals is hereby AFFIRMED with costs against the
petitioners herein. It is so ordered.
BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of engaging in
real estate business for profit. The series of transactions which they had undertaken attest to this. I wish however to make to
make the following observation:

Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a
co-ownership. Said article paragraphs 2 and 3, provides:

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors
do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish partnership, whether or not the person sharing them have a
joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co-ownership shared or do not share any profits made by
the use of property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does
not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the
property. This only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a judicial personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in
the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not
thereby rendered partners. They have no common stock or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived.

A joint venture purchase of land, by two, does not constitute a copartnership in respect thereto; nor does not
agreement to share the profits and loses on the sale of land create a partnership; the parties are only tenants in
common. (Clark vs. Sideway)

Where plaintiff, his brother, and another agreed to become owners of a single tract of reality, holding as tenants in
common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff's
commissions, no partnership existed as between the parties, whatever relation may have been as to third parties.
(Magee vs. Magee)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally a participating
in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each
party to make contract, manage the business, and dispose of the whole property. (Municipal Paving Co. vs Herring)

The common ownership of property does not itself create a partnership between the owners, though they may use it
for purpose of making gains; and they may, without becoming partners, agree among themselves as to the management
and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson)

This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the collective effect of these circumstances (referring to the series
of transactions) such as to leave no room for doubt on the existence of said intent in petitioners herein."

ROSARIO YULO vs. YANG CHIAO SENG [August 28, 1959]


In 1945, Yang Chiao Seng wrote a letter to Rosario Yulo, proposing the formation of a partnership between them to
run and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are:
(1) a monthly participation of P3,000 in favor of Yulo, payable quarterly in advance within the first 15 days of each quarter;
(2) that the partnership shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947, with the
condition that if the land is expropriated or rendered impracticable for the business, or if the owner constructs a permanent building
thereon, or Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period for which the
partnership was agreed to be established has not yet expired;
(3) that Yulo is authorized personally to conduct such business in the lobby of the building as is ordinarily carried on in lobbies of
theatres in operation, provided the said business may not obstruct the free ingress and agrees of patrons of the theatre;
(4) that after December 31, 1947, all improvements placed by the partnership shall belong to Yulo, but if the partnership agreement is
terminated before the lapse of one and a half years period under any of the causes mentioned in (2), then Yang Chiao Seng shall have
the right to remove and take away all improvements that the partnership may place in the premises.

Yulo accepted and the parties executed a partnership agreement establishing the "Yang & Company, Limited". It
states that it will conduct and carry on the business of operating a theatre for the exhibition of motion and talking
pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by
Yulo. All gains and profits are to be distributed among the partners in the same proportion as their capital
contribution and the liability of Yulo, in case of loss, shall be limited to her capital contribution.

In June 1946, they executed a supplementary agreement, extending the partnership for a period of three years
beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between them at the rate of 50-50
and after December 31, 1950, the showhouse building shall belong exclusively to Yulo.

The land on which the theatre was constructed was leased by Yulo from Emilia and Maria Carrion Santa Marina. On
April 12, 1949, Yulo was notified of the owner's desire to cancel the contract of lease. Eventually, the Court rendered
judgment ordering the ejectment of Yulo and Yang, and declaring the contract of lease of the premises terminated.
Thus, in 1950, Yulo demanded from Yang Chiao Seng her share in the profits of the business. Yang answered the
letter saying that upon the advice of his counsel, he had to suspend the payment (of the rentals) because of the
pendency of the ejectment suit by the owners of the land against Yulo. In this letter, Yang alleges that inasmuch as
he is a sub-lessee and inasmuch as Yulo has not paid to the lessors the rentals from August, 1949, he was retaining
the rentals to make good to the landowners the rentals due from Yulo in arrears. In view of the refusal of Yang to
pay her the amount agreed upon, Yulo instituted this action, alleging the existence of a partnership between them
and that Yang Chiao Seng has refused to pay her share from December, 1949 to December, 1950.

YULO: contends that after December 31, 1950, the partnership between Yulo and Yang terminated, as a result of
which, plaintiff became the absolute owner of the building occupied by the Cine Astor; that the reasonable rental
that the defendant should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and
refuses to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from November,
1949 to October, 1950, and that as a result of such bad faith and malice on the part of Yang, Yulo has suffered
damages in the amount of P160,000 and exemplary damages to the extent of P5,000.

YANG: alleges that the real agreement between Yulo and Yang was one of lease and not of partnership. Yang
contends that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract
of lease between the owners and Yulo against the sublease of the said property. As to the other claims, he denies
the same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim, he alleges that by
reason of an attachment issued against the properties of the defendant the latter has suffered damages amounting
to P100,000.

CFI: rendered judgment ordering Yang to pay Yulo P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until Yang vacates
the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until Yang vacates the property. This
decision, however, was set aside on a motion for reconsideration.
CFIMR: rendered the decision finding that it is not true that a partnership was created between Yulo and Yang because
Yang has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount. The real
agreement between Yulo and Yang is not of the partnership but one of the lease for the reason that under the
agreement, Yulo did not share either in the profits or in the losses of the business as required by Article 1769 of
the Civil Code. The fact that Yulo was granted a "guaranteed participation" in the profits also belies the supposed
existence of a partnership between them. The CFI therefore denied Yulo’s claim for damages or supposed
participation in the profits.

YULO: claims that the lower court erred in not striking out the evidence offered by Yang to prove that the relation
between him and Yulo is one of the sublease and not of partnership. The action of the lower court in admitting
evidence is justified by the express allegation in Yang’s answer that the agreement set forth in the complaint was one
of lease and not of partnership, and that the partnership formed was adopted in view of a prohibition contained in
plaintiff's lease against a sublease of the property.

ISSUE: W/N the written contracts between Yulo and Yang are one of lease and not of partnership.

HELD: YES. The Court held that the agreement was a sublease, not a partnership. The following are the requisites of
partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a common
fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil Code.).

In the first place, Yulo did not furnish the supposed P20,000 capital. In the second place, Yulo did not furnish any help
or intervention in the management of the theatre. In the third place, it does not appear that Yulo has ever demanded
from Yang any accounting of the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were legitimate, whether the
earnings were correct, etc. Yulo was absolutely silent with respect to any of the acts that a partner should have done.
All that she did was to receive her share of P3,000 a month, which cannot be interpreted in any manner than a
payment for the use of the premises which she had leased from the owners. Clearly, Yulo had always acted in
accordance with the original letter of Yang of June 17, 1945, which shows that both parties considered this offer as
the real contract between them.

Yulo claims the sum of P41,000 as representing her share or participation in the business from December, 1949. But
the original letter of Yang expressly states that the agreement between Yulo and Yang was to end upon the
termination of the right of Yulo to the lease. Yulo’s right having terminated in July, 1949 as found by the Court of
Appeals, the partnership agreement or the agreement for her to receive a participation of P3,000 automatically
ceased as of said date.

We find no error in the judgment of the court below and we AFFIRM it in toto, with costs against Yulo.
ELIGIO ESTANISLAO, JR. vs. COURT OF APPEALS [April 27, 1988]

Eligio Estanislao, Jr., Remedios Estanislao, Emilio and Leocadio Santiago are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., Quezon City, which were then being leased to SHELL. They
agreed to open and operate Estanislao Shell Service Station, a gas station with an initial investment of P 15,000 to be
taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by
them. A joint affidavit was executed by them on April 11, 1966. They agreed to help their brother, Eligio, by allowing
him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to SHELL’s policy of appointing only one dealer, it was agreed that Eligio
would apply for the dealership. Remedios helped in managing the bussiness with Eligio from May 3, 1966 up to
February 16, 1967.

In 1966, the parties entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that
the P15,000 advance rental shall be deposited with SHELL to cover advances of fuel to Eligio as dealer with a proviso
that said agreement "cancels and supersedes the Joint Affidavit dated April 11, 1966 executed by the co-owners."

For sometime, Eligio submitted financial statements regarding the operation of the business to private respondents,
but therafter Eligio failed to render subsequent accounting. Hence, a demand was made on Eligio to render an
accounting of the profits. The financial report of December 31, 1968 shows that the business was able to make a
profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000 was realized. Thus, private respondents
filed a complaint in CFI-Rizal against petitioner.

CFI: rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay Eligio P
3,000 attorney's fee and costs.

CFIMR: set aside the aforesaid CFI decision and rendered another decision in favor of respondents.The CFI ordered
Eligio to execute a public instrument embodying all the provisions of the partnership agreement entered into
between plaintiffs and defendant as provided for in Article 1771, Civil Code of the Philippines; to render a formal
accounting of the business operation from April 1969, and to pay plaintiffs their lawful shares and participation in
the net profits of the business in the amount of P 150,000; CA: affirmed in toto the decision of the lower court.

ISSUE: W/N a partnership exists between members of the same family as regards the ownership and/or operation
of the gasoline service station business, arising from their joint ownership of certain properties.

In the aforesaid Joint Affidavit of April 11, 1966, it is stipulated by the parties that the P15,000 advance rental due to
them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance
rentals shall be credited as rentals from May 25, 1966 up to October 10, 1966.

In the subsequent document entitled "Additional Cash Pledge Agreement", the private respondents and Eligio
assigned to SHELL the monthly rentals due them from May 24, 1966 until such time that the monthly rentals
accumulated equal P15,000, which private respondents agree to be a cash deposit of Eligio in favor of SHELL to
increase his credit limit as dealer. It provided therein that "This agreement, therefore, cancels and supersedes the
Joint Affidavit dated April 11, 1966 executed by the CO-OWNERS."

ELIGIO: contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous agreement had thereby been abrogated. We find no
merit in this argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000 advance
rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting
May 24, 1966. There is, therefore, a duplication of reference to the P 15,000, hence the need to provide in the
subsequent document that it "cancels and supersedes" the previous one.

It is true that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000 represents
the "capital investment" of the parties in the gasoline station business and it speaks of Eligio as the sole dealer, but
this is as it should be for in the latter document, SHELL was a signatory and it would be against its policy if in the
agreement it should be stated that the business is a partnership with private respondents and not a sole
proprietorship of Eligio.
Moreover other evidence in the record shows that there was in fact such partnership agreement between the
parties. This is attested by the testimonies of Remedies Estanislao and Atty. Angeles. Eligio submitted to private
respondents a periodic accounting of the business. Eligio also gave a written authority to private respondent
Remedies Estanislao, his sister, to examine and audit the books of their ‘common business'. Remedios assisted in the
running of the business. There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the profits among themselves.

The sole dealership by Eligio and the issuance of all government permits and licenses in the name of Eligio was in
compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of
the SHELL products.

Further, the findings of facts of the CA are conclusive in this proceeding, and its conclusion based on the said facts is
in accordancewith the applicable law. WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs
against Eligio.

Joint Affidavit of April 11, 1966:


(1) That we are the Lessors of two parcels of land under two TCTs, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED.
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total amount of P15,000 so that we
can use the said amount to augment our capital investment in the operation of that gasoline station constructed by said company on our two
lots by virtue of an outstanding Lease Agreement we have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED has agreed to give us the said amount of P 15,000.00, which amount will partake
the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of P15,000 from SHELL, the said sum as ADVANCED
RENTALS to us be applied as monthly rentals for the two lots under our Lease Agreement starting May 25, 1966 until such time that the said of
P 15,000 be applicable, May 25, 1966 or until October 10, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED execute an instrument for us to sign
embodying our conformity that the said amount that it will generously grant us as requested be applied as ADVANCED RENTALS; and

Additional Cash Pledge Agreement:


WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and as Dealer under the Cash
Pledge Agreement dated May 11, 1966, he deposited to SHELL P 10,000 to secure his purchase on credit of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the conformity of his CO-OWNERS to
waive and assign to SHELL the total monthly rentals due to all of them to accumulate the equivalent amount of P 15,000, commencing May 24,
1966, this P 15,000 shall be treated as additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash
Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the CO-OWNERS herein and SHELL,
said parties have agreed and hereby agree as follows:
l. The CO-OWNERS do hereby waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively, under the above describe two
Lease Agreements to enable DEALER to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL CO-
OWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due,
monthly, commencing May 24, 1966, until such time that the monthly rentals accumulated, shall be equal to P 15,000.
2. The monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL, thereby in increasing his credit limit from P
10,000 to P 25,000. This agreement, therefore, cancels and supersedes the Joint affidavit dated April 11, 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum products, on credit, up to the
amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions of the above-mentioned Cash Pledge Agreement dated May
11, 1966.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE
LEON, MABANTA & REYES." [July 30, 1979]

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

PETITIONERS: contends that under the law, a partnership is not prohibited from continuing its business under a firm
name which includes the name of a deceased partner. In fact, Article 1840 of the Civil Code explicitly sanctions the
practice when it provides in the last paragraph that:
…The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or
partnership.

In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of
firm names without any restriction as to the use, in such firm name, of the name of a deceased partner. The
legislative authorization given to those engaged in the practice of accountancy to acquire and use a trade name,
strongly indicates that there is no fundamental policy that is offended by the continued use by a firm of professionals
of a firm name which includes the name of a deceased partner, at least where such firm name has acquired the
characteristics of a "trade name."

ISSUE: W/N the aforesaid firms may be allowed to continue using, in the names of their firms, the names of
partners who had passed away.

HELD: NO. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta
and Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter
to Article 1815 of the Civil Code which provides:
Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living
partners and, in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article
1815 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the
liability of a partner.

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

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

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

GENERAL RULE: Upon the dissolution of a commercial partnership, the succeeding partners or parties have the right
to carry on the business under the old name, in the absence of a stipulation forbidding it, since the name of a
commercial partnership is a partnership asset inseparable from the good will of the firm.
HOWEVER: A a professional partnership, the reputation of which depends on the individual skill of the members,
such as partnerships of attorneys or physicians, has no good will to be distributed as a firm asset on its dissolution,
however intrinsically valuable such skill and reputation may be, especially where there is no provision in the
partnership agreement relating to good will as an asset.

A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for
business. For one thing, the law on accountancy specifically allows the use of a trade name in connection with the
practice of accountancy. A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. It is not a partnership formed for the purpose of carrying on trade or business or
of holding property." Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law
practice is improper.

PROFESSION: "a group of men pursuing a learned art as a common calling in the spirit of public service, — no less a
public service because it may incidentally be a means of livelihood."

It is true that Canon 33 of the Canons of Professional Ethics of the American Bar Association does not consider as
unethical the continued use of the name of a deceased or former partner in the firm name of a law partnership when
such a practice is permissible by local custom but the Canon warns that care should be taken that no imposition or
deception is practiced through this use. In the Philippines, no local custom permits or allows the continued use of a
deceased or former partner's name in the firm names of law partnerships. Firm names, under our custom, identify
the more active and/or more senior members or partners of the law firm.

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

U.S. Courts have consistently allowed the continued use of a deceased partner's name in the firm name of law
partnerships, but that is so because it is sanctioned by custom. Not so in this jurisdiction where there is no local
custom that sanctions the practice. Custom has been defined as a rule of conduct formed by repetition of acts,
uniformly observed (practiced) as a social rule, legally binding and obligatory.

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

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered
like an ordinary "money-making trade." It is of the essence of a profession that it is practiced in a spirit of public
service. A trade aims primarily at personal gain; a profession at the exercise of powers beneficial to mankind. In
fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical
impediment. ACCORDINGLY, the petitions are DENIED and petitioners advised to drop the names "SYCIP" and
"OZAETA" from their respective firm names. Those names may, however, be included in the listing of individuals who
have been partners in their firms indicating the years during which they served as such.

Separate Opinions - AQUINO, J., dissenting:


I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as
the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as
partners should be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients
who had customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the
names of those respected and esteemed law practitioners. That is a legitimate motivation.
The retention of their names is not illegal per se.
FRANCISCO BASTIDA vs. MENZI & Co., INC. [March 31, 1933]

In 1922, Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority of the board of
directors, allegedly entered into a contract with Francisco Bastida to engage in the business of exploiting prepared
fertilizers. In pursuance of said contract, Menzi & Co., Inc., began to manufacture prepared fertilizers, the former
superintending the work of actual preparation, and the latter, through J.M. Menzi and P. C. Schlobohm, managing the
business and opening an account entitled "FERTILIZERS" on the books of Menzi & Co., Inc., where all the accounts of
the partnership business were supposed to be kept. Bastida had no participation in the making of these entries,
which were wholly in the defendants' charge, under whose orders every entry was made;

According to the contract, Menzi & Co., Inc., was obliged to render annual balance sheets to Bastida every June 30.
Bastida had no intervention in the preparation of these yearly balances, nor was he permitted to have any access to
the books of account. When the balance sheets were shown him, he, believing in good faith that they contained the
true statement of the partnership business, and relying upon the good faith of Menzi & Co., Inc., J.M. Menzi, and P.C.
Schlobohm, accepted and signed them, the last balance sheet having been rendered in 1926. Bastida was kept in
ignorance of the defendants' acts relating to the management of the partnership funds, and the keeping of accounts,
until he was informed that the defendants had conspired to conceal from him the true status of the business. Thus,
Bastida demanded that the defendants permit him to examine the books and vouchers of the business, which were
in their possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to the examination until after the
original complaint was filed in this case.

MENZI’s version: Menzi & Co., Inc., has been engaged in the general merchandise business in the Philippine Islands
since its organization in October, 1921, including the importation and sale of all kinds of goods, wares, and
merchandise, and especially simple fertilizer and fertilizer ingredients. In 1921, it entered into an employment
agreement with Francisco Bastida, who represented that he had had much experience in the mixing of fertilizers, to
superintend the mixing of the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to
obtain orders for such prepared fertilizers subject to its approval, for 50% of the net profits which it might derive
from the sale of the fertilizers prepared by him. Bastida worked under said agreement until April 27, 1922, and
received the compensation agreed upon for his services.

Thereafter, Menzi & Co., Inc. and Bastida made and entered into the written agreement, whereby they mutually
agreed that the employment of the said Francisco Bastida in the capacity stated, should be for a definite period of
five years from that date, but with the understanding that Bastida should receive as compensation only 35% of the
net profits derived from the sale of the fertilizers prepared by him during the period of the contract. Bastida was
then found to be incompetent to do anything in relation to its said fertilizer business with the exception of over-
seeing the mixing of the ingredients in the manufacture of the same. In 1922, Menzi & Inc. was obliged to and
actually did assume the full management and direction of said business. Prior to the termination, Menzi duly notified
Bastida that it would not under any conditions renew his said agreement or continue his said employment.

BASTIDA: The plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business a
prosperous concern to such an extent that the profits obtained from the business during the five years it has existed,
amount to approximately P1,000,000. The value of the good will and the trade marks of a business of this nature
amounts to at least P1,000,000, of which sum 35% or P350,000 belongs to Bastida. However, notwithstanding and
in spite of the plaintiff's insistent opposition, Menzi has assumed the charge of liquidating the fertilizing business,
without having rendered a monthly account of the state of the liquidation, as required by law, thereby causing the
plaintiff damages. Thus, Bastia prays that J.M. Menzi and P.C. Schlobohm be ordered to render a true and detailed
account of the status of business in liquidation, and to pay him P350,000, which is 35% of the value of the goodwill
and the trade marks of the fertilizer business.

MENZI: contends that the good-will, if any, of said fertilizer business of Menzi & Co., Inc., pertains exclusively to it,
and Bastida can have no interest therein of any nature under his said employment agreement. The trade-marks as
a part of such good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from
and since its organization, and Bastida can have no rights to or interest therein under his said employment
agreement.
CFI: rendered judgment holding that the contract entered into by the parties was a contract of general regular
commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and Bastida, the industrial partner. Bastida, by
the mere fact of having signed and approved the balance sheets, is not estopped from questioning the statements of
the accounts therein contained.

ISSUE: W/N the contract between the parties constitutes a regular collective commercial copartnership between
Menzi & Co., Inc., and Francisco Bastida, and not a contract of employment.

HELD: NO. It is a contract of employment. The Court held that the relationship established between Menzi & Co. and
by the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation
for his services of supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of
the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. Plaintiff
was paid his share of the profits from those transactions after Menzi & Co., Inc., had deducted the same items of
expense which he now protests. Plaintiff never made any objection to defendant's manner of keeping the accounts
or to the charges. The business was continued in the same manner under the written agreement, Exhibit A, and for
four years the plaintiff never made any objection. On the contrary, he approved and signed every year the balance
sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the defendant
corporation had notified him that it would not renew it that the plaintiff began to make objections.

The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which
two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in
order to obtain profit, shall be commercial, no matter what its class may be, provided it has been established in
accordance with the provisions of this Code. HOWEVER in the case at bar, there was no common fund, that is, a fund
belonging to the parties as joint owners or partners. The business belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small percentage of the net
profits, he was to receive 35% of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced
him P300 a month on account of his participation in the profits. It will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that
the old rule that sharing profits as profits made one a partner is overthrown.

The phrase "en sociedad con" is used in providing that defendant corporation does not engage in the business of
prepared fertilizers except in association with the plaintiff (en sociedad con). The fact is that en sociedad con as there
used merely means en reunion con or in association with, and does not carry the meaning of "in partnership with".
The trial judge concluded that the phrase "associated with", used by the defendant corporation, indicated that it
regarded the contract as an agreement of copartnership. HOWEVER, although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it does not commonly imply any partnership relation.

In the Contract whereby Menzi obligated itself to pay to Bastida 35% of the net profits of the fertilizer business, to
advance to him P300 a month on account of his share of the profits, and to grant him permission during 1923 to
absent himself from the Philippines for not more than one year are utterly incompatible with the claim that it was
the intention of the parties to form a copartnership.

For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay
Bastida P21,633.20, with legal interest thereon from the date of the filing of the complaint on June 17, 1927, without
a special finding as to costs.
LORENZO OÑA, et. al. vs. COMMISSIONER OF INTERNAL REVENUE [May 25, 1972]

Julia Buñales died in 1944, leaving as heirs her surviving spouse, Lorenzo Oña and her five children. In 1948, a Civil
Case was instituted for the settlement of her estate. Later, Lorenzo was appointed administrator of the estate and he
submitted the project of partition, which was approved by the Court. Three of the heirs were still minors when the
project of partition was approved, so the Court appointed Lorenzo as guardian of the persons and property of the
aforenamed minors..

The project of partition shows that the heirs have undivided 1/2 interest in 10 parcels of land with a total assessed
value of P87,860, six houses with a total assessed value of P17,590 and P50,000 from the War Damage Commission.
This amount was not divided among them but was used in the rehabilitation of properties owned by them in
common. Of the ten parcels of land aforementioned, two were acquired after the death of the decedent with
money borrowed from the Philippine Trust Company in the amount of P72,173. The project of partition also shows
that the estate shares equally with Lorenzo, the administrator thereof, in the obligation of P94,973, consisting of
loans contracted by the latter with the approval of the Court. No attempt was made to divide the properties therein
listed. Instead, the properties remained under the management of Lorenzo who used said properties in business by
leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real
properties and securities. As a result, petitioners' properties and investments gradually increased from P105,450 in
1949 to P480,005 in 1956.

From said investments and properties, petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests. On the basis of the foregoing facts, CIR
decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners
the amounts of P8,092 and P13,899 as corporate income taxes for 1955 and 1956, respectively. Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have formed an
unregistered partnership. Finding no merit in petitioners' request, respondent denied it.

CTA: held that petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of
the deficiency corporate income taxes assessed against them by Commissioner of Internal Revenue for the years
1955 and 1956 in the total sum of P21,891.

ISSUE: W/N the petitioners must be deemed to have formed an unregistered partnership subject to tax under
Sections 24 and 84(b) of the National Internal Revenue Code.

HELD: YES. The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management of Lorenzo,
who used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a result of which said properties and investments
steadily increased yearly. All these became possible because petitioners never actually received any share of the
income or profits from Lorenzo and instead, they allowed him to continue using said shares as part of the common
fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of
the profits of their common business as reported by the said Lorenzo.

It is thus incontrovertible that petitioners did not merely limit themselves to holding the properties inherited by
them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners engaged, thru Lorenzo, in the purchase and sale of
corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the inheritance.

From the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even
the inherited properties themselves to be used by Lorenzo as a common fund in undertaking several transactions or
in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to
actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered
partnership within the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the
heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that
such status as co-owners continues until the inheritance is actually and physically distributed among the heirs.

For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by
the court in the corresponding testate or intestate proceeding. The reason is from the moment of such partition,
the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of
them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly
he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be
held in common with his co-heirs under a single management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to
petitioners in this case.

For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships — with the
exception only of duly registered general copartnerships — within the purview of the term "corporation." Petitioners
herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.

In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should
be limited to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable
income of the partnership should be limited to the income derived from the acquisition and sale of real properties
and corporate securities and should not include the income derived from the inherited properties. It is admitted
that the inherited properties and the income derived therefrom were used in the business of buying and selling other
real properties and corporate securities. Accordingly, the partnership income must include not only the income
derived from the purchase and sale of other properties but also the income of the inherited properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered as individual
income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common assets of the heirs to be used in
making profits, it is but proper that the income of such shares should be considered as the part of the taxable
income of an unregistered partnership. This, We hold, is the clear intent of the law.

Lastly, it is the position of petitioners that the taxable income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should be the
other way around. The partnership profits distributable to the partners should be reduced by the amounts of income
tax assessed against the partnership. Consequently, each of the petitioners in his individual capacity overpaid his
income tax for the years in question, but the income tax due from the partnership has been correctly assessed. Since
the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to
pass upon the same.

As we see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid
the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such
taxpayer has the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and
action for such reimbursement are subject to the bar of prescription. Since the period for the recovery of the excess
income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make
the proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not to
allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-
vis their tax obligation to the State. IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals
appealed from is AFFIRMED with costs against petitioners.
E. S. LYONS vs. C. W. ROSENSTOCK [March 17, 1932]

This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W. Rosenstock, as
executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by the executor from the
allowance of the claim sued upon by the committee on claims in said estate. The purpose of the action is to recover
four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of about
P125,000, representing the dividends which accrued on said stock prior to October 21, 1926, with lawful interest.
Upon hearing the cause the trial court absolved the defendant executor from the complaint, and the plaintiff
appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was engaged
during the years with which we are here concerned in buying, selling, and administering real estate. In several
ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him,
the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of a
missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone
for nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property.
Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to manage
and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. During
the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in his hands a single
piece of property located at 616-618 Carried Street, in the City of Manila, containing about 282 square meters of
land, with the improvements thereon.

In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square meters,
near the City of Manila, and he discerned therein a fine opportunity for the promotion and development of a
suburban improvement. This 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 maturing his plans, Elser purchased an option on this property for
P5,000, and when this option was about to expire without his having been able to raise the necessary funds, he paid
P15,000 more for an extension of the option, with the understanding in both cases that, in case the option should be
exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid for this option
and its extension were supplied by Elser entirely from his own funds. In the end he was able from his own means,
and with the assistance which he obtained from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the
option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained
from a Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by himself
and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The money thus raised
was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser
purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the
property a 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 greater number of the shares
issued, his portion amount in the beginning to 3,290 shares.

While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced to
come in with him and supply part of the means necessary to carry the enterprise through. In this connection it
appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an offer for a big
subdivision and that, if it should be acquired and Lyons would come in, the two would be well fixed. (Exhibit M-5.) On
June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he had bought the San Juan Estate
and thought it advisable for Lyons to resign (Exhibit M-13), meaning that he should resign his position with the
mission board in New York. On the same date he wrote Lyons a letter explaining some details of the purchase, and
added "have advised in my cable that you resign and I hope you can do so immediately and will come and join me on
the lines we have so often spoken about. . . . There is plenty of business for us all now and I believe we have started
something that will keep us going for some time." In one or more communications prior to this, Elser had sought to
impress Lyons with the idea that he should raise all the money he could for the purpose of giving the necessary
assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse from
joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt had
arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that the board of
missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and
one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to
take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good
thing.

One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this venture,
was that the board of mission was averse to his engaging in business activities other than those in which the church
was concerned; and some of Lyons' missionary associates had apparently been criticizing his independent
commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon receipt of this letter Elser was of
course informed that it would be out of the question to expect assistance from Lyons in carrying out the San Juan
project. No further efforts to this end were therefore made by Elser.

When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed that he was
indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and earnings
derived from other properties; and when the J. K. Pickering & Company was organized and stock issued, Elser
indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be one of his
associates in the deal. It will be noted that the par value of these 200 shares was more than P8,000 in excess of the
amount which Elser in fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these
shares and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of these
shares to Lyons by Elser supplies some sort of basis for the present action, or at least strengthens the considerations
involved in a feature of the case to be presently explained. This view is manifestly untenable, since the ratification of
the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves no ground
whatever for treating the transaction as a source of further equitable rights in Lyons. We should perhaps add that
after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of directors of
the J. K. Pickering & Company, his qualification for this office being derived precisely from the ownership of these
shares.

We now turn to the incident which supplies the main basis of this action. It will be remembered that, when Elser
obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the
lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given
for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon having
security for the liability thus assumed by it. To meet this requirements Elser mortgaged to the Fidelity & Surety Co.
the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was
executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come
into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he
had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking
it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of
the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the
proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the
M. H. del Pillar property and 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 delivered it to
Elser. But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the
release of the old were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of
the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H.
del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it.

The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on
September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo
mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which
Lyons used the words above quoted, and as that conversation supplies the most reasonable explanation of Elser's
recession from his purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in
accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This concession
was not only reasonable under the circumstances, in view of the abundant solvency of Elser, but in view of the
further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly
P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The trial court found
in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser to Lyons in
consideration of the assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo
property. Whether the agreement was reached exactly 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 that Elser would be generous; and he could scarcely
have failed to take account of the use he had made of the joint property of the two.

As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to Uy Siuliong
on January 18, 1921, although it was not due until more than five months later. It will thus be seen that the
mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent; and although
the court refused to allow the defendant to prove the Elser was solvent at this time in an amount much greater than
the entire encumbrance placed upon the property, it is evident that the risk imposed upon Lyons was negligible. It is
also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no actual
liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest
financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon
his own account.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in
the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of
this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the
earnings thereon, as claimed in his complaint.

Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner
already explained had been used to held finance the purchase of the San Juan Estate. He seems to have supposed
that the Carried property had been mortgaged to aid in putting through another deal, namely, the purchase of a
property referred to in the correspondence as the "Ronquillo property"; and in this connection a letter of Elser of the
latter part of May, 1920, can be quoted in which he uses this language:

As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money for
Ronquillo buy (P60,000) if the owner comes through.

Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons leads us
to infer that he thought that the money obtained by mortgaging the Carriedo property had been used in the
purchase of this property. It doubtedless appeared so to him in the retrospect, but certain consideration show that
he was inattentive to the contents of the quotation from the letter above given. He had already been informed that,
although Elser was angling for the Ronquillo property, its price had gone up, thus introducing a doubt as to whether
he could get it; and the quotation above given shows that the intended use of the money obtained by mortgaging
the Carriedo property was that only part of the P50,000 thus obtained would be used in this way, if the deal went
through. Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if he did
not know before, what was the status of the proposed trade for the Ronquillo property.

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this effect;: "I
have mortgaged the property on Carriedo Street, secured by my personal note. You are amply protected. I wish you
to join me in the San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was received
by him, and we consider this point of fact of little moment, since the proof shows that Lyons knew that the Carriedo
mortgage had been executed, and after his arrival in Manila he consented for the mortgage to remain on the
property until it was paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand all the
ramifications of the situation, but he knew enough, we think, to apprise him of the material factors in the situation,
and we concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used any
money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing
in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money
belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual
relation of partnership had existed in the money used, the case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general
relation of partnership, under article 1678 of the Civil Code. It is clear 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 Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United
States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where
money belonging to 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 application of that doctrine,
for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the
purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage
upon the equity of redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is
evident that Lyons was not prejudice by that act.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed
between him and Elser while the latter was still alive. While the admission of this testimony was of questionable
propriety, any error made by the trial court on this point was error without injury, and the determination of the
question is not necessary to this decision. We therefore pass the point without further discussion.

The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.
JOSE FERNANDEZ vs. FRANCISCO DE LA ROSA [February 2, 1903]

The object of this action is to obtain from the court a declaration that a partnership exists between the parties, that
the plaintiff has a consequent interested in certain cascoes which are alleged to be partnership property, and that the
defendant is bound to render an account of his administration of the cascoes and the business carried on with them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.

The respective claims of the parties as to the facts, so far as it is necessary to state them in order to indicate the point
in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900, he entered into a verbal agreement
with the defendant to form a partnership for the purchase of cascoes and the carrying on of the business of letting
the same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for that purpose such
amount of money as he could, the profits to be divided proportionately; that in the same January the plaintiff
furnished the defendant 300 pesos to purchase a casco designated as No. 1515, which the defendant did purchase
for 500 pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums
aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he furnished the
defendant 825 pesos to purchase another casco designated as No. 2089, which the defendant did purchase for 1,000
pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the parties undertook to draw
up articles of partnership for the purpose of embodying the same in an authentic document, but that the defendant
having proposed a draft of such articles which differed materially from the terms of the earlier verbal agreement, and
being unwillingly to include casco No. 2089 in the partnership, they were unable to come to any understanding and
no written agreement was executed; that the defendant having in the meantime had the control and management of
the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant refused to render,
denying the existence of the partnership altogether.

The defendant admits that the project of forming a partnership in the casco business in which he was already
engaged to some extent individually was discussed between himself and the plaintiff in January, 1900, and earlier,
one Marcos Angulo, who was a partner of the plaintiff in a bakery business, being also a party to the negotiations,
but he denies that any agreement was ever consummated. He denies that the plaintiff furnished any money in
January, 1900, for the purchase of casco No. 1515, or for repairs on the same, but claims that he borrowed 300 pesos
on his individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for the purchase of
casco No. 1515, which he alleged was bought March 12, and he alleges that he never received anything from the
defendant toward the purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for the
first casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary for us the review the evidence
and pass upon the facts. Our general conclusions may be stated as follows:

(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was made and the
casco delivered in January, although the public document of sale was not executed till some time afterwards. This
witness is apparently disinterested, and we think it is safe to rely upon the truth of her testimony, especially as the
defendant, while asserting that the sale was in March, admits that he had the casco taken to the ways for repairs in
January.

It is true that the public document of sale was executed March 10, and that the vendor declares therein that she is
the owner of the casco, but such declaration does not exclude proof as to the actual date of the sale, at least as
against the plaintiff, who was not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in
such cases, that the actual sale precedes by a considerable time the execution of the formal instrument of transfer,
and this is what we think occurred here.

(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose Fernandez eight
hundred and twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900.
Francisco de la Rosa." The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was bought, as
we think it was, in January, the casco referred to in the receipt which the parties "are to purchase in company" must
be casco No. 2089, which was bought March 22. We find this to be the fact, and that the plaintiff furnished and the
defendant received 825 pesos toward the purchase of this casco, with the understanding that it was to be purchased
on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give the defendant, in
the name of the plaintiff, a sum of money, the amount of which he is unable to state, for the purchase of a casco to
be used in the plaintiff's and defendant's business. Antonio Angulo also testifies, but the defendant claims that the
fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness under the provisions of article
643 of the then Code of Civil Procedure, and without deciding whether this point is well taken, we have discarded his
testimony altogether in considering the case. The defendant admits the receipt of 300 pesos from Antonio Angulo in
January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim that the 825 pesos
which he received from the plaintiff in March were furnished toward the purchase of casco No. 1515, thereby
virtually admitting that casco was purchased in company with the plaintiff. We discover nothing in the evidence to
support the claim that the 300 pesos received in January was a loan, unless it may be the fact that the defendant had
on previous occasions borrowed money from the bakery firm. We think all the probabilities of the case point to the
truth of the evidence of Antonio Fernandez as to this transaction, and we find the fact to be that the sum in question
was furnished by the plaintiff toward the purchase for joint ownership of casco No. 1515, and that the defendant
received it with the understanding that it was to be used for this purposed. We also find that the plaintiff furnished
some further sums of money for the repair of casco.

(4) The balance of the purchase price of each of the two cascoes over and above the amount contributed by the
plaintiff was furnished by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal agreement of partnership,
except such as may be implied from the fact as to the purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than otherwise that
no attempt was made to agree upon articles of partnership till about the middle of the April following the purchase
of the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and after the
defendant had been operating the cascoes for some time, the defendant returned to the plaintiff 1,125 pesos, in two
different sums, one of 300 and one of 825 pesos. The only evidence in the record as to the circumstances under
which the plaintiff received these sums is contained in his answer to the interrogatories proposed to him by the
defendant, and the whole of his statement on this point may properly be considered in determining the fact as being
in the nature of an indivisible admission. He states that both sums were received with an express reservation on his
part of all his rights as a partner. We find this to be the fact.

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the parties? (2) If such
partnership existed, was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos?

(1) "Partnership is a contract by which two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1)
mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract contains these two
elements the partnership relation results, and the law itself fixes the incidents of this relation if the parties fail to do
so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the defendant with the
understanding that it was to be used for the purchase of the cascoes in question. This establishes the first element of
the contract, namely, mutual contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in common, in the
absence of any other explanation of the object of the parties in making the purchase in that form, and, it may be
added, in view of the admitted fact that prior to the purchase of the first casco the formation of a partnership had
been a subject of negotiation between them.
Under other circumstances the relation of joint ownership, a relation distinct though perhaps not essentially different
in its practical consequence from that of partnership, might have been the result of the joint purchase. If, for
instance, it were shown that the object of the parties in purchasing in company had been to make a more favorable
bargain for the two cascoes that they could have done by purchasing them separately, and that they had no ulterior
object except to effect a division of the common property when once they had acquired it, theaffectio
societatis would be lacking and the parties would have become joint tenants only; but, as nothing of this sort appears
in the case, we must assume that the object of the purchase was active use and profit and not mere passive
ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered into by the parties. This contract,
it is true, might have been subject to a suspensive condition, postponing its operation until an agreement was
reached as to the respective participation of the partners in the profits, the character of the partnership as collective
or en comandita, and other details, but although it is asserted by counsel for the defendant that such was the case,
there is little or nothing in the record to support this claim, and that fact that the defendant did actually go on and
purchase the boat, as it would seem, before any attempt had been made to formulate partnership articles, strongly
discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of
partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights
in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the execution of a public writing in the
single case mentioned and dispensing with all formal requirements in other cases, renders inapplicable to this
species of contract the general provisions of article 1280 of the Civil Code.

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned to him by
the defendant after the definitive failure of the attempt to agree upon partnership articles. The amount returned fell
short, in our view of the facts, of that which the plaintiff had contributed to the capital of the partnership, since it did
not include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as
claimed by the plaintiff, that a profit may have been realized from the business during the period in which the
defendant have been administering it prior to the return of the money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societas leonina, as claimed by counsel for the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership property by receiving the
money? Did he by so doing waive his right to an accounting of the profits already realized, if any, and a participation
in them in proportion to the amount he had originally contributed to the common fund? Was the partnership
dissolved by the "will or withdrawal of one of the partners" under article 1705 of the Civil Code? We think these
questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a partner, nor is
there any evidence that by anything that he said or by anything that he omitted to say he gave the defendant any
ground whatever to believe that he intended to relinquish them. On the contrary he notified the defendant that he
waived none of his rights in the partnership. Nor was the acceptance of the money an act which was in itself
inconsistent with the continuance of the partnership relation, as would have been the case had the plaintiff
withdrawn his entire interest in the partnership. There is, therefore, nothing upon which a waiver, either express or
implied, can be predicated. The defendant might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits. Having failed to
do this he can not be permitted to force a dissolution upon his co-partner upon terms which the latter is unwilling to
accept. We see nothing in the case which can give the transaction in question any other aspect than that of the
withdrawal by one partner with the consent of the other of a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the
existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership
property, and that the plaintiff is entitled to an accounting of the defendant's administration of such property, and of
the profits derived therefrom. This declaration does not involve an adjudication as to any disputed items of the
partnership account.
The judgment of the court below will be reversed without costs, and the record returned for the execution of the
judgment now rendered. So ordered.

ON MOTION FOR A REHEARING.


MAPA, J.:
This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a rehearing upon the following grounds:
1. Because that part of the decision which refers to the existence of the partnership which is the object of the complaint is not based upon
clear and decisive legal grounds; and
2. Because, upon the supposition of the existence of the partnership, the decision does not clearly determine whether the juridical relation
between the partners suffered any modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos from the funds of
the partnership, or if it continued as before, the parties being thereby deprived, he alleges, of one of the principal bases for determining with
exactness the amount due to each.
With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as follows: "We are unable to find from the
evidence before us that there was any specific verbal agreement of partnership, except such as may be implied from the facts as to the
purchase of the cascoes."
Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the one hand there is no direct evidence of a
contract, on the other its existence can only be inferred from certain facts, and the defendant adds that the possibility of an inference is not
sufficient ground upon which to consider as existing what may be inferred to exist, and still less as sufficient ground for declaring its efficacy to
produce legal effects.
This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an inference, as the appellant gratuitously
stated, for the purpose of arriving at a conclusion that a contract of partnership was entered into between him and the plaintiff, but have
considered the proof which is derived from the facts connected with the purchase of the cascoes. It is stated in the decision that with the
exception of this evidence we find no other which shows the making of the contract. But this does not mean (for it says exactly the contrary)
that this fact is not absolutely proven, as the defendant erroneously appears to think. From this data we infer a fact which to our mind is certain
and positive, and not a mere possibility; we infer not that it is possible that the contract may have existed, but that it actually did exist. The
proofs constituted by the facts referred to, although it is the only evidence, and in spite of the fact that it is not direct, we consider, however,
sufficient to produce such a conviction, which may certainly be founded upon any of the various classes of evidence which the law admits.
There is all the more reason for its being so in this case, because a civil partnership may be constituted in any form, according to article 1667 of
the Civil Code, unless real property or real rights are contributed to it — the only case of exception in which it is necessary that the agreement
be recorded in a public instrument.
It is of no importance that the parties have failed to reach an agreement with respect to the minor details of contract. These details pertain to
the accidental and not to the essential part of the contract. We have already stated in the opinion what are the essential requisites of a
contract of partnership, according to the definition of article 1665. Considering as a whole the probatory facts which appears from the record,
we have reached the conclusion that the plaintiff and the defendant agreed to the essential parts of that contract, and did in fact constitute a
partnership, with the funds of which were purchased the cascoes with which this litigation deals, although it is true that they did not take the
precaution to precisely establish and determine from the beginning the conditions with respect to the participation of each partner in the
profits or losses of the partnership. The disagreements subsequently arising between them, when endeavoring to fix these conditions, should
not and can not produce the effect of destroying that which has been done, to the prejudice of one of the partners, nor could it divest his rights
under the partnership which had accrued by the actual contribution of capital which followed the agreement to enter into a partnership,
together with the transactions effected with partnership funds. The law has foreseen the possibility of the constitution of a partnership without
an express stipulation by the partners upon those conditions, and has established rules which may serve as a basis for the distribution of profits
and losses among the partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered into by the plaintiff and the defendant
falls within the provisions of this article.
With respect to the second point, it is obvious that upon declaring the existence of a partnership and the right of the plaintiff to demand from
the defendant an itemized accounting of his management thereof, it was impossible at the same time to determine the effects which might
have been produced with respect to the interest of the partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could only
be determined after a liquidation of the partnership. Then, and only then, can it be known if this sum is to be charged to the capital contributed
by the plaintiff, or to his share of the profits, or to both. It might well be that the partnership has earned profits, and that the plaintiff's
participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident that, notwithstanding that payment, his interest in
the partnership would still continue. This is one case. It would be easy to imagine many others, as the possible results of a liquidation are
innumerable. The liquidation will finally determine the condition of the legal relations of the partners inter se at the time of the withdrawal of
the sum mentioned. It was not, nor is it possible to determine this status a priori without prejudging the result, as yet unknown, of the
litigation. Therefore it is that in the decision no direct statement has been made upon this point. It is for the same reason that it was expressly
stated in the decision that it "does not involve an adjudication as to any disputed item of the partnership account."
The contentions advanced by the moving party are so evidently unfounded that we can not see the necessity or convenience of granting the
rehearing prayed for, and the motion is therefore denied.
CHARLES WOODHOUSE vs. FORTUNATO HALILI [July 31, 1953]

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most
important provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mision
soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital
necessary therefor; (2) that the defendant was to decide matters of general policy regarding the business, while the
plaintiff was to attend to the operation and development of the bottling plant; (3) that the plaintiff was to secure the
Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive
30 per cent of the net profits of the business. The above agreement was arrived at after various conferences and
consultations by and between them, with the assistance of their respective attorneys. Prior to entering into this
agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of
the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier (defendant
herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said
beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred to the corporation (Exhibit H).
Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting on November 27,
1947, at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft
of the agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the
main basis of the agreement, Exhibit A.

The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States
without the agreement being not first signed. On that day plaintiff and defendant went to the United States, and on
December 10, 1947, a franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F.
Halili and/or Charles F. Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mision beverages in the Philippines. The plaintiff and the defendant thereafter returned to the
Philippines. Plaintiff reported for duty in January, 1948, but operations were not begun until the first week of
February, 1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of
a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9,
1948.

When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be
executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of
the product had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained,
and as defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter
with the defendant with a view to a possible settlement. as none could be arrived at, the present action was
instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a
share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way
of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff
that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was
false, and plaintiff did not secure the franchise, but was given to defendant himself; (2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages.
On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering
defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and
to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be enforced
upon the parties, but it also held that the defense of fraud was not proved. Against this judgment both parties have
appealed.

The most important question of fact to be determined is whether defendant had falsely represented that he had an
exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls
the agreement to form the partnership. The trial court found that it is improbable that defendant was never shown
the letter, Exhibit J, granting plaintiff had; that the drafts of the contract prior to the final one can not be considered
for the purpose of determining the issue, as they are presumed to have been already integrated into the final
agreement; that fraud is never presumed and must be proved; that the parties were represented by attorneys, and
that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On
this appeal the defendant, as appellant, insists that plaintiff 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 had it as the same had expired, and
that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is, consequently, null and
void.

Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's
contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being
the exclusive grantee of a franchise, thus:

A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to
this matter. I notice from the first draft of the document which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)

As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on
November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the
Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . .

(Exhibit II; emphasis ours)

The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle
invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement,
but to discover the intent of the parties thereto and the circumstances surrounding the execution of the contract.
The issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or
statements prior to the agreement are essential and relevant to the determination of said issue. The act or statement
of the plaintiff was not sought to be introduced to change or alter the terms of the agreement, but to prove how he
induced the defendant to enter into it — to prove the representations or inducements, or fraud, with which or by
which he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule.
(Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co.,
26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of a jural act,
not to its integration, and are not governed by the rules on integration. Were parties prohibited from proving said
representations or inducements, on the ground that the agreement had already been entered into, it would be
impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence
to be introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123,
Rules of Court),as in this case.

That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In
his letter to Mission Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to speak with authority so that we could come to terms
as far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a
poor bargaining position. . .

I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time,
during which I may consummate my plants. . . .

By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.)
If this option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with
defendant and close the deal with him, he must have used his said option for the above-indicated purpose, especially
as it appears that he was able to secure, through its use, what he wanted.

Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff
called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am
definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to
see the defendant (and at that time he had already the option), he must have exultantly told defendant that he had
the authority already. It is improbable and incredible for him to have disclosed the fact that he had only an optionto
the exclusive 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.

The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to
secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the
final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. How could plaintiff assure defendant that he would
get the franchise for the latter if he had not actually obtained it for himself? Defendant would not have gone into the
business unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured
defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above
provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to
secure it for the partnership. To show that the insertion of the above provision does not eliminate the probability of
plaintiff representing himself as the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .

and in paragraph 11 it also expressly states:

1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.

These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the
grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to
the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the
plaintiff.

Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive
franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the
exclusive grantee of the franchise.

The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud
improbable. Not necessarily, because the alleged representation took place before the conferences were had, in
other words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of
plaintiff's exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had
the exclusive franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the
franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the
exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive
franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he
believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the same from the
Mission Dry Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he
induced him to that belief, and he may not be allowed to deny that defendant was induced by that belief. (IX
Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the
contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent
praises of a salesman about the excellence of his wares to those malicious machinations and representations that the
law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be a ground for the annulment of a contract, and the incidental deceit, which only
renders the party who employs it liable for damages. This Court had held that in order that fraud may vitiate consent,
it must be the causal (dolo causante), not merely the incidental (dolo causante), inducement to the making of the
contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances
indicative that the fact that the principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute
for the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that
plaintiff obligated himself to secure a franchise for the defendant. Correction appears in this same original draft, but
the change is made not as to the said obligation but as to the grantee. In the corrected draft the word
"capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term
"partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the
same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or
the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when
the contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise
for the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he
was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.

But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the partnership business.
Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive
franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable shares
of the said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit
II; emphasis ours.)

Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the toilet facilities
for the laborers.

We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate
defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net
profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant,
he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo
incidentedefined in article 1270 of the Spanish Civil Code, because it was used to get the other party's consent to a
big share in the profits, an incidental matter in the agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el
que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el
consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan
solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)

Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes
before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the
partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very
language of the agreement that the parties intended that the execution of the agreement to form a partnership was
to be carried out at a later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a
matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff
himself had been demanding that defendant comply with the agreement. And plaintiff's present action seeks the
enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible
with his own conduct and suit.

As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do,
not to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it,
as he pleases. It falls within what Spanish commentators call a very personal act (acto personalismo), of which courts
may not compel compliance, as it is considered an act of violence to do so.

Efectos de las obligaciones consistentes en hechos personalismo.—Tratamos de la ejecucion de las


obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas
esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.

Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar
el hecho y porque medios.

Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio
romanonemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los
que perciben la posibilidad de la destruccion deeste principio, añaden que, aun cuando se pudiera obligar al
deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de
cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que
obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud.

xxx xxx xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya


precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio
Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y
calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la conciencia social el
empleo de la fuerza publica, mediante coaccion sobre las personas, en las relaciones puramente particulares;
porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad
humana, y nose admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por
motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata
de las obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y
aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan
tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular,
como sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia,
entrado a dirimir, con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431-432.)

The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of
defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of the
falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the
measure of damages is the actual loss suffered and the profits reasonably expected to be received, embraced in the
terms daño emergente and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the
net profits of the business. Against this amount of damages, we must set off the damage defendant suffered by
plaintiff's misrepresentation that he had obtained a very high percentage of share in the profits. We can do no better
than follow the appraisal that the parties themselves had adopted.

When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had
and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form
30 per cent to 15 per cent only, to which reduction defendant appears to have readily given his assent. It was under
this understanding, which amounts to a virtual modification of the contract, that the bottling plant was established
and plaintiff worked as Manager for the first three months. If the contract may not be considered modified as to
plaintiff's share in the profits, by the decision of defendant to reduce the same to one-half and the assent thereto of
plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to under the
principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to
reduce plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The agreement
contains the stipulation that upon the termination of the partnership, defendant was to convey the franchise back to
plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period within which these damages shall
be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses the franchise from the Mission Dry Corporation.

With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.
EUFRACIO ROJAS v. CONSTANCIO MAGLANA [December 10, 1990]
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial
District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast
Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term
of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products
licenses and concessions over public and/or private forest lands and to operate, develop and promote such forests
rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering
the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and Timber License
No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of the duly
registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership,
including marketing and handling of cash and is authorized to sign all papers and instruments relating to the
partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of
the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the partnership
shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on
Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as
industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and
Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in
the purpose of the second partnership which is to hold and secure renewal of timber license instead of to secure the
license as in the first partnership and the term of the second partnership is fixed to thirty (30) years, everything else
is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship
logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07 (Decision,
R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among
themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of
Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after payment of
the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor of the
partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang and
the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved.
Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the second
partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of
any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate,
Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area
(Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS
Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging
superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will just
be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).:
nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21,
1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of
properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by Judge
Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the
report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining
the records and supporting papers of the partnership as well as the information furnished them by the parties, which
were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching
thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of
the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be
submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second
partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision,
R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from
the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share — the
partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the basis of share and share alike — this covered by actual
contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of profits and
losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of 80% for
the defendant and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution, February 23,
1961, the plaintiff's share will be on the basis of his actual contribution and, considering his indebtedness to
the partnership, the plaintiff is not entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name
were acquired with partnership funds or with funds of the defendant and — the Court declares that there is
no evidence that these properties were acquired by the partnership funds, and therefore the same should
not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be
liable for them — the Court declares that neither parties is entitled to damages, for as already stated above it
is not a wise policy to place a price on the right of a person to litigate and/or to come to Court for the
assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it
dissolve the partnership or not — the Court declares that the letter of the defendant to the plaintiff dated
February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the
laborers and employees of the Eastcoast Development Enterprises, — the COURT DECLARES THE SAME AS
NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David — is VALID AND
BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE
PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of
P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to
him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not yet
been actually received, and further the receipt is merely based upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to
the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to him, and this should be considered as part of Maglana's
contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second partnership
was dissolved there was no written contract of co-partnership; there was no reconstitution as provided for in the
Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas and
Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was considered as a
partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly
(Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development
Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been
novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas, appellee
Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and stipulations of
said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. Upon
withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted
partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to consider a de
facto partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated
February 23, 1961, did not legally dissolve the registered partnership between them, being in contravention of the
partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant
is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of
"share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it
was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which
they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except
for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed the term of the
second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and
Maglana as stipulated in both partnerships call for the same amounts. Just as important is the fact that all
subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee.
To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of the second partnership, all business transactions were carried out
under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still
subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to
purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convincing, is the fact
that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging
superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-
Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and
he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana
was referring to and left no room for doubt that both considered themselves governed by the articles of the duly
registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be
considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly
registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer
is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a
notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the
cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution.
And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided
in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as
follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who
should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a
partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time
he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94
[1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the
essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which
was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00;
on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should
be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no plausible
reason could be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal
of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a
company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either
in cash or in equipment to the capital investment and to perform his duties as logging superintendent, as stipulated
in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took
funds in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED
in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles
of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of
the trial court in all other respects.: nad
SO ORDERED.
GREGORIO ORTEGA vs. COURT OF APPEALS [July 3, 1995]

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-
G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC
254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate
court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on
4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC
records show that there were several subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS,
SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of
this month.

"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard
to the mechanics of liquidation, and more particularly, my interest in the two floors of this
building. I would like to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of
our employees including the assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of the union, including the assistant
attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department
(SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that
the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets
plus the profits, rent or interest attributable to the use of his right in the assets of the
dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00
and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem
just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the liquidation of the shares of
any retiring or withdrawing partner in the partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In
its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it
concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED
to the Hearing Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4
April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership,
and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No.
24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both
died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA
G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other
partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership
assets were in any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now
Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad
faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now
"Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with
approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the
death or legal incapacity of one of the partners, shall be continued by the surviving
partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a
partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities
with respect to their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability
for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose
for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners,7 mutual
agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily
theright, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for
damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution,
the partnership continues and its legal personality is retained until the complete winding up of its business
culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to
the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and
the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value
at the time of such death or retirement shall be determined by two (2) independent appraisers, one to be
appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as
the case may be. In the event of any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above
mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation
by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their
common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to
have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the
partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12Indeed,
for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act.
Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do
a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs. SO ORDERED.


OSCAR ANGELES vs. SECRETARY OF JUSTICE [July 29, 2005]

This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000 of the Secretary of Justice in
Resolution No. 155.3 The Secretary of Justice affirmed the resolution 4 in I.S. No. 96-939 dated 28 February 1997
rendered by the Provincial Prosecution Office of the Department of Justice in Santa Cruz, Laguna ("Provincial
Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the complaint for estafa filed by
petitioners Oscar and Emerita Angeles ("Angeles spouses") against respondent Felino Mercado ("Mercado").

Antecedent Facts

On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315 of the Revised
Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the brother-in-law of the Angeles
spouses, being married to Emerita Angeles’ sister Laura.

In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them to enter into a
contract of antichresis,5 colloquially known as sanglaang-perde, covering eight parcels of land ("subject land")
planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned by Juana Suazo. The contract of
antichresis was to last for five years with ₱210,000 as consideration. As the Angeles spouses stay in Manila during
weekdays and go to Laguna only on weekends, the parties agreed that Mercado would administer the lands and
complete the necessary paperwork. 6

After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained that the subject
land earned ₱46,210 in 1993, which he used to buy more lanzones trees. Mercado also reported that the trees bore
no fruit in 1994. Mercado gave no accounting for 1995. The Angeles spouses claim that only after this demand for an
accounting did they discover that Mercado had put the contract of sanglaang-perde over the subject land under
Mercado and his spouse’s names.7 The relevant portions of the contract of sanglaang-perde, signed by Juana Suazo
alone, read:

xxx

Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (₱210,000), salaping gastahin, na aking
tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may
pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat at isinalin sa
naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana, kahalili
at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama
ang ibang halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa takdang
LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993, at magtatapos sa taong 1997, kaya’t pagkatapos ng
lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na
WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT
GNG. FELINO MERCADO.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay bibigyan nila ng LIMA (5) na
[sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang mag[-]asawa nila G. AT GNG.
FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic]
aming kasunduang ito.8

In his counter-affidavit, Mercado denied the Angeles spouses’ allegations. Mercado claimed that there exists an
industrial partnership, colloquially known as sosyo industrial, between him and his spouse as industrial partners and
the Angeles spouses as the financiers. This industrial partnership had existed since 1991, before the contract of
antichresis over the subject land. As the years passed, Mercado used his and his spouse’s earnings as part of the
capital in the business transactions which he entered into in behalf of the Angeles spouses. It was their practice to
enter into business transactions with other people under the name of Mercado because the Angeles spouses did not
want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name for the
Angeles spouses. Mercado also attached the minutes of the barangay conciliation proceedings held on 7 September
1996. During the barangay conciliation proceedings, Oscar Angeles stated that there was a writtensosyo
industrial agreement: capital would come from the Angeles spouses while the profit would be divided evenly
between Mercado and the Angeles spouses. 9

The Ruling of the Provincial Prosecution Office

On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing of criminal
information for estafa against Mercado. This resolution, however, was issued without Mercado’s counter-affidavit.

Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January 1997 resolution,
Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial Prosecution Office issued an
amended resolution dismissing the Angeles spouses’ complaint for estafa against Mercado.

The Provincial Prosecution Office stated thus:

The subject of the complaint hinges on a partnership gone sour. The partnership was initially unsaddled [with]
problems. Management became the source of misunderstanding including the accounting of profits, which led to
further misunderstanding until it was revealed that the contract with the orchard owner was only with the name of
the respondent, without the names of the complainants.

The accusation of "estafa" here lacks enough credible evidentiary support to sustain a prima facie finding.

Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.

RESPECTFULLY SUBMITTED.10

The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office denied in a
resolution dated 4 August 1997.

The Ruling of the Secretary of Justice

On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document evidencing the contract
of sanglaang-perde with Juana Suazo was executed in the name of the Mercado spouses, instead of the Angeles
spouses. The Angeles spouses allege that this document alone proves Mercado’s misappropriation of their ₱210,000.

The Secretary of Justice found otherwise. Thus:

Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the crime of estafa
cannot be sustained. [The Angeles spouses] failed to show sufficient proof that [Mercado] deliberately deceived
them in the "sanglaang perde" transaction. The document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false representation on the part of [Mercado] that induced the
[Angeles spouses] to part with their money. [Mercado] satisfactorily explained that the [Angeles spouses] do not
want to be revealed as the financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily part
with their money without holding on to some document to evidence the receipt of money, or at least to inspect the
document involved in the said transaction. Under the circumstances, we are inclined to believe that [the Angeles
spouses] knew from the very start that the questioned document was not really in their names.

In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and [Mercado]. The
formation of a partnership was clear from the fact that they contributed money to a common fund and divided the
profits among themselves. Records would show that [Mercado] was able to make deposits for the account of the
[Angeles spouses]. These deposits represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never disputed that the deposits made by
[Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the hearing of their
barangay conciliation case reveals that the [Angeles spouses] acknowledged their joint business ventures with
[Mercado] although they assailed the manner by which [Mercado] conducted the business and handled and
distributed the funds. The veracity of this transcript was not raised in issued [sic] by [the Angeles spouses]. Although
the legal formalities for the formation of a partnership were not adhered to, the partnership relationship of the
[Angeles spouses] and [Mercado] is evident in this case. Consequently, there is no estafa where money is delivered
by a partner to his co-partner on the latter’s representation that the amount shall be applied to the business of their
partnership. In case of misapplication or conversion of the money received, the co-partner’s liability is civil in nature
(People v. Clarin, 7 Phil. 504)

WHEREFORE, the appeal is hereby DISMISSED. 11

Hence, this petition.

Issues

The Angeles spouses ask us to consider the following issues:

1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of jurisdiction in
dismissing the appeal of the Angeles spouses;

2. Whether a partnership existed between the Angeles spouses and Mercado even without any documentary proof
to sustain its existence;

3. Assuming that there was a partnership, whether there was misappropriation by Mercado of the proceeds of the
lanzones after the Angeles spouses demanded an accounting from him of the income at the office of the barangay
authorities on 7 September 1996, and Mercado failed to do so and also failed to deliver the proceeds to the Angeles
spouses;

4. Whether the Secretary of Justice should order the filing of the information for estafa against Mercado. 12

The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed

Grave Abuse of Discretion

An act of a court or tribunal may constitute grave abuse of discretion when the same is performed in a capricious or
whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of discretion must be so patent and
gross as to amount to an evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as where
the power is exercised in an arbitrary and despotic manner because of passion or personal hostility. 13

The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of discretion when he
dismissed their appeal. Moreover, the Angeles spouses committed an error in procedure when they failed to file a
motion for reconsideration of the Secretary of Justice’s resolution. A previous motion for reconsideration before the
filing of a petition for certiorari is necessary unless: (1) the issue raised is one purely of law; (2) public interest is
involved; (3) there is urgency; (4) a question of jurisdiction is squarely raised before and decided by the lower court;
and (5) the order is a patent nullity. 14 The Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible for this reason alone.

Whether a Partnership Existed

Between Mercado and the Angeles Spouses


The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on Articles 1771 to
1773 of the Civil Code, which state that:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership
and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached to the public instrument.

The Angeles spouses’ position that there is no partnership because of the lack of a public instrument indicating the
same and a lack of registration with the Securities and Exchange Commission ("SEC") holds no water. First, the
Angeles spouses contributed money to the partnership and not immovable property. Second, mere failure to register
the contract of partnership with the SEC does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration of the contract of partnership is to give notice to third parties. Failure to
register the contract of partnership does not affect the liability of the partnership and of the partners to third
persons. Neither does such failure to register affect the partnership’s juridical personality. A partnership may exist
even if the partners do not use the words "partner" or "partnership."

Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract showing a sosyo
industrial or industrial partnership, contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged misappropriation by Mercado: "The document alone,
which was in the name of [Mercado and his spouse], failed to convince us that there was deceit or false
representation on the part of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the financiers." 15

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for damages, injunction
and restraining order filed by the Angeles spouses against Mercado and Leo Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in [Mercado’s] name as
[the Angeles spouses] are apprehensive that, if they come out into the open as financiers of said contracts, they
might be kidnapped by the New People’s Army or their business deals be questioned by the Bureau of Internal
Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar Angeles was then working with
the government.16

Furthermore, accounting of the proceeds is not a proper subject for the present case.

For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing the appeal of the
Angeles spouses.

WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition for certiorari is DISMISSED.

SO ORDERED.

ANTONIA TORRES vs. COURT OF APPEALS [December 9, 1999]


Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out
to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory
of real property will not ipso facto release the contracting partners from their respective obligations to each other
arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the
ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against
the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his
name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed to
share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the
subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and
gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units
and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him
to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the
trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement
that losses as well as profits in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil
Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital, he shall also receive a
share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction


. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring
outright the provision of Article 1769, and other related provisions of the Civil Code of the
Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and
the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of
the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the
property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by
and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and
MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-
Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009
square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor
of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal
amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
the sub-division project is terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after
the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever
income deriving from the sales will be divided equally according to the . . . percentage [agreed upon]
by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall
[be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned
provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by
the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements
spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property
mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land
which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount
needed for general expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a
partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost
housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but
also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract
they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real
property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public
instrument would be useless if there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay
them 60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement
an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result


of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it is
the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation
of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court,
"the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a
consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they
[would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that
he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in
the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the
project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him
of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this
doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED

PIONEER INSURANCE & SURETY CORPORATION vs. COURT OF APPEALS [July 28, 1989]

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195
which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs
complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in
all other respects the trial court's decision was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the
amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15%
of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made;
plus P70,000.00 moral and exemplary damages.

It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses
aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to
pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully
paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing
of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the
amount of P50,000.00 for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco,
the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify
the defendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith.
The fact that the properties of the Bormaheco and the Cervanteses were attached and that they
were required to file a counterbond in order to dissolve the attachment, is not an act of bad faith.
When a man tries to protect his rights, he should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that
ordered it, in the exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it
only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be
liable for damages in performing an act which is clearly within its power and which is the reason for
its being, then nobody would engage in the insurance business. No further claim or counter-claim for
or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract
(Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the
total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived
in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety
executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance
price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements
(Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all
damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer
may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to
Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay
or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel
mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and
convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of
Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and
the Civil Aeronautics Law (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer
paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao
City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the
aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not
privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation
and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint
against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the
defendants was dismissed. In all other respects the trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF


PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF
THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A
REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN
THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of
liability under the surety bond in favor of JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the
instant action as it does not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present
any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name
an action must be prosecuted, he must appear to be the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party
in interest is meant a present substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v.
Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v.
City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest
as it has already been paid by the reinsurer the sum of P295,000.00 — the bulk of defendants'
alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer,
the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine,
realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of
P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA
totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in
excess of P298,666.28 would be tantamount to unjust enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the rule that no person should unjustly enrich himself
at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its
reinsurer in the aforesaid amount, as this matter has never been raised by any of the parties herein both in their
answers in the court below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of the respondents had any interest in the matter since the
reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code; (3)
pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the
parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA
as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
defendants, considering the amount it has realized from the sale of the mortgaged properties?
(Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor
of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said
amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score
it no longer has any right to collect to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall
pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is
suing defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no
right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact in his own name instead of that of the principal
will not prosper, and this is so even where the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be
prosecuted in the name of the real party in interest.' This provision is mandatory.
The real party in interest is the party who would be benefitted or injured by the
judgment or is the party entitled to the avails of the suit.

This Court has held in various cases that an attorney-in-fact is not a real party in
interest, that there is no law permitting an action to be brought by an attorney-in-
fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00
from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two
amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the
indemnity agreement is still valid and effective. But since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a
total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim
against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this
admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers to the
petitioner. Therefore, the petitioner's argument that the respondents had no interest in the reinsurance contract as
this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be
Section 98) of the Insurance Code has no basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired
in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co.
C.C.A. La., 46 F 2nd 925).

The rules of practice in actions on original insurance policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7
Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031
[1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals(154
SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party
in interest with regard to the portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against
the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore,
has no cause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been
dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter
indemnitors. It does not, however, cite any grounds except its allegation that respondent "Maglanas defense and
evidence are certainly incredible" (p. 12, Rollo) to back up its contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding
that the counter-indemnitors are not liable to the petitioner. The trial court stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after
the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue
the bond provided that the same would be mortgaged to it, but this was not possible because the
planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts
were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond,
and this indemnity agreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no
other sufficient security for the claim sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other security for the claim
sought to be enforced by this action, which necessarily means that the indemnity agreement had
ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080
of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure
precludes any further action to recover any unpaid balance of the price.

SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code, known as the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer
shall have no further action against the purchaser to recover any unpaid balance and any agreement
to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the contention that
Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA
as vendor, having subrogated it in such rights. Nor may the application of the provision be validly
opposed on the ground that these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61
SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged
these defendants from any liability as alleged indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the
indemnitors.

The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967.

However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each succeeding
months and the last of which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates
different from that fixed in the aforesaid memorandum; the due date of the first installment appears
as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three
months, that of the last installment being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant
Maglana knew of and consented to the modification of the obligations. But if that were so, there
would have been the corresponding documents in the form of a written notice to as well as written
conformity of these defendants, and there are no such document. The consequence of this was the
extinguishment of the obligations and of the surety bond secured by the indemnity agreement which
was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the
case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v.
Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty The mere failure on the part of the creditor
to demand payment after the debt has become due does not of itself constitute any
extension time referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom
et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond, the
failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every
installment, released Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from
his co-debtors if such payment is made after the obligation has prescribed or became
illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by
reason of the filing of the instant case against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was to do business
through the corporate vehicle but who failed to incorporate the entity in which they had chosen to
invest? How are the losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA').
(Rollo, p. 6).

These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco,
Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was
created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in
proportion to their contribution. The petitioner, therefore, questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended
corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total
amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-
complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to
Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants
Bormaheco and Maglana representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional
expenses, hence, the total sum of P 184,878.74.
We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectively
incorporated association should be governed by the supposed charter and the laws of the state
relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96
Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a
corporation and who carry on business under the corporate name occupy the position of partners
inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons
associate themselves together under articles to purchase property to carry on a business, and their
organization is so defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the company to the property
acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me.
555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed land to the
corporation, and two of them contracted to pay a third the difference in the proportionate value of
the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a
trustee for the associates in an action between them for an accounting, and its capital stock was
treated as partnership assets, sold, and the proceeds distributed among them in proportion to the
value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation
does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners,
as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock
in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be liable
as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127
Mass. 24). A partnership relation between certain stockholders and other stockholders, who were
also directors, will not be implied in the absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the
pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit
58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty.
Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant
Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite
his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand
his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates
of public convenience and necessity as well as the required permits for the operation thereof.
Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which
Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate
his airline in accordance with their agreement and proceeded to acquire the planes on his own
account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up
the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party
complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two
airplanes and spare parts from Japan which the latter considered as their lawful contribution and
participation in the proposed corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and
surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing
them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the
possession of the two planes and their accessories and or return the amount advanced by the former
amounting to an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter
ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was
created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the
proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other
would-be incorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

LIM TONG LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC. [November 3, 1999]
A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their
own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed
assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a
contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court
of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby
affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as
follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September
20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the
modifications as hereinafter made by reason of the special and unique facts and circumstances and
the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on
their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for


P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413 for


P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for


P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per
appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets
counted from September 20, 1990 (date of attachment) to September 12, 1991 (date
of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid
price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the
total amount P600,045.00, this Court noted that these items were attached to guarantee any
judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties,
and, to avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the
sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court.
In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and possession
of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder
in the public auction sale. It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect,
the plaintiff attached its own properties. It [was] for this reason also that this Court earlier
ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in
favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be
entitled to in this case will have to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering, however, that the total judgment
obligation as computed above would amount to only P840,216.92, it would be inequitable,
unfair and unjust to award the excess to the defendants who are not entitled to damages
and who did not put up a single centavo to raise the amount of P900,000.00 aside from the
fact that they are not the owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February
7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however
was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of
floats worth P68,000 were also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas,
Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable
time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter
Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. 6The trial
court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which
Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e)
damages. 10 The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or
Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The
appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund with the intention of dividing the profits
among themselves (Article 1767, New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA,
YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS
WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must
resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
This Court's Ruling: The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts
the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of
the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and
Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main
asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a monthly
rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that
there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual
findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance
the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended
by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership
in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who
was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of
their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed
that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower
courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement, Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to
appreciate that the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings
mentioned above nullified petitioner's argument that the existence of a partnership was based only on the
Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats
to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor
would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among
all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts
were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their
fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible corporation
is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has no
personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying
its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold.
The only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests
such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it
was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed
to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the
ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before the court the facts in issue and then, brushing aside
as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that
justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and
chief enemy, deserves scant consideration from courts. There should be no vested rights in
technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the
Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners
owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and
were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the
payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets
remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED.

Separate Opinions - VITUG, J., concurring opinion;


I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V. Panganiban, particularly the finding
that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely would wish to
elucidate a bit, albeit briefly, the liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an existing partnership or with one or more persons not
actual partners, he is deemed an agent of such persons consenting to such representation and in the same manner, if he were a
partner, with respect to persons who rely upon the representation. 1 The association formed by Chua, Yao and Lim, should be, as
it has been deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article
1816 2 which posits that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have
been entered into in its name, under its signature, and by a person authorized to act for the partnership. This rule is to be
construed along with other provisions of the Civil Code which postulate that the partners can be held solidarily liable with the
partnership specifically in these instances — (1) where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being
a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so
acting or omitting to act; (2) where one partner acting within the scope of his apparent authority receives money or property of
a third person and misapplies it; and (3) where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the custody of the partnership 3 —
consistently with the rules on the nature of civil liability in delicts and quasi-delicts.

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C. vs. PACIFIC COMMERCIAL CO. [August 28, 1922]

The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein, a motion was
presented by the appellants praying this court that this case be considered purely a moot question now, for the
reason that subsequent to the decision appealed from, the partnership Campos Rueda & Co., voluntarily filed an
application for a judicial decree adjudging itself insolvent, which is just what the herein petitioners and appellants
tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by the appellants in their
motion aforesaid. The question raised in this case is not purely moot one; the fact that a man was insolvent on a
certain day does not justify an inference that he was some time prior thereto.

Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some time
prior thereto. Many contingencies, such as unwise investments, losing contracts, misfortune, or accident,
might happen to reduce a person from a state of solvency within a short space of time. (Kimball vs. Dresser,
98 Me., 519; 57 Atl. Rep., 767.)

A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos Rueda & Co.
insolvent in December, 1921, as prayed for in this case, and another to declare it insolvent in July, 1922, as stated in
the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the appellants in
various sums amounting to not less than P1,000, payable in the Philippines, which were not paid more than thirty
days prior to the date of the filing by the petitioners of the application for involuntary insolvency now before us.
These facts were sufficient established by the evidence.

The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of the
aforesaid firm were insolvent at the time the application was filed; and that was said partners are personally and
solidarily liable for the consequence of the transactions of the partnership, it cannot be adjudged insolvent so long as
the partners are not alleged and proven to be insolvent. From this judgment the petitioners appeal to this court, on
the ground that this finding of the lower court is erroneous.

The fundamental question that presents itself for decision is whether or not a limited partnership, such as the
appellee, which has failed to pay its obligation with three creditors for more than thirty days, may be held to have
committed an act of insolvency, and thereby be adjudged insolvent against its will.

Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all intents and
purposes, which personality is recognized in all its acts and contracts (art. 116, Code of Commerce). This being so and
the juridical personality of a limited partnership being different from that of its members, it must, on general
principle, answer for, and suffer, the consequence of its acts as such an entity capable of being the subject of rights
and obligations. If, as in the instant case, the limited partnership of Campos Rueda & Co. Failed to pay its obligations
with three creditors for a period of more than thirty days, which failure constitutes, under our Insolvency Law, one of
the acts of bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this partnership must
suffer the consequences of such a failure, and must be adjudged insolvent. We are not unmindful of the fact that
some courts of the United States have held that a partnership may not be adjudged insolvent in an involuntary
insolvency proceeding unless all of its members are insolvent, while others have maintained a contrary view. But it
must be borne in mind that under the American common law, partnerships have no juridical personality independent
from that of its members; and if now they have such personality for the purpose of the insolvency law, it is only by
virtue of general law enacted by the Congress of the United States on July 1, 1898, section 5, paragraph (h), of which
reads thus:

In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the
partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of the partner or partners
adjudged bankrupt.

The general consideration that these partnership had no juridical personality and the limitations prescribed in
subsection (h) above set forth gave rise to the conflict noted in American decisions, as stated in the case of In
reSamuels (215 Fed., 845), which mentions the two apparently conflicting doctrines, citing one from In reBertenshaw
(157 Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of said Act of Congress of July
1, 1898, nor any rule similar thereto, and the juridical personality of limited partnership being recognized by our
statutes from their formation in all their acts and contracts the decision of American courts on this point can have no
application in this jurisdiction, nor we see any reason why these partnerships cannot be adjudged bankrupt
irrespective of the solvency or insolvency of their members, provided the partnership has, as such, committed some
of the acts of insolvency provided in our law. Under this view it is unnecessary to discuss the other points raised by
the parties, although in the particular case under consideration it can be added that the liability of the limited
partners for the obligations and losses of the partnership is limited to the amounts paid or promised to be paid into
the common fund except when a limited partner should have included his name or consented to its inclusion in the
firm name (arts. 147 and 148, Code of Commerce).

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty days to pay its
obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and the International Banking
Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners
have the right to a judicial decree declaring the involuntary insolvency of said partnership.

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership Campos Rueda &
Co. is and was on December 28, 1921, insolvent and liable for having failed for more than thirty days to meet its
obligations with the three petitioners herein, and it is ordered that this proceeding be remanded to the Court of First
Instance of Manila with instruction to said court to issue the proper decrees under section 24 of Act No. 1956, and
proceed therewith until its final disposition.

It is so ordered without special finding as to costs.

ALFREDO AGUILA, JR. vs. COURT OF APPEALS [November 25, 1999]

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated November 29, 1990, which
reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial
court dismissed the petition for declaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de
Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private respondent
and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered by Transfer
Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the consent of
her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement,
which provided:

(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the
FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property
within a period of ninety (90) days from the execution of this memorandum of agreement effective
April 18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);

(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property
within a period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of
the property to the SECOND PARTY within fifteen (15) days after the expiration of the said 90 day
grace period;

(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or
whatever claims on the property nor shall be cause the annotation of say claim at the back of the
title to the said property;

(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the
property and shall defend the rights of the SECOND PARTY against any party whom may have any
interests over the property;

(6) All expenses for documentation and other incidental expenses shall be for the account of the
FIRST PARTY;

(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY
after the expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay
an amount equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;

(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90)
days period above-mentioned, this memorandum of agreement shall be deemed cancelled and the
Deed of Absolute Sale, executed by the parties shall be the final contract considered as entered
between the parties and the SECOND PARTY shall proceed to transfer ownership of the property
above described to its name free from lines and encumbrances. 2

On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale, 3 dated June 11, 1991,
wherein private respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons,
Co., represented by petitioner, for P200,000,00. In a special power of attorney dated the same day, April 18, 1991,
private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem the subject property as
provided in the Memorandum of Agreement. 4

Private respondent failed to redeem the property within the 90-day period as provided in the Memorandum of
Agreement. Hence, pursuant to the special power of attorney mentioned above, petitioner caused the cancellation of
TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for A.C.
Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter and surrender
its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in
court. 6

Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment
case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a decision, dated April 3,
1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent did
not redeem the subject property before the expiration of the 90-day period provided in the Memorandum of
Agreement. Private respondent appealed first to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to
the Court of Appeals, and later to this Court, but she lost in all the cases.

Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial Court,
Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her husband on the
deed of sale was a forgery because he was already dead when the deed was supposed to have been executed on
June 11, 1991.

It appears, however, that private respondent had filed a criminal complaint for falsification against petitioner with the
Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated February 14, 1994.

On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because they could not
personally appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband,
Ruben Abrogar, died on May 8, 1991 or one month and 2 days before the execution of the Deed of
Absolute Sale, while the plaintiff was still in the Quezon City Medical Center recuperating from
wounds which she suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The
Court is convinced that the three required documents, to wit: the Memorandum of Agreement, the
Special Power of Attorney, and the Deed of Absolute Sale were all signed by the parties on the same
date on April 18, 1991. It is a common and accepted business practice of those engaged in money
lending to prepare an undated absolute deed of sale in loans of money secured by real estate for
various reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff never
questioned receiving the sum of P200,000.00 representing her loan from the defendant. Common
sense dictates that an established lending and realty firm like the Aguila & Sons, Co. would not part
with P200,000.00 to the Abrogar spouses, who are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more particularly the Deed of Absolute
Sale, to protect its interest.

xxx xxx xxx

WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED,
with costs against the plaintiff.

On appeal, the Court of Appeals reversed. It held:

The facts and evidence show that the transaction between plaintiff-appellant and defendant-
appellee is indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong
application in the case at bar in the light of the following circumstances.

First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The
property is a two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-
appellant stands. The property is inside a subdivision/village. The property is situated in Marikina
which is already part of Metro Manila. The alleged sale took place in 1991 when the value of the land
had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter
for both the land and for the house.

Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is


obliged to deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15)
days after the expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-
appellant is to retain physical possession of the thing allegedly sold.

In fact, plaintiff-appellant retained possession of the property "sold" as if they were still the absolute
owners. There was no provision for maintenance or expenses, much less for payment of rent.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property "sold".
It is well-known that payment of taxes accompanied by actual possession of the land covered by the
tax declaration, constitute evidence of great weight that a person under whose name the real taxes
were declared has a claim of right over the land.

It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil
Code is sufficient to declare a contract of sale with right to repurchase an equitable mortgage.

Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has
retained possession of the subject property and has continued paying the realty taxes over the
subject property, (circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil
Code), it must be conclusively presumed that the transaction the parties actually entered into is an
equitable mortgage, not a sale with right to repurchase. The factors cited are in support to the
finding that the Deed of Sale/Memorandum of Agreement with right to repurchase is in actuality an
equitable mortgage.

Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of
the loan extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same
with the amount of the purchase price.

xxx xxx xxx

Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase
price: the transaction shall then be considered to be an equitable mortgage.

Being a mortgage, the transaction entered into by the parties is in the nature of a pactum
commissorium which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the
New Civil Code reads:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that
there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged and mortgaged in the event of non-payment of
the principal obligation within the stipulated period.

In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured


by a mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90) days,
the period within which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay
P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest for the loan extended.
Failure of plaintiff-appellee to pay the P230,000.00 within the ninety (90) days period, the property
shall automatically belong to defendant-appellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum commissorium.
Therefore, the deed of sale should be declared void as we hereby so declare to be invalid, for being
violative of law.

xxx xxx xxx

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. The
questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiff-
appellant and the issuance of TCT No. 267073 issued in favor of defendant-appellee pursuant to the
questioned Deed of Sale is hereby declared VOID and is hereby ANNULLED. Transfer Certificate of
Title No. 195101 of the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount
of P230,000.00 shall be paid within ninety (90) days from the finality of this decision. In case of
failure to pay the amount of P230,000.00 from the period therein stated, the property shall be sold
at public auction to satisfy the mortgage debt and costs and if there is an excess, the same is to be
given to the owner.

Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which this case
should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and private
respondent is a pacto de retro sale and not an equitable mortgage as held by the appellate court.

The petition is meritorious.

Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real party in interest." A real party in interest is one who would
be benefited or injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling is now embodied in
Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real
party in interest in the case cannot be executed. 8 Hence, a complaint filed against such a person should be dismissed
for failure to state a cause of action. 9

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of
the partners." The partners cannot be held liable for the obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. 10 In this case,
private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons,
Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her late
husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or
agents, which should be impleaded in any litigation involving property registered in its name. A violation of this rule
will result in the dismissal of the complaint. 11 We cannot understand why both the Regional Trial Court and the Court
of Appeals sidestepped this issue when it was squarely raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against whom this action should be prosecuted makes
it unnecessary to discuss the other issues raised by him in this appeal.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against petitioner is
DISMISSED.

SO ORDERED.

UNITED STATES vs. EUSEBIO CLARIN [September 17, 1910]

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and Carlos de
Guzman, might buy and sell mangoes, and, believing that he could make some money in this business, the said Larin
made an agreement with the three men by which the profits were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203 from the
business, but did not comply with the terms of the contract by delivering to Larin his half of the profits; neither did
they render him any account of the capital.

Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio Clarin
in which he accused him of appropriating to himself not only the P172 but also the share of the profits that belonged
to Larin, amounting to P15.50.

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that the facts presented
concerned the defendant and themselves together.

The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six months'arresto
mayor, to suffer the accessory penalties, and to return to Pedro Larin P172, besides P30.50 as his share of the profits,
or to subsidiary imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and in deciding
his appeal we arrive at the following conclusions:

When two or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves, a contract is formed which is called partnership. (Art. 1665, Civil
Code.)

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he invested his
capital in the risks or benefits of the business of the purchase and sale of mangoes, and, even though he had
reserved the capital and conveyed only the usufruct of his money, it would not devolve upon of his three partners to
return his capital to him, but upon the partnership of which he himself formed part, or if it were to be done by one of
the three specifically, it would be Tarug, who, according to the evidence, was the person who received the money
directly from Larin.

The P172 having been received by the partnership, the business commenced and profits accrued, the action that lies
with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil
one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should
be any.

No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice of another,
shall appropriate or misapply any money, goods, or any kind of personal property which they may have received as a
deposit on commission for administration or in any other character producing the obligation to deliver or return the
same," (as, for example, in commodatum, precarium, and other unilateral contracts which require the return of the
same thing received) does not include money received for a partnership; otherwise the result would be that, if the
partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share of the
capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the
charge of estafa, for which it would be sufficient to argue that the partnership had received the money under
obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed without
prejudice to the institution of a civil action.

EVANGELISTA & CO. vs. ESTRELLA ABAD SANTOS [June 28, 1973]

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles
of Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with
herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an industrial
partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of
70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of
Manila, alleging that the partnership, which was also made a party-defendant, had been paying dividends to the
partners except to her; and that notwithstanding her demands the defendants had refused and continued to refuse
and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership;
denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and byway
of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the
parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership
only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is
an industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be
realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation
shall be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for
the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista & Co.; ordering the
defendants to render an accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay
the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this
suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista
& Co., notwithstanding the admitted fact that since 1954 and until after promulgation of the decision
of the appellate court the said respondent was one of the judges of the City Court of Manila, and
despite its findings that respondent had been paid for services allegedly contributed by her to the
partnership. In this connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the decision
proves that said respondent did not bind herself to contribute her industry, and she
could not, and in fact did not, because she was one of the judges of the City Court of
Manila since 1954.

(C) In finding that respondent did not in fact contribute her industry, despite the
appellate court's own finding that she has been paid for the services allegedly
rendered by her, as well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from,
and deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent
was declared an industrial partner of the petitioner, and petitioners were ordered to render an
accounting of the business operation of the partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of dismissing respondent's complaint, with costs,
against the respondent.

It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of
Appeals. The evidence presented by the parties as the trial in support of their respective positions on the issue of
whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its
decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been commited by the lower court. It should be observed, in this
regard, that the Court of Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit
"A", was conclusive evidence that the respondent was an industrial partner of the said company, but considered it
together with other factors, consisting of both testimonial and documentary evidences, in arriving at the factual
conclusion expressed in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder
reproduced if only to demonstrate that the same were made after a through analysis of then evidence, and hence
are beyond this Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first assigned error,
wherein it is pointed out that "Appellee's documentary evidence does not conclusively prove that
appellee was in fact admitted by appellants as industrial partner of Evangelista & Co." and that "The
grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding
that the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the
partnership — the lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted their genuineness and due
execution, hence they were admitted without objection by the lower court when appellee rested her
case and, secondly the said exhibits indubitably show the appellee is an industrial partner of
appellant company. Appellants are virtually estopped from attempting to detract from the probative
force of the said exhibits because they all bear the imprint of their knowledge and consent, and
there is no credible showing that they ever protested against or opposed their contents prior of the
filing of their answer to appellee's complaint. As a matter of fact, all the appellant Evangelista, Jr.,
would have us believe — as against the cumulative force of appellee's aforesaid documentary
evidence — is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already
mentioned, does not express the true intent and agreement of the parties thereto, the real
understanding between them being the appellee would be merely a profit sharer entitled to 30% of
the net profits that may be realized between the partners from June 7, 1955, until the mortgage loan
of P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however, is
discredited not only by the aforesaid documentary evidence brought forward by the appellee, but
also by the fact that from June 7, 1955 up to the filing of their answer to the complaint on February
8, 1964 — or a period of over eight (8) years — appellants did nothing to correct the alleged false
agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have advanced this obvious afterthought that
Exhibit "A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding
fact which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not
contemplate to make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It
is an admitted fact that since before the execution of the amended articles of partnership, Exhibit
"A", the appellee Estrella Abad Santos has been, and up to the present time still is, one of the judges
of the City Court of Manila, devoting all her time to the performance of the duties of her public
office. This fact proves beyond peradventure that it was never contemplated between the parties, for
she could not lawfully contribute her full time and industry which is the obligation of an industrial
partner pursuant to Art. 1789 of the Civil Code.

The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and
then concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very definite impression that,
even as she was and still is a Judge of the City Court of Manila, she has rendered services for
appellants without which they would not have had the wherewithal to operate the business for
which appellant company was organized. Article 1767 of the New Civil Code which provides that "By
contract of partnership two or more persons bind themselves, to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the common fund. Another article of the
same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a right to damages in
either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the industrial partner and the partnership, and to
insure faithful compliance by said partner with this prestation. There is no pretense, however, even
on the part of the appellee is engaged in any business antagonistic to that of appellant company,
since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as
a business. That appellee has faithfully complied with her prestation with respect to appellants is
clearly shown by the fact that it was only after filing of the complaint in this case and the answer
thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in
their Supplemental Answer dated June 29, 1964 — or after around nine (9) years from June 7, 1955
— subsequent to the filing of defendants' answer to the complaint, defendants reached an
agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share,
interests or participation, as an alleged industrial partner, in the defendant partnership and/or in its
net profits or income, on the ground plaintiff has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of
Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from teaching in law school in Manila, without the
express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a
appellee as a City judge even before she joined appellant company on June 7, 1955 as an industrial
partner, why did it take appellants many yearn before excluding her from said company as
aforequoted allegations? And how can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was
to grant the appellee a share of 30% of the net profits which the appellant partnership may realize
from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance
Corporal shall have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an industrial
partner of appellant company, with the right to demand for a formal accounting and to receive her
share in the net profit that may result from such an accounting, which right appellants take exception
under their second assigned error. Our said holding is based on the following article of the New Civil
Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership
affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing
only errors of law, accepting as conclusive the factual findings of the lower court upon its own assessment of the
evidence.

The judgment appealed from is affirmed, with costs.

ANTONIO GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO GOQUIOLAY vs. WASHINGTON SYCIP
[July 26, 1960]
Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more than
P200,00) dismissing the plaintiffs-appellants' complaint.

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

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

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

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

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

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

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

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

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

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels of land, known
as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the instant litigation, assuming the
payment of a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y
Prestamos" for a period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased by Tan
Sin An in his individual capacity, and he assumed payment of a mortgage debt thereon for P35,000.00 with interest.
The downpayment and the amortization were advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.

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

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

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

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

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

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

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

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

III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties by
virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order to pay
the partnership indebtedness.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently in its behalf and within the scope of his authority." [Le
Royvs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —

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

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

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

367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el
silencio del contrato, debia quiza el legislador privar de la administracion a uno de los socios en beneficio del
otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido Administrador? El
remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran en todo acto de la
Sociedad? Pero este concurso de todos habria reducido a la impotencia la administracion, que es asunto d
todos los dias y de todas horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el Codigo,
el cual se confia al espiritu de reciproca confianza que deberia animar la colaboracion de los socios, y en la
ley inflexible de responsabilidad que implica comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin dar de
ello noticia a los otros, porque cada uno de ellos ejerce la administracion en la totalidad de sus relaciones,
salvo su responsabilidad en el caso de una administracion culpable. Si debiera dar noticia, el beneficio de su
simultania actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a perder. Se
objetara el que de esta forma, el derecho de oposicion de cada uno de los socios puede quedar frustrado.
Pero se puede contestar que este derecho de oposicion concedido por la ley como un remedio excepcional,
debe subordinarse al derecho de ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de administrar uno para otro." Se haria
precipitar esta hipotesis en la otra de una administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con
pedir el consentimiento, a lo menos tacito, de todos los socios — lo que el Codigo excluye ........, si se obligase
al socio Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran oponerse si no
consintieran.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:

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

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

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos tienen por
un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and, therefore, to be governed by the
Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one partner to bind the
partnership. States Art. 1695 thereof:

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

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

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

Appellants assails the correctness of the amounts paid for the account of the partnership as found by the trial court.
This question, however, need not be resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the full claims of the two
creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in effect, threw
the partnership into dissolution, which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of accounting and contribution between the co-
debtors, that should be ventilated separately.

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

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

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

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ.,concur.

RESOLUTION

December 10, 1963

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

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have upheld
the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of
the managing partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's estate and as
partner, in lieu of the husband), in favor of buyers Washington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00


Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin, widow of
the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the
affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she took over administration
of the partnership property; and that, in any event, the sale should be set aside because it was executed with the
intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond
controversy:

(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the firm, to
a stranger. There is no question between partners inter se, and this aspects of the case was expressly reserved in the
main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying and sellingreal
estate". The Article of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the co-partnership are as follows:

1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates into
lots for the purpose of leasing and selling them.;

(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired
to be sold, although subject a mortgage in favor of the original owners, from whom the partnership had acquired
them.

With these points firmly in mind, let us turn to the points insisted upon by appellant.

It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and retained possession of the
partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that —

. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she had
no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to help
her and because I believe in God and I wanted to help her.

Q. — So the answer to my question is you did not take any steps?

A. — I did not.

Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?

A. — In the year 1945. (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein he sated:

that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are
receiving quite a lot of benefit from that plantation.

Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than
those of Hernando Young and Rufino Lim, having been made against the party's own interest.

Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the properties
"abandoned and undeveloped", omits to mention that said part of the testimony started with the question:

Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there in
Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped, and the
family of the widow (Kong Chai Pin) did not receive any income from the partnership properties, was given in answer
to the question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the plantation
of the partnership and derived their subsistence from that plantation. What can you say to that? (Dep. 19
July 1956, p. 8)

And also —

What can you say so to the development of these other properties of the partnership which you saw during
the occupation?" (Dep., p. 13, Emphasis supplied)

to which witness gave the following answer:

I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven (11)
hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando Youngwe
saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted camotes and
vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or his family.
(Dep., Lim. pp. 13-14.) (Emphasis supplied)

Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng
Lai that the widow "could just do it" (i e., continue to manage the properties. Witnesses Lim and Young referred to
the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945,after the
occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management
during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949.

We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his
willingness that the widow should manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here involved. But the authority was given, and she
did have it when she made the questioned sale, because it has never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property, and
that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What this argument
overlooks is that the widow was not a mere agent, because she had become a partner upon her husband's death, as
expressly provided by the articles of co-partnership. Even more, granting that by succession to her husband, Tan Sin
An, the widow only a became the limited partner, Goquiolay's authorization to manage the partnership property
was proof that he considered and recognized her has general partner, at least since 1945. The reason is plain: Under
the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere agent:

Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity agents of the managing partners.(Emphasis supplied)

By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to be considered
a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.

Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily") becomes a
limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value
of the estate inherited so as not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a collective or general partner,
with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance bud
also with the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the assent of
the surviving partner.

It must be remembered that the articles of co-partnership here involved expressly stipulated that:

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

The Articles did not provide that the heirs of the deceased would be merely limited partner; on the contrary they
expressly stipulated that in case of death of either partner "the co-partnership ... will have to be continued" with the
heirs or assigns. It certainly could not be continued if it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of associations is fundamental; and specially because
the conversion into a limited association would leave the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation does actually contemplate that the heirs would becomegeneral
partners rather than limited ones.

Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal
and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so compellable, it does not legitimately
follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general
laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner
into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the
start.

It is immaterial that the heirs name was not included in the firm name, since no conversion of status is involved, and
the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership.

It must never be overlooked that this case involves the rights acquired by strangers, and does not deal with the rights
arising between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter se were
expressly reversed in our main decision. Now, in determining what kind of partner the widow of partner Tan Sin An
had elected to become, strangers had to be guided by her conduct and actuations and those of appellant Goquiolay.
Knowing that by law a limited partner is barred from managing the partnership business or property, third parties
(like the purchasers) who found the widow possessing and managing the firm property with the acquiescense (or at
least without apparent opposition) of the surviving partners were perfectly justified in assuming that she had
become a general partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in
behalf of, the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That belief was fostered by the very inaction of
appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949,
there was more than ample time for Goquiolay to take up the management of these properties, or at least ascertain
how its affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable notice in the
commercial registry could have warned strangers that they must deal with him alone, as sole general partner. But
he did nothing of the sort, because he was not interested (supra), and he did not even take steps to pay, or settle, the
firm debts that were overdue since before the outbreak of the last war. He did not even take steps, after Tan Sin An
died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention
in the management of the partnership. This laches certainly contributed to confirm the view that the widow of Tan
Sin An had, or was given, authority to manage and deal with the firm's properties, apart from the presumption that a
general partner dealing with partnership property has the requisite authority from his co-partners (Litton vs. Hill and
Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).

The stipulation in the articles of partnership that any of the two managing partners may contract and sign in
the name of the partnership with the consent of the other, undoubtedly creates an obligation between the
two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership, but on the contrary,
is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course of
business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed
(No. 31, section 334). This last presumption is equally applicable to contracts which have the force of law
between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This argument is
lamentably superficial because it fails to differentiate between real estate acquired and held as stock-in-tradeand real
state held merely as business site (Vivante's "taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the sale of its real property (immovables) is not
within the ordinary powers of a partner, because it is not in line with the normal business of the firm. But where the
express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the immovables
thus acquired by the firm form part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella 1, in
the very passage quoted in the appellant's motion for reconsideration:

La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los fines sociales. Pero esta
facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de
comecio o a los productos de la fabrica para explotacion de los cuales se ha constituido la Sociedad.Ocurrira
una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied)

The same rule obtains in American law.

In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either partner has the legal right to sell the firm real
estate

In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:

And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.

And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:

If the several partners engaged in the business of buying and selling real estate can not bind the firm by
purchases or sales of such property made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their association is not really a partnership
at all, but a several agency.

Since the sale by the widow was in conformity with the express objective of the partnership, "to engage * * * in
buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al.,
49 N. E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the Court
expressly found that:

The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to
pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On
that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business, and
signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath,
surviving partner of said firm, and Owen McGrath, individually, have here-unto set their hands, this 20th day
of May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of Cowen &
McGrath. Owen McGrath" At the same time, the plaintiff had prepared, ready for filing, the petition for the
dissolution of the partnership and appointment of a receiver, which he subsequently filed, as hereinafter
stated. On the day the mortgages were signed, they were placed in the hands of the mortgagees, which was
the first intimation to them that there was any intention to make then. At that timenone of the claims
secured by the mortgages were due, except, it may be, a small part of one of them, andnone of the
creditors to whom the mortgages were made had requested security, or were pressing for the payment of
their debts. ... The mortgages appear to be without a sufficient condition of defeasance, and contain a
stipulation authorizing the mortgagees to take immediate possession of the property, which they did as soon
as the mortgages were filed, through the attorney who then represented them, as well as the plaintiff; and
the stores were at once closed, and possession delivered by them to the receiver appointed upon the filing of
the petition. The avowed purpose of the plaintiff in the course pursued by him, was to terminate the
partnership, place its property beyond the control of the firm, and insure the preference of the mortgages, all
of which was known to them at the time: ... . (Cas cit., p. 343, Emphasis supplied)

It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that conveyances were
made with intent to terminate the partnership, and that they were not within the powers of McGrath as partner. But
there is no similarly between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale
included even the fixtures used in the business, in our case, the lands sold were those acquired to be sold. In the
McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the
partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts assumed
by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership.
Clearly, the McGrath ruling is not applicable.

We will now turn to the question to fraud. No direct evidence of it exists; but appellant points out, as indicia thereof,
the allegedly low price paid for the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.

First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which P37,000.00
was in cash, and the rest in partnership debts assumed by the purchaser. These debts (P62,415.91 to Yutivo, and
P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its approval is now
final. The claims were, in fact, for the balance on the original purchase price of the land sold (due first to La Urbana,
later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-claimants. To show
that the price was inadequate, appellant relies on the testimony of the realtor Mata, who in 1955, six years after the
sale in question, asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was practically a forced sale because the partnership
had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to
justify rescission of the sale. If at the time of the sale (1949 the price of P153,726.04 was really low, how is it that
appellant was not able to raise the amount, even if the creditor's representative, Yu Khe Thai, had already warned
him four years before (1946) that the creditors wanted their money back, as they were justly entitled to?

It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts. But the lands
were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario.
Was it reasonable to expect that other persons would loan money to the partnership when it was unable even to pay
the taxes on the property, and the interest on the principal since 1940? If it had been possible to find lenders willing
to take a chance on such a bad financial record, would not Goquiolay have taken advantage of it? But the fact is clear
on the record that since liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the
partnership. Is he entitled now to cry fraud after the debts were discharged with no help from him?

With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre
de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip and Betty
Lee, were without independent means to purchase the property. That the Yutivos should be willing to extend credit
to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An & Goquiolay".

Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm and their
component members. But no proof is adduced. If he was such a victim, he could have easily defeated the
conspirators by raising money and paying off the firm's debts between 1945 and 1949; but he did; he did not even
care to look for a purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose (as he
claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange
that the conspirators should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate court taking cognizance of Tan Sin An's estate, all of which
increased the risk that the supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as subrogees of the
Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin
An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N" mortgage to
the Banco Hipotecario), and Rule 87, section 6, is to the effect that:

Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed against
the decedent as if he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. (Emphasis supplied)

Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and those of
Tan Sin An personally, and a mortgage in indivisible, in the sense that each and every parcel under mortgage answers
for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).

A final and conclusive consideration. The fraud charged not being one used to obtain a party's consent to a contract
(i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud of creditorsthat gives rise
to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889; Article
1383, New Civil Code), "the action for rescission is subsidiary; it can not be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same". Since there is no allegation, or evidence, that
Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in
question is not maintenable, even if the fraud charged actually did exist.

Premises considered, the motion for reconsideration is denied.

Separate Opinions - BAUTISTA ANGELO, J., dissenting:


This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed by Antonio C. Goquiolay, et al.,
seeking to annul the sale made by Kong Chai Pin of three parcels of land to Washington Z. Sycip and Betty Y. Lee on the ground that it
was executed without proper authority and under fraudulent circumstances. In a decision rendered on July 26, 1960, we affirmed this
decision although on grounds different from those on which the latter is predicated. The case is once more before us on a motion for
reconsideration filed by appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial partnership for a period of ten years with a
capital of P30,000.00 of which Goquiolay contributed P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%. The
business of the partnership was to engage in buying real estate properties for subdivision, resale and lease. The partnership was duly
registered, and among the conditions agreed upon in the partnership agreement which are material to this case are: (1) that Tan Sin An
would be the exclusive managing partner, and (2) in the event of the death of any of the partners the partnership would continue, the
deceased to be represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor of Tan Sin An
appointing the latter manager of the partnership and conferring upon him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521 of the cadastral survey of Davao,
the only assets of the partnership, with the capital originally invested, financing the balance of the purchase price with a mortgage in
favor of "La Urbana Sociedad Mutua de Construccion Prestamos" in the amount of P25,000.00 payable in ten years. On the same date,
Tan Sin An, in his individual capacity, acquired 46 parcels of land executing a mortgage thereon in favor of the same company for the
sum of P35,000.00. On September 25, 1940, these two mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result Tan Sin An, in his individual capacity, and the partnership bound themselves to pay jointly and
severally the total amount of P52,282.80, with 8% annual interest thereon within the period of eight years mortgaging in favor of said
entity the 3 parcels of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin was appointed administratrix of the intestate estate of Tan Sin An. And on the same date,
Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo Sons Hardware Co. and Sing, Yee
and Cuan Co., Inc., called for Goquiolay and the two had a conference in the office of the former during which he offered to buy the
interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador Zuño, to ask Goquiolay to
execute in her favor a power of attorney. Goquiolay refused both to sell his interest in the partnership as well as to execute the power
of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in
November, 1946 a claim each in the intestate proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91, respectively,
alleging that they represent obligations of both Tan Sin An and the partnership. After first denying any knowledge of the claims, Kong
Chai Pin, as administratrix, admitted later without qualification the two claims in an amended answer she filed on February 28, 1947.
The admission was predicated on the ground that she and the creditors were closely related by blood, affinity and business ties. On due
course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition in the probate court to sell all
the properties of the partnership as well as some of the conjugal properties left by Tan Sin An for the purpose of paying the claims.
Following approval by the court of the petition for authority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming to
act as managing partner of the partnership, executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the
partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the payment to Kong Chai Pin of the sum of P37,000.00,
and the assumption by the buyers of the claims filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the
buyers executed a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Sycip subsequently executed a deed of sale of
the same properties in favor of their co-defendant Insular Development Company, Inc. It should be noted that these transactions took
place without the knowledge of Goquiolay and it is admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf
of the ultimate buyer, the Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate proceedings a petition to set
aside the order of the court approving the sale. The court granted the petition. While the order was pending appeal in the Supreme
Court, Goquiolay filed the present case on January 15, 1953 seeking to nullify the sale as stated in the early part of this decision. In the
meantime, the Supreme Court remanded the original case to the probate court for rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership properties on the ground that she had
no authority to sell because even granting that she became a partner upon the death of Tan Sin An the power of attorney granted in
favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all the rights and prerogatives of
Tan Sin An as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of the articles of partnership allowing the heirs
of the deceased partner to represent him in the partnership after hid death Kong Chai Pin became a managing partner, this being the
capacity held by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different grounds, among which the salient
points are: (1) the power of attorney given by Goquiolay to Tan Sin An as manager of the partnership expired after his death; (2) his
widow Kong Chai Pin did not inherit the management of the partnership, it being a personal right; (3) as a general rule, the heirs of a
deceased general partner come into the partnership in the capacity only of limited partners; (4) Kong Chai Pin, however, became a
general partner because she exercised certain alleged acts of management; and (5) the sale being necessary to pay the obligations of
the partnership, she was therefore authorized to sell the partnership properties without the consent of Goquiolay under the principle
of estoppel, the buyers having the right to rely on her acts of management and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law are without legal or factual basis, appellants have in due
course filed a motion for reconsideration which because of the importance of the issues therein raised has been the subject of mature
deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners only, therefore Kong
Chai Pin, who must necessarily have entered the partnership as a limited partner originally, could have not chosen to be a
general partner by exercising the alleged acts of management, because under Article 148 of the Code of Commerce a limited
partner cannot intervene in the management of the partnership even if given a power of attorney by the general partners. An
Act prohibited by law cannot give rise to any right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family, the rest, members of
the law firm which handles the Yutivo interests and handled the papers of sale. They did not rely on the alleged acts of
management — they believed (this was the opinion of their lawyers) that Kong Chai Pin succeeded her husband as a managing
partner and it was on this theory alone that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very witnesses presented by the defendants
themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient basis to reconsider our decision if we want
to do justice to Antonio C. Goquiolay. And to justify this conclusion, it is enough that we lay stress on the following points: (1) there is no
sufficient factual basis to conclude that Kong Chai Pin executed acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of the partnership properties; (2) the alleged acts of
management, even if proven, could not give Kong Chai Pin the character of general manager for the same is contrary to law and well-
known authorities; (3) even if Kong Chai Pin acted as general manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the partnership and if she
did so it was merely to favor the purchasers who were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our ruling we apparently gave
particular importance to the fact that it was Goquiolay himself who tried to prove the acts of management. Appellants, however, have
emphasized the fact, and with reason, that the appellees themselves are the ones who denied and refuted the so-called acts of
management imputed to Kong Chai Pin. To have a clear view of this factual situation, it becomes necessary that we analyze the
evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one Hernando Young in Manila in the
year 1945 who informed him that Kong Chai Pin "was attending to the properties and deriving some income therefrom and she had no
other means of livelihood except those properties and some rentals derived from the properties." He went on to say by way of remark
that she could continue doing this because he wanted to help her. On point that he emphasized was that he was "not interested in
agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay, who was a close friend of the
family of Kong Chai Pin, for the purpose of denying the testimony of Goquiolay. Young testified that in 1945 he was still in Davao, and
insisted no less than six times during his testimony that he was not in Manila in 1945, the year when he allegedly gave the information
to Goquiolay, stating that he arrived in Manila for the first time in 1947. He testified further that he had visited the partnership
properties during the period covered by the alleged information given by him to Goquiolay and that he found them "abandoned and
underdeveloped," and that Kong Chai Pin was not deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership properties and corroborated the
testimony of Hernando Young in all respects: "the properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and
the family of Kong Chai Pin did not receive any income from the partnership properties." He specifically rebutted the testimony of
Goquiolay in his deposition given on June 30, 1956 that Kong Chai Pin and her family were living in the partnership properties and
stated that the 'family never actually lived in the properties of the partnership even before the war or after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a third person, Hernando Young — he stressed
this point twice. A careful analysis of the substance of Goquiolay's testimony will show that he merely had no objection to allowing
Kong Chai Pin to continue attending to the properties in order to give her some means of livelihood, because, according to the
information given him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly
he made it very clear that he did not allow her to manage the partnership when he explained his reason for refusing to sign a general
power of attorney for Kong Chai Pin which her counsel, Atty. Zuño, brought with him to his house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me if I could execute a general power of
attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the use of executing a general power of attorney for Mrs. Kong
Chai Pin when Mrs. Kong Chai Pin had already got that plantation for agricultural purposes, I said for agricultural purposes she
can use that plantation ... (T.s.n., p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating his opposition to the management of the partnership by Kong
Chai Pin and carefully made the distinction that his conformity was for her to attend to the partnership properties in order to give her
merely a means of livelihood. It should be stated that the period covered by the testimony refers to the period of occupation when
living condition was difficult and precarious. And Atty. Zuño, it should also be stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of management of the partnership
properties is highly controverted. The most that we can say is that the alleged acts are doubtful more so when they are disputed by the
defendants themselves who later became the purchasers of the properties, and yet these alleged acts, if at all, only refer
to management of the properties and not to management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be upheld on the ground of estoppel,
first, because the alleged acts of management have not been clearly proven; second, because the record clearly shows that the
defendants, or the buyers, were not misled nor did they rely on the acts of management, but instead they acted solely on the opinion
of their counsel, Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner by operation
of law; and third, because the defendants are themselves estopped to invoke a defense which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts give her the character of general
manager of the partnership as we have concluded in our decision?
Out answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not make the heir of a general partner a general partner himself. He emphasized
that the heir must declare that he is entering the partnership as a general partner unless the deceased partner has made it an express
condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of inheritance, in which case
acceptance of the inheritance is enough.1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become general partner by exercising acts of management? We
believe not, for, in consonance with out ruling that as a general rule the heirs of a deceased partner succeed as limited partners only by
operation of law, it is obvious that the heir, upon entering the partnership, must make a declaration of his character, otherwise he
should be deemed as having succeeded as limited partner by the mere acceptance of inheritance. And here Kong Chai Pin did not make
such declaration. Being then a limited partner upon the death of Tan Sin An by operation of law, the peremptory prohibition contained
in Article 1482 of the Code of Commerce became binding upon her and as a result she could not change her status by violating its
provisions not only under the general principle that prohibited acts cannot produce any legal effect, but also because under the
provisions of Article 1473 of the same Code she was precluded from acquiring more rights than those pertaining to her as a limited
partner. The alleged acts of management, therefore, did not give Kong Chai Pin the character of general manager to authorize her to
bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the character of a general partner,
could she sell the partnership properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, 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 members, all shall have
the power to take part in the direction and management of the common business, and the members present shall come to an
agreement for all contracts or obligations which may concern the association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his authorized agent, and it is
expressly stipulated that the managing partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select, upon such terms as regards compensation as
he may deem proper, and vest in such person, firm or corporation full power and authority, as the agent of the co-partnership
and in his name, place and stead to do anything for it or on his behalf which he as such managing partner might do or cause to
be done. (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing partner are not defined either under the provisions of the Code of Commerce or
in the articles of partnership, a situation which, under Article 2 of the same Code, renders applicable herein the provisions of the Civil
Code, And since, according to well-known authorities, the relationship between a managing partner and the partnership is substantially
the same as that of the agent and his principal, 4the extent of the power of Kong Chai Pin must, therefore, be determined under the
general principles governing agency. And, on this point, the law says that an agency created in general terms includes only acts of
administration, but with regard to the power to compromise, sell, mortgage, and other acts of strict ownership, an express power of
attorney is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express power of attorney, may perform acts affecting
ownership if the same are necessary to promote or accomplish a declared object of the partnership, but here the transaction is not for
this purpose. It was effected not to promote any avowed object of the partnership. 6 Rather, the sale was effected to pay an obligation of
the partnership by selling its real properties which Kong Chai Pin could not do without express authority. The authorities supporting this
view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de comercio, o los productos de la
fabrica para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. Por el contrario, el gerente no tiene atribuciones para vender las instalaciones del comercio ni la fabrica, ni las
maquinarias, vehiculos de transporte, etc., que forman parte de la explotacion social. En todos estas casos, igualmente que si
tratase de la venta de una marca o procedimiento mecanico o quimico, etc., siendo actos de disposicion seria necesario contar
con la conformidad expresa de todos los socios. (R. Gay de Montella, id., pp. 223-224, Emphasis supplied)
Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los señalados por el objeto de la
Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones que sirven para aquel ejercicio, incluso cambiando
repetidas veces los propios acuerdos segun el interes convenido de la Sociedad. Pueden contratar y despedir a los empleados,
tomar en arriendo almacenas y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la
sociedad y adquirir inmuebles destinados a su explotacion o al empleo estable de sus capitales. Pero no podran ejecutar los
actos que estan en contradiccion con la explotacion que les fue confiada no podran cambiar el objeto, el domicilio la razon
social; fundir a la Sociedad en otra; ceder la accion, y por tanto, el uso de la firma social a otro renunciar definitivamente el
ejercicio de uno de otro ramo comercio que se les haya confiado y enajenar o piqnorar el taller o el banco social excepto que
la venta o piqnoracion tengan por el objeto procurar los medios necesarios para la continuacion de la empresa social. (Cesar
Vivante, Tratado de Derecho Mercantil, pp. 124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the carrying on of its business. If all that can be said of it was
that it was convenient, or that it facilitated the transaction of the business of the firm, that is not sufficient, in the absence of
evidence of saction by other partners. Nor, it seems, will necessity itself be sufficient if it be an extraordinary necessity. What
is necessary for carrying on the business of the firm under ordinary circumstances and in the usual way, is the test. Lindl.
Partn. Sec. 126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its business,
make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects intended for sale, to a bona fide
purchaser or mortgage, without the consent of the other members of the firm, it is not within the scope of his implied
authority to make a final disposition of all of its effects, including those employed as the means of carrying on its business, the
object and effect of which is to immediately terminate the partnership, and place its property beyond its control. Such a
disposition, instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and contrary to the presumed intention of the partnership in its
formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343; Emphasis supplied)
Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but to pay its obligation without first
obtaining the consent of the other partners, the sale is invalid being in excess of her authority.
4. Finally, the same under consideration was effected in a suspicious manner as may be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of Davao have an area of 200
hectares more or less, or 2,000,000 square meters. These properties were purchased by the partnership for purposes of subdivision.
According to realtor Mata, who testified in court, these properties could command at the time he testified a value of not less than
P312,000.00, and according to Dalton Chen, manager of the firm which took over the administration, since the date of sale no
improvement was ever made thereon precisely because of this litigation. And yet, for said properties, aside from the sum of P37,000.00
which was paid for the properties of the deceased and the partnership, only the paltry sum of P66,529.91 was paid as a consideration
therefor, of which the sum of P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose was only to pay the
partnership's obligation. She could have negotiated a loan if she wanted to pay it by placing the properties as security, but preferred to
sell them even at such low prices because of her close relationship with the purchasers and creditors who conveniently organized a
partnership to exploit them, as may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of the defendant Yutivo Sons Hardware Co.
YUTIVO SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee
& Cuan are the three children of Jose). YU KHE THAI is a grandson of the same Jose P. Yutivo, and president of the two alleged
creditors. He is the acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana
Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe Thai. The INSULAR
DEVELOPMENT CO., the ultimate buyer, was organized for the specific purpose of buying the partnership properties. Its
incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the lawyers who studied the papers of sale and
have been counsel for the Yutivo interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan
Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the
Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin, have already conceived the idea of
possessing the lands for purposes of subdivision, excluding Goquiolay from their plan, and this is evident from the following sequence
of events:
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the partnership filed their
claim against the partnership in the intestate proceedings. The creditors studied ways and means of liquidating the obligation
of the partnership, leading to the formation of the defendant Insular Development Co., composed of members of the Yutivo
family and the counsel of record of the defendants, which subsequently bought the properties of the partnership and
assumed the obligation of the latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan,
also of the Yutivo family. The buyers took time to study the commercial potentialities of the partnership properties and their
lawyers carefully studied the document and other papers involved in the transaction. All these steps led finally to the sale of
the three partnership properties.
Upon the strength of the foregoing considerations, I vote to grant motion for reconsideration.
JOSEFINA REALUBIT vs. PROSENCIO and EDEN JASO [September 21, 2011]

The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for
review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, 1 assailing the 30 April 2007 Decision2rendered
by the Court of Appeals’ (CA) then Twelfth Division in CA-G.R. CV No. 73861, 3 the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint venture between
defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the subsequent conduct of accounting,
liquidation of assets and division of shares of the joint venture business.

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

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis Eric
Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With Josefina as the
industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive 40% of the
net profit, with the remaining 20% to be used for the payment of the ice making machine which was purchased for
the business.5 For and in consideration of the sum of ₱500,000.00, however, Biondo subsequently executed a Deed
of Assignment dated 27 June 1997, transferring all his rights and interests in the business in favor of respondent Eden
Jaso (Eden), the wife of respondent Prosencio Jaso. 6 With Biondo’s eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their acquisition of said
Frenchman’s share in the business and formally demanding an accounting and inventory thereof as well as the
remittance of their portion of its profits. 7

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

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

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

WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets and
liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and accounting
records of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs the
amount of ₱20,000. for moral damages. The claims for exemplary damages and attorney’s fees are denied for lack of
basis.11

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

The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of merit in the CA’s
28 June 2007 Resolution,13 hence, this petition.

The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE JOINT VENTURE TO
RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT VENTURE AND IN THE SEPARATE
ICE BUSINESS OF PETITIONER[S].14

The Court’s Ruling

We find the petition bereft of merit.

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

It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of Eden not only
enjoys a presumption of regularity 17 but is also considered prima facie evidence of the facts therein stated. 18A party
assailing the authenticity and due execution of a notarized document is, consequently, required to present evidence
that is clear, convincing and more than merely preponderant. 19 In view of the Spouses Realubit’s failure to discharge
this onus, we find that both the RTC and the CA correctly upheld the authenticity and validity of said Deed of
Assignment upon the combined strength of the above-discussed disputable presumptions and the testimonies
elicited from Eden20 and Notary Public Rolando Diaz.21 As for the Spouses’ Realubit’s bare assertion that Biondo’s
signature on the same document appears to be forged, suffice it to say that, like fraud, 22 forgery is never presumed
and must likewise be proved by clear and convincing evidence by the party alleging the same. 23Aside from not being
borne out by a comparison of Biondo’s signatures on the Joint Venture Agreement 24 and the Deed of
Assignment,25 said forgery is, moreover debunked by Biondo’s duly authenticated certification dated 17 November
1998, confirming the transfer of his interest in the business in favor of Eden. 26

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a
particular partnership or one which "has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation." 27 The rule is settled that joint ventures are governed by the
law on partnerships28 which are, in turn, based on mutual agency or delectus personae. 29 Insofar as a partner’s
conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil Code provides as
follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership,
or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the
partnership, to interfere in the management or administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the
assignee to receive in accordance with his contracts the profits to which the assigning partners would otherwise be
entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual
remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may
require an account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest does not make
the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the
partnership business or to receive anything except the assignee’s profits. The assignment does not purport to
transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his proportionate interest in the capital." 30 Since a partner’s
interest in the partnership includes his share in the profits, 31 we find that the CA committed no reversible error in
ruling that the Spouses Jaso are entitled to Biondo’s share in the profits, despite Juanita’s lack of consent to the
assignment of said Frenchman’s interest in the joint venture. Although Eden did not, moreover, become a partner as
a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, the
CA correctly granted her prayer for dissolution of the joint venture conformably with the right granted to the
purchaser of a partner’s interest under Article 1831 of the Civil Code. 32 1âwphi1

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the Spouses Realubit’s
insistence on the supposed fact that Josefina’s joint venture with Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was merely a continuation
of the same business they previously operated under a single proprietorship. It is well-entrenched doctrine that
questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of
appeal is confined to questions of law.33 Upon the principle that this Court is not a trier of facts, we are not duty
bound to examine the evidence introduced by the parties below to determine if the trial and the appellate courts
correctly assessed and evaluated the evidence on record. 34 Absent showing that the factual findings complained of
are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts, the
Court will limit itself to reviewing only errors of law. 35

Based on the evidence on record, moreover, both the RTC 36 and the CA37 ruled out the dissolution of the joint venture
and concluded that the ice manufacturing business at the aforesaid address was the same one established by Juanita
and Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this Court, 38 and will not be
reviewed or disturbed on appeal39 unless the case falls under any of the following recognized exceptions: (1) when
the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its
findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioners' main and reply briefs are not disputed by the respondents; and, (10) when the findings of fact of the
CA are premised on the supposed absence of evidence and contradicted by the evidence on record. 40 Unfortunately
for the Spouses Realubit’s cause, not one of the foregoing exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is, accordingly,
AFFIRMED in toto. SO ORDERED.

LUZVIMINDA VILLAREAL vs. DONALDO EFREN RAMIREZ [July 14, 2003]

A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation and winding
up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision 1 and the July 26, 2000
Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:

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

Reconsideration was denied in the impugned Resolution.

The Facts

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

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

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

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly
because of increased rental. The restaurant furniture and equipment were deposited in the respondents' house for
storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing
their partnership or in reopening the restaurant, and that they were accepting the latter's offer to return their capital
contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the
restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-
third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded. 10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint 11 dated
November 10, 1987, for the collection of a sum of money from petitioners.

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

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and
Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and appraised
at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them. 16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved at
any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial
court, in its July 21, 1992 Decision, held there liable as follows: 18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering
the [petitioners] to pay jointly and severally the following:

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

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

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

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

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

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

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

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs." 22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latter's share in
the partnership; (2) whether the CA's computation of P253,114 as respondents' share is correct; and (3) whether the
CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on
March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to
discontinue it because of the former's dissatisfaction with, and loss of trust in, the latter's management of the
partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently
demanded from petitioners the return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share. Except as
managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a juridical
personality separate and distinct from that of each of the partners." 23 Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners. 24

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount
to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership
must first be compensated.25 After all the creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the
partnership cannot be determined until all the partnership assets will have been liquidated — in other words, sold
and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount to be
refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally
without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by
losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present
case, the financial statements presented before the trial court showed that the business had made meager
profits.26 However, notable therefrom is the omission of any provision for the depreciation 27 of the furniture and the
equipment. The amortization of the goodwill 28 (initially valued at P500,000) is not reflected either. Properly taking
these non-cash items into account will show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact recognized the
decrease of the partnership assets to almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658 was not
supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance
sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding
obligation of P240,055.00 which the partnership owes to different creditors, while the Certification issued by
Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former
being the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983,
when the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus
Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and
respondents ventured into business together, they should have prepared for the fact that their investment would
either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous
contracts they have entered into with all the required formalities and with full awareness of what they were doing.
Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts
turn out to be disastrous deals or unwise investments. 29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to
deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible
assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that
the turnover of the remaining partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of
storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these rules, costs shall be
allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable.
No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special reasons," to
decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because the
losing party relied on the lower court's judgment which is presumed to have been issued in good faith, even if found
later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a reviewing
tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is
without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining
partnership assets, if any. No pronouncement as to costs.

SO ORDERED.
ANSELMO CLAUDIO vs. JUDGE FRANCISCO ZANDUATE, CFI-Manila [September 28, 1937]

The questions raised by the petition for certiorari and the answer thereto, filed in this case, may be summarized as
follows:

(a) When the facts alleged in support of a complaint praying for the appointment of a receiver, are denied underoath in an answer
thereto, and it is affirmed in both pleadings that there are many other interested parties not joined in the case either directly or
indirectly, may such appointment be made without committing an excess or abuse of jurisdiction, no evidence of any kind having been
taken to determine in some way the of said facts no order having been issued for the joinder of the other interested parties?
(b) Did the respondent judge exceed his jurisdiction and abuse his discretion in appointing as he did a receiver in civil case No. 51510 of
the Court of First Instance of Manila entitled C. P. Neuffer et al., plaintiffs, vs. Anselmo Claudio et al., defendants, for rendition of
accounts, appointment of a receiver, issuance of a preliminary injunction and dissolution of an association?
(c) Is the "Cotabato & Cagayan Mining Association" a legally organized association in the sense that it is entitled to acquire mining
properties in the Provinces of Cagayan and Cotabato and to be joined as party in civil case No. 51510?

It should be borne in mind that civil case No. 51510 of the Court of First Instance of Manila was instituted by the
respondents, except the respondent judge and J. C. Cowper, to ask for: (1) the dissolution of the association named
"Cotabato & Cagayan Mining Association"; (2) an accounting by the petitioners, the defendants in the above-entitled
case, of the money and property, personal or otherwise, belonging to said association, that have passed through
their hands, and of those still in their possession; and (3) the appointment of a receiver to take charge of the
properties of the association of the "Cotabato & Cagayan Mining Association" have not been registered in the
Mercantile Registry of the Bureau of Commerce and Industry, as required by law; (b) that notwithstanding the fact
that the herein petitioners, defendants in the above-entitled case, had not secured a permit to sell shares of said
association, as required by law, they had been selling and offering for sale to the public, and they themselves
acquired, some of said shares; (c) that notwithstanding the fact that the association has 279 members who have
subscribed to the original shares thereof, no meeting was ever held with the exception of that held in September,
1936, at which M. W. Rice was elected president of the executive committee, Anselmo Claudio as vice-president,
Manuel G. Goyena as secretary-treasurer, and Luis S. Flores and C. P. Neuffer as members; (d) that as M. W. Rice had
resigned his position as president, Anselmo Claudio was elected to succeed him by the members of the executive
committee; (e) that notwithstanding the fact that the association had been formed for purposes of location,
exploration and exploitation of mining claims in Cagayan, Island of Luzon, and Cotabato, Island of Mindanao, it never
had and does not actually have any mining claim of any kind; ( f) that as said association has no legal existence, the
defendants, as members of the executive committee thereof, are not authorized to discharge the offices to which
they were elected; (g) that the defendants have squandered the funds of the association for salaries and in payment
of other expenses, and have abandoned the properties thereof located at Palimbang River, Cotabato; and (h) that to
avoid the squandering of the funds of the association and the loss of its other properties, a receiver should be
appointed in the meantime to take charge of keeping and preserving the same.

The therein defendants, petitioners herein, answering the petition of the therein plaintiffs and herein respondents
for the issuance of a writ of preliminary injunction and for the appointment of a receiver, admitted it as a fact that
they organized the "Cotabato & Cagayan Mining Association" on August 28, 1936, claiming, however, to have done so
at the instance and solicitation of M. W. Rice. They specially alleged under oath that said M. W. Rice is the moving
spirit of association, being the owner of one-plaintiffs did not include him in their complaint either as a plaintiff or a
defendant, and did not even mention him therein, although said fact is known to their attorney, who as the one who
filed the complaint, for the reason that said M. W. Rice is also his client for whom he had been negotiating with the
executive committee of the association, up to the last hour, the payment to him of certain salaries due him and of the
other sums allegedly owed him by the executive committee; that the allegation of the plaintiffs that the association
has been offering its original shares for sale to the public is false and malicious; that certificates of shares were issued
only to those who have completed payment of their subscriptions; that the allegation that they abandoned the
properties of the association situated at Palimbang river is likewise false, and that it was precisely M. W. Rice, who is
attempting to collect from the association his salaries and other sums which he claims to have paid for the
association; and that if the plaintiffs did not include him in their complaint, it was to prevent the court from acquiring
jurisdiction over his person so as not to compel him to transfer to the association the 45 mining claims located and
registered by him in the registry with money belonging to the association.

It is well settled in this jurisdiction that the remedy of certiorari lies to prevent acts in excess of authority or
jurisdiction as well as to correct manifest abuses of discretion committed by an inferior tribunal, when an appeal
does not prove to be more speedy and adequate remedy (Valdez vs. Querubin, 37 Phil., 774; Leung Ben vs.O'Brien,
38 Phil., 182; Salvador Campos y Cia. vs. Del Rosario, 41 Phil., 45; Sabado vs. Cristina Gonzales, Inc., 53 Phil., 770;
Westminster Bank vs. Torres and K. Nassoor, Inc., 57 Phil., 422). This being known, it is now the duty of this court to
determine, by taking into consideration the facts inferred from the pleadings of the parties, which are the ones
briefly stated hereinbefore, whether or not the respondent judge acted in excess of his jurisdiction and abused his
discretion, there being as there is no necessity of determining whether or not he had authority to appoint a receiver
because he has authority to do so under certain circumstances, by virtue of the provisions of sections 173 et seq. of
Act No. 190.

In order that a receiver may be appointed in a case, an application under oath to that effect must be filed, alleging all
the facts necessary to convince the court to grant the same, for the purpose of preserving the property which is the
subject of litigation and protecting thereby the rights of all the parties interested therein. This is due to the fact that,
as stated by this court in the case of Velasco & Co. vs. Gochuico & Co. (28 Phil., 39), the power to appoint a receiver is
a delicate one; that said power should be exercised with extreme caution and only when the circumstances so
demand, either because there is imminent danger that the property sought to be placed in the hands of a receiver be
lost or because they run the risk of being impaired, endeavoring to avoid that the injury thereby caused be greater
than the one sought to be averted. For this reason, before the remedy is granted, the consequences or effects
thereof should be considered or, at least, estimated in order to avoid causing irreparable injustice or inquiry to others
who are entitled to as much consideration as those seeking it. (Velasco & Co. vs.Gochuico & Co., supra.)

In the complaint itself, which is at the same time a petition for the appointment of a receiver filed by the herein
respondents in civil case No. 51510, it has been emphatically alleged that the "Cotabato & Cagayan Mining
Association" is composed of 279 members; but in spite thereof, the respondents failed to include them as parties in
said case, except only the petitioners, personally and as members of the executive committee of the association,
without pretending that they brought the action not only for their own benefit but also for the benefit of the other
members. Neither did they include said association, in spite of the fact that their principal purpose is to obtain the
dissolution of the same. The association, as a party affected thereby, is undoubtedly as much entitled, if not more
entitled than the plaintiffs and defendants, to be heard in the case, in matters affecting its existence as well as the
appointment of a receiver applied for. It is of no avail to alleged that it has no legal personality or existence because if
it has none under the provisions of the Code of Commerce (arts. 116, 117, 119, 123 and 17 of the Code of
Commerce), or under those of the Corporation Law, it undoubtedly has legal personality or existence by virtue of the
provisions of articles 38, 37, 36 and 35, paragraph 2, in connection with article 1667 of the Civil Code. (Compañia
Agricolade Ultramar vs. Reyes, 4 Phil., 20).

The law certainly provides that when the controversy is one of common or general interest to many persons, and the
parties are so numerous that it is impracticable to bring them all before the court, one or more may use or defend,
but this is permissible only in case where those who do so act for the benefit of all (sec. 118, Act No. 190). Therefrom
which it may be inferred that the defendants acted for the benefit of the "Cotabato & Cagayan Mining Association"
or all the members thereof, much less that the plaintiffs, in turn, sued not only for their own benefit but also for the
benefit of all the other members.

It necessarily follows from the foregoing that in order that the respondents judge could exercise his jurisdiction or
authority to appoint a receiver in the case under consideration, he should have required the inclusion therein, as
necessary parties, of the "Cotabato & Cagayan Mining Association" or of the other members not included as such
parties; or at least, the plaintiffs should have brought the action for themselves and in the name of the association in
question, or for the benefit of the other members. Not having done so, and it appearing clearly from the pleadings
that the persons who might be affected by the remedy applied for were not parties to the case, the respondents
judge undoubtedly acted in excess of his jurisdiction and abused his discretion.
For all the foregoing, and holding as it is hereby held that the questions raised be answered favorably to the
petitioners, that is, the first, in the negative sense, and the last two, in the affirmative sense, the remedy applied for
is granted, and the order of the respondents judge, of July 19, 1937, appointing J. C. Cowper receiver in civil case No.
51510 of the Court of First Instance of Manila, is hereby declared null and void, with the costs to the respondents C.
P. Neuffer, William Meyer, Arthur Skiles and Jose Araneta. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial, Laurel and Concepcion, JJ., concur.

MANUEL SINGSONG vs. ISABELA SAWMILL [February 28, 1979]

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

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

The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid
Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.

SO ORDERED.1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the
Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over
which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber
Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela
Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the
Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:

WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of
Negros Occidental from proceeding with the sales at public auction that he advertised in two notices
issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G.
Singson the sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs;
to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25%
for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6%
annual interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern
Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and
costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest
thereon and 25% attorney's fees and costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo
Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and
void being in fraud of creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:

(4) That the Honorable Court order the sale of public auction of the assets of the defendnat
partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the action,
with instructions that the proceeds of the sale b e applied in payment of said judgment before any
part of saod proceeds is paid to the defendant Margarita G. Saldajeno;

(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared
jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale
of the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs
may recover in this action;

(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them
entitled to, with costs to the defendants.

Bacolod City, June 4, 1959.3

The action was docketed as Civil Case No. 5343 of said court.

In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the
following special and affirmative defenses:

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the
matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela
Sawmill, et al., Civil Case No. 4787, Court of First Instance of Negros Occidental;

3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros
Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo
Tubungbanua became the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership to its creditors and third
persons;

4. That to secure the performance of the obligations of the other defendants Leon Garibay and
Timoteo Tubungbanua to the answering defendant herein, the former have constituted a chattel
mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of
Rights with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of
Deeds of Negros Occidental on the same date:

5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of
Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such
they have no cause of action against answering defendant herein and the defendant Isabela Sawmill;

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances,
gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo
Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G.
Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been dissolved;

7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc.,
Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the
amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of
interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder
of parties because this is not a class suit, and therefore this Honorable Court cannot take
jurisdictionof the claims for payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned
inthe statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming
that there were such credits and claims;

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

Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying
"that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount
claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ...5

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

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals
assigning the following errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL"
WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR
"EXTINCTION" OF SAID PARTNERSHIP.

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT


MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA
SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).

IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.

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

VI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL
THE ASSETS OF THE DEFENDNAT PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G. SALDAJENO


BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED
CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223.

VIII

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE


FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY
THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD
PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER.

IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE


TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.

XI

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT


MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA.6
The facts, as found by the trial court, are:

At the commencement of the hearing of the case on the merits the plaintiffs and the defendant
Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh.
"A". Said stipulation reads as folows:

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno,
and Timoteo Tubungbanua entered into a Contract of Partnership under the firm
name "Isabela Sawmill", a copy of which is hereto attached Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and
two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order
to pay the said purcahse price, the said partnership agreed to make arrangements
with the International Harvester Company at Bacolod City so that the latter would
sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price
was to be paid by the partnership. A copy of the corresponding contract of sle is
attached hereto as Appendix "B".

3. That through the method of payment stipulated in the contract marked as


Appendix "B" herein, the International Harvester Company has been paid a total of
P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements
hereto attached as Appendices "C", "C-1", and "C-2".

4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio
Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and
Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'.

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and
Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which
is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of
Negros Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and
Margarita G. Saldajeno executed a document entitled "Assignment of Rights with
Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming
a part of the record of the above mentioned Civil Case No. 4797, which deed was
referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil
Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix
"F" and "F-1" respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not
divide the assets and properties of the "Isabela Sawmill" between them, but they
continued the business of said partnership under the same firm name "Isabela
Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2)
notices that he would sell at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, officeequipment and other things that
were involved in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices
"G" and "G-1".

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a
Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the
sale conducted by him on October 14 and 15, 1959 for the enforcement of the
judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, a certified copy of which certificte of sale is hereto attached as Appendix
"H".

10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed
of sale in favor of the Pan Oriental Lumber Company transfering to the latter for the
sum of P45,000.00 the trucks, tractors, machinery, and other things that she had
purchashed at a public auction referred to in the foregoing paragraph, a certified
true copy of which Deed of Sale is hereto attached as Appendix "I".

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno
reserve the right to present additional evidence at the hearing of this case.

Forming parts of the above copied stipulation are documents that were marked as Appendices "A",
"B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence,
mostly documentary, while the cross-defendants did not present any evidence. The case hardly
involves quetions of fact at all, but only questions of law.

The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3,
10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B",
"C", "C-1", and "C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from
October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela
Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the
defendant Leon Garibay, as Manager of the defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from
May 25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran,
on account of which business transaction there remains an unpaid balance of P3,580.50. The same
plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought
from him on credit and unpaid for.

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his
Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard
advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving
an outstanding balance of P1,579.44.

The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of
P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant
partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and
P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of P1,048.78.

The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his
witness, and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he
sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account
of said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10.

Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff
sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela
Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her,
and said purchase price was applied to the judgment that she has obtained against he said
mortgagors in Civil Case No. 5223 of this Court.

Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant
Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said
properties that she had bought at public aucton one week before.

xxx xxx xxx7

It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil
Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and,
therefore, within the jurisdiction of the municipal court.

This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with
chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and
Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of
the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of money and
where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case
where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of
First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of
litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive
original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for
the annulment of a judgment and an order of a court of justice belongs to th category. 8

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court
has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for
the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is
in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where
the basic issue is something other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where
the subject ogf the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first
instance.

In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:

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

The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court held:

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was
ruled therein that although the purposes of an action is to recover an amount plus interest which
comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now
P10,000.00) the action should be instituted before the Court of First Instance.

In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and
involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it
is clearly within the competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising
jurisidction over Civil Case No. 5343.

The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially
approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had
been ordered foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and
coordinate jusridiction, this Court originally ruled that:

A court has no power to interfere with the judgments or decrees of a court of concurrent or
coordinate jurisdiction having equal power to grant the relief sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense coordinate courts and
cannot be allowed to interfere with each others' judgments or decrees. 11

The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:

The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch
of the same court is not infringed when the Judge who modifies or annuls the order isued by the
other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193.
But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary
injunction in a case to enjoint the sheriff from carrying out an order by execution issued in another
case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al.,
44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered by the
Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique,
both courts belonging to the same Judicial District. This Court held that:

The power to open, modify or vacant a judgment is not only possessed by but restricted to the court
in which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not
be interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance
belongs solely to the very same branch which rendered the judgement. 14

Two years later, the same doctrine was laid down in the Sterling Investment case. 15

In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court
of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:

... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the
end that the judgment of a court of competent jurisdiction may not be interfered with by any court
of concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this
Court feels that this is as good an occasion as any to re-examine the doctrine laid down ...

In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged
nullity of the judgment based on one ground or another, particularly fraud, which fact affords the
plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought to be annulled, for a direct
attack against a final and executory judgment is not a incidental to, but is the main object of the
proceeding. The cause of action in the two cases being distinct and separate from each other, there is
no plausible reason why the venue of the action to annul the judgment should necessarily follow the
venue of the previous action ...

The present doctrine which postulate that one court or one branch of a court may not annul the
judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4,
(of the Rules of Court) but also limit the opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch thereof has the authority
and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or
order rendered by another court of first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case. 17

In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance
of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the
same court.

It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of
the business. 18 However, on dissolution, the partnershop is not terminated but continuous until the winding up to
the business. 19

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the business still in the name of said partnership. It is expressly
stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the
properties of said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly
held liable by the trial court because she purchased at public auction the properties of the partnership which were
mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to
Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could
be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership.

The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of
the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the
business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them.

Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good
faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave
occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into
the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of
the aprtnership, the applees would not have been misled into thinking that they were still dealing with the
partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela
Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated
and it continued doping business through the two remaining partners.

The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the
propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno
has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the
rights of a third person, he may file an action to annul the contract.

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

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

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees
cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the
plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their co-
defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo
Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22

WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants
to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua,
should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever
they shall pay to the plaintiffs-appellees, without pronouncement as to costs.

SO ORDERED.
BENJAMIN YU vs. NATIONAL LABOR RELATIONS COMMISSION [June 30, 1993]

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business
operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as
general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as
limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with
the Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager
with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when
the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations
and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took
charge of the preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold
and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr.
Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The
partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade
Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation of the marble quarry was entered into with
the Cruz spouses in February of 1988. 2 The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong,
petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for
the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original partners
and that it was for him to decide whether or not he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained unpaid. 3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing
from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain,
Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges, contending
in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally
dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages
and attorney's fees.5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and
dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership
consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was
no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had
not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial
position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted
against the original members of the preceding partnership, but these though impleaded had, apparently, not been
served with summons in the proceedings before the Labor Arbiter. 6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the
Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical
personality separate and distinct from that of each of its members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract
between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's
membership.7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had
hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships
composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes
in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984
and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code
provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;

xxx xxx xxx

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


the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any
time;

xxx xxx xxx

(Emphasis supplied)

In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total
partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the
remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest,
was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code
states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership
affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that
the business of the old partnership was simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or
most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not,
however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring partners
(Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one,
are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court held that
under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of
the old partnership.9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining
in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the
person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and
assigns (or the representative of the deceased partner assigns) his rights in partnership property to
two or more of the partners, or to one or more of the partners and one or more third persons, if the
business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns)
their rights in partnership property to the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set
forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of
the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or
more third persons who promise to pay the debts and who continue the business of the dissolved
partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the
businessunder the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with
others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the business, under
this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership
property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in
this article the creditors of the retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on account of any consideration promised
for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on the ground
of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which
continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade
Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-visany
claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine under which one or mare of the above six (6) paragraphs,
the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his
claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against
the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new
general or assistant general manager to run the affairs of the business enterprise take over. An assistant general
manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not
therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise
authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade
Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or redundant. 11 It
follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of
service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole
year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that
Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the
services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new
partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for
unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying
moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that an
indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per
annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the
award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to
protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total
amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private
respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29
November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent
Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to
December 1987) in the total amount of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by
three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.
COMMISSIONER OF INTERNAL REVENUE vs. WILLIAM SUTER February 28, 1969

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by herein
respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The
partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the
limited partnership was registered with the Securities and Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets
and amusement machines, their parts and accessories. It had an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota allocation with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December
1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with
the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the
income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination
of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance
with law, but his request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals,
which court, after trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner of Internal
Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's aforesaid
decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a
single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and
Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of
P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited
partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive ownership and control of the business; consequently the
income tax return of respondent Suter for the years in question should have included his and his wife's individual
incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue
Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-residents, only
one consolidated return for the taxable year shall be filed by either spouse to cover the income of both
spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage with
limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948 is not a ground for
dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership, as contra distinguished from a duly registered
general partnership, it is taxable on its income similarly with corporations, Suter was not bound to include in his
individual return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law
because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one
year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:

A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows
that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de
Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject firm was organized in 1947), a universal partnership requires either that
the object of the association be all the present property of the partners, as contributed by them to the common fund,
or else "all that the partners may acquire by their industry or work during the existence of the partnership". William
J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to
enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition, 1952, Volume
4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de
los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea
declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma
tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes
provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally
erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and
contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property
of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own,
distinct and separate from that of its partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only be
done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership's
separate individuality makes it impossible to equate its income with that of the component members. True, section
24 of the Internal Revenue Code merges registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of
30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal
personality of the corporations involved therein are not applicable to the present case. In the cited cases, the
corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present
case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited, merely served as business
conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers
prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change
in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest
therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal
treatment, tax wise, of a general copartnership (compañia colectiva) and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case
of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend
or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and
forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil.
779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the expenses for the administration and preservation of the
paraphernal capital of the wife. Then again, the appellant's argument erroneously confines itself to the question of
the legal personality of the limited partnership, which is not essential to the income taxability of the partnership
since the law taxes the income of even joint accounts that have no personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is
the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of
the conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year,
their consequences would be different, as their contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with, and when split
from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently
stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.
TECK SEING AND CO., LTD., SANTIAGO JO CHUNG, ET AL. vs. PACIFIC COMMERCIAL COMPANY, ET AL.
[September 6, 1923]

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

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

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

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

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

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

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

Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

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

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

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

Que la duracion de la sociedad sera la de seis años, a contar de la fecha de esta escritura, pudiendo
prorrogarse este tiempo a discrecion unanime de todos los accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en general.

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


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

Las ganancias o perdidas que resultaren durante cada año comercial, se distribuiran proporcionalmente entre
los accionistas, de acuerdo con el capital aportado por cada uno de los mismos.

Las ganancias que resultaren en cada año comercial, si resultaren algunas ganancias, no podran ser retiradas
pors los accionistas hasta dentro del termino de tres años a contar de la fecha del primer balance anual del
negocio, quedadno por tanto estas ganancias en reserva, para ampliar el capital aportado opor los
accionistas y ampliar por tanto la esfera de accion emprendida por la misma sociedad. Al pasar o expirar el
termino de tres años, cada accionista podra retirar o depositar en poder de la sociedad, las ganancias que le
debiera corresponder durante dicho termino de tres años.

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

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la administracion de la
Compañia, quienes podran usar indistintamente la firma social, quedando por consiguiente autorizados
amobs para hacer en nombre de ella toda calse de operaciones, negocios y especulaciones mercantiles,
practicando judicial y extra-judicialment cuantos actos se requieran para el bien de la sociedad, nombrar
procuradores o abogados para reclamaciones y cobro de creditos y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia, enfermedad o cualquier
otro impedimento del accionista administrador Sr. Lim Yogsing, este podra conferir poder general o especial
al accionista que crea conveniente para que en union del administrador auxiliar Sr. Vicente Jocson Jo,
pudieran ambos administrar convenientemente los negocios de la sociedad. Que los administradores podran
tener los empleados necesarios para el mejor que debieran percibir dichos empleados por servicios rendidos
a la sociedad.

Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda filipina, anualmente,
para sus gastos particulares, siendo dicha cantidad de P1,200 la que corresponde a cada uno de dichos
administradores, como emolumentos o salarios que se les asigna a cas uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas podran disponer cada fin de añola
gratificacion quese concedera a cada administrador, si los negocios del año fueran boyantes y justifiquen la
concesion de una gratificacion especial, aparte del salario aqui dispuesto y especificado.

Que pasado el termino de seis años, y es de la conveniencia de los accionistas la continuacion del negocio de
esta sociedad, dicho termino sera prorrogado por igual numero de años, sin necesidas del otorgamiento de
ulteriores escrituras, quedando la presente en vigor hasta el termino dispuesto por todos los accionistas.

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

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


cumplirla fiel y estrictamente segun los pactos que hemos establecido.

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas, hoy 31 de
octubre de mil novecientos diez y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO

Firnando en presencia de:


(Fdos.) "ATILANO LEYSON
"JULIO DIAZ

"ESTADOS UNIDOS DE AMERCA


"ISLAS FILIPINAS
"PROVINCIA DE CEBU

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de 1919, A.D., ante mi,
Notario Publico que subscribe, comprecieron personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco,
Lim Yogsing y Jo Ybec, representado este ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama de
fecha 27 de septiembre de 1919 que se me ha presentado en este mismo acto, de quienes doy fe de que les
conozco por ser las mismas personas que otorgaron el preinserto documento, ratificando ant emi su
contenido y manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo
Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F. el dia 19 de septiembre de 1919 bajo
el No. H77742, Go Tayco tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de
1919 bajo el No. G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de
enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el
dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su
cedula personal expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.

Ante mi,

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

"Asiento No. 157


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

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

(Fdo.) "QUIRICO ABETO


[SELLO] "Registrador Mercantil Ex-Officio"

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

(Fdo.) "QUIRICO ABETO


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

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

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

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

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

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

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

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

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side with the facts before us, a
marked difference is at once disclosed. In the cited case, the organization of the partnership was not evidenced by
any public document; here, it is by a public document. In the cited case, the partnership naturally could not present a
public instrument for record in the mercantile registry; here, the contract of partnership has been duly registered.
But the two cases are similar in that the firm name failed to include the name of any of the partners.
We come then to the ultimate question, which is, whether we should follow the decision in Hung-Man-Yoc vs. Kieng-
Chiong-Seng, supra, or whether we should differentiate the two cases, holding Teck Seing & Co., Ltd., a general
copartnership, notwithstanding the failure of the firm name to include the name of one of the partners. Let us now
notice this decisive point in the case.

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

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

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

Of course, the form required by the Code for the adoption of the firm name does not prevent the addition
thereto of any other title connected with the commercial purpose of the association. The reader may see our
commentaries on the mercantile registry about the business names and firm names of associations, but it is
proper to establish here that, while the business name may be alienated by any of the means admitted by
the law, it seems impossible to separate the firm names of general partnerships from the juridical entity for
the creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the name of all or
any of the partners as prescribed by the Code of Commerce prevents the creation of a general partnership, Professor
Jose A. Espiritu, as amicus curiæ, states:

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

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

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

We reach the conclusion that the contract of partnership found in the document hereinbefore quoted established a
general partnership or, to be more exact, a partnership as this word is used in the Insolvency Law.

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

Araullo, C.J., Johnson, Street, Avanceña, Villamor, Johns and Romualdez, JJ., concur.