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Business Organization 1
Partnership, Agency, and Trust

Atty. Charlotte F. Gallego

AR LAW Davao del Sur
2F Abadilla Building, Lapu-lapu St., Digos City
Mobile: +63946 762 7910/ email: arlawdavaodelsur@gmail.com

Course Outline with List of Cases

Part I- Partnership
I. Partnership- General Provisions
A. Three Levels of Existence of Partnership
Yu vs NLRC 224 Scra 75 (1993)

Benjamin Yu vs. National Labor Relations Commission (NLRC)

FACTS:
Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company
Limited primarily responsible for the overall operations of marble quarrying and export business
of said partnership. He was hired by a virtue of a Partnership Resolution in 1985 with a monthly
salary of P4,000.00. Initially he received only half of his stipulated monthly salary and was
promised by the partners that the balance would be paid upon securing additional operating funds
from abroad. However, in 1988 without his knowledge the general partners as well as one of the
limited partners sold and transferred their interest to Willy Co and Emmanuel Zapanta. Thus the
new major partners decided to transfer the firm’s main office but opted to continue the operation
of the old partnership under its old firm name and with all its employees and workers except for
the petitioner. Upon knowing of the changes in the partnership, petitioner went to the new main
office to meet the new partners and demand the payment of his unpaid salaries, but the latter
refused to pay him and instead informed him that since he bought the business from the original
partners, it was for him to decide whether or not he was responsible for the obligations of the old
partnership including petitioners unpaid salaries. Hence, petitioner was dismissed from said
partnership.

ISSUES:
1. Whether the partnership which had hired the petitioner as Asst. General Manager had
been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel
Zapanta.
2. Whether petitioner could assert his rights under his employment contract as against the
new partnership

HELD:
1. Yes. The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired the petitioner in 1984 and the emergence of
the new firm composed of Willy Co and Emmanuel Zapanta in 1988. This is based on the
following provisions:
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Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as a distinguished from the winding up of
the business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement between the partners;
b. by the express will of any partner, who must act in good faith, when no definite term
or particular undertaking is specified.
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;

However, the legal consequence of dissolution of a partnership do not automatically result in the
termination of the legal personality of the old partnership as according to Art. 1829, “ on
dissolution of the partnership is not terminated, but continues until the winding up of the
partnership affairs is completed. The new partnership simply continued the operations of the old
partnership under its old firm name without winding up the business affairs of the old
partnership.

2. Yes. Under Art. 1840, creditors of the old partnership are also creditors of the new
partnership which continued the business of former without liquidation of the partnership affairs.
Thus, creditor of the old Jade Mountain, such as the petitioner is entitled to enforce his claim for
unpaid salaries, as well as other claims relating to his employment with the old partnership
against the new Jade Mountain.

B. What is a Contract of Partnership?- Art 1767

C. Elements of a Partnership-
1. Consent
a. Consent to Pursue Business-Art 1769
b. Legal Capacity to Contract- Art 1782, Art 87
c. Admission of New Partner- Art 1804

2. Subject Matter: Pursuit of a Business Enterprise

1) Santos vs Reyes 368 SCRA 261 (2000)

Business Organization – Partnership, Agency, Trust – Shares in Liquidation – Net Profit vs

Gross Income
In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally
instituted a partnership with them as partners. Their venture is to set up a lending business
where it was agreed that Santos shall be financier and that Nieves and Zabat shall
contribute their industry. **The percentages after their names denote their share in the
profit.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a
corporation. It was agreed that the partnership shall provide loans to the employees of
Gragera’s corporation and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal agreement to form the
partnership. As earlier agreed, Santos shall finance and Nieves shall do the daily cash flow
more particularly from their dealings with Gragera, Zabat on the other hand shall be a loan
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investigator. But then later, Nieves and Santos found out that Zabat was engaged in
another lending business which competes with their partnership hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves’ husband, Arsenio,
who became their loan investigator.
Later, Santos accused the spouses of not remitting Gragera’s commissions to the latter. He
sued them for collection of sum of money. The spouses countered that Santos merely filed
the complaint because he did not want the spouses to get their shares in the profits. Santos
argued that the spouses, insofar as the dealing with Gragera is concerned, are merely his
employees. Santos alleged that there is a distinct partnership between him and Gragera
which is separate from the partnership formed between him, Zabat and Nieves.
The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to
pay the shares of the spouses.
ISSUE: Whether or not the spouses are partners.
HELD: Yes. Though it is true that the original partnership between Zabat, Santos and
Nieves was terminated when Zabat was expelled, the said partnership was however
considered continued when Nieves and Santos continued engaging as usual in the lending
business even getting Nieves’ husband, who resigned from the Asian Development Bank, to
be their loan investigator – who, in effect, substituted Zabat.
There is no separate partnership between Santos and Gragera. The latter being merely a
commission agent of the partnership. This is even though the partnership was formalized
shortly after Gragera met with Santos (Note that Nieves was even the one who introduced
Gragera to Santos exactly for the purpose of setting up a lending agreement between the
corporation and the partnership).
HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their
shares in the profit is premature. The accounting made by the trial court is based on the
“total income” of the partnership. Such total income calculated by the trial court did not
consider the expenses sustained by the partnership. All expenses incurred by the money-
lending enterprise of the parties must first be deducted from the “total income” in order to
arrive at the “net profit” of the partnership. The share of each one of them should be based
on this “net profit” and not from the “gross income” or “total income”.

2) Tocaovs Court of Appeals, 365 Scra 463 (2001)

TOCAO V. CA

G.R. No. 127405; October 4, 2000

Ponente: J. Ynares-Santiago

FACTS:

Private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-
president for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire
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to enter into a joint venture with her for the importation and local distribution of
kitchen cookwares

Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales

The parties agreed that Belo's name should not appear in any documents relating to
their transactions with West Bend Company. Anay having secured the distributorship
of cookware products from the West Bend Company and organized the administrative
staff and the sales force, the cookware business took off successfully. They operated
under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocao's name.

The parties agreed further that Anay would be entitled to:

(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and honest
when it came to financial commitments.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letteraddressed to
the Cubao sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise.

Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.

Anay still received her five percent (5%) overriding commission up to December 1987.
The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P 13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140
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The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants. The Court of Appeals affirmed the lower court’s decision.

ISSUE:

Whether the parties formed a partnership

HELD:

Yes, the parties involved in this case formed a partnership

The Supreme Court held that to be considered a juridical personality, a partnership

must fulfill these requisites:

(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and

(2) intention on the part of the partners to divide the profits among themselves. It may
be constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto.

This implies that since a contract of partnership is consensual, an oral contract of

partnership is as good as a written one.

In the case at hand, Belo acted as capitalist while Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of the net profits of the business.

Therefore, the parties formed a partnership.

3) Moran vs Court of Appeals, 133 Scra 88 (1984)

Republic of the Philippines

SUPREME COURT
Manila
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FIRST DIVISION

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.: ñé+.£ªwph! 1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on
or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery
of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages
and attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqw â£

From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which, however, were
sold at P5.00 each. Nothing more was done after this and it can be said that the
venture did not really get off the ground. On the other hand, the plaintiff failed to give
his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things which were the
object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.

Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint on June 19, 1972, and the
costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£
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PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to
pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a
way not in accord with law and with Supreme Court decisions when it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE

PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great
risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by
the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the Constitutional
Convention;
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2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a

month starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation
of the account pertaining to the distribution and printing of the said 95,000 posters
shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, 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 (Art. 1786,
Civil Code) and for interests and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil
Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on a particular set of facts.
We awarded compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company derived some profits
from its contractors in the construction of roads and bridges despite its deficient capital." Besides,
there was evidence to show that the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only
2,000 copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

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.

Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners that
they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a
right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100%
profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a
guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing
P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is
obvious. We have to take various factors into account. The failure of the Commission on Elections to
proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt that it would be a losing venture to go on
with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture
have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The
latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each.
The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the
gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount
to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the
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private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000
copies, the remaining P6,000.00 should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice
of the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqw â£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
Moran does not question the due execution of said note. Must Moran therefore pay
the amount of P20,000? The evidence indicates that the P20,000 was assigned by
Moran to cover the following: têñ.£îhqw â£

(a) P 7,000 — the amount of the PNB check given by

Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of
the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's

contribution in the project of the Posters;

(c) P3,000 — representing Pecson's commission for

three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the
Veterans' project, for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd
and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both the appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits- têñ.£îhqw â£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor
of defendant. Defendant admitted the authenticity of this check and of his receipt of
the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for
 P a g e | 10

the purpose of showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000. This investment of
P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory
note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately reducing the
promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised
profit), defendant signed and executed the promissory note for P7,000 marked
Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000 partial payment
of the promised profit. The P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory
note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit
E. This document is being offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction
mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being

offered for the purpose of showing the transaction as explained in connection with
Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqw â£

Q During the pre-trial of this case, Mr. Pecson, the defendant

presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?

A Yes, sir.

Q What is this promissory note, in connection with your transaction

with the defendant?

A This promissory note is for the printing of the "Voice of the

Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

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A It is a book. têñ.£îhqw â£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the

promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as

evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a

Manager's check. I show you Exhibit E, is this the Manager's check
that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you

said represented P6,000.00 of your investment and P8,000.00
promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented

one-half (1/2) of the P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr. Moran of one-half (1/2) of

the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection

with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated

March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .

Court têñ.£îhqw â£

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was

executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran,

Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by

the promissory note.

Q Was there a receipt issued by you covering this payment of

P4,000.00 in favor of Mr. Moran?

A Yes, sir.
 P a g e | 12

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on

account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of

my P6,000.00 capital investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that was promised to me by
Mr. Moran.

Q And what happened to the balance of P3,000.00 under the

promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy of
the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error
to state that the project never took place and on this basis decree the return of the private
respondent's investment.

As already mentioned, there are risks in any business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case. In view of the foregoing, there is no reason
to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing
one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both amounts from the date the complaint
was filed until full payment is made.

SO ORDERED. 1äw phï1.ñët

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

De la Fuente J., took no part.

a. Co-ownership/co-possession do not necessarily constitute a

partnership
1. Navarro vs Court of Appeals 222 Scra 675 (1993)

2. Obillosvs Commissioner of Internal Revenue, 139 Scra 675 (1993)

3. Reyes vs Commissioner of Internal Revenue 24 Scra 198 (1968)
4. Evangelista vs Collector of Internal Revenue 102 Phil 140 (1957)
b. Receipt by a Person of a Share of the Net Profit – Art 1769 (4)
 P a g e | 13

1. Pastor vsHaspar, 2 Phil 592 (1903)

2. Fortis vs Gutierrez Hermanos, 6 Phil 100 (1906)
3. BastidavsMenzi, 58 Phil 188 (1993)
c. Meeting of Minds- Art 1770
1. Estanislaovs Court of Appeals, 160 Scra 830 (1988)
2. Evangelista vs CIR 102 Phil 140 (1957)
3. Onavs Commissioner of Internal Revenue, 45 Scra 74 (1972)
4. Gatchalianvs Collector of Internal Revenue, 67 Phil 666 (1939)
d. Existence of Business Enterprise
Idosvs Court of Appeals 296 scra 194 (1998)
e. Doctrine of “Attributes of Proprietorship”
Syvs Court of Appeals, 398 Scra 301 (2003)

f. Unlawful Subject Matter

1. ArbesvsPolistico, 53 Phil 489 (1929)
2. Deluaovs Casteel, 26 Scra 475 (1968)

3. Cause or Consideration- Art 1786, 1787, 1789, 1790, 1830(4)

City of Manila vsCumbe, 13 Phil 677 (1909)

4. Purpose is to engage in some business enterprise

1. Fernandez vsdela Rosa, 1 Phil 671 (1903)
2. Exception: IN the matter of Sycip, Salazar, etc, 92 Scra 1 (1975)

5. Element of joint control- Art 1810(3), Art 1818

D. Characteristics
1. Primarily Contractual – Art 1767, 1770, 1771, 1784
Lyons vsRosentock, 56 Phil 632 (1932)
2. Nominate and Principal
Fernandez v dela Rosa, 1 Phil 671 (1903)
3. Consensual
1. Estanislaovs CA, 160 SCRA 830 (1988)
2. Yulovs Yang ChiaoSeng, 106 Phil 111 (1959)
3. Tocaovs Court of Appeals, 342 Scra 20 (2000)
4. Onerous and Bilateral
5. Preparatory and Progressive
6. Separate Juridical Personality- Art 1768
JarantillavsJarantilla, G.R. No. 154486 December 1, 2010
7. Delectus Personae
8. Mutual Agency – Art 1803
9. Personal liability of Partners for Partnership debts

E. Partnership as a Juridical Entity

Art 1768, Art 44, Art 45, Art 46, Art 1774, 1767
1. Re: Secret Associations – Art 1775
2. Re: Separate Juridical Personality
 P a g e | 14

1.Vargas vs Chan, 29 Phil 446 (1915)

2.Campos Rueda vs Pacific, 44 Phil 916 (1923)
3.Ngo TianTekvs Phil Education Co, 78 Phil 275 (1947)
4.Tai Tong Chuachevs Insurance Commission, 158 Scra 366
(1988)
3. Doctrine of Piercing the Veil of Separate Juridical Fiction
1. Commissioner of Internal Revenue vsSuter, 27 Scra 152
(1969)
2. Aguilavs Court of Appeals, 319 scra 246 (1999)

4. Entitlement to Constitutional Rights and Guarantees

i. Due Process and Equal Protection
Smith, Bell, Co. vsNatividad, 40 Phil 136 (1919)
ii. Right vs. Unreasonable searches and seizure
Bache &Co. vs Ruiz, 37 Scra 823 (1971)
iii. No right against self-incrimination
Bataan Shipyard & Engineering vs PCGG, 150 SCRA 181 (1987)

F. Partnership as a Business Enterprise

G. Essential Attributes of the Partnership
1. Essential features:
i. There must be a VALID CONTRACT
ii. The parties must have LEGAL CAPACITY
iii. There must be mutual contribution to a COMMON FUND
iv. The purpose is to obtain PROFITS and DIVIDE the same

2. Essential Attributes
a. Consensual and weak juridical personality
ii. Informal nature
Art 1768, 1771
Exceptions: 1772, 1771 and 1773, 1843 and 1844
iii. “Weak” nature
Art 1830
b. Mutual Agency
Art 1803(1), Art 1818
c. Delectus Personae
Ortega vs Court of Appeals, 245 Scra 529 (1995)
d. Unlimited liability
Art 1816, 1817, 44,1768,46, 1770, 1799

H. Partnership VS…
1. Joint Venture
Torres vs Court of Appeals, 320 SCRA 428 (1999)
2. Co-ownership
Art 1811, Art 1769
3. Joint Account
Art 242, Code of Commerce
Bourns vs Carman, 7 Phil 117 (1906)
 P a g e | 15

4. Agency
BinglangawavsConstantino, 109 Phil 168 (1960)
U.S. vsMuhn, 6 Phil 164 (1906)
5. Business Trust
6. Corporation
i. Legal capacities- Art 1828, 1830
ii. Limited Liability- Art 1816, 1817, 1824,1839
iii. Partner as agent of partner- Art 1803(1), 1818, 1819, 1822, 1823
iv. Rights of Transferor- Art 18014, 1813
v. Effects of Defective Incorporation
Pioneer Insurance vs Court of Appeals, 175 Scra 668 (1989)
Lim Tong Lim vs Philippine Fishing 317 Scra 728 (1999)
7. Cooperative
Art 3, 5(3), 34,7,2 of R.A. 6938
Republic vsSunlife Assurance, 473 scra 129 (2005)
****STOPPED HERE JUL 23/2013 ***

II. CLASSES OF PARTNERSHIPS AND PARTNERS

Art 1776-1783
A. As to Object
1. Universal- Art 1777, 1778, 1779, 1780
Commissioner of Internal Revenue vsSuter, 27 Scra 152 (1969)
LysinvsRosentock, 56 Phil 632 (1932)
2. Particular – Art 1783

B. As to Duration

1. Partnership with a fixed term

2. Partnership for a particular undertaking
Note Art 1785
3. Partnership at will
Ortega vs Court of Appeals 245 Scra 529 (1995)

C. As to Extent of Partners’ Liabilities

1. General Partnership
Lim Tong Lim vs Philippine Fishing Gear, 317 Scra 728 (1999)
2. Limited Partnership

D. Other Classes of Partners

1. Capitalist Partner vs Industrial Partner
2. Original Partner and Subsequent or Incoming Partners
3. Managing Partner
4. Liquidating Partner
5. Retiring Partner
6. Continuing Partner
7. Partner by Estoppel
 P a g e | 16

III. Special Issues as to WHO may qualify to become partners

1. May Spouses Validly Enter into a Partnership Relation?
A. Spouses cannot enter into a Universal Partnership. Art 1782, 133, 87
Commissioner vsSuter, 27 scra 152 (1969)

136 Phil. 538

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

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,
 P a g e | 17

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 contradistinguished 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)'"
 P a g e | 18

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 Castan, 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 8 podran constituir sociedad particular? Aunque
el punto ha sido muy debetido, 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 ester a la norma general segun la que
toda persona es capaz pare 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 resolucion 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
 P a g e | 19

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. Uni-
versity 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 itsSection 24: for
the appellant Commissioner's stand results in equal treatment, taxwise, 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, pages 88-89).
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,
 P a g e | 20

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 partnerships 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., did not take part.

B. Spouses are NOT qualified to enter into other forms of partnership for
gain
C. Professional Partnerships- Art 1783
D. May Corporations become Partners?
1. TuasonvsBolabos, 95 Phil 106 (1954)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA,

INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.
 P a g e | 21

REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to
recover possesion of registered land situated in barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and description of the land
sought to be recovered. The original complaint described the land as a portion of a lot registered in
plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and
as containing an area of 13 hectares more or less. But the complaint was amended by reducing the
area of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in
another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again,
with the leave of court, amended its complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive
and public and notorious possession (of land in dispute) under claim of ownership, adverse to the
entire world by defendant and his predecessor in interest" from "time in-memorial". The answer
further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication
to defendant and/or predecessors in interest." The answer therefore prays that the complaint be
dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right
to the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter
a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes the
following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not brought
by the real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer certificates of
Title Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the
land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount
of P132.62 monthly from January, 1940, until he vacates the premises.

VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the
defendant.

As to the first assigned error, there is nothing to the contention that the present action is not brought
by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is
that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2,
Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that the
complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio
Araneta, Inc.", another corporation, but there is nothing against one corporation being represented
by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc.
 P a g e | 22

can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to
enter into a partnership is without merit, for the true rule is that "though a corporation has no power
to enter into a partnership, it may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by
mere reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects, as if
they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial of these issues. If evidence is objected
to at the trial on the ground that it is not within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall be so freely when the presentation of the
merits of the action will be subserved thereby and the objecting party fails to satisfy the court
that the admission of such evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the objecting party to meet
such evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment on
issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in
this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil Procedure,
ruled that where the facts shown entitled plaintiff to relief other than that asked for, no
amendment to the complaint is necessary, especially where defendant has himself raised the
point on which recovery is based, and that the appellate court treat the pleadings as
amended to conform to the evidence, although the pleadings were not actually amended. (I
Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial,
that the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red
pencil with the name Quirino Bolaños," defendant later changed his lawyer and also his theory and
tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No.
4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or
less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot
No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less,
covered by transfer certificate of title No. 37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino,
witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established
by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already
mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914,
the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice
to defendant, as more than one year has already elapsed from the issuance and entry of the decree.
Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could
title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or
adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession
under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs.
Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to
secure possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off.
Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case
 P a g e | 23

of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and
VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should
be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.'
But it appears from the record that that reasonable compensation for the use and occupation of the
premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied
by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore
be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant.
And it cannot be supposed that defendant has been paying rents, for he has been asserting all along
that the premises in question 'have always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under claim of ownership adverse to the entire
world by defendant and his predecessors in interest.' This assignment of error is thus clearly without
merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.

During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to
dismiss alleging that there is pending before the Court of First Instance of Rizal another action
between the same parties and for the same cause and seeking to sustain that allegation with a copy
of the complaint filed in said action. But an examination of that complaint reveals that appellant's
allegation is not correct, for the pretended identity of parties and cause of action in the two suits
does not appear. That other case is one for recovery of ownership, while the present one is for
recovery of possession. And while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is really the case. On the contrary, it
appears that the action seeks relief for each individual plaintiff and not relief for and on behalf of
others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion,
JJ., concur.

What is a JOINT VENTURE

We can’t do everything by ourselves. Sometimes, we need a little help. Oftentimes, we need a joint venture.

The Philippine Supreme Court has described a joint venture as an association of persons or companies jointly
undertaking some commercial enterprise; generally, all contribute assets and share risks which requires a community
of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith,
and a duty, which may be altered by agreement to share both in profit and losses. [ Kilosbayan vs, Guingona, 232
SCRA 110 (1994)]
In the case of Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, [180 SCRA 130 (1989)], the
Supreme Court further explained:

“The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some temporary purpose. It is hardly distinguishable from
the partnership, since their elements are similar—community of interest in the business, sharing of profits and
losses, and a mutual right of control. The main distinction cited by most opinions in common law jurisdiction is that
the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. This observation is not entirely accurate in
this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the law of partnerships.”
 P a g e | 24

Considering that a joint venture is a particular partnership, it would have the following characteristics:
1. It would have a juridical personality separate and distinct from that of each of the joint venturers.
2. Each of the co-venturers would be liable with their private property to the creditors of the joint venture beyond
their contributions to the joint venture.
3. Even if a co-venturer transfers his interest to another, the transferee does not become a co-venturer together with
the others in the joint venture unless all the other co-venturers consent. This is in consonance with the principle
of delectus personarum.
4. Generally, the co-venturers acting on behalf of the joint venturers are agents thereof with capacity to bind the
joint venture.
5. Death, retirement, insolvency, civil interdiction or dissolution of any co-venturer dissolves the joint venture.
[Cesar L. Villanueva, Philippine Corporate Law 730-731, Rex Printing Company, 1998]

As a general rule, a corporation cannot become a partner. This limitation is based on public policy, since in a
partnership, the corporation would be bound by the acts of persons who are not duly appointed and authorized
agents and officers. This would be entirely inconsistent with the policy of the law that the corporation shall manage
its own affairs separately and exclusively.

However, the Supreme Court, in the case of Tuason vs. Bolanos [95 Phil. 106 (1954)] noted that even if a
corporation has no power to enter into a partnership, it may nonetheless validly enter into a joint venture agreement
where the nature of the venture is in line with the business authorized by its charter. Such joint venture need not be
registered with the Securities and Exchange Commission (SEC) provided it does not result in the formation of a new
corporation or partnership. [SEC Opinion, 18 March 1993]

It must however be emphasized that such joint venture may be registered as a partnership provided:

1. The articles of incorporation of the corporations involved must expressly authorize the corporation to enter
into contracts of partnership with others in the pursuit of its business;

2. The agreement or articles of partnership must provide that all the partners will manage the partnership; and

3. The articles of partnership must stipulate that all the partners are and shall be jointly and severally liable for
all the obligations of the partnership. [SEC Opinion, 29 February 1980]

The corporation-partners shall embody the terms and conditions of their relationship in the partnership agreement
and upon approval by the SEC, the partnership shall attain a juridical personality separate and distinct from the
corporation partners [Hector S. de Leon, The Corporation Code of the Philippines Annotated 46, Rex Printing
Company, Inc., 2002].

This, in a nutshell, is the nature of joint ventures in the Philippines.

2. Torres vs Court of Appeals 278 Scra 793

278 SCRA 793 – Business Organization – Corporation Law – Transfer of Shares of Stocks
– Corporate Records
Judge Manuel Torres, Jr. owns about 81% of the capital stocks of Tormil Realty &
Development Corporation (TRDC). TRDC is a small family owned corporation and other
stockholders thereof include Judge Torres’ nieces and nephews. However, even though
Judge Torres owns the majority of TRDC and was also the president thereof, he is only
entitled to one vote among the 9-seat Board of Directors, hence, his vote can be easily
overridden by minority stockholders. So in 1987, before the regular election of TRDC
 P a g e | 25

officers, Judge Torres assigned one share (qualifying share) each to 5 “outsiders” for the
purpose of qualifying them to be elected as directors in the board and thereby strengthen
Judge Torres’ power over other family members.
However, the said assignment of shares were not recorded by the corporate secretary, Ma.
Christina Carlos (niece) in the stock and transfer book of TRDC. When the validity of said
assignments were questioned, Judge Torres ratiocinated that it is impractical for him to
order Carlos to make the entries because Carlos is one of his opposition. So what Judge
Torres did was to make the entries himself because he was keeping the stock and transfer
book. He further ratiocinated that he can do what a mere secretary can do because in the
first place, he is the president.
Since the other family members were against the inclusion of the five outsiders, they
refused to take part in the election. Judge Torres and his five assignees then decided to
conduct the election among themselves considering that the 6 of them constitute a quorum.
ISSUE: Whether or not the inclusion of the five outsiders are valid. Whether or not the
subsequent election is valid.
HELD: No. The assignment of the shares of stocks did not comply with procedural
requirements. It did not comply with the by laws of TRDC nor did it comply with Section 74
of the Corporation Code. Section 74 provides that the stock and transfer book should be
kept at the principal office of the corporation. Here, it was Judge Torres who was keeping it
and was bringing it with him. Further, his excuse of not ordering the secretary to make the
entries is flimsy. The proper procedure is to order the secretary to make the entry of said
assignment in the book, and if she refuses, Judge Torres can come to court and compel her
to make the entry. There are judicial remedies for this. Needless to say, the subsequent
election is invalid because the assignment of shares is invalid by reason of procedural
infirmity. The Supreme Court also emphasized: all corporations, big or small, must abide by
the provisions of the Corporation Code. Being a simple family corporation is not an
exemption. Such corporations cannot have rules and practices other than those established
by law.

*SEC Rules
IV. PARTNERSHIP: FORMAL AND REGISTRATION REQUIREMENTS

1. Art 1771, 1784, 1772

1. Angeles vs Secretary of Justice, 465 Scra 106 (2005)

FIRST DIVISION

[G.R. No. 142612. July 29, 2005]

OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON.

SECRETARY OF JUSTICE and FELINO MERCADO, respondents.

DECISION
CARPIO, J.:

The Case
 P a g e | 26

This is a petition for certiorari[1] to annul the letter-resolution[2] 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 P210,000 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 P46,210 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 spouses 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

(P210,000), 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, kayat 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
 P a g e | 27

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 spouses 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 written sosyo 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 Mercados 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.
 P a g e | 28

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 Mercados misappropriation of their P210,000.
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]
 P a g e | 29

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 latters 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-partners 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 Justices
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
 P a g e | 30

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 partnerships 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.

2. Rojas vsMAglana, 192 Scra 110 (1990)

ROJAS v MAGLANA

FACTS:
 P a g e | 31

 Jan. 14, 1955 - Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development
Enterprises with only 2 of them as partners with an indefinite term of existence and was duly registered with
the SEC.
 Under the said Articles, Maglana shall manage the business affairs of the partnership while Rojas shall be
the logging superintendent and shall manage the logging operations of the partnership.
 It is also provided in the artices that all profits and losses of the partnership shall be divided and shared
between them.
 There was no operation for a year and because of this difficulty, Rojas and Maglana decided to avail of the
services of Pahamotang as industrial partner.
 March 4, 1956 - Maglana, Rojas and Pahamotang executed their Articles of Co-Partnership under the firm
name Eastcoast Development Enterprises.
 The only difference is the purpose of the 2nd partnership is to hold and secure renewal of timber license
instead of to secure the license as in the 1st partnership and the term of the 2nd partnership is fixed to 30
years.
 The partnership started and was able to ship logs and realize profits.
 Oct. 1956 - the 3 executed a document entitled "Conditional Sale of Interest in the Partnership, Eastcoast
Development Enterprise" agreeing among themselves that Maglana and Rojas shall purchase the interest,
share and participation in the Partnership of Pahamotang. It was also agreed that the 2 shall become
owners of al equipment contributed by Pahamotang and EDE, name given to the 2nd partnership be
dissolved.
 After withdrawal of Pahamotang, the partnership continued by Maglana and Rojas without the benefit of any
written agreement or reconstitution of their written Articles of Partnership.
 Rojas entered into a management contract with another logging enterprise, CMS Estate, Inc. He left and
abandoned the partnership. He withdrew his equipment from the partnership for use in the newly acquired
area. The Equipment were his supposed contributions to the 1st partnership and was transferred to CMS
Estate by way of Chattel Mortgage.
 Maglana wrote Rojas reminding him of his obligation to contribute to the capital investments of the
partnership and also to perform his obligation as logging superintendent.
 2 weeks after, Rojas told Maglana that he will not contribute and work as logging superintendent. So,
Maglana told him that his share will just be 20% of the net profits. Such was the sharing from 1957-1959
without complaint.
 Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter, Maglana
notified Rojas that he dissolved the partnership.

ISSUE:
The nature of the partnership and legal relationship of Maglana and Rojas after Pahamotang retired from the 2nd
partnership

RULING:
According to the trial court, the partnership was a de facto partnership and at will (no period fixed).
Rojas: EDE evidenced by the 1st articles of co-partnership has not been novated, superseded or dissolved by the
unregistered 2nd articles of co-partnership, so the 1st articles should govern the relations between him and Maglana.
That the letter of Maglana did not legally dissolve the registered partnership between them. So, Rojas is entitled to
sharing profits stipulated in the registered Articles.
 It was not the intention of the partners to dissolve the 1st partnership, upon the constitution of the 2nd one,
which they unmistakably called an "Additional Agreement". Except for the fact that they took in one industrial
partner; gave him equal share in profits and fixed the term of the 2nd partnership, everything else was the
same. Thus, they adopted the same name, same purposes and capital contributions of Rojas and Maglana
call for the same amount. The timber license renewals were secured in favor the 1st partnership.
 The 1st Articles, therefore, were only amended, in the form of Supplementary Articles of Co-Partnership
which was never registered. No rights and obligations accrued in the name of the 2nd partnership except in
favor of Pahamotang which was fully paid by the duly registered partnership.
 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.
 By their acts (Maglana reminding Rojas of his contribution and Rojas replying that he will not be able to
comply), 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 WON Maglana can unilaterally dissolve the partnership, the answer is YES.
 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.
 P a g e | 32

2. When Immovable Property ContributedArt 1771, 1773

1. AgadvsMabato, 23 Scra 1223 (1968)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code
to the contract of partnership on which the complaint herein is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated August
29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a fishpond
business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the
profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had
yearly rendered accounts of the operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his
complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be
rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering
the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be
appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of
said partnership, upon the ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages,
as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause
of action and that the lower court had no jurisdiction over the subject matter of the case, because it
involves principally the determination of rights over public lands. After due hearing, the court issued
the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred
in said instrument had not been attached thereto. A reconsideration of this order having been
denied, Agad brought the matter to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

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. 1773. A contract of partnership is void, whenever immovable property is contributed

thereto, if inventory of said property is not made, signed by the parties; and attached to the
public instrument.
 P a g e | 33

The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower court held
that the answer should be in the affirmative, because "it is really inconceivable how a partnership
engaged in the fishpond business could exist without said fishpond property (being) contributed to
the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the
partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited
to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither
said fishpond nor a real right thereto was contributed to the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato. It
is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

2. Litonjua Jr. vsLitonjua Sr. 477 Scra 576 (2005)

THIRD DIVISION

AURELIO K. LITONJUA, JR., G.R. NOS. 166299-300

Petitioner,

- versus
Present:
EDUARDO K. LITONJUA, SR.,
ROBERT T. YANG, ANGLO
PHILS. MARITIME, INC., PANGANIBAN, J., Chairman
SANDOVAL- GUTIERREZ,
CINEPLEX, INC., DDM
CORONA,
GARMENTS, INC., EDDIE K.
CARPIO MORALES and
LITONJUA SHIPPING GARCIA, JJ.
AGENCY, INC., EDDIE K.
LITONJUA SHIPPING CO.,
INC., LITONJUA SECURITIES, Promulgated:
INC. (formerly E. K. Litonjua
Sec), LUNETA THEATER, INC.,
E & L REALTY, (formerly E & L December 13, 2005
INTL SHIPPING CORP.), FNP
CO., INC., HOME
 P a g e | 34

ENTERPRISES, INC.,
BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP.,
EQUITY TRADING CO., INC.,
3D CORP., L DEV. CORP, LCM
THEATRICAL ENTERPRISES,
INC., LITONJUA SHIPPING
CO. INC., MACOIL INC.,
ODEON REALTY CORP.,
SARATOGA REALTY, INC.,
ACT THEATER INC. (formerly
General Theatrical & Film
Exchange, INC.), AVENUE
REALTY, INC., AVENUE
THEATER, INC. and LVF
PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),
Respondents.
x-------------------------------------------------x

DECISION
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
Court of Appeals (CA) dated March 31, 2004[1] in consolidated cases C.A.
G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004,[2] denying petitioners motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo

K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them
started when, on December 4, 2002, in the Regional Trial Court (RTC) at
Pasig City, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint,[3] docketed as Civil Case No.
69235 and eventually raffled to Branch 68 of the court,[4] Aurelio alleged
that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations. Yang is described
 P a g e | 35

in the complaint as petitioners and Eduardos partner in their Odeon

Theater investment.[5] The same complaint also contained the following
material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business
and common family funds .

3.01.1 This joint venture/[partnership] agreement was contained in a

memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an
integral part as Annex A and the portion referring to [Aurelio]
submarked as Annex A-1.

3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses
and those to be subsequently acquired by them whichever is greater. . . .

4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.

4.02 In addition . . . the joint venture/partnership had also acquired

[various other assets], but Eduardo caused to be registered in the names
of other parties.

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of

real properties . A list of some of these real properties is attached hereto
and made an integral part as Annex B.
xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo

became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that

Eduardo and/or the corporate defendants as well as Bobby [Yang], are
transferring . . . various real properties of the corporations belonging to
the joint venture/partnership to other parties in fraud of [Aurelio]. In
consequence, [Aurelio] is therefore causing at this time the annotation on
the titles of these real properties a notice of lis pendens . (Emphasis in
the original; underscoring and words in bracket added.)
 P a g e | 36

For ease of reference, Annex A-1 of the complaint, which petitioner asserts
to have been meant for him by his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the
pattern . You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office every
time I am away. I want you to run it the way I am trying to run it because
I will be all alone and I will depend entirely to you (sic). My sons will
not be ready to help me yet until about maybe 15/20 years from now.
Whatever is left in the corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten percent (10%) equity,
whichever is greater. We two will gamble the whole thing of what I have
and what you are entitled to. . It will be you and me alone on this. If ever
I pass away, I want you to take care of all of this. You keep my share for
my two sons are ready take over but give them the chance to run the
company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first
ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or
asset, like Lt. Artiaga so you can live better there. The rest I will give
you in form of stocks which you can keep. This stock I assure you is
good and saleable. I will also gladly give you the share of Wack-Wack
and Valley Golf because you have been good. The rest will be in stocks
from all the corporations which I repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as

defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the complaint,
more particularly that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be
derived from the actionable document, i.e., Annex A-1, being void under
the terms of Article 1767 in relation to Article 1773 of the Civil
Code, infra. It is further alleged that whatever undertaking Eduardo agreed
to do, if any, under Annex A-1, are unenforceable under the provisions of
the Statute of Frauds.[7]

For his part, Yang - who was served with summons long after the other
defendants submitted their answer moved to dismiss on the ground, inter
 P a g e | 37

alia, that, as to him, petitioner has no cause of action and the complaint
does not state any.[8] Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative

Defenses.[9] To this motion, petitioner interposed an Opposition with ex-
Parte Motion to Set the Case for Pre-trial.[10]

Acting on the separate motions immediately adverted to above, the

trial court, in an Omnibus Order dated March 5, 2003, denied the
affirmative defenses and, except for Yang, set the case for pre-trial on April
10, 2003.[11]

In another Omnibus Order of April 2, 2003, the same court denied

the motion of Eduardo, et al., for reconsideration[12] and Yangs motion to
dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right
to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed
motion to dismiss[13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of

April 2, 2003, but his motion was denied in an Order of July 4, 2003.[14]

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
78774,[15] to nullify the separate orders of the trial court, the first denying his motion
to dismiss the basic complaint and, the second, denying his motion for
reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention

that grave abuse of discretion and injudicious haste attended the issuance
of the trial courts aforementioned Omnibus Orders dated March 5, and
April 2, 2003, sought relief from the CA via similar recourse. Their petition
for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,[16] the CAs 14th Division
ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No.
76987.

Following the submission by the parties of their respective

Memoranda of Authorities, the appellate court came out with the herein
assailed Decision dated March 31, 2004, finding for Eduardo and Yang,
as lead petitioners therein, disposing as follows:
 P a g e | 38

WHEREFORE, judgment is hereby rendered granting the

issuance of the writ of certiorari in these consolidated cases annulling,
reversing and setting aside the assailed orders of the court a quo dated
March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by
private respondent [now petitioner Aurelio] against all the petitioners
[now herein respondents Eduardo, et al.] with the court a quo is
hereby dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that
the alleged partnership, as evidenced by the actionable documents,
Annex A and A-1 attached to the complaint, and upon which petitioner
solely predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was
denied by the CA in its equally assailed Resolution of December 7,
2004.[18] .

Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable

document because this was not a public instrument and immovable
properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a

demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against

[respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when
all that Petitioner had done was to support his pleaded cause of action by
another legal perspective/argument.

The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his

complaint in the trial court, is for delivery or payment to him, as Eduardos
and Yangs partner, of his partnership/joint venture share, after an
accounting has been duly conducted of what he deems to be
partnership/joint venture property.[19]

A partnership exists when two or more persons agree to place their

money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits
and losses between them.[20] A contract of partnership is defined by the
 P a g e | 39

Civil Code as one where two or more persons bound themselves to

contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.[21] A joint venture, on
the other hand, is hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e., community of interests
in the business and sharing of profits and losses. Being a form of
partnership, a joint venture is generally governed by the law on
partnership.[22]

The underlying issue that necessarily comes to mind in this

proceedings is whether or not petitioner and respondent Eduardo are
partners in the theatre, shipping and realty business, as one claims but
which the other denies. And the issue bearing on the first assigned error
relates to the question of what legal provision is applicable under the
premises, petitioner seeking, as it were, to enforce the actionable
document - Annex A-1 - which he depicts in his complaint to be the
contract of partnership/joint venture between himself and Eduardo. Clearly,
then, a look at the legal provisions determinative of the existence, or
defining the formal requisites, of a partnership is indicated. Foremost of
these are the following provisions of the Civil Code:

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 requirement 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.

Annex A-1, on its face, contains typewritten entries, personal in

tone, but is unsigned and undated. As an unsigned document, there can be
no quibbling that Annex A-1 does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being
unsigned and doubtless referring to a partnership involving more than
P3,000.00 in money or property, Annex A-1 cannot be presented for
notarization, let alone registered with the Securities and Exchange
 P a g e | 40

Commission (SEC), as called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773
goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of
petitioners contribution, if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that

petitioners contribution consisted of immovables and real rights. Wrote that
court:

A further examination of the allegations in the complaint would

show that [petitioners] contribution to the so-called partnership/joint
venture was his supposed share in the family business that is consisting
of movie theaters, shipping and land development under paragraph 3.02
of the complaint. In other words, his contribution as a partner in the
alleged partnership/joint venture consisted of immovable properties and
real rights. .[23]

Significantly enough, petitioner matter-of-factly concurred with the

appellate courts observation that, prescinding from what he himself alleged
in his basic complaint, his contribution to the partnership consisted of his
share in the Litonjua family businesses which owned variable immovable
properties. Petitioners assertion in his motion for reconsideration[24] of the
CAs decision, that what was to be contributed to the business [of the
partnership] was [petitioners] industry and his share in the family [theatre
and land development] business leaves no room for speculation as to what
petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement

under Article 1773 of the Civil Code applies as long real property or real
rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who between petitioner
and his brother Eduardo, contributed immovables. In context, the more
important consideration is that real property was contributed, in which case
an inventory of the contributed property duly signed by the parties should
be attached to the public instrument, else there is legally no partnership to
speak of.

Petitioner, in an obvious bid to evade the application of Article 1773,

argues that the immovables in question were not contributed, but were
acquired after the formation of the supposed partnership. Needless to
stress, the Court cannot accord cogency to this specious argument. For, as
earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family
 P a g e | 41

businesses which already owned immovables even before Annex A-1 was
allegedly executed.

Considering thus the value and nature of petitioners alleged

contribution to the purported partnership, the Court, even if so disposed,
cannot plausibly extend Annex A-1 the legal effects that petitioner so
desires and pleads to be given. Annex A-1, in fine, cannot support the
existence of the partnership sued upon and sought to be enforced. The
legal and factual milieu of the case calls for this disposition. A partnership
may be constituted in any form, save when immovable property or real
rights are contributed thereto or when the partnership has a capital of at
least P3,000.00, in which case a public instrument shall be
necessary.[25] And if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership whenever immovable
property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its
assailed Decision[26] about the probative value and legal effect of Annex A-
1 commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner]

contributed immovable properties to the alleged partnership, the Memorandum
(Annex A of the complaint) which purports to establish the said
partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence of
a valid contract of partnership. Indeed, because of the failure to comply with
the essential formalities of a valid contract, the purported partnership/joint
venture is legally inexistent and it produces no effect whatsoever. Necessarily,
a void or legally inexistent contract cannot be the source of any contractual or
legal right. Accordingly, the allegations in the complaint, including the
actionable document attached thereto, clearly demonstrates that [petitioner] has
NO valid contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioners] complaint does NOT state
a valid cause of action because NOT all the essential elements of a cause of
action are present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CAs
equally assailed Resolution of December 7, 2004[27] denying petitioners
motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the

complaint as well as the actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and apply the legal provisions
which were brought to its attention by herein [respondents] in the their
 P a g e | 42

pleadings. In our evaluation of [petitioners] complaint, the latter

alleged inter alia to have contributed immovable properties to the
alleged partnership but the actionable document is not a public document
and there was no inventory of immovable properties signed by the
parties. Both the allegations in the complaint and the actionable
documents considered, it is crystal clear that [petitioner] has no valid or
legal right which could be violated by [respondents]. (Words in bracket
added.)

Under the second assigned error, it is petitioners posture that Annex A-1,
assuming its inefficacy or nullity as a partnership document,
nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may not be
a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the
contract does create rights and obligations of the parties and which rights
and obligations may be enforceable and demandable. Just because the
relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is
void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this
Court - and earlier on the CA after he experienced a reversal of fortune
thereat - as an afterthought. The appellate court, however, cannot really
be faulted for not yielding to petitioners dubious stratagem of altering his
theory of joint venture/partnership to an innominate contract. For, at
bottom, the appellate courts certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in
grave abuse of discretion. As respondent Yang pointedly observed,[28] since
the parties basic position had been well-defined, that of petitioner being
that the actionable document established a partnership/joint venture, it is
on those positions that the appellate court exercised its certiorari
jurisdiction. Petitioners act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an
admission of the untenability of such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance,

he has now contended that the actionable instrument may be considered
an innominate contract. xxx Verily, this now changes [petitioners]
theory of the case which is not only prohibited by the Rules but also is
an implied admission that the very theory he himself has adopted, filed
and prosecuted before the respondent court is erroneous.
 P a g e | 43

Be that as it may . . We hold that this new theory contravenes [petitioners]

theory of the actionable document being a partnership document. If
anything, it is so obvious we do have to test the sufficiency of the cause
of action on the basis of partnership law xxx.[29] (Emphasis in the
original; Words in bracket added).

But even assuming in gratia argumenti that Annex A-1 partakes of a

perfected innominate contract, petitioners complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of
Annex A-1. Withal, even on this consideration alone, petitioners claim
against Yang is doomed from the very start.

As it were, the only portion of Annex A-1 which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office everytime I am away.
I want you to run it the way I am trying to run it because I will be alone
and I will depend entirely to you, My sons will not be ready to help me
yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater.
(Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself

under the above passage, if he indeed wrote Annex A-1, is a promise
which is not to be performed within one year from contract execution
on June 22, 1973. Accordingly, the agreement embodied in Annex A-
1 is covered by the Statute of Frauds and ergo unenforceable for
non-compliance therewith.[30] By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year
from the making thereof shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no action can be
proved unless the requirement exacted by the statute of frauds is
complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million
or 10% equity of the family businesses supposedly promised by
Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go
to a common fund would be to read something not written
in Annex A-1. Thus, even this angle alone argues against the very
idea of a partnership, the creation of which requires two or more
 P a g e | 44

contracting minds mutually agreeing to contribute money, property

or industry to a common fund with the intention of dividing the
profits between or among themselves.[32]
In sum then, the Court rules, as did the CA, that petitioners complaint for
specific performance anchored on an actionable document of partnership
which is legally inexistent or void or, at best, unenforceable does not state
a cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an
inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint

venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua family and
petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint

venture/partnership with Eduardo and what his share in the businesses will be.
No allegation is made whatsoever about what Yang contributed, if any, let
alone his proportional share in the profits. But such allegation cannot, however,
be made because, as aptly observed by the CA, the actionable document did not
contain such provision, let alone mention the name of Yang. How, indeed,
could a person be considered a partner when the document purporting to
establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are
business partners in the [respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang became
their partner in their Odeon Theater investment thereafter. Several paragraphs
later, however, petitioner would contradict himself by alleging that his
investment and that of Eduardo and Yang in the Odeon theater business has
expanded through a reinvestment of profit income and direct investments in
several corporation including but not limited to [six] corporate respondents
This simply means that the Odeon Theatre business came before the corporate
respondents. Significantly enough, petitioner refers to the corporate
respondents as progeny of the Odeon Theatre business.[34]
 P a g e | 45

Needless to stress, petitioner has not sufficiently established in his

complaint the legal vinculum whence he sourced his right to drag Yang into
the fray. The Court of Appeals, in its assailed decision, captured and
formulated the legal situation in the following wise:

[Respondent] Yang, is impleaded because, as alleged in the complaint,

he is a partner of [Eduardo] and the [petitioner] in the Odeon Theater
Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:

xxx xxx xxx

Clearly, [petitioners] claim against Yang arose from his alleged

partnership with petitioner and the respondent. However, there was NO
allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and Yang. More
importantly, however, the foregoing ruling of this Court that the
purported partnership between [Eduardo] is void and legally inexistent
directly affects said claim against Yang. Since [petitioner] is trying to
establish his claim against Yang by linking him to the legally inexistent
partnership . . . such attempt had become futile because there was
NOTHING that would contractually connect [petitioner] and Yang. To
establish a valid cause of action, the complaint should have a statement
of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including
their alleged investment in the Odeon Theater. A statement of facts on
those matters is pivotal to the complaint as they would constitute the
ultimate facts necessary to establish the elements of a cause of action
against Yang. [35]

Pressing its point, the CA later stated in its resolution denying

petitioners motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document

attached to the complaint that is controlling. Suffice it to state, We have
not ignored the actionable document As a matter of fact, We emphasized
in our decision that insofar as [Yang] is concerned, he is not even
mentioned in the said actionable document. We are therefore puzzled
how a person not mentioned in a document purporting to establish a
partnership could be considered a partner.[36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he

changed his theory of the case, as peremptorily determined by the CA, has
been discussed at length earlier and need not detain us long. Suffice it to
say that after the CA has ruled that the alleged partnership is inexistent,
petitioner took a different tack. Thus, from a joint venture/partnership
theory which he adopted and consistently pursued in his complaint,
 P a g e | 46

petitioner embraced the innominate contract theory. Illustrative of this shift

is petitioners statement in par. #8 of his motion for reconsideration of the
CAs decision combined with what he said in par. # 43 of this petition, as
follows:

8. Whether or not the actionable document creates a partnership,

joint venture, or whatever, is a legal matter. What is determinative for
purposes of sufficiency of the complainants allegations, is whether the
actionable document bears out an actionable contract be it a partnership,
a joint venture or whatever or some innominate contract It may be noted
that one kind of innominate contract is what is known as du ut facias (I
give that you may do).[37]

43. Contrariwise, this actionable document, especially its above-

quoted provisions, established an actionable contract even though it may
not be a partnership. This actionable contract is what is known as an
innominate contract (Civil Code, Article 1307).[38]

Springing surprises on the opposing party is offensive to the sporting idea

of fair play, justice and due process; hence, the proscription against a party
shifting from one theory at the trial court to a new and different theory in
the appellate court.[39] On the same rationale, an issue which was neither
averred in the complaint cannot be raised for the first time on appeal.[40] It
is not difficult, therefore, to agree with the CA when it made short shrift of
petitioners innominate contract theory on the basis of the foregoing basic
reasons.
Petitioners protestation that his act of introducing the concept of
innominate contract was not a case of changing theories but of supporting
his pleaded cause of action that of the existence of a partnership - by
another legal perspective/argument, strikes the Court as a strained attempt
to rationalize an untenable position. Paragraph 12 of his motion for
reconsideration of the CAs decision virtually relegates partnership as a fall-
back theory. Two paragraphs later, in the same notion, petitioner faults the
appellate court for reading, with myopic eyes, the actionable document
solely as establishing a partnership/joint venture. Verily, the cited
paragraphs are a study of a party hedging on whether or not to pursue
the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership

between [respondent] Eduardo, Sr. and [petitioner], no immovables were
contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and Eduardo, Sr. and
Roberto T Yang simply because his document does not create a
 P a g e | 47

partnership or a joint venture. This is a myopic reading of the actionable

document.

Per the Courts own count, petitioner used in his complaint the mixed
words joint venture/partnership nineteen (19) times and the
term partner four (4) times. He made reference to the law of joint
venture/partnership [being applicable] to the business relationship between
[him], Eduardo and Bobby [Yang] and to his rights in all specific properties
of their joint venture/partnership. Given this consideration, petitioners right
of action against respondents Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as
an actionable document of partnership, would strip petitioner of a cause of
action under the premises. A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable
document is dismissible for failure to state of action. So, in gist, said the
Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision
and Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

3. The Partnership Name – Art 1815

1. Jo Chung Chang vs Pacific Commercial Co. 45 Phil 142 (1923)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 19892 September 6, 1923

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

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

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

MALCOLM, J.:
 P a g e | 48

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.
 P a g e | 49

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
 P a g e | 50

"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."
 P a g e | 51

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
 P a g e | 52

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:
 P a g e | 53

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

xxx xxx xxx

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

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

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

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

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the
name of all or any of the partners as prescribed by the Code of Commerce prevents the creation of a
general partnership, Professor Jose A. Espiritu, as amicus 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.
 P a g e | 54

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.

2. Hung-Man-YocvsKieng-Chiong-Seng 6 Phil 498 (1906)

SECOND DIVISION

[G.R. No. 2888. October 23, 1906. ]

HUNG-MAN-YOC, in the name of KWONG-WO-SING, Plaintiff-Appellee, v. KIENG-CHIONG-SENG,

ET AL., Defendants-Appellants.

Chicote & Miranda, for Appellants.

Win. Tutherly and Gabriel & Borbon, for Appellee.

SYLLABUS

1. GENERAL PARTNERSHIP. — K.C.S. was not proven the firm name, but rather the designation of the
partnership. It can not, therefore, be the firm name of a general partnership, because this should contain
the names of all the partners, or some of them, or at least one of them, to be followed in the two latter
cases by the words "and company." cralaw virtua1aw l ibra ry

2. LIMITED PARTNERSHIP. — It is not the firm name of a limited partnership for the reason that this should
contain the same requisites as the firm name of a general partnership, and in addition thereto, the word
"limited."cralaw vi rt ua1aw lib rary

3. DE JURE PARTNERSHIP. — The organization of the partnership in question was not evidenced by any
public document, nor has the partnership been legal existence, and has acquired no juridical personality in
the acts and contracts executed and made by it.

4. DE FACTO PARTNERSHIP. — The partnership under consideration, not being included in any of the classes
of partnership defined by the Code of Commerce, there should be applied to it the general provisions
applicable to all partnerships. In such case "the persons in charge of the management of the association are
responsible for the business transacted in the name of the same." (Article 120, Code of Commerce.) As the
defendant was not so "in charge of the management of the association," he has incurred no liability.
 P a g e | 55

DECISION

ARELLANO, J. :

The court below entered judgment against each and all of the defendants, Chua-Che-Co, Yu-Yec-Pin, and
Ang-Chu-Keng for the sum of 7,962.14 pesos, Mexican, equivalent to 7,372.75 pesos, Philippine currency,
with interest at the rate 6 per cent per annum from December 7, 1903, and costs.

Chua-Che-Co is the only one who appealed.

The court below found that Chu-Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng were partners of Kiong-Tiao-Eng,
under the firm name of Kieng-Chiong-Seng.

It has been not proved that Kieng-Chiong-Seng was the firm name, but rather the designation of the
partnership.

It can not be the firm name of a general partnership because this should contain the names of all the
partners, or some of them, or at least one of them to be, followed in the two latter cases by the words "and
company" (art. 126 of the Code of Commerce), whereas in this case none of the four names of those it is
alleged were members of the firm appear in the firm name of the partnership. Neither can it be considered
as the firm name of a limited partnership for the reason that this should contain the same requisites as the
firm name of a general partnership, and in addition thereto the word "limited." (Art. 146.) The firm name in
question has absolutely none of these requisites.

Anonymous partnership (corporations) do not require a firm name or signature; a designation adequate, for
the object or objects of the business to which it is dedicated, is sufficient. (Art. 151 and 152.)

The fact is, as alleged by the plaintiff and appellee in his brief, that "there is no doubt that the partnership of
Kieng-Chiong-Seng was a mercantile partnership organized for the purpose of engaging in commercial
pursuits, although such organization was not evidenced by any public document as required by article 119 of
the Code of Commerce, nor was it registered as required by article 17 of the said code" (p.5).

All these statements are correct.

The partnership in question was a mercantile one, as it was engaged in the importation of goods for sale
here at a profit. It was so testified to by its manager, Yu-Yec-Pin, and Kiong-Tiao-Eng. But its organization is
not evidenced by any public document. The agent Yu-Yec-Pin himself and some of his so-called partners
have merely noted in the books of the partnership, which by the way, were not introduced in evidence, the
capital which each had contributed. The agent further testified that the partnership was not record in the
Mercantile Registry but in the Internal Revenue office.

All this being so, the alleged partnership never had any legal existence nor has it acquired any judicial
personality in the acts and contracts executed and made by it. (Art. 116, par. 2.)

But as the said partnership was a partnership de facto, although it had no legal standing, and contracted
obligations in favor of the plaintiff, the liability arising from such obligations must enforcible against some
one.

The partnership in question not being included in any of the classes of partnership defined by the Code of
Commerce there should be applied to it the general provisions applicable to all partnerships contained in
article 120 of the Code of Commerce, which reads as follows: jgc:c han robles. com.ph

"The persons in charge of the management of the association who do not comply with the provisions of the
foregoing article (art. 119, which requires that the articles of partnership be recorded in a public instrument,
and that the partnership be registered in the Mercantile Register) shall be responsible together with the
persons not members of the association with whom they may have transacted business in the name of the
same." cralaw virtua1aw l ibrary

The defendant, Chua-Che-Co, was in charge of the management of the association, nor did he make any
contract at all with the plaintiff, as clearly appears from the testimony of the various witnesses, the agent of
the partnership, Yu-Yec-Pin, being the person who made all the contracts for the partnership; also Kieng-
Tiao-Eng according to two of the witnesses. It is evident, therefore, that he has incurred no liability and that
he can not be held individually responsible for the payment of plaintiff’s claims as the court below found.

We accordingly reverse the judgment of the court below and acquit the defendant, Chua-Che-Co, without
special condemnation as to costs in both instances.

After the expiration of ten days from the date of final judgment the record will be remanded to the Court of
First Instance for execution. So ordered.

Torres, Mapa, Johnson, Carson, Willard, and Tracey, JJ., concur.

 P a g e | 56

3. Compania Agricola vs Reyes, 4 Phil 2 (1904)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 1184 April 22, 1904

THE COMPAÑIA AGRICOLA DE ULTRAMAR, plaintiff-appellant,

vs.
ANACLETO REYES, ET AL., defendants-appellees.

Francisco Ortigas for appellant.

Jose Santiago for appellees.

JOHNSON, J.:

On the 7th day of January, 1902, the representative of the Compañia Agricola de Ultramar, a
partnership legally organized in Madrid, Spain, domiciled in the city of Manila, presented a complaint
in the justice's court of the town of Quingua, Province of Bulacan, against Anacleto Reyes and
others, setting forth that the defendants were tenants of the estate called Tabang, San Marcos, and
Dampol, the property of the plaintiff company located in the said town of Quingua, each one of whom
were occupying the quantity of land expressed therein without having paid the rent for the years
1899, 1900, and 1901, notwithstanding the fact that said payment had been demanded several
times at the end of each year. Therefore the plaintiff company prayed that judgment be rendered
against said defendants, ordering them to vacate the lands occupied by them and to restore the
possession thereof to the plaintiff, with costs against the defendants.

Upon notice, the defendants appeared on the 30th of January of the same year, with the exception
of the China-man Mariano Yñiguez. After hearing both parties, the justice of the peace, on the 17th
of February following, on the supposition that said plaintiff company was a commercial partnership,
and subject to the provisions of the Code of Commerce, and had not registered in the commercial
registry, denied the petition of the plaintiff,. with costs.

An appeal having been interposed by the plaintiff and the parties cited, a hearing was had in the
Court of First Instance of Bulacan on the 21st of March, 1902, and the judge, having heard the
arguments and petitions of both parties, on the 22d of the same month, rendered judgment
confirming the decision of the justice's court of Quingua, and declared the Compañia Agricola de
Ultramar a commercial partnership, and therefore that its registry in commercial register was
necessary in order to appear in an action, and adjudged the payment of the costs to the plaintiff.

On the 24th of March the plaintiff company, by petition, prayed that the decision before mentioned
should be annulled, and that a new trial be granted in view of the reasons set forth. The judge, on
the 27th of September, in the presence of both parties, and for the reasons expressed by him,
declared that the Compañia Agricola de Ultramar was a civil partnership, to which are applicable the
provisions of the Code of Commerce in conformity with article 1670 of the Civil Code, and that said
partnership should be registered in the commercial registry before it could appear in an action
against the defendants, modifying and revoking that part of the judgment of the 22d of March which
did not conform thereto, and confirming that part which agrees with the provisions cited. The plaintiff
excepted to this judgment.

In the bill of exceptions appears, among other documents, the articles of incorporation executed on
the 6th of February, 1893, before a notary in the court of Madrid, Spain, by various residents of the
same place, organizing a partnership, entitled Compañia Agricola de Ultramar, which, among other
things, expressed the organization of the partnership and its statutes, as well as that the parties
therein organized a special civil partnership to exploit the agricultural industry in the Philippine
 P a g e | 57

Islands and other Spanish colonies, in accordance with the present Civil Code, and under the
following statutes:

ARTICLE 1. The partnership shall be called the Compañia Agricola de Ultramar, and shall
have its residence in Manila.

ART. 2. The duration of the partnership shall be for ninety years from the date of its
incorporation. Said period may be extended by a resolution of the board of shareholders.

ART. 3. In order to exploit and develop the agricultural industry in the Philippine Islands and
other Spanish colonies, the partnership may acquire any land, canals, and irrigating marshes
or runways, overflows, waterfalls, quarries, and other real estate, and such cattle as may be
useful for agricultural exploitation; to exploit or alienate said property, and to rent, by way of a
charge, or underlease, as may be convenient for the interests of the partnership, the realty;
to establish agricultural colonies and to invest capital at interest with a mortgage upon rural
or urban property, and to acquire credits with such guaranties; to grant loans upon crops,
cultivated lands, cattle, agricultural machines, and in turn to borrow money on mortgage
guaranty; to lease rural or urban property.

ART. 4. The capital is four million and fifty thousand pesetas, divided into eighty-one shares
of fifty thousand pesetas each. Said capital can be increased or decreased, or subdivided in
a proportion of five thousand or more pesetas for each one, by resolution of the board of
directors.

ART. 5 Only the capital invested will answer for the obligations of the company. Neither the
organizers nor grantors of shares will in any case and under any consideration be
responsible for the debts of the partnership.

ART. 38. According to the provisions of article three the partnership can loan money upon
crops, cultivated land, cattle, and agricultural machinery and implements in general.

In the bill of exceptions presented to this court by the Compañia Agricola de Ultramar, plaintiff and
appellant, against the decision of the lower court, it appears that the principal object is to obtain a
judicial declaration that the plaintiff herein is a civil partnership, and is not therefore under the
obligation of registering in the commercial registry in order to have juridical personality with the
power to appear in an action against the defendants.

The organizers of the Compañia Agricola de Ultramar stated in the articles of incorporation that by
the same they organized a special civil corporation for the purposes and ends expressed therein.

Granting, for the sake of argument, without accepting the doctrine that the character of an
association, whether it be civil or mercantile, is determined solely by the business in which it is
engaged and not by the form of its organization, in this present cause there is not evidence showing
the character of the business of the plaintiff save the articles of its association. We must therefore
decide whether this plaintiff was a mercantile or a civil corporation by the purposes declared in its
articles of association, and the law governing in such cases.

Mercantile associations, purely, are governed by the mercantile code. Civil associations are
governed by the Civil Code. Article 1 of the Code of Commerce provides that:

ARTICLE 1. The following are merchants for the purposes of this code:

(1) Those who, having legal capacity to trade, devote themselves thereto habitually.

(2) Commercial or industrial associations which are formed in accordance with this code.

The Commercial Code for the Philippines does not attempt anywhere, as some other codes do, to
define what are commercial transactions. In the absence of proof to the contrary, therefore, we must
be governed as to the purposes of the association by the form adopted by its organization and the
purposes declared in its articles of association.

Primarily we must determine whether an association is mercantile or civil simply by the form of its
organization.
 P a g e | 58

The Commercial Code provides how mercantile associations shall be organized.

Article 116 defines a commercial association and 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 nature may be, provided it has been established in
accordance with the provisions of this code.

After a commercial association has been established, it shall have the right to operate as a
juristic person in all its acts and contracts.

Article 122 provides that commercial associations may become a general or limited copartnership or
a corporation, according to the particular form of the organization which it may adopt.

Article 121 provides that all commercial associations shall be governed by the clauses and
conditions of their articles of association, and that in cases or conditions not so provided for shall be
controlled by the general provisions of the Commercial Code.

Article 17 provides that all commercial associations, established in accordance with the provisions of
the code, shall be inscribed in the commercial registry.

Article 16 makes provisions for the establishment of commercial registries in all the capitals of the
provinces.

Article 21 provides what facts, concerning commercial associations, shall be recorded in such
commercial registries.

Article 119 provides that —

Every commercial association, before beginning business, shall be obliged to record its
establishment, agreements, and conditions in a public instrument, which shall be presented
for record in the commercial registry, in accordance with the provisions of article seventeen.

Additional instruments which modify or alter in any manner whatsoever the original contracts
of the association are subject to the same formalities, in accordance with the provisions of
article twenty-five.

Partners can not make private agreements, but all must appear in the articles of
copartnership.

The supreme court of Spain in an opinion rendered on the 14th day of May, 1884, in the cause of
Santiago vs.Bautista, et al., held under a similar provision of the Commercial Code in force in Spain,
that commercial associations have no right to bring actions in the name of the association until after
they have complied with the provisions of the code found in articles 17 and 119.

Articles 125-144 contain the general provisions governing general associations.

Articles 145-150 contain the general provisions governing limited associations.

Articles 151-174 contain the general provisions governing corporation.

Articles 175-243 contain the general provisions governing special classes of corporations or
associations.

Article 35 of the Civil Code provides what are juridical persons. Its provisions are as follows:

The following are juridical persons:

(1) The corporations, associations, and institutions of public interest recognized by law.
 P a g e | 59

Their personality begins from the very instant in which, in accordance with law, they are
legally established.

(2) Private associations, be they civil, commercial, or industrial, to which the law grants
proper personality, independent of that of each member thereof.

Article 36 provides that —

The associations referred to in No. 2 of the foregoing article, shall be governed by the
provisions of their articles of association, according to the nature of the latter.

Article 37 provides that —

The civil capacity of corporations shall be governed by the laws which have created or
recognized them; that of associations by their by-laws . . . .

Article 38 provides that the general powers and rights of juridical persons are as follows:

Juridical persons may acquire and possess property of all kinds, as well as contract
obligations and institute civil or criminal actions in accordance with the laws and rules of their
organizations.

Article 39 provides for the winding up of the business of corporations and associations organized
under the Civil Code and for the disposition of their property.

Article 1665 defines a partnership as follows:

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.

Article 1666 provides that such partnerships must have lawful objects, and be established for the
common interest of all their members.

Article 1667 provides that such partnerships may be established in any form whatever, except when
real property or property rights are contributed, in which case a public instrument shall be necessary.

In the present case the property was contributed and a public instrument was duly executed before
Manuel de Bofarull, one of the most famous notaries of all Europe.

Article 1670 provides that civil partnerships, on account of the objects to which they are devoted,
may adopt all the forms recognized by the Commercial Code. In such cases its (Commercial Code)
provisions shall be applicable in so far as they do not conflict with the provisions of this code.

It will be seen from this provision that whether or not partnerships shall adopt the forms provided for
by the Civil or Commercial Codes is left entirely to their discretion. And furthermore, that such civil
partnerships shall only be governed by the forms and provisions of the Commercial Code when they
expressly adopt them, and then only in so far as they (rules of the Commercial Code) do not conflict
with the provisions of the Civil Code. In this provision the legislature expressly indicates that there
may exist two classes of commercial associations, depending not upon the business in which they
are engaged but upon the particular form adopted in their organization. The definition of the
partnership found in article 1665 clearly includes associations organized for the purpose of gain
growing out of commercial transactions.

Articles 1671-1678 provide for general and particular partnerships, and give the rules governing the
division of the profits.

The Commercial Code makes special provisions for the liability of the members of the different
associations organized under it. (See the articles contained in sections 2, 3, 4, 5, and 6 of Book II,
Title I.)
 P a g e | 60

The Civil Code here again recognizes the existence of civil partnerships, in contradistinction to
commercial partnerships, in expressly providing for the liability if their members (See arts. 1667-1669
of Chap. II of Title VII.) Chapter III of the same title contains special provisions for the dissolution of
civil associations.

If it is held that an association which adopts the form for its organizations provided for by the Civil
Code is controlled by the rules requiring registration under the Commercial Code, then by which
code shall the courts be governed in applying the rules of the liability of their members and for the
dissolution of the same? We are inclined to the belief that the respective codes, Civil and
Commercial, have adopted a complete system for the organization, control continuance, liabilities,
dissolutions, and juristic personalities of associations organized under each.

It will be seen from these provisions of the codes that the Civil Code has expressly provided for the
existence of commercial associations, giving them juristic personality and certain rights and
privileges. In these provisions no reference is made to the provisions of the Commercial Code. It is
contended that notwithstanding this fact, such associations are nevertheless governed by the
provisions of the latter code. The Commercial Code was enacted and went into effect on the 1st day
of December, 1888. The Civil Code was enacted and took effect on the 31st day of July, 1889. Had
it been the intention of the legislature to provide that all commercial associations, of whatever class,
should be governed by the provisions of the Commercial Code, it certainly would not have provided,
at a later date, other rules, rights, privileges, and regulations. It is our opinion that associations
organized under the different codes are governed by the provisions of the respective codes.

From the articles of association it will be seen that the plaintiff company was organized expressly
under the provisions of the Civil Code, on the 6th day of February, 1893.

From the petition of the plaintiff and the bill of exceptions it appears that the defendants failed and
refused to pay the rent for any of the years previous to 1899. Assuming, without finding it to be a
fact, that the defendants had paid the rents for previous years, then they thereby recognized the
plaintiff company as an entity and are thereby now estopped from setting up the contrary.

While conditions precedent must always be performed, in order that a corporation may have a legal
existence, it does not by any means follow that objection to the existence of a corporation on this
ground alone can be raised by any and every person, and in every proceeding. This objection can
always, with few exceptions, be raised by the State. (Attorney-General vs. Hanchett, 42 Mich., 436;
People vs. Water Co., 97 Cal., 276).

Persons who assume to form a corporation or business association, and exercise corporate
functions, and enter into business relations with third persons, are estopped from denying that they
constitute a corporation. So also are the third persons who deal with such a de facto association or
corporation, recognizing it as such and thereby incurring liabilities, estopped, when an action is
brought on such obligations, from denying the juristic personality of such corporations or
associations. (Scheufler vs. Grand Lodge, 45 Minn., 256; Farmer's Loan and Trust Co. vs. Ann Arbor
Ry. Co., 67 Fed. Rep., 49)

Where there is a corporation de facto, with no want of legislative power to its due and legal
existence, when it is proceeding in the performance of a corporate functions, and third persons are
dealing with it on the supposition that it is what it professes to be, and the questions are only
whether the law has been strictly followed in its organization, it is plainly a dictate alike of justice and
public policy, that in controversies between the de facto corporation and those who have entered
into contractual relations with it, as corporations or otherwise, such questions should not be suffered
to be raised. (Swarthout vs. Michigan, etc., Ry. Co., 224 Mich., 390).

Where a shareholder of an association is called upon to respond to a liability as such, and where a
party has contracted with a corporation and is sued upon the contract, neither is permitted to deny
the existence or the legal validity of such corporation. To hold otherwise would be contrary to the
plainest principles of reason and good faith. Parties must take the consequences of the position they
assume. (Casey vs. Galli, 94 U.S., 673; Bliss on Code Pleading, secs. 252-254.)

From the foregoing considerations, the provisions of the articles of association of the plaintiff
company, and the quoted provisions of the Civil and Commercial Codes, we are justified in reaching
the following conclusions:
 P a g e | 61

First. That the plaintiff company had statutory authority to organize under the Civil Code for the
purposes indicated in its articles of association.

Second. That it did effect its organization under the Civil Code in force in these Islands.

Third. The defendants having recognized the existence of the plaintiff as an entity capable of dealing
with private persons, they are thereby estopped from denying that fact.

Fourth. That the plaintiff company, having complied with the forms required for the organization of
associations of its class under the Civil Code, is a juristic person recognized by law, and has
capacity to maintain the present action.

The judgment of the lower court is therefore hereby reversed, and the cause is hereby ordered to be
remanded to the Court of First Instance of the Province of Bulacan, with direction that the
defendants be required to appear and answer within the time fixed by law, and upon failure so to do
that a judgment be rendered against them by default in accordance with the prayer of the petition
filed in said cause.

Cooper and McDonough, JJ., concur.

Mapa, J., did not sit in this case.

Separate Opinions

ARELLANO, C.J., concurring:

This case presents the much-debated question of the legal personality of a civil partnership in the
mercantile form.

The question turns upon the provisions of article 1670 of the Civil Code, which is as follows: "Civil
partnerships, on account of the objects to which they are devoted, may adopt all the forms
recognized by the Code of Commerce. In such case its provisions shall be applicable in so far as
they do not conflict with those of this code."

The doubt which gives rise to the discussion results on the one hand, from the fact that the
partnership, because it is a civil partnership, is by its very nature invested with legal personality from
the moment of the execution of the contract, in the absence of a contrary stipulation, and on the
other hand from the fact that because it is established in a form recognized by the Code of
Commerce it can not have legal personality until after the execution of a public instrument containing
the articles of association, and the inscription of this instrument in the mercantile registry.

The provisions of law which serve as a basis for both aspects of the question are the following:

With respect to the juridical personality of a civil partnership, articles 1679, 1667, 1668, and 1669 of
the Civil Code provide:

ART. 1679. A partnership begins from the moment of the making of the agreement, if not
otherwise stipulated.

ART. 1667. Civil partnerships may be established in any form whatever, unless when real
property or an interest therein should be contributed to the same, in which case a public
instrument shall be necessary.

ART. 1668. Articles of copartnership are void, when real property is contributed to the same,
if an inventory of said property is not made, signed by the parties, and which must be
attached to the instrument.

ART. 1669. Partnerships, the articles of which are kept secret among the partners, and in
which each one of the latter may contract in his own name with third persons, shall have no
 P a g e | 62

juristic personality. This kind of partnership shall be governed by the provisions relating to
property held in common.

As to the juristic personality of a mercantile partnership articles 117, 119, 17 and 24 of the Code of
Commerce control:

ART. 117. Articles of association, executed with the essential requisites of law, shall be valid
and binding between the parties thereto, no matter what form, or what conditions and
combinations, legal and honest, are embraced therein, provided they are not expressly
prohibited by this code.

ART. 119. Every commercial association before beginning business shall record its
establishment, agreements, and conditions in a public instrument, which shall be presented
for record in the commercial registry, in accordance with the provisions of article 17 . . . .
Partners can not make private agreements, but all must appear in the articles of
copartnership.

ART. 17. The record in the commercial registry shall be optional for private merchants and
compulsory for associations established in accordance with this code or with special laws,
and for vessels.

ART. 24. Articles constituting associations not recorded shall be binding between the
members who execute the same; but they shall not prejudice third persons, who, however,
may make use thereof in so far as advantageous.

From the provisions of law above quoted it follows, first, that the contract of partnership does not
require any particular form to give it validity and make it enforceable as between the contracting
parties themselves, it being sufficient that the essential requisites for the perfection of the contract
concur, with one single exception as to civil partnership; second, that this exception with respect to
civil partnerships consists in the fact that the partnership contract shall not be valid, when the real
property is contributed to it, if the contract is not recorded in a public instrument, with an inventory of
the real property so contributed attached thereto; third, with respect to third persons, (a) for the
enforceability of a contract of civil partnership the formality of the public instrument is not required,
with exception of the case above referred to, it being sufficient that the partners do not keep their
agreements secret, and that each partner does not undertake to reserve the right to make contracts
in his own name with third persons; fourth, that with respect to third persons a partnership which
keeps its agreements a secret, or in which each one of the partners contracts in his own name, the
partnership will not be a legal entity independent from the personality of each one of the individuals
so associated, but would be merely a tenancy in common, and persons so associated, as to third
persons, would be mere tenants in common; fifth, that with respect to third persons (b) for the
enforceability of the mercantile contract of partnership it is necessary that the contract be evidenced
by public instrument, and that this instrument be recorded in the mercantile registry.

If the members of the Compañia Agricola de Ultramar, formed in Madrid February 6, 1893, when
constituting this partnership expressly with the civil character in accordance with their agreements
had contributed capital in cash only "for the purpose of exploiting and developing the agricultural
industry in the Philippine Islands and other Spanish colonies," and to apply such funds to "( f )
leasing such city or country property as may be convenient;" "(c) to established agricultural colonies,
to make large plantations for the account of the partnerships or of other persons, to break lands, to
make plans for water supplies, to construct and operate such water supplies, and to engage in other
similar enterprises;" "(d) to invest money at interest upon the security of mortgages or antichresis
upon city or country property, and to purchase credits secured by mortgage or antichresis. . .," and
had not divided its capital into shares or prepared by-laws, or adopted a partnership name, there is
no doubt that they might have dispensed with the formality of a public instrument and have recorded
these agreements in a private writing. Head they done so nobody could have denied the partnership
legal personality as to third persons unless it should be shown that some one of the members
contracted for it in his own name. The manger or managers appointed by the partners would beyond
doubt have been able to maintain suits in the name of the partnership as a legal entity — maintain,
for instance, the action of forcible entry and unlawful detainer in which this question arose.

The necessity for a public instrument arises from the provisions of paragraphs (a) and (b) of the
articles of partnership entered into by the partners with respect to the purpose of the partnership. But
this necessary form did not change the status of the association as a civil partnership, because the
 P a g e | 63

Civil Code itself requires this formality for all partnerships to which real property or interests therein
are contributed, even though the partnership may not partake of the form of mercantile partnership.

The only ground for doubt remaining undisposed of is found in the following peculiarities of the
contract in question: (1) The anonymous form of the partnership with its firm name, the division of
the capital into shares, and the establishment of by- laws for its government; (2) the operations (c) in
which the partnership might engage, to wit' "to make loans upon crops, fields, cattle, agricultural
machinery and implements . . .," an operation apparently controlled by article 212 of the Code of
Commerce as one properly pertaining to agricultural banks. From these premises the inference is
apparently to be drawn that as the anonymous form of partnership is one of the forms regulated by
the Code of Commerce, and as the object of agricultural banks and associations is to "make loans in
money or kind for a period not exceeding three years upon products, crops, cattle, or any other
pledge or special security" (art 212, par. 1), and as on this account the provisions of the Code of
Commerce are applicable to such a partnership (art. 1670, Civil Code), the Compañia Agricola de
Ultramar would be a civil partnership but by reason of its form and mercantile purpose would be
subject to the provisions of articles 119 and 17 of the Code of Commerce, and consequently until the
articles of association are recorded in the mercantile register it would appear that the partnership
could not maintain a suit as a legal entity against third persons arising fro obligations contracted by
them in favor of the partnership.

This conclusion, however, is not a necessary one. The terms of the articles of association are as
follows:

ART. 3. To exploit and develop the agricultural industry in the Philippine Islands and other
Spanish colonies, the partnership (its purpose) may: . . . (e) (one of its purposes) make loans
upon crops, field, etc. . . . ." That which is optional is not obligatory. Not being obligatory, it is
not essential. That which is not essential is not one of the constituent elements of the
contract. Consequently the Compañia Agricola de Ultramar was not constituted as an
agricultural bank or agricultural association according to the classification of the Code of
Commerce under the heading: "Of special rules applicable to banks and agricultural
associations."

Taking it for granted that this purpose, among others of a purely civil character, as well as the object
of the partnership, were necessary purposes, or that the Compañia Agricola del Ultramar, or any
other partnership, similarly situated, might some day desire to carry it into effect, it would not for this
reason necessarily have to be considered as a mercantile partnership or bound to comply with the
formalities necessary to the constitution of a purely mercantile partnership. Article 1 of the Code of
Commerce gives us a division of merchants as follows (1) Those who, having legal capacity to trade,
devote themselves thereto customarily; (2) commercial or industrial associations which are formed in
accordance with this code. The Compañia Agricola de Ultramar was not organized in accordance
with this code. It was expressly stated by the gentlemen who signed the contract that ". . . they
declare (1) constitution of the partnership; that by this act they constitute a particular civil anonymous
partnership for the purpose of exploiting and developing the agricultural industry in the Philippine
Islands and other Spanish colonies in accordance with the Civil Code in force . . . .(Bill of exceptions,
p. 18.)

Furthermore, in accordance with article 2 of the Code of Commerce "commercial transactions,

whether those who perform them are merchants or not, and whether such acts are or are not
specified in this code, shall be controlled by the provisions contained therein." If the Compañia
Agricola de Ultramar or any other company organized in a similar way should engage in commercial
transactions such as, for instance, purchase and sale, commission agencies, mercantile bailments,
or mercantile loans, then in accordance with this article of the Code of Commerce which would be
applicable to it ex propio vigore, and furthermore by the provisions of article 1670 of the Civil Code,
without ceasing to be a civil partnership and endowed with legal personality from the time of its
commencement, it would be controlled by the provisions contained in that code with respect to the
commercial transactions performed by it. Thus, for instance, if it made loans upon crops, fields,
cattle, agricultural machinery and implements (object (c) of the articles of association, bill of
exceptions, p. 18) then it would be subject to the provisions of article 217, according to which —
even considering it for the sake of the argument as a mere agricultural credit association instead of
what it is, a civil company for the exploitation and development of the agricultural industry — it would
be obliged to apply 50 per cent of its capital to loans which, as well as those referred to, are
specified in paragraph 1 of article 212 of the Code of Commerce.
 P a g e | 64

If neither by reason of one among various purposes, or by reason of any general purpose, is it
necessary that one who, like a civil partnership organized in accordance with the Civil Code, is not a
merchant, should become a merchant and thereby be subject to all the provisions of the Code of
Commerce concerning mercantile companies, and withdrawn absolutely from the scope of the
provisions of the Civil Code to which it was the intent of the founders to conform in the exercise of
the option conferred upon them by both codes, then neither is it a necessary consequence that a
civil partnership, intentionally and deliberately organized in accordance with the Civil Code, should
be transformed into a mercantile partnership merely because it has been molded in one of the forms
recognized by the Code of Commerce — in this case the anonymous form.

The applicability of the provisions of the Code of Commerce to civil partnerships organized in the
form of mercantile associations, such as anonymous partnerships or corporation, does not include all
the provisions of that code, nor does it annul by absorption those provisions is limited logically to a
mere adaptation to those concerning the form adopted by the civil partnership with respect to its
control. This is the provision of article 1670 of the Civil Code ad referendum. This article is to be
understood as though its provisions had been expressed in the following language:

ART. 1670. The civil partnership, without ceasing to be civil by reason of its object, may be
created in all the forms recognized in the Code of Commerce. It may be a collective or
general partnership, a partnership en comandita, or an anonymous partnership. In this case,
if it should adopt the form of a general partnership, then the provisions of articles one
hundred and twenty-five to one hundred and forty-four, inclusive, would be applicable to it; if
it should adopt the form of a partnership en comandita, then articles one hundred and forty-
five to one hundred and fifty would be applicable; and if the form adopted is that of the
anonymous partnership, then the provisions of articles one hundred and fifty-seven to one
hundred and seventy- four of the Code of Commerce would apply in so far as they are not in
conflict with the articles of the present code.

If the object of the Civil Code was to authorize a civil partnership to adopt the forms of a mercantile
partnership but still be controlled by the provisions of the Civil Code — and that such was the
purpose is shown by the exception established to the applicability of the articles of the Code of
Commerce and to the preponderance given to the provisions of the Civil Code itself — then it is
evident that the provisions of the Code of Commerce referred to as being applicable to such a civil
partnership in the mercantile form can be none other than those concerning the
mercantile from adopted. Any other view would be equivalent to considering the part greater than the
whole, and no effect could be given to the exception that the provisions of the Code of Commerce
are to be applicable "in so far as they are not in conflict with the provisions of the present code." If
this were not the purpose intended, then it would have been sufficient to have said, "in such case
they shall be in every respect subject to the Code of Commerce." Then indeed it might have been
said that the civil partnership in the mercantile form ceases to be civil and is transformed into a
mercantile association. If this conclusion can not be reached, and the partnership continues to be
civil, although invested with the mercantile form, then it has legal personality as a corporate being
provided the articles are not kept secret among the partners, and that each one of the latter be not
authorized to contract in his own name with third persons. (Art. 1669) Any other application of these
provisions would be contrary to the requirements of the Civil Code with respect to the legal
personality of a civil partnership.

Even if we examine the historical precedents of article 1670 of the Civil Code, no other conclusion
can be reached. Its historical precedent is article 106 of the Portuguese Code of Commerce, which
became operative in that country January 1, 1889. The Spanish Civil Code did not become operative
in Spain until May of that year, having been published the preceding January, before which date the
provisions cited of the Portuguese Code were available, it having been published in June, 1888.
According to this article 106, "civil partnerships may be constituted under any of the forms
established in the preceding article, they being, nevertheless, subject to the provisions of the present
code, except with respect to matters of bankruptcy and questions of jurisdiction." As the terms of this
article are more explicit, it appears more clearly still that a civil partnership in the mercantile form is
not converted into a mercantile partnership, and is not identified with a partnership mercantile by its
nature merely because it is subject to the provisions of the Code of Commerce. It appears further
that while mercantile partnerships are subject to the provisions of the Code of Commerce concerning
bankruptcy and the jurisdiction of the commercial court which exists in Portugal, civil partnerships in
the mercantile form are not so subject. The Spanish Civil Code is broader. While in the Portuguese
Code of Commerce the proviso contained in article 106 is a pure exception, the rule being the
applicability to civil partnerships in the mercantile form of the provisions of the Code of Commerce, in
the Civil Code of Spain the proviso is not a mere exception, but is the rule, the exception being the
 P a g e | 65

applicability of the provisions of the Code of Commerce in subordination to those of the Civil Code,
which preponderate. Consequently the direct, primordial, and principal law applicable is the Civil
Code, without prejudice to the application of the provisions of the Code of Commerce in so far as
they are not in conflict with those of the Civil Code, which are applicable to such partnerships merely
subsidiary. This being so, if the civil partnership from the time the contract is perfected is invested
with juridical personality as a corporate being, unless the partners keep their agreements a secret or
each one of them contracts in his own name (art. 1669), the Compañia Agricola de Ultramar, the
members of which do not keep their agreements secret, and as to whom it has not been shown that
any of them has contracted in his own name, is invested with juridical personality, notwithstanding
the fact that under the provisions of article 119 of the Code of Commerce, a mercantile partnership is
devoid of juridical personality unless its articles of association are recorded in the mercantile registry.
This is so because this provision of the Code of Commerce, which refers not to a matter of form, but
to the existence or essence of a mercantile partnership, is not applicable to a civil partnership in the
mercantile form, and second, because even admitting for the sake of argument that it were, then as
being clearly in conflict with the provisions of article 1669 it must give way to the rules of the Civil
Code in accordance with the provisions of article 1670 thereof. "The provisions of the Code of
Commerce will be applicable in so far as they are not in conflict with those of the present code."
These are the express terms of article 1670 of the Civil Code.

The will of the contracting parties, which is the fundamental law of the contract, can not be
disregarded without infringing the principle of the law of contracts established by article 1091 of the
Civil Code. It being the express will of the parties to constitute a civil partnership in accordance with
the Civil Code, the partnership organized is and can be nothing else than a civil partnership, and this
was the conclusion of the court below in its second decision. It is true that contracts are not what the
parties may see fit to call them, but what they really are as determined by the principles of law. It is
true that the parties are not a liberty to call a contract of loan a bailment, for these two contracts are
essentially different, and the essential attributes of things can not be changed. But a civil partnership
does not differ essentially from a mercantile partnership. They are not two distinct contracts. Both of
them have for their purpose the contribution of property or industry for the purpose of obtaining a
profit. As to whether the partnership is to be mercantile or civil, the law makes no specific difference,
leaving this to the will of the parties. If the parties organize the partnership in accordance with the
provisions of the Code of Commerce, then it would be mercantile. If they organize it in accordance
with the provisions of the Civil Code, then it will be civil. As the founders of the company in question
have made use of the right of option l which the law grants them, it can not be said that their
election, authorized by the law, is rendered ineffectual by the law itself. If there were such a provision
of law, no room for doubt would exist. It follows, therefore, that to say that although the parties
intended that the partnership should be civil, nevertheless it is mercantile, because the law so
provides, is to take the whole case for granted.

The partnership in question is industrial. Industry is one of the objects included within the definition
which the Civil Code gives of a civil partnership in article 1665, and also in that of a mercantile
partnership, the definition of which is found in article 116 of the Code of Commerce. Manresa says
"This definition also includes mercantile partnerships," but adds, "but they will not be considered as
mercantile if they are not constituted in accordance with the provisions of the Code of Commerce, in
which case they would be civil." (Vol. I, Manresa's Commentaries, p. 184)

For the reasons stated I agree with the result of the majority opinion.

TORRES, J., dissenting:

January 7, 1902, counsel for the Compañia Agricola de Ultramar, an anonymous partnership legally
constituted in Madrid, Spain, and domiciled in this city, filed a complaint in the court of the justice of
the peace of the municipality of Quingua, Province of Bulacan, against Anacleto Reyes et al.,
alleging that the defendants are tenants of the haciendas called Tabang, San Marcos, and Dampol,
the property of the plaintiff company, situated in the said township of Quingua' that each of the
defendants is in possession of the parcels of land described in the complaint; that they have failed to
pay the rents due for the years 1899, 1900, and 1901, or that of preceding years, notwithstanding
demands made upon them several times at the end of each year for the payment of the said rents.
Upon this statement of facts the plaintiff company prayed for judgment against the defendants for the
recovery of possession of the lands occupied by them, with the costs of suit.
 P a g e | 66

Process having been issued, the defendants appeared by their respective counsel on January 30,
1902, with the exception of the Chinaman Mariano Iñiguez, as to whom the case was dismissed on
motion of plaintiff. After hearing of both parties the justice of the peace, on February 17 following,
and upon the ground that the plaintiff company, being a mercantile partnership subject to the
provisions of the Code of Commerce, had not proven that its articles were recorded in the mercantile
registry, dismissed the complaint on motion of counsel for the defendants, and imposed upon the
plaintiff the costs of suit.

The plaintiff company having appealed, the case was tried in the Court of First Instance of Bulacan,
March 21, 1902, and the judge, after hearing the evidence and argument by the respective counsel,
on March 22, 1902, rendered judgment with the costs against the plaintiff, affirming the decision of
the court of the justice of the peace of Quingua, declaring the Compañia Agricola de Ultramar to be
a mercantile partnership, and that therefore to enable it to maintain the action it was necessary for
the company to show that its articles were recorded in the mercantile registry.

The plaintiff company on March 24, 1902, made a motion for a new trial upon the grounds stated in
the motion papers, and the court below, after hearing the parties upon the motion, on the 22d of
September, 1902, for the reasons stated in its decision, declared that the Compañia Agricola de
Ultramar was a civil partnership, to which the provisions of the Code of Commerce were applicable
in accordance with article 1670 of the Civil Code, and that the said company must record its articles
in the mercantile registry before it could maintain the suit against the defendants, thus modifying and
reversing its former decision of March 22 in so far as it conflicted with the latter decision, and
affirming it in so far as it was in harmony therewith. To this decision the plaintiff duly excepted.

In the bill of exceptions, among other documents, appear the articles of association executed
February 6, 1893, before a notary of the city of Madrid, Spain, by several citizens thereof, the
founders of the company styled the Compañia Agricola de Ultramar, which articles among other
things recite the organization of the company and its by-laws, and that the contracting parties
constituted a private civil partnership for the purpose of exploiting and developing the agricultural
industry of the Philippine Islands and other Spanish colonies, in accordance with the Civil Code in
force and upon the following terms and conditions:

ART. 1. The company shall be styled Compañia Agricola de Ultramar, and shall have its
domicile in Manila.

ART. 2. The duration of the company shall be ninety years from the date of the articles of
association, subject to further extension by the board of shareholders.

ART. 3. For the purpose of exploiting and developing the agricultural industry, the company
may acquire any estates, canals, irrigable lands, salt marshes, waterfalls, quarries, and such
other real and personal property as might be of utility for agricultural purposes; to operate or
dispose of the said properties, and to let out the real property by lots or emphyteusis,
establish agricultural colonies, etc.; to invest money at interest upon the security of
mortgages or antichresis on city or country real property, and to acquire credits so secured;
to make loans upon crops, fields, cattle, agricultural machinery, etc., and itself to borrow
money upon mortgage security, and to lease city or country property.

ART. 4. The capital stock is four million and fifty thousand pesetas, divided into eighty-one
shares of fifty thousand pesetas each, the company being authorized to increase or diminish
its capital or to subdivide it into shares of five thousand or more pesetas each, by resolution
of the general meeting of shareholders.

ART. 5. The obligations of the company shall be enforceable against the paid-up capital
alone, and consequently neither the original members nor the subsequent holders of shares
shall be in any case responsible for the debts of the partnership.

ART. 38. According to the provisions of article three, the company may lend money upon
crops, fields, cattle, agricultural machinery, and implements.

By an instrument executed on the 6th of March, 1899, before a notary public in the city of Madrid,
the agent of the religious corporation of Augustinians sold and conveyed in fee simple to
the Compañia Agricola de Ultramar the nine estates described in the said deed, in consideration of
the sum of 8,350,000 pesetas. Among these estates is included the hacienda of Quingua, more
 P a g e | 67

commonly known by the name of Dampol and San Marcos, which property is devoted to the
cultivation of rice and other grains, and whose area is mentioned in the deed.

In the bill of exceptions presented to this court by counsel for the Compañia Agricola de Ultramar,
against the decision of the judge entered on the 27th of September, 1902, it is contended and this is
the principal purpose of the appeal, that this court should hold that the appellant company, by reason
of its civil character, is under no obligation to record its articles of association in the mercantile
registry, as a condition to its possession of the status of a legal entity entitled to maintain suit as
such against the defendants. It is to be observed that the defendants did not contract with the
plaintiff company, but with the Augustinian friars.

Article 2 of the Code of Commerce provides that commercial transactions, whether performed by
merchants or others, and whether they are or are not specified in that code, shall be controlled by its
provisions. All contracts and operations provided for in the Code of Commerce, and all others of an
analogous character are regarded as commercial acts.

Article 17 of the code reads as follows: "The record in the commercial registry shall be optional for
private merchants and compulsory for associations established in accordance with this code or with
special laws, and for vessels."

The last clause of article 21 of the same code provides: "Foreign associations which desire to
establish themselves or create branches in the Philippines shall present and have recorded in the
registry, besides their statutes and the documents prescribed for Spanish associations, the
certificate issued by the Spanish consul stating that said companies have been established and
authorized according to the laws of their respective countries."

From the text of these provisions of the Code of Commerce it is to be inferred that the duty of
complying with this requisite of inscription in the registry includes all those engaged in commerce,
whether matriculated or not, and to all companies which by reason of their object of purpose and the
character of their operations are to be considered as mercantile companies, for the character of the
company is to be determined not by its external form or mechanism by its purpose and object.

It is true that the founders of the Compañia Agricola de Ultramar stated in the articles of association
of February 6, 1893, that they thereby constituted an anonymous private civil partnership for the
purposes and objects therein expressed. But it is also true that it was the manifest intention of the
founders of the company to create an anonymous partnership which in every respect falls within the
description of the third of the various classes of partnerships provided for by article 122 of the Code
of Commerce, they exercising the right conferred upon them by article 1670 of the Civil Code, and
therefore the provisions of the Code of Commerce not in conflict with those of the Civil Code should
be applied to the plaintiff company.

Article 1670 of the Civil Code, in its last paragraph says: "In such case its provisions shall be applied
to them . . ." — that is, the provisions of the Code of Commerce. This provision of the law is
obligatory, and it can not be believed that the application of the provisions of the law merchant to
partnerships called civil, but which by reason of the purposes for which they were created are
essentially and actually mercantile companies, is merely optional. If it had been the intention of the
legislator to have made the matter one of discretion or option, doubtless unequivocal language to
that effect would have been used and the law would have provided that these provisions might be
applied to them. By saying that the provisions of the Code of Commerce shall be applied to them, it
was intended to convey the idea that those provisions of the Code of Commerce must be applied.

From a mere perusal of the articles of association, and especially of articles 2, 3, 4, 5, and 38 of the
by-laws, it clearly appears that the purpose of the founders was to constitute an anonymous
mercantile partnership under the denomination of a civil partnership. In the articles referred to
provision is made for the duration of the company, the firm capital is divided into shares, and
provision is made as to the liability of the paid-up capital with respect to the obligations of the
company, and the business operations proposed to be effected by the company are enumerated.
From all this it is unquestionable that the plaintiff company, by reason of its nature and conditions,
and its object and purpose, is subject to the provisions of articles 117, 119, 121, 122, 123, 151, 152,
and 212 of the Code of Commerce.

The mere fact that a company which by reason of the character of its business is mercantile, and
therefore subject to the Code of Commerce, has seen fit to style itself a civil partnership, does not
relieve it from the obligation of complying with the provisions of article 17 above cited, and much
 P a g e | 68

more so if the company is foreign (art. 21, last paragraph), because such a company or partnership,
although it calls itself civil, is beyond the scope of the Civil Code and plainly subject to the law
merchant. For this reason the Civil Code, in article 1700, last paragraph, provides: "The partnerships
referred to in article 1670 are excepted from the provisions of numbers three and four of this article
in cases in which, in accordance with the provisions of the Code of Commerce, they should continue
to exist." This paragraph shows that such companies are to be governed by the provisions of the
Code of Commerce.

This being so, it is evident that such a company is bound to comply with the provisions of articles 17,
21, and 119 of the code, because if the provisions of the law merchant must be applied to
the Compañia Agricola de Ultramar, there is no reason of law or public policy which relieves it from
the fulfillment of the condition of registration, more especially as the appellant is a foreign company,
whose organizers and members are probably all foreigners.

A company organized in the anonymous form, and composed of foreigners, which is established in
this country and proposes to engage in business or mercantile operations, is under the unavoidable
obligation of informing the public as to who are its founders, what are its articles, the conditions of its
organization and existence, the basis of its operations, and the security it gives for the value of the
stock issued by it, and of the contents of its articles of association. The only from of publication
provided for by the special law controlling the case is by record in the mercantile registry, compliance
with which requirement is demanded by public policy.

We are of the opinion that this is the interpretation that should be given to article 1670 of the Civil
Code, and for the purpose of dispelling any doubt which may remain, we refer to some pertinent
paragraphs of the official preface to the Code of Commerce in force.

The principles upon which the projected code has been drawn with respect to the different
manners and forms of constituting mercantile companies may be reduced to three: An ample
liberty for the associates to organize in such manner as they may deem convenient; the
complete absence of Governmental intervention in the private affairs of these juristic
persons; the publicity of such of the acts of these associations as may be of interest to third
persons.

These general principles having been established in harmony with the law of 1869 and the
outline drawn by the Government for the drafting of the new Code of Commerce, the draft
herewith presented includes all companies which, either by their nature or by the character of
their operations, are to be considered as mercantile . . . .

The provisions of the Code of Commerce now in force guarantee the principles of liberty of
association and of trade, harmonizing them with protection of the rights of third persons by means of
the mercantile register.

In order to enforce the performance of the duty of recording, article 24 of the Code of Commerce
provides: "Unrecorded articles of association shall be enforceable as between the parties thereto,
but shall not prejudice third persons, who nevertheless may make use of them in so far as favorable
to them." And article 29 of the same code provides: "Unrecorded powers of attorney shall be binding
as between the principal and the agent, but can not be used to the prejudice of third persons, who
nevertheless may make use of them in so far as they may be favorable."

If a company, created for a mercantile purpose, could be permitted to elude the obligation of
registration simply because is has been denominated a particular civil anonymous partnership in its
articles of association, this would authorize a violation of the provisions of article 1670 of the Civil
Code and the provisions of the Code of Commerce, and make unavailing the purpose of the
legislator, which was to establish for the benefit of the public an efficacious protection for outsiders
buying the stock of an anonymous partnership, and the result would be that the purpose of the law in
imposing the requirement of publication by means of record in the registry — the sole check imposed
upon the otherwise unrestricted right of mercantile association — would be swept away.

It having therefore been demonstrated that the appellant company is under an absolute obligation of
recording its articles of association and by-laws in the mercantile register in the manner prescribed
by the Code of Commerce, in the absence of proof of compliance with this provision of the law, it
follows that the company lacks the legal personality or corporate existence necessary to maintain
this suit, because inscription in the mercantile registry is an indispensable condition to the acquisition
 P a g e | 69

by a mercantile company of corporate existence and of capacity as an entity, to maintain suits in

courts against third persons.

This legal principle has been confirmed in practice by the decisions of the supreme court of Spain,
which we cite, as this case deals with the application of laws of Spanish origin. That court in its
decision of May 8, 1885, said: "The court below in allowing the complaint and intervention filed on
occasion of the levy of execution, and in basing its decision upon the provisions of article 296 of the
Code of Commerce, has violated the provisions of the articles of that code relied upon in this appeal
and principally those of article 28 in connection with articles 22 and 25, because the intervening
company could have no legal existence, nor could it avail itself of the provisions of the articles cited
to enforce rights against third persons, before its articles of association were recorded in the general
register of the province, and this requirement not having been complied with until June 20, 1882,
while the attachment in the executive action was ordered on the 10th, and levied on the 13th of that
month, it is evident that the articles of association, prepared during the period intervening between
this date and that of their registration, could not constitute a bar to the attachment or subsequently
affect its validity."

This decision is an affirmance of the doctrine laid down in a former decision on March 1, 1884. If the
provisions of the Code of Commerce are applicable to the Compañia Agricola de Ultramar, then it
can not maintain an action in court against third persons as a corporate being until it can show that
its articles are recorded in the mercantile registry in compliance with the requirement laid down by
the law and emphasized by the courts.

With respect to the appellant's contention based upon the provisions of section 94 of the Code of
Civil Procedure, as the demurrer should have been sustained under the provisions of paragraph 2 of
section 91 of that code, the provisions of section 101 thereof should be applied to the case.

For the reasons stated, we are therefore of the opinion that the judgment of the court below should
be affirmed, and that the appellees should have judgment for their costs.

The Lawphil Project - Arellano Law Foundation

4. Registration
A. Intra-Partnership Relation Art 1771, 1772
B. Dealings with third parties- Art 1815, 1818, 184
1. Litonvs Hill &Ceron, 67 Phil 509 (1939)

67 Phil. 509

CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of Appeals
in a case originating from the Court of First Instance of Manila wherein the
herein petitioner George Litton was the plaintiff and the respondents Hill &
Ceron, Robert Hill, Carlos Ceron and Visayan Surety & Insurance
Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said transaction,
the defendant Carlos Ceron delivered to the plaintiff a document reading as
follows:
"Feb. 14, 1934
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"Received from Mr. George Litton share certificates Nos. 4428, 4429 and
6699 for 5,000, 5,000 and 7,000 shares respectively total 17,000 shares of
Big Wedge Mining Company, which we have sold at P0.11 (eleven centavos)
per share or P1,870.00 less 1/2 per cent brokerage.
"Hill & Ceron
"By: (Sgd.) Carlos Ceron"
Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance
of P720, and unable to collect this sum either from Hill & Ceron or from its
surety Visayan Surety & Insurance Corporation, Litton filed a complaint in
the Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hil1 and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court
on May 29, 1937, having reached the conclusion that Ceron did not intend
to represent and did not act for the firm Hill & Ceron in the transaction
involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court
of Appeals as to the question of fact just mentioned, namely, that Ceron
individually entered into the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at
the trial that he and Ceron, during the partnership, had the same power to
buy and sell; that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date of the transaction,
February 14, 1934, the partnership between Hill and Ceron was in
existence. After this date, or on February 19th, Hill & Ceron sold shares of
the Big Wedge; and when the transaction was entered into with Litton, it
was neither published in the newspapers nor stated in the commercial
registry that the partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a conversation
with the plaintiff in the course of which he advised the latter not to deliver
shares for sale or on commission to Ceron because the partnership was
about to be dissolved; but what importance can be attached to said advice if
the partnership was not in fact dissolved on February 14th, the date when
the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties until it
has been recorded in the commercial registry. (See also Cardell vs. Mañeru,
14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March
23, 1885.)
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Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:
"The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed. * * *
"(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market, irrespective of
whether the purchase or sale is made from or to a private individual, broker
or brokerage firm."
In its decision the Court of Appeals states:
"But there is a stronger objection to the plaintiff's attempt to make the firm
responsible to him. According to the articles of copartnership of 'Hill &
Ceron', filed in the Bureau of Commerce:
" 'Sixth. That the management of the business affairs of the copartnership
shall be entrusted to both copartners who shall jointly administer the
business affairs, transactions and activities of the copartnership, shall
jointly open a current account or any other kind of account in any bank or
banks, shall jointly sign all checks for the withdrawal of funds and shall
jointly or singly sign, in the latter case, with the consent of the other
partner. * * *
"Under this stipulation, a written contract of the firm can only be signed by
one of the partners if the other partner consented. Without the consent of
one partner, the other cannot bind the firm by a written contract. Now,
assuming for the moment that Ceron attempted to represent the firm in
this contract with the plaintiff (the plaintiff conceded that the firm name
was not mentioned at that time), the latter has failed to prove that Hill had
consented to such contract."
It follows from the sixth paragraph of the articles of partnership of Hill &
Ceron above quoted that the management of the business of the
partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals that for one of the partners to bind
the partnership the consent of the other is necessary. 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
authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." (Mills vs. Higgle, 112 Fac, 617.)
"The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority." (Le
Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)
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The second paragraph of the articles of partnership of Hill & Ceron reads in
part:
"Second: That the purpose or object for which this copartnership is
organized is to engage in the business of brokerage in general, such as stock
and bond brokers, real brokers, investment security brokers, shipping
brokers, and other activities pertaining to the business of brokers in
general."
The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of the
Code of Commerce, may legally engage in the business of brokerage in
general as stock brokers, security brokers and other activities pertaining to
the business of the partnership. Ceron, therefore, could not have entered
into the contract of sale of shares with Litton as a private individual, but as
a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from those
of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument, so it
is said, is corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of Appeals
is to the effect that the transaction made by Ceron with the plaintiff was in
his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay to
the plaintiff, jointly and severally, the sum of P720, with legal interest, from
the date of the filing of the complaint, minus the commission of one-half
per cent (½%) from the original price of Pl,870, with the costs to the
respondents. So ordered.
Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran,
JJ., concur.

2. GoquiolayvsSycip, 108 Phil 947 (1960)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An
should act as the Manager for said co-partnership for the full period of the term for which
said co-partnership was organized or until the whole period that the said capital of
P30,000.00 of the co-partnership should last, to carry on to the best advantage and interest
of the said co-partnership, to make and execute, sign, seal and deliver for the co-partnership,
and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments or
documents in writing whatsoever kind or nature which shall be necessary to the proper
conduction of the said businesses, including the power to mortgage and pledge real and
personal properties, to secure the obligation of the co-partnership, to buy real or personal
properties for cash or upon such terms as he may deem advisable, to sell personal or real
properties, such as lands and buildings of the co-partnership in any manner he may deem
advisable for the best interest of said co-partnership, to borrow money on behalf of the co-
partnership and to issue promissory notes for the repayment thereof, to deposit the funds of
the co-partnership in any local bank or elsewhere and to draw checks against funds so
deposited ... .
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On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3)
parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-
matter of the instant litigation, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a period of ten (10) years,
with 10% interest per annum. Another 46 parcels were purchased by Tan Sin An in his individual
capacity, and he assumed payment of a mortgage debt thereon for P35,000.00 with interest. The
downpayment and the amortization were advanced by Yutivo and Co., for the account of the
purchasers.

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

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

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

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

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

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

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

I — The lower court erred in holding that Kong Chai Pin became the managing partner of the
partnership upon the death of her husband, Tan Sin An, by virtue of the articles of
Partnership executed between Tan Sin An and Antonio Goquiolay, and the general power of
attorney granted by Antonio Goquiolay.
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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
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affirmative actions, manifested her intent to be bound by the partnership agreement not only as a
limited but as a general partner. Thus, she managed and retained possession of the partnership
properties and was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in
dispute in the name of the partnership, she was acting no less than as a managing partner.
Having thus preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she might have derived only from the estate of
her deceased husband. By allowing her to retain control of the firm's property from 1942 to
1949, plaintiff estopped himself to deny her legal representation of the partnership, with the
power to bind it by the proper contracts.

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

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

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

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

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

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

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

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

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

corresponde a cada socio personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un
sistema eficaz que evite los inconvenientes. Pero, ante el silencio del contrato, debia quiza
el legislador privar de la administracion a uno de los socios en beneficio del otro? Seria una
arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido Administrador? El
remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran en
todo acto de la Sociedad? Pero este concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas horas. Hubieran sido
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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
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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 & 54,310.13
Co.
 P a g e | 79

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 selling real 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:
 P a g e | 80

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 Young we 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
 P a g e | 81

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 become general
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
 P a g e | 82

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-trade and 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 Montella1, 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
 P a g e | 83

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 time none of the
claims secured by the mortgages were due, except, it may be, a small part of one of them,
and none 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, andpossession 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?
 P a g e | 84

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 creditors that 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.

Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

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
 P a g e | 85

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.
 P a g e | 86

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
 P a g e | 87

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 tomanage 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.
 P a g e | 88

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.1But 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
 P a g e | 89

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.
 P a g e | 90

(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.

Labrador, Paredes, and Makalintal, JJ., concur.

5. Value of Form and Registration

1. Thunga Chui vsQueBentec, 2 Phil 561 (1903)

EN BANC

[G.R. No. 929. October 8, 1903. ]

THUNGA CHUI, Plaintiff-Appellee, v. QUE BENTEC, Defendant-Appellant.

Manuel Torres for Appellant.

W .H . Bishop for Appellee.

SYLLABUS

1. CONTRACT; ENFORCEABILITY; FORMAL REQUISITES. — When the essential requisites for the existence of
a contract are present, the contract is binding upon the parties whatever may be the amount involved, and,
although required to be in writing by article 1280 of the Civil Code, the plaintiff can maintain an action on
the verbal agreement without first bringing an action under article 1279 to compel the execution of a written
instrument.

2. ID.; CIVIL PARTNERSHIP. — An oral contract of partnership under the Civil Code is valid and binding
 P a g e | 91

between the parties, even if the amount of capital contributed is in excess of the sum of 1,500 pesetas.

3. ID.; MERCANTILE PARTNERSHIP; FORMAL REQUISITES. — Although a mercantile partnership, to affect

persons, must be reduced to writing and recorded in the mercantile registry, a verbal contract of partnership
is good as between the parties themselves.

DECISION

WILLARD, J. :

This case was before this court in November, 1902. It was then decided that the only question open to the
appellant was whether the findings of fact made by the trial judge in his decision supported the judgment.
(Thunga Chui v. Que Bentec, 1 Off. Gaz., p. 4.) 1

The appellant claims that the partnership contract was required to be in writing by article 119 of the Code of
Commerce and, the amount of the capital being more than 1,500 pesetas, by article 1280 of the Civil Code
and article 51 of the Code of Commerce.

We think it fairly appears from the decision that the contract of partnership was not in writing. Whether this
was a civil or a commercial partnership we consider immaterial, for in neither case do we think that the
contention of the appellant can prevail.

1. Considered as a civil partnership, that part of article 1280 of the Civil Code applicable to the case is as
follows:jgc:c hanrobles. com.ph

"All other contracts, on which the amount of the prestaciones of one or of the two contracting parties exceed
1,500 pesetas, must also be drawn in writing, even when they are private documents.’’

Articles 1278 and 1279 of the same code are as follows: jgc:ch anroble s.com.p h

"ART. 1278. Contracts shall be binding, whatever the form may be in which they have been entered into,
provided the essential conditions required for their validity are present.

"ART. 1279. When the law exacts the execution of a deed or other special form for making effectual suitable
obligations of a contract, the contracting parties may compel each other to comply with such forms, from
the moment in which consent and the other requirements, necessary for their validity, have taken place." cralaw virtua1aw l ibra ry

The plaintiff contributed to the partnership 1,000 pesos and the defendant 2,000, and it is therefore claimed
by the latter that the case falls under article 1280, and that before the plaintiff can maintain any action on
the verbal contract he must proceed under article 1279 to compel the defendant to reduce it to writing.
whatever may be said of earlier decisions of the supreme court of Spain upon the proper construction of
these three articles, the later ones have, we think, settled the question involved against the claim of
the Appellant.

In the judgment of May 3, 1897, the court said: jgc:chanrob les.c om.ph

"Article 1279 does not impose an obligation, but confers a privilege upon both contracting parties, and the
fact that plaintiff has not made use of same does not bar his action." cralaw virtua1aw lib rary

In the judgment of October 19, 1901 (Alcubilla, Appendix, 1902, p. 139), it appeared that the plaintiff, Doña
Ana Laborda, agreed with the defendant, Don Nemesio Alamanzon, to leave the employment which she then
had and to enter the defendant’s service, and he agreed that if she left his service he would pay her during
life an annuity equal to the salary which she was receiving in her former employment. This contract was
verbal. Having been dismissed, she sued for several months’ salary and the annuity. The judgment of the
audiencia was in her favor, and the defendant removed the case to the Supreme Court, assigning as error
that the court had infringed article 1280. The judgment was affirmed the court saying: jgc:chan roble s.com. ph

"Contracts are binding and therefore enforceable reciprocally by the contracting parties, whatever may be
the form in which the contract has been entered into, provided that the essential conditions for their validity
are present. The observance of this general rule, expressly established by article 1278 of the Civil Code, is
not in opposition to the provisions of the two following articles, as this Supreme Court has repeatedly held,
and especially in its judgment of July 4, 1899. Article 1280 is limited to an enumeration of the acts and
contracts which should be reduced to writing in a public or private document. Article 1279, far from making
the enforceability of the contract dependent upon any special extrinsic form, recognizes its enforceability by
the mere act of granting to the contracting parties an adequate remedy whereby to compel the execution of
a public writing, or any other special form, whenever such form is necessary in order that the contract may
produce the effect which is desired, according to whatever may be its object. This, in substance, is
equivalent to establishing as an implied condition of every contract that these formal requisites shall be
complied with, notwithstanding the absence of any express agreement by the contracting parties to that
effect, but does not subordinate the principal action for the enforcement of the agreement to the bringing of
the secondary action concerning the form. Such subordination would be unnecessary, as the cause of action
would be the same in both cases, i. e., the existence of a valid contract. Hence it follows that the court
 P a g e | 92

below in its judgment has not committed the error assigned as the sole ground for its reversal, even
supposing that the contract upon which this case turns is one of the class which should be reduced to
writing." cralaw vi rt ua1aw lib rary

The same doctrine was announced in the judgment of June 18, 1902 (Alcubilla, Appendix, 1902, p. 806), the
court there saying: jgc:chan robles .com.p h

"As has been repeatedly held by this court, the enforceability of contracts does not depend upon their
extrinsic form, but solely upon the presence of the conditions necessary for their validity — which it is not
denied are present in the contract in question — that contracts are binding whatever may be the form of
their celebration. The reduction to writing in a public or private document, required by the law with respect
to certain contracts, is not an essential requisite of their existence, but is simply a coercive power granted to
the contracting parties by which they can reciprocally compel the observance of these formal requisites. It
follows, hence, that article 1280 of the Civil Code has not been violated as alleged in the first assignment of
error because the contract was not reduced to writing, notwithstanding the fact that the amount involved
exceeds 1,500 pesetas, even supposing this article to be applicable to a contract of a mercantile character
such as that in question which is specially covered by the Code of Commerce." cralaw virtua1aw l ibra ry

In the judgment of July 4, 1899, it was found by the Audiencia that the plaintiff had sold to the defendants
by a verbal contract her rights in an inheritance. she, claiming that the case fell under article 1280 (4),
appealed from the judgment against her, alleging that such rights could only be transferred by a public
document. This contention was not sustained.

In the judgment of April 17, 1897, cited by the appellant, the judgment was annulled only in one particular,
and the decision of the Supreme Court is capable of the construction that, in ordering judgment against the
defendants for the price of certain lands sold by a private document, the Audiencia should have inserted a
clause requiring the plaintiff on receiving the amount to execute the proper public document. As so
construed it is consistent with the decisions heretofore cited.

We think that it can now be said that when the question arises between the immediate parties to the
contract the constant doctrine of the Supreme Court is that stated in these decisions.

The same result must be reached if we consider the question without reference to the authorities. If the
requisites of article 1261 exist, the contract is valid between the parties. This is expressly stated in article
1278. Although a contract is by article 1280 required to be in writing, yet if it can be "made effective"
without that writing, the plaintiff can maintain an action against the other contracting party at once on the
verbal contract without resort to article 1279. That need be done only when by reason of the subject-matter
of the contract, or for other causes, the plaintiff can not make the contract fully effective without the
prescribed document.

The cause of Elias Gueb v. Trinidad Ruiz, decided by this court on November 7, 1901, was placed upon the
ground that, in the assignment by the creditor to plaintiff of a demand against the defendant, the latter was
a third person, and that as against him the assignment could not be made effective without the writing
mentioned in article 2. If the Civil Code is to govern this contract, what has been said disposes of the claim
of the appellant based on article 1280. The appellant, however, assigns as error the infringement of articles
119 and 51 of the Code of Commerce.

Article 117 of the Code of Commerce is as follows: jgc:cha nro bles. com.ph

"The contract of mercantile partnership entered into with the essential requisites of the law shall be valid
and binding upon the parties thereto, whatever may be its form, or whatever lawful and fair conditions and
combinations may enter into it, provided they are not expressly prohibited by this Code . . ." cralaw virtua1aw l ib rary

We hold that under this article a verbal contract of partnership is good as between the parties themselves.
The phrase "essential requisites of the law’ means those general requirements of the law which are of the
essence of every contract, namely, parties who are capable of contracting, the meeting of the minds, the
absence of fraud, and those enumerated in article 1261 of the Civil Code. If the intention was to require a
compliance with article 119, it would have been more natural to have used the expression found in article
116, namely, "according to the provisions of this Code." The word "form" refers to the manner in which the
contract is made, whether by parol or in writing, and not the class to which it may belong as general,
limited, or corporate. In view of the fact that organization in one of these three forms is expressly prescribed
in subsequent sections, it would be unusual to expect a statement in this section that the contract should be
valid between the parties even if it was in one of these forms. In article 1667 of the Civil Code, the word
"form" is used in the sense which we have given to the word here. This article, 117, is expressly limited to
partners, and as to them it is declared that a verbal contract is sufficient.

But when third persons are involved, the Code has established a different rule. Articles 118 and 119 are as
follows:jgc:c hanrobles. com.ph

"ART. 118. Contracts executed between commercial associations and any other persons capable of binding
themselves shall be valid and binding, provided the same are legal and honest, and that the requisites
mentioned in the following article are complied with.

"ART. 119. Every commercial association, before beginning business, shall be obliged to record its
establishment, agreements, and conditions in a public instrument, which shall be presented for record in the
commercial registry, in accordance with the provisions of article 17.
 P a g e | 93

"Additional instruments which modify or alter in any manner whatsoever the original contracts of the
association are subject to the same formalities, in accordance with the provisions of article 25.

"Partners can not make private agreements, but all must appear in the articles of partnership." cralaw vi rtua 1aw lib rary

It is expressly provided in article 118 that contracts with third persons shall not be valid unless the
provisions of article 119 are complied with. There is no such provision in article 117. It is not there said that
the contract shall not be valid between the parties unless article 119 is complied with.

The effect of a failure to comply with article 119 is the subject of several articles. This article requires the
contract to be recorded in the Mercantile Registry. This is required also by article 17; yet article 24 says that
even if it is not so recorded it shall be valid as between the partners, but not as to third persons. Article 120
declares that -the managers of the partnership who fail to comply with article 119 shall be liable to third
persons with whom they have dealt. But we can find nothing in the Code which declares that a failure to
comply with the article in respect to the public writing shall have any effect upon the partners as between
themselves. The last paragraph of article 119 is applicable only to third persons, for as between the partners
themselves there could be no secret agreements in the contract.

Article 285 of the Code of Commerce of 1829 plainly required a public instrument, even as between the
partners. If the intention was to make no change in the law in this respect, that article would have been
retained. But as it appears from the preface cited below, the intention was to change that provision.

The most reliable commentary on this Code is the preface attached to the Code of the Peninsula of 1885.
Therein is declared the meaning of the law, and upon the question here at issue are made the following
statements: jgc:chanrob les.com. ph

"The provisions of the projected Code with respect to the different manners and forms under which
mercantile partnerships can be organized are based upon similar principles. These principles may be reduced
to three, to wit: Absolute lack of restriction on the part of associations to organize as they may see fit;
complete absence of governmental intervention in the interior regime of these entities; publicity of such
partnership matters as may be of interest to third persons. . . . In consequence of the third principle, i. e.,
the guaranty of the interest of third persons, it is provided that, although every contract of partnership is
binding upon the associates in whatsoever manner it may appear the contract has been entered into, it is
not so with respect to outsiders until such time as the contract is evidenced by a public writing recorded in
the Mercantile Registry, in which office, furthermore, must be recorded all contracts introducing reforms into
the original contract of partnership, the emission of shares and bonds payable to bearer, and the dissolution
of partnership . . . Although the projected Code does not impose any penalty or establish any coercive
measures in order to compel the associates to make public the organization of the partnership by means of
the Mercantile Registry, it holds all persons directly in charge of the management of the company personally
liable for all damages which a failure to comply with this requisite may cause to third persons, who in no
case will be bound by the terms or conditions of the contract of partnership of the contents of which they are
ignorant. But for this same reason the partners can not avail themselves of this lack of publicity, for they
having full knowledge of the terms and conditions of the agreement by which the partnership is created, it is
binding upon them from the very moment of its celebration. This is the doctrine of the projected Code, in
this respect repealing the present Code, which establishes a contrary principle." cralaw vi rtua 1aw lib rary

In the case of Prautch, Scholes & Co. v. Hernandez (1 Off. Gaz., 203) 1 we held that a commercial
partnership which had not complied with article 119 could not maintain an action in its partnership name
against a third person. That case is consistent with our present holding.

There being no provision of the Code of Commerce which requires the contract of partnership to be in any
particular form as between the partners, this case does not fall within the terms of article 52 of this Code,
and that article is not applicable.

Article 117, expressly authorizing, as we hold, a verbal contract of partnership as between the partners,
such a contract is thereby excepted from the operations of article 51. The case at bar is covered by the
former article and not the latter. Whether, therefore, this be a civil partnership and so governed by the Civil
Code, or a commercial partnership and so governed by the Code of Commerce, in neither case can the
objections made by the appellant be sustained.

The judgment of the court below is affirmed, with the costs of this instance to the Appellant.

Arellano, C.J., Cooper, Mapa and McDonough, JJ., concur.

Torres and Johnson, JJ., did not sit in this case.

2. SingsonvsIsabela Sawmill 88 Scra 623 (1979)

Singsong v. Isabela Sawmill

Singsong v. Isabela Sawmill G.R. No. L-27343, February 28, 1979, Fernandez, J.
 P a g e | 94

Facts: In 1951, defendants entered into a contract of partnership under the firm name “Isabela Sawmill”.
In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able to
pay their whole balance even after demand was made. One of the partners withdrew from the partnership
but instead of terminating the said partnership it was continued by the two remaining partners under the
same firm name. Plaintiffs also seek the annulment of the assignment of right with chattel mortgage
entered into by the withdrawing partner and the remaining partners. The appellants contend that the
chattel mortgage may no longer be nullified because it had been judicially approved and said chattel
mortgage had been judicially foreclosed.

Issue: Whether the withdrawal of one of the partners dissolved the partnership.

Ruling:

It does not appear that the withdrawal of the partner was not published in the newspapers. The appellees
and the public in general had a right to expect that whatever, credit they extended to the remaining
partners could be enforced against the properties of the partnership. The withdrawing partner cannot be
relieved from her liability to the creditor of the partnership due to her own fault by not insisting on the
liquidation of the partnership. Though she had acted in good faith, the appellees also acted in good faith
in extending credit to the partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences. Technically, the partnership
was dissolved by the withdrawal of one of the partners. Through her acts of entering into a memorandum
with the remaining partners misled the creditors that they were doing business with the partnership.
Hence, from the order of the lower court ordering the withdrawing partner to pay the plaintiffs, she is thus
entitled for reimbursement from the remaining partners.

V. RIGHTS AND POWERS OF PARTNERS

ART 1810

Rights of Partners

1. Right to Manage the Partnership

A. General Rule on Partnership Management
Art 1818: Doctrine of Apparent Authority
1. Munasquevs Court of Appeals, 139 Scra 533 (1985)

MUÑASQUE v. CA

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

Ponente: J. Gutierrez. Jr

FACTS:
 P a g e | 95

Elmo Muñasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with respondent Tropical
through its Cebu Branch Manager Pons for remodeling a portion of its building without
exchanging or expecting any consideration from Galan although the latter was casually
named as partner in the contract; that by virtue of his having introduced the petitioner
to the employing company (Tropical), Galan would receive some kind of compensation
in the form of some percentages or commission.

Tropical agreed to give petitioner the amount of P7,000.00 soon after the construction
began and thereafter the amount of P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00.

On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the
plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be deposited in a
joint account.

On January 26, 1967, when the second check for P6,000.00 was due, petitioner refused to
indorse said check presented to him by Galan but through later manipulations,
respondent Pons succeeded in changing the payee's name to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and
Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay for
construction materials, the payment of which should have been made from the
P13,000.00 received by Galan.

Due to the unauthorized disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan, petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between the petitioner and
respondent company.

ISSUE:

Whether there was a breach of trust when Tropical disbursed the money to Galan
instead of Muñasque
 P a g e | 96

HELD:

No, there was no breach of trust when Tropical disbursed the money to Galan instead
of Muñasque.

The Supreme Court held that there is nothing in the records to indicate that the
partnership organized by the two men was not a genuine one. A falling out or
misunderstanding between the partners does not convert the partnership into a sham
organization.

In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it
for making payments to "Galan and Associates" and delivering the same to Galan
because as far as it was concerned, Galan was a true partner with real authority to
transact on behalf of the partnership with which it was dealing.

2. Council of Red Men vs Veterans Army 7 Phil 685 (1907)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 3186 March 7, 1907

THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED
MEN, plaintiff-appellee,
vs.
THE VETERAN ARMY OF THE PHILIPPINES, defendant-appellant.

Hartigan, Rohde, & Gutierrez for appellant.

W. A. Kincaid for appellee.

WILLAR, J.:

Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows:

The object of this association shall be to perpetuate the spirit of patriotism and fraternity
those men who upheld the Stars and Stripes in the Philippine Islands during the Spanish war
and the Philippine insurrection, and to promote the welfare of its members in every just and
honorable way; to assist the sick and afflicted and to bury the dead, to maintain among its
members in time of peace the same union and harmony with which they served their country
in times of war and insurrection.
 P a g e | 97

Article 5 provides that:

This association shall be composed of —

(a) A department.

(b) Two or more posts.

It is provided in article 6 that the department shall be composed of a department commander,

fourteen officers, and the commander of each post, or some member of the post appointed by him.
Six members of the department constitute a quorum for the transaction of business.

The Constitution also provides for the organization of posts. Among the posts thus organized is the
General Henry W. Lawton Post, No. 1. On the 1st day of March, 1903, a contract of lease of parts of
a certain buildings in the city of Manila was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as
trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe,
citing for and on behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was for
the term of two years commencing February 1, 903, and ending February 28, 1905. The Lawton
Post occupied the premises in controversy for thirteen months, and paid the rent for that time. It
them abandoned them and this action was commenced to recover the rent for the unexpired term.
Judgment was rendered in the court below on favor of the defendant McCabe, acquitting him of the
complaint. Judgment was rendered also against the Veteran Army of the Philippines for P1,738.50,
and the costs. From this judgment, the last named defendant has appealed. The plaintiff did not
appeal from the judgment acquitting defendant McCabe of the complaint.

It is claimed by the appellant that the action can not be maintained by the plaintiff, The Great Council
of the United States of the Improved Order of Red Men, as this organization did not make the
contract of lease.

It is also claimed that the action can not be maintained against the Veteran Army of the Philippines
because it never contradicted, either with the plaintiff or with Apach Tribe, No. 1, and never
authorized anyone to so contract in its name.

We do not find it necessary to consider the first point because we think the contention of the
appellant on the second point must be sustained.

It is difficult to determine the exact nature of the defendant organization. It is of course not a
mercantile partnership. There is some doubt as to whether it is a civil partnership, in view of the
definition of the term in article 1665 of the Civil Code. That article is as follows:

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.

It seems to be the opinion of the commentators that where the society is not constituted for the
purpose of gain. it does not fall within this article of the Civil Code. Such an organization is fully
covered by the Law of Associations of 1887, but that law was never extended to the Philippine
Islands. According to some commentators it would be governed by the provisions relating to the
community of property. However, the questions thus presented we do not find necessary to , and to
not resolve. The view most favorable to the appellee is the one that makes the appellant a civil
partnership. Assuming that is such, and is covered by the provisions of title 8, book 4 of the Civil
Code, it is necessary for the appellee to prove that the contract in question was executed by some
authorized to so by the Veteran Army of the Philippines.

Article 1695 of the Civil Code provides as follows:

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

1 All the partners shall be considered as agents, and whatever any one of them may do by
himself shall bind the partnership; but each one may oppose the act of the others before they
may have produced any legal effect.
 P a g e | 98

One partner, therefore, is empowered to contract in the name of the partnership only when the
articles of partnership make no provision for the management of the partnership business. In the
case at bar we think that the articles of the Veteran Army of the Philippines do so provide. It is true
that an express disposition to that effect is not found therein, but we think one may be fairly deduced
from the contents of those articles. They declare what the duties of the several officers are. In these
various provisions there is nothing said about the power of making contracts, and that faculty is not
expressly given to any officer. We think that it was, therefore, reserved to the department as a whole;
that is, that in any case not covered expressly by the rules prescribing the duties of the officers, the
department were present. It is hardly conceivable that the members who formed this organization
should have had the intention of giving to any one of the sixteen or more persons who composed the
department the power to make any contract relating to the society which that particular officer saw fit
to make, or that a contract when so made without consultation with, or knowledge of the other
members of the department should bind it. We therefore, hold, that no contract, such as the one in
question, is binding on the Veteran Army of the Philippines unless it was authorized at a meeting of
the department. No evidence was offered to show that the department had never taken any such
action. In fact, the proof shows that the transaction in question was entirely between Apache Tribe,
No. 1, and the Lawton Post, and there is nothing to show that any member of the department ever
knew anything about it, or had anything to do with it. The liability of the Lawton Post is not presented
in this appeal.

Judgment against the appellant is reversed, and the Veteran Army of the Philippines is acquitted of
the complaint. No costs will be allowed to either party in this court. After the expiration of twenty days
let judgment be rendered in accordance to the lower court for proper action. So ordered.

Arellano, C.J., Torres, Mapa, Johnson and Tracey, JJ., concur.

Carson, J., did not sit in this case.

3. Litton vs Hill &Ceron 67 Phil 509 (1935)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-45624 April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.

George E. Reich for appellant.

Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.

CONCEPCION, J.:

This is a petition to review on certiorari the decision of the Court of Appeals in a case originating
from the Court of First Instance of Manila wherein the herein petitioner George Litton was the plaintiff
and the respondents Hill & Ceron, Robert Hill, Carlos Ceron and Visayan Surety & Insurance
Corporation were defendants.

The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos Ceron, who
is one of the managing partners of Hill & Ceron, a certain number of mining claims, and by virtue of
said transaction, the defendant Carlos Ceron delivered to the plaintiff a document reading as follows:

Feb. 14, 1934

 P a g e | 99

Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for
5,000, 5,000 and 7,000 shares respectively — total 17,000 shares of Big Wedge
Mining Company, which we have sold at P0.11 (eleven centavos) per share or
P1,870.00 less 1/2 per cent brokerage.

HILL & CERON

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and unable to
collect this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance Corporation,
Litton filed a complaint in the Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety &
Insurance Corporation. On appeal to the Court of Appeals, the latter affirmed the decision of the
court on May 29, 1937, having reached the conclusion that Ceron did not intend to represent and did
not act for the firm Hill & Ceron in the transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals as to the
question of fact just mentioned, namely, that Ceron individually entered into the transaction with the
plaintiff, but in view, however, of certain undisputed facts and of certain regulations and provisions of
the Code of Commerce, we reach the conclusion that the transaction made by Ceron with the
plaintiff should be understood in law as effected by Hill & Ceron and binding upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he and Ceron,
during the partnership, had the same power to buy and sell; that in said partnership Hill as well as
Ceron made the transaction as partners in equal parts; that on the date of the transaction, February
14, 1934, the partnership between Hill and Ceron was in existence. After this date, or on February
19th, Hill & Ceron sold shares of the Big Wedge; and when the transaction was entered into with
Litton, it was neither published in the newspapers nor stated in the commercial registry that the
partnership Hill & Ceron had been dissolved.

Hill testified that a few days before February 14th he had a conversation with the plaintiff in the
course of which he advised the latter not to deliver shares for sale or on commission to Ceron
because the partnership was about to be dissolved; but what importance can be attached to said
advice if the partnership was not in fact dissolved on February 14th, the date when the transaction
with Ceron took place?

Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not
cause any prejudice to third parties until it has been recorded in the commercial registry. (See also
Cardell vs. Mañeru, 14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the commercial registry, does not
prejudice third persons. (Opinion of March 23, 1885.)

Aside from the aforecited legal provisions, the order of the Bureau of Commerce of December 7,
1933, prohibits brokers from buying and selling shares on their own account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as such,
shall not be allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account for purposes of speculation
and/or for manipulating the market, irrespective of whether the purchase or sale is made
from or to a private individual, broker or brokerage firm.

In its decision the Court of Appeals states:

But there is a stronger objection to the plaintiff's attempt to make the firm responsible to him.
According to the articles of copartnership of 'Hill & Ceron,' filed in the Bureau of Commerce.

Sixth. That the management of the business affairs of the copartnership shall be entrusted to
both copartners who shall jointly administer the business affairs, transactions and activities of
the copartnership, shall jointly open a current account or any other kind of account in any
 P a g e | 100

bank or banks, shall jointly sign all checks for the withdrawal of funds and shall jointly or
singly sign, in the latter case, with the consent of the other partner. . . .

Under this stipulation, a written contract of the firm can only be signed by one of the partners
if the other partner consented. Without the consent of one partner, the other cannot bind the
firm by a written contract. Now, assuming for the moment that Ceron attempted to represent
the firm in this contract with the plaintiff (the plaintiff conceded that the firm name was not
mentioned at that time), the latter has failed to prove that Hill had consented to such
contract.

It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above quoted that
the management of the business of the partnership has been entrusted to both partners thereof, but
we dissent from the view of the Court of Appeals that for one of the partners to bind the partnership
the consent of the other is necessary. 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 inquires 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 authorized 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 members of the firm acting apparently in its behalf and within the
scope of his authority. (Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)

The second paragraph of the articles of partnership of Hill & Ceron reads in part:

Second: That the purpose or object for which this copartnership is organized is to engage in
the business of brokerage in general, such as stock and bond brokers, real brokers,
investment security brokers, shipping brokers, and other activities pertaining to the business
of brokers in general.

The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none
of the two partners, under article 130 of the Code of Commerce, may legally engage in the business
of brokerage in general as stock brokers, security brokers and other activities pertaining to the
business of the partnership. Ceron, therefore, could not have entered into the contract of sale of
shares with Litton as a private individual, but as a managing partner of Hill & Ceron.

The respondent argues in its brief that even admitting that one of the partners could not, in his
individual capacity, engage in a transaction similar to that in which the partnership is engaged
without binding the latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from those of the partnership, as it
happens in the present case, because the transaction made by Ceron is a mere personal loan, and
this argument, so it is said, is corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of Appeals is to the effect that the
transaction made by Ceron with the plaintiff was in his individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff, jointly and
severally, the sum of P720, with legal interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (½%) from the original price of P1,870, with the costs to the
respondents. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

RESOLUTION

4. Smith, Bell, & Co. vs Aznar 40 O.G. 1881 (1941)

5. GoquiolayvsSycip 108 Phil 947 (1960)
 P a g e | 101

Art 1820, 1821, 1822, 1823

B. Transactions NOT in the Ordinary Course of Partnership Business

Art 1818
GoquiolayvsSycip ibid.

C. Specific Modification on the Power of Management

Art 1800
1. Smith, Bell vs Aznar 40 O.G. 1881 (1941)
2. Garcia Ron vs La Compania 12 Phil 130 (1908)

EN BANC

[G.R. No. 4597. November 23, 1908. ]

JOSE GARCIA RON, Plaintiff-Appellee, v. LA COMPANIA DE MINAS DE BATAN, Defendant-

Appellant.

Ortigas & Fisher, for Appellant.

C. W. O’Brien, for Appellee.

SYLLABUS

1. AGENCY; AUTHORITY OF MANAGER TO CONTRACT FOR SERVICE. — Held, That the letter of instructions,
portions of which are cited in the opinion, addressed by the defendant company to the local manager of its
mines in Batan, conferred upon him authority to employ such labor as he deemed necessary in the
exploitation of the defendant’s mine.

DECISION

CARSON, J. :

This was an action brought by the plaintiff to recover from the defendant the sum of 9,5581/3 Spanish
pesetas for services rendered. The trial judge found, and the evidence of record fully sustains his finding,
that the plaintiff was employed as foreman or capataz by one Genaro Ansuategui, the local manager of
certain mines of the defendant company, situated on the Island of Batan; and that this employment
continued from November 1, 1903, until August 4, 1904. The trial judge found further that, while the
plaintiff failed to establish satisfactorily his claim that the salary promised him by the company’s manager
was 1,000 pesetas per month, nevertheless, he is entitled to reasonable compensation for the services
rendered which were fixed at P5 per day, or P150 per month, the record disclosing that the plaintiff had
worked for the defendant company as foreman or capataz and received compensation at that rate a short
time prior to his employment under his contract with Ansuategui.

The defendant company alleged that it had never received such services of the plaintiff and denied the fact
of the employment, but, as we have said, the evidence of record affirmatively establishes the finding of the
trial judge that the services were rendered, and that they were rendered under a contract of employment
between the plaintiff and one Ansuategui, the local manager of the defendant company; the only evidence
introduced by the defendant in this connection being the testimony of the general manager of the company,
who lived in Manila, to the effect that it does not appear from the books of the company that the plaintiff
was employed by the defendant, or that any record of the employment was forwarded to the central office in
Manila.

Counsel for the defendant company insists, however, that, granting that the plaintiff did in fact work in the
mines of the defendant company and was employed by its local manager, nevertheless, defendant is not
indebted to the plaintiff for these services, because the local manager at the mines was not authorized to
enter into the alleged contract of employment, such authority not having been granted to him under his
letter of instructions, a copy of which appears in the record.

It is not necessary for us to discuss the question of the liability of the defendant company to the plaintiff for
the value of the services rendered, if it in fact appeared that the manager at the mines was not expressly
authorized to employ the plaintiff and to contract for his services, because we are of opinion that the
 P a g e | 102

authority to contract for the employment of the plaintiff was clearly conferred upon Ansuategui by the terms
of this letter of instructions.

These instructions, which were introduced into the record, were dated Manila, May 23, 1903, and among
other provisions contain the following:jg c:chan roble s.com. ph

"Es tambien derroche los sueldos que dicen pagan a los faginantes y el exceso de gente para poco trabajo;
debe tenerse la gente necesaria y pagar lo razonable, y al que no le convenga que se marche. Deben hacer
por contrata el corte de trozos y maderas de todas clases, y a sueldo la gente que se emplea para hacer los
barracones y otros trabajos que su criterio le dicte, pero no permitiendo por ningun concepto que abusen.

"(The salaries which it is said are paid to the faginantes and the excess of employees for little work is also a
waste. The necessary employees should be kept and paid reasonably, and he who is not needed [satisfied],
let him go. The cutting of logs and wood of all kinds ought to be done by contract, and the persons
employed in digging the barracones and other work at wages which your good judgment may dictate, but on
no account permitting abuses.)"

And at the conclusion of the letter of instructions, we find the following: jg c:chan roble s.com.p h

"To que aqui no va anotado, esperamos lo subsane Vd. con su buen criterio, y le recomendamos por ultimo
nos tenga al corriente de todo.

"(We trust you to correct and supply (subsanar) anything which is not noted herein, in accordance with your
good judgment, and finally we urgently request that you keep us informed of everything.)"

Other provisions of the letter of instructions expressly authorized Ansuategui, as the local manager of the
defendant company at the mines, to discharge employees who did not prove satisfactory, and leave no room
for doubt that he was duly authorized to represent the company at the mines so far as this was necessary
for their proper local management.

Taking into consideration the fact that the mines of the defendant company are located upon an island some
two days distance by steamer from the office of the company at Manila, that the only communication
therewith was by mail a few times per month, and that in the very nature of the enterprise, it was
necessary, in order that the local manager might successfully perform his duties, to confer upon him wide
scope in the employment and discharge of labor, we think that there can be no doubt that Genaro
Ansuategui was fully and expressly authorized by the terms of this letter of instructions to enter into the
alleged contract of employment with the plaintiff on behalf of the defendant company; and the evidence of
record establishing the fact that he did do so, and that the plaintiff worked for the company for the period
set out in the findings of the trial court, we are of opinion that the trial court properly rendered judgment in
favor of the plaintiff and against the defendant for the value of the services rendered.

The plaintiff not having appealed from the judgment of the trial court denying him the alleged contract value
of the services rendered, and the evidence of record fully sustaining the findings as to the reasonable value
of these services, the judgment of the trial court should be and is hereby affirmed, with the costs of this
instance against the defendant. So ordered.

Arellano, C.J., Torres, Mapa, Willard and Tracey, JJ., concur.

3. Martinez vs Cordoba &Conde 5 Phil 545 (1906)

4. Fortis vs Gutierrez Hermanos, 6 Phil 100 (1906)

EN BANC

G.R. No. L-2484 April 11, 1906

JOHN FORTIS,Plaintiff-Appellee, vs. GUTIERREZ

HERMANOS,Defendants-Appellants.

Hartigan, Rohde and Gutierrez, for appellants.

W. A. Kincaid, for appellee.

WILLARD, J.:
 P a g e | 103

Plaintiff, an employee of defendants during the years 1900, 1901,

and 1902, brought this action to recover a balance due him as
salary for the year 1902. He alleged that he was entitled, as salary,
to 5 per cent of the net profits of the business of the defendants for
said year. The complaint also contained a cause of action for the
sum of 600 pesos, money expended by plaintiff for the defendants
during the year 1903. The court below, in its judgment, found that
the contract had been made as claimed by the plaintiff; that 5 per
cent of the net profits of the business for the year 1902 amounted
to 26,378.68 pesos, Mexican currency; that the plaintiff had
received on account of such salary 12,811.75 pesos, Mexican
currency, and ordered judgment against the defendants for the sum
13,566.93 pesos, Mexican currency, with interest thereon from
December 31, 1904. The court also ordered judgment against the
defendants for the 600 pesos mentioned in the complaint, and
intereat thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to Philippine currency,
amounted to P13,025.40. The defendants moved for a new trial,
which was denied, and they have brought the case here by bill of
exceptions.chanroblesvi rtual awlib rary cha nrob les vi rtua l law lib rary

(1) The evidence is sufifcient to support the finding of the court

below to the effect that the plaintiff worked for the defendants
during the year 1902 under a contract by which he was to receive
as compensation 5 per cent of the net profits of the business. The
contract was made on the part of the defendants by Miguel Alonzo
Gutierrez. By the provisions of the articles of partnership he was
made one of the managers of the company, with full power to
transact all of the business thereof. As such manager he had
authority to make a contract of employment with the plaintiff. chanroble svi rtualawl ib rary chan rob les vi rtual law lib rary

(2) Before answering in the court below, the defendants presented a

motion that the complaint be made more definite and certain. This
motion was denied. To the order denying it the defendants
excepted, and they have assigned as error such ruling of the court
below. There is nothing in the record to show that the defendants
were in any way prejudiced by this ruling of the court below. If it
were error it was error without prejudice, and not ground for
reversal. (Sec. 503, Code of Civil Procedure.) chanroble s virtual law l ibra ry

(3) It is claimed by the appellants that the contract alleged in the

complaint made the plaintiff a copartner of the defendants in the
business which they were carrying on. This contention can not bo
sustained. It was a mere contract of employnent. The plaintiff had
no voice nor vote in the management of the affairs of the company.
The fact that the compensation received by him was to be
determined with reference to the profits made by the defendants in
their business did not in any sense make by a partner therein. The
 P a g e | 104

articles of partnership between the defendants provided that the

profits should be divided among the partners named in a certain
proportion. The contract made between the plaintiff and the then
manager of the defendant partnership did not in any way vary or
modify this provision of the articles of partnership. The profits of the
business could not be determined until all of the expenses had been
paid. A part of the expenses to be paid for the year 1902 was the
salary of the plaintiff. That salary had to be deducted before the net
profits of the business, which were to be divided among the
partners, could be ascertained. It was undoubtedly necessary in
order to determine what the salary of the plaintiff was, to determine
what the profits of the business were, after paying all of the
expenses except his, but that determination was not the final
determination of the net profits of the business. It was made for the
purpose of fixing the basis upon which his compensation should be
determined. chanroblesv irt ualawli bra ry chan robles v irt ual law l ibra ry

(4) It was no necessary that the contract between the plaintiff and
the defendants should be made in writing. (Thunga Chui vs. Que
Bentec, 1 1 Off. Gaz., 818, October 8, 1903.) chanrobles vi rtua l law lib rary

(5) It appearred that Miguel Alonzo Gutierrez, with whom the

plaintiff had made the contract, had died prior to the trial of the
action, and the defendants claim that by reasons of the provisions
of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff
could not be a witness at the trial. That paragraph provides that
parties to an action against an executor or aministrator upon a
claim or demand against the estate of a deceased person can not
testify as to any matter of fact occurring before the death of such
deceased person. This action was not brought against the
administrator of Miguel Alonzo, nor was it brought upon a claim
against his estate. It was brought against a partnership which was
in existence at the time of the trial of the action, and which was
juridical person. The fact that Miguel Alonzo had been a partner in
this company, and that his interest therein might be affected by the
result of this suit, is not sufficient to bring the case within the
provisions of the section above cited. chanroblesv irt ualawli bra ry chan robles v irt ual law l ibra ry

(6) The plaintiff was allowed to testify against the objection and
exception of the defendants, that he had been paid as salary for the
year 1900 a part of the profits of the business. This evidence was
competent for the purpose of corroborating the testimony of the
plaintiff as to the existence of the contract set out in the
complaint.chanroble svirtualawl ibra ry chan roble s virtual law l ibra ry

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

letter written by Miguel Glutierrez, one of the partners in the
defendant company, to Miguel Alonzo Gutierrez, another partner,
 P a g e | 105

which letter was read to plaintiff by Miguel Alonzo. It is not

necessary to inquire whether the court committed an error in
admitting this evidence. The case already made by the plaintiff was
in itself sufficient to prove the contract without reference to this
letter. The error, if any there were, was not prejudicial, and is not
ground for revesal. (Sec. 503, Code of Civil Procedure.) chan robles vi rt ual law li bra ry

(8) For the purpose of proving what the profits of the defendants
were for the year 1902, the plaintiff presented in evidence the
ledger of defendants, which contained an entry made on the 31st of
December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps.

527,573.66 Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos establecido segun el
convenio de sociedad.

The defendant presented as a witness on, the subject of profits

Miguel Gutierrez, one of the defendants, who testiffied, among other
things, that there were no profits during the year 1902, but, on the
contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witnees sufficiently
definite and certain to overcome the positive evidence furnished by
the books of the defendants themselves. chanroblesv irt ualawli bra ry chan robles v irt ual law l ibra ry

(9) In reference to the cause of action relating to the 600 pesos, it

appears that the plaintiff left the employ of the defendants on the
19th of Macrh, 1903; that at their request he went to Hongkong,
and was there for about two months looking after the business of
the defendants in the matter of the repair of a certain steamship.
The appellants in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by the
provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the
amount of 600 pesos not claimed as compensation for services but
as a reimbursment for money expended by the plaintiff in the
business of the defendants. The article of the code that is applicable
is article 1728.
chanroblesvi rt ualawlib ra ry chan ro bles virtual law lib rary

The judgment of the court below is affirmed, with the costs, of this
instance against the appellants. After the expiration of twenty days
from the date of this decision let final judgment be entered herein,
and ten days thereafter let the case be remanded to the lower court
for execution. So ordered. chanroble svi rtualaw lib rary chan rob les vi rtual law lib rary

Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.

 P a g e | 106

5. Tai Tong Chuachevs Insurance Commission, 158 Scra 366 (1988)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner,

vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.

GANCAYCO, J.:

This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case #367 1 dismissing the
complaint 2 for recovery of the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein respondent insurance
company in favor of petitioner-intervenor.

The facts of the case as found by respondent Insurance Commission are as follows:

Complainants acquired from a certain Rolando Gonzales a parcel of land and a

building located at San Rafael Village, Davao City. Complainants assumed the
mortgage of the building in favor of S.S.S., which building was insured with
respondent S.S.S. Accredited Group of Insurers for P25,000.00.

On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in
the amount of P100,000.00. To secure the payment of the loan, a mortgage was
executed over the land and the building in favor of Tai Tong Chuache & Co. (Exhibit
"1" and "1-A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong
Chuache & Co. insured the latter's interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the
contents thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500
(Exhibit "A"), covering the building for P50,000.00 with respondent Zenith Insurance
Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 (Exhibit "B")
was procured from respondent Philippine British Assurance Company, covering the
same building for P50,000.00 and the contents thereof for P70,000.00.

On July 31, 1975, the building and the contents were totally razed by fire.

Adjustment Standard Corporation submitted a report as follow

xxx xxx xxx

... Thus the apportioned share of each company is as follows:

P Co Ris In Pay
o
l mp k su s
i an re
c
 P a g e | 107

y y s
N
o
.
.

M Ze Bui P5 P17
I nit ldin 0, ,61
R h g 00 0.9
O 0 3

F Ins
- ur
0 an
2 ce
5
0
0

Co
rp.

F Ph Ho 70 24,
- il. us ,0 655
8 eh 00 .31
4 old
5
9
0

Bri
tis
h

As
sc
o.
Co
.

Inc FF 50 39,
. F& ,0 186
F5 00 .10

P Co Ris In Pay
o mp k su s
l an re
i y s
c
y

N
o
.

F SS
I SA
C ccr
- e
1
5
3
8
1

dit
 P a g e | 108

ed
Gr
ou
p

of Bui P2 P8,
Ins ldin 5, 805
ur g 00 .47
ers 0

Tot P1 P90
als 95 ,25
,0 7.8
00 1

We are showing hereunder another apportionment of the loss which includes the
Travellers Multi-Indemnity policy for reference purposes.

P Co Ris Inj Pay

o
l m k ur s
i pa es
c
y
ny

N
o
.

M Ze
I nit
R h
O
/

F Ins
- ur
0 an
2 ce
5
0
0

Co Bui P5 P11
rp. ldin 0, ,87
g 00 7.1
0 4

F Ph
- il.
8
4
5
9
0

Bri
tis
h

As I- 70 16,
sc Bui ,0 628
o. ldin 00 .00
Co g
.

II-
 P a g e | 109

Bu
ildi
ng

FF 50 24,
F& ,0 918
PE 00 .79

P SS Ac
V S cre
C dit
- ed
1
5
1
8
1

Gr
ou
p
of

Ins Bui 25 5,9

ur ldin ,0 38.
er g 00 50
s

F Ins I- 30 14,
- ur Ref ,0 467
5 er 00 .31
9 s
9

D
V

M II- 70 16,
ulti Bui ,0 628
ldin 00 .00
g

Tot P2 P90
als 95 ,25
.0 7.8
00 1

Based on the computation of the loss, including the Travellers Multi- Indemnity,
respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group
of Insurers, paid their corresponding shares of the loss. Complainants were paid the
following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par.
6. Amended Complaint). Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was refused. Hence, complainants
demanded from the other three (3) respondents the balance of each share in the loss
based on the computation of the Adjustment Standards Report excluding Travellers
Multi-Indemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance:
P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the same was refused,
hence, this action.

In their answers, Philippine British Assurance and Zenith Insurance Corporation

admitted the material allegations in the complaint, but denied liability on the ground
that the claim of the complainants had already been waived, extinguished or paid.
Both companies set up counterclaim in the total amount of P 91,546.79.
 P a g e | 110

Instead of filing an answer, SSS Accredited Group of Insurers informed the

Commission in its letter of July 22, 1977 that the herein claim of complainants for the
balance had been paid in the amount of P 5,938.57 in full, based on the Adjustment
Standards Corporation Report of September 22, 1975.

Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and
alleged as its special and affirmative defenses the following, to wit: that Fire
Policy No. 599 DV, covering the furniture and building of complainants was secured
by a certain Arsenio Chua, mortgage creditor, for the purpose of protecting his
mortgage credit against the complainants; that the said policy was issued in the
name of Azucena Palomo, only to indicate that she owns the insured premises; that
the policy contains an endorsement in favor of Arsenio Chua as his mortgage interest
may appear to indicate that insured was Arsenio Chua and the complainants; that the
premium due on said fire policy was paid by Arsenio Chua; that respondent
Travellers is not liable to pay complainants.

On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming
the proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent
Travellers Multi-Indemnity.

Travellers Insurance, in answer to the complaint in intervention, alleged that the

Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured premises and that the complainants,
spouses Pedro and Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3

As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on

the ground that the insurance policy subject of the complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as mortgagee of the insured property and thus
complainant as mortgagors of the insured property have no right of action against herein
respondent. It likewise dismissed petitioner's complaint in intervention in the following words:

We move on the issue of liability of respondent Travellers Multi-Indemnity to the

Intervenor-mortgagee. The complainant testified that she was still indebted to
Intervenor in the amount of P100,000.00. Such allegation has not however, been
sufficiently proven by documentary evidence. The certification (Exhibit 'E-e') issued
by the Court of First Instance of Davao, Branch 11, indicate that the complainant was
Antonio Lopez Chua and not Tai Tong Chuache & Company. 4

From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it
was likewise denied hence, the present petition.

It is the contention of the petitioner that respondent Insurance Commission decided an issue not
raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one
entitled to the insurance proceeds and not Tai Tong Chuache & Company.

This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed
from considering the manner it was written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it was Arsenio Lopez Chua who
has insurable interest over the insured property. Perusal of the decision reveals however that it
readily absolved respondent insurance company from liability on the basis of the commissioner's
conclusion that at the time of the occurrence of the peril insured against petitioner as mortgagee had
no more insurable interest over the insured property. It was based on the inference that the credit
secured by the mortgaged property was already paid by the Palomos before the said property was
gutted down by fire. The foregoing conclusion was arrived at on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II that in a certain civil action against the
Palomos, Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong Chuache &
Company.

We find the petition to be impressed with merit. It is a well known postulate that the case of a party is
constituted by his own affirmative allegations. Under Section 1, Rule 1316 each party must prove his
own affirmative allegations by the amount of evidence required by law which in civil cases as in the
present case is preponderance of evidence. The party, whether plaintiff or defendant, who asserts
the affirmative of the issue has the burden of presenting at the trial such amount of evidence as
 P a g e | 111

required by law to obtain favorable judgment.7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance company to avoid liability under the
policy by setting up an affirmative defense of lack of insurable interest on the part of the petitioner
must prove its own affirmative allegations.

It will be recalled that respondent insurance company did not assail the validity of the insurance
policy taken out by petitioner over the mortgaged property. Neither did it deny that the said property
was totally razed by fire within the period covered by the insurance. Respondent, as mentioned
earlier advanced an affirmative defense of lack of insurable interest on the part of the petitioner that
before the occurrence of the peril insured against the Palomos had already paid their credit due the
petitioner. Respondent having admitted the material allegations in the complaint, has the burden of
proof to show that petitioner has no insurable interest over the insured property at the time the
contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted,
exerted no effort to present any evidence to substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to it.

However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance

company from liability on the basis of the certification issued by the then Court of First Instance of
Davao, Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as
the complainant and not Tai Tong Chuache. From said evidence respondent commission inferred
that the credit extended by herein petitioner to the Palomos secured by the insured property must
have been paid. Such is a glaring error which this Court cannot sanction. Respondent Commission's
findings are based upon a mere inference.

The record of the case shows that the petitioner to support its claim for the insurance proceeds
offered as evidence the contract of mortgage (Exh. 1) which has not been cancelled nor released. It
has been held in a long line of cases that when the creditor is in possession of the document of
credit, he need not prove non-payment for it is presumed. 8 The validity of the insurance policy taken
b petitioner was not assailed by private respondent. Moreover, petitioner's claim that the loan
extended to the Palomos has not yet been paid was corroborated by Azucena Palomo who testified
that they are still indebted to herein petitioner. 9

Public respondent argues however, that if the civil case really stemmed from the loan granted to
Azucena Palomo by petitioner the same should have been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above premise respondent concluded that the obligation
secured by the insured property must have been paid.

The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed out
that the action must be brought in the name of the real party in interest. We agree. However, it
should be borne in mind that petitioner being a partnership may sue and be sued in its name or by
its duly authorized representative. The fact that Arsenio Lopez Chua is the representative of
petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent insurance company. 11 Thus Chua as the
managing partner of the partnership may execute all acts of administration 12 including the right to
sue debtors of the partnership in case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company
is an agent of the partnership. Being an agent, it is understood that he acted for and in behalf of the
firm.13 Public respondent's allegation that the civil case flied by Arsenio Chua was in his capacity as
personal creditor of spouses Palomo has no basis.

The respondent insurance company having issued a policy in favor of herein petitioner which policy
was of legal force and effect at the time of the fire, it is bound by its terms and conditions. Upon its
failure to prove the allegation of lack of insurable interest on the part of the petitioner, respondent
insurance company is and must be held liable.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER
judgment is rendered order private respondent Travellers Multi-Indemnity Corporation to pay
petitioner the face value of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs
against said private respondent.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Griño-Aquino, JJ., concur.

 P a g e | 112

6. Teague vs Martin 54 Phil 504 (1929)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 30286 September 12, 1929

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.

Abad Santos, Camu and Delgado, for appellant.

J.W. Ferrier for appellees.

STATEMENT

Plaintiff alleges that about December 23, 1926, he and the defendants formed a partnership for the
operation of a fish business and similar commercial transactions, which by mutual contest was called
"Malangpaya Fish Co," with a capital of P35,000, of which plaintiff paid P25,000, the defendant
Martin P5,000, P2,500, and Golucke P2,500. That as such partnership, they agreed to share in the
profits and losses of the business in proportion to the amount of capital which each contributed. That
the plaintiff was named the general manager to take charge of the business, with full power to do
and perform all acts necessary to carry out of the purposes of the partnership. That there was no
agreement as to the duration of the partnership. That plaintiff wants to dissolve it, but that the
defendants refused to do so. A statement marked Exhibit A, which purports to be a cash book, is
made a part of the complaint. That the partnership purchased and now owns a lighter called Lapu-
Lapu, and a motorship called Barracuda, and other properties. That the lighter and the motorship are
in the possession of the defendants who are making use of them, to the damage and prejudice of
the plaintiff, for any damage which plaintiff may sustain. That it is for the best interest of the parties to
have a receiver appointed pending this litigation, to take possession of the properties, and he prays
that the Philippine Trust Company be appointed receiver, and for judgment dissolving the
partnership, with costs.

Each of the defendants filed a separate answer, but the same nature, in which they admit that about
December 10, 1926, the plaintiff and the defendants formed a partnership for the purpose of the
equipment of the Manila Fish Co., Inc., and the conduct of a fish business. That the terms of the
partnership were never evidenced by a truth and in fact, the partnership was formed under a written
plan, of which each member received a copy and to which all agreed. That by its terms the amount
of the capital was P45,000, of which the plaintiff agreed to contribute P35,000. That P20,000 of the
capital was to be used for the purchase of the equipment of the Manila Fish Co., Inc. and the
balance placed to the checking account o the new company.

It is then alleged that "the new owners agree to duties as follows:

Capt. Maddy will have charger of the Barracuda and the navigating of the same. Salary P300
per month.

Mr. Martin will have charge of the southern station, cold stores, commissary and procuring
fish. Salary P300 per month.

Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No salary until
business is on paying basis, then the same as Maddy or Martin.
 P a g e | 113

The principal office shall be in Manila, each party doing any business shall keep books
showing plainly all transactions, the books shall be available at all time for inspections of any
member of the partnership.

If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger share in the
business Teague agrees to sell part of his shares to each on the basis double the amount
originally invested by each or ten thousand to Martin and five thousand to Maddy.

This offer will expire after two years.

That no charge was ever made in the terms of said agreement of copartnership as set forth
above except that it was later agreed among the partners that the business of the
partnership should be conducted under the trade name "Malangpaya Fish Company."

That as shown by the foregoing quoted agreement the agreed capital of the copartnership
was P45,000 and not P35,000 as stated in the third paragraph of plaintiff's amended
complaint, and the plaintiff herein, M. Teague, bound himself and agreed to contribute to the
said copartnership the sum of P35,000 and not the sum of P25,000 as stated in the third
paragraph of his said amended complaint.

Defendant Martin specificaly denies the "plaintiff was named general manager of the partnership,"
and alleged "that all the duties and powers of the said plaintiff were specifically set forth in the above
quoted written agreement and that no further or additional powers were ever given the said plaintiff."
But he admits the purchase of the motorship Barracuda, by the partnership. He denies that Exhibit A
is a true or correct statement of the cash received and paid out by or on behalf of the partnership, or
that the partnership over purchased or that it now owns the lighter Lapu-Lapu, "And/ or any other
properties" as mentioned in said ninth paragraph, except such motorship and a smoke in the house,"
or that the defendants are making use of any of the properties of the partnership, to the damage and
prejudice of the plaintiff, or that they do not have any visible means to answer for any damages, and
alleges that at the time of the filing of the complaint, partnership in cold storage, of the value of
P6,000, for which he has never accounted on the books of the partnership or mentioned in the
complaint, and defendant prays that plaintiff's complaint be dismissed, and that he be ordered and
required to render an accounting , and to pay to partnership the balance of his unpaid subscription
amounting to P10,000.

In his answer the defendant Maddy claimed and asserted that there is due and owing him from the
plaintiff P1,385.53, with legal interest, and in his amended answer, the defendant Martin prays for
judgment for P615.49.

To all which the plaintiff made a general and specific denial.

Upon such issues the lower court on April 30, 1928, rendered the following judgment:

In view of the foregoing considerations, the court decrees:

That the partnership, existing among the parties in this suit, is hereby declared dissolved;
that all the existing properties of the said partnership are ordered to be sold at public auction;
and that all the proceeds and other unexpended funds of the partnership be used, first, to
pay he P529.48 tax to the Government of the Philippine Islands; second, to pay debts owing
to third persons; third, to reimburse the partners for their advances and salaries due; and
lastly, to return to the partners the amounts they contributed to the capital of the association
and any other remaining such to be distributed proportionately among them as profits:

That the plaintiff immediately render a true and proper account of all the money due to and
received by him for the partnership.

That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding machine belong
exclusively to the plaintiff, M. Teague, but the said plaintiff must return to and reimburse the
partnership the sum of P14,032.26 taken from its funds for the purchase and equipment of
the said barge Lapu-Lapu; and also to return the sum of P1,230 and P228 used for buying
the Ford truck and adding machine, respectively:
 P a g e | 114

That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of P615.49
be paid to defendant, H. Martin, for their advances and their unpaid salaries, with legal
interest from October 27, 1927, until paid; that the plaintiff pay the costs of this action.

So ordered.

May 16, 1928, plaintiff filed a motion praying for an order "directing the court's stenographic notes
taken by them of the evidence presented in the present case, as soon as possible." This motion was
denied on May 19th, and on May 16th, the court denied the plaintiff's motion for reconsideration. To
all of which exceptions were duly taken.

June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the decision of the
court in the case be set aside, and that the parties be permitted to again present their testimony and
to have the case decided upon its merits. To which objections were duly made, and on June 28,
1928, the court denied plaintiff's motion for a new trial. To which exceptions were duly taken, and on
July 10, 1928, the plaintiff filed a motion in which he prayed that the period for the appeal interposed
by the plaintiff be suspended, and that the order of June 28, 1928, be set aside, "and that another be
entered ordering the re-taking of the evidence in this case." To which objections were also filed and
later overruled, from all of which the plaintiff appealed and assigns the following errors:

I. The trial court erred in not having confined itself, in the determination of this case, to the
question as to whether or not it is proper to dissolve the partnership and to liquidate its
assets, for all other issues raised by appellees are incidental with the process of liquidation
provided for by law.

II. The trial court erred in not resolving the primary and most important question at issue in
his case, namely, whether or not the appellant M. Teague was the manager of the
unregistered partnership Malangpaya Fish Company.

III. The trial court erred in holding that the appellant had no authority to buy the Lapu-Lapu,
the Ford truck and the adding machine without the consent of his copartners, for in
accordance with article 131 of the Code of Commerce the managing partner of a partnership
can make purchases for the partnership without the knowledge and/or consent of his
copartners.

IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the adding machine
purchased by appellant, as manager of the Malangpaya Fish Company, for and with funds of
the partnership, do not form part of the assets of the partnership.

V. The trial court erred in requiring the appellant to pay to the partnership the sum of
P14,032.26, purchase price, cost of repairs and equipment of the barge Lapu-Lapu; P1,230
purchase price of the adding machine, for these properties were purchased for and they form
part of the assets of the partnership.

VI. The trial court erred in disapproving appellant's claim for salary and expenses incurred by
him for and in connection with the partnership's business.

VII. The trial court erred in approving the claims of appellees J.T. Maddy and H. Martin and
in requiring the appellant to pay them the sum of P1,512.03 and P615.49 respectively.

VIII. The trial court erred in not taking cognizance of appellant's claim for reimbursement for
advances made by him for the partnerships, as shown in the statement attached to the
complaint marked Exhibit A, in which there is a balance in his favor and against the
partnership amounting to over P16,000.

X. Lastly, considering the irregularities committed, the disappearance of the stenographic

notes for a considerable length of time, during which time changes in the testimonies of the
witnesses could have been made and the impossibility of having an accurate and complete
transcript of the stenographic notes, the trial court erred in denying appellant's petition for the
retaking of the evidence in this case.
 P a g e | 115

JOHNS, J.:

By their respective pleadings, all parties agreed that there was a partnership between them, which
appears at one time to have done a good business. In legal effect, plaintiff asked for its dissolution
and the appointment of a receiver pendente lite. The defendants did not object to the dissolution of
the partnership, but prayed for an accounting with the plaintiff. It was upon such issues that the
evidence was taken and the case tried. Hence, there is no merit in the first in the first assignment of
error. Complaint is made that the lower court did not specifically decide as to whether or not the
plaintiff was the manager of the unregistered partnership. But upon that question the lower court, in
legal effect, followed and approved the contention of the defendants that the duties of each partners
were specified and defined in the "plans for formation of a limited partnership," in which it is stated
that Captain Maddy would have charge of the Barracuda and its navigation, with a salary of P300
per month, and that Martin would have charge of the southern station, cold stores, commisary and
procuring fish, with a salary of P300 per month, and that the plaintiff would have charge of selling
fish in Manila and purchasing supplies, without salary until such time as the business is placed on a
paying basis, when his salary would be the same as that of Maddy and Martin, and that the principal
office of the partnership "shall keep books showing plainly all transactions," which shall be available
at all time for inspection of any of the members.

It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are specifically
defined, and that each of them was more or less the general manager in his particular part of the
business. That is to say, that Maddy's power and duties are confined and limited to the charge of
the Barracuda and its navigation, and Martin's to the southern station, cold stores, commissary and
procuring fish, and that plaintiff's powers and duties are confined and limited to "selling fish in Manila
and the purchase of supplies." In the selling of fish, plaintiff received a substantial amount of money
which he deposited to the credit of the company signed by him as manager, but it appears that was
a requirement which the bank made in the ordinary course of business, as to who was authorized to
sign checks for the partnership; otherwise, it would not cash the checks.

In the final analysis, the important question in this case is the ownership of the Lapu-Lapu, the Ford
truck, and the adding machine. The proof is conclusive that they were purchased by the plaintiff and
paid for him from and out of the money of the partnership. That at the time of their purchase,
the Lapu-Lapu was purchased in the name of the plaintiff, and that he personally had it registered in
the customs house in his own name, for which he made an affidavit that he was its owner. After the
purchase, he also had the Ford truck registered in his won name. His contention that this was done
as a matter of convenience is not tenable. The record shows that when the partnership purchased
the Barracuda, it was registered in the customs house in the name of the partnership, and that it was
a very simple process to have it so registered.

Without making a detailed analysis of the evidence, we agree with the trial court that the Lapu-Lapu,
the Ford truck, and the adding machine were purchased by the plaintiff and paid for out of the funds
of the partnership, and that by his own actions and conduct, and the taking of the title in his own
name, he is now estopped to claim or assert that they are not his property or that they are the
property of the company. Again, under his powers and duties as specified in the tentative, unsigned
written agreement, his authority was confined and limited to the "selling of fish in Manila and the
purchase of supplies." It must be conceded that, standing alone, the power to sell fish and purchase
supplies does not carry with it or imply the authority to purchase the Lapu-Lapu, or the Ford truck, or
the adding machine. From which it must follow that he had no authority to purchase the lighter Lapu-
Lapu, the Ford truck, or the adding machine, as neither of them can be construed as supplies for the
partnership business. While it is true that the tentative agreement was never personally signed by
any member of the firm, the trial court found as a fact, and that finding is sustained by the evidence,
that this unsigned agreement was acted upon and accepted by all parties as the basis of the
partnership. It was upon that theory that the lower court allowed the defendant s Maddy and Martin a
salary of P300 per month and the money which each of them paid out and advanced in the
discharged of their respective duties, and denied any salary to the plaintiff, for the simple reason that
the business was never on a paying basis.

Much could be said about this division of powers, and that Maddy and Martin's duties were confined
and limited to the catching and procuring of fish, which were then shipped to the plaintiff who sold
them on the Manila market and received the proceeds of the sales. In other words, Maddy and
Martin were supplying the fish to plaintiff who sold them under an agreement that he would account
for the money.
 P a g e | 116

Upon the question of accounting, his testimony as to the entries which he made and how he kept the
books of the partnership is very interesting:

Q. Then this salary does not take into consideration the fact that you claim the
company is very badly in debt? —

A. Well, I put the salary in there.

Q. I am asking you if that is true? —

A. I do not think I will decide that, I think it will be decided by the court.

Q. I will ask you to answer the question? —

A. You asked me my opinion and I said that I am entitled to it.

xxx xxx xxx

I am not on trial as a bookkeeper; if my lawyers won't object to the question I will object
myself; I am not on trial as a bookkeeper; I keep my books any way I want to, put in what I
want to, and I leave out anything I don't choose to put in, —

xxx xxx xxx

Q. You have your own bookkeeping? —

A. Well, I run my business to suit myself, I put in the books what I want to, and
I leave out what I want to, and I have a quarter of a million pesos to show for it, —

xxx xxx xxx

Q. Did you not say that you paid yourself a salary in August because you
made a profit? —

A. Yes. This profit was made counting the stock on hand and equipment on
hand, but as far as cash to pay this balance, I did not have it. when I wanted a salary
I just took it. I ran things to suit myself.

xxx xxx xxx

Q. In other words in going against these partners you are going to tax them for
the services of your attorney? —

A. You are mistaken; I am not against them. I paid this out for filing this
complaint and if the honorable court strikes it out, all right. I think it was a just charge.
When I want to sue them the Company can pay for my suit.

Q. Would you have any objection to their asking for their attorney's fees from
the company as partners also in the business? —

A. Yes.

Q. You would object to your partners having their attorney's fees here paid out
of the copartnership like you have had yours paid? —

A. Yes, that is the way I do my business.

To say the least, this kind of evidence does not appeal to the court. This case has been bitterly
contested, and there is much feeling between the parties and even their respective attorneys. Be
that as it may, we are clearly of the opinion that the findings of the lower court upon questions of fact
are well sustained by the evidence. Plaintiff's case was tried on the theory that the partnership was
the owner of the property in question, and no claim was made for the use of the Lapu-Lapu, and it
 P a g e | 117

appears that P14,032.26 of the partnership money was used in its purchase, overhauling, expenses
and repairs. That in truth and in fact the partnership had the use and benefit of the Lapu-Lapu in its
business from sometime in May until the receiver was appointed on November 11, 1927, or a period
of about six months, and that the partnership has never paid anything for its use. it is true that there
is no testimony as to the value of such use, but the cost of the Lapu-Lapu and the time of its use and
the purpose for which it was used, all appear in the record. For such reason, in the interest of justice,
plaintiff should be compensated for the reasonable value of the time which the partnership made use
of the Lapu-Lapu.

All things considered, we are of the opinion that P2,000 is a reasonable, amount which the plaintiff
should receive for its use.

In all things and respects, the judgment of the lower court as to the merits is affirmed, with the
modification only that P2,000 shall be deducted from the amount of the judgment which was
awarded against the plaintiff, such deduction to be made for and on account of such use of
the Lapu-Lapu by the partnership, with costs against the appellant. So ordered.

Avanceña, C.J., Street, Villamor, Romualdez and Villa-Real, JJ. concur.

Johnson, J., reserves his vote.

Art 1801
Art 1802

2. Power of Alteration – Art 1803 (2)

3. Power over Real Properties of the Partnership – Art 1774, 1819
i. Where title is in the Partnership Name
ii. Where title is not in the Partnership Name
iii. Where title is in the Name of One or More but not All the Partners
iv. Where title is in the name of all of the Partners

4. Partner’s Right to Specific Partnership PropertyArt 1811

CAtlanvsGatchalian 105 Phil 270 (1959)

CATALAN vs. GATCHALIAN

105 Phil 1270, G.R. No. L-11648, April 22, 1959

FACTS: Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave
together with the improvements thereon to secure a credit from the latter. The
partnership failed to pay the obligation. The properties were sold to Dr. Marave at a
public auction. Catalan redeemed the property and he contends that title should be
cancelled and a new one must be issued in his name.

ISSUE: Did Catalan’s redemption of the properties make him the absolute owner of the
lands?

HELD: No. Under Article 1807 of the NCC every partner becomes a trustee for his
copartner with regard to any benefits or profits derived from his act as a
partner. Consequently, when Catalan redeemed the properties in question, he became
a trustee and held the same in trust for his copartner Gatchalian, subject to his right to
demand from the latter his contribution to the amount of redemption.
 P a g e | 118

5. Equity Rights of Partners Art 1812

i. Profits vs Surplus
ii. Assignability of Partner’s Equity Right- Art 1813, 1814, 1827
GoquiolayvsSycip 108Phil 947 (1960)
iii. Right to Participate in Profits; the Obligation to Participate in
losses
Art 1797, 1798, 1769, 1767, 1770, 1799

6. Right to Inspect Art 1805

7. Right to Demand True and Full Information Art 1806

8. Right to Demand Accounting- Art 1807, 1809

1. Fue Leung vs IAC, 169 Scra 746 (1989)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-
G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch
II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah
Panciteria was actually a partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

 P a g e | 119

About the time the Sun Wah Panciteria started to become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit
"A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court commissioned an
interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap
issued a certification and testified that the translation to the best of her knowledge and belief was
correct. The private respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses
So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his
own investment in another amount of P4,000.00 An examination was conducted by the PC Crime
Laboratory on orders of the trial court granting the private respondents motion for examination of
certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng
and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were
indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered
by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the
operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check (Exhibit B) was deposited by
and duly credited to the private respondents savings account with the bank after it was cleared by
the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable
Banking Corporation testified that the check in question was in fact and in truth drawn by the
petitioner and debited against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana
further testified that upon clearance of the check and pursuant to normal banking procedure, said
check was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as
follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He
used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as
waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing
Sun Wah Panciteria. To bolster his contention that he was the sole owner of the restaurant, the
petitioner presented various government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly
denied having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the
plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of the
decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to deliver and pay to the former, the sum equivalent to
22% of the annual profit derived from the operation of Sun Wah Panciteria from
October, 1955, until fully paid, and attorney's fees in the amount of P5,000.00 and
cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new
trial and, as supplement to the said motion, he requested that the decision rendered should include
the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private
respondent to adduce evidence so that the said decision will be comprehensively adequate and thus
put an end to further litigation.

The motion was granted over the objections of the petitioner. After hearing the trial court rendered
an amended decision, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration

filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and
 P a g e | 120

the decision rendered by this Court on September 30, 1980, is hereby amended. The
dispositive portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against
the defendant, ordering the latter to pay the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus
the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court.
The questioned decision was further modified by the appellate court. The dispositive portion of the
appellate court's decision reads:

WHEREFORE, the decision appealed from is modified, the dispositive portion

thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of
the net profit of P2,000.00 a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May
16, 1971 to August 30, 1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of
P8,000.00 a day.

Except as modified, the decision of the court a quo is affirmed in all other respects.
(p. 102, Rollo)

Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's
decision. The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a

quo reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendant, ordering the latter to pay to the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus
the sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is
July 13, 1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the
petitioner in the setting up and operations of the panciteria. While the dispositive portions merely
ordered the payment of the respondents share, there is no question from the factual findings that the
respondent invested in the business as a partner. Hence, the two courts declared that the private
petitioner is entitled to a share of the annual profits of the restaurant. The petitioner, however, claims
that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private respondent allegedly will receive a share in the profits
of the restaurant. The same complaint did not claim that private respondent is a partner of the
business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate
Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate
Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a
partner to a partnership;" (p. 75, Rollo)

The pertinent portions of the complaint state:

xxx xxx xxx

2. That on or about the latter (sic) of September, 1955, defendant sought

the financial assistance of plaintiff in operating the defendant's eatery known as Sun
 P a g e | 121

Wah Panciteria, located in the given address of defendant; as a return for

such financial assistance. plaintiff would be entitled to twenty-two percentum (22%)
of the annual profit derived from the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four
thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of
such amount, duly acknowledged by the defendant is attached hereto as Annex "A",
and form an integral part hereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said panciteria. These allegations, which
were proved, make the private respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that "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".

Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is
the giving out of money to another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo)
The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the
action filed in court is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not
the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the
PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens
used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness
nor has any witness identified the handwriting in the standards or specimens belonging to the
petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1"
to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the
petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the
signatures in the two receipts issued separately by the petitioner to the private respondent and So
Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner
on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted on the questioned documents,
the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in
both receipts (Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented
by the private respondent for marking as exhibits, the petitioner did not interpose any objection.
Neither did the petitioner file an opposition to the motion of the private respondent to have these
exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to
him. Likewise, no explanation has been offered for his silence nor was any hint of objection
registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The
records sufficiently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The
alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after
 P a g e | 122

the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to
July 13, 1978, no written demands were ever made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extra-judicial demand by the creditor, and when there is
any written acknowledgment of the debt by the debtor.'

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a
partnership which are — 1) two or more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a partner shares not only in profits but also in the losses of
the firm. If excellent relations exist among the partners at the start of business and all the partners
are more interested in seeing the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not
assert his rights anytime within ten years from the start of operations, such rights are irretrievably
lost. The private respondent's cause of action is premised upon the failure of the petitioner to give
him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable.
Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the
final accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private respondent as
embodied in his complaint and testimonial evidence presented by said private respondent to support
his claim in the complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun
Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs. Licup).

 P a g e | 123

Q Mrs. Witness, you stated that among your duties was that you were
in charge of the custody of the cashier's box, of the money, being the
cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that
correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what
do you do with the money?

A We balance it with the manager, Mr. Dan Fue Leung.

ATTY. HIPOLITO:

I see.

Q So, in other words, after your job, you huddle or confer together?

A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day, more or less, will you

please tell us, how much is the gross income of the restaurant?

A For regular days, I received around P7,000.00 a day during my shift

alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.

Q What about the catering service, will you please tell the Honorable
Court how many times a week were there catering services?

A Sometimes three times a month; sometimes two times a month or

more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the
catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses
an income of P7,000.00 in a regular day?

A Yes.

Q And ten thousand pesos during pay day.?

 P a g e | 124

A Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15,

1978). (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the
cross-examination on the matter of income but he failed to comply with his promise to produce
pertinent records. When a subpoena duces tecum was issued to the petitioner for the production of
their records of sale, his counsel voluntarily offered to bring them to court. He asked for sufficient
time prompting the court to cancel all hearings for January, 1981 and reset them to the later part of
the following month. The petitioner's counsel never produced any books, prompting the trial court to
state:

Counsel for the defendant admitted that the sales of Sun Wah were registered or
recorded in the daily sales book. ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the defendant to bring said
records and counsel for the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have supplied chicken, meat,
shrimps, egg and other poultry products which, however, did not show the gross
sales nor does it prove that the same is the best evidence. This Court gave warning
to the defendant's counsel that if he failed to produce the books, the same will be
considered a waiver on the part of the defendant to produce the said books inimitably
showing decisive records on the income of the eatery pursuant to the Rules of Court
(Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if produced."
(Rollo, p. 145)

The records show that the trial court went out of its way to accord due process to the petitioner.

The defendant was given all the chance to present all conceivable witnesses, after
the plaintiff has rested his case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised that he will present the defendant
as his last witness. Notably there were several postponement asked by counsel for
the defendant and the last one was on October 1, 1981 when he asked that this case
be postponed for 45 days because said defendant was then in Hongkong and he
(defendant) will be back after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said date, the counsel for
the defendant who again failed to present the defendant asked for another
postponement, this time to November 24, 1981 in order to give said defendant
another judicial magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that if the defendant
cannot be presented, counsel is deemed to have waived the presentation of said
witness and will submit his case for decision.

On November 24, 1981, there being a typhoon prevailing in Manila said date was
declared a partial non-working holiday, so much so, the hearing was reset to
December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel,
the same was again reset to December 22, 1981 as previously scheduled which
hearing was understood as intransferable in character. Again on December 22, 1981,
the defendant's counsel asked for postponement on the ground that the defendant
was sick. the Court, after much tolerance and judicial magnanimity, denied said
motion and ordered that the case be submitted for resolution based on the evidence
 P a g e | 125

on record and gave the parties 30 days from December 23, 1981, within which to file
their simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the
heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the
appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not
from the opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits
were being plowed back into the expansion of the business. There is no basis in the records to
sustain the petitioners contention that the damages awarded are excessive. Even if the Court is
minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to
any portion of the records for such modification. There is no basis in the records for this Court to
change or set aside the factual findings of the trial court and the appellate court. The petitioner was
given every opportunity to refute or rebut the respondent's submissions but, after promising to do so,
it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The question now arises as to whether or not the
payment of a share of profits shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership under
Article 1831 of the Civil Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement,

or otherwise so conducts himself in matters relating to the partnership business that
it is not reasonably practicable to carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other
incidents of dissolution because the continuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of
the parties is ordered dissolved.

SO ORDERED.

Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

2. Hanlon vsHaussermann and Beam, 40 Phil 796 (1920)

Republic of the Philippines

SUPREME COURT
Manila
 P a g e | 126

EN BANC

G.R. No. L-14617 February 18, 1920

R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.

Cohn and Fisher for appellants.

Thomas D. Aitken and Gibbs, McDonough and Johnson for appellees.

STREET, J.:

This action was originally instituted by R. Y. Hanlon to compel the defendants, John W.
Haussermann and A. W. Beam, to account for a share of the profits gained by them in rehabilitating
the plant of the Benguet Consolidated Mining Company and in particular to compel them to
surrender to the plaintiff 50,000 shares of the stock of said company, with dividends paid thereon. A
few days after the action was begun G. C. Sellner was permitted to intervene in like interest with
Hanlon and to the same extent. Thereafter the case was conducted in all respects as if Hanlon and
Sellner had been co-plaintiffs from the beginning. At the hearing judgment was rendered requiring
the defendants to surrender to Hanlon and Sellner respectively 24,000 shares each of the stock of
said company, and to pay the dividends declared and paid on said stock for the years 1916 and
1917. From this judgment the defendants appealed.

The controlling features of this controversy are disclosed in documentary evidence, and the other
facts necessary to a proper understanding of the case are stated in the narrative part of the opinion
of the trial judge. As both parties to the appeal agree that his statement of facts is substantially
correct, we adopt his findings of fact as the basis of our own statement, with such transposition,
omissions, and additions as seen desirable for the easier comprehension of the case.

The Benguet Consolidated Mining Company is a corporation which was organized in 1903 with an
authorized capital stock of one million dollars, of the par value of one dollar per share, of which stock
499,000 shares had been issued prior to November 1913, and 501,000 shares then remained in the
treasury as unissued stock. The par value of the shares was changed to one peso per share after
the organization of the corporation.

In the year 1909 the milling plant of said company, situated near Baguio in the subprovince of
Benguet, Philippine Islands upon a partially developed quartz mine, was badly damaged and partly
destroyed by high water, and in 1911 it was completely destroyed by like causes. The company was
thereafter without working capital, and without credit, and therefore unable to rebuild the plant.

In October and November 1913, and for a long time prior thereto, the defendant John W.
Haussermann and A. W. Beam were shareholders in said mining company and members of its
board of directors, and were at said time vice-president and secretary-treasurer, respectively, of said
company.

In October, 1913, the plaintiff R. Y. Hanlon, an experienced mining engineer, upon the solicitation of
the defendant Beam, presented to the board of directors of the Benguet Consolidated Mining
Company a proposition for the rehabilitation of the company, and asked an option for thirty days
within which to thoroughly examine the property; which proposition, with certain amendments, was
finally accepted by said company; and thereafter, on November 6, 1913, within the option period, the
terms of that proposition and acceptance were incorporated in a written contract between the plaintiff
and the company, in which the said company acted by and through the defendant John W.
Haussermann as vice-president and the defendant A. W. Beam as secretary. In this contract it
appears that for and in consideration of the issuance and delivery to said Hanlon or to his order of
the 501,000 shares of the unissued capital stock of said mining company, the said Hanlon
undertook, promised, and agreed to do or cause to be done sufficient development work on the
mining properties of said company to enable the company to mine and take out not less than sixty
tons of ore per day, and to give an extraction of not less than 85 per cent of the gold content of the
ore; and the terms and conditions upon which said undertaking was based may be briefly stated as
follows: (1) said Hanlon was to pay into the treasury of the mining company the sum of P75,000 in
cash within six months from that date; (2) upon the payment of said P75,000 in cash there was to be
issued and delivered to said Hanlon or to his order 250,000 shares of said unissued stock; (3)
 P a g e | 127

prescribing the purposes for which said P75,000 should be disbursed by said mining company upon
the order of said Hanlon; (4) providing for raising an additional sum of P75,000 by obtaining a loan in
the name of said mining company upon the security of its properties and assets, such additional
indebtedness to be paid and discharged within eighteen months from date of said agreement; (5)
providing for the payment of the then indebtedness of said mining company amounting to
P13,105.08; (6) providing for the distribution of the net earnings after the payment of the
indebtedness mentioned in paragraphs 4 and 5; (7) providing that, for the purpose of securing and
guaranteeing the faithful performance of each and every undertaking in said agreement mentioned
to be fulfilled by said Hanlon, 250,000 of said 501,000 shares should remain on deposit with said
mining company, to be released, surrendered and delivered to said Hanlon or to his order, as
follows: "151,000 shares to be released, surrendered and delivered to the said party of the first part,
or his order, when said milling plant shall have been duly completed and the operation thereof
commenced; the balance of said shares to wit: 100,000, shall remain on deposit with the party of the
second part until the above mentioned loan to be secured by the assets of the company shall have
been fully paid and discharged, in which event said shares shall be released, surrendered and
delivered to the party of the first part, or his order;" (8) providing that in the event the earnings of the
company should be insufficient to pay all indebtedness within the time provided in paragraphs 4 and
6, the balance remaining due thereon was to be paid by said Hanlon, and if he neglected to pay off
and discharge the balance due, then the said mining company was to have the right and authority to
sell and dispose of the 100,000 shares of stock remaining in its possession at public or private sale
at the prevailing market price, or as many of said shares as might be necessary to fully liquidate and
discharge the balance of said indebtedness remaining unpaid; (9) providing for taking out insurance
by said mining company for the protection of said Hanlon, to cover the full value of said plant during
its erection and after the completion thereof for a period of not less than eighteen months after the
same shall have been placed in operation.

As was at the time well known to all parties concerned herein the plaintiff Hanlon was personally
without the financial resources necessary to enable him to contribute P75,000 towards the project
indicated in the contract Exhibit B, above set forth; and in order to overcome this obstacle he was
compelled to seek the assistance of others. Haussermann and Beam, being cognizant of this
necessity, agreed to find P25,000 of the necessary capital, and for the remainder the plaintiff relied
upon G. C. Sellner, a business man of the city of Manila, who, upon being approached, agreed to
advance P50,000. A verbal understanding with reference to his matter had been attained by the four
parties to this litigation before the contract Exhibit B between Hanlon and the mining company had
been formally executed, and this agreement was in fact reduced to writing and signed on November
5, 1913, one day prior to the execution of the contract between Hanlon and the mining company.

In this contract of November 5, 1913, (Exhibit A), the four parties, to wit: Hanlon, Sellner,
Haussermann, and Beam, agreed to collaborate in the flotation of the project outlined in the contract
Exhibit B, and defined the manner in which the necessary capital of P75,000 was to be raised. As
this contract is absolutely vital in the present litigation its provisions are set out in full:

Whereas, R. Y. Hanlon has submitted a proposition to the Benguet Consolidated Mining Co.,
a copy of which is hereto attached for reference; and

Whereas, the Board of Directors of the Benguet Consolidated Mining Co., has accepted such
proposition as amended; and

Whereas, said parties have agreed to cooperate and assist the said Hanlon in the flotation of
said proposition;

Now, therefore, this agreement made by and between the undersigned as follows:

I.

It is mutually agreed by and between the parties hereto that each shall do all in his power to
float said proposition and make the same a success.

II.

It is mutually agreed that said proposition shall be floated in the following manner, to wit:
 P a g e | 128

(a) That 301,000 shares of the Benguet Consolidated Mining Company shall be set aside
and offered for sale for the purpose of raising the sum of P75,000 required to be paid to the
Benguet Consolidated Mining Company in accordance with said proposition.

(b) That of said sum of P75,000, the said George Seller agrees and undertakes to secure
and obtain subscriptions for the sum of P50,000.

(c) That John W. Haussermann and A. W. Beam undertake and agree to secure and obtain
subscriptions for the sum of P25,000.

(d) The said Sellner, Haussermann and Beam hereby guarantee that the subscriptions to be
obtained by them as hereinabove stated shall be fully paid within six (6) months from the
date of the acceptance on the part of the said Hanlon of the option granted by said company;
it being understood and agreed that if for any cause the said Sellner shall fail to obtain
subscriptions and payment thereof to the amount of P50,000 within the time herein specified,
then and in that event the obligation of said Haussermann and Beam shall be discharged;
and, on the other hand, if for any cause said Haussermann and Beam shall fail to obtain
subscriptions for the P25,000 and payment thereof within the time herein mentioned, then
and in that event, the said Sellner shall be released from his obligation.

It is mutually understood and agreed that each of the parties mentioned in this paragraph
shall from time to time advise the other parties as to the number of subscriptions obtained
and the amount of payments thereon.

III.

That out of the remaining 200,000 shares of the Benguet Consolidated Mining Co., to be
issued under said proposition each of said parties hereto, that is to say: George Sellner,
John W. Haussermann, A. W. Beam and R. Y. Hanlon shall be entitled to receive one-fourth
thereof, or 50,000 shares, as compensation for the services rendered in the flotation of this
proposition.

IV.

They necessary funds to cover preliminary expenses, such as expenses to examining the
properties of the Benguet Consolidated Mining Co., freight charges and other charges on ore
samples, costs of testing same, etc., shall be supplied by Messrs. Sellner, Haussermann and
Beam, which said sum shall be reimbursed to said parties out of the P75,000 fund raised by
the sale of the P301,000 shares of stock hereinabove in Paragraph II, Subsection A, hereof,
mentioned.

V.

Cash for the loan of P5,000 to be made to the Benguet Consolidated Mining Co., as provided
in the proposition of the said Hanlon, shall be furnished by Messrs. Sellner, Haussermann
and Beam, in equal proportions as needed by the company.

In witness whereof, the respective parties hereto have hereunto set their hands at Manila, P.
I., this 5th day of November, 1913.

(Sgd.) R. Y. HANLON,
(Sgd.)GEORGE C. SELLER,
(Sgd.)JOHN W. HAUSSERMANN,
(Sgd.)A. W. BEAM.

During the period which intervened between the making of the preliminary verbal agreement
and the final execution of this contract, the plaintiff, Hanlon, at the expenses of the joint
adventure went from Manila to the Benguet Consolidated mining properties, near Baguio,
accompanied by the defendant Beam at the expense of said mining company, and said
Hanlon made a preliminary investigation and examination of the properties, selected and
surveyed a suitable mill site and took out about half a ton of ore samples which it had been
agreed were to be forwarded to the United States for tests for use by him in the selection of
the machinery best suited for the treatment of such ore; and said Hanlon reported to his
 P a g e | 129

coadventurers that it was a very feasible scheme, and that there was enough ore in sight to
well repay the investment of P125,000, which was the sum estimated by said Hanlon to be
necessary to equip the property.

Soon after the contract Exhibits B and A were made the plaintiff Hanlon departed for the
United States, in contemplation of which event he executed a special power of attorney, on
November 10, 1913, constituting and appointing Beam his special agent and attorney in fact,
for and in his name, to do and perform the following acts:

To vote at the meetings of any company or companies, and otherwise to act as my

proxy or representative, in respect of any shares of stock now held, or which may
hereafter be acquired by me therein, and for that purpose to sign and execute any
proxy or other instrument in my name and on my behalf;

To secure subscriptions in my name for the shares of the Benguet Consolidated

Mining Co., to be issued to me under and by virtue of an agreement entered into with
said company on November 6, 1013, and to enter into the necessary agreements for
the same of said shares.

To demand, sue for, and receive all debts, moneys, securities for money, goods,
chattels or other personal property to which I am now or may hereafter become
entitled, or which are now or may become due, owing or payable to me from any
person or persons whomsoever, and in my name to give effectual receipts and
discharges for the same.

Prior to that time, on May 27, 1913, the plaintiff Hanlon had given one A. Gnandt of the city
of Manila a power of attorney with general and comprehensive powers, and "with full power
of substitution and revocation;" and thereafter on March 14, 1914, said Gnandt, owing to his
intended departure from the Philippine Islands, executed a power of attorney in favor of said
A. W. Beam, with the same general powers which had been conferred upon him, and Beam
became Hanlon's sole agent in the Philippine Islands. Said original power of attorney had no
special relation to the substitute specifically authorized the attorney in fact:

To make, sign, execute and deliver any and all contracts, agreements, receipts and
documents of any nature and kind whatsoever.

After the enumeration of other general and specific powers, Beam was finally authorized:

To do any and all things necessary or proper for the due performance and execution
of the foregoing powers.

By reference to the contract of November 5, 1913, (Exhibit A), it will be seen that 301,000
shares of the stock of the Benguet Consolidated Mining Company were to be used to raise
the P75,000 which Hanlon was bound to supply to the mining company; and the contract
contemplated that these shares should be disposed of at 25 centavos per share. As Sellner
had agreed to raise P50,000, it resulted that 200,000 shares had to be allocated to him;
while Haussermann and Beam had at their disposal 100,000 shares, with which to raise
P25,000. Sellner, Haussermann, and Beam furthermore guaranteed that the subscriptions to
be obtained by them should be fully paid within six months from the date of the acceptance
by Hanlon of the contract with the mining company, that is, from November 6, 1913.

In prosecution of the common purpose, Haussermann and Beam proceeded, after the
departure of Hanlon, to procure subscriptions upon the stock at their disposal, part being
subscribed by themselves severally and part sold upon subscription to outsiders; and during
the next two or three months the block of shares allotted to them was subscribed. As a
consequence of this they were thereafter prepared to pay in, or to cause to be paid in, the
entire amount which they were obligated to raise. Doubts, however, presently arose as to the
ability of Sellner to obtain subscriptions or produce the P75,000, which he obligated to bring
in; and as early as in February of 1914, Beam cabled to Hanlon in America "Sellner unable
to pay. Have you any instructions?" Upon receipt of this cablegram, Hanlon cabled Sellner to
use every effort to raise the money and also cable Beam to obtain the money elsewhere if
Sellner could not supply it. Furthermore, in order to be prepared against the contingency of
Sellner's ultimate inability to respond, Hanlon attempted to enlist the interest of capitalists in
San Francisco but in this was unsuccessful. It will be observed that, although by the exact
 P a g e | 130

letter of the contract, Sellner was obligated to obtain subscriptions for the sum of P50,000,
he nevertheless desired to keep the entire 200,000 shares assigned to him exclusively for
himself, and proceeding on the assumption that he had in effect underwritten a subscription
for the whole block of shares, he made no effort to obtain subscriptions from anybody else
for any part of these shares. Meanwhile Haussermann and Beam were in touch with Sellner,
urging him to action but without avail, Sellner being in fact wholly unable to fulfill his
undertaking. In this condition of affairs the period of six months specified in the contracts of
November 5 and 6 for the raising of the sum of P75,000 passed.

Thereafter Haussermann and Beam assumed that they were absolved from the obligations
of their contract of November 5, 1913, with Hanlon and Sellner, and that the mining company
was no longer bound by its contract of November 6, 1913, with Hanlon. They therefore
proceeded, as parties interest in the rehabilitation of the mining company, to make other
arrangements for financing the project. They found it possible to effectuate this through the
offices of Sendres of the Bank of the Philippine Islands, and in order to do so, a new contract
was made between the mining company and Beam, with Haussermann as silent partner of
the latter, whereby a bonus of 96,000 shares was conceded to the promoter instead of the
100,000 shares which would have accrued to Haussermann and Beam if the Hanlon project
had gone through. As a result of this, the profits of each were reduced by the amount of
2,000 shares below what they might have realized under the Hanlon contract of November 5.
Another feature of the new project was that some of those who had subscribed to the stock
of the mining company through Beam under the Hanlon project were retained as
stockholders in the new scheme of flotation. Some, however, dropped out, with the result
that Haussermann and Beam were compelled to increase their subscriptions materially.

As preliminary to the new scheme of financing the corporation, the board of directors of the
mining company, composed of Haussermann Beam, and Sendres, saw fit at a special
meeting on June 19, 1914, to adopt a resolution declaring the contract of November 6, 1913,
between Hanlon and the company to be cancelled by reason of the failure of Hanlon to pay
in the sum of P75,000 in cash on or before May 6, 1914.

Immediately after the adoption of this resolution, the new plan for financing the mining
company was unfolded by Mr. Beam to the Board in a letter, addressed by him to the
Directors. In its parts relating to financial arrangements said letter is as follows:

MANILA, P. I., June 17, 1914.

To the DIRECTORS OF THE BENGUET CONSOLIDATED MINING

CO.,

Manila, P. I.

GENTLEMEN:

The undersigned hereby applies for an option for 30 days over 501,000 shares of unissued stock of
your corporation. . . .

I have canvassed the local field for capital and am reasonably assured that the required capital will
be available as follows:

405,000 shares have been subscribed for at 20 and 25 cents per share, making up a total of
P86,000, which sums is payable to the company in four equal monthly installments commencing July
15, 1914. . . . . Arrangements have been made whereby the Bank of Philippine Islands will grant the
company an overdraft to the extent of P50,000, thus affording P136,000. . . .

The balance of the 501,000 shares of unissued stock, or 96,000 shares, are to be issued to my order
when the total sum of 86,000 subscribed as above stated shall have been paid to the company. The
said shares are to be placed in the hands of the Bank of the Philippine Islands in escrow to be held
by the said bank and delivered to my order as soon as the overdraft hereinbefore mentioned shall be
fully paid and liquidated.

It is further understood that the bank shall have full power and authority to vote said shares until
such time as said overdraft is repaid to the company.
 P a g e | 131

For the payment of the overdraft guaranteed by the Bank of the Philippine Islands, it is understood
that the total net earning of the company shall be used, and the term "net earnings" shall be
understood to mean the gross value of gold recovered less actual operation expense.

Trusting that the foregoing may meet with your approval and acceptance, I am

Yours very truly,

(Sgd.) A. W. BEAM.

Upon motion of Senders, the proposition of Beam was accepted; Sendres and Haussermann voting
in favor of the same. At the same special meeting it was moved and seconded and unanimously
carried that a meeting of the shareholders of the company be called for the purpose of passing upon
the action of the directors in accepting the proposition made by Beam. At this special meeting of the
shareholders, held at 4:30 p. m., June 29, 1914, there were 310,405 shares of the 499,000 shares of
issued stock represented at the meeting. The stockholders personally present were A. W. Beam, E.
Sendres, and O. M. Shuman; and various other shareholders were represented by Beam as proxy,
and the Bank of the Philippine Islands was represented by Sendres as proxy. It appears from the
minutes of said special meeting that Beam's proposition, which had been accepted by the board of
directors, as above stated, was submitted to the meeting and after being read was ordered to be
attached to the minutes. After due discussion by the shareholders present, Shuman moved that the
action of the board of directors accepting Beam's proposition be approved, and this motion was duly
seconded and unanimously carried.

The Beam project was carried out, and the mining company was brought to a dividend-paying basis,
paying a quarterly dividend of five per cent; and at the time of the trial of this case the shares of
stock in the market had risen from twenty centavos to P1.50 or higher. The defendants about 1916
received 48,000 shares each as their profits. It is stated in the appellants' brief, without denial from
the appellee, that said shares have appreciated subsequently to the trial below to the value of P2
each. The trial court held that the plaintiffs, as coadventurers with the defendants in the project for
the rehabilitation of the mining company, are each entitled to recover the one-fourth part of the
96,000 shares obtained from the mining company by the defendants, or 24,000 shares, with
dividends paid, and to be paid beginning with the year 1916. It is thus apparent that the value of the
interest awarded to each of the plaintiffs is considerably in excess of $25,000 (U. S. currency).

So far as Beam's material scheme for the improvement of the mining property is concerned it
followed the same lines and embodied the same ideas as had been entertained while the Hanlon
project was in course of promotion; and it is contended for the plaintiffs that there was an unfair
appropriation by Beam of the labors and ideas of Hanlon. This is denied by the defendants, whose
testimony tends to minimize the extent of Hanlon's contribution to the project in labor and ideas. We
believe it unnecessary to enter into the merits of this contention, as in our opinion the solution of the
case must be determined by other considerations.

An examination of the rights of the parties to this litigation must begin with the interpretation of the
contract of November 5, 1913. Some discussion is indulged in the briefs of counsel upon the
question whether that contract constitutes a partnership among the four signatories or a mere
enterprise upon joint account (cuenta en participacion) under the Code of Commerce. This question
seems to us of academy rather than practical importance; for whatever be the character of the
relation thus created, each party was undoubtedly bound to use good faith towards the other, so
long as the relation subsisted.

In paragraph I of said contract each party obligates himself to do all in his power to "float" the Hanlon
proposition, i. e., as indicated in the contract of November 6, between Hanlon and the mining
company. This means of course that each was to do what he could to make that project for the
rehabilitation of the mining company a success. The word flotation, however, points more particularly
to the effort to raise money, since, as all man know, it takes capital to make any enterprise of this
kind go. In paragraph II of the same contract the manner in which the flotation is to be effected is
described, namely, that Sellner is to obtain subscriptions for P50,000 and Haussermann and Beam
for P25,000. This involved, as we have already stated, the allocation of 200,000 shares to Sellner
and 100,000 to Hanlon and Beam.

Now the two paragraphs of the contract to which reference has been made must be construed
together, and it is entirely clear that the general language used in the first paragraph is limited by
that used in the second paragraph. In other words, though in the first paragraph the parties agree to
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help float the project, they are tied up, in regard to the manner of effecting the flotation, to the
method agreed upon in the second. We can by no means lend our assent to the proposition that the
first paragraph created an obligation, independent of the provisions of paragraph II, which continued
to subsist after the method of flotation described in paragraph II became impossible of fulfillment. It is
a rudimentary canon of interpretation that all parts of a writing are to be construed together (6 R. C.
L., p. 837) and that the particular controls the general. (Art. 1283, Civ. Code; 13 C. J., p. 537.)

It seems too plain for argument that so long as that contract was in force, Sellner did not have any
right to inter-meddle with the 100,000 shares allotted to Haussermann and Beam. Neither could the
latter dispose of the 200,000 shares allotted to Sellner. Indeed, Sellner, by reserving to himself all of
these 200,000 shares and sitting tightly, as he did, on this block of stock, made it impossible for
Haussermann, Beam, or anybody else, to raise money by selling those shares within the period fixed
as the limit of his guaranty. There was absolutely, as everybody knew, no other means to raise
money except by the sale of stock; and when Hanlon cabled to Beam in February to obtain the
money elsewhere if Sellner could not supply it, he was directing the impossible, unless Sellner
should release the block of shares assigned to him, which he never did. As a matter of fact it
appears that this quantity of the stock of the mining company could not then have been sold at 25
cents per share in the Manila market to anybody; and in the end in order to get Sendres and the
Bank of the Philippine Islands to take part in the Beam project 260,000 shares had to go at 20
centavos per share.

By referring to subsection (d) to paragraph II of the contract of November 5, 1913, it will be seen that
the promises with reference to the obtaining of subscriptions are mutual concurrent conditions; and it
is expressly declared in the contract that upon the default of either party the obligation of the other
shall be discharged. From this it is clear that upon the happening of the condition which occurred in
this case, i.e., the default of Sellner to pay to the mining company on or before May 6, 1914, the sum
of money which he had undertaken to find, Haussermann and Beam were discharged.

This is a typical case of a resolutory condition under the civil law. The contract expressly provides
that upon the happening of a future and uncertain negative event, the obligation created by the
agreement shall cease to exist.

In conditional obligations the acquisition of rights as well as the extinction of those already
acquired shall depend upon the event constituting the condition. (Civ. Code, art. 1114.)

If the condition consists in the happening of an event within a fixed period the obligation shall
be extinguished from the time the period elapses or when it becomes certain that the event
will not take place. (Civ. code, art. 1117.)

The right of Hanlon to require any further aid or assistance from these defendants after May 6, 1914,
was expressly subordinated to a resolutory condition, and the contract itself declares in precise
language that the effect of the non-fulfillment of the condition shall be precisely the same as that
which the statute attaches to it — the extinction of the obligation.

In the argument of the plaintiffs at this point a distinction is drawn between the discharge from the
guaranty to raise money at the stated time and the discharge from the contract as an entirety; and it
is insisted that while the defendants were discharged from liability to Sellner on their guaranty to
have the money forthcoming on May 6, they were not discharged from their liability on the contract,
considered in its broader features, and especially were not discharged with reference to their
obligation to Hanlon. This argument proceeds on the erroneous assumption that the defendants
were bound to discover some other method of flotation after the plan prescribed in the contract had
become impossible of fulfillment and to proceeds therewith for the benefit of all four of the parties.
Furthermore, this conception of the case is apparently over-refined and not in harmony with the
common-sense view of the situation as it must have presented itself to the contracting parties at the
time. The obtaining of capital was fundamentally necessary before the project could be proceeded
with; and it was obvious enough that, if the parties should fail to raise the money, the whole scheme
must collapse like a stock of cards. The provisions relative to the getting in of capital are the principal
features of the contract, other matters being of subordinate importance. In our opinion the
contracting parties must have understood and intended that Haussermann and Beam would be
discharged from the contract in its entirety by the failure of Sellner to comply with his obligation. This
is the plainest, simplest, and most obvious meaning of which the words used are capable and we
believe it to be their correct interpretation. We are not to suppose that either of the signatories
intended for those words to operate as a trap for the others; and such would certainly be the effect of
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the provision in question if the words are to be understood as referring to a discharge from the
guaranty merely, leaving the contract intact in other respects.

It is insisted in behalf of the plaintiffs that Haussermann and Beam, as well as Sellner, defaulted in
the performance of the contract of November 5, 1913, and that not having performed their obligation
to obtain subscriptions for the sum of P25,000 and to cause payment to be made into the company's
treasury on or before May 6, 1914, they cannot take advantage of the similar default of Sellner. This
suggestion is irrelevant to the fundamental issue. The question here is not whether Haussermann
and Beam have a right of action for damaged against Sellner. If they were suing him, it would be
pertinent to say that they could not maintain the action because they themselves had not caused the
money to be paid in which they had agreed to raise. The question here is different, namely, whether
Haussermann and Beam have been discharged from the contract of November 5, 1913, by the
default of Sellner; and this question must, under the contract, be answered by reference to the acts
of Sellner. Upon this point it is irrelevant to say that the discharged was mutual as between the two
parties and not merely one-sided.

The interpretation which we have placed upon the contract of November 5, 1913, exerts a decisive
influence upon this litigation, and makes a reversal of the appealed judgment inevitable. There are,
however, certain subordinate features of the case which, as disposed in the appellee's brief, appear
to justify the conclusion of the trial judge; and we deem it desirable to say something with reference
to the questions thus presented.

It will be noted that there is no resolutory provision in the contract of November 6, 1913, between
Hanlon and the mining company, declaring that said contract would be discharged or abrogated
upon the failure of Hanlon to supply, within the period specified, the money which he had obligated
himself to raise. In other words, time is not expressly made of the essence of this contract. From this
it is argued for the plaintiffs that this contract remained in force after May 6, 1914, notwithstanding
the failure of Hanlon to supply the funds which he had agreed to find, and indeed it is insisted upon
the authority of Ocejo, Perez & Co. vs. International Banking Corporation (37 Phil. Rep., 631), that
the mining company could not be relieved from that contract without obtaining a judicial rescission in
an action specially brought for that purpose. The reply to this is two-fold.

In the first place the present action is not based upon the contract between Hanlon and the mining
company; and it is clear that if Hanlon had sued the mining company, as for example, in an action
seeking to recover damages for breach of its contract with him, he would have been confronted by
the insuperable obstacle that he had never supplied, nor offered to supply, one penny of the
P75,000, which he had obligated himself to bind, and which was absolutely necessary to the
rehabilitation of the company. The benefits of a contract are not for him who has failed to comply
with its obligations. It may be admitted that the resolution of the Board of Directors of the mining
company, on June 19, 1914, declaring the contract of November 6, 1913, with Hanlon to be
cancelled, considered alone, was without legal effect, since one party to a contract cannot absolve
himself from its obligations without the consent of the other.

With reference to the second point, namely, that a judicial rescission was necessary to absolve the
mining company from its obligations to Hanlon under the contract of December 6, 1913, we will say
that we consider the doctrine of Ocejo, Perez & Co., vs. International Banking Corporation (37 Phil.
Rep., 631), to be inapplicable. The contract there in question was one relating to a sale of goods,
and it had been fully performed on the part of the vendor by delivery. This court held that delivery
had the effect of passing title, and that while the failure of the purchaser to pay the price gave the
seller a right to sue for a rescission of the contract, the failure of the buyer to pay the purchase price
did not ipso facto produce a reversion of title to the vendor, or authorize him, upon his election to
rescind, to treat the goods as his own property and retake them by writ of replevin. In the present
case the contract between Hanlon and the mining company was executory as to both parties, and
the obligation of the company to deliver the shares could not arise until Hanlon should pay or tender
payment of the money. The situation is similar to that which arises every day in business
transactions in which the purchaser of goods upon an executory contract fails to take delivery and
pay the purchase price. The vendor in such case is entitled to resell the goods. If he is obliged to sell
for less than the contract price, he holds the buyer for the difference; if he sells for as much as or
more than the contract price, the breach of the contract by the original buyer is damnum absque
injuria. But it has never been held that there is any need of an action of rescission to authorize the
vendor, who is still in possession, to dispose of the property where the buyer fails to pay the price
and take delivery. Of course no judicial proceeding could be necessary to rescind a contract which,
like that of November 5, 1913, contains a resolutory provision by virtue of which the obligation is
already extinguished.
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Much reliance is placed by counsel for the plaintiffs upon certain American decisions holding that
partners, agents, joint adventurers, and other persons occupying similar fiduciary relations to one
another, must not be allowed to obtain any undue advantage of their associates or to retain any
profit which others do not share. We have no criticism to make against this salutary doctrine when
properly applied and would be slow to assume that our civil law requires any less degree of good
faith between parties so circumstanced than is required by the courts of equity in other countries. For
instance, we feel quite sure that this Court would have no difficulty in subscribing to the doctrine
which is stated in Lind vs. Webber (36 Nev., 623; 50 L. R. A. [N. S.], 1046}, with reference to joint
adventurers as follows:

We further find that the law is well established that the relation between joint adventurers is
fiduciary in its character and the utmost good faith is required of the trustee, to whom the
deal or property may be instrusted, and such trustee will be held strictly to account to his co-
adventurers, and that he will not be permitted, by reason of the possession of the property or
profits whichever the case may be to enjoy an unfair advantage, or have any greater rights in
the property or profits as trustee, than his co-adventurers are entitled to. The mere fact that
he is intrusted with the rights of his co-adventurers imposes upon him the sacred duty of
guarding their rights equally with his own, and he is required to account strictly to his co-
adventurers, and, if he is recreant to his trust, any rights they may be denied are
recoverable.

In Flagg vs. Mann (9 Fed. Cas., 202; Fed. Case No. 4847), it appeared that Flagg and Mann had an
agreement to purchase a tract of land on joint account. The court held that where parties are
interested together by mutual agreement, and a purchase is made agreeably thereto, neither party
can excuse the other from what was intended to be for the common benefit; and any private benefit,
touching the common right, which is secured by either party must be shared by both. Justice Story,
acting as Circuit Justice, said that the doctrine in question was "a wholesome and equitable
principle, which by declaring the sole purchase to be for the joint benefit, takes away the temptation
to commit a dishonest act, founded in the desire of obtaining a selfish gain to the injury of a co-
contractor, and thus adds strength to wavering virtue, by making good faith an essential ingredient in
the validity of the purchase. There is not, therefore, any novelty in the doctrine of Mr. Chancellor
Kent, notwithstanding the suggestion at the bar to the contrary; and it stands approved equally by
ancient and modern authority, by the positive rule of the Roman Law, the general recognition of
continental Europe, and the actual jurisprudence of England and America."

We deem it unnecessary to proceed to an elaborate analysis of the array of cases cited by the
appellee as containing applications of the doctrine above stated. Suffice it to say that, upon
examination, such of these decisions as have reference to joint adventures will be found to deal with
the situation where the associates are not only joint adventurers but are joint adventurers merely. In
the present case Haussermann and Beam were stockholders and officials in the mining company
from a time long anterior to the beginning of their relations with Hanlon. They were not merely co-
adventurers with Hanlon, but in addition were in a fiduciary relation with the mining company and its
other shareholders, to whom they owned duties as well as to Hanlon. It does not appear that the
defendants acquired any special knowledge of the mine or of the feasibility of its reconstruction by
reason of their relation with Hanlon which they did not already have; and they probably were in no
better situation as regards the facts relating to the mine after the failure of the Hanlon contract than
they were before. The fact of their having been formerly associated with Hanlon certainly did not
preclude them from making use of the information which they possessed as stockholders and
officers of the mining company long before they came into contact with him.

After the termination of an agency, partnership, or joint adventure, each of the parties is free to act in
his own interest, provided he has done nothing during the continuance of the relation to lay a
foundation for an undue advantage to himself. To act as agent for another does not necessarily
imply the creation of a permanent disability in the agent to act for himself in regard to the same
subject-matter; and certainly no case has been called to our attention in which the equitable doctrine
above referred to has been so applied as to prevent an owner of property from doing what he
pleased with his own after such a contract as that of November 5, 1913, between the parties to this
lawsuit had lapsed.

In the present case so far as we can see, the defendants acted in good faith for the accomplishment
of the common purpose and to the full extent of their obligation during the continuance of their
contract; and if Sellner had not defaulted, or if Hanlon had been able to produce the necessary
capital from some other source, during the time set for raising the money, the original project would
undoubtedly have proceeded to its consummation. Certainly, no act of the defendants can be
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pointed to which prevented or retarded its realization; and we are of the opinion that, under the
circumstances, nothing more could be required of the defendants than a full and honest compliance
with their contract. As this had been discharge through the fault of another they can not be held
liable upon it. Certainly, we cannot accede to the proposition that the defendants by making the
contracts in question had discapacitated themselves and their company for an indefinite period from
seeking other means of financing the company's necessities, save only upon the penalty of
surrendering a share of their ultimate gain to the two adventurers who are plaintiffs in this action.

The power of attorney which Hanlon left with Beam upon departing for America was executed chiefly
to enable Haussermann and Beam to comply with their obligation to raise P25,000 by the sale of
shares. This feature of the power of attorney was manifestly subordinate to the purpose of the joint
agreement of November 5, 1913. Certainly, under that power, Beam could not have disposed of any
of the stock allotted to Sellner; neither was he bound, or even authorized, after the joint agreement
was at an end, to use the power for Hanlon's benefit, even supposing — contrary to the proven fact
— that purchasers to the necessary extent could have been found for the shares at 25 centavos per
share.

As we have already stated, some of the individuals who originally subscribed to the Hanlon project
were carried as stockholders into the new project engineered by Beam, being credited with any
payments previously made by them. In other words, the mining company honored these
subscriptions, although the Hanlon project on which they were based had fallen through. This
circumstance cannot in our opinion alter the fundamental features of the case. Taken all together
these subscriptions were for only a part of the P25,000 which the defendants had undertaken to
raise and were by no means sufficient to finance the Hanlon project without the assistance which
Sellner had agreed to give. Of course if Beam, acting as attorney in fact of Hanlon, had obtained a
sufficient number of subscriptions to finance the Hanlon project, and concealing this fact, had
subsequently utilized the same subscriptions to finance his own scheme, the case would be
different. But the revealed facts do not bear out this imputation.

It should be noted in this connection that the mining company had approved the subscriptions
obtained by Haussermann and Beam and had, prior to May 6, 1914, accepted part payment of the
amount due upon some of them. It is not at all clear that, under these circumstances, the company
could have repudiated these subscriptions, even if its officers had desired to do so; and if the mining
company was bound either legally or morally to recognize them, if cannot be imputed to the
defendants as an act of bad faith that such subscriptions were so recognized.

The trial court held that Haussermann, by reason of his interest in the Beam project, was disqualified
to act as a director of the mining company upon the resolution accepting that project; and it was
accordingly declared that said resolution was without legal effect. We are of the opinion that the
circumstance referred to could at the most have had no further effect than to render the contract with
Beam voidable and not void; and the irregularity involved in Haussermann's participation in that
resolution was doubtless cured by the later ratification of the contract at a meeting of the
stockholders. However this may be, the plaintiffs are not in a position to question the validity of the
contract of the mining company with Beam since the purpose of the action is to secure a share in the
gains acquired under that contract.

In the course of the preceding discussion we have already noted the fact that no resolutory provision
contemplating the possible failure of Hanlon to supply the necessary capital within the period of six
months is found in the contract of November 6, 1913, between Hanlon and the mining company. In
other words, time was not expressly made of the essence of that contract. It should not be too hastily
inferred from this that the mining company continued to be bound by that contract after Hanlon dad
defaulted in procuring the money which he had obligated himself to supply. Whether that contract
continued to be binding after the date stated is a question which does not clearly appear to be
necessary to the decision of this case, but the attorneys for Hanlon earnestly insist that said contract
did in fact continue to be binding upon the mining company after May 6, 1914; and upon this
assumption taken in connection with the power held by Beam as attorney in fact of Hanlon, It is
argued that the right of action of Hanlon is complete, as against Beam and Haussermann, even
without reference to the profit-sharing agreement of November 5. We consider this contention to be
unsound; and the correctness of our position on this point can, we think, be clearly demonstrated by
considering for a moment the question whether time was in fact of the essence of the contract of
November 6, 1913, in other words, Was the mining company discharged by the default of Hanlon in
the performance of that agreement?
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Whether a party to a contract is impliedly discharged by the failure of the other to comply with a
certain stipulation on or before the time set for performance, must be determined with reference to
the intention of the parties as deduced from the contract itself in relation with the circumstances
under which the contract was made.

Upon referring to the contract now in question — i. e., the contract of November 6, 1913 — it will be
seen that the leading stipulation following immediately after the general paragraph at the beginning
of the contract, is that which relates to the raising of capital by Hanlon. It reads as follows:

1. Said party of the first part agrees to pay into the treasury of the party of the second part
the sum of Seventy-five Thousand Pesos ( P75,000) in cash within six (6) months from the
date of this agreement.

Clearly, all the possibilities and potentialities of the situation with respect to the rehabilitation of the
Benguet mining property, depended upon the fulfillment of that stipulation; and in fact nearly all the
other subsequent provisions of the contract are concerned in one way or another with the acts and
things that were contemplated to be done with that money after it should be paid into the company's
treasury. Only in the event of such payment were shares to be issued to Hanlon, and it was
stipulated that the money so to be paid in should be disbursed to pay the expenses of the very
improvements which Hanlon had agreed to make. There can then be no doubt that compliance on
the part of Hanlon with this stipulation was viewed by the parties as the pivotal fact in the whole
scheme.

Again, it will be recalled that this contract (Exhibit B) between Hanlon and the mining company was
not in fact executed until the day following that on which the profit-sharing agreement (Exhibit A) was
executed by the four parties to this lawsuit. In other words, Haussermann and Beam, as officials of
the mining company, refrained from executing the company's contract until Hanlon had obligated
himself by the profit-sharing agreement. Indeed, these two contracts should really be considered as
constituting a single transaction; and it is obvious enough that the prime motive which induced
Haussermann and Beam to place their signature upon the contract of November 6 was that they
already had the profit-sharing agreement securely in their hands. Therefore, when the contract of
November 6, between Hanlon and the mining company was signed, all the parties who participated
therein acted with full knowledge of the provisions contained in the profit-sharing agreement; and in
particular the minds of all must have riveted upon the provisions of paragraph II of the profit-sharing
agreement, wherein is described the manner in which the project to which the parties were then
affixing their signatures should be financially realized ("floated"). In subsection (d) of the same
paragraph II, as will be remembered, are found the words which declare that Haussermann and
Beam would be discharged if Sellner should fail to pay into the company's treasury on or before the
expiration of the prescribed period the money which he had agreed to raise. Under these conditions
it is apparent enough that the parties to the later contract treated time as of the essence of the
agreement and intended that the failure of Hanlon to supply the necessary capital within the time
stated should put an end to the whole project. In view of the fact that an express resolutory provision
had been inserted in the profit-sharing agreement, it must have seemed superfluous to insert such
express clause in the later contract. Any extension of time, therefore, that the mining company might
have made after May 6, 1914, with respect to the date of performance by Hanlon would have been
purely a matter of grace, and not demandable by Hanlon as of absolute right. It is needless to say in
this connection that the default of Sellner was the default of Hanlon.

An examination of the decisions of the American and English courts reveals a great mass of material
devoted to the discussion of the question whether in a given case time is of the essence of a
contract. As presented in those courts, the question commonly arises where a contracting party, who
has himself failed to comply with some agreement, tenders performance after the stipulated time has
passed, and upon the refusal of the other party to accept the delayed performance the delinquent
party resorts to the court of equity to compel the other party to proceed. The equitable doctrine there
recognized as applicable in such situation is that if the contracting parties have treated time as of the
essence of the contract, the delinquency will not be excused and specific performance will not be
granted; but on the other hand, if it appears that time has not been made of the essence of the
contract, equity will relieve from the delinquency and specific performance may be granted, due
compensation being made for the damage caused by the delay. In such cases the courts take
account of the difference between that which is matter of substance and that which is matter of mere
form.

To illustrate: the rule has been firmly established from an early date in courts of equity that in
agreements for the sale of land, time is not ordinarily of the essence of the contract; that is to say,
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acts which one of the parties has stipulated to perform on a given date may be performed at a later
date. Delay in the payment of the purchase money, for instance, does not necessarily result in the
forfeiture of the rights of the purchaser under the contract, since mere delay in the payment of
money may be compensated by the allowance of interest. (36 Cyc., 707-708.) In discussing this
subject, Pomeroy says: "Time may be essential. It is so whenever the intention of the parties is clear
that the performance of its terms shall be accomplished exactly at the stipulated day. The intention
must then govern. A delay cannot be excused. A performance at the time is essential; any default
will defeat the right to specific enforcement." (4 Pomeroy Eq. Jur., 3rd ed., sec. 1408.) Again, says
the same writer: "It is well settled that where the parties have so stipulated as to make the time of
payment of the essence of the contract, within the view of equity as well as of the law, a court of
equity cannot relieve a vendee who has made default. With respect to this rule there is no doubt; the
only difficulty is in determining when time has thus been made essential. It is also equally certain that
when the contract is made to depend upon a condition precedent — in other words, when no right
shall vest until certain acts have been done, as, for example, until the vendee has paid certain sums
at certain specified times — then, also a court of equity will not relieve the vendee against the
forfeiture incurred by a breach of such condition precedent." (1 Pomeroy Eq. Jur., 3rd ed., sec. 455.)

As has been determined in innumerable cases it is not necessary, in order to make time of the
essence of a contract, that the contract should expressly so declare. Words of this import need not to
be used. It is sufficient that the intention to this effect should appear; and there are certain situations
wherein it is held, from the nature of the agreement itself, that time is of the essence of the contract.

Time may be of the essence, without express stipulation to that effect, by implication from
the nature of the contract itself, or of the subject-matter, or of the circumstances under which
the contract is made. (36 Cyc., 709.)

In agreements which are executed in the form of options, time is always held to be of the essence of
the contract; and it is well recognized that in such contracts acceptance of the option and payment of
the purchase price constitute conditions precedent to specific enforcement. The same is true
generally of all unilateral contracts. (36 Cyc., 711.) In mercantile contracts for the manufacture and
sale of goods time is also held to be of the essence of the agreement. (13 C. J., 688.) Likewise,
where the subject-matter of a contract is of speculative or fluctuating value it is held that the parties
must have intended time to be of the essence (13 C. J., 668.) Most conspicuous among all the
situations where time is presumed to be of the essence of a contract from the mere nature of the
subject-matter is that where the contract relates to mining property. As has been well said by the
Supreme Court of the United States, such property requires, and of all properties perhaps the most
requires, the persons interested in it to be vigilant and active in asserting their rights.
(Waterman vs. Banks, 144 U. S., 394; 36 L. ed., 479, 483.) Hence it is uniformly held that time is of
the essence of the contract for the sale of an option on mining property, or a contract for the sale
thereof, even though there is no express stipulation to that effect. (27 Cyc., 675). The same idea is
clearly applicable to a contract like that now under consideration which provides for the rehabilitation
of a mining plant with funds to be supplied by the contractor within a limited period.

Under the doctrine above expounded it is evident that Hanlon would be entitled to no relief against
the mining company in an action of specific performance, even if he had been prepared and had
offered, after May 6, 1914, to advance the requisite money and proceed with the performance of the
contract. Much less can he be considered entitled to relief where he has remained in default
throughout and has at no time offered to comply with the obligations incumbent upon himself.

Our conclusion, upon a careful examination of the whole case, is that the action cannot be
maintained. The judgment is accordingly reversed and the defendants are absolved from the
complaint. No express pronouncement will be made as to costs of either instance.

Arellano, C.J., Torres, Araullo, Malcolm and Avanceña, JJ., concur.

3. Lim TanhuvsRamolete, 66 Scra 425 (1975)

LIM TANHU v. HON. JOSE R. RAMOLETE

 P a g e | 138

LIM TANHU v. HON. JOSE R. RAMOLETE

G.R. No. L-40098; August 29, 1975

Ponente: J. Barredo

FACTS:

Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company with Antonio Lim Tanhu and
Alfonso Ng Sua".

Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng
Chong Leonardo, through fraud and machination, took actual and active management
of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Company, defendants managed to use the funds of the partnership to
purchase lands and buildings in the cities of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla.

She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation, continued the business of Glory Commercial
Company, by purportedly organizing a corporation known as the Glory Commercial
Company, Incorporated and sometime in the month of November, 1967, defendants,
particularly Antonio Lim Tanhu, by means of fraud deceit, and misrepresentations did
then and there, induce and convince her to execute a quitclaim of all her rights and
interests, in the assets of the partnership of Glory Commercial Company.

Thereafter, in the year 1968-69, the defendants who had earlier promised to liquidate
the aforesaid properties and assets in favor, among others of plaintiff and until the
middle of the year 1970 when the plaintiff formally demanded from the defendants the
accounting of real and personal properties of the Glory Commercial Company,
defendants refused and stated that they would not give the share of the plaintiff.

ISSUE:

Whether Tan has a right over the liquidated properties of the partnership
 P a g e | 139

HELD:

No, Tan has no right over the liquidated properties of the partnership

The Supreme Court held that there is no alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows that
her relation with said deceased was that of a common-law wife.

Moreover, the Supreme Court said that the lower courts committed an error by
awarding 1/3 of the partnership properties to Tan because there has been no
liquidation proceedings yet. And if there has not yet been any liquidation of the
partnership, the only right plaintiff could have would be to what might result after
much liquidation to belong to the deceased partner (her alleged husband) and before
this is finished, it is impossible to determine, what rights or interest, if any the deceased
had.

In other words, no specific amounts or properties may be adjudicated to the heir or

legal representative of the deceased partner without the liquidation being first
terminated.

9. Right to Dissolve Partnership

1. Rojas vsMaglana, 192Scra 110 (1990)
2. REalubit v. Jaso GR 178782 (Sep 21 2011)

SECOND DIVISION

JOSEFINA P. REALUBIT, G.R. No. 178782

Petitioner,

Present:

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

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

PROSENCIO D. JASO Promulgated:

 P a g e | 140

and EDENG. JASO,

Respondents. September 21, 2011

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

DECISION

PEREZ, J.:

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

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

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

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

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

The Facts

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

Venture Agreement with Francis Eric Amaury Biondo (Biondo), a French national,
for the operation of an ice manufacturing business. With Josefina as the industrial
partner and Biondo as the capitalist partner, the parties agreed that they would each
receive 40% of the net profit, with the remaining 20% to be used for the payment
of the ice making machine which was purchased for the business.[5] For and in
consideration of the sum of P500,000.00, however, Biondo subsequently executed
a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in
the business in favor of respondent Eden Jaso (Eden), the wife of respondent
Prosencio Jaso.[6]With Biondos eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising
her of their acquisition of said Frenchmans share in the business and formally
 P a g e | 141

demanding an accounting and inventory thereof as well as the remittance of their

portion of its profits.[7]

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

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

The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to render
its Decision dated 17 September 2001, discounting the existence of sufficient
 P a g e | 142

evidence from which the income, assets and the supposed dissolution of the joint
venture can be adequately reckoned. Upon the finding, however, that the Spouses
Jaso had been nevertheless subrogated to Biondos rights in the business in view of
their valid acquisition of the latters share as capitalist partner,[10] the RTC disposed
of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete

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

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

The Spouses Realubits motion for reconsideration of the foregoing decision

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

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the
negative of the following issues, to wit:
 P a g e | 143

A. WHETHER OR NOT THERE WAS A

VALID ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER

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

C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO]

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

The Courts Ruling

We find the petition bereft of merit.

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

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

Assignment Biondo executed in favor of Eden not only enjoys a presumption of
regularity[17] but is also considered prima facie evidence of the facts therein
stated.[18] A party assailing the authenticity and due execution of a notarized
document is, consequently, required to present evidence that is clear, convincing
and more than merely preponderant.[19] In view of the Spouses Realubits failure to
 P a g e | 144

discharge this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined strength of
the above-discussed disputable presumptions and the testimonies elicited from
Eden[20] and Notary Public Rolando Diaz.[21] As for the Spouses Realubits bare
assertion that Biondos signature on the same document appears to be forged,
suffice it to say that, like fraud,[22] forgery is never presumed and must likewise be
proved by clear and convincing evidence by the party alleging the same. [23] Aside
from not being borne out by a comparison of Biondos signatures on the Joint
Venture Agreement[24] and the Deed of Assignment,[25] said forgery is, moreover
debunked by Biondos duly authenticated certification dated 17 November 1998,
confirming the transfer of his interest in the business in favor of Eden.[26]

Generally understood to mean an organization formed for some temporary

purpose, a joint venture is likened to a particular partnership or one which has for
its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation.[27] The rule is settled that joint ventures are
governed by the law on partnerships[28] which are, in turn, based on mutual agency
or delectus personae.[29] Insofar as a partners conveyance of the entirety of his
interest in the partnership is concerned, Article 1813 of the Civil Code provides as
follows:

Art. 1813. A conveyance by a partner of his whole interest in the

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

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

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

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

his partnership interest does not make the assignee of such interest a partner of the
firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignees profits. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
 P a g e | 145

right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.[30] Since a partners
interest in the partnership includes his share in the profits,[31] we find that the CA
committed no reversible error in ruling that the Spouses Jaso are entitled to
Biondos share in the profits, despite Juanitas lack of consent to the assignment of
said Frenchmans interest in the joint venture. Although Eden did not, moreover,
become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her
prayer for dissolution of the joint venture conformably with the right granted to the
purchaser of a partners interest under Article 1831 of the Civil Code.[32]

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

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

Based on the evidence on record, moreover, both the RTC[36] and the
CA[37] ruled out the dissolution of the joint venture and concluded that the ice
manufacturing business at the aforesaid address was the same one established by
Juanita and Biondo. As a rule, findings of fact of the CA are binding and
conclusive upon this Court,[38] and will not be reviewed or disturbed on
appeal[39] unless the case falls under any of the following recognized exceptions:
(1) when the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the CA, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9)
 P a g e | 146

when the facts set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the findings of fact of
the CA are premised on the supposed absence of evidence and contradicted by the
evidence on record.[40] Unfortunately for the Spouses Realubits cause, not one of
the foregoing exceptions applies to the case.

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

Obligations of the Partnership

1. Obligations TO the Partners

A. Amounts disbursed for and in Behalf of the Partnership- Art 1796
B. Contracts Entered into for and In behalf of the Partnership- Art 1797
C. Keeping of the Books- Art 1805

2. Obligations to Third Persons

A. Liability Arising from the Firm Name- Art 1815
B. Liability Arising from the Acts of the Agent- Art 1818

VI. Duties and Obligations of Partners

1. Obligation To Contribute to the Common Fund

Art 1786
Art 1826
Why is it then necessary for Partnership Law to declare expressly that a partner is
a debtor of the partnership for whatever he may have promised to contribute
thereto?
Art 1788, Art 1790
1. UyvsPuzon, 79 Scra 598 (1977)

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-19819 October 26, 1977

WILLIAM UY, plaintiff-appellee,

vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
 P a g e | 147

R.P. Sarandi for appellant.

Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.: têñ.£îhq wâ£

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.

It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines
for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road,
province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation of a partnership between them which would
be the sub-contractor of the projects and the profits to be divided equally between them. William Uy
inspected the projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was subsequently
engaged as subcontractor of the construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash and he
promised to contribute his share in the partnership capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 shall have been approved. However, before his
loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his mortgages with the said
Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his obligation
to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of P150,000.00
would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8

Although the partnership agreement was signed by the parties on January 18, 1957, 9 work on the projects
was started by the partnership on October 1, 1956 in view of the insistence of the Bureau of Public
Highways to complete the project right away. 10 Since Puzon was busy with his other projects, William Uy
was entrusted with the management of the projects and whatever expense the latter might incur, would
be considered as part of his contribution. 11 At the end of December, 1957, William Uy had contributed to
the partnership the amount of P115,453.39, including his capital. 12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear the title to Puzon's property, and the P20,000.00
as Puzon's contribution to the partnership capital. 13

To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and
consent of William Uy, 14 assigned to the Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of Public Highways paid the money due on the partial
accomplishments on the government projects in question to the Philippine National Bank which, in turn,
applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the
Bureau of Public Highways in payment of the partial work completed by the partnership on the projects,
the amount of P332,539.60 was applied in payment of Puzon's loan and only the amount of P27,820.80
was deposited in the partnership funds, 16 which, for all practical purposes, was also under Puzon's
account since Puzon was the custodian of the common funds.

As time passed and the financial demands of the projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the necessary funds with which to pursue the construction
 P a g e | 148

projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under
the terms of their partnership agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed to do so. 17 Realizing that his
verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the
projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, on November 20, 1957, advising the
partnership, of which he is also a partner, that unless they presented an immediate solution and capacity
to prosecute the work effectively, he would be constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of the projects in accordance with his original
contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as of December 1, 1957. 21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority
to deal with the Bureau of Public Highways in behalf of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone. 22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.

Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it
was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for the dissolution
of the partnership and for the payment by the plaintiff of his, share in the losses suffered by the
partnership.

After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied
partnership funds to his personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim and ordered the dissolution of
the partnership. The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.

Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal
before this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact,
which relates to the following points:

(1) That the appellant is not guilty of breach of contract; and

(2) That the amounts of money the appellant has been order to pay the appellee is not supported by
the evidence and the law.

After going over the record, we find no reason for rejecting the findings of fact below, justifying the
reversal of the decision appealed from.

The findings of the trial court that the appellant failed to contribute his share in the capital of the
partnership is clear incontrovertible. The record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership
which was used to clear the title to the appellant's property, and th balance of P20,000.00, as
Puzon's contribution to the partnership. 23 Thereafter, the appellant failed to make any further
contributions the partnership funds as shown in his letters to the appellee wherein he confessed his
inability to put in additional capital to continue with the projects. 24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share in
the partnership capital inasmuch as the amount of P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are clear and unequivocal
 P a g e | 149

that the sums of money given by the appellee are appellee's partial contributions to the partnership
capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated:
ñé+.£ªw ph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in
Check No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as
advance contribution of the share of said William Uy in the partnership to be
organized between us under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by the undersigned to pay
his obligations with the Philippine National Bank to effect the release of his
mortgages with the said bank. (Emphasis supplied)

In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also said: ñé+ .£ªw ph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in

Check No. SC423287, of the Equitable Banking Corporation, as partial contribution
of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for
which the undersigned will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)

The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained
by competent evidence. It is of record that the appellant assigned to the Philippine National Bank all
the payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the repayment of the bank. 27 By virtue of
the said appeflant's personal loan with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of the appellant's loan. 28

The appellant claims, however, that the said assignment was made with the consent of the appellee and
that the assignment not prejudice the partnership as it was reimbursed by the appellant.

But, the appellee categorically stated that the assignment to the Philippine National Bank was made
without his prior knowledge and consent and that when he learned of said assignment, he cal the
attention of the appellant who assured him that the assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance Corporation within three (3) months time. 29

The question of whom to believe being a matter large dependent on the trier's discretion, the findings of
the trial court who had the better opportunity to examine and appraise the fact issue, certainly deserve
respect.

That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied.
The record show that during the period from March, 1957 to September, 1959, the appellant
Bartolome Puzon received from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of P1,047,181.01, which amount rightfully
and legally belongs to the partnership by virtue of the subcontract agreements between the appellant
and the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was deposited in Puzon's current account
and only the amount of P27,820.80 was deposited in the current account of the partnership. 30 For
sure, if the appellant gave to the partnership all that were eamed and due it under the subcontract
agreements, the money would have been used as a safe reserve for the discharge of all obligations of the
firm and the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.

When did the appellant make the reimbursement claimed by him?

For the same period, the appellant actually disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete restitution.

The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital, the said
 P a g e | 150

appellant did not allow him to hold office in the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways was revoked by the appellant. 32

As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the
evidence of record as warrant its reverw.

Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the
plaintiff-appellee whatever amount latter had invested in or spent for the partnership on account of
construction projects.

How much did the appellee spend in the construction projects question?

It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount
P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were incurred. Since the determination
of the amount of the disbursements which each of them had made for the construction projects require an
examination of the books of account, the trial court appointed two commissioners, designated by the
parties, "to examine the books of account of the defendant regarding the U.P. Construction Company and
his personal account with particular reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by virtue of the
two projects above mentioned, the disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these funds are deposited . 35

In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they are
in agreement, as well as their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money received
from the firm, under Debits; and the resulting monthly investment standings of the partners, under
Balances. The commissioners are agreed that at the end of December, 1957, the appellee had a
balance of P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that
the commissioners had disagreed.

Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the partnership the amount of P15,997.09.

Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following
additional amounts:

(1) P7,497.80 — items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;

(2) P65,103.77 — payrolls paid by the appellee in the amount P128,103.77 less payroll remittances
from the appellant in amount of P63,000.00; and

(3) P26,027.04 other expeses incurred by the appellee at construction site.

With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the
findings of the trial which we find to be in accord with the evidence:

To enhance defendant's theory that he should be credited P24,239.48, he presented checks

allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record their books of account, as
expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han testified that of the
cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court,
considering that Han's explanation thereof is the more plausible because if they were employed in
the prosecution of the partners projects, the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account defendant is the custodian of the
 P a g e | 151

books of account, his failure to so enter therein the alleged disbursements, accentuates the falsity of
his claim on this point. 40

Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his
proclivity to favor the appellant and because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith and
credence. 41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of
his personal funds which not been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the appellant who included the said
amount under Expenses. 42

The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and
convincing. 43

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection
withe the projects and not entered in the books of the partnership since all vouchers and receipts were
sent to the Manila office which were under the control of the appellant. However, officer which were under
the control of the appellant. However, a list of these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-
4.

In resume', the appelllee's credit balance would be as follows:

ñé+.£ªwph!1

Undisputed
balance as of
Dec. 1967

Add: Items P 8,242.

omitted from
the books but

recognized
and charged
to
Miscellaneous

Expenses by 7,497.80
Mr. Ablaza
Add: Payrolls P128,103.77
paid by the
appellee

Less: 63,000.00 65,103.77

Payroll
remittances
received

Add: Other
expenses
incurred at
the

site (Exhs, 26,027.04

ZZ, ZZ-1 to
ZZ-4)

TOTAL P106,871.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he
also advanced for the construction projects but which were not included in the Commissioner's
Report. 44
 P a g e | 152

Appellee's total investments in the partnership would, therefore, be:

Appellee's total P106,871.00

credits

Add: 3,917,39
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19,
KKK-22)

Add: 4,665.00
Payments to
Munoz, as
subcontractor
of five,(5)
Bridges (p.
264 tsn;
Exhs. KKK-
20, KKK-21)

Total Pl 15,453.39
Investments

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the
appellant contends that the findings of the trial court that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any basis and is not supported by the evidence. The
appemnt maintains that the lower court, in making its determination, did not take into consideration
the great risks involved in business operations involving as it does the completion of the projects
within a definite period of time, in the face of adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the projects in the field, contributed in a large
measure to the failure of the partnership to realize such profits by his field management.

This argument must be overruled in the light of the law and evidence on the matter. Under Article
2200 of the Civil Code, indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain. In other words lucrum
cessans is also a basis for indemnification.

Has the appellee failed to make profits because of appellant's breach of contract?

There is no doubt that the contracting business is a profitable one and that the U.P. Construction
Company derived some profits from' co io oa ects its sub ntracts in the construction of the road and
bridges projects its deficient working capital and the juggling of its funds by the appellant.

Contrary to the appellant's claim, the partnership showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this
was primarily due to the confusing accounting method employed by the auditor who intermixed h and
accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like personal expenses
of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.

For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net
profit of P52,943.89. 46

Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public Highways,
in payment of the zonstruction projects in question, the amount of P1,047,181.01 47 and disbursed the
amount of P952,839.77, 48 leaving an unaccounted balance of P94,342.24. Obviously, this amount is also
part of the profits of the partnership.
 P a g e | 153

During the trial of this case, it was discovered that the appellant had money and credits receivable
froin the projects in question, in the custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said projects.49 After the trial of this case, it was shown
that the total retentions Wucted from the appemnt amounted to P145,358.00. 50 Surely, these retained
amounts also form part of the profits of the partnership.

Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned much
more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial
court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on
reasonable estimate.

WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood that the liability mentioned herein shall be home
by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator
thereof, Franco Puzon.

SO ORDERED.

Fernando (Chairman), Barredo, Antonio and Santos, JJ., concur. 1äw phï1.ñët

Aquino, J., concurs in the result.

2. Moran vs Court of Appeals, 133 Scra 88 (1986)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.: ñé+.£ªwph! 1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the 95,000 posters would
 P a g e | 154

be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on
or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery
of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages
and attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqw â£

From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which, however, were
sold at P5.00 each. Nothing more was done after this and it can be said that the
venture did not really get off the ground. On the other hand, the plaintiff failed to give
his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things which were the
object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.

Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint on June 19, 1972, and the
costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to
pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a
way not in accord with law and with Supreme Court decisions when it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

II
 P a g e | 155

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE

PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great
risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by
the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the Constitutional
Convention;

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a

month starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation
of the account pertaining to the distribution and printing of the said 95,000 posters
shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, 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 (Art. 1786,
Civil Code) and for interests and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil
Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on a particular set of facts.
We awarded compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company derived some profits
from its contractors in the construction of roads and bridges despite its deficient capital." Besides,
there was evidence to show that the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner and the private respondent would
 P a g e | 156

have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only
2,000 copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

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.

Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners that
they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a
right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100%
profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a
guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing
P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is
obvious. We have to take various factors into account. The failure of the Commission on Elections to
proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt that it would be a losing venture to go on
with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture
have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The
latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each.
The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the
gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount
to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000
copies, the remaining P6,000.00 should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice
of the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqw â£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
Moran does not question the due execution of said note. Must Moran therefore pay
 P a g e | 157

the amount of P20,000? The evidence indicates that the P20,000 was assigned by
Moran to cover the following: têñ.£îhqw â£

(a) P 7,000 — the amount of the PNB check given by

Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of
the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's

contribution in the project of the Posters;

(c) P3,000 — representing Pecson's commission for

three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the
Veterans' project, for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd
and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both the appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits- têñ.£îhqw â£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor
of defendant. Defendant admitted the authenticity of this check and of his receipt of
the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for
the purpose of showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000. This investment of
P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory
note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately reducing the
promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised
profit), defendant signed and executed the promissory note for P7,000 marked
Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000 partial payment
of the promised profit. The P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory
note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
 P a g e | 158

invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit
E. This document is being offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction
mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being

offered for the purpose of showing the transaction as explained in connection with
Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqw â£

Q During the pre-trial of this case, Mr. Pecson, the defendant

presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?

A Yes, sir.

Q What is this promissory note, in connection with your transaction

with the defendant?

A This promissory note is for the printing of the "Voice of the

Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.
têñ.£îhqw â£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the

promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as

evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a

Manager's check. I show you Exhibit E, is this the Manager's check
that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you

said represented P6,000.00 of your investment and P8,000.00
promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented

one-half (1/2) of the P6,000.00 capital I gave to him.
 P a g e | 159

Q As a consequence of the return by Mr. Moran of one-half (1/2) of

the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection

with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated

March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .

Court têñ.£îhqw â£

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was

executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran,

Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by

the promissory note.

Q Was there a receipt issued by you covering this payment of

P4,000.00 in favor of Mr. Moran?

A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on

account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of

my P6,000.00 capital investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that was promised to me by
Mr. Moran.

Q And what happened to the balance of P3,000.00 under the

promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy of
the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error
to state that the project never took place and on this basis decree the return of the private
respondent's investment.
 P a g e | 160

As already mentioned, there are risks in any business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case. In view of the foregoing, there is no reason
to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing
one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both amounts from the date the complaint
was filed until full payment is made.

SO ORDERED. 1äw phï1.ñët

3. Sancho vsLizarraga, 55 Phil 601 (1930)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-33580 February 6, 1931

MAXIMILIANO SANCHO, plaintiff-appellant,

vs.
SEVERIANO LIZARRAGA, defendant-appellee.

Jose Perez Cardenas and Jose M. Casal for appellant.

Celso B. Jamora and Antonio Gonzalez for appellee.

ROMUALDEZ, J.:

The plaintiff brought an action for the rescission of a partnership contract between himself and the
defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.

The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-
half of said amount to be charged to the plaintiff. He also prays for any other just and equitable
remedy.

The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation
together with the accounts and vouchers within the period of thirty days from receipt of notice of said
judgment, without costs.
 P a g e | 161

The plaintiff appealed from said decision making the following assignments of error:

1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership
contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present
case.

2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest
from October 15, 1920, until fully paid.

3. In denying the motion for a new trial.

In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that
this appeal is premature and therefore will not lie. The point is based on the contention that
inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet
appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure,
and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as ordered by the trial court,
and until they have been either approved or disapproved, the litigation involved in this action cannot
be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also
with reference to an appeal taken from a decision ordering the rendition of accounts following the
dissolution of partnership, the appeal in the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings referred to above, which we cannot revise because
the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code
have been properly applied. Owing to the defendant's failure to pay to the partnership the whole
amount which he bound himself to pay, he became indebted to it for the remainder, with interest and
any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the Code. This article cannot be
applied to the case in question, because it refers to the resolution of obligations in general, whereas
article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.

By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

4. LozanavsDepakakibo, 107 Phil 728 (1960)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-13680 April 27, 1960

MAURO LOZANA, plaintiff-appellee,

vs.
SERAFIN DEPAKAKIBO, defendant-appellant.

Antonio T. Lozada for appellee.

Agustin T. Misola and Tomas D. Dominado for appellant.

LABRADOR, J.:
 P a g e | 162

This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court
of Appeals, for the reason that only questions of law are involved in said appeal.

The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked
by the Public Service Commission on May 15, 1955. But the decision of the Public Service
Commission was appealed to Us on October 21, 1955. A temporary certificate of public convenience
was issued in the name of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently
because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein
Mauro Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new
grantee Olimpia D. Decolongon, by a deed dated October 30, 1955 (Exhibit "C"). Defendant Serafin
Depakakibo, on the other hand, sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the
spouses Felix Jimenea and Felina Harder, by a deed dated July 10, 1956.

On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging
that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the
wires connecting the generator to the different houses supplied by electric current in the Municipality
of Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said
properties be delivered back to him. Three days after the filing of the complaint, that is on November
18, 1955, Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take
possession of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of
P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,
defendant filed an answer, denying that the generator and the equipment mentioned in the complaint
belong to the plaintiff and alleging that the same had been contributed by the plaintiff to the
partnership entered into between them in the same manner that defendant had contributed
equipments also, and therefore that he is not unlawfully detaining them. By way of counterclaim,
defendant alleged that under the partnership agreement the parties were to contribute equipments,
plaintiff contributing the generator and the defendant, the wires for the purpose of installing the main
and delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the terms of
their agreement. He, therefore, prayed that the complaint against him be dismissed; that plaintiff be
adjudged guilty of violating the partnership contract and be ordered to pay the defendant the sum of
P3,000, as actual damages, P600.00 as attorney's fees and P2,600 annually as actual damages;
that the court order dissolution of the partnership, after the accounting and liquidation of the same.

On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on October 25,
1956 and November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff
owner of the equipment and entitled to the possession thereof, with costs against defendant. It is
against this judgment that the defendant has appealed.

The above judgment of the court was rendered on a stipulation of facts, which is as follows:

1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of Partnership, a copy of which is attached as Annex "A" of
defendant's answer and counterclaim, for the purpose set forth therein and under the
national franchise granted to Mrs. Piadosa Buenaflor;

2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro
Lozana, contributed the amount of Eighteen Thousand Pesos (P18,000.00); said
contributions of both parties being the appraised values of their respective properties brought
into the partnership;

3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled
by order of the Public Service Commission dated March 15, 1955, promulgated in case No.
58188, entitled, "Piadosa Buenaflor, applicant", which order has been appealed to the
Supreme Court by Mrs. Buenaflor;

4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale
 P a g e | 163

dated October 30, 1955 executed and ratified before Notary Public, Delfin Demaisip, in and
for the Municipality of Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832;
Page No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex "B" of
defendant's answer and counterclaim;

5. That there was no liquidation of partnership and that at the time of said Sale on October
30, 1955, defendant was the manager thereof;

6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those
properties sold were taken by the Provincial Sheriff on November 20, 1955 and delivered to
the plaintiff on November 25, 1955 upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November 17, 1955 and ratified before the Notary
Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200; Page
90; Book No. VII; and Series of 1955; of said Notary Public;

7. That the said properties sold are now in the possession of Olimpia Decolongon, the
purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;

8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and
Felisa Harder contributed by him to the partnership for P3,500.00 as per Deed of Sale
executed and ratified before the Notary Public Rodrigo J. Harder in and for the Province of
Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and made an integral part hereof; (pp, 27-29
ROA).

As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein
that there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel
Engine on October 15, 1955, and since the court below had found that the plaintiff had actually
contributed one engine and 70 posts to the partnership, it necessarily follows that the Buda diesel
engine contributed by the plaintiff had become the property of the partnership. As properties of the
partnership, the same could not be disposed of by the party contributing the same without the
consent or approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).

The lower court declared that the contract of partnership was null and void, because by the contract
of partnership, the parties thereto have become dummies of the owner of the franchise. The reason
for this holding was the admission by defendant when being cross-examined by the court that he
and the plaintiff are dummies. We find that this admission by the defendant is an error of law, not a
statement of a fact. The Anti-Dummy law has not been violated as parties plaintiff and defendant are
not aliens but Filipinos. The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as
amended).

Upon examining the contract of partnership, especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric light and power under the franchise belonging to
Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such
as to make the contract of partnership, null and void ab initio. The agreement could have been
submitted to the Public Service Commission if the rules of the latter require them to be so presented.
But the fact of furnishing the current to the holder of the franchise alone, without the previous
approval of the Public Service Commission, does not per se make the contract of partnership null
and void from the beginning and render the partnership entered into by the parties for the purpose
also void and non-existent. Under the circumstances, therefore, the court erred in declaring that the
contract was illegal from the beginning and that parties to the partnership are not bound therefor,
such that the contribution of the plaintiff to the partnership did not pass to it as its property. It also
follows that the claim of the defendant in his counterclaim that the partnership be dissolved and its
assets liquidated is the proper remedy, not for each contributing partner to claim back what he had
contributed.

For the foregoing considerations, the judgment appealed from as well as the order of the court for
the taking of the property into custody by the sheriff must be, as they hereby are set aside and the
case remanded to the court below for further proceedings in accordance with law.

Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera and Gutierrez
David, JJ.,concur.
 P a g e | 164

A. When Promised Contribution is a Sum of Money- Art 1788

B. When Promised Contribution is Property- In General – Art 1795, Art
1829(4)
C. Contribution is Goods- Art 1787
D. Contribution is Real Property- Art 1773, 1771, 1772
E. Contribution of Service or Industry: The Industrial Partner
Art 1797
F. Obligation for “Additional Contribution”
Art 1791
G. Remedies When there is Default in Obligation to Contribute
Sancho vsLizarraga, 55 Phil 601 (1931)
Art 1786, 1788
H. Personal Obligations for Partnership Debts; Doctrine of Unlimited Liability
Art 1816

2. Fiduciary Duties of Partners

1. Hanlon vsHaussermann, 40 Phil 796 (1920)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-14617 December 9, 1920

R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.1

Cohn and Fisher for appellants

Thomas D. Aitken and Gibbs, McDonough & Johnson for appellee.

STREET, J.:

We take occasion, from the presentation of a motion to rehear, to add a few words to an opinion
already perhaps unduly extended. Directing attention again to the interpretation of clause (d) of
paragraph II of the profit sharing agreement, which is the central feature of the case, we note that
the proponents of the motion reiterate their contention to the effect that the discharge contemplated
in that clause is merely a discharge of the guaranty, so-called, to raise the capital which Sellner on
the one part, and Haussermann and Beam on the other, had respectively agreed to raise on or
before May 6, 1914; and that the discharge of Haussermann and Beam from this obligation left intact
the broad obligation, expressed in paragraph I of the same contract, to do all in their power to
promote the Hanlon project. Upon this point counsel say that not only the language but the
punctuation of clause (d) shows conclusively that the antecedent of the word "obligation," twice
employed therein, is the guaranty, or promise, to obtain the subscriptions within the period stated.
 P a g e | 165

This may possibly be true, but the statement is apparently barren of significance; for when the
contract is carefully examined, it will be found that his promise (guaranty?) expresses exactly the
principal thing that these parties had agreed to do towards realizing the projects. To be more
specific: In one of the introductory clauses of the contract it is recited that the parties have agreed to
cooperate and assist Hanlon in the flotation of the project for the rehabilitation of the Benguet
Consolidated Mining Company; in paragraph I it is stipulated that each shall do all in his power to
float said project and make the same a success; and in paragraph II it is agreed that said project
shall be floated by the raising of capital in a certain manner and within a certain time. In other words,
that which in the beginning is expressed in general terms as an undertaking to cooperate is finally
reduced by a process of definition to the precise obligation indicated in the mutual promises of
Sellner, Haussermann, and Beam, to raise the necessary capital within the period of six months. Of
course nobody will be misled, by the use of the very guarantee in clause (d), into supposing that the
obligation there created is of a distinct type, different from that created by any ordinary and direct
promise. In its ordinary significance the word "guarantee" implies the creation of a collateral
obligation, but here it is evidently used for emphasis simply in the sense of promise.

What has been said shows the impossibility of separating the duty of the three associates above-
mentioned to assist in the promotion of the Hanlon project from the more specific duty to raise the
necessary capital in the particular manner set forth in clause (d). When the one obligation was
discharged the other was necessarily extinguished also. lawphi1.net

A single observation will be made upon another point, which may be indicated in the following
question: What are the conditions under which an attorney in fact is bound to exercise a power in
behalf of and for the benefit of his principal? Manifestly, before the attorney in fact can be held liable
for the breach of duty towards his principal there must have existed a specific obligation on the part
of the attorney in fact to act for the principal. Such obligation is sometimes discoverable from an
examination of the power itself, but is more often discoverable by implication in the circumstances
surrounding the parties and their special relations with reference to each other and the subject-
matter of the power.

In the present case the specific power of attorney executed by Hanlon in favor of Beam on
November 10, 1913, prior to Hanlon's departure for the United States, clearly shows that it was
executed in relation with the contract of November 5 and 6, and was to be used in carrying those
contracts into effect. Those contracts, however, as we have shown in the principal opinion, failed and
became inoperative without fault of the defendants on May 6, 1914; and so far as the record shows,
there was no act which could have been done in furtherance of those contracts prior to that date
which was neglected by Beam under that power.

Burt it will be said that, even conceding that Beam was under no positive duty to act for Hanlon
under the power of attorney in the matter of rehabilitating the mine after the sixth of May,
nevertheless as he did afterwards in fact proceed in that matter under new and different auspices,
he must now be held in equity to have been acting, in cooperation with Haussermann, for the benefit
of the old joint enterprise. The difficulty here is — and this we consider to be one of the fundamental
fallacies underlying the case — that the plaintiff is attempting to enforce an equitable obligation
inconsistent with the specific contract. It is a well-known rule that no implied obligation, either legal or
equitable, is ever created or imposed by law in respect to a matter which has been made the subject
of express contract. Likewise, no implied duty can ever spring from the same solid where an express
contract has existed and has been discharged. It follows that the discharge of Haussermann and
Beam under the express provisions of clause (d), paragraph I, of the profit-sharing agreement, is a
fatal obstacle to the creation of any implied duty, legal or equitable, derived from that contract or
from the relation of the parties as incident thereto. the rights of the parties must be determined by the
contract. And this applied not only with reference to the extent of the contractual obligation but to the
conditions under which the obligation was extinguished. itc-alf

The motion to rehear is denied. So ordered.

Mapa, C.J., Araullo, Malcolm, Avanceña and Villamor, JJ., concur.

Footnotes

1 See main decision in 40 Phil., 796.

 P a g e | 166

2. Lim TanhuvsRemolete, 66 Scra 425 (1975)

A. Duty to Account – Art 1806, 1808

B. Duty of Diligence – Art 1794, Art 1800
C. Duty of Loyalty- Art 1789, 1793
Catalan vsGatchalian, 105 Phil 1270 (1959)
D. Specific Fiduciary Duties of Industrial Partner- Art 1789
Evangelista vs Abad Santos 51 Scra 416 (1973)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and

LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

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
 P a g e | 167

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
 P a g e | 168

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.
 P a g e | 169

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.
 P a g e | 170

The judgment appealed from is affirmed, with costs.

Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

E. Specific Fiduciary Duties of Capitalist Partners- Art 1808

3. Obligation of Subsequently Admitted Partners- Art 1826

4. Obligations of Non-partners: Art 1815, 1825

VII. DISSOLUTION, WINDING-UP, AND TERMINATION OF THE

PARTNERSHIP

A. Introduction and Definition of Terms

1. Dissolution- Art 1828, 1829
Idosvs CA, 296 Scra 194 (1998)

Idos v. CA
Idos v. CA G.R. NO. 110782, September 25, 1998, Quisumbing, J.

Facts:

In 1985, Eddie Alarilla and Irma Idos formed a partnership which they decided to terminate after a year.
To pay Alarilla’s share of the asset, Idos issued 4 post dated checks. Alarilla was able to encash the first,
second and fourth checks but the third was dishonored for insufficiency of funds. He demanded payment
but Idos failed to pay. She claimed that the checks were issued as assurance of Alarilla’s share in the
assets of the partnership and that it was supposed to be deposited until the stocks were sold. He filed an
information for violation of BP blg. 22 against Idos in which she was found guilty by the trial court.

Issue: Did the court confused and merged into one the legal concepts of dissolution, liquidation and
termination of a partnership?

Ruling: The partners agreement to terminate the partnership did not automatically dissolved the
partnership. They were in the process of winding-up when the check in question was issued. The best
evidenceof the existence of the partnership, which was not yet terminated were the unsold goods and
uncollected receivables which were presented to the trial court. Article 1829 of the Civil Code provides
that “on dissolution the partnership is not terminated but continues until the winding-up of partnership
affairs is completed. Since the partnership has not been terminated, Idos and Alarilla remained co-
partners. The check was issued by petitioner to respondent as would a partner to another and not as a
payment by debtor to creditor. Thus, absent the first element of the complained offense, the act is not
punishable by the statute.
 P a g e | 171

2. “Winding Up of Partnership Affairs”

B. Legal Effects of Dissolution

1. Effect on the Partnership Contract and Juridical Personality
1. Republic vsTAncinco, 349 Scra 386 (2002)

SECOND DIVISION

[G.R. No. 139256. December 27, 2002]

REPUBLIC OF THE PHILIPPINES, represented by Sugar Regulatory

Administration, petitioner, vs. SULPICIO
TANCINCO, respondent.

DECISION
AUSTRIA-MARTINEZ, J.:

Assailed via a petition for review on certiorari by the Sugar Regulatory

Administration (SRA for brevity) is the decision of the Court of Appeals in CA-
G.R. CV No. 36110 dismissing SRAs appeal and affirming the decision of the
Regional Trial Court of Cagayan de Oro City (Branch 24) in Civil Case No.
10117 for Damages.
The facts of this case are undisputed:
The National Sugar Trading Corporation (NASUTRA), a domestic
corporation created for the purpose of engaging in the trading of sugar, and a
subsidiary of the Philippine Sugar Commission (Philsucom), an entity owned
and controlled by the Philippine government, leased the warehouse of
Sulpicio Tancinco in Cagayan de Oro City. The contract was for a period of 3
months starting November 23, 1984 renewable for another 3 years. [1]

On December 29, 1984, the eastern wall of the warehouse collapsed

causing death and injuries to several persons and damage to houses within
the area. Tancinco was constrained to incur expenses for the repair and
restoration of the warehouse and indemnity for the victims. Due to
NASUTRAs refusal to reimburse Tancinco, the latter filed on March 28, 1985
a complaint for Damages with the Regional Trial Court of Cagayan de Oro
City (Branch 23). NASUTRA filed its Answer disclaiming any liability.
[2] [3]

In the meantime, NASUTRA was converted into a private corporation

called the Philippine Sugar Marketing Corporation (Philsuma), the sole
marketing agency for the sugar industry to be owned completely by sugar
producers. Thereafter, Philsucom was phased out by Executive Order No. 18
[4]

in 1986, at same time creating petitioner SRA. NASUTRA substituted

[5]

petitioner SRA and filed on February 8, 1988, an Answer putting up the

 P a g e | 172

defenses that it cannot be liable for NASUTRAs obligation as it was created

after the incident took place and that it is a separate and distinct entity from
the former. [6]

On May 17, 1990, respondent Tancinco died and he was substituted by

his heirs.
On January 10, 1991, the trial court received Tancincos evidence ex
parte as SRA was declared in default. On February 18, 1991, the RTC
[7]

rendered its decision in favor of Tancinco. The dispositive portion of the

decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff

and against the SUGAR REGULATORY ADMINISTRATION as liquidator and
defendant NASUTRA and other defendants to pay jointly and severally the former the
following sums:

a) P229,006.00 for materials used in the repair of the warehouse;

b) P79.775.60 for labor;

c) P1,658.22 for fule (sic) and oil;

d) P972.80 for light and power;

e) P6,157.82 for medicines to victims;

f) P436.00 for miscellaneous expenses;

g) P19,680.00 spent for the guards;

h) P30,000.00 as attorneys fees all with legal rate of interest from December 29, 1984
until fully paid.

Without pronouncement as to cost.

SO ORDERED. [8]

The trial court ruled that under Section 13, paragraph 3 of E.O. No. 18 and
reiterated in E. O. No. 114, SRA, as the liquidator of Philsuma,
[9]

was, together with its co-defendants, jointly liable to Tancinco.

SRA appealed to the Court of Appeals which rendered the herein assailed
decision dated February 19, 1999. The appellate court held that (S)ince
PHILSUCOM had succeeded NASUTRA, and the appellant SRA in turn
assumed the liabilities of PHILSUCOM, even if only to a limited extent, it
logically follows that appellant SRA may still be held liable for the herein claim
for damages of the appellee, citing the case of Spouses Gonzales v. Sugar
Regulatory Administration, 174 SCRA 377 [1989]. [10]

Hence, the present petition for review, on the following grounds:

 P a g e | 173

By affirming the decision of the court Lower court (sic), the Court of Appeals
disregarded the ruling of this Honorable Court in Gonzales vs. Sugar Regulatory
Administration (174 SCRA 377), which provided for limited assumption of liability of
PHILSUCOM by SRA. It also acted not in accordance with law on the nature of
ordinary obligation as not joint and solidary.
[11]

SRA insists that the ruling in the Gonzales case sets a condition upon
which it may assume liability, i.e.., that respondent must show that SRA is
holding Philsucoms assets which could answer for NASUTRAs
liability. Moreover, SRA also maintains that E.O. No. 18 did not make it the
[12]

liquidator of Philsucom nor jointly and solidarily liable with NASUTRA. [13]

The principal issue in this case is whether Tancinco or his heirs may
recover NASUTRAs adjudged liability from SRA.
We answer in the affirmative.
There is no question that Executive Order No. 18 abolished the Philippine
Sugar Commission (Philsucom) and created the Sugar Regulatory
Administration (SRA). However, the abolition of NASUTRA and eventually
Philsucom did not abate the pendency of the suits filed against them. The
termination of the life of a juridical entity does not by itself cause the extinction
or diminution of the rights and liabilities of such entity ; specially in this case
[14]

where, pursuant to the transitory provision of E.O. No. 18, Philsucom, under
the supervision of SRA, was allowed to continue as a juridical entity for 3
years for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its property;
and to distribute its assets. [15]

If and when a pending action cannot be terminated within said 3-year

period, SRA, which has been appointed by law to supervise the closing affairs
of Philsucom, is considered a trustee which shall continue to prosecute and
defend suits filed by or against it. We ruled in Gelano vs. Court of
Appeals, viz.: [16]

However, a corporation that has a pending action and which cannot be terminated
within the three-year period after its dissolution is authorized under Sec. 78 [now 122]
of the Corporation Law to convey all its property to trustees to enable it to prosecute
and defend suits by or against the corporation beyond the three-year period. Although
private respondent did not appoint any trustee, yet the counsel who prosecuted and
defended the interest of the corporation in the instant case and who in fact appeared in
behalf of the corporation may be considered a trustee of the corporation at least with
respect to the matter in litigation only. Said counsel had been handling the case when
the same was pending before the trial court until it was appealed before the Court of
Appeals and finally to this Court. We therefore hold that there was substantial
compliance with Sec. 78 [now 122] of the Corporation Law and such private
respondent Insular Sawmill, Inc. could still continue prosecuting the present case even
beyond the period of three (3) years from the time of dissolution.

...[T]he trustee may commence a suit which can proceed to final judgment even
beyond the three-year period. No reason can be conceived why a suit already
commenced by the corporation itself during its existence, not by a mere trustee who,
by fiction, merely continues the legal personality of the dissolved corporation should
 P a g e | 174

not be accorded similar treatment allowed - to proceed to final judgment and

execution thereof.

Said ruling was reiterated in Reburiano vs. Court of Appeals, thus: [17]

There is, therefore, no reason why the suit filed by private respondent should not be
allowed to proceed to execution. It is conceded by petitioners that the judgment
against them and in favor of private respondent in C.A. G.R. No. 16070 had become
final and executory. The only reason for their refusal to execute the same is that there
is no existing corporation to which they are indebted. Such argument is fallacious. As
previously mentioned, the law specifically allows a trustee to manage the affairs of the
corporation in liquidation. Consequently, any supervening fact, such as the dissolution
of the corporation, repeal of a law, or any other fact of similar nature would not serve
as an effective bar to the enforcement of such right. (Emphasis Ours)

It being the trustee, SRA must therefore continue the legal personality of
the defunct NASUTRA and Philsucom until final judgment and execution
stage of the case. This is bolstered by our pronouncement in the case
of Gonzales vs. Sugar Regulatory Administration, wherein we stated that
[18]

(S)ection 13 of Executive Order No. 18 is not to be interpreted as authorizing

respondent SRA to disable Philsucom from paying Philsucoms demandable
obligations by simply taking over Philsucoms assets and immunizing them
from legitimate claims against Philsucom. [19]

Contrary to SRAs contention, there is nothing in the Gonzales case which

sets the condition that a claimant should first prove that SRA is holding the
assets of Philsucom before the former could be made to assume
liability. What was declared in the Gonzales case is that the claimants can
recover lawful claims against NASUTRA/Philsucom as determined by the trial
court to have been proved, to the extent of Philsucoms assets being held by
SRA. [20]

Accordingly, SRA can be held liable for Tancincos claim for damages
against NASUTRA, which claim has already been proven before the trial
court. However, the matter of whether the assets being held by SRA is
sufficient to answer for such claims is a different matter altogether, a matter
which we cannot resolve in the present petition.
Lastly, we agree with SRA that it cannot be made jointly and severally
liable for NASUTRAs obligation. As previously stated, it is merely a trustee of
NASUTRA/Philsucoms assets, and as such, its liability under the arrangement
should merely be co-extensive with the amount of assets it took over from
NASUTRA/Philsucom. As stated in the Gonzales case, SRA must be held
liable for such claims against Philsucom to the extent of the fair value of
assets actually taken over by the SRA from Philsucom, if any. [21]

WHEREFORE, the instant petition for review is hereby PARTIALLY

GANTED. The decision of the Regional Trial Court of Cagayan de Oro City
(Branch 24) in Civil Case No. 10117 is MODIFIED to the effect that petitioner
Sugar Regulatory Administration is hereby ORDERED to pay respondents the
sums awarded by the trial court but only up to the extent of Philsucoms assets
which are being held by petitioner as trustee, the same to be determined by
the same trial court in the same case.
 P a g e | 175

No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Callejo, Sr.,
JJ., concur.

2. Alhambra Cigar vs SEC 24 Scra 269 (1968)

24 SCRA 269 – Business Organization – Corporation Law – Corporate Lifespan

On January 15, 1912, Alhambra Cigar & Cigarette Manufacturing Company, Inc. was
incorporated. Its lifespan was for 50 years so on January 15, 1962, it expired. Thereafter, its
Board authorized its liquidation. Under the prevailing law, Alhambra has 3 years to liquidate.
In 1963, while Alhambra was liquidating, Republic Act 3531 was enacted. It amended
Section 18 of the Corporation Law; it empowered domestic private corporations to extend
their corporate life beyond the period fixed by the articles of incorporation for a term not to
exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum non-
extendible term of such corporations was fifty years.
Alhambra now amended its articles of incorporation to extend its lifespan for another 50
years. The Securities and Exchange Commission (SEC) denied the amended articles of
incorporation.
ISSUE: Whether or not a corporation under liquidation may still amend its articles of
incorporation to extend its lifespan.
HELD: No. Alhambra cannot avail of the new law because it has already expired at the
time of its passage. When a corporation is liquidating pursuant to the statutory period of
three years to liquidate, it is only allowed to continue for the purpose of final closure of its
business and no other purposes. In fact, within that period, the corporation is enjoined from
“continuing the business for which it was established”. Hence, Alhambra’s board cannot
validly amend its articles of incorporation to extend its lifespan.

3. PNB vs CFI Pasig 209 Scra 294 (1992)

G.R. No. 63201

MEDIALDEA, J.:
This is a petition for certiorari under Rule 65 of the Rules of Court seeking
to annul and set aside the orders of respondent Court of First Instance of
Rizal, Pasig, Branch 21 (now Regional Trial Court) dated April 22,1982,
September 14, 1982 and January 12, 1983 in LRC Case No. R-2744 on the
ground that they had been issued without or in excess of jurisdiction and
with grave abuse of discretion.
The antecedent facts of this case are as follows:
Private respondents are the registered owners of three parcels of land in
Pasig, Metro Manila covered by OCT No. 853, TCT Nos. 32843 and
32897 of the Registry of Deeds of Rizal.
 P a g e | 176

On March 1, 1954, private respondents entered into a contract of lease with

Philippine Blooming Mills, Co., Inc., (PBM for brevity) whereby the latter
shall lease the aforementioned parcels of land as factory site. PBM was duly
organized and incorporated on January 19, 1952 with a corporate term of
twenty-five (25) years. This leasehold right of PBM covering the parcels of
land was duly annotated at the back of the above stated certificates of title
as Entry No. 9367/T-No. 32843.
The contract of lease provides that the term of the lease is for twenty years
beginning from the date of the contract and "is extendable for another term
of twenty years at the option of the LESSEE should its term of existence be
extended in accordance with law." (p. 76, Rollo). The contract also states
that the lessee agrees to "use the property as factory site and for that
purpose to construct whatever buildings or improvements may be
necessary or convenient and/or x x x for any purpose it may deem fit; and
before the termination of the lease to remove all such buildings and
improvements" (pp. 76-77 Rollo).
In accordance with the contract, PBM introduced on the land, buildings,
machineries and other useful improvements. These constructions and
improvements were registered with the Registry of Deeds of Rizal and
annotated at the back of the respondents' certificates of title asEntry No.
85213/T-No. 43338.
On October 11, 1963, PBM executed in favor of Philippine National Bank
(PNB for brevity) petitioner herein, a deed of assignment, conveying and
transferring all its rights and interests under the contract of lease which it
executed with private respondents. The assignment was for and in
consideration of the loans granted by PNB to PBM. The deed of assignment
was registered and annotated at the back of the private respondents'
certificates of title as Entry No. 85215/T-No. 32843.
On November 6, 1963 and December 23, 1963 respectively, PBM executed
in favor of PNB a real estate mortgage for a loan of P100,000.00 and an
addendum to real estate mortgage for another loan of P1,590,000.00,
covering all the improvements constructed by PBM on the leased premises.
These mortgages were registered and annotated at the back of respondents'
certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No.
32843, respectively.
PBM filed a petition for registration of improvements in the titles of real
property owned by private respondents docketed as Case No. 6530.
On October 7, 1981, private respondents filed a motion in the same
proceedings which was given a different case number to wit, LRC Case No.
R-2744, because of the payment of filing fees for the motion. The motion
sought to cancel the annotations on respondents' certificates of title
pertaining to the assignment by PBM to PNB of the former's leasehold
rights, inclusion of improvements and the real estate mortgages made by
PBM in favor of PNB, on the ground that the contract of lease entered into
between PBM and respondents-movants had already expired by the failure
of PBM and/or its assignee to exercise the option to renew the second 20-
 P a g e | 177

year lease commencing on March 1, 1974 and also by the failure of PBM to
extend its corporate existence in accordance with law. The motion also
states that since PBM failed to remove its improvements on the leased
premises before the expiration of the contract of lease, such improvements
shall accrue to respondents as owners of the land.
On April 22, 1982, respondent court issued an order directing the
cancellation of the inscriptions on respondents' certificates of title. The
dispositive portion of the order provides:
"WHEREFORE, the Register of Deeds having jurisdiction over the movant's
land Certificates of Title Nos. 853, 32843 and 32897 is hereby ordered,
upon the payment of the corresponding fees, to cancel therein
memoranda/inscriptions/entries Nos. 85213/T-No. 43338, 85215/T-No.
32843, 85214/T-No. 43338 and 87097/T-No. 32843.
"SO ORDERED." (pp. 147-148, Rollo)
Petitioner PNB filed a motion for reconsideration of the above order of the
respondent court but the latter denied it on June 28, 1982.
On August 25, 1982, private respondents filed a motion for entry of final
judgment and issuance of a writ of execution of the order of April 22, 1982.
On September 14, 1982, respondent court granted the aforesaid motion for
entry of final judgment and ordered to the Register of Deeds of Pasig, Rizal
to cancel the entries on respondents' certificates of title stated in the order
of April 22, 1982.
Petitioner PNB filed an omnibus motion to set aside the entry of judgment
as ordered by the respondent court on the ground that it has no prior notice
or knowledge of the order of respondent court dated June 28, 1982 which
denied its motion for reconsideration of the order of April 22, 1982 and that
while there was a certification from the Bureau of Posts that three registry
notices were sent to petitioner's counsel, there was no allegation or
certification whatsoever that said notices were actually received by the
addressee.
On January 12,1983, the respondent court denied the omnibus motion.
Hence, this petition.
Petitioner alleges that respondent court acted capriciously and arbitrarily
in issuing the orders of September 14, 1982 and January 12,1983 which
considered its previous order of April 22, 1982 as having become final on
the ground that it had no notice or knowledge that the order of June 28,
1982 denying its motion for reconsideration was issued; that the notices of
registered mail allegedly containing the order of June 28, 1982 were not
received by petitioner's counsel of record, and that the certification of the
Bureau of Posts refers only to the fact that registry notices were sent, and
not to the fact that the notices were actually received by the addressee.
In resolving this matter, the respondent court stated in the questioned
order of January 12, 1983 as follows:
 P a g e | 178

"The respondent PNB filed a motion of May 20, 1982 to set aside the Order
of April 22, 1982. This was denied by the Order of June 28, 1982. Then the
movants filed a motion of August 25, 1982 for entry of judgment, based on
the postmaster's certification that not only one but three notices of the
registered mail containing a copy of the order of June 28, 1982 was sent to
respondent PNB's counsel at the PNB Building at Escolta, Manila which is
his address of record in this case. Consequently the entry of judgment
Order of September 14,1982.
"x x x.
"The respondent PNB's counsel at the hearing of said incidents on October
12, 1982 admitted that the aforesaid registered notices could have been
received by PNB's regular Receiving Section at the PNB Building at the
Escolta but could not have been forwarded by said Receiving Section to said
counsel's Litigation and Collection Division, Legal Department at an upper
floor of the same building. Thus the presumption that official duty was
regularly performed by the postmaster was not overcome, as most recently
reiterated by the Supreme Court in Feraren vs. Santos promulgated on
April 27,1982, 113 SCRA 707 x x x." (p. 195, Rollo)
Section 8 of Rule 13 of the Rules of Court, as amended, provides that
service by registered mail is complete upon actual receipt by the addressee;
but if he fails to claim his mail from the post office within five (5) days from
the date of first notice of the postmaster, service shall take effect at the
expiration of such time. The fair and just application of that exception
depends upon the conclusive proof that the first notice was sent by the
postmaster to the addressee. The best evidence of that fact would be the
certification from the postmaster (Barrameda v. Castillo, L-27211, July 6,
1977, 78 SCRA 1).
In the instant case, the respondent court found that the postmaster's
certification stated that three (3) notices of the registered mail which
contained the order of June 28, 1982 denying the motion for
reconsideration of the order of April 22, 1982, were sent to
petitioner PNB'scounsel at Escolta, Manila which is the address stated in
the record of the case. The factual findings of the trial court bear great
weight and is binding upon this Court. Hence, as between the denial of the
petitioners' counsel that he received the notice of the registered mail and
the postmaster's certification that said notices were sent to him, the
postmaster's claim should prevail. The postmaster has the official duty to
send notices of registered mail and the presumption is that official duty was
regularly performed (Aportadera, Sr. v. Court of Appeals, G.R. No. 41358,
March 16,1988,158 SCRA 695).
Petitioner alleges that it is not the respondent court but the Securities and
Exchange Commission which has jurisdiction over the private respondents'
motion, which raised as issue the corporate existence of PBM. Petitioner
further submits that the respondent court committed grave abuse of
discretion in ordering the cancellation of entries in the certificates of title of
respondents on the following grounds: 1) the motion for cancellation would
 P a g e | 179

amount to a collateral attack upon the due incorporation of PBM which

cannot be done legally, 2) the contract of lease between PBM as petitioner's
assignor and private respondents did not expire since PBM exercised its
option to renew the lease with the acquiescence of private respondents, and
3) respondent court's ruling that ownership over the improvements passed
from PBM to private respondents upon the expiration of lease violates the
law and the contract between the parties.
Even if We were to set aside the questioned orders directing the entry of
finality of the order cancelling entries in the titles, petitioner's case must
still fail on the merits.
Private respondent's motion with the respondent court was for the
cancellation of the entries on their titles on the ground that the contract of
lease executed between them and PBM had expired. This action is
civil in nature and is within the jurisdiction of the respondent
court. The circumstance that PBM as one of the contracting parties is a
corporation whose corporate term had expired and which fact was made
the basis for the termination of the lease is not sufficient to confer
jurisdiction on the Securities and Exchange Commission over the case.
Presidential Decree No. 902-A, as amended, enumerates the cases over
which the SEC has exclusive jurisdiction and authority to resolve. The case
at bar is not covered by the enumeration.
Anent the issue of whether the cancellation of the entries on respondent's
certificates of title is valid and proper, We find that the respondent court
did not act in excess of its jurisdiction, in ordering the same.
The contract of lease expressly provides that the term of the lease shall be
twenty years from the execution of the contract but can be extended for
another period of twenty years at the option of the lessee should the
corporate term be extended in accordance with law. Clearly, the
option of the lessee to extend the lease for another period of twenty years
can be exercised only if the lessee as corporation renews or extends its
corporate term of existence in accordance with the Corporation Code which
is the applicable law. Contracts are to be interpreted according to their
literal meaning and should not be interpreted beyond their obvious
intendment. Thus, in the instant case, the initial term of the contract of
lease which commenced on March 1, 1954 ended on March 1, 1974. PBM as
lessee continued to occupy the leased premises beyond that date with the
acquiescence and consent of the respondents as lessor. Records show
however, that PBM as a corporation had a corporate life of only twenty-five
(25) years which ended on January 19, 1977. It should be noted however
that PBM allowed its corporate term to expire without complying with the
requirements provided by law for the extension of its corporate term of
existence.
Section 11 of Corporation Code provides that a corporation shall exist for a
period not exceeding fifty (50) years from the date of incorporation unless
sooner dissolved or unless said period is extended. Upon the expiration of
the period fixed in the articles of incorporation in the absence of
compliance with the legal requisites for the extension of the period, the
 P a g e | 180

corporation ceases to exist and is dissolved ipso facto (16 Fletcher 671 cited
by Aguedo F. Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988
Edition p. 617). When the period of corporate life expires, the corporation
ceases to be a body corporate for the purpose of continuing the business for
which it was organized. But it shall nevertheless be continued as a body
corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against
it and of enabling it gradually to settle and close its affairs, to dispose of and
convey its property and to divide its assets (Sec. 122, Corporation Code).
There is no need for the institution of a proceeding for quo warranto to
determine the time or date of the dissolution of a corporation because the
period of corporate existence is provided in the articles of incorporation.
When such period expires and without any extension having been made
pursuant to law, the corporation is dissolve automatically insofar as the
continuation of its business is concerned. The quo warranto proceeding
under Rule 66 of the Rules of Court, as amended, may be instituted by the
Solicitor General only for the involuntary dissolution of a corporation on
the following grounds: a) when the corporation has offended against a
provision of an Act for its creation or renewal; b) when it has forfeited its
privileges and franchises by non-user; c) when it has committed or omitted
an act which amounts to a surrender of its corporate rights, privileges or
franchises; d) when it has misused a right, privilege or franchise conferred
upon it by law, or when it has exercised a right, privilege or franchise in
contravention of law. Hence, there is no need for the SEC to make an
involuntary dissolution of a corporation whose corporate term had ended
because its articles of incorporation had in effect expired by its own
limitation.
Considering the foregoing in relation to the contract of lease between the
parties herein, when PBM's corporate life ended on January 19, 1977 and its
3-year period for winding up and liquidation expired on January 19,1980,
the option of extending the lease was likewise terminated on January 19,
1977 because PBM failed to renew or extend its corporate life in accordance
with law. From then on, the respondents can exercise their right to
terminate the lease pursuant to the stipulations in the contract.
We now come to the question of the ownership over the improvements
constructed by PBM over the leased premises, which improvements were
mortgaged in favor of PNB, petitioner herein.
The rights of the lessor and the lessee over the improvements which the
latter constructed on the leased premises is governed by Article 1678 of the
Civil Code which provides:
"Art. 1678. If the lessee makes, in good faith, useful improvements which
are suitable to the use for which the lease is intended, without altering the
form or substance of the porperty leased, the lessor upon the termination of
the lease shall pay the lessee one-half of the value of the improvements at
that time. Should the lessor refuse to reimburse said amount, the lessee
may remove the improvements, even though the principal thing may suffer
 P a g e | 181

damage thereby. He shall not however, cause any more impairment upon
the property leased than is necessary. x x x".
The aforequoted provision gives the lessee the right to remove the
improvements if the lessor chooses not to pay one-half of the value thereof.
However, in the case at bar, the law will not apply because the parties
herein have stipulated in the contract their own terms and conditions
concerning the improvements, to wit, that the lessee, namely PBM, bound
itself to remove the improvements before the termination of the lease.
Petitioner PNB, as assignee of PBM succeeded to the obligation of the latter
under the contract of lease. It could not possess rights more than what PBM
had as lessee under the contract. Hence, petitioner was duty bound to
remove the improvements before the expiration of the period of lease as
what we have already discussed in the preceding paragraphs. Its failure to
do so when the lease was terminated was tantamount to a waiver of its
rights and interests over the improvements on the leased premises.
In view of the foregoing, this Court finds that respondent court did not act
with grave abuse of discretion in directing the cancellation of entries on
private respondents' certificates of title as set forth in the questioned order.
ACCORDINGLY, the petition is DISMISSED and the assailed orders of
respondent court dated April 22, 1982, September 14, 1982 and January 12,
1983 are AFFIRMED.
SO ORDERED.

Cruz, (Chairman), Griño-Aquino, and Bellosillo, JJ., concur.

PNB VS CFI PASIG (G.R. NO. 63201 MAY 27, 1992)

Philippine National Bank vs Court of First Instance of Pasig, Rizal Branch XXI

G.R. No. 63201 May 27, 1992

Facts: Private respondents are the registered owners of three parcels of land in Pasig,
Metro Manila covered by OCT No. 853, TCT Nos. 32843 and 32897 of the Registry of
Deeds of Rizal. On March 1, 1954, private respondents entered into a contract of lease
with Philippine Blooming Mills, Co., Inc., (PBM) whereby the latter shall lease the
aforementioned parcels of land as factory site. PBM was duly organized and
incorporated on January 19, 1952 with a corporate term of twenty-five (25) years. This
leasehold right of PBM covering the parcels of land was duly annotated at the back of
the above stated certificates of title as Entry No. 9367/T-No. 32843. The contract of lease
provides that the term of the lease is for twenty years beginning from the date of the
contract and “is extendable for another term of twenty years at the option of the LESSEE
should its term of existence be extended in accordance with law.”. The contract also
states that the lessee agrees to “use the property as factory site and for that purpose to
construct whatever buildings or improvements may be necessary or convenient and/or
. . . for any purpose it may deem fit; and before the termination of the lease to remove
 P a g e | 182

all such buildings and improvements. In accordance with the contract, PBM introduced
on the land, buildings, machineries and other useful improvements. These
constructions and improvements were registered with the Registry of Deeds of Rizal
and annotated at the back of the respondents’ certificates of title as Entry No. 85213/T-
No. 43338. On October 11, 1963, PBM executed in favor of Philippine National Bank
(PNB), petitioner herein, a deed of assignment, conveying and transferring all its rights
and interests under the contract of lease which it executed with private respondents.
The assignment was for and in consideration of the loans granted by PNB to PBM. The
deed of assignment was registered and annotated at the back of the private
respondents’ certificates of title as Entry No. 85215/TNo. 32843. On November 6, 1963
and December 23, 1963 respectively, PBM executed in favor of PNB a real estate
mortgage for a loan of P100,000.00 and an addendum to real estate mortgage for
another loan of P1,590,000.00, covering all the improvements constructed by PBM on
the leased premises. These mortgages were registered and annotated at the back of
respondents’ certificates as Entry No. 85214/T-No. 43338 and Entry No. 870971/T-No.
32843, respectively. On October 7, 1981, private respondents filed a motion in the same
proceedings which was given a different case number to wit, LRC Case No. R-2744,
because of the payment of filing fees for the motion. The motion sought to cancel the
annotations on respondents’ certificates of title pertaining to the assignment by PBM to
PNB of the former’s leasehold rights, inclusion of improvements and the real estate
mortgages made by PBM in favor of PNB, on the ground that the contract of lease
entered into between PBM and respondents-movants had already expired by the failure
of PBM and/or its assignee to exercise the option to renew the second 20-year lease
commencing on March 1, 1974 and also by the failure of PBM to extend its corporate
existence in accordance with law. The motion also states that since PBM failed to
remove its improvements on the leased premises before the expiration of the contract of
lease, such improvements shall accrue to respondents as owners of the land.

Issue: Whether or not the corporate life of PBM was extended by the continuance of the
lease and subsequent registration of the title to the improvements under its name.

Held: No. The contract of lease expressly provides that the term of the lease shall be
twenty years from the execution of the contract but can be extended for another period
of twenty years at the option of the lessee should the corporate term be extended in
accordance with law. Clearly, the option of the lessee to extend the lease for another
period of twenty years can be exercised only if the lessee as corporation renews or
extends its corporate term of existence in accordance with the Corporation Code which
is the applicable law. Contracts are to be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment. Thus, in the instant
case, the initial term of the contract of lease which commenced on March 1, 1954 ended
on March 1, 1974. PBM as lessee continued to occupy the leased premises beyond that
date with the acquiescence and consent of the respondents as lessor. Records show
however, that PBM as a corporation had a corporate life of only twenty-five (25) years
 P a g e | 183

which ended an January 19, 1977. It should be noted however that PBM allowed its
corporate term to expire without complying with the requirements provided by law for
the extension of its corporate term of existence.

Section 11 of Corporation Code provides that a corporation shall exist for a period not
exceeding fifty (50) years from the date of incorporation unless sooner dissolved or
unless said period is extended. Upon the expiration of the period fixed in the articles of
incorporation in the absence of compliance with the legal requisites for the extension of
the period, the corporation ceases to exist and is dissolved ipso facto. When the period
of corporate life expires, the corporation ceases to be a body corporate for the purpose
of continuing the business for which it was organized. But it shall nevertheless be
continued as a body corporate for three years after the time when it would have been so
dissolved, for the purpose of prosecuting and defending suits by or against it and
enabling it gradually to settle and close its affairs, to dispose of and convey its property
and to divide its assets. There is no need for the institution of a proceeding for quo
warranto to determine the time or date of the dissolution of a corporation because the
period of corporate existence is provided in the articles of incorporation. When such
period expires and without any extension having been made pursuant to law, the
corporation is dissolved automatically insofar as the continuation of its business is
concerned. The quo warranto proceeding under Rule 66 of the Rules of Court, as
amended, may be instituted by the Solicitor General only for the involuntary
dissolution of a corporation on the following grounds: a) when the corporation has
offended against a provision of an Act for its creation or renewal; b) when it has
forfeited its privileges and franchises by non-user; c) when it has committed or omitted
an act which amounts to a surrender of its corporate rights, privileges or franchises; d)
when it has mis-used a right, privilege or franchise conferred upon it by law, or when it
has exercised a right, privilege or franchise in contravention of law. Hence, there is no
need for the SEC to make an involuntary dissolution of a corporation whose corporate
term had ended because its articles of incorporation had in effect expired by its own
limitation.

Considering the foregoing in relation to the contract of lease between the parties herein,
when PBM’s corporate life ended on January 19, 1977 and its 3-year period for winding
up and liquidation expired on January 19, 1980, the option of extending the lease was
likewise terminated on January 19, 1977 because PBM failed to renew or extend its
corporate life in accordance with law. From then on, the respondents can exercise their
right to terminate the lease pursuant to the stipulations in the contract.

Posted in Case Digests, Commercial and tagged Blacknwhitethoughtsblog,

buhaylawstudent, casedigest, commerciallaw, corporate existence, corporatelife,
corporation, corporationlaw, estudyanteblues, law, lawstudentsph, pnb vs sec on July
19, 2016. Leave a comment
 P a g e | 184

Art 1832

2. Effect on the Partnership Business Enterprise- Art 1832

3. Effect on Contracts Entered into with third parties
1. SingsonvsIsabela Sawmill, 88 Scra 623 (1979)

Singsong v. Isabela Sawmill

Singsong v. Isabela Sawmill G.R. No. L-27343, February 28, 1979, Fernandez, J.

Facts: In 1951, defendants entered into a contract of partnership under the firm name “Isabela Sawmill”.
In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able to
pay their whole balance even after demand was made. One of the partners withdrew from the partnership
but instead of terminating the said partnership it was continued by the two remaining partners under the
same firm name. Plaintiffs also seek the annulment of the assignment of right with chattel mortgage
entered into by the withdrawing partner and the remaining partners. The appellants contend that the
chattel mortgage may no longer be nullified because it had been judicially approved and said chattel
mortgage had been judicially foreclosed.

Issue: Whether the withdrawal of one of the partners dissolved the partnership.

Ruling:

It does not appear that the withdrawal of the partner was not published in the newspapers. The appellees
and the public in general had a right to expect that whatever, credit they extended to the remaining
partners could be enforced against the properties of the partnership. The withdrawing partner cannot be
relieved from her liability to the creditor of the partnership due to her own fault by not insisting on the
liquidation of the partnership. Though she had acted in good faith, the appellees also acted in good faith
in extending credit to the partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences. Technically, the partnership
was dissolved by the withdrawal of one of the partners. Through her acts of entering into a memorandum
with the remaining partners misled the creditors that they were doing business with the partnership.
Hence, from the order of the lower court ordering the withdrawing partner to pay the plaintiffs, she is thus
entitled for reimbursement from the remaining partners.

2. Tocaovs Court of Appeals 342 Scra 20 (2000)

FIRST DIVISION

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF

APPEALS and NENITA A. ANAY, respondents.
 P a g e | 185

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-
G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial Court of
Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier, through
her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under
the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-
president for sales. Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined commissions and/or
salaries of the employees, and assigned them to different branches. The
parties agreed that Belos name should not appear in any documents relating
to their transactions with West Bend Company. Instead, they agreed to use
Anays name in securing distributorship of cookware from that company. The
parties agreed further that Anay would be entitled to: (1) ten percent (10%) of
the annual net profits of the business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belos assurances
that he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati
City. Belo made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., from
July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of Geminesse Enterprise,
even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July
13, 1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co.
for twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of
our company, will attend in response to the invitation. (Italics supplied.)[3]
 P a g e | 186

Anay arrived from the U.S.A. in mid-August 1987, and immediately

undertook the task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices. On August 31, 1987, she
received a plaque of appreciation from the administrative and sales people
through Marjorie Tocao[4] for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo[5] entitling her to a thirty-
seven percent (37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter[6] addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.[7] Anay attempted to contact
Belo. She wrote him twice to demand her overriding commission for the period
of January 8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. When her letters were not answered,
Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter
was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages[8] against Marjorie D. Tocao and William Belo
before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as
moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff
also prayed for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) overriding commission on the remaining
150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged
agreement with Anay that was neither reduced in writing, nor ratified, was
either unenforceable or void or inexistent. As far as Belo was concerned, his
only role was to introduce Anay to Marjorie Tocao. There could not have been
a partnership because, as Anay herself admitted, Geminesse Enterprise was
the sole proprietorship of Marjorie Tocao. Because Anay merely acted as
marketing demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with
the regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of ill-will and resentment because Marjorie Tocao did
not allow her to lord it over in the Geminesse Enterprise. Anay had acted like
she owned the enterprise because of her experience and expertise. Hence,
 P a g e | 187

petitioners were the ones who suffered actual damages including unreturned
and unaccounted stocks of Geminesse Enterprise, and serious anxiety,
besmirched reputation in the business world, and various damages not less
than P500,000.00. They also alleged that, to vindicate their names, they had
to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not
the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b)
whether or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share
in the profit of the business. He, however, admitted that the two had agreed
that Anay would receive a three to four percent (3-4%) share in the gross
sales of the cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of Marjorie
Tocao, who was new in the business. He attended and/or presided over
business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting
the plaintiff thirty-seven percent (37%) commission upon her dismissal from
the business venture at the request of Tocao, because Anay had no other
income.
For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay was an
expert in the cookware business and hence, they agreed to grant her the
following commissions: thirty-seven percent (37%) on personal sales; five
percent (5%) on gross sales; two percent (2%) on product demonstrations,
and two percent (2%) for recruitment of personnel. Marjorie denied that they
agreed on a ten percent (10%) commission on the net profits. Marjorie
claimed that she got the capital for the business out of the sale of the sewing
machines used in her garments business and from Peter Lo, a Singaporean
friend-financier who loaned her the funds with interest. Because she treated
Anay as her co-equal, Marjorie received the same amounts of commissions
as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of
which is as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership

affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order
to determine the ten percent (10%) share of plaintiff in the net profits of the
cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production
which for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs
of suit.
 P a g e | 188

SO ORDERED.

The trial court held that there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the following: (a) there was
an intention to create a partnership; (b) a common fund was established
through contributions consisting of money and industry, and (c) there was a
joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin
and the administrative officer of Geminesse Enterprise from August 21, 1986
until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of
West Bend Company stating that he awarded the distributorship to Anay and
Marjorie Tocao because he was convinced that with Marjories financial
contribution and Anays experience, the combination of the two would be
invaluable to the partnership, also supported that conclusion. Belos claim that
he was merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his
issuance of a memo giving Anay 37% commission on personal sales belied
this. On the contrary, it demonstrated his involvement as a partner in the
business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is often
resorted to in business circles as an impetus to bigger sales volume. It did not
matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be constituted in any form. The fact that
Geminesse Enterprise was registered in Marjorie Tocaos name is not
determinative of whether or not the business was managed and operated by a
sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse
Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his
due upon the dissolution of the partnership as well as damages or share in the
profits realized from the appropriation of the partnership business and
goodwill. An innocent partner thus possesses pecuniary interest in every
existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the
amount of damages awarded by the trial court were reduced to P50,000.00 for
moral damages and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack of
merit.[12] Petitioners Belo and Marjorie Tocao are now before this Court on a
petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously
held that a partnership existed between them and private respondent Anay
because Geminesse Enterprise came into being exactly a year before the
alleged partnership was formed, and that it was very unlikely that petitioner
 P a g e | 189

Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing
nothing, without any memorandum whatsoever regarding the alleged
partnership.[13]
The issue of whether or not a partnership exists is a factual matter which
are within the exclusive domain of both the trial and appellate courts. This
Court cannot set aside factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by the court a quo.[14] In
this case, both the trial court and the Court of Appeals are one in ruling that
petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves.[15] It may be constituted in any
form; a public instrument is necessary only where immovable property or real
rights are contributed thereto.[16] This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code[17] did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the
matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in

the business of distributorship of cookware. Private respondent contributed
such expertise to the partnership and hence, under the law, she was the
industrial or managing partner. It was through her reputation with the West
Bend Company that the partnership was able to open the business of
distributorship of that companys cookware products; it was through the same
efforts that the business was propelled to financial success. Petitioner Tocao
herself admitted private respondents indispensable role in putting up the
business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to
sell yet, its only me there then her and then two (2) people, so about four (4). Now,
after that when she recruited already Oscar Abella and Lina Torda-Cruz these two
(2) people were given the designation of marketing managers of which definitely
Nita as superior to them would be the Vice President.[18]

By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of
West Bend Company to Roger Muencheberg of the same company states:
 P a g e | 190

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the

operations. Marge does not have cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance and
the products to sell.[19]

On the other hand, petitioner Belos denial that he financed the partnership
rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his
having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of
future debts of petitioner Tocao under Article 2053 of the Civil Code,[20] he
should have presented documentary evidence therefor. While Article 2055 of
the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt,
default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and
petitioner Belos roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocaos admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname,
Jiji.[23] The special relationship between them dovetails with petitioner Belos
claim that he was acting in behalf of petitioner Tocao. Significantly, in the early
stage of the business operation, petitioners requested West Bend Company to
allow them to utilize their banking and trading facilities in Singapore in the
matter of importation and payment of the cookware products.[24] The inevitable
conclusion, therefore, was that petitioners merged their respective capital and
infused the amount into the partnership of distributing cookware with private
respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result
in an employer-employee relationship between petitioners and private
respondent. While it is true that the receipt of a percentage of net profits
constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an employer-employee
relationship between the parties. In the first place, private respondent had a
voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocaos
admissions militate against an employer-employee relationship. She admitted
that, like her who owned Geminesse Enterprise,[27] private respondent received
only commissions and transportation and representation allowances[28] and not
a fixed salary.[29] Petitioner Tocao testified:
 P a g e | 191

Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and
Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending
August 21, 1987, will you please go over this and tell the Honorable Court whether you
ever came across this document and know of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a
certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I
quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this
amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50,
what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there
being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know
in a sense because of her expertise in the business she is vital to my business. So, as
part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from
the company P21,140.50 is your way of indicating that you were treating her as an
equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the
amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication
that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the
same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult
to believe that they shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses of the venture,
except that the industrial partner shall not be liable for the losses. [31] As an
 P a g e | 192

industrial partner, private respondent had the right to demand for a formal
accounting of the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was
registered with the Bureau of Domestic Trade on August 19, 1987 was merely
the name of that enterprise.[33]While it is true that in her undated application for
renewal of registration of that firm name, petitioner Tocao indicated that it
would be engaged in retail of kitchenwares, cookwares, utensils, skillet,[34] she
also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of
water sterilizer or purifier.[35] Indubitably then, the business name Geminesse
Enterprise was used only for practical reasons - it was utilized as the common
name for petitioner Tocaos various business activities, which included the
distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00.[36] Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:

The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated,
the petitioner and private complainant remained as co-partners. x x x.[37]

It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondents efforts to make the business venture
a success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private
respondent in front of other people.[38] Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to hold office in both the
Makati and Cubao sales offices concretely spoke of her perception that
private respondent was no longer necessary in the business operation,[39] and
resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a
sham organization.[40] The partnership exists until dissolved under the
law. Since the partnership created by petitioners and private respondent has
no fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus:

x x x. 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 partners capability
to give it, and the absence of cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the
 P a g e | 193

partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership but that it can result in a liability
for damages.[41]

An unjustified dissolution by a partner can subject him to action for damages

because by the mutual agency that arises in a partnership, the doctrine
of delectus personae allows the partners to have the power, although not
necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly stating
that private respondent was, as of October 9, 1987, no longer the vice-
president for sales of Geminesse Enterprise.[43] By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying
on of the business. Nevertheless, the partnership was not terminated thereby;
it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the
factual findings upon which it is based is primarily the task of the trial
court.[45] The Court of Appeals may modify that amount only when its factual
findings are diametrically opposed to that of the lower court,[46] or the award is
palpably or scandalously and unreasonably excessive.[47] However, exemplary
damages that are awarded by way of example or correction for the public
good,[48] should be reduced to P50,000.00, the amount correctly awarded by
the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the
award of exemplary damages and petitioners evident bad faith in refusing to
satisfy private respondents plainly valid, just and demandable
claims,[49] appear to have been excessively granted by the trial court and
should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The
partnership among petitioners and private respondent is ordered dissolved,
and the parties are ordered to effect the winding up and liquidation of the
partnership pursuant to the pertinent provisions of the Civil Code. This case is
remanded to the Regional Trial Court for proper proceedings relative to said
dissolution. The appealed decisions of the Regional Trial Court and the Court
of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil
Code, in order to determine private respondents ten percent (10%) share in the net
profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent
(5%) overriding commission for the one hundred and fifty (150) cookware sets
 P a g e | 194

available for disposition since the time private respondent was wrongfully excluded
from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.

SO ORDERED.

4. Effects on Determining Liability of Partners for Damages to one Another

1. Soncuyavs De Luna, 67 Phil 646 (1939)

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-45464 April 28, 1939

JOSUE SONCUYA, plaintiff-appellant,

vs.
CARMEN DE LUNA, defendant-appellee.

Josue Soncuya in his own behalf.

Conrado V. Sanchez and Jesus de Veyra for appellee.

VILLA-REAL, J.:

On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of Manila and
amended complaint against Carmen de Luna in her own name and as co-administratrix of the
intestate estate, of Librada Avelino, in which, upon the facts therein alleged, he prayed that
defendant be sentenced to pay him the sum of P700,432 as damages and costs.

To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer based on
the following grounds: (1) That the complaint does not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous, unintelligible and vague.

Trial on the demurrer having been held and the parties heard, the court found the same well-founded
and sustained it, ordering the plaintiff to amend his complaint within a period of ten days from receipt
of notice of the order.

Plaintiff having manifested that he would prefer not to amend his amended complaint, the attorney
for the defendant, Carmen de Luna, filed a motion praying that the amended complaint be dismissed
with costs against the plaintiff. Said motion was granted by The Court of First Instance of Manila
which ordered the dismissal of the aforesaid amended complaint, with costs against the plaintiff.

From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors
committed by the lower court in its order referred to.
 P a g e | 195

The demurrer interposed by defendant to the amended complaint filed by plaintiff having been
sustained on the grounds that the facts alleged in said complaint are not sufficient to constitute a
cause of action and that the complaint is ambiguous, unintelligible and vague, the only questions
which may be raised and considered in the present appeal are those which refer to said grounds.

In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay plaintiff
damages in the sum of P700,432 as a result of the administration, said to be fraudulent, of he
partnership, "Centro Escolar de Señoritas", of which plaintiff, defendant and the deceased Librada
Avelino were members. For the purpose of adjudicating to plaintiff damages which he alleges to
have suffered as a partner by reason of the supposed fraudulent management of he partnership
referred to, it is first necessary that a liquidation of the business thereof be made to the end that the
profits and losses may be known and the causes of the latter and the responsibility of the defendant
as well as the damages which each partner may have suffered, may be determined. It is not alleged
in the complaint that such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the action for damages which he
claims from the managing partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).

Having reached the conclusion that the facts alleged in the complaint are not sufficient to constitute
a cause of action on the part of plaintiff as member of the partnership "Centro Escolar de Señoritas"
to collect damages from defendant as managing partner thereof, without a previous liquidation, we
do not deem it necessary to discuss the remaining question of whether or not the complaint is
ambiguous, unintelligible and vague.

In view of the foregoing considerations, we are of the opinion and so hold that for
a partner to be able to claim from another partner who manages the general
copartnership, damages allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is
necessary.

Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, with costs
against the appellant. So ordered.

Avanceña, C. J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur.

C. Causes of Dissolution- Art 1830

1. Causes which Legally Dissolve IPSO JURE withOUT need of Court Decree:

i. Dissolution Effected Without Violation of The Partnership

Agreement
Art 1830

ii. Dissolution Effected in Contravention of the Partnership

Agreement, Effected by the Will of Any Partner
Art 1830
TocaovsCouty of Appeals 342 Scra 20 (2000)

iii. Dissolution Caused by force majeure or outside the will of the

Partners
Fernandez vsdela Rosa, 1 Phil 671 (1902)
 P a g e | 196

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,

vs.
FRANCISCO DE LA ROSA, defendant-appellee.

Vicente Miranda, for appellant.

Simplicio del Rosario, for appellee.

LADD, J.:

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
 P a g e | 197

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.)
 P a g e | 198

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, the affectio societatiswould 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
 P a g e | 199

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.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.

Willard, J., dissenting.

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
 P a g e | 200

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.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.

Willard and McDonough, JJ., did not sit in this case.

The Lawphil Project - Arellano Law Foundation

FERNANDEZ vs. DE LA ROSA

G.R. No. 413
February 2, 1903
FACTS: Fernandez alleges that in January, 1900, he entered into a verbal
agreement with Dela Rosa to form a partnership for the purchase of cascoes
and the carrying on of the business of letting the same for hire in Manila,
and Dela Rosa is 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; Fernandez furnished Dela Rosa sums to purchase and repair
cascoes, the latter taking the titles 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
 P a g e | 201

draft of such articles which differed materially from the terms of the earlier
verbal agreement, and being unwillingly to include the 2nd casco 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.

Dela Rosa 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, but he denies
that any agreement was ever consummated. He denies that the plaintiff
furnished any money in January, 1900, for the purchase of the first casco, 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 Fernandez March 5, he claims was for the purchase of the
first casco, which he alleged was bought March 12, and he alleges that he never
received anything from the defendant toward the purchase of the 2nd casco. He
claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and
2,000 pesos for the second one.
ISSUE:
(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?

HELD:
(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.
 P a g e | 202

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.
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.

2. Dissolution by Court Decree- ART 1831

Rojas vsMaglana 192 Scra 110 (1990)

ROJAS VS. MAGLANA

FACTS: Maglana and Rojas executed their Articles of Co-partnership called “Eastcoast Development
Enterpises” which had an indefinite term of existence and was registered with the SEC and had a Timber
License. One of the EDE’s purposes was to apply or secure timber and/or private forest lands and to
operate, develop and promote such forests rights and concessions. M shall manage the business affairs
 P a g e | 203

while R shall be the logging superintendent. All profits and losses shall be divided share and share alike
between them.

Later on, the two availed the services of Pahamotang as industrial partner and executed another articles of
co-partnership with the latter. The purpose of this second partnership was to hold and secure renewal of
timber license and the term of which was fixed to 30 years.

Still later on, the three executed a conditional sale of interest in the partnership wherein M and R shall
purchase the interest, share and participation in the partnership of P. It was also agreed that after payment
of such including amount of loan secured by P in favor of the partnership, the two shall become owners of
all equipment contributed by P. After this, the two continued the partnership without any written
agreement or reconstitution of their articles of partnership.

Subsequently, R entered into a management contract with CMS Estate Inc. M wrote him re: his
contribution to the capital investments as well as his duties as logging superintendent. R replied that he
will not be able to comply with both. M then told R 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. R took funds from the
partnership more than his contribution. M notified R that he dissolved the partnership. R filed an action
against M for the recovery of properties and accounting of the partnership and damages.

CFI: the partnership of M and R is after P retired is one of de facto and at will; the sharing of profits and
losses is on the basis of actual contributions; there is no evidence these properties were acquired by the
partnership funds thus it should not belong to it; neither is entitled to damages; the letter of M in effect
dissolved the partnership; sale of forest concession is valid and binding and should be considered as M’s
contribution; R must pay or turn over to the partnership the profits he received from CMS and pay his
personal account to the partnership; M must be paid 85k which he should’ve received but was not paid to
him and must be considered as his contribution.

ISSUE: what is the nature of the partnership and legal relationship of M-R after P retired from the second
partnership? May M unilaterally dissolve the partnership?

SC: There was no intention to dissolve the first partnership upon the constitution of the second as
everything else was the same except for the fact that they took in an industrial partner: they pursued the
same purposes, the capital contributions call for the same amounts, all subsequent renewals of Timber
License were secured in favor of the first partnership, all businesses were carried out under the registered
articles.

M and R agreed to purchase the interest, share and participation of P and after, they became owners of the
equipment contributed by P. Both considered themselves as partners as per their letters. It is not a
partnership de facto or at will as it was existing and duly registered. The letter of M dissolving the
partnership is in effect a notice of withdrawal and may be done by expressly withdrawing even before
expiration of the period with or without justifiable cause. As to the liquidation of the partnership it shall
be divided “share and share alike” after an accounting has been made.

R is not entitled to any profits as he failed to give the amount he had undertaken to contribute thus, had
become a debtor of the partnership.

M cannot be liable for damages as R abandoned the partnership thru his acts and also took funds in an
amount more than his contribution.

D. Effects of Dissolution Among the Partners Inter se

1. When Dissolution is Caused in Any way, except in Contravention of the

Partnership Agreement- ART 1837
 P a g e | 204

2. When Dissolution is Caused by the Bona Fide Expulsion of A Partner- Art

1837
3. When Dissolution is Caused in Contravention of the Partnership Agreement
– Art 1837
4. When Dissolution is Caused by the Rescission of the Partnership Agreement
because of fraud or misrepresentation (i.e. by judicial decree) – Art 1838

E. Effects of Dissolution on Partnership Liabilities Existing or Accrued at

that Time

1. General Rule on Existing Partnership Liabilities- Art 1835

2. Discharge of a Partner from Existing Partnership Liabilities- Art 1835
3. Effect of Dissolution on Partnership Liabilities Contracted After Dissolution

i. Liabilities incurred pursuant to winding-up proceedings

Art 1832
Art 1834
ii. Liabilities incurred Constituting “New Business” during winding-up
process
Art 1832
a. When Dissolution is by the act, insolvency, or death of a
partner
Art 1833
b. When Dissolution is NOT by the act, insolvency, or death of a
partner
Art 1832, 1833
c. As to Third Party Creditors
Art 1834

C1. Particular Rule of Limited Liability- Art 1834

C2. When Creditors not deemed to be in good faith- art 1834
C3. Partnership by Estoppel- Art 1825

F. WINDING-UP of PARTNERSHIP AFFAIRS

1. Who has the Authority to Wind-up? Art 1836
2. Rules and Procedures for Winding-up and Liquidation of Partnership affairs
ART 1839

i. What constitutes partnership property?

ii. What are the Priority Rules Against Partnership Property?
a. Enforcing contributions from Partners to Cover Partnership debts
b. Priority rules between partners’ creditors and partnership
creditors
ART 1829 (8)
c. Priority Rules When Partner is Insolvent
iii. Partner may demand Share in Net assets only after liquidation and
settlement of claims of partnership creditors
 P a g e | 205

1. Villarealvs Ramirez, 406 Scra 145 (2003)

THIRD DIVISION

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

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO

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

DECISION
PANGANIBAN, J.:

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

latters dissolution, liquidation and winding up of the business.

The Case

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

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

[3]

follows:

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

Reconsideration was denied in the impugned Resolution.

The Facts

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

Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by his
parents, Respondents Cesar and Carmelita Ramirez. [6]
 P a g e | 206

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

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

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

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

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

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

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

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

of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a
desire to withdraw from the partnership and had called for its dissolution under
Articles 1830 and 1831 of the Civil Code; that respondents had been paid,
upon the turnover to them of furniture and equipment worth over P400,000;
and that the latter had no right to demand a return of their equity because their
share, together with the rest of the capital of the partnership, had been spent
as a result of irreversible business losses. [12]

In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were
true, then the loans incurred by petitioners should be regarded as purely
personal and, as such, not chargeable to the partnership. The former further
averred that they had not received any regular report or accounting from the
latter, who had solely managed the business. Respondents also alleged that
they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the
restaurant.[13]

Respondents filed an Urgent Motion for Leave to Sell or Otherwise

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

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

proceeds were paid to them. [16]

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

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

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

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

[petitioners] ordering the [petitioners] to pay jointly and severally the following:
 P a g e | 207

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

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

(c) Costs of suit.

The CA Ruling

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

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

Hence, this Petition. [20]

Issues

In their Memorandum, petitioners submit the following issues for our

[21]

consideration:

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

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

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

On closer scrutiny, the issues are as follows: (1) whether petitioners are
liable to respondents for the latters share in the partnership; (2) whether the
CAs computation of P253,114 as respondents share is correct; and (3)
whether the CA was likewise correct in not assessing costs.
 P a g e | 208

This Courts Ruling

The Petition has merit.

First Issue:
Share in Partnership

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

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

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

Second Issue:
What Must Be Returned?

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

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

partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until all
the partnership assets will have been liquidated -- in other words, sold and
converted to cash -- and all partnership creditors, if any, paid. The CAs
computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension that
the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
 P a g e | 209

Generally, in the pursuit of a partnership business, its capital is either

increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial court showed
that the business had made meager profits. However, notable therefrom is
[26]

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

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

[28]

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

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

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

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

Petitioners further argue that respondents acted negligently by permitting

the partnership assets in their custody to deteriorate to the point of being
almost worthless. Supposedly, the latter should have liquidated these sole
tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latters share in the partnership.
 P a g e | 210

We disagree. The delivery of the store furniture and equipment to private

respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital
investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

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

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

Although, as a rule, costs are adjudged against the losing party, courts
have discretion, for special reasons, to decree otherwise. When a lower court
is reversed, the higher court normally does not award costs, because the
losing party relied on the lower courts judgment which is presumed to have
been issued in good faith, even if found later on to be erroneous. Unless
shown to be patently capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper
proceedings for the accounting, the liquidation and the distribution of the
remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.

2. Martinez vsOng Pong Co, 14 Phil 726 (1910)

14 Phil. 726

ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to
the defendants who, in a private document, acknowledged that they had
received the same with the agreement, as stated by them, "that we are to
invest the amount in a store, the profits or losses of which we are to divide
with the former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order to compel the
defendants to render him an accounting of the partnership as agreed to, or
else to refund him the Pl,500 that he had given them for the said
 P a g e | 211

purpose. Ong Pong Co alone appeared to answer the complaint;

he admitted the fact of the agreement and the delivery to him and to Ong
Lay of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay,
who was then deceased, was the one who had managed the business,
and that nothing had resulted therefrom save the loss of the capital of
P1,500, to which loss the plaintiff had agreed.

The judge of the Court of First Instance of the city of Manila who tried the
case ordered Ong Pong Co to return to the plaintiff one-half of the said
capital of Pl,500 which, together with Ong Lay, he had received from the
plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the
rate of 12 per cent per annum for the six months that the store
was supposed to have been open, both sums in Philippine currency,
making a total of P840, with legal interest thereon at the rate of 6 per cent
per annum, from the 12th of June, 1901, when the business terminated and
on which date he ought to have returned the said amount to the plaintiff,
until the full payment thereof with costs.

From this judgment Ong Pong Co appealed to this court, and assigned the
following errors:

1. For not having taken into consideration the fact that the reason for
the closing of the store was the ejectment from the premises occupied
by it.

2. For not having considered the fact that there were losses.

3. For holding that there should have been profits.

4. For having applied article 1138 of the Civil Code.

5. and 6. For holding that the capital ought to have yielded profits, and
that the latter should be calculated at 12 per cent per annum; and

7. The findings of the judgment.

As to the first assignment of error, the fact that the store

was closed by virtue of ejectment proceedings is of no importance for
the effects of the suit. The whole action is based upon the fact that the
defendants received certain capital from the plaintiff for the purpose of
organizing a company; they, according to the agreement, were to handle
the said money and invest it in a store which was the object of the
association; they, in the absence of a special agreement vesting in one sole
person the management of the business, were the actual
administrators thereof; as such administrators they were the agents of the
company and incurred the liabilities peculiar to every agent, among which
is that of rendering account to the principal of their transactions,
and paying him everything they may have received by virtue
of the mandatum. (Arts, 1695 and 1720, Civil Code.) Neither of
 P a g e | 212

them has rendered such account nor proven the losses referred to by Ong
Pong Co; they are therefore obliged to refund the money that they received
for the purpose of establishing the said store - the object of the
association. This was the principal pronouncement of the judgment.

With regard to the second and third assignments of error, this court, like
the court below, finds no evidence that the entire capital or any part
thereof was lost. It is no evidence of such loss to aver, without proof, that
the effects of the store were ejected. Even though this were proven, it
could not be inferred therefrom that the ejectment was due to the fact that
no rents were paid, and that the rent was not paid on account of the loss
of the capital belonging to the enterprise.

With regard to the possible profits, the findings of the court below are
based on the statements of the defendant Ong Pong Co, to the effect that
"there were some profits, but not large ones." This court, however,
does not find that the amount thereof has been proven, nor deem it
possible to estimate them to be a certain sum, and for a given period
of time; hence, it can not admit the estimate, made in the judgment, of 12
per cent per annum for the period of six months.

Inasmuch as in this case nothing appears other than the failure to fulfill an
obligation on the part of a partner who acted as agent in receiving
money for a given purpose, for which he has rendered no accounting, such
agent is responsible only for the losses which, by a violation
of the provisions of the law, he incurred. This being an obligation to
pay in cash, there are no other losses than the legal interest, which interest
is not due except from the time of the judicial demand, or, in
the present case, from the filing of the complaint. (Arts. 1108 and 1100,
Civil Code.) We do not consider that article 1688 is applicable in this case,
in so far as it provides "that the partnership is liable to every partner for the
amounts he may have disbursed on account of the same and for the
proper interest," for the reason that no other money than that contributed
as capital is involved.

As in the partnership there were two administrators or. agents liable for
the above-named amount, article 1138 of the Civil Code has been properly
applied, and article 1698 might also have been invoked; this latter deals
with debts of a partnership where the obligation is not a joint one, as is
likewise provided by article 1723 of said code with respect to the liability
of two or more agents with respect to the return of the money that they
receive from their principal. Therefore, the other errors assigned have not
been committed.

In view of the foregoing, the judgment appealed from is hereby affirmed,

provided, however, that the defendant Ong Pong Co shall only pay the
plaintiff the sum of P750 with the legal interest thereon at the rate of 6 per
cent per annum from the time of the filing of the complaint, and the costs,
without special ruling as to the costs of this instance. So ordered.
 P a g e | 213

Torres, Johnson, Carson, and Moreland, JJ., concur.

3. UyvsPuzon, 79 Scra 598 (1977)

Facts:
 Bartolome Puzon had two contracts with the government for the construction of
roads and bridges. (Bureau of Public Highways)
 He sought the financial assistance of William Uy, so he proposed that they create a
partnership which would be the sub-contractor of the projects.
 They also agreed that the profits will be divided among themselves.
 William Uy agreed to the formation of the partnership "U.P. Construction
Company". They agreed to contribute P50,000 each. (Note: P40,000 was
advanced by William Uy while Puzon was waiting for the approval of his P150,000
PNB Loan. Upon release of the loan, he promised to reimburse William Uy of the
P40,000; pay his share of P50,000 and loan P60,000 to the partnership).
 Loan was approved by November 1956. Note: At the end of 1957, Uy contributed a
total of P115,
 The partnership agreement was signed in 1957 (January 18) although the work for
the projects began as early as 1956 (October 1).
 Since Puzon was busy with other projects, Uy was the one who managed the
partnership.
 In order to guarantee the PNB Loan, Puzon, without the knowledge of Uy,
assigned the payments to the payments to be received from the projects to PNB.
 Due to the financial demands of the projects, Uy demanded that Puzon comply
with his obligation to place his capital contribution in the company.
 However, Puzon failed to comply even after formal demand letters were sent to
him.
 Thereafter, Puzon (as the primary contractor of the projects) wrote terminated the
subcontract agreement with the partnership to which he is also a partner.
(November 27, 1957)
 Thereafter, Uy was not allowed to hold office in the UP Construction Company and
his authority to negotiate with the Bureau was revoked by Puzon.
 Uy clamied that Puzon had violated the terms of their partnership agreement. He
sought for the dissolution of the partnership with damages.
 The lower court ruled in favor of Uy.

Issue: WON Puzon failed to comply with his obligation of paying the capital contribution
to the company. YES

Ruling: YES

According to the court, there was failure on the part of Puzon to contribute capital to the
partnership. When his load with PNB was approved, he only gave P60,000 to Uy;
P40,000 was for reimbursement to the payments made by Uy and the other P20,000
was for the capital contribution. Thereafter, Puzon never made additional contribution.

Also, it was found by the SC that Puzon misapplied partnership funds by assigning all
payments for the projects to PNB.

Such assignment was prejudicial to the partnership since the partnership only received
a small share from the total payments made by the Bureau of Public Highways. As a
result, the partnership was unable to discharge its obligations.
 P a g e | 214

Here, the Court ordered Puzon to reimburse whatever amount Uy had invested in or
spent for the partnership on account of construction projects. The amount P200,000 as
compensatory damages was also awarded in favor of Uy.

RULING:

Had the appellant not been remiss in his obligations as partner and as prime contractor
of the construction projects in question as he was bound to perform pursuant to the
partnership and subcontract agreements, and considering the fact that the total contract
amount of these two projects is P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the P334,255.61 We have hereinabove
indicated. The award, therefore, made by the trial court of the amount of P200,000.00,
as compensatory damages, is not speculative, but based on reasonable estimate.

WHEREFORE, finding no error in the decision appealed from, the said decision is
hereby affirmed with costs against the appellant, it being understood that the liability
mentioned herein shall be home by the estate of the deceased Bartolome Puzon,
represented in this instance by the administrator thereof, Franco Puzon.

G. CONTINUANCE OF PARTNERSHIP BUSINESS INSTEAD OF

WINDING-UP

1. Who may continue Partnership business and obligations assumed?

ART 1837
2. Disposition of Liabilities when partnership business continued
Art 1840
SingsonvsIsabela Sawmill, 88 SCRA 623 (1979)

Singsong v. Isabela Sawmill

Singsong v. Isabela Sawmill G.R. No. L-27343, February 28, 1979, Fernandez, J.

Facts: In 1951, defendants entered into a contract of partnership under the firm name “Isabela Sawmill”.
In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able to
pay their whole balance even after demand was made. One of the partners withdrew from the partnership
but instead of terminating the said partnership it was continued by the two remaining partners under the
same firm name. Plaintiffs also seek the annulment of the assignment of right with chattel mortgage
entered into by the withdrawing partner and the remaining partners. The appellants contend that the
chattel mortgage may no longer be nullified because it had been judicially approved and said chattel
mortgage had been judicially foreclosed.

Issue: Whether the withdrawal of one of the partners dissolved the partnership.

Ruling:

It does not appear that the withdrawal of the partner was not published in the newspapers. The appellees
and the public in general had a right to expect that whatever, credit they extended to the remaining
partners could be enforced against the properties of the partnership. The withdrawing partner cannot be
relieved from her liability to the creditor of the partnership due to her own fault by not insisting on the
 P a g e | 215

liquidation of the partnership. Though she had acted in good faith, the appellees also acted in good faith
in extending credit to the partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the consequences. Technically, the partnership
was dissolved by the withdrawal of one of the partners. Through her acts of entering into a memorandum
with the remaining partners misled the creditors that they were doing business with the partnership.
Hence, from the order of the lower court ordering the withdrawing partner to pay the plaintiffs, she is thus
entitled for reimbursement from the remaining partners.

3. Disposition of Liabilities when Dissolution is caused by Retirement or Death

of a partner- ART 1841, 1840, 1837 (2)

H. PARTNER’S RIGHT TO DEMAND AN ACCOUNTING

Art 1842
Feu Leung vs IAC, 169 SCRA 746 (1989)

1.) DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

G.R. No. 70926 January 31, 1989

GUTIERREZ, JR., J.:

FACTS:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which
affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring private
respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch
II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in
October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of
petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00
to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt wherein the petitioner acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto. Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check from the profits of the operation of the restaurant
for the year 1974

The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned
the genuineness of the receipt. His evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his
salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little
more than P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented various government licenses and
permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by himself alone.
Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).

ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah Panciteria?

HELD:
 P a g e | 216

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are — 1)
two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the
part of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110)-have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of the
firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeing
the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights
are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him the
agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his
interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal representative as against
the winding up partners or the surviving partners or the person or partnership continuing the business, at
the date of dissolution, in the absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final accounting is done.

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code
which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution because
the continuation of the partnership has become inequitable.

VIII. LIMITED PARTNERSHIPS

A. NATURE, FORM, REGISTRATION

1. Essence of the Medium of Limited Partnership

ART 1843
2. Requirements for the Formation of a Limited Partnership
Art 1844

i. Sign and swear to a certificate of LTd Partnership

ii. File Certificate with SEC
ART 1846
Jo Chung Cangvs Pacific Commercial, 45 Phil 142 (1923),

2 Jo Chung Cang v. Pacific Commercial Co.

FACTS
 P a g e | 217

 In an insolvency proceedings of petitioner-establishment, “Sociedad Mercantil, Teck Seing & Co.,

Ltd.”, creditors, Pacific Commercial and others filed a motion with the Court to declare the individual
partners parties to the proceeding, for each to file an inventory, and for each to be adjudicated as
insolvent debtors.
 RTC granted the motion but subsequently denied it.
 Hence this appeal.

ISSUE
Whether the nature of the mercantile establishment, Teck Seing & Co., Ltd. is a limited partnership.

HELD
NO.

The contract of partnership established a general partnership.

By process of elimination, Teck Seing & Co., Ltd. Is not a corporation nor an accidental partnership (joint
account association).

To establish a limited partnership, there must be, at least, one general partner and the name of at least one
of the general partners must appear in the firm name. This requirement has not been fulfilled. Those who
seek to avail themselves of the protection of laws permitting the creation of limited partnerships must the
show a substantially full compliance with such laws. It must be noted that all the requirements of the
Code have been met w/ the sole exception of that relating to the composition of the firm name.

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 w/c in law constitutes a partnership, they are partners although
their very purpose was to avoid the creation of such relation. Here the intention of the persons making up,
Teck Seing & Co., Ltd. Was to establish partnership w/c they erroneously denominated as a limited
partnership.

Order appealed from is reversed.

a. False Statement in the SEC Certificate- Art 1847

iii. Name of Limited Partnership
Art 1844, 1846
iv. Contributions to the Limited Partnership- Art 1846, 1844(1)

3. When Certificate Cancelled or Amended

i. When Certificate Cancelled- Art 1864, 1865
ii. When Certificate Amended- Art 1864
iii. Procedure to Amend Certificate- Art 1865

B. THE GENERAL AND LIMITED PARTNERS

1. GENERAL PARTNER
i. Who is a general partner in a limited partnership? Art 1844
ii. Rights and Powers of General Partners in a Limited Partnership- Art
1850
iii. Duties and Obligations of General Partner- Art 1850, 1789

2. LIMITED PARTNER
 P a g e | 218

i. Who is a limited partner? Art 1844, 1845, 1846

ii. Erroneous but in good faith limited partner- Art 1852

iii. When Limited and General Partner at the Same Time – Art 1853

iv. Rights and Powers of Limited Partner

a. Right to Limited Liability- Art 1843 and 1848
b. Right to the Return of his Contribution- Art 1851
c. Right to receive his share in the profits and compensation by way
of income – Art 1851
d. Right to assign his equity interest- Art 1859
*heirs of deceased general partner succeed generally as limited
partners
e. Right to have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to inspect and
copy any of them- Art 1851(1)
f. Right to have on Demand true and full information of things
affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable- Art
1851 (2), 1854
g. Right to have the dissolution and winding-up by decree of court –
Art 1851(3), 1857

v. Obligations of Limited Partners

a. ON original contributions to the partnership- Art 1845, 1858
b. On Additional contributions- Art 1844 (1)(g)
c. On returned contributions- Art 1858
d. Liable as trustee of Partnership- Art 1858

vi. Fiduciary Duties of Limited Partners

Art 1866

C. DISSOLUTION and Winding-up of Limited Partnership

1. Causes of Dissolution
Art 1860, 1861, 1862
2. Settling of Accounts
Art 1863

- END OF PARTNERSHIP LECTURE. PART II- AGENCY -