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

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 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

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the defendants sentenced in our decision
to pay to the plaintiff the amount claimed in his complaint. It is asked that we reconsider our decision, the
said defendant insisting that the appellant had not established that Carlos Ceron, another of the
defendants, had the consent of his copartner, the movant, to enter with the appellant into the contract
whose breach gave rise to the complaint. It is argued that, it being stipulated in the articles of partnership
that Hill and Ceron, only partners of the firm Hill & Ceron, would, as managers, have the management of
the business of the partnership, and that either may contract and sign for the partnership with the consent
of the other; the parties of partnership having been, so it is said, recorded in the commercial registry, the
appellant could not ignore the fact that the consent of the movant was necessary for the validity of the
contract which he had with the other partner and defendant, Ceron, and there being no evidence that said
consent had been obtained, the complaint to compel compliance with the said contract had to be, as it
must be in fact, a procedural failure.

Although this question has already been considered and settled in our decision, we nevertheless take
cognizance of the motion in order to enlarge upon our views on the matter.

The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; 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.

Wherefore, unless the contrary is shown, namely, that one of the partners did not consent to his copartner
entering into a contract with a third person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects should be taken into account.

There is nothing in the case at bar which destroys this presumption; the only thing appearing in he
findings of fact of the Court of Appeals is that the plaintiff "has failed to prove that Hill had consented to
such contract". According to this, it seems that the Court of Appeals is of the opinion that the two partners
should give their consent to the contract and that the plaintiff should prove it. The clause of the articles of
partnership should not be thus understood, for it means that one of the two partners should have the
consent of the other to contract for the partnership, which is different; because it is possible that one of
the partners may not see any prospect in a transaction, but he may nevertheless consent to the
realization thereof by his copartner in reliance upon his skill and ability or otherwise. And here we have to
hold once again that it is not the plaintiff who, under the articles of partnership, should obtain and prove
the consent of Hill, but the latter's partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third person, the plaintiff, who asks for it.
While the said presumption stands, the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the appellant at the time of
the execution of the contract, or if it could be inferred by his conduct, that he had the consent of Hill, and
should it turn out later that he did not have such consent, this alone would not annul the contract judging
from the provisions of article 130 of the Code of Commerce reading as follows:

No new obligation shall be contracted against the will of one of the managing partners, should he
have expressly stated it; but if, however, it should be contracted it shall not be annulled for this
reason, and shall have its effects without prejudice to the liability of the partner or partners who
contracted it to reimburse the firm for any loss occasioned by reason thereof. (Emphasis
supplied.)

Under the aforequoted provisions, when, not only without the consent but against the will of any of the
managing partners, a contract is entered into with a third person who acts in good faith, and the
transaction is of the kind of business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to protect a third person who
contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to which he
may easily fall a victim without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is the obligation of the third
person to inquire whether the managing copartner of the one with whom he contracts has given his
consent to said contract, which is practically casting upon him the obligation to get such consent, this
interpretation would, in similar cases, operate to hinder effectively the transactions, a thing not desirable
and contrary to the nature of business which requires promptness and dispatch one the basis of good
faith and honesty which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the decision, the motion is denied.
So ordered.

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

G.R. No. 5840 September 17, 1910

THE UNITED STATES, plaintiff-appellee,

vs.
EUSEBIO CLARIN, defendant-appellant.

Francisco Dominguez, for appellant.

Attorney-General Villamor, for appellee.

ARELLANO, C.J.:

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and
Carlos de Guzman, might buy and sell mangoes, and, believing that he could make some money in this
business, the said Larin made an agreement with the three men by which the profits were to be divided
equally between him and them.

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203
from the business, but did not comply with the terms of the contract by delivering to Larin his half of the
profits; neither did they render him any account of the capital.

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

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

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

When two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he
invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three specifically, it would be Tarug, who,
according to the evidence, was the person who received the money directly from Larin.

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

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

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

Torres, Johnson, Moreland and Trent, JJ., concur.

.R. No. 94285 August 31, 1999

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

-----------------------------

G.R. No. 100313 August 31, 1999

SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY SUPPLY CO., AND
NEGROS ISUZU SALES, petitioners,
vs.
HONORABLE COURT OF APPEALS (11th Division),
INTESTATE ESTATE OF THE LATE SY YONG HU, JOSE FALSIS, JR., AND HON. BETHEL
KATALBAS-MOSCARDON, RTC OF NEGROS OCCIDENTAL, Branch 51, respondents.

PURISIMA, J.:

At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised Rules of Court,
docketed as G.R. Nos. 94285 and G.R. No. 100313, respectively, seeking to reinstate the Resolution of
the Court of Appeals in CA-G.R. SP No. 17070 and its Decision in CA-G.R. SP No. 24189.
In G.R. No. 94285, the petitioners assail the Resolution 1 dated June 27, 1990 of the Court of Appeals
granting the Motion for Reconsideration interposed by the petitioners (now the private respondents) of its
Decision2, promulgated on January 15, 1990, which affirmed the Order 3 issued on January 16, 1989 by
the Securities and Exchange Commission (SEC) en banc and the Order4 of SEC Hearing Officer Felipe
Tongco, dated October 5, 1988.

The facts that matter are as follows:

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie
Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy as managing
partner. The partners and their respective shares are reflected in the Amended Articles of Partnership5 as
follows:

AMOUNT
NAMES
CONTRIBUTED
SY YONG HU P 31,000.00
JOSE S. SY 205,000.00
JAYME S. SY 112,000.00
MARCIANO S. SY 143,000.00
WILLIE S. SY 85,000.00
VICENTE SY 85,000.00
JESUS SY 88,000.00

Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12, 1978,
December 30, 1979 and August 7, 1987, respectively.6 At present, the partnership has valuable assets
such as tracts of lands planted to sugar cane and commercial lots in the business district of Bacolod City.

Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an
action,7 docketed as Civil Case No. 13388 before the then Court of First Instance of Negros Occidental,
against the partnership as well as against the individual partners for accounting of all the properties
allegedly owned in common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or
reconveyance of her one-half (1/2) share in said properties and in the fruits thereof. Keng Sian averred
that she was the common law wife of partner Sy Yong Hu, that Sy Yong Hu, together with his
children,8 who were partners in the partnership, connived to deprive her of her share in the properties
acquired during her cohabitation with Sy Yong Hu, by diverting such properties to the partnership. 9

In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself, countered that
Keng Sian is only a house helper of Sy Yong Hu and his wife, subject properties "are exclusively owned
by defendant partnership, and plaintiff has absolutely no right to or interest therein." 10

On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition for
declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case No. 1648,
praying that he be appointed managing partner of the partnership, to replace Jose Sy who died on August
12, 1978. Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to represent the majority
interest in the partnership, sought the dissolution of the partnership and the appointment of Vicente Sy as
managing partner. In due time, Hearing Officer Emmanuel Sison came out with a decision 11 (Sison
Decision) dismissing the petition, dissolving the partnership and naming Jesus Sy, in lieu of Vicente Sy
who had died earlier, as the managing partner in charge of winding the affairs of the partnership.
The Sison decision was affirmed in toto by the SEC en banc in a decision12 (Abello decision) dated June
8, 1982, disposing thus:

WHEREFORE, the Commission en banc affirms the dispositive portion of the decision of the
Hearing Officer, but clarifies that: (1) the partnership was dissolved by express will of the majority
and not ipso facto because of the death of any partner in view of the stipulation of Articles of
Partnership and the provisions of the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2)
The Managing Partner designated by the majority, namely Jesus Sy, vice Vicente Sy (deceased)
shall only act as a manager in liquidation and he shall submit to the Hearing Officer an accounting
and a project of partition, within 90 days from receipt of this decision. (3) The petitioner is also
required within the same period to submit his counter-project of partition, from date of receipt of
the Managing Partner's project of partition. (4) The case is remanded to the Hearing Officer for
evaluation and approval of the accounting and project of partition.

On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a partial partition
of certain partnership assets in an order13 dated December 2, 1986. Therefrom, respondents seasonably
appealed.

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng Seng, Tita
Sy, Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No. 2338, to revoke the certificate
of registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong
Hu. After hearings, the petition was dismissed by Hearing Officer Bernardo T. Espejo in an Order, dated
January 11, 1984, which Order became final since no appeal was taken therefrom.14

After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in SEC Case
No. 1648 but their motion to so intervene was denied in an Order dated May 9, 1985. There was no
appeal from said order.15

In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Felix Ferrer
as a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on
August 30, 1985, Alex Ferrer moved to intervene in the proceedings in SEC Case No. 1648, for the
partition and distribution of the partnership assets, on behalf of the respondent Intestate Estate.16

It appears that sometime in December, 1985, Special Administrator Ferrer filed an Amended Complaint
on behalf of respondent Intestate Estate in Civil Case No. 13388, wherein he joined Keng Sian as plaintiff
and thereby withdrew as defendant in the case. Special Administrator Ferrer adopted the theory of Keng
Sian that the assets of the partnership belong to Keng Sian and Sy Yong Hu (now represented by the
Estate of Sy Yong Hu) in co-ownership, which assets were wrongfully diverted in favor of the
defendants.17

The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer on behalf of the
respondent Estate, was denied in the order issued on May 9, 1986 by Hearing Officer Sison. With the
denial of the motion for reconsideration, private respondent Intestate Estate of Sy Yong Hu appealed to
the Commission en banc.

In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and the Order
dated December 2, 1986, the SEC en banc18 ruled:

WHEREFORE, in the interest of Justice and equity, substantive rights of due process being
paramount over the rules of procedure, and in order to avoid multiplicity of suits; the order of the
hearing officer below dated May 9, 1986 denying the motion to intervene in SEC Case No. 1648
of appellant herein as well as the order dated December 2, 198619 denying the motion for
reconsideration are hereby reversed and the motion to intervene given due course. The instant
case is hereby remanded to the hearing officer below for further proceeding on the aspect of
 partition and/or distribution of partnership assets. The urgent motion for the issuance of a
restraining order is likewise hereby remanded to the hearing officer below for appropriate action. 20

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

During the continuation of the proceedings in SEC Case No. 1648, now presided over by Hearing Officer
Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of placing the Partnership
under receivership was taken up. The parties brought to the attention of the Hearing Officer the fact of
existence of Civil Case No. 903 (formerly Civil Case No. 13388) pending before the Regional Trial Court
of Negros Occidental. They also agreed that during the pendency of the aforesaid court case, there will
be no disposition of the partnership assets.21 On October 5, 1988, Hearing Officer Tongco came out with
an Order22 (Tongco Order) incorporating the above submissions of the parties and placing 23 the
partnership under a receivership committee, explaining that "it is the most equitable fair and just manner
to preserve the assets of the partnership during the pendency of the civil case in the Regional Trial Court
of Bacolod City."

On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein petitioners Jayme
Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda.
de Sy), and Willie Sy, against the Intervenor (now private respondent). In an order (Lopez Order) dated
January 16, 1989, the SEC en banc24 affirmed the Tongco Order.

With the denial of their Motion for Reconsideration,25 petitioners filed a special civil action
for certiorari with the Court of Appeals.

On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and Lopez
Orders, and remanded the case for further execution of the 1982 Abello and 1988 Sulit Decisions,
ordering the partition and distribution of the partnership properties.26

Private respondent seasonably interposed a motion for reconsideration of such decision of the Court of
Appeals.

Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution, reversing its
Decision of January 15, 1990, and remanding the case to the SEC for the formation of a receivership
committee, as envisioned in the Tongco Order.1âwphi1.nêt

G.R. No. 100313 came about in view of the dismissal by the Court of Appeals 27 of the Petition
for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G.R. SP No. 24189, seeking to
annul and set aside the orders, dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No.
5326 before the Regional Trial Court of Bacolod City.

The antecedent facts are as follows:

Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus Sy,
applied for a building permit to reconstruct its building called Sy Yong Hu & Sons Building, located in the
central business district of Bacolod City, which had been destroyed by fire in the late 70's. On July 5,
1988, respondent City Engineer issued Building Permit No. 4936 for the reconstruction of the first two
floors of the building. Soon thereafter, reconstruction work began. In January, 1989, upon completion of
its reconstruction, the building was occupied by the herein petitioners, Bacolod and Upholstery Supply
Company and Negros Isuzu Sales, which businesses are owned by successors-in-interest of the
deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an occupant of the
reconstructed building, is the brother-in-law of deceased partner Marciano Sy.28
From the records on hand, it can be gleaned that the Tongco Order 29, dated October 5, 1988, in SEC
Case No. 1648, had, among others, denied a similar petition of the intervenors therein (now private
respondents) for a restraining order and/or injunction to enjoin the reconstruction of the same building.
However, on October 10, 1988, respondent Intestate Estate sent a letter to the City Engineer claiming
that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons with respect to the reconstruction
or renovation of the property of the partnership. This was followed by a letter dated November 11, 1988,
requesting the revocation of Building Permit No. 4936.

Respondent City Engineer inquired30 later from Jesus Sy for an "authority to sign for and on behalf of Sy
Yong Hu & Sons" to justify the latter's signature in the application for the building permit, informing him
that absent any proof of his authority, he would not be issued an occupancy permit. 31 On December 27,
1988, respondent Intestate Estate reiterated its objection to the authority of Jesus Sy to apply for a
building permit and pointing out that in view of the creation of a receivership committee, Jesus Sy no
longer had any authority to act for the partnership.32

In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to the SEC en
banc, making him still the authorized manager of the partnership. He then requested that an occupancy
permit be issued as Sy Yong Hu & Sons had complied with the requirements of the City Engineer's Office
and the National Building Code.33

Unable to convince the respondent City Engineer to revoke subject building permit, respondent Intestate
Estate brought a "Petition for Mandamus with prayer for a Writ of Preliminary Injunction," docketed as
Civil Case No. 5326 before the Regional Trial Court of Bacolod City and entitled "Intestate Estate of the
Late Sy Yong Hu vs. Engineer Jose P. Falsis, Jr."34 The Complaint concluded with the following prayer:

WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable Court that:

1. A writ of Preliminary Injunction be issued to the respondent, after preliminary hearing is had,
compelling his office to padlock the premises occupied, without the requisite Certificate of
Occupancy; to stop all construction activities, and barricade the same premises so that the
unwary public will not be subject to undue hazards due to lack of requisite safety precaution;

2. The Respondent be ordered to enforce without exemption every requisite provision of the
Building Code as so mandated by it."35

Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not impleaded as
party to the petition dated February 22, 1989. Neither were the lessees-occupants thereon so impleaded.
Thus, they were not notified of the hearing scheduled for April 5, 1989, on which date the Petition was
heard. Subsequently, however, the Regional Trial Court issued an order dated April 19, 1989 for the
issuance of a Writ of Preliminary Mandatory Injunction ordering the City Engineer to padlock the
building.36

On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated May 4, 1989,
0petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in Intervention; and (3) Motion to
set aside order of mandatory injunction. In its order dated June 22, 1989, the Motion for Intervention was
granted by the lower court through Acting Presiding Judge Porfirio A. Parian.

On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose Falsis, Jr. in
contempt of court for failure to implement the injunctive relief.

On August 15, 1989, petitioners submitted an "Amended Answer in Intervention". Reacting thereto,
respondent Intestate Estate filed a "Motion to Strike or Expunge from the Record" the Amended Answer
in Intervention.37
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer to
reiterate its request for the immediate issuance of a certificate of occupancy, alleging that the Court of
Appeals in its Decision of January 15, 1990 in CA-G.R. No. 17070 had reversed the SEC decision which
approved the appointment of a receivership committee. However, the City Engineer refused to issue the
Occupancy Permit without the conformity of the respondent Intestate Estate and one John Keng Seng
who claims to be an Illegitimate son of the Late Sy Yong Hu.38

In an order issued on January 24, 1991 upon an "Ex Parte Motion to Have All Pending Incidents
Resolved" filed by respondent Intestate Estate, Judge Bethel Katalbas-Moscardon issued an order
modifying the Writ of Preliminary Mandatory Injunction, and directing the respondent City Engineer to:

. . . immediately order stoppage of any work affecting the construction of the said building under
Lot 259-A-2 located at Gonzaga Street adjacent to the present Banco de Oro Building,
BACOLOD City, to cancel or cause to be cancelled the Building Permit it had issued; to order the
discontinuance of the occupancy or use of said building or structure or portion thereof found to be
occupied or used, the same being contrary and violative of the provisions of the Code; and to
desist from issuing any certificate of Occupancy until the merits of this case can finally be
resolved by this Court. . . .

Again, it is emphasized that the issue involved is solely question of law and the Court cannot see
any logical reason that the intervenors should be allowed to intervene as earlier granted in the
Order of the then Presiding Judge Porfirio A. Parian, of June 22, 1989. Much less the said
intervenors to move for presentation of additional parties, only on the argument of Intervenors
that any restraining order to be issued by this Court upon the respondent would prejudice their
present occupancy which is self serving, whimsical and in fact immoral. It is axiomatic that the
means would not justify the end nor the end justify the means. Assuming damage to the present
occupants will occur and assuming further that they are entitled, the same should be ventilated in
a different action against the lessor or landlord, and the present petition cannot be the proper
forum, otherwise, while it maybe argued that there is a multiplicity of suit which actually is
groundless, on the other hand, there will be only confusion of the issues to be resolved by the
Court. Well valid enough is to reiterate that the present petition is not the proper forum for the
intervenors to shop for whatever relief.

In view of the above, the Order allowing the intervenors in this case is likewise hereby withdrawn
for the purposes above discussed. Consequently, the Motion to present additional parties is
deemed denied, and the Motion to Strike Or Expunge From The Records the Amended Answer In
Intervention is deemed granted as in fact the same become moot and academic with the
elimination of the Intervenors in this case.39

Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice upon
petitioners revoking Building Permit No. 4936, ordering the stoppage of all construction work on the
building, and commanding discontinuance of the occupancy thereof.

On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer for Preliminary
Injunction with the Court of Appeals, docketed as CA-G.R. SP No. 24189.

On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining the
respondent Judge from implementing the questioned orders dated January 24, 1991 and April 19, 1989. 40

After the respondents had sent in their answer, petitioners filed a Reply with a prayer for the issuance of a
writ of mandamus directing the respondent City Engineer to reissue the building permit previously issued
in favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of occupancy on the basis of the
admission by respondent City Engineer that petitioner had complied with the provisions of the National
Building Code.41
On May 31, 1991, the Court of Appeals rendered its questioned decision denying the petition.42

From the Resolution of the Court of Appeals granting the motion for reconsideration in CA-G.R. SP No.
17070 and the Decision in CA-G.R. SP No. 24189, petitioners have come to this Court for relief.

In G.R. No. 94285, petitioners contend by way of assignment of errors,43 that:

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN DECISION IN CA-G.R. No.
17070, WHICH DECISION HAD REMANDED TO THE SEC THE CASE FOR THE PROPER
IMPLEMENTATION OF THE 1982 ABELLO AND 1988 SULIT DECISIONS WHICH IN TURN ORDERED
THE DISTRIBUTION AND PARTITION OF THE PARTNERSHIP PROPERTIES.

II

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO ORDER, WHICH HAD
SUSPENDED THE DISSOLUTION OF THE PARTNERSHIP AND THE DISTRIBUTION OF ITS
ASSETS, AND IN PLACING THE PARTNERSHIP PROPERTIES UNDER RECEIVERSHIP PENDING
THE RESOLUTION OF CIVIL CASE NO. 903 (13388), ON A GROUND NOT MADE THE BASIS OF THE
SEC RESOLUTION UNDER REVIEW, I.E., THE DISPOSITION BY A PARTNER OF SMALL
PROPERTIES ALREADY ADJUDICATED TO HIM BY A FINAL SEC ORDER DATED DECEMBER 2,
1986 AND MADE LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF THE PETITIONERS NOT
TO DISPOSE OF THE PARTNERSHIP ASSETS.

In G.R. No. 100313, Petitioners assign as errors, that:44

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT

RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.

II

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT THE
RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
DISCRETION IN DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO. 5326.

III

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING AND ORDERING
THE IMPLEMENTATION OF THE WRIT OF PRELIMINARY MANDATORY INJUNCTION DESPITE THE
ABSENCE OR LACK OF AN INJUNCTION BOND.45

On the two (2) issues raised in G.R. No. 94285, the Court rules for respondents.

Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which approved the
appointment of a receivership committee as ordered by Hearing Officer Felipe Tongco. They theorize that
the 1988 Tongco Decision varied the 1982 Abello Decision affirming the dissolution of the partnership,
contrary to the final and executory tenor of the said judgment. To buttress their theory, petitioners offer
the 1988 Sulit Decision which, among others, expressly confirmed the finality of the Abello Decision.
On the same premise, petitioners aver that when Hearing Officer Tongco took over from Hearing Officer
Sison, he was left with no course of action as far as the proceedings in the SEC Case were concerned
other than to continue with the partition and distribution of the partnership assets. Thus, the Order placing
the partnership under a receivership committee was erroneous and tainted with excess of jurisdiction.

The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles
of dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in its termination. 46

The dissolution of the partnership did not mean that the juridical entity was immediately terminated and
that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the
dissolution simply effected a change in the relationship among the partners. The partnership, although
dissolved, continues to exist until its termination, at which time the winding up of its affairs should have
been completed and the net partnership assets are partitioned and distributed to the partners. 47

The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello
Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue
orders not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the
partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed
order placing the partnership under a receivership committee cannot be said to have varied the final order
of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the
partition and distribution of the partnership assets pending disposition of Civil Case No. 903 on the basis
of the agreement by the parties and under the circumstances of the case. It bears stressing that, like the
appointment of a manager in charge of the winding up of the affairs of the partnership, said appointment
of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of
the SEC.

Furthermore, having agreed with the respondents not to dispose of the partnership assets, petitioners
effectively consented to the suspension of the winding up or, more specifically, the partition and
distribution of subject assets. Petitioners are now estopped from questioning the order of the Hearing
Officer issued in accordance with the said agreement.48

Petitioners also assail the propriety of the receivership theorizing that there was no necessity therefor,
and that such remedy should be granted only in extreme cases, with respondent being duty-bound to
adduce evidence of the grave and irremediable loss or damage which it would suffer if the same was not
granted. It is further theorized that, at any rate, the rights of respondent Intestate Estate are adequately
protected since notices of lis pendens of the aforesaid civil case have been annotated on the real
properties of the partnership.49

To bolster petitioners' contention, they maintain that they are the majority partners of the partnership Sy
Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such, they have the greatest
interest in preserving the partnership properties for themselves,50 and therefore, keeping the said
properties in their possession will not bring about any feared damage or dissipation of such properties,
petitioner's stressed.

Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

xxx xxx xxx

 (c) To appoint one or more receivers of the property, real or personal, which is the
subject of the action pending before the commission in accordance with the pertinent
provisions of the Rules of Court, and in such other cases, whenever necessary in order to
preserve the rights of parties-litigants and/or protect the interest of the investing public
and creditors; . . . .

The findings of the Court of Appeals accord with existing rules and jurisprudence on receivership.
Conformably, it stated that:51

. . . From a reexamination of the issues and the evidences involved, We find merit in respondent's
motion for reconsideration.

This Court notes with special attention the order dated June 28, 1988 issued by Hearing Officer
Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation, June 16, 1990) wherein all the
parties agreed on the following:

1. That there is a pending case in court wherein the plaintiffs are claiming in their
complaint that all the assets of the partnership belong to Sy Yong Hu;

2. That the parties likewise agreed that during the pendency of the court case, there will
be no disposition of the partnership assets and further hearing is suspended. . . .

As observed by the SEC Commission (sic) in its Order dated January 16, 1989:

Ordinarily, appellants' contention would be correct, except that the en banc order of April 29th
appears to have been overtaken, and accordingly, rendered inappropriate, by subsequent
developments in SEC Case No. 1648, particularly the entry in that proceedings, as of April 29,
1988, of an intervenor who claims a superior and exclusive ownership right to all the partnership
assets and property. This claim of superior ownership right is presently pending adjudication
before the Regional Trial Court of Negros Occidental, And precisely because if this supervening
development, it would appear that the parties in SEC Case No. 1648 agreed among themselves,
as of June 28, 1988, that during the pendency of the Negros Occidental case just mentioned,
there should be no disposition of partnership assets or property, and further, that the proceedings
in SEC Case No. 1648 should be suspended in the meantime (p. 2, Order; p. 12, Rollo).

As alleged by the respondents and as shown by the records there is now pending civil case entitled
"Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of Jose
Sy, Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons" denominated as Civil Case No.
903 before Branch 50 of the Regional Trial Court of Bacolod City.

Moreover, a review of the records reveal that certain properties in question have already been sold as of
1987, as evidenced by deeds of absolute sale executed by Jesus in favor of Reynaldo Navarro (p.
331, Rollo), among others.

To ensure that no further disposition shall be made of the questioned assets and in view of the pending
civil case in the lower court, there is a compelling necessity to place all these properties and assets under
the management of a receivership committee. The receivership committee, which will provide active
participation, through a designated representative, on the part of all interested parties, can best protect
the properties involved and assure fairness and equity for all.

Receivership, which is admittedly a harsh remedy, should be granted with extreme caution. 52 Sound
bases therefor must appear on record, and there should be a clear showing of its necessity. 53 The need
for a receivership in the case under consideration can be gleaned from the aforecited disquisition by the
Court of Appeals finding that the properties of the partnership were in danger of being damaged or lost on
account of certain acts of the appointed manager in liquidation.

The dispositions of certain properties by the said manager, on the basis of an order of partial partition,
dated December 2, 1986, by Hearing Officer Sison, which was not yet final and executory, indicated that
the feared irreparable injury to the properties of the partnership might happen again. So also, the failure
of the manager in liquidation to submit to the SEC an accounting of all the partnership assets as required
in its order of April 29, 1988, justified the SEC in placing the subject assets under receivership.

Moreover, it has been held by this Court that an order placing the partnership under receivership so as to
wind up its affairs in an orderly manner and to protect the interest of the plaintiff (herein private
respondent) was not tainted with grave abuse of discretion.54 The allegation that respondents' rights are
adequately protected by the notices of lis pendens in Civil Case 903 is inaccurate. As pointed out in their
Comment to the Petition, the private respondents claim that the partnership assets include the income
and fruits thereof. Therefore, protection of such rights and preservation of the properties involved are best
left to a receivership committee in which the opposing parties are represented.

What is more, as held in Go Tecson vs. Macaraig:55

The power to appoint a receiver pendente lite is discretionary with the judge of the court
of first instance; and once the discretion is exercised, the appellate court will not interfere,
except in a clear case of abuse thereof, or an extra limitation of jurisdiction.

Here, no clear abuse of discretion in the appointment of a receiver in the case under
consideration can be discerned.

With respect to G.R. No. 100313.56

Petitioners argue in this case that the failure of the private respondents to implead them in Civil Case No.
5326 constituted a violation of due process. It is their submission that the ex parte grant of said petition by
the trial court worked to their prejudice as they were deprived of an opportunity to be heard on the
allegations of the petition concerning subject property and assets. The recall of the order granting their
Motion to Intervene was done without the observance of due process and consequently without
jurisdiction on the part of the lower court.

Commenting on the Petition, private respondents maintain that the only issue in the present case is
whether or not there was a violation of the Building Code. They contend that after due and proper hearing
before the lower court, it was fully established that the provisions of the said Code had been violated,
warranting issuance of the Writ of Preliminary Injunction dated April 19, 1989. They further asseverate
that the petitioners, who are the owner and lessees in the building under controversy, have nothing to do
with the case for mandamus since it is directed against the respondent building official to perform a
specific duty mandated by the provisions of the Building Code.

In his Comment, the respondent City Engineer, relying on the validity of the order of the trial court to
padlock the building, denied any impropriety in his compliance with the said order.

After a careful examination of the records on hand, the Court finds merit in the petition.

In opposing the petition, respondent intestate estate anchors its stance on the existence of violations of
pertinent provisions of the aforesaid Code. As regards due process, however, a distinction must be made
between matters of substance.57 In essence, procedural due process "refers to the method or manner by
which the law is enforced," while substantive due process "requires that the law itself, not merely the
procedure by which the law would be enforced, is fair, reasonable, and just".58 Although private
respondent upholds the substantive aspect of due process, it, in the same breath, brushes aside its
procedural aspect, which is just as important, if the constitutional injunction against deprivation of property
without due process is to be observed.

Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in Legarda
vs. Court of Appeals et al.,59 the Court held that as long as a party was given the opportunity to defend
her interest in due course, he cannot be said to have been denied due process of law.

Contrary to these basic tenets, the trial court gave due course to the petition for mandamus, and granted
the prayer for the issuance of a writ of preliminary injunction on May 4, 1989, notwithstanding the fact that
the owner (herein petitioner Sy Yong Hu) of the building and its occupants 60 were not impleaded as
parties in the case. Affirming the same, the Court of Appeals acknowledged that the lower court came out
with the said order upon the testimony of the lone witness for the respondent, in the person of the City
Engineer, whose testimony was not effectively traversed by the petitioners. This conclusion arrived at by
the Court of Appeals is erroneous in the face of the irrefutable fact that the herein petitioners were not
made parties in the said case and, consequently, had absolutely no opportunity to cross examine the
witness of private respondent and to present contradicting evidence.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to close subject
building. Such being the case, no final determination of the claims thereover could be had. 61 That the
petition for mandamus with a prayer for the issuance of a writ of preliminary mandatory injunction was
only directed against the City Engineer is of no moment. No matter how private respondent justifies its
failure to implead the petitioners, the alleged violation of the provisions of the Building Code relative to the
reconstruction of the building in question, by petitioners, did not warrant an ex parte and summary
resolution of the petition. The violation of a substantive law should not be confused with punishment of
the violator for such violation. The former merely gives rise to a cause of action while the latter is its
effect, after compliance with the requirements of due process.

The trial court failed to give petitioners their day in court to be heard before they were condemned for the
alleged violation of certain provisions of the Building Code. Being the owner of the building in question
and lessees thereon, petitioners possess property rights entitled to be protected by law. Their property
rights cannot be arbitrarily interfered with without running afoul with the due process rule enshrined in the
Bill of Rights.

For failure to observe due process, the herein respondent court acted without jurisdiction. As a result,
petitioners cannot be bound by its orders. Generally accepted is the principle that no man shall be
affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment
rendered by the court.62

In similar fashion, the respondent court acted with grave abuse of discretion when it disallowed the
intervention of petitioners in Civil Case No. 5326. As it was, the issuance of the Writ of Preliminary
Injunction directing the padlocking of the building was improper for non-conformity with the rudiments of
due process.

Parenthetically, the trial court, in issuing the questioned order, ignored established principles relative to
the issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be
proper, it must be shown that the invasion of the right sought to be protected is material and substantial,
that the right of complainant is clear and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage.63

In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the
Court is at a loss as to the basis of the respondent judge in issuing the same. What is clear is that
complainant (now private respondent) therein, which happens to be a juridical person (Estate of Sy Yong
Hu), made general allegations of hazard and serious damage to the public due to violations of various
provisions of the Building Code, but without any showing of any grave damage or injury it was bound to
suffer should the writ not issue.

Finally, the Court notes, with disapproval, what the respondent court did in ordering the ejectment of the
lawful owner and the occupants of the building, and disposed of the case before him even before it was
heard on the merits by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas &
Company Limited Partnership vs. Court of Appeals et al. this Court held that courts should avoid issuing a
writ of preliminary injunction which in effect disposes of the main case without trial. 64

Resolution of the third issue has become moot and academic in view of the Court's finding of grave abuse
of discretion tainting the issuance of the Writ of Preliminary Injunction in question.

WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. No. 17070 is AFFIRMED and its
Decision in CA-G.R. No. 24189 REVERSED. No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.

G.R. No. 167379 June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.

LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and
JOSE MARCOS T. LAZATIN, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners’
motion for reconsideration thereof.

The factual and procedural antecedents are as follows:

Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation
engaged in real estate development. Rafaelito W. Lopez is its President and Chief Executive Officer.3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos
T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined
area of 30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of Title (TCT)
No. T-108484 of the Register of Deeds of Tagaytay City.

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President,
entered into a Joint Venture Agreement5 (JVA) for the development of the aforementioned property into a
residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings
obliged themselves to contribute the two parcels of land as their share in the joint venture. For its part,
Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractor’s pool,
marketing activities, managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
 a.) Survey the land, and prepare the projects master plans, engineering designs, structural and
architectural plans, site development plans, and such other need plans in accordance with
existing laws and the rules and regulations of appropriate government institutions, firms or
agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;

c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);

d.) Guarantee completion of the land development work if not prevented by force majeure or
fortuitous event or by competent authority, or other unavoidable circumstances beyond the
DEVELOPER’S control, not to exceed three years from the date of the signing of this Joint
Venture Agreement, except the installation of the electrical facilities which is solely MERALCO’S
responsibility;

e.) Provide necessary manpower resources, like executive and managerial officers, support
personnel and marketing staff, to handle all services related to land and housing development
(administrative and construction) and marketing (sales, advertising and promotions). 6

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as
follows:

1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw
allowances or make advances not exceeding a total of twenty percent (20%) of the net revenue
for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%)
for the LANDOWNERS.

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

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

They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the
Joint Venture project, after deducting all expenses incurred in connection with the land
development (such as administrative management and construction expenses), and marketing
(such as sales, advertising and promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the
Joint Venture project, after deducting all the above-mentioned expenses.8

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

SALES-INCOME-COST PROJECTION

lawphil.net
 SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

₱138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = ₱231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADD’L. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00
Total Expenses P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the
parties relative to the interpretation, scope and reach, and the enforcement/implementation of any
provision of the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration
Law.10

The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably
with the escrow agreement, the owner’s duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay
City, and applied the permit only on August 30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12

In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its
obligations under the JVA, otherwise the appropriate action would be filed against it to protect their rights
and interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the latter to
review its business records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter. The
Lazatins demanded that Primelink cease and desist from further developing the property.

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages, with prayer for temporary restraining
order and/or preliminary injunction against Primelink and Lopez. The case was docketed as Civil Case
No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the
execution of the JVA and the delivery of the title and possession of the land to defendants, the land
development aspect of the project had not yet been completed, and the construction of the housing units
had not yet made any headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these condition: (aa)
single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing
completion; (cc) duplex, two units completed and two units unfinished; and (dd) row houses, two units,
completed; (b) in Phase II thereof, all that was done by the defendants was to grade the area; the units so
far constructed had been the object of numerous complaints by their owners/purchasers for poor
workmanship and the use of sub-standard materials in their construction, thus, undermining the project’s
marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing procedures, checks and balances system
installed for the mutual protection of both parties, and the scheduled regular meetings were seldom held
to the detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but defendants refused to heed
said demand. After a succession of letters with still no action from defendants, plaintiffs sent a letter on
October 22, 1997, a letter formally rescinding the JVA.

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they
(plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture project; to
date, however, after almost four (4) years and despite the undertaking in the JVA that plaintiffs shall
initially get 20% of the agreed net revenue during the first two (2) years (on the basis of the 60%-40%
sharing) and their full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which
by conservative estimates would amount to no less than P40,000,000.00.15

Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:

WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be
forthwith issued enjoining the defendants to immediately stop their land development, construction and
marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ of
preliminary injunction enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;

2. Immediately restoring to the plaintiffs possession of the subject parcels of land;

3. Ordering the defendants to render an accounting of all income generated as well as expenses
incurred and disbursement made in connection with the project;
 4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million
Pesos (P40,000,000.00) in actual and/or compensatory damages;

6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million
Pesos (P2,000,000.00) in exemplary damages;

7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten
percent (10%) of the total amount due as and for attorney’s fees; and

8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being prayed for. 16

Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’
complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to
the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:

WHEREFORE, it is respectfully prayed that an Order be issued:

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court,
or, in the alternative,

b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate,
and then asking the parties to resolve their controversies, pursuant to the Arbitration Law, or in
the alternative;

c) staying or suspending the proceedings in captioned case until the completion of the arbitration,
and

d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.

Other reliefs and remedies just and equitable in the premises are prayed for.17

In the meantime, before the expiration of the reglementary period to answer the complaint, defendants,
invoking their counsel’s heavy workload, prayed for a 15-day extension18 within which to file their answer.
The additional time prayed for was granted by the RTC.19 However, instead of filing their answer,
defendants prayed for a series of 15-day extensions in eight (8) successive motions for extensions on the
same justification.20 The RTC again granted the additional time prayed for, but in granting the last
extension, it warned against further extension.21 Despite the admonition, defendants again moved for
another 15-day extension,22 which, this time, the RTC denied. No answer having been filed, plaintiffs
moved to declare the defendants in default,23 which the RTC granted in its Order24 dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition
to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a
Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14,
1998, the RTC denied defendants’ motion to set aside the order of default and ordered the reception of
plaintiffs’ evidence ex parte. Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order,
which the RTC denied in its Order30 dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as
well as the Order denying their motion to set aside the order of default, alleging that these were contrary
to facts of the case, the law and jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from were interlocutory in
character and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal was
filed by defendants.

In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17,
2000, the RTC rendered a Decision, the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:

1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;

2. Ordering the defendants to return possession, including all improvements therein, of the real
estate property belonging to the plaintiffs which is described in, and covered by Transfer
Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located in
Barangay Anulin, City of Tagaytay;

3. Ordering the defendants to turn over all documents, records or papers that have been
executed, prepared and retained in connection with any contract to sell or deed of sale of all
lots/units sold during the effectivity of the joint venture agreement;

4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share
of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint
venture agreement;

5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of P104,152.40;

6. Ordering the defendants to pay the costs.

SO ORDERED.33

The trial court anchored its decision on the following findings:

x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developer’s (defendant) undertakings, as well as paragraph III and paragraph V of
the JVA. These violations are not limited to those made against the plaintiffs alone as it appears that
some of the unit buyers themselves have their own separate gripes against the defendants as typified by
the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.

xxxx

Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6,
1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this
court has observed, and is thus convinced, that a pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net income generated from sales of housing units by defendants, has
been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture
project earned a net income of about P2,603,810.64. This amount, however, was drastically reduced in a
subsequent financial report submitted by the defendants to P1,954,216.39. Shortly thereafter, and to the
dismay of the plaintiffs, the defendants submitted an income statement and a balance sheet (Exhibits "R"
and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to
be so. Even before the plaintiffs could get hold of their share as indicated above, the defendants closed
the chance altogether by declaring a net loss. The court perceives this to be one calculated coup-de-
grace that would put to thin air plaintiffs’ hope of getting their share in the profit under the JVA.

That this matter had reached the court is no longer a cause for speculation. The way the defendants
treated the JVA and the manner by which they handled the project itself vis-à-vis their partners, the
plaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received the losing end
of the bargain.

Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file
the present action to enforce their rights. x x x34

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging defendants’ dilatory
tactics for its allowance. This was opposed by defendants.36

On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20,
2000.38

Defendants appealed the decision to the CA on the following assignment of errors:

THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED
VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE
DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).

II

THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
PRIMELINK’S STRONG OPPOSITION THERETO.

III

THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THE WRIT
OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE
COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO
EXECUTION.

IV

THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO PRESENT SUFFICIENT
EVIDENCE JUSTIFYING THE SAID RESCISSION.

V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER
THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING
IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER
ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE
HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF
THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES’ RAW,
UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM
OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING
APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK. 39

The appeal was docketed in the CA as CA-G.R. CV No. 69200.

On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed
decision. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay
City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED.
Accordingly, Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the
Escrow Agreement is ordered released for return to the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of Deeds of Tagaytay City of whatever annotation in
TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.

SO ORDERED.40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation, 41 the appellate
court ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by the
laws of partnership. The aggrieved parties filed a motion for reconsideration, 42 which the CA denied in its
Resolution43 dated March 7, 2005.

Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL
ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE
RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN
WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE
PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING AND MARKETING THE
PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, AND THE SHARE DUE
RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?

2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND

UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND
VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT,
UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL
RESTITUTION, NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO
ANOTHER?44

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to
respondents "all improvements" on the project without requiring them to pay the value thereof or to
reimburse Primelink for all expenses incurred therefore is inherently and essentially illegal and
confiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, and will
allow respondents to unjustly enrich themselves at Primelink’s expense. At the time respondents
contributed the two parcels of land, consisting of 30,000 square meters to the joint venture project when
the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00 per
square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had already been
substantially developed as improvements had already been introduced thereon; petitioners had likewise
incurred administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45

Petitioners point out that respondents did not pray in their complaint that they be declared the owners and
entitled to the possession of the improvements made by petitioner Primelink on the property; neither did
they adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue, that
respondents were not entitled to the improvements although petitioner Primelink was declared in default.

They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that, under Article 1385 of the same Code, rescission
creates the obligation to return the things which were not object of the contract, together with their fruits,
and the price with its interest; consequently, it can be effected only when respondents can return
whatever they may be obliged to return. Respondents who sought the rescission of the JVA must place
petitioner Primelink in the status quo. They insist that respondents cannot rescind and, at the same time,
retain the consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their original positions
as nearly as possible upon the rescission of a contract. In the event that restoration to the status quo is
impossible, rescission may be granted if the Court can balance the equities and fashion an appropriate
remedy that would be equitable to both parties and afford complete relief.

Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for
reimbursement because "[w]hat matters is that the improvements exist and they cannot be
denied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.

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

As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. 48

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the
RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue as follows:

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray
that they are and should be entitled to take over the development of the project, and that the
improvements and existing structures which were introduced by PRIMELINK after spending more or less
Forty Million Pesos – be awarded to them. They merely asked in the complaint that the joint venture
agreement be rescinded, and that the parcels of land they contributed to the project be returned to them.

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

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

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since elements
are similar – community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939];
Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin,
395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into
a partnership contract, it may, however, engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments, Notes and Selected Cases,
Corporation Code 1981) (Emphasis Supplied)

The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a
quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
incomes generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code,
where the partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on,
or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase of an interest in the partnership and for
any capital or advance contributed by him. In the instant case, the joint venture still has outstanding
liabilities to third parties or the buyers of the property.

It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and
Development Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a
necessary consequence of the order of rescission of contract. The reason for the existence of the Escrow
Agreement has ceased to exist when the joint venture agreement was rescinded. 49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at the expense of petitioners.

In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements
even if their share in the P1,041,524.26 of the net income of the property and the sale of the land were to
be deducted from the value of the improvements, plus administrative and marketing expenses in the total
amount of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents.
Respondents cannot deny the existence and nature of said improvements as they are visible to the naked
eye.

The threshold issues are the following: (1) whether respondents are entitled to the possession of the
parcels of land covered by the JVA and the improvements thereon introduced by petitioners as their
contribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of the
improvements on the parcels of land.

The petition has no merit.

On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint
below that possession of the improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint that, upon the rescission of
the JVA, they be placed in possession of the parcels of land subject of the agreement, and for other
"reliefs and such other remedies as are just and equitable in the premises." However, the trial court was
not precluded from awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought
but it may add as general prayer for such further or other relief as may be deemed just and equitable.
Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts
alleged in the complaint and the evidence introduced so warrant. 50 The court shall grant relief warranted
by the allegations and the proof even if no such relief is prayed for. 51 The prayer in the complaint for other
reliefs equitable and just in the premises justifies the grant of a relief not otherwise specifically prayed
for.52

The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture.53 The trial court declared that respondents were entitled to
the possession not only of the parcels of land but also of the improvements thereon as a consequence of
its finding that petitioners breached their agreement and defrauded respondents of the net income under
the JVA.

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

When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled
the partnership.54 With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of
any partner to act for the partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished.55 On dissolution, the
partnership is not terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.

The transfer of the possession of the parcels of land and the improvements thereon to respondents was
only for a specific purpose: the winding up of partnership affairs, and the partition and distribution of the
net partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that
unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the partnership
affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the
legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership
affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown,
may obtain winding up by the court.

It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property, subject to the
rights and obligations of the parties, inter se, of the creditors and of third parties under Articles 1837 and
1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in their
JVA to the contrary.58 Until the partnership accounts are determined, it cannot be ascertained how much
any of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the
parties does not contain any provision designating any party to wind up the affairs of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the
agreed term for the partnership and for that purpose may possess the partnership property,
provided they secure the payment by bond approved by the court, or pay to any partner who has
caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution,
less any damages recoverable under the second paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph, No. 2,
all the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the
right as against his co-partners and all claiming through them in respect of their interests
in the partnership, to have the value of his interest in the partnership, less any damage
caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the
payment secured by a bond approved by the court, and to be released from all existing
liabilities of the partnership; but in ascertaining the value of the partner’s interest the
value of the good-will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any
other right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
partnership liabilities to third persons for any sum of money paid by him for the purchase of an
interest in the partnership and for any capital or advances contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of
the partnership for any payments made by him in respect of the partnership liabilities; and

(3) To be indemnified by the person guilty of the fraud or making the representation against all
debts and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the
New Civil Code:

Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.

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

(a) Those owing to creditors other than partners,

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

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

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

(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall have the
right to enforce the contributions specified in the preceding number.

(6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of the
liability.

(7) The individual property of a deceased partner shall be liable for the contributions specified in
No. 4.
 (8) When partnership property and the individual properties of the partners are in possession of a
court for distribution, partnership creditors shall have priority on partnership property and
separate creditors on individual property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

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

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

Costs against petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.
MAGLANA, Defendant-Appellee.

DECISION

PARAS, J.:

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

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

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD

SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO, defendants-appellants.

FERNANDEZ, J.:

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

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the

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

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

SO ORDERED.1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to
the Supreme Court "considering that the resolution of this appeal involves purely questions or question of
law over which this Court has no jurisdiction ...2

On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod
Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental,
Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon
Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of
which reads:

WHEREFORE, the plaintiffs respectfully pray:

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

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

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

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

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

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

Bacolod City, June 4, 1959.3

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

II

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

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF

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

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

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

VI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE
SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE
DEFENDNAT PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT

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

VIII

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

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

IX

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

SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE

PLAINTIFFS-APPELLEES.

XI

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

APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON
GARIBAY AND TIMOTEO TUBUNGBANUA.6

The facts, as found by the trial court, are:

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

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G.

Saldejeno, and Timoteo Tubungbanua entered into a Contract of
Partnership under the firm name "Isabela Sawmill", a copy of which is
hereto attached Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a

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

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

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

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

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo

Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum
Agreement", a copy of which is hereto attached as Appendix 'E' in Civil
Case 4797 of the Court of First Instance of Negros Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo

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

7. That thereafter the defendants Leon Garibay and Timoteo

Tubungbanua did not divide the assets and properties of the "Isabela
Sawmill" between them, but they continued the business of said
partnership under the same firm name "Isabela Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental

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

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental

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

10. That on October 20, 1959 the defendant Margarita G. Saldajeno

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

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

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

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

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

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

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

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano
Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on
October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant
"Isabela Sawmill", that against the said cash advance, the defendant partnership
delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance
of P1,579.44.
 The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness
Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff
advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that against the said
cash advance, the defendant partnership delivered to the said plaintiff on November 19,
1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving
an outstanding balance of P1,048.78.

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

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

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

xxx xxx xxx7

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

This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of
right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners
Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and
falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than
the right to recover a sum of money and where the money claim is purely incidental to or a consequence
of the principal relief sought, the action is as a case where the subject of the litigation is not capable of
pecuniary estimation and is cognizable exclusively by the Court of First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature
of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have
exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary
estimation. An action for the annulment of a judgment and an order of a court of justice belongs to th
category.8

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation
this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy
sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary
estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would
depend on the amount of the claim. However, where the basic issue is something other than the right to
recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal
relief sought, this Court has considered such actions as cases where the subject ogf the litigation may not
be estimated in terms of money, and are cognizable exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:

Actions for specific performance of contracts have been expressly prounounced to be

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

The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this
Court held:

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in
point. It was ruled therein that although the purposes of an action is to recover an amount
plus interest which comes within the original jurisidction of the Justice of the Peace Court,
yet when said action involves the foreclosure of a chattel mortgage covering personal
properties valued at more than P2,000, (now P10,000.00) the action should be instituted
before the Court of First Instance.

In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and
costs, and involves the foreclosure of a chattel mortgage of personal properties valued at
P15,340.00, so that it is clearly within the competence of the respondent court to try and
resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in
exercising jurisidction over Civil Case No. 5343.

The appellants also contend that the chattel mortgage may no longer be annulled because it had been
judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said
chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent
and coordinate jusridiction, this Court originally ruled that:
 A court has no power to interfere with the judgments or decrees of a court of concurrent
or coordinate jurisdiction having equal power to grant the relief sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense coordinate
courts and cannot be allowed to interfere with each others' judgments or decrees. 11

The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:

The rule which prohibits a Judge from intertering with the actuations of the Judge of
another branch of the same court is not infringed when the Judge who modifies or annuls
the order isued by the other Judge acts in the same case and belongs to the same court
(Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch
of the court issues a writ of preliminary injunction in a case to enjoint the sheriff from
carrying out an order by execution issued in another case by the Judge of another branch
of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was
rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of
First Instance of Antique, both courts belonging to the same Judicial District. This Court held that:

The power to open, modify or vacant a judgment is not only possessed by but restricted
to the court in which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction
may not be interfered with by any court concurrrent jurisdiction.

Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First
Instance belongs solely to the very same branch which rendered the judgement. 14

Two years later, the same doctrine was laid down in the Sterling Investment case.15

In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter.
In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:

... the underlying philosophy expressed in the Dumara-og case, the policy of judicial
stability, to the end that the judgment of a court of competent jurisdiction may not be
interfered with by any court of concurrent jurisdiction may not be interfered with by any
court of concurrent jurisdiciton, this Court feels that this is as good an occasion as any to
re-examine the doctrine laid down ...

In an action to annul the judgment of a court, the plaintiff's cause of action springs from
the alleged nullity of the judgment based on one ground or another, particularly fraud,
which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit
the cause of action is entirely different from that in the actgion which grave rise to the
judgment sought to be annulled, for a direct attack against a final and executory judgment
is not a incidental to, but is the main object of the proceeding. The cause of action in the
two cases being distinct and separate from each other, there is no plausible reason why
the venue of the action to annul the judgment should necessarily follow the venue of the
previous action ...
 The present doctrine which postulate that one court or one branch of a court may not
annul the judgment of another court or branch, not only opens the door to a violation of
Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the
application of said rule.

Our conclusion must therefore be that a court of first instance or a branch thereof has the
authority and jurisdiction to take cognizance of, and to act in, suit to annul final and
executory judgment or order rendered by another court of first instance or by another
branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case.17

In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First
Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two
branches of the same court.

It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the
carrying on of the business. 18 However, on dissolution, the partnershop is not terminated but continuous
until the winding up to the business. 19

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of
winding up the business of the partnership, they continued the business still in the name of said
partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had
constituted themselves as the partnership entity, the "Isabela Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and
Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill".
They used the properties of said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G.
Saldajeno, was correctly held liable by the trial court because she purchased at public auction the
properties of the partnership which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in
the newspapers. The appellees and the public in general had a right to expect that whatever, credit they
extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership
"Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of
the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the
creditors of the partnership.

The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo
Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.

Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer,
that person who gave occasion for the damages to be caused must bear the consequences. Had
Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo
Tubungbanua to continue doing the business of the aprtnership, the applees would not have been misled
into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no
moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doping
business through the two remaining partners.

The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of
the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of
Margarita G. Saldajeno has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.

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

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

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-
appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of
the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are
not liable to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees
by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon
Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of
"Isabela Sawmill" to third persons. 22

WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as
to costs.

SO ORDERED.

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-
FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal
and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of
the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The
partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General
Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received
only half of his stipulated monthly salary, since he had accepted the promise of the partners that the
balance would be paid when the firm shall have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances of the business; he had overall supervision of
the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora
Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the
partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co
acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firm's
main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in
February of 1988.2 The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private
respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the
business from the original partners and that it was for him to decide whether or not he was responsible for
the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained
unpaid.3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries
accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees,
against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co
denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by
the present or new partnership.4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees.5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter
and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a
new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain
business, that the new partnership had not retained petitioner Yu in his original position as Assistant
General Manager, and that there was no law requiring the new partnership to absorb the employees of
the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership
which had simply declined to retain him in his former managerial position or any other position. Finally,
the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original
members of the preceding partnership, but these though impleaded had, apparently, not been served with
summons in the proceedings before the Labor Arbiter. 6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and
annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess
of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a
juridical personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership. 7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership
which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had
come into existence, whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of
the changes in the membership of the partnership was the dissolution of the old partnership which had
hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta
in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil
Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in

good faith, when no definite term or particular
undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the

partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of
the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what
happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article 1829
of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and winding up of
its business affairs. In other words, the new partnership simply took over the business enterprise owned
by the preceeding partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of them and opening a new
business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal
approach to business on the part of the retiring and the incoming partners. It is not, however, necessary
to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw
Mill, et al,8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership.9 The liability of the new partnership, upon the
other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the
Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors
of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without liquidation of the
partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone or with
others;

(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment of his
right in partnership property;
 (4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who continue
the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue
the business under the provisions of article 1837, second paragraph, No. 2, either alone
or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions
set forth in this article the creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the person or partnership
continuing the business on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration promised for such interest or for
his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on
the ground of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is
entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's
interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on
record are not detailed with sufficient precision to permit such determination. It is, however, clear to the
Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as
well as other claims relating to his employment with the previous partnership, against the new Jade
Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a
new general or assistant general manager to run the affairs of the business enterprise take over. An
assistant general manager belongs to the most senior ranks of management and a new partnership is
entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or termination without just or
authorized cause. We think that the precise authorized cause for termination in the case at bar
was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the
principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old
position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner
Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he
had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole
year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we
consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business itself
and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note
that the new partnership did not try to suggest that there was any cause consisting of some blameworthy
act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services.
Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the
relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr.
Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages)
accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond
by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of this
case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and
reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent
(6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of
promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled
Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in
the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment
filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of
the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby
ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six (36)
months (November 1984 to December 1987) in the total amount of
P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay

multiplied by three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and
(b) above, commencing on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

VITUG, J.:

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

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

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

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

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

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

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

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

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

"The partnership has ceased to be mutually satisfactory because of the working

conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have
been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the assistant
attorneys."
 On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC
Case No. 3384 praying that the Commission:

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

"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of
their correspondence, checks and pleadings and to pay petitioners damages for
the use thereof despite the dissolution of the partnership in the amount of at least
P50,000.00;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"5. DURATION. The partnership shall continue so long as mutually satisfactory

and upon the death or legal incapacity of one of the partners, shall be continued
by the surviving partners."
 The hearing officer however opined that the partnership is one for a specific undertaking and
hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19
August 1948):

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

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

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership4 but that it can result in a liability for damages.5

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

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

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

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

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

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

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

SO ORDERED.

.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.

CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21,
1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is for specific
performance, and damages resulting from an alleged breach of contract.

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of
Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action was taken thereon
by the authorities concerned. During the Japanese occupation, he filed another fishpond application for
the same area, but because of the conditions then prevailing, it was not acted upon either. On December
12, 1945 he filed a third fishpond application for the same area, which, after a survey, was found to
contain 178.76 hectares. Upon investigation conducted by a representative of the Bureau of Forestry, it
was discovered that the area applied for was still needed for firewood production. Hence on May 13, 1946
this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this
motion was pending resolution, he was advised by the district forester of Davao City that no further action
would be taken on his motion, unless he filed a new application for the area concerned. So he filed on
May 27, 1947 his fishpond application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area covered by
Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found
inside the area applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3
hectares certified as available for fishpond purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for
by Casteel. Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given due
course on December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30 hectares
of land comprising a portion of the area applied for by Casteel, upon certification of the Bureau of Forestry
that the area was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his
own fishpond application for the area covered by Casteel's application.

Because of the threat poised upon his position by the above applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof by
constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from
usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.

Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative cases
ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No.
1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-
appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro
Cacam, Permittees-Respondents."

However, despite the finding made in the investigation of the above administrative cases that Casteel had
already introduced improvements on portions of the area applied for by him in the form of dikes, fishpond
gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteel's application on October 25,
1949, required him to remove all the improvements which he had introduced on the land, and ordered
that the land be leased through public auction. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and Natural
Resources.

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our
discussion of the appellant's third assignment of error.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a contract — denominated a "contract of service" — the
salient provisions of which are as follows:

That the Party of the First Part in consideration of the mutual covenants and agreements made
herein to the Party of the Second Part, hereby enter into a contract of service, whereby the Party
of the First Part hires and employs the Party of the Second Part on the following terms and
conditions, to wit:

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY
SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part
who renders only his services for the construction and improvements of a fishpond at Barrio
Malalag, Municipality of Padada, Province of Davao, Philippines;

That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish
that will be produced from said fishpond;
 That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;

That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of November, 1947, with all the above-mentioned conditions enumerated;
...

On the same date the above contract was entered into, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines, which
has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being periodically realized from it...."

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two
administrative cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the application of
Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary
of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and Natural
Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR
Case 353, the dispositive portion of which reads as follows:

In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor
Casteel should be, as hereby it is, reinstated and given due course for the area indicated in the
sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall
remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion
stating as follows:

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-
539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor
Casteel is required to pay the improvements introduced thereon by said permittees in accordance
with the terms and dispositions contained elsewhere in this decision....

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor
Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance
of Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they
alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel be ordered to
respect and abide by the terms and conditions of said contract and that Inocencia Deluao be allowed to
continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught
from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum
of P20,000 in damages.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction,
praying among other things, that during the pendency of the case and upon their filling the requisite bond
as may be fixed by the court, a preliminary injunction be issued to restrain Casteel from doing the acts
complained of, and that after trial the said injunction be made permanent. The lower court on April 26,
1951 granted the motion, and, two days later, it issued a preliminary mandatory injunction addressed to
Casteel, the dispositive portion of which reads as follows:
 POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y
todos usu abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista
de impedir a la demandante Inocencia R. Deluao que continue administrando personalmente la
pesqueria objeto de esta causa y que la misma continue recibiendo los productos de la venta de
los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado
Nicanor Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado Jesus
Donesa de la pesqueria objeto de la demanda de autos.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the
owner, lawful applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs
on June 15, 1951, was denied by the lower court in its order of June 26, 1961.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952,
denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended answer
was filed by the plaintiffs on January 31, 1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951
the plaintiffs opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs'
complaint failed to state a claim upon which relief may be granted. The motion, opposed by the plaintiffs
on October 12, 1951, was denied for lack of merit by the lower court in its order of October 22, 1951. The
defendants' motion for reconsideration filed on October 31, 1951 suffered the same fate when it was
likewise denied by the lower court in its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The lower
court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in
open court, reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case
is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any
other transfer of hearing of this case and if the parties will not be ready on that day set for
hearing, the court will take the necessary steps for the final determination of this case. (emphasis
supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by
the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First Instance of
Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II.
The defendants, thru counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion,
the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as
follows:

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The
motion is filed by the counsel for the defendants and has the conformity of the counsel for the
plaintiffs.

An examination of the records of this case shows that this case was initiated as early as April
1951 and that the same has been under advisement of the Honorable Enrique A. Fernandez,
Presiding Judge of Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various occasions. The last order
issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely
states that the Court will not entertain any further postponement of the hearing of this case.
 CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch I, so that the
same may be disposed of therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge
Fernandez presiding), when informed about the defendants' motion for postponement filed on April 26,
1956, issued an order reiterating its previous order handed down in open court on March 21, 1956 and
directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4,
1956 the dispositive portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del

demandado Nicanor Casteel:

(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (½)

del "fishpond" en cuestion con todas las mejoras existentes dentro de la misma;

(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en

concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion de
esta decision hasta que entregue la posesion y administracion de la porcion del "fishpond" en
conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado
beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda de autos
hasta el completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos

incurridos por aquella durante la pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de

P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto
se refiere al demandado Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of
knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied by
the lower court in its order of May 21, 1956, the pertinent portion of which reads as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has
been transferred or not, but to inquire from the presiding Judge, particularly because his motion
asking the transfer of this case was not set for hearing and was not also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as
follows:
 Upon petition of the plaintiff without any objection on the part of the defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the
morning.

This case was filed on April 3, 1951, and under any circumstance this Court will not
entertain any other transfer of the hearing of this case, and if the parties will not be ready
on the day set for hearing, the Court will take necessary steps for the final disposition of
this case.

In view of the order above-quoted, the Court will not accede to any transfer of this case and the
duty of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the attention
of the same to the existence of his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the
same is hereby denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us
for final determination on the ground that it involves only questions of law.

Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the
appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the
appellant of his day in court and of his property without due process of law;

(2) Whether the lower court committed grave abuse of discretion when it denied the verified
petition for relief from judgment filed by the appellant on May 11, 1956 in accordance with Rule
38, Rules of Court; and

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary
injunction against defendant-appellant, and in not dismissing appellees' complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the lower court
set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that,
since the case had been pending since April 3, 1951, it would not entertain any further motion for transfer
of the scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of
promulgation,1 and amounts to a legal notification for all legal purposes.2 The order of March 21, 1956,
given in open court, was a valid notice to the parties, and the notice of hearing dated April 21, 1956 or
one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a "special
deputy clerk of court" setting the hearing in another branch of the same court, the former's order was the
one legally binding. This is because the incidents of postponements and adjournments are controlled by
the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules
of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage
from one sala to another without authority or order from the court where the case originated and was
being tried. He had neither the duty nor prerogative to re-assign the trial of the case to a different branch
of the same court. His duty as such clerk of court, in so far as the incident in question was concerned,
was simply to prepare the trial calendar. And this duty devolved upon the clerk of court and not upon the
"special deputy clerk of court" who purportedly signed the notice of hearing.

It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the court's
discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had
ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting
the case for hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven other
counsel of record. This is a well-settled rule in our jurisdiction.4

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to
appear before Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have no
right to presume that their motions for postponement will be granted.5 For indeed, the appellant and his
12 lawyers cannot pretend ignorance of the recorded fact that since September 24, 1953 until the trial
held on May 2, 1956, the case was under the advisement of Judge Fernandez who presided over Branch
I. There was, therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez had
exclusive control of said case, unless he was legally inhibited to try the case — and he was not.

There is truth in the appellant's contention that it is the duty of the clerk of court — not of the Court — to
prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala to
another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of
court of the Court of First Instance of Davao was located directly below Branch I. If the appellant and his
counsel had exercised due diligence, there was no impediment to their going upstairs to the second
storey of the Court of First Instance building in Davao on May 2, 1956 and checking if the case was
scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel went
to the office of the clerk of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he
was properly accorded this right. He was notified in open court on March 21, 1956 that the case was
definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue that,
pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial of
his motion for postponement. In the cited case the motion for postponement was the first one filed by the
defendant; in the case at bar, there had already been a series of postponements. Unlike the case at bar,
the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did not spend for a
long time, the case at bar was only finally and intransferably set for hearing on March 21, 1956 — after
almost five years had elapsed from the filing of the complaint on April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for
trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one month and ten
days to do so. In effect, the appellant had waived his right to appear at the trial and therefore he cannot
be heard to complain that he has been deprived of his property without due process of law. 7 Verily, the
constitutional requirements of due process have been fulfilled in this case: the lower court is a competent
court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject matter
of the action; the defendant (appellant) was given an opportunity to be heard; and judgment was rendered
upon lawful hearing.8

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex
parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint. We
find this contention meritorious.
Apparently, the court a quo relied on exhibit A — the so-called "contract of service" — and the appellees'
contention that it created a contract of co-ownership and partnership between Inocencia Deluao and the
appellant over the fishpond in question.

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to
know the law. It must be assumed, conformably to such rule, that the parties entered into the so-called
"contract of service" cognizant of the mandatory and prohibitory laws governing the filing of applications
for fishpond permits. And since they were aware of the said laws, it must likewise be assumed — in
fairness to the parties — that they did not intend to violate them. This view must perforce negate the
appellees' allegation that exhibit A created a contract of co-ownership between the parties over the
disputed fishpond. Were we to admit the establishment of a co-ownership violative of the prohibitory laws
which will hereafter be discussed, we shall be compelled to declare altogether the nullity of the contract.
This would certainly not serve the cause of equity and justice, considering that rights and obligations have
already arisen between the parties. We shall therefore construe the contract as one of partnership,
divided into two parts — namely, a contract of partnership to exploit the fishpond pending its award to
either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond between
them after such award. The first is valid, the second illegal.

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there were two pending applications over the fishpond. One
was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it
was disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's
application over the same area which was likewise rejected by the Director of Fisheries on November 29,
1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of
Agriculture and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel,
neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that as it may,
they were not however precluded from exploiting the fishpond pending resolution of Casteel's appeal or
the approval of Deluao's application over the same area — whichever event happened first. No law, rule
or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated
it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form a
co-ownership but to establish a partnership — Inocencia Deluao as capitalist partner and Casteel as
industrial partner — the ultimate undertaking of which was to divide into two equal parts such portion of
the fishpond as might have been developed by the amount extended by the plaintiffs-appellees, with the
further provision that Casteel should reimburse the expenses incurred by the appellees over one-half of
the fishpond that would pertain to him. This can be gleaned, among others, from the letter of Casteel to
Felipe Deluao on November 15, 1949, which states, inter alia:

... [W]ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the work we have done so far, besides I did not
insist on our being partners in my fishpond permit, but it was you "Tatay" Eping the one who
wanted that we be partners and it so happened that we became partners because I am poor, but
in the midst of my poverty it never occurred to me to be unfair to you. Therefore so that each of
us may be secured, let us have a document prepared to the effect that we are partners in the
fishpond that we caused to be made here in Balasinon, but it does not mean that you will treat me
as one of your "Bantay" (caretaker) on wage basis but not earning wages at all, while the truth is
that we are partners. In the event that you are not amenable to my proposition and consider me
as "Bantay" (caretaker) instead, do not blame me if I withdraw all my cases and be left without
even a little and you likewise.
(emphasis supplied)9

Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement. That
it was not a contract of the services of the appellant, was admitted by the appellees themselves in their
letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him in his
(Casteel's) claim but because he used their money in developing and improving the fishpond, his right
must be divided between them. Of course, although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he was so entitled — this being one of the conditions
he specified for the execution of the document of partnership.11

Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a
letter,12 dated March 24, 1950, the appellant suggested that they divide the fishpond and the remaining
capital, and offered to pay the Deluaos a yearly installment of P3,000 — presumably as reimbursement
for the expenses of the appellees for the development and improvement of the one-half that would pertain
to the appellant. Two days later, the appellee Felipe Deluao replied, 13expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of the order of the Director of
Fisheries disapproving his (appellant's) application, so that if a favorable decision was secured, then they
would divide the area.

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of Casteel's application. Thus by letter 14 dated March 15, 1950
addressed to the Secretary of Agriculture and Natural Resources, he withdrew his petition on the alleged
ground that he was no longer interested in the area, but stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest bidder.

The arrangement under the so-called "contract of service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases
353 and 353-B. This development, by itself, brought about the dissolution of the partnership. Moreover,
subsequent events likewise reveal the intent of both parties to terminate the partnership because each
refused to share the fishpond with the other.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "...
any event which makes it unlawful for the business of the partnership to be carried on or for the members
to carry it on in partnership." The approval of the appellant's fishpond application by the decisions in
DANR Cases 353 and 353-B brought to the fore several provisions of law which made the continuation of
the partnership unlawful and therefore caused its ipso facto dissolution.

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.15 To the same effect is Condition No. 3 of the fishpond
permit which states that "The permittee shall not transfer or sublet all or any area herein granted or any
rights acquired therein without the previous consent and approval of this Office." Parenthetically, we must
observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos,
was cancelled not solely for the reason that his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon investigation, it was ascertained thru the
admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop with the
latter's capital the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos)
would be given a share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided,
That assignment, encumbrance, or subletting for purposes of speculation shall not be permitted in
any case: Provided, further, That nothing contained in this section shall be understood or
construed to permit the assignment, encumbrance, or subletting of lands leased under this Act, or
 under any previous Act, to persons, corporations, or associations which under this Act, are not
authorized to lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources
issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and
under such terms and conditions as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed. — If the permittee or
lessee had, unless otherwise specifically provided, held the permit or lease and actually operated
and made improvements on the area for at least one year, he/she may request permission to
sub-lease or transfer the area and improvements under certain conditions.

(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid when first approved
by the Director under such terms and conditions as may be prescribed, otherwise it shall be null
and void. A transfer not previously approved or reported shall be considered sufficient cause for
the cancellation of the permit or lease and forfeiture of the bond and for granting the area to a
qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.

Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.

The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture
and Natural Resources likewise recognized and/or confirmed their property right to one-half of the
fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument would readily
surface if one were to consider that the Secretary of Agriculture and Natural Resources did not do so for
the simple reason that he does not possess the authority to violate the aforementioned prohibitory laws
nor to exempt anyone from their operation.

However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide
the fishpond so that he could administer his own share, such division to be subject to the approval of the
Secretary of Agriculture and Natural Resources. By letter dated December 29, 1950,18 the appellee Felipe
Deluao demurred to Casteel's proposition because there were allegedly no appropriate grounds to
support the same and, moreover, the conflict over the fishpond had not been finally resolved.

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former
expressed his determination to administer the fishpond himself because the decision of the Government
was in his favor and the only reason why administration had been granted to the Deluaos was because
he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter 20 dated
January 5, 1951 in which he reiterated his refusal to grant the administration of the fishpond to the
appellant, stating as a ground his belief "that only the competent agencies of the government are in a
better position to render any equitable arrangement relative to the present case; hence, any action we
may privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to
share the fishpond with each other — in direct violation of the undertaking for which they have
established their partnership — each must be deemed to have expressly withdrawn from the partnership,
thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that
dissolution is caused "by the express will of any partner at any time."

In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of concession
or disposition and management of the lands of the public domain, and, more specifically, with regard to
the grant or withholding of licenses, permits, leases and contracts over portions of the public domain to be
utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and
reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that

... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by
law regarding the disposition of public lands such as granting of licenses, permits, leases, and
contracts, or approving, rejecting, reinstating, or cancelling applications, or deciding conflicting
applications, are all executive and administrative in nature. It is a well-recognized principle that
purely administrative and discretionary functions may not be interfered with by the courts (Coloso
v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no supervising
power over the proceedings and action of the administrative departments of the government. This
is generally true with respect to acts involving the exercise of judgment or discretion, and findings
of fact. (54 Am. Jur. 558-559) Findings of fact by an administrative board or official, following a
hearing, are binding upon the courts and will not be disturbed except where the board or official
has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted
arbitrarily and without regard to his duty or with grave abuse of discretion... (emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's
fishpond application 1717 and awarded to him the possession of the area in question. In view of the
finality of the Secretary's decision in DANR Cases 353 and 353-B, and considering the absence of any
proof that the said official exceeded his statutory authority, exercised unconstitutional powers, or acted
with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we can do no less than
respect and maintain unfettered his official acts in the premises. It is a salutary rule that the judicial
department should not dictate to the executive department what to do with regard to the administration
and disposition of the public domain which the law has entrusted to its care and administration. Indeed,
courts cannot superimpose their discretion on that of the land department and compel the latter to do an
act which involves the exercise of judgment and discretion.22

Therefore, with the view that we take of this case, and even assuming that the injunction was properly
issued because present all the requisite grounds for its issuance, its continuation, and, worse, its
declaration as permanent, was improper in the face of the knowledge later acquired by the lower court
that it was the appellant's application over the fishpond which was given due course. After the Secretary
of Agriculture and Natural Resources approved the appellant's application, he became to all intents and
purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the
same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the possession and control
of one party and place it in the hands of another whose title has not been clearly established by law. 23

However, pursuant to our holding that there was a partnership between the parties for the exploitation of
the fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the
reception of evidence relative to an accounting from November 25, 1949 to September 15, 1950, in order
for the court to determine (a) the profits realized by the partnership, (b) the share (in the profits) of
Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether
the amounts totalling about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia Deluao
continued in possession and enjoyment of the fishpond even after it was awarded to Casteel, she did so
no longer in the concept of a capitalist partner but merely as creditor of the appellant, and therefore, she
must likewise submit in the lower court an accounting of the proceeds of the sales of all the fishes
harvested from the fishpond from September 16, 1950 until Casteel shall have been finally given the
possession and enjoyment of the same. In the event that the appellee Deluao has received more than her
lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon
per annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1)
dissolving the injunction issued against the appellant, (2) placing the latter back in possession of the
fishpond in litigation, and (3) remanding this case to the court of origin for the reception of evidence
relative to the accounting that the parties must perforce render in the premises, at the termination of
which the court shall render judgment accordingly. The appellant's counterclaim is dismissed. No
pronouncement as to costs.