G.R. No.

134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially disadvantageous
to them will not relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in
accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision
1
of the Court of Appeals
2
(CA) in CA-GR CV No. 42378 and its
June 25, 1998 Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court,
finding for the defendant and against the plaintiffs, orders the
dismissal of the plaintiffs complaint. The counterclaims of the
defendant are likewise ordered dismissed. No pronouncement
as to costs.
3

The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into
a "joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the contract,
they executed a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision.
4
All three of them also agreed to share the
proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack of
funds or means and skills." They add that respondent used the loan not for
the development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement
the Agreement. With the said amount, he was able to effect the survey and
the subdivision of the lots. He secured the Lapu Lapu City Council's
approval of the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs and gutters.
Likewise, he entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually even set up a model
house on one of the subdivision lots. He did all of these for a total expense
of P85,000.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project.
5

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

Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in
the same proportion as their share in the profits stipulated in the contract.
Disagreeing with the trial court's pronouncement that losses as well as
profits in a joint venture should be distributed equally,
7
the CA invoked
Article 1797 of the Civil Code which provides:
Art. 1797 The losses and profits shall be distributed in
conformity with the agreement. If only the share of each partner
in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the
circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion
to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the
transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article
1769, and other related provisions of the Civil Code of the
Philippines.
8

The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of Sale,
both of which were the bases of the appellate court's finding of a
partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the proceeds
from the sale of the subdivision lots, they pray that respondent pay them
damages equivalent to 60 percent of the value of the property.
9

The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City,
Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the
FIRST PARTY, this property located at Lapu-Lapu City, Island of
Mactan, under Lot No. 1368 covering TCT No. T-0184 with a
total area of 17,009 square meters, to be sub-divided by the
FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY,
the sum of: TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency upon the execution of this contract for the
property entrusted by the SECOND PARTY, for sub-division
projects and development purposes;
NOW THEREFORE, for and in consideration of the above
covenants and promises herein contained the respective
parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of
Sale . . . dated March 5, 1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at
ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in
favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had received from the
FIRST PARTY, the necessary amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, for their personal
obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to
be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the
SECOND PARTY, the interest and the principal amount
involving the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the
amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in
the sub-division project should be paid by the FIRST PARTY,
exclusively and all the expenses will not be deducted from the
sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into
SIXTY PERCENTUM 60% for the SECOND PARTY and
FORTY PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving from the sales
will be divided equally according to the . . . percentage [agreed
upon] by both parties.
SIXTH: That the intended sub-division project of the property
involved will start the work and all improvements upon the
adjacent lots will be negotiated in both parties['] favor and all
sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an
option to get back the property mentioned provided the amount
of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, borrowed by the SECOND PARTY, will be paid in full
to the FIRST PARTY, including all necessary improvements
spent by the FIRST PARTY, and-the FIRST PARTY will be
given a grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the
parties who executed same freely and voluntarily for the uses
and purposes therein stated.
10

A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
Art. 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.
Under the above-quoted Agreement, petitioners would contribute property
to the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.
11

It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name of
the respondent. On the other hand, respondent caused the subject land to
be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it was
not in consonance with their expectations, they should have objected to it
and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding of its
terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached
to the public instrument.
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,
12
"The
execution of a public instrument would be useless if there is no inventory of
the property contributed, because without its designation and description,
they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is
declared void by the law when no such inventory is made." The case at bar
does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of
the property.
13
They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will
not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties' rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422
14
of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states that
the consideration for the sale was the expectation of profits from the
subdivision project. Its first stipulation states that petitioners did not actually
receive payment for the parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another.
15

In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the
trial court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale,
the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts
were not the cause of the failure of the project.
16
But it also ruled that
neither was respondent responsible therefor.
17
In imputing the blame solely
to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual
issues cannot be resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine.
18
Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to
damages.
WHEREFORE, the Perition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.
SO ORDERED
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.






G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may
arise therefrom, even if it is shown that they have not contributed any
capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person
who may not have directly transacted on its behalf, but reaped benefits
from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477,
1
which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed
decision, the same is hereby affirmed.
2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling,
which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment
issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and
the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase
price of the fishing nets covered by the Agreement
plus P68,000.00 representing the unpaid price of
the floats not covered by said Agreement;
b. 12% interest per annum counted from date of
plaintiff's invoices and computed on their respective
amounts as follows:
i. Accrued interest of P73,221.00 on
Invoice No. 14407 for P385,377.80
dated February 9, 1990;
ii. Accrued interest for P27,904.02 on
Invoice No. 14413 for P146,868.00
dated February 13, 1990;
iii. Accrued interest of P12,920.00 on
Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus
P8,500.00 representing P500.00 per appearance in
court;
d. P65,000.00 representing P5,000.00 monthly
rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to
September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the
principal obligation or for the unpaid price of nets and
floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount P600,045.00, this
Court noted that these items were attached to guarantee
any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case,
it was ordered sold at public auction for not less than
P900,000.00 for which the plaintiff was the sole and
winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of
P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to
secure in this case with the ownership and possession of
the nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It
has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as
stipulated in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this reason also
that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid
for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that
whatever judgment the plaintiff may be entitled to in this
case will have to be satisfied from the amount of
P900,000.00 as this amount replaced the attached nets
and floats. Considering, however, that the total judgment
obligation as computed above would amount to only
P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled
to damages and who did not put up a single centavo to
raise the amount of P900,000.00 aside from the fact that
they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and
all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession
and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.
SO ORDERED.
3

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

The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities and
Exchange Commission.
5
On September 20, 1990, the lower court issued a
Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries
Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting
his liability and requesting a reasonable time within which to pay. He also
turned over to respondent some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment.
6
The trial court maintained
the Writ, and upon motion of private respondent, ordered the sale of the
fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000.
7

On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent.
8

The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three
9
in Civil Case No. 1492-MN
which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d)
an injunction and (e) damages.
10
The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to
have the four (4) vessels sold in the amount of
P5,750,000.00 including the fishing net. This
P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be
sold at a higher price than P5,750,000.00 whatever
will be the excess will be divided into 3: 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less
than P5,750,000.00 whatever the deficiency shall
be shouldered and paid to JL Holding Corporation
by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.
11

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

Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua
and Yao in a fishing business and may thus be held liable as a such for the
fishing nets and floats purchased by and for the use of the partnership. The
appellate court ruled:
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing . . . .
Oviously, the ultimate undertaking of the defendants was to
divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership, two
or more persons bind themselves to contribute money, property
or industry to a common fund with the intention of dividing the
profits among themselves (Article 1767, New Civil Code).
13

Hence, petitioner brought this recourse before this Court.
14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED
ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE,
THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT
HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM
AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE
SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
GOODS.
In determining whether petitioner may be held liable for the fishing nets and
floats from respondent, the Court must resolve this key issue: whether by
their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased
from respondent, petitioner controverts the CA finding that a partnership
existed between him, Peter Yao and Antonio Chua. He asserts that the CA
based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has
not even met the representatives of the respondent company. Petitioner
further argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership the fishing
boat F/B Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by
the two lower courts clearly showed that there existed a partnership among
Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:
Art. 1767 By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings:
15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua
was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao
verbally agreed to acquire two fishing boats, theFB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation,
which executed a Deed of Sale over these two (2) boats in
favor of Petitioner Lim Tong Lim only to serve as security for the
loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-
equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim
again extended a loan to the partnership in the amount of P1
million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chua's FB
Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing Corporation,"
their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of commercial
documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of
which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and
Lim had decided to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan secured from Jesus
Lim who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article 1767.
The contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats. The fishing nets and
the floats, both essential to fishing, were obviously acquired in furtherance
of their business. It would have been inconceivable for Lim to involve
himself so much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua
and Yao, a partnership engaged in the fishing business. They purchased
the boats, which constituted the main assets of the partnership, and they
agreed that the proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual findings of
the RTC and the CA are binding on this Court, absent any cogent proof that
the present action is embraced by one of the exceptions to the rule.
16
In
assailing the factual findings of the two lower courts, petitioner effectively
goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also claims
that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments
are baseless. The Agreement was but an embodiment of the relationship
extant among the parties prior to its execution.
A proper adjudication of claimants' rights mandates that courts must review
and thoroughly appraise all relevant facts. Both lower courts have done so
and have found, correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one piece of
document alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily,
the two lower courts' factual findings mentioned above nullified petitioner's
argument that the existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing venture.
His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that
he consented to the sale of his own boats to pay a debt of Chua and Yao,
with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved
that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order to
finance the acquisition and the upgrading of the vessels which would be
used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in his name, was
not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the
lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to
sell his property to pay a debt he did not incur, if the relationship among the
three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability
can be imputed only to Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume
to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate existence.
"The reason behind this doctrine is obvious an unincorporated
association has no personality and would be incompetent to act and
appropriate for itself the power and attributes of a corporation as provided
by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or agents
do so without authority and at their own risk. And as it is an elementary
principle of law that a person who acts as an agent without authority or
without a principal is himself regarded as the principal, possessed of all the
right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence
assumes such privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such agent.
17

The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by a third person who
relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries,
is entitled to be paid for the nets it sold. The only question here is whether
petitioner should be held jointly
18
liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with
the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. He in fact questions the attachment of the nets, because
the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he is
deemed to be part of said association and is covered by the scope of the
doctrine of corporation by estoppel. We reiterate the ruling of the Court
inAlonso v. Villamor:
19

A litigation is not a game of technicalities in which one, more
deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a contest
in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial
and indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits,
unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in
technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now
moot and academic. As previously discussed, F/B Lourdes was an asset of
the partnership and that it was placed in the name of petitioner, only to
assure payment of the debt he and his partners owed. The nets and the
floats were specifically manufactured and tailor-made according to their
own design, and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear,
until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr.
Justice Artemio V. Panganiban, particularly the finding that Antonio Chua,
Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of
general partners. I merely would wish to elucidate a bit, albeit briefly, the
liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an
existing partnership or with one or more persons not actual partners, he is
deemed an agent of such persons consenting to such representation and in
the same manner, if he were a partner, with respect to persons who rely
upon the representation.
1
The association formed by Chua, Yao and Lim,
should be, as it has been deemed, a de facto partnership with all the
consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so
opposed to a limited partnership) is laid down in Article 1816
2
which posits
that all partners shall be liable pro rata beyond the partnership assets for all
the contracts which may have been entered into in its name, under its
signature, and by a person authorized to act for the partnership. This rule is
to be construed along with other provisions of the Civil Code which
postulate that the partners can be held solidarily liable with the partnership
specifically in these instances (1) where, by any wrongful act or
omission of any partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury is caused
to any person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner
so acting or omitting to act; (2) where one partner acting within the scope of
his apparent authority receives money or property of a third person and
misapplies it; and (3) where the partnership in the course of its business
receives money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of the
partnership
3
consistently with the rules on the nature of civil liability in
delicts and quasi-delicts.






G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER,
GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal,
Quezon City Branch, to recover possesion of registered land situated in
barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent
and description of the land sought to be recovered. The original complaint
described the land as a portion of a lot registered in plaintiff's name under
Transfer Certificate of Title No. 37686 of the land record of Rizal Province
and as containing an area of 13 hectares more or less. But the complaint
was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed
and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the
area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial,
after defendant's surveyor and witness, Quirino Feria, had testified that the
area occupied and claimed by defendant was about 13 hectares, as shown
in his Exhibit 1, plaintiff again, with the leave of court, amended its
complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession (of land
in dispute) under claim of ownership, adverse to the entire world by
defendant and his predecessor in interest" from "time in-memorial". The
answer further alleges that registration of the land in dispute was obtained
by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant
and/or predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to reconvey the
land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and ordering him
to restore possession thereof to plaintiff and to pay the latter a monthly rent
of P132.62 from January, 1940, until he vacates the land, and also to pay
the costs.
Appealing directly to this court because of the value of the property
involved, defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that
the case was not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in
the litigation.
V. The trial court erred in holding that the land in dispute is covered
by transfer certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true
and lawful owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay
the plaintiff the amount of P132.62 monthly from January, 1940, until
he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the
land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the
present action is not brought by the real party in interest, that is, by J. M.
Tuason and Co., Inc. What the Rules of Court require is that an action be
brought in the name of,but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the complaint is signed
by the law firm of Araneta and Araneta, "counsel for plaintiff" and
commences with the statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint also states that the
plaintiff is "represented herein by its Managing Partner Gregorio Araneta,
Inc.", another corporation, but there is nothing against one corporation
being represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. can not act as managing partner
for plaintiff on the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a corporation
has no power to enter into a partnership, it may nevertheless enter into a
joint venture with another where the nature of that venture is in line with the
business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs.
Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which plaintiff is
represented by Gregorio Araneta, Inc. as "its managing partner" is not in
line with the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended
complaint, may be answered by mere reference to section 4 of Rule 17,
Rules of Court, which sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not
raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at my time, even
of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the
court may allow the pleadings to be amended and shall be so freely
when the presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his
action or defense upon the merits. The court may grant a continuance
to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of
rendering judgment on issues proved though not alleged. Thus,
commenting on the provision, Chief Justice Moran says in this Rules of
Court:
Under this section, American courts have, under the New Federal
Rules of Civil Procedure, ruled that where the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the
complaint is necessary, especially where defendant has himself
raised the point on which recovery is based, and that the appellate
court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules of
Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are
without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at
the early stage of the trial, that the land in dispute "is that described or
represented in Exhibit A and in Exhibit B enclosed in red pencil with the
name Quirino Bolaos," defendant later changed his lawyer and also his
theory and tried to prove that the land in dispute was not covered by
plaintiff's certificate of title. The evidence, however, is against defendant, for
it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C,
situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same
barrio, having an area of 74,789 square meters, more or less, covered by
transfer certificate of title No. 37677 of the land records of the same
province, both lots having been originally registered on July 8, 1914 under
original certificate of title No. 735. The identity of the lots was established
by the testimony of Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by defendant was
established by the testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly shows that the portion
claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in
defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and
was registered in 1914, the decree of registration can no longer be
impugned on the ground of fraud, error or lack of notice to defendant, as
more than one year has already elapsed from the issuance and entry of the
decree. Neither court the decree be collaterally attacked by any person
claiming title to, or interest in, the land prior to the registration proceedings.
(Sorogon vs. Makalintal,
1
45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the
period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge
of CFI of Tarlac,
2
etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled
that the right to secure possession under a decree of registration does not
prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent
decision of this Court on this point is that rendered in the case of Jose
Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the
alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the
finding that defendant should be sentenced to pay plaintiff P132.62 monthly
from January, 1940, until he vacates the premises.' But it appears from the
record that that reasonable compensation for the use and occupation of the
premises, as stipulated at the hearing was P10 a month for each hectare
and that the area occupied by defendant was 13.2619 hectares. The total
rent to be paid for the area occupied should therefore be P132.62 a month.
It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been
filed against defendant. And it cannot be supposed that defendant has
been paying rents, for he has been asserting all along that the premises in
question 'have always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under claim of
ownership adverse to the entire world by defendant and his predecessors
in interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs
for further consideration.
During the pendency of this case in this Court appellant, thru other counsel,
has filed a motion to dismiss alleging that there is pending before the Court
of First Instance of Rizal another action between the same parties and for
the same cause and seeking to sustain that allegation with a copy of the
complaint filed in said action. But an examination of that complaint reveals
that appellant's allegation is not correct, for the pretended identity of parties
and cause of action in the two suits does not appear. That other case is
one for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show that such is
really the case. On the contrary, it appears that the action seeks relief for
each individual plaintiff and not relief for and on behalf of others. The
motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the
plaintiff.
Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.

G.R. No. 127405 September 20, 2001
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.
R E S O L U T I O N
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and control its processes and
orders so as to make them conformable to law and justice includes the right
to reverse itself, especially when in its honest opinion it has committed an
error or mistake in judgment, and that to adhere to its decision will cause
injustice to a party litigant.
1

On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed
a Motion for Reconsideration of our Decision dated October 4, 2000. They
maintain that there was no partnership between petitioner Belo, on the one
hand, and respondent Nenita A. Anay, on the other hand; and that the latter
being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that,
indeed, petitioner Belo acted merely as guarantor of Geminesse Enterprise.
This was categorically affirmed by respondent's own witness, Elizabeth
Bantilan, during her cross-examination. Furthermore, Bantilan testified that
it was Peter Lo who was the company's financier. Thus:
Q - You mentioned a while ago the name William Belo. Now,
what is the role of William Belo with Geminesse Enterprise?
A - William Belo is the friend of Marjorie Tocao and he was the
guarantor of the company.
Q - What do you mean by guarantor?
A - He guarantees the stocks that she owes somebody who is
Peter Lo and he acts as guarantor for us. We can borrow money from
him.
Q - You mentioned a certain Peter Lo. Who is this Peter Lo?
A - Peter Lo is based in Singapore.
Q - What is the role of Peter Lo in the Geminesse Enterprise?
A - He is the one fixing our orders that open the L/C.
Q - You mean Peter Lo is the financier?
A - Yes, he is the financier.
Q - And the defendant William Belo is merely the guarantor of
Geminesse Enterprise, am I correct?
A - Yes, sir
2

The foregoing was neither refuted nor contradicted by respondent's
evidence. It should be recalled that the business relationship created
between petitioner Tocao and respondent Anay was an informal
partnership, which was not even recorded with the Securities and
Exchange Commission. As such, it was understandable that Belo, who was
after all petitioner Tocao's good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or
official capacity.
3
Again, respondent's witness, Elizabeth Bantilan,
confirmed that petitioner Belo's presence in Geminesse Enterprise's
meetings was merely as guarantor of the company and to help petitioner
Tocao.
4

Furthermore, no evidence was presented to show that petitioner Belo
participated in the profits of the business enterprise. Respondent herself
professed lack of knowledge that petitioner Belo received any share in the
net income of the partnership.
5
On the other hand, petitioner Tocao
declared that petitioner Belo was not entitled to any share in the profits of
Geminesse Enterprise.
6
With no participation in the profits, petitioner Belo
cannot be deemed a partner since the essence of a partnership is that the
partners share in the profits and losses.
7

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse
Enterprise, respondent had no cause of action against him and her
complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent
should be deemed in bad faith for failing to account for stocks of
Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her
claim for damages should be barred to that extent. We do not agree. Given
the circumstances surrounding private respondent's sudden ouster from
the partnership by petitioner Tocao, her act of withholding whatever stocks
were in her possession and control was justified, if only to serve as security
for her claims against the partnership. However, while we do not agree that
the same renders private respondent in bad faith and should bar her claim
for damages, we find that the said sum of P208,250.00 should be deducted
from whatever amount is finally adjudged in her favor on the basis of the
formal account of the partnership affairs to be submitted to the Regional
Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of
petitioners is PARTIALLY GRANTED. The Regional Trial Court of Makati is
hereby ordered to DISMISS the complaint, docketed as Civil Case No.
88-509, as against petitioner William T. Belo only. The sum of P208,250.00
shall be deducted from whatever amount petitioner Marjorie Tocao shall be
held liable to pay respondent after the normal accounting of the partnership
affairs.
SO ORDERED.
Davide, Jr., Kapunan, and Pardo; JJ., concur.
Puno, J., on official leave.


G.R. No. L-45425 April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of
Internal Revenue the sum of P1,863.44, with legal interest thereon, which
they paid under protest by way of income tax. They appealed from the
decision rendered in the case on October 23, 1936 by the Court of First
Instance of the City of Manila, which dismissed the action with the costs
against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their
respective undersigned attorneys, and hereby agree to respectfully
submit to this Honorable Court the case upon the following statement
of facts:
1. That plaintiff are all residents of the municipality of Pulilan,
Bulacan, and that defendant is the Collector of Internal Revenue of
the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them
to purchase one sweepstakes ticket valued at two pesos (P2),
subscribed and paid therefor the amounts as follows:
1. Jose
Gatchalian ..................................................................................
..................
P0.1
8
2. Gregoria
Cristobal .....................................................................................
..........
.18
3. Saturnina
Silva ...........................................................................................
.........
.08
4. Guillermo
Tapia ..........................................................................................
.........
.13
5. Jesus
Legaspi ......................................................................................
................
.15
6. Jose
Silva ...........................................................................................
..................
.07
7. Tomasa
Mercado .....................................................................................
...........
.08
8. Julio
Gatchalian ..................................................................................
.................
.13
3. That immediately thereafter but prior to December 15, 1934,
plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes
Office one ticket bearing No. 178637 for the sum of two pesos (P2)
and that the said ticket was registered in the name of Jose Gatchalian
and Company;
4. That as a result of the drawing of the sweepstakes on December
15, 1934, the above-mentioned ticket bearing No. 178637 won one of
the third prizes in the amount of P50,000 and that the corresponding
check covering the above-mentioned prize of P50,000 was drawn by
the National Charity Sweepstakes Office in favor of Jose Gatchalian
& Company against the Philippine National Bank, which check was
9. Emiliana
Santiago .....................................................................................
...........
.13
10. Maria C.
Legaspi ......................................................................................
.........
.16
11. Francisco
Cabral ........................................................................................
.......
.13
12. Gonzalo
Javier .........................................................................................
...........
.14
13. Maria
Santiago .....................................................................................
..............
.17
14. Buenaventura
Guzman .....................................................................................
.
.13
15. Mariano
Santos ........................................................................................
.........
.14
Total ...........................................................................................
.............

2.00
cashed during the latter part of December, 1934 by Jose Gatchalian
& Company;
5. That on December 29, 1934, Jose Gatchalian was required by
income tax examiner Alfredo David to file the corresponding income
tax return covering the prize won by Jose Gatchalian & Company and
that on December 29, 1934, the said return was signed by Jose
Gatchalian, a copy of which return is enclosed as Exhibit A and made
a part hereof;
6. That on January 8, 1935, the defendant made an assessment
against Jose Gatchalian & Company requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of P1,499.94, a copy of
which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent
to defendant a reply, a copy of which marked Exhibit C is attached
and made a part hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen (15) separate
individual income tax returns filed separately by each one of the
plaintiffs, copies of which returns are attached and marked Exhibit
D-1 to D-15, respectively, in order of their names listed in the caption
of this case and made parts hereof; a statement of sale signed by
Jose Gatchalian showing the amount put up by each of the plaintiffs
to cover up the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part
thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of
which marked Exhibit G is enclosed, denied plaintiffs' request of
January 20, 1935, for exemption from the payment of tax and
reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand
made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked
Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the
property of the plaintiffs, the said plaintiffs on June 15, 1935, through
Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the
municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and
made a part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax and penalties by
monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties
was granted by defendant subject to the condition that plaintiffs file
the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which
marked Exhibit K is enclosed and made a part hereof, to guarantee
the payment of the balance of the alleged tax liability by monthly
installments at the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against
the payment of the sum of P602.51, a copy of which protest is
attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for
refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond filed
by them, the defendant in his letter dated July 23, 1935, copy of
which is attached and marked Exhibit M, ordered the municipal
treasurer of Pulilan, Bulacan to execute within five days the warrant
of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising
from the levy of their property, the plaintiffs on August 28, 1936,
through Jose Gatchalian, Guillermo Tapia, Maria Santiago and
Emiliano Santiago, paid under protest to the municipal treasurer of
Pulilan, Bulacan the sum of P1,260.93 representing the unpaid
balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and
marked Exhibit N and made a part hereof; and that on September 3,
1936, the plaintiffs formally protested to the defendant against the
payment of said amount and requested the refund thereof, copy of
which is attached and marked Exhibit O and made part hereof; but
that on September 4, 1936, the defendant overruled the protest and
denied the refund thereof; copy of which is attached and marked
Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total
sum of one thousand eight hundred and sixty three pesos and forty-
four centavos (P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said amount
notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and
additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age,
hereby certify, that on the 11th day of August, 1934, I sold parts of my
shares on ticket No. 178637 to the persons and for the amount
indicated below and the part of may share remaining is also shown to
wit:
Purchaser
Amoun
t
Address
1. Mariano
Santos ...........................................
P0.14
Pulilan,
Bulacan.
2. Buenaventura
Guzman ...............................
.13 - Do -
3. Maria
Santiago ............................................
.17 - Do -
4. Gonzalo
Javier ..............................................
.14 - Do -
5. Francisco
Cabral ..........................................
.13 - Do -
6. Maria C.
Legaspi ..........................................
.16 - Do -
ticket; and that, therefore, the persons named above are entitled to
the parts of whatever prize that might be won by said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions
as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS
FOR 1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE
COLLECTOR OF INTERNAL REVENUE.
7. Emiliana
Santiago .........................................
.13 - Do -
8. Julio
Gatchalian ............................................
.13 - Do -
9. Jose
Silva ......................................................
.07 - Do -
10. Tomasa
Mercado .......................................
.08 - Do -
11. Jesus
Legaspi .............................................
.15 - Do -
12. Guillermo
Tapia ...........................................
.13 - Do -
13. Saturnina
Silva ............................................
.08 - Do -
14. Gregoria
Cristobal .......................................
.18 - Do -
15. Jose
Gatchalian ............................................
.18 - Do -
Total cost of
said 2.00
Name
Exhibi
t
No.
Purchas
e
Price
Price
Won
Expens
es
Net
prize
1. Jose
Gatchalian .........................
.................
D-1 P0.18
P4,42
5
P 480
3,94
5
2. Gregoria
Cristobal ............................
..........
D-2 .18 4,575 2,000
2,57
5
3. Saturnina
Silva ...................................
..........
D-3 .08 1,875 360
1,51
5
4. Guillermo
Tapia ..................................
........
D-4 .13 3,325 360
2,96
5
5. Jesus Legaspi by Maria
Cristobal .........
D-5 .15 3,825 720
3,10
5
6. Jose
Silva ...................................
.................
D-6 .08 1,875 360
1,51
5
7. Tomasa
Mercado ............................
...........
D-7 .07 1,875 360
1,51
5
8. Julio Gatchalian by
Beatriz Guzman .......
D-8 .13 3,150 240
2,91
0
9. Emiliana
Santiago ............................
..........
D-9 .13 3,325 360
2,96
5
10. Maria C.
Legaspi ..............................
........
D-10 .16 4,100 960
3,14
0
11. Francisco
Cabral ................................
......
D-11 .13 3,325 360
2,96
5
12. Gonzalo
Javier .................................
.........
D-12 .14 3,325 360
2,96
5
The legal questions raised in plaintiffs-appellants' five assigned errors may
properly be reduced to the two following: (1) Whether the plaintiffs formed a
partnership, or merely a community of property without a personality of its
own; in the first case it is admitted that the partnership thus formed is liable
for the payment of income tax, whereas if there was merely a community of
property, they are exempt from such payment; and (2) whether they should
pay the tax collectively or whether the latter should be prorated among
them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act
No. 2833, as last amended by section 2 of Act No. 3761, reading as
follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar
year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or
insurance company, organized in the Philippine Islands, no matter
how created or organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three per centum upon
such income; and a like tax shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every
corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided,
13. Maria
Santiago ............................
..............
D-13 .17 4,350 360
3,99
0
14. Buenaventura Guzman
...........................
D-14 .13 3,325 360
2,96
5
15. Mariano
Santos ...............................
.........
D-15 .14 3,325 360
2,96
5

2.00

50,00
0
however, That nothing in this section shall be construed as permitting
the taxation of the income derived from dividends or net profits on
which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition
by a corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year
thereafter.
There is no doubt that if the plaintiffs merely formed a community of
property the latter is exempt from the payment of income tax under the law.
But according to the stipulation facts the plaintiffs organized a partnership
of a civil nature because each of them put up money to buy a sweepstakes
ticket for the sole purpose of dividing equally the prize which they may win,
as they did in fact in the amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of
the Philippines Charity Sweepstakes, in his capacity as co-partner, as such
collection the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the
plaintiffs organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said
entity is the one bound to pay the income tax which the defendant collected
under the aforesaid section 10 (a) of Act No. 2833, as amended by section
2 of Act No. 3761. There is no merit in plaintiff's contention that the tax
should be prorated among them and paid individually, resulting in their
exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of
this instance to the plaintiffs appellants. So ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ.,
concur.






G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and
REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.

AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who
sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co.,
Ltd. on two lots with areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his
four children, the petitioners, to enable them to build their residences. The
company sold the two lots to petitioners for P178,708.12 on March 13 (Exh.
A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would
show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and Olga
Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived
from the sale a total profit of P134,341.88 or P33,584 for each of them.
They treated the profit as a capital gain and paid an income tax on one-half
thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue required the four petitioners
to pay corporate income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as
42% accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in
the sum of P33,584 as a " taxable in full (not a mere capital gain of which "
is taxable) and required them to pay deficiency income taxes aggregating
P56,707.20 including the 50% fraud surcharge and the accumulated
interest.
Thus, the petitioners are being held liable for deficiency income taxes and
penalties totalling P127,781.76 on their profit of P134,336, in addition to the
tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed
an unregistered partnership or joint venture within the meaning of sections
24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs.
Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of
the high cost of construction, then they had no choice but to resell the
same to dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the nature of
things a temporary state. It had to be terminated sooner or later. Castan
Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta:
por razon del origen, en que la sociedad presupone
necesariamente la convencion, mentras que la comunidad
puede existir y existe ordinariamente sin ela; y por razon del fin
objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su
integridad la cosa comun y favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de
1940, en la que se dice que si en nuestro Derecho positive se
ofrecen a veces dificultades al tratar de fijar la linea divisoria
entre comunidad de bienes y contrato de sociedad, la moderna
orientacion de la doctrina cientifica seala como nota
fundamental de diferenciacion aparte del origen de fuente de
que surgen, no siempre uniforme, la finalidad perseguida por
los interesados: lucro comun partible en la sociedad, y mera
conservacion y aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns
does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from
which the returns are derived". There must be an unmistakable intention to
form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67
Phil. 666, where 15 persons contributed small amounts to purchase a two-
peso sweepstakes ticket with the agreement that they would divide the
prize The ticket won the third prize of P50,000. The 15 persons were held
liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent
Commissioner:
Co-owership distinguished from partnership.We find that the
case at bar is fundamentally similar to the De Leon case. Thus,
like the De Leon heirs, the Longa heirs inherited the 'hacienda'
in question pro-indiviso from their deceased parents; they did
not contribute or invest additional ' capital to increase or expand
the inherited properties; they merely continued dedicating the
property to the use to which it had been put by their forebears;
they individually reported in their tax returns their corresponding
shares in the income and expenses of the 'hacienda', and they
continued for many years the status of co-ownership in order,
as conceded by respondent, 'to preserve its (the 'hacienda')
value and to continue the existing contractual relations with the
Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.
Co-Ownership who own properties which produce income
should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of
the income tax law. To hold otherwise, would be to subject the
income of all
co-ownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it
is not subject to any kind of income tax, whether the income tax
on individuals or the income tax on corporation. (De Leon vs. CI
R, CTA Case No. 738, September 11, 1961, cited in Araas,
1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance or
the incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered
partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue,
24 SCRA 198, where father and son purchased a lot and building,
entrusted the administration of the building to an administrator and divided
equally the net income, and from Evangelista vs. Collector of Internal
Revenue, 102 Phil. 140, where the three Evangelista sisters bought four
pieces of real property which they leased to various tenants and derived
rentals therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
In the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he
paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this
matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
SO ORDERED.
Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
Concepcion, Jr., is on leave.

G.R. No. L-12541 March 30, 1960
ROSARIO U. YULO, assisted by her husband Jose C. Yulo, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut and Eusebio for appellants.
A. Francisco and J. T. Ocampo for appellee.
LABRADOR, J.:
This concerns a "Petition to Reopen Case," dated December 14, 1959,
presented by attorneys for plaintiffs-appellants, alleging that the
relationship between Rosario U. Yulo, plaintiff-appellant and Yang Chiao
Seng, defendant-appellee, as lessor and lessee, has already been
definitely decided by the Court of Appeals in the case of Sta. Marina, et al.,
and Rosario U. Yulo and Yang Chiao Seng, C. A. G. R. No. 8143-R. We
have gone out of our way to review our conclusion that no relation of
partnership existed between said parties because we had denied the
motion for reconsideration of plaintiff-appellant questioning the conclusion
of this Court without explanation.
The claim of plaintiff-appellant Rosario U. Yulo is that the relationship
between her and defendant-appellee Yang Chiao Seng as partners had
already been passed upon by the Court of Appeals in the above-indicated
decision. The portion of the decision of the Court of Appeals is contained
on page 8 of the motion for reconsideration in which it held that articles of
partnership of Young & Co., Ltd. show that the parties to this case are
partners in the construction of the Astor Theatre. It is to be noted, however,
that the decision of the Court of Appeals was one in which Emilia and Maria
Carrion Sta. Marina are plaintiffs and the defendants are Rosario Yulo and
Yang Chiao Seng; the action was one to eject the defendants from the land
occupied by them; the issue was the reasonable value for the use and
occupation of the land. The Court of Appeals said that the plaintiffs in that
case had claimed that the reasonable value was P3,000, while the
defendants claimed that it was only P1,000, and the Court of Appeals held
that in view of the partnership papers P3,000 represent the share of
Rosario U. Yulo in the profits of the partnership and not the reasonable rent
of the property.
It is evident that no res judicata can be claimed for the previous judgment
of the Court of Appeals. In the first place, the parties in that case were
Emilia and Maria Carrion Sta. Marina and the defendants, Rosaria U. Yulo
and Yang Chiao Seng; in the second place, the issue decided by the Court
of Appeals was the rental value of the property in question; that the cause
of action was for ejectment of Rosario U. Yulo and Yang Chiao Seng. In the
case at bar, the action is between Rosario U. Yulo as plaintiff and Yang
Chiao Seng as defendant; the issue is whether or not the plaintiff is partner
in the cinematograph business, as claimed by plaintiff, or said plaintiff is
merely a sublessee, as claimed by the defendant. There is, therefore, no
identity of parties nor identity of issue, nor identity of cause of action. We
call attention to the very citation contained in appellant's motion for
reconsideration, which reads as follows:
Parties to a judgment are not bound by it, in a subsequent
controversy between each other unless they were adversary parties
in the original action. There must have been an issue or controversy
between them. The reason for this rule obviously is the same as that
which underlies the whole doctrine of res judicata, namely, that a
person should not be bound by a judgment except to the extent that
he, or someone representing him, had an adequate opportunity not
only to litigate the matters adjudicated, but to litigate them against the
party (or his prodecessor in interest) who seeks to use the judgment
against him. (Sec. 422, 1 Freeman on Judgments, 5th ed., p. 918).
Without going further, we are fully satisfied of the correctness of our
conclusion that the relationship between plaintiff-appellant Rosario U. Yulo
and Yang Chiao Seng is merely that of sublessor and sublessee, and not
that of partners. The motion to reopen the case is hereby denied and
considering that judgment had become final since October 29, 1959, order
is hereby given to remand the record to the court below.
Paras, C. J., Bautista Angelo, Reyes, J. B. L., Barrera and Gutierrez David,
JJ., concur.

G.R. No. L-2880 December 4, 1906
FRANK S. BOURNS, plaintiff-appellee,
vs.
D. M. CARMAN, ET AL., defendants-appellants.
W. A. Kincaid for appellants.
J. N. Wolfson for appellee.


MAPA, J.:
The plaintiff in this action seeks to recover the sum of $437.50, United
Stated currency, balance due on a contract for the sawing of lumber for the
lumber yard of Lo-Chim-Lim. the contract relating to the said work was
entered into by the said Lo-Chim-Lim, acting as in his own name with the
plaintiff, and it appears that the said Lo-Chim-Lim personally agreed to pay
for the work himself. The plaintiff, however, has brought this action against
Lo-Chim-Lim and his codefendants jointly, alleging that, at the time the
contract was made, they were the joint proprietors and operators of the
said lumber yard engaged in the purchase and sale of lumber under the
name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by the
words above italicized that the other defendants were the partners of Lo-
Chim-Lim in the said lumber-yard business.lawphil.net
The court below dismissed the action as to the defendants D. M. Carman
and Fulgencio Tan-Tongco on the ground that they were not the partners of
Lo-Chim-Lim, and rendered judgment against the other defendants for the
amount claimed in the complaint with the costs of proceedings. Vicente
Palanca and Go-Tauco only excepted to the said judgment, moved for a
new trial, and have brought the case to this court by bill of exceptions.
The evidence of record shows, according to the judgment of the court,
"That Lo-Chim-Lim had a certain lumber yard in Calle Lemery of the city of
Manila, and that he was the manager of the same, having ordered the
plaintiff to do some work for him at his sawmill in the city of Manila; and that
Vicente Palanca was his partner, and had an interest in the said business
as well as in the profits and losses thereof . . .," and that Go-Tuaco
received part of the earnings of the lumber yard in the management of
which he was interested.
The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca,
Go-Tuaco had a lumber yard in Calle Lemmery of the city of Manila in the
year 1904, and participated in the profits and losses of business and that
Lo-Chim-Lim was managing partner of the said lumber yard." In other
words, coparticipants with the said Lo-Chim-Lim in the business in
question.
Although the evidence upon this point as stated by the by the however, that
is plainly and manifestly in conflict with the above finding of that court. Such
finding should therefore be sustained. lawphil.net
The question thus raised is, therefore, purely one of law and reduces itself
to determining the real legal nature of the participation which the appellants
had in Lo-Chim-Lim's lumber yard, and consequently their liability toward
the plaintiff, in connection with the transaction which gave rise to the
present suit.
It seems that the alleged partnership between Lo-Chim-Lim and the
appellants was formed by verbal agreement only. At least there is no
evidence tending to show that the said agreement was reduced to writing,
or that it was ever recorded in a public instrument.
Moreover, that partnership had no corporate name. The plaintiff himself
alleges in his complaint that the partnership was engaged in business
under the name and style of Lo-Chim-Lim only, which according to the
evidence was the name of one of the defendants. On the other hand, and
this is very important, it does not appear that there was any mutual
agreement, between the parties, and if there were any, it has not been
shown what the agreement was. As far as the evidence shows it seems
that the business was conducted by Lo-Chim-Lim in his own name,
although he gave to the appellants a share was has been shown with
certainty. The contracts made with the plaintiff were made by Lo-Chim-Lim
individually in his own name, and there is no evidence that the partnership
over contracted in any other form. Under such circumstances we find
nothing upon which to consider this partnership other than as a partnership
of cuentas en participacion. It may be that, as a matter of fact, it is
something different, but a simple business and scant evidence introduced
by the partnership We see nothing, according to the evidence, but a simple
business conducted by Lo-Chim-Lim exclusively, in his own name, the
names of other persons interested in the profits and losses of the business
nowhere appearing. A partnership constituted in such a manner, the
existence of which was only known to those who had an interest in the
same, being no mutual agreements between the partners and without a
corporate name indicating to the public in some way that there were other
people besides the one who ostensibly managed and conducted the
business, is exactly the accidental partnership of cuentas en
participacion defined in article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of
such partnership of cuentas en participacion is conducted, shall have only
a right of action against such person and not against the other persons
interested, and the latter, on the other hand, shall have no right of action
against the third person who contracted with the manager unless such
manager formally transfers his right to them. (Art 242 of the code Of
Commerce.) It follows, therefore that the plaintiff has no right to demand
from the appellants the payment of the amount claimed in the complaint, as
Lo-Chim-Lim was the only one who contracted with him. the action of the
plaintiff lacks, therefore, a legal foundation and should be accordingly
dismissed.
The judgment appealed from this hereby reversed and the appellants are
absolved of the complaint without express provisions as to the costs of both
instances. After the expiration of twenty days let judgment be entered in
accordance herewith, and ten days thereafter the cause be remanded to
the court below for execution. So ordered.
Arellano, C.J., Torres, Johnson, Carson, Willard and Tracey, JJ., concur.

G.R. No. L-2484 April 11, 1906
JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
Hartigan, Rohde and Gutierrez, for appellants.
W. A. Kincaid, for appellee.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and
1902, brought this action to recover a balance due him as salary for the
year 1902. He alleged that he was entitled, as salary, to 5 per cent of the
net profits of the business of the defendants for said year. The complaint
also contained a cause of action for the sum of 600 pesos, money
expended by plaintiff for the defendants during the year 1903. The court
below, in its judgment, found that the contract had been made as claimed
by the plaintiff; that 5 per cent of the net profits of the business for the year
1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had
received on account of such salary 12,811.75 pesos, Mexican currency,
and ordered judgment against the defendants for the sum 13,566.93 pesos,
Mexican currency, with interest thereon from December 31, 1904. The court
also ordered judgment against the defendants for the 600 pesos mentioned
in the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to Philippine currency,
amounted to P13,025.40. The defendants moved for a new trial, which was
denied, and they have brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the
effect that the plaintiff worked for the defendants during the year 1902
under a contract by which he was to receive as compensation 5 per cent of
the net profits of the business. The contract was made on the part of the
defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of
partnership he was made one of the managers of the company, with full
power to transact all of the business thereof. As such manager he had
authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion
that the complaint be made more definite and certain. This motion was
denied. To the order denying it the defendants excepted, and they have
assigned as error such ruling of the court below. There is nothing in the
record to show that the defendants were in any way prejudiced by this
ruling of the court below. If it were error it was error without prejudice, and
not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint
made the plaintiff a copartner of the defendants in the business which they
were carrying on. This contention can not bo sustained. It was a mere
contract of employnent. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the compensation
received by him was to be determined with reference to the profits made by
the defendants in their business did not in any sense make by a partner
therein. The articles of partnership between the defendants provided that
the profits should be divided among the partners named in a certain
proportion. The contract made between the plaintiff and the then manager
of the defendant partnership did not in any way vary or modify this
provision of the articles of partnership. The profits of the business could not
be determined until all of the expenses had been paid. A part of the
expenses to be paid for the year 1902 was the salary of the plaintiff. That
salary had to be deducted before the net profits of the business, which
were to be divided among the partners, could be ascertained. It was
undoubtedly necessary in order to determine what the salary of the plaintiff
was, to determine what the profits of the business were, after paying all of
the expenses except his, but that determination was not the final
determination of the net profits of the business. It was made for the
purpose of fixing the basis upon which his compensation should be
determined.
(4) It was no necessary that the contract between the plaintiff and the
defendants should be made in writing. (Thunga Chui vs. Que Bentec,
1
1
Off. Gaz., 818, October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had
made the contract, had died prior to the trial of the action, and the
defendants claim that by reasons of the provisions of section 383,
paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness
at the trial. That paragraph provides that parties to an action against an
executor or aministrator upon a claim or demand against the estate of a
deceased person can not testify as to any matter of fact occurring before
the death of such deceased person. This action was not brought against
the administrator of Miguel Alonzo, nor was it brought upon a claim against
his estate. It was brought against a partnership which was in existence at
the time of the trial of the action, and which was juridical person. The fact
that Miguel Alonzo had been a partner in this company, and that his interest
therein might be affected by the result of this suit, is not sufficient to bring
the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of
the defendants, that he had been paid as salary for the year 1900 a part of
the profits of the business. This evidence was competent for the purpose of
corroborating the testimony of the plaintiff as to the existence of the
contract set out in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter
written by Miguel Glutierrez, one of the partners in the defendant company,
to Miguel Alonzo Gutierrez, another partner, which letter was read to
plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court
committed an error in admitting this evidence. The case already made by
the plaintiff was in itself sufficient to prove the contract without reference to
this letter. The error, if any there were, was not prejudicial, and is not
ground for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for
the year 1902, the plaintiff presented in evidence the ledger of defendants,
which contained an entry made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps.
527,573.66 Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos establecido segun el
convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel
Gutierrez, one of the defendants, who testiffied, among other things, that
there were no profits during the year 1902, but, on the contrary, that the
company suffered considerable loss during that year. We do not think the
evidence of this witnees sufficiently definite and certain to overcome the
positive evidence furnished by the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears
that the plaintiff left the employ of the defendants on the 19th of Macrh,
1903; that at their request he went to Hongkong, and was there for about
two months looking after the business of the defendants in the matter of the
repair of a certain steamship. The appellants in their brief say that the
plaintiff is entitled to no compensation for his services thus rendered,
because by the provisions of article 1711 of the Civil Code, in the absence
of an agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of
600 pesos not claimed as compensation for services but as a
reimbursment for money expended by the plaintiff in the business of the
defendants. The article of the code that is applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of this instance
against the appellants. After the expiration of twenty days from the date of
this decision let final judgment be entered herein, and ten days thereafter
let the case be remanded to the lower court for execution. So ordered.
Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.

G.R. No. 5837 September 15, 1911
CATALINO GALLEMIT, plaintiff-appellant,
vs.
CEFERINO TABILIRAN, defendant-appellee.
Troadio Galicano, for appellant.
Emilio Pineda, for appellee.
TORRES, J.:
This is an appeal raised by the plaintiff from the judgment rendered by the
Honorable Judge Ramon Avancea.
On March, 10, 1908, the plaintiff filed a written complaint, twice amended
with the permission of the court, wherein, after its second amendment, he
alleged that the plaintiff and the defendant, while residents of the
municipality of Dapitan, had acquired, in joint tenancy, in or about the
month of January, 1904, a parcel of land from its original owner, Lui
Ganong, under a verbal, civil contract of partnership, for the price of P44;
that it was stipulated that each of the said purchasers should pay one-half
of the price, or P22, and that an equal division should be made between
them of the land thus purchased, situate in the place called Tangian, of the
barrio of Dohinob, municipality of Dapitan, sub-district of the same name,
Moro Province, and bounded on the north and east by the Tangian river, on
the south and west by government forests, and containing 19.968 square
meters, approximately, planted with 200 abaca plants; that, notwithstanding
the demands he had repeatedly made upon the defendant to divide the
said land, the latter, after having promised him on several occasions that he
would make such partition, finally refused, without good reason, and still
continued to refuse to divide the land and, moreover, without the
knowledge and consent of the plaintiff, gathered the abaca crops of the
years 1904, 1905 and 1906, produced on the land in question, and
extracted the hemp therefrom in the amount of about 12arrobas to each
crop, he being the sole beneficiary of the fiber obtained; that the plaintiff,
relying upon the several promises made him by the defendant to divide the
said land, took to the latter 1,500 seeds to be planted in the part thereof
which would have fallen to the plaintiff in the division, all of which seeds
died, as an indirect result of the defendant's never having made the
partition he offered to make; and, that since the year 1904, up to the time of
the complaint, he alone had been paying the taxes on the land, without the
defendant's having contributed to their payment. There fore the plaintiff
petitioned the court render judgment in his favor by ordering a partition to
be made of the said land through the mediation of commissioners
appointed for the purpose, and by sentencing the defendant to pay to the
plaintiff, as damages, the total value of the seed lost, amounting to P50, to
restore to him one-half of the abaca harvested or the value thereof, and to
the payment of the costs of the case. Defendant's counsel received a copy
of this amended complaint.
The defendant, Ceferino Tabiliran, having been notified and summoned, in
his answer to the preceding amended complaint denied each and all of the
facts alleged in each and all of the paragraphs thereof and asked that he
be absolved from the complaint, with the costs against the plaintiff.
After the hearing of the case and the production of oral evidence by the
parties thereto, the court, on the 10th of the same month, rendered
judgment by absolving the defendant from the complaint, with the costs
against the plaintiff. Counsel for the latter excepted to this judgment and by
a written motion asked for its annulment, and the holding of a new trial on
the ground that the findings of the court were contrary to law. This motion
was denied by an order of March 11, 1909, excepted to by the plaintiff's
counsel, and the proper bill of exceptions having been duly filed, the same
was certified and forwarded to the clerk of this court.
This suit concerns the partition of a piece of land held pro indiviso which
the plaintiff and the defendant had acquired in common from its original
owner. By the refusal of the defendant to divide the property, the plaintiff
was compelled to bring the proper action for the enforcement of partition,
referred to in section 181 and following of the Code of Civil Procedure.
The record shows it to have been duly proved that Catalino Gallemit and
Ceferino Tabiliran by mutual agreement acquired by purchase the land
concerned, situate in Tangian, municipality of Dapitan, from its original
owner, Luis Ganong, for the sum of P44. It was stipulated between the
purchasers that they each should pay one-half of the price and that the
property should be divided equally between them. The vendor testified
under oath that the plaintiff Gallemit paid him the sum of P22, one-half of
the price that it was incumbent upon him to pay, and that four months
afterwards the defendant paid his part of the price, although, owing to the
refusal of the defendant, who was then the justice of the peace of the
pueblo, to comply with the stipulation made, the deed of sale was not
executed, nor was a partition effected of the land which they had acquired.
The defendant, instead of delivering to the plaintiff the share that belonged
to the latter, the proportionate price for which the plaintiff had already paid,
kept all the land which belonged to them in common, in violation of the
stipulations agreed upon, notwithstanding that he paid the vendor only one-
half of the price thereof.
There is community of property when the ownership of a thing belongs to
different persons undividedly. (Art. 392, Civil Code.) No coownership shall
be obliged to remain a party to the community. Each of them may ask at
any time the division of the thing owned in common. (Art. 400 of the same
code.)
Considering the terms of the claim made by the plaintiff and those of the
defendant's answer, and the relation of facts contained in the judgment
appealed from, it does not appear that any contract of partnership whatever
was made between them for the purposes expressed in article 1665 of the
Civil Code, for the sole transaction performed by them was the acquisition
jointly by mutual agreement of the land in question, since it was undivided,
under the condition that they each should pay one-half of the price thereof
and that the property so acquired should be divided between the two
purchasers; and as, under this title, the plaintiff and the defendant are the
coowners of the said land, the partition or division of such property held in
joint tenancy must of course be allowed, and the present possessor of the
land has no right to deny the plaintiff's claim on grounds or reasons
unsupported by proof.
The circumstance of the plaintiff's to present any document whatever to
prove that he and the defendant did actually purchase jointly the land in
litigation can not be a successful defense in the action for partition,
notwithstanding the provision contained in paragraph 5 of section 335 of
the Code of Civil Procedure, inasmuch as the trial record discloses that
testimony was adduced, unobjected to on the part of the defendant, to
prove that the purchase was actually made by both litigants of the land in
question from its original owner, Luis Ganong; furthermore, it was proved
that after the contract was made the deed of sale was not drawn up on
account of the opposition of the defendant, Tabiliran, to this being done,
with the indubitable purpose, as has been seen, of his keeping the whole of
the land purchased, though he paid but one-half of its price.
In the decision rendered in the case of Conlu et al. vs.
Araneta and Guanko (15 Phil. Rep., 387), the following appears in the
syllabus:
The decision in the case of Thunga Chui vs. Que Bentec (1 Phil.
Rep., 561) and Couto vs. Cortes (8 Phil. Rep., 459) followed to the
extent of holding that "an oral contract for the sale of real estate,
made prior to the enactment of the Code of Civil Procedure in Civil
Actions, is binding between the parties thereto." The contract exists
and is valid though it may not be clothed with the necessary form,
and the effect of a noncompliance with the provisions of the statute
(sec. 335 of the Code of Civil Procedure in Civil Actions) is simply
complied with; but a failure to except to the evidence because it does
not conform with the statute, is a waiver of the provisions of the law. If
the parties to the action, during the trial, made no objection to the
admissibility of oral evidence to support the contract of sale of real
property, thus permitting the contract to be proved, it will be just as
binding upon the parties as if it had been reduced to writing.
So that, once it has been proven by the testimony of witnesses that the
purchase of a piece of real estate was made by a verbal contract between
the interested parties, if the oral evidence was taken at the petition of one
of them without opposition on the part of the other, such proven verbal
contract, as the one herein concerned, must be held to be valid. On these
premises it is, therefore, not indispensable that a written instrument be
presented in order to prove a contract of purchase and sale of real estate;
neither it is necessary that the record show proof of a contract of
partnership, in order that a demand may be made for the division of a real
property acquired jointly and undividedly by two or more interested parties,
inasmuch as the land was acquired by the two purchasers, not for the
purpose of undertaking any business, nor for its cultivation in partnership,
but solely to divide it equally between themselves. Therefore, it is sufficient
to show proof of the fact that a real property was actually purchased by
them jointly, in order to insure a successful issue of an action brought to
enforce partition, in accordance with the provisions of sections 181 to 196
of the Code of Civil Procedure in Civil Actions, since the plaintiff is really a
coowner of the undivided land.
It is neither just nor permissible for the defendant to violate a contract
made, even though verbally, with the plaintiff, and to keep without good
reason, for his exclusive benefit and to the prejudice only of his coowner,
the plaintiff, the whole of the land belonging to both of them in common,
because each paid a half of the value thereof.
"Contracts shall be binding," prescribes article 1278 of the Civil Code,
"whatever may be the form in which they may have been executed,
provided the essential conditions required for their validity exist." These
conditions are enumerated in article 1261 of the same code, and they are
also requisite in a verbal contract that has been proved.
As the plaintiff suffered damage through the loss of the seed which could
not be planted in the part of the land belonging to him, on account of the
refusal of the defendant to accede to division of the property, in accordance
with the agreement made, it is right and just that the latter be compelled to
make indemnity for the amount of the damage occasioned through his fault.
With respect to the abaca obtained by the defendant, to his exclusive
benefit, from the land of joint ownership: inasmuch as the amount and
value of the fiber gathered is not shown in the trial record, there are no
means available in law whereby a proper determination may be reached in
the matter.
Therefore, we are of opinion that the judgment appealed from should be, as
it is hereby, reversed. It is held to be proper to effect the partition of the land
in question, and the judge of the Court of First Instance is directed to
decree, through the proceedings prescribed by law, the division of the said
land in conformity with the petition made by the plaintiff, and an indemnity,
in behalf of the latter, in the sum of P50, the value of the seed lost. The
delivery to the plaintiff of one-half of the abaca harvested on the land, or
the value thereof, can not be ordered, on account of the lack of proof in the
premises. No special finding is made as to costs. So ordered.
Mapa, Johnson, Carson and Moreland, JJ., concur.

G.R. No. L-35469 March 17, 1932
E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance of the City of Manila,
by E. S. Lyons against C. W. Rosenstock, as executor of the estate of H.
W. Elser, deceased, consequent upon the taking of an appeal by the
executor from the allowance of the claim sued upon by the committee on
claims in said estate. The purpose of the action is to recover four hundred
forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd.,
together with the sum of about P125,000, representing the dividends which
accrued on said stock prior to October 21, 1926, with lawful interest. Upon
hearing the cause the trial court absolved the defendant executor from the
complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of
the City of Manila where he was engaged during the years with which we
are here concerned in buying, selling, and administering real estate. In
several ventures which he had made in buying and selling property of this
kind the plaintiff, E. S. Lyons, had joined with him, the profits being shared
by the two in equal parts. In April, 1919, Lyons, whose regular vocation was
that of a missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly a year
and a half, returning on September 21, 1920. On the eve of his departure
Elser made a written statements showing that Lyons was, at that time, half
owner with Elser of three particular pieces of real property. Concurrently
with this act Lyons execute in favor of Elser a general power of attorney
empowering him to manage and dispose of said properties at will and to
represent Lyons fully and amply, to the mutual advantage of both. During
the absence of Lyons two of the pieces of property above referred to were
sold by Elser, leaving in his hands a single piece of property located at
616-618 Carried Street, in the City of Manila, containing about 282 square
meters of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land,
containing about 1,500,000 square meters, near the City of Manila, and he
discerned therein a fine opportunity for the promotion and development of a
suburban improvement. This property, which will be herein referred to as
the San Juan Estate, was offered by its owners for P570,000. To afford a
little time for maturing his plans, Elser purchased an option on this property
for P5,000, and when this option was about to expire without his having
been able to raise the necessary funds, he paid P15,000 more for an
extension of the option, with the understanding in both cases that, in case
the option should be exercised, the amounts thus paid should be credited
as part of the first payment. The amounts paid for this option and its
extension were supplied by Elser entirely from his own funds. In the end he
was able from his own means, and with the assistance which he obtained
from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it was necessary to raise
the remainder by obtaining a loan for P50,000. This amount was finally
obtained from a Chinese merchant of the city named Uy Siuliong. This loan
was secured through Uy Cho Yee, a son of the lender; and in order to get
the money it was necessary for Elser not only to give a personal note
signed by himself and his two associates in the projected enterprise, but
also by the Fidelity & Surety Company. The money thus raised was
delivered to Elser by Uy Siuliong on June 24, 1920. With this money and
what he already had in bank Elser purchased the San Juan Estate on or
about June 28, 1920. For the purpose of the further development of the
property a limited partnership had, about this time, been organized by Elser
and three associates, under the name of J. K. Pickering & Company; and
when the transfer of the property was effected the deed was made directly
to this company. As Elser was the principal capitalist in the enterprise he
received by far the greater number of the shares issued, his portion amount
in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and
hoped that Lyons might be induced to come in with him and supply part of
the means necessary to carry the enterprise through. In this connection it
appears that on May 20, 1920, Elser wrote Lyons a letter, informing him
that he had made an offer for a big subdivision and that, if it should be
acquired and Lyons would come in, the two would be well fixed. (Exhibit
M-5.) On June 3, 1920, eight days before the first option expired, Elser
cabled Lyons that he had bought the San Juan Estate and thought it
advisable for Lyons to resign (Exhibit M-13), meaning that he should resign
his position with the mission board in New York. On the same date he wrote
Lyons a letter explaining some details of the purchase, and added "have
advised in my cable that you resign and I hope you can do so immediately
and will come and join me on the lines we have so often spoken about. . . .
There is plenty of business for us all now and I believe we have started
something that will keep us going for some time." In one or more
communications prior to this, Elser had sought to impress Lyons with the
idea that he should raise all the money he could for the purpose of giving
the necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree
to Lyons, and found him averse from joining in the purchase of the San
Juan Estate. In fact upon this visit of Lyons to the United States a grave
doubt had arisen as to whether he would ever return to Manila, and it was
only in the summer of 1920 that the board of missions of his church
prevailed upon him to return to Manila and resume his position as
managing treasurer and one of its trustees. Accordingly, on June 21, 1920,
Lyons wrote a letter from New York thanking Elser for his offer to take
Lyons into his new project and adding that from the standpoint of making
money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to
the resolution to stay out of this venture, was that the board of mission was
averse to his engaging in business activities other than those in which the
church was concerned; and some of Lyons' missionary associates had
apparently been criticizing his independent commercial activities. This fact
was dwelt upon in the letter above-mentioned. Upon receipt of this letter
Elser was of course informed that it would be out of the question to expect
assistance from Lyons in carrying out the San Juan project. No further
efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San
Juan Estate, his book showed that he was indebted to Lyons to the extent
of, possibly, P11,669.72, which had accrued to Lyons from profits and
earnings derived from other properties; and when the J. K. Pickering &
Company was organized and stock issued, Elser indorsed to Lyons 200 of
the shares allocated to himself, as he then believed that Lyons would be
one of his associates in the deal. It will be noted that the par value of these
200 shares was more than P8,000 in excess of the amount which Elser in
fact owed to Lyons; and when the latter returned to the Philippine Islands,
he accepted these shares and sold them for his own benefit. It seems to be
supposed in the appellant's brief that the transfer of these shares to Lyons
by Elser supplies some sort of basis for the present action, or at least
strengthens the considerations involved in a feature of the case to be
presently explained. This view is manifestly untenable, since the ratification
of the transaction by Lyons and the appropriation by him of the shares
which were issued to him leaves no ground whatever for treating the
transaction as a source of further equitable rights in Lyons. We should
perhaps add that after Lyons' return to the Philippine Islands he acted for a
time as one of the members of the board of directors of the J. K. Pickering
& Company, his qualification for this office being derived precisely from the
ownership of these shares.
We now turn to the incident which supplies the main basis of this action. It
will be remembered that, when Elser obtained the loan of P50,000 to
complete the amount needed for the first payment on the San Juan Estate,
the lender, Uy Siuliong, insisted that he should procure the signature of the
Fidelity & Surety Co. on the note to be given for said loan. But before
signing the note with Elser and his associates, the Fidelity & Surety Co.
insisted upon having security for the liability thus assumed by it. To meet
this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of
redemption in the property owned by himself and Lyons on Carriedo Street.
This mortgage was executed on June 30, 1920, at which time Elser
expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned from the letter from Lyons of July 21, 1920,
that the latter had determined not to come into this deal, Elser began to
cast around for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9, 1920, he
addressed a letter to the Fidelity & Surety Co., asking it to permit him to
substitute a property owned by himself at 644 M. H. del Pilar Street, Manila,
and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo
property, as security. The Fidelity & Surety Co. agreed to the proposition;
and on September 15, 1920, Elser executed in favor of the Fidelity &
Surety Co. a new mortgage on the M. H. del Pillar property and delivered
the same, with 1,000 shares of J. K. Pickering & Company, to said
company. The latter thereupon in turn executed a cancellation of the
mortgage on the Carriedo property and delivered it to Elser. But
notwithstanding the fact that these documents were executed and
delivered, the new mortgage and the release of the old were never
registered; and on September 25, 1920, thereafter, Elser returned the
cancellation of the mortgage on the Carriedo property and took back from
the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property,
together with the 1,000 shares of the J. K. Pickering & Company which he
had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the
fact that Lyons had arrived in Manila on September 21, 1920, and shortly
thereafter, in the course of a conversation with Elser told him to let the
Carriedo mortgage remain on the property ("Let the Carriedo mortgage
ride"). Mrs. Elser testified to the conversation in which Lyons used the
words above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of relieving
the Carriedo property, the trial court was, in our opinion, well justified in
accepting as a proven fact the consent of Lyons for the mortgage to remain
on the Carriedo property. This concession was not only reasonable under
the circumstances, in view of the abundant solvency of Elser, but in view of
the further fact that Elser had given to Lyons 200 shares of the stock of the
J. K. Pickering & Co., having a value of nearly P8,000 in excess of the
indebtedness which Elser had owed to Lyons upon statement of account.
The trial court found in effect that the excess value of these shares over
Elser's actual indebtedness was conceded by Elser to Lyons in
consideration of the assistance that had been derived from the mortgage
placed upon Lyon's interest in the Carriedo property. Whether the
agreement was reached exactly upon this precise line of thought is of little
moment, but the relations of the parties had been such that it was to be
expected that Elser would be generous; and he could scarcely have failed
to take account of the use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start,
Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921,
although it was not due until more than five months later. It will thus be
seen that the mortgaging of the Carriedo property never resulted in
damage to Lyons to the extent of a single cent; and although the court
refused to allow the defendant to prove the Elser was solvent at this time in
an amount much greater than the entire encumbrance placed upon the
property, it is evident that the risk imposed upon Lyons was negligible. It is
also plain that no money actually deriving from this mortgage was ever
applied to the purchase of the San Juan Estate. What really happened was
the Elser merely subjected the property to a contingent liability, and no
actual liability ever resulted therefrom. The financing of the purchase of the
San Juan Estate, apart from the modest financial participation of his three
associates in the San Juan deal, was the work of Elser accomplished
entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for
P50,000 upon the equity of redemption in the Carriedo property, Lyons, as
half owner of said property, became, as it were, involuntarily the owner of
an undivided interest in the property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is entitled to the four
hundred forty-six and two-thirds shares of J. K. Pickering & Company, with
the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money
obtained from Uy Siuliong in the manner already explained had been used
to held finance the purchase of the San Juan Estate. He seems to have
supposed that the Carried property had been mortgaged to aid in putting
through another deal, namely, the purchase of a property referred to in the
correspondence as the "Ronquillo property"; and in this connection a letter
of Elser of the latter part of May, 1920, can be quoted in which he uses this
language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo
property. Will use part of the money for Ronquillo buy (P60,000) if the
owner comes through.
Other correspondence shows that Elser had apparently been trying to buy
the Ronquillo property, and Lyons leads us to infer that he thought that the
money obtained by mortgaging the Carriedo property had been used in the
purchase of this property. It doubtedless appeared so to him in the
retrospect, but certain consideration show that he was inattentive to the
contents of the quotation from the letter above given. He had already been
informed that, although Elser was angling for the Ronquillo property, its
price had gone up, thus introducing a doubt as to whether he could get it;
and the quotation above given shows that the intended use of the money
obtained by mortgaging the Carriedo property was that only part of the
P50,000 thus obtained would be used in this way, if the deal went through.
Naturally, upon the arrival of Lyons in September, 1920, one of his first
inquiries would have been, if he did not know before, what was the status
of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser
cabled Lyons something to this effect;: "I have mortgaged the property on
Carriedo Street, secured by my personal note. You are amply protected. I
wish you to join me in the San Juan Subdivision. Borrow all money you
can." Lyons says that no such cablegram was received by him, and we
consider this point of fact of little moment, since the proof shows that Lyons
knew that the Carriedo mortgage had been executed, and after his arrival
in Manila he consented for the mortgage to remain on the property until it
was paid off, as shortly occurred. It may well be that Lyons did not at first
clearly understand all the ramifications of the situation, but he knew
enough, we think, to apprise him of the material factors in the situation, and
we concur in the conclusion of the trial court that Elser did not act in bad
faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in our
opinion, untenable. If Elser had used any money actually belonging to
Lyons in this deal, he would under article 1724 of the Civil Code and article
264 of the Code of Commerce, be obligated to pay interest upon the money
so applied to his own use. Under the law prevailing in this jurisdiction a
trust does not ordinarily attach with respect to property acquired by a
person who uses money belonging to another (Martinez vs. Martinez, 1
Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual
relation of partnership had existed in the money used, the case might be
difference; and much emphasis is laid in the appellant's brief upon the
relation of partnership which, it is claimed, existed. But there was clearly no
general relation of partnership, under article 1678 of the Civil Code. It is
clear that Elser, in buying the San Juan Estate, was not acting for any
partnership composed of himself and Lyons, and the law cannot be
distorted into a proposition which would make Lyons a participant in this
deal contrary to his express determination.
It seems to be supposed that the doctrines of equity worked out in the
jurisprudence of England and the United States with reference to trust
supply a basis for this action. The doctrines referred to operate, however,
only where money belonging to one person is used by another for the
acquisition of property which should belong to both; and it takes but little
discernment to see that the situation here involved is not one for the
application of that doctrine, for no money belonging to Lyons or any
partnership composed of Elser and Lyons was in fact used by Elser in the
purchase of the San Juan Estate. Of course, if any damage had been
caused to Lyons by the placing of the mortgage upon the equity of
redemption in the Carriedo property, Elser's estate would be liable for such
damage. But it is evident that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error in admitting the
testimony of Lyons upon matters that passed between him and Elser while
the latter was still alive. While the admission of this testimony was of
questionable propriety, any error made by the trial court on this point was
error without injury, and the determination of the question is not necessary
to this decision. We therefore pass the point without further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with
costs against the appellant.
Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ.,
concur.

G.R. No. 31057 September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees,
vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
Marcelino Lontok and Manuel dela Rosa for appellants.
Sumulong & Lavides for appellees.
VILLAMOR, J.:
This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members
or shareholders, and the defendants were designated as president-
treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first one was when the
same plaintiffs appeared from the order of the court below sustaining the
defendant's demurrer, and requiring the former to amend their complaint
within a period, so as to include all the members of "Turnuhan Polistico &
Co.," either as plaintiffs or as a defendants. This court held then that in an
action against the officers of a voluntary association to wind up its affairs
and enforce an accounting for money and property in their possessions, it
is not necessary that all members of the association be made parties to the
action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively, their
complaint and their answer, and by agreement of the parties, the court
appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner
to examine all the books, documents, and accounts of "Turnuhan Polistico
& Co.," and to receive whatever evidence the parties might desire to
present.
The commissioner rendered his report, which is attached to the record, with
the following resume:
The defendants objected to the commissioner's report, but the trial court,
having examined the reasons for the objection, found the same sufficiently
explained in the report and the evidence, and accepting it, rendered
judgment, holding that the association "Turnuhan Polistico & Co." is
unlawful, and sentencing the defendants jointly and severally to return the
amount of P24,607.80, as well as the documents showing the uncollected
Income:
Member's
shares............................
97,263.70
Credits paid................................ 6,196.55
Interest received........................... 4,569.45
Miscellaneous...............................
1,891.00
P109,620.70
Expenses:
Premiums to
members.......................
68,146.25
Loans on real-
estate.......................
9,827.00
Loans on promissory
notes..............
4,258.55
Salaries.................................... 1,095.00
Miscellaneous...............................
1,686.10
85,012.90
Cash on
hand........................................
24,607.80
credits of the association, to the plaintiffs in this case, and to the rest of the
members of the said association represented by said plaintiffs, with costs
against the defendants.
The defendants assigned several errors as grounds for their appeal, but we
believe they can all be reduced to two points, to wit: (1) That not all persons
having an interest in this association are included as plaintiffs or
defendants; (2) that the objection to the commissioner's report should have
been admitted by the court below.
As to the first point, the decision on the case of Borlasa vs.
Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of the
attorney of the defendants, we are of opinion that, the trial court having
examined all the evidence touching the grounds for the objection and
having found that they had been explained away in the commissioner's
report, the conclusion reached by the court below, accepting and adopting
the findings of fact contained in said report, and especially those referring
to the disposition of the association's money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was
held that the findings of facts made by a referee appointed under the
provisions of section 135 of the Code of Civil Procedure stand upon the
same basis, when approved by the Court, as findings made by the judge
himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court
held: "Under section 140 of the Code of Civil Procedure it is made the duty
of the court to render judgment in accordance with the report of the referee
unless the court shall unless for cause shown set aside the report or
recommit it to the referee. This provision places upon the litigant parties of
the duty of discovering and exhibiting to the court any error that may be
contained therein." The appellants stated the grounds for their objection.
The trial examined the evidence and the commissioner's report, and
accepted the findings of fact made in the report. We find no convincing
arguments on the appellant's brief to justify a reversal of the trial court's
conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful
partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege that
because it is so, some charitable institution to whom the partnership funds
may be ordered to be turned over, should be included, as a party
defendant. The appellants refer to article 1666 of the Civil Code, which
provides:
A partnership must have a lawful object, and must be established for
the common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits
shall be given to charitable institutions of the domicile of the
partnership, or, in default of such, to those of the province.
Appellant's contention on this point is untenable. According to said article,
no charitable institution is a necessary party in the present case of
determination of the rights of the parties. The action which may arise from
said article, in the case of unlawful partnership, is that for the recovery of
the amounts paid by the member from those in charge of the administration
of said partnership, and it is not necessary for the said parties to base their
action to the existence of the partnership, but on the fact that of having
contributed some money to the partnership capital. And hence, the
charitable institution of the domicile of the partnership, and in the default
thereof, those of the province are not necessary parties in this case. The
article cited above permits no action for the purpose of obtaining the
earnings made by the unlawful partnership, during its existence as result of
the business in which it was engaged, because for the purpose, as
Manresa remarks, the partner will have to base his action upon the
partnership contract, which is to annul and without legal existence by
reason of its unlawful object; and it is self evident that what does not exist
cannot be a cause of action. Hence, paragraph 2 of the same article
provides that when the dissolution of the unlawful partnership is decreed,
the profits cannot inure to the benefit of the partners, but must be given to
some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at
length, as a clear explanation of the scope and spirit of the provision of the
Civil Code which we are concerned. Commenting on said article Manresa,
among other things says:
When the subscriptions of the members have been paid to the
management of the partnership, and employed by the latter in
transactions consistent with the purposes of the partnership may the
former demand the return of the reimbursement thereof from the
manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid
existence, if it is considered juridically non-existent, the contract
entered into can have no legal effect; and in that case, how can it
give rise to an action in favor of the partners to judicially demand from
the manager or the administrator of the partnership capital, each
one's contribution?
The authors discuss this point at great length, but Ricci decides the
matter quite clearly, dispelling all doubts thereon. He holds that the
partner who limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on which to base
his action. And he adds in explanation that the partner makes his
contribution, which passes to the managing partner for the purpose of
carrying on the business or industry which is the object of the
partnership; or in other words, to breathe the breath of life into a
partnership contract with an objection forbidden by law. And as said
contrast does not exist in the eyes of the law, the purpose from which
the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what
belongs to others, without any consideration; for which reason he is
not bound to return it and he who has paid in his share is entitled to
recover it.
But this is not the case with regard to profits earned in the course of
the partnership, because they do not constitute or represent the
partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership, and therefor, in
order to demand the proportional part of the said profits, the partner
would have to base his action on the contract which is null and void,
since this partition or distribution of the profits is one of the juridical
effects thereof. Wherefore considering this contract as non-existent,
by reason of its illicit object, it cannot give rise to the necessary
action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a
profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of
this Code, providing that the profits obtained by unlawful means shall
not enrich the partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of
the partnership, or, in default of such, to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an
obvious deficiency of the former law, which did not describe the
purpose to which those profits denied the partners were to be
applied, nor state what to be done with them.
The profits are so applied, and not the contributions, because this
would be an excessive and unjust sanction for, as we have seen,
there is no reason, in such a case, for depriving the partner of the
portion of the capital that he contributed, the circumstances of the two
cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful
partnership, the amounts contributed are to be returned by the
partners, because it only deals with the disposition of the profits; but
the fact that said contributions are not included in the disposal
prescribed profits, shows that in consequences of said exclusion, the
general law must be followed, and hence the partners should
reimburse the amount of their respective contributions. Any other
solution is immoral, and the law will not consent to the latter
remaining in the possession of the manager or administrator who has
refused to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish Civil Code,
vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it
is hereby, affirmed with costs against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of P24,607.80 from the
date of the decision of the court, and provided, further, that the defendants
shall deposit this sum of money and other documents evidencing
uncollected credits in the office of the clerk of the trial court, in order that
said court may distribute them among the members of said association,
upon being duly identified in the manner that it may deem proper. So
ordered.
Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real,
JJ., concur.

G.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 (") 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 letter
10
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,
13
expressing
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 wrote
17
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 letter
19
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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,
Fernando and Capistrano, JJ., concur.
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-
appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal
of the Court of First Instance of Davao, we are called upon to determine the
applicability of Article 1773 of our Civil Code to the contract of partnership
on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public
instrument dated August 29, 1952, copy of which is attached to the
complaint as Annex "A" partners in a fishpond business, to the capital of
which Agad contributed P1,000, with the right to receive 50% of the profits;
that from 1952 up to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of the operations of the
partnership; and that, despite repeated demands, Mabato had failed and
refused to render accounts for the years 1957 to 1963, Agad prayed in his
complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the
sum of P14,000, as his share in the profits of the partnership for the period
from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering
the dissolution of the partnership, as well as the winding up of its affairs by
a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and
denied the existence of said partnership, upon the ground that the contract
therefor had not been perfected, despite the execution of Annex "A",
because Agad had allegedly failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore, that the complaint be
dismissed; that Annex "A" be declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as
attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the
complaint states no cause of action and that the lower court had no
jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due hearing,
the court issued the order appealed from, granting the motion to dismiss
the complaint for failure to state a cause of action. This conclusion was
predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory
of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter
to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if inventory of said property is not
made, signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real
rights" have been contributed to the partnership under consideration.
Mabato alleged and the lower court held that the answer should be in the
affirmative, because "it is really inconceivable how a partnership engaged
in the fishpond business could exist without said fishpond property (being)
contributed to the partnership." It should be noted, however, that, as stated
in Annex "A" the partnership was established "tooperate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners
contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4
of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00)
Pesos Philippine Currency, of which One Thousand (P1,000.00)
pesos has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
x x x x x x x x x
The operation of the fishpond mentioned in Annex "A" was the purpose of
the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even if
a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in
point and that, the order appealed from should be, as it is hereby set aside
and the case remanded to the lower court for further proceedings, with the
costs of this instance against defendant-appellee, Severino Mabato. It is so
ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.

G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T.
Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by herein respondent William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively, P20,000.00, P18,000.00
and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange Commission.
The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets
and amusement machines, their parts and accessories. It had an office and
held itself out as a limited partnership, handling and carrying merchandise,
using invoices, bills and letterheads bearing its trade-name, maintaining its
own books of accounts and bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson sold
his share in the partnership to Suter and his wife. The sale was duly
recorded with the Securities and Exchange Commission on 20 December
1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06
for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his request
was denied. Unable to secure a reconsideration, he appealed to the Court
of Tax Appeals, which court, after trial, rendered a decision, on 11
November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig Suter
actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the
marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality of
the partnership should be disregarded for income tax purposes because
the spouses have exclusive ownership and control of the business;
consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and
that of the limited partnership, in accordance with Section 45 (d) of the
National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for
the taxable year shall be filed by either spouse to cover the income of
both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of
Tax Appeals held, that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is not a ground
for dissolution of the partnership, either in the Code of Commerce or in the
New Civil Code, and that since its juridical personality had not been
affected and since, as a limited partnership, as contra distinguished from a
duly registered general partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the
income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd.,
has been dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia Spirig
one year after the partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in Commentaries and
Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page
58, that reads as follows:
A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which
applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri
196) It follows that the marriage of partners necessarily brings about
the dissolution of a pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William
J. Suter "Morcoin" Co., Ltd. was not a universalpartnership, but a particular
one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of
1889 (which was the law in force when the subject firm was organized in
1947), a universal partnership requires either that the object of the
association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". William J.
Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money, P20,000.00 by
William Suter and P18,000.00 by Julia Spirig and neither one of them was
an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was
not a partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in
his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says
with regard to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar
a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La
jurisprudencia de la Direccion de los Registros fue favorable a esta
misma tesis en su resolution de 3 de febrero de 1936, mas parece
cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it,
such marriage not being one of the causes provided for that purpose either
by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin"
Co., Ltd. did not become common property of both after their marriage in
1948.
It being a basic tenet of the Spanish and Philippine law that the partnership
has a juridical personality of its own, distinct and separate from that of its
partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding
clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its
income with that of the component members. True, section 24 of the
Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for
income tax purposes. But this rule is exceptional in its disregard of a
cardinal tenet of our partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964, and
Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the
fiction of legal personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the corporations were
alreadysubject to tax when the fiction of their corporate personality was
pierced; in the present case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden upon the partners-
spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a
factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership
is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income
tax returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not enter into
matrimony and thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to
require that income to be included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general
copartnership (compaia colectiva) and a limited partnership, when the
code plainly differentiates the two. Thus, the code taxes the latter on its
income, but not the former, because it is in the case of compaias
colectivas that the members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito vs.
Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become conjugal only when no
longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income
taxability of the partnership since the law taxes the income of even joint
accounts that have no personality of their own.
1
Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of income
(income of the conjugal partnership vis-a-vis the joint income of husband
and wife) may be the same for a given taxable year, their consequences
would be different, as their contributions in the business partnership are not
the same.
The difference in tax rates between the income of the limited partnership
being consolidated with, and when split from the income of the spouses, is
not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the
limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby
affirmed. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,
Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.

G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract
between himself and the defendant, entered into on October 15, 1920, the
reimbursement by the latter of his 50,000 peso investment therein, with
interest at 12 per cent per annum form October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the
plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it
duly proved that the defendant had not contributed all the capital he had
bound himself to invest, and that the plaintiff had demanded that the
defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the
defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the
accounts and vouchers within the period of thirty days from receipt of notice
of said judgment, without costs.
The plaintiff appealed from said decision making the following assignments
of error:
1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article 1124
of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the
plaintiff with interest from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised
purporting to show that this appeal is premature and therefore will not lie.
The point is based on the contention that inasmuch as the liquidation
ordered by the trial court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed terminated in said court
and its ruling is not yet appealable. In support of this contention counsel
cites section 123 of the Code of Civil Procedure, and the decision of this
court in the case of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as
ordered by the trial court, and until they have been either approved or
disapproved, the litigation involved in this action cannot be considered as
completely decided; and, as it was held in said case of Natividad
vs .Villarica, also with reference to an appeal taken from a decision
ordering the rendition of accounts following the dissolution of partnership,
the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment
appealed from is inevitable. In view of the lower court's findings referred to
above, which we cannot revise because the parol evidence has not been
forwarded to this court, articles 1681 and 1682 of the Civil Code have been
properly applied. Owing to the defendant's failure to pay to the partnership
the whole amount which he bound himself to pay, he became indebted to it
for the remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the
resolution of obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs. So ordered.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and
Villa-Real, JJ., concur.

G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.
NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of
"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of P17,500
each. The amended Articles provided, inter alia, that "the contribution of
Estrella Abad Santos consists of her industry being an industrial partner",
and that the profits and losses "shall be divided and distributed among the
partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for the fourth partner Estrella
Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other
partners in the Court of First Instance of Manila, alleging that the
partnership, which was also made a party-defendant, had been paying
dividends to the partners except to her; and that notwithstanding her
demands the defendants had refused and continued to refuse and let her
examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the
partnership. She therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding
share in the partnership profits after such accounting, plus attorney's fees
and costs.
The defendants, in their answer, denied ever having declared dividends or
distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and
byway of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership; and that her share of 30% was to be
based on the profits which might be realized by the partnership only until
full payment of the loan which it had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of P30,000, for which the
plaintiff had signed a promisory note as co-maker and mortgaged her
property as security.
The parties are in agreement that the main issue in this case is "whether
the plaintiff-appellee (respondent here) is an industrial partner as claimed
by her or merely a profit sharer entitled to 30% of the net profits that may
be realized by the partnership from June 7, 1955 until the mortgage loan
from the Rehabilitation Finance Corporation shall be fully paid, as claimed
by appellants (herein petitioners)." On that issue the Court of First Instance
found for the plaintiff and rendered judgement "declaring her an industrial
partner of Evangelista & Co.; ordering the defendants to render an
accounting of the business operations of the (said) partnership ... from
June 7, 1955; to pay the plaintiff such amounts as may be due as her share
in the partnership profits and/or dividends after such an accounting has
been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00
and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed
judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent
is an industrial partner of Evangelista & Co., notwithstanding
the admitted fact that since 1954 and until after promulgation of
the decision of the appellate court the said respondent was one
of the judges of the City Court of Manila, and despite its
findings that respondent had been paid for services allegedly
contributed by her to the partnership. In this connection the
Court of Appeals erred:
(A) In finding that the "amended Articles of Co-
partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of
Evangelista & Co.
(B) In not finding that a portion of respondent's
testimony quoted in the decision proves that said
respondent did not bind herself to contribute her
industry, and she could not, and in fact did not,
because she was one of the judges of the City
Court of Manila since 1954.
(C) In finding that respondent did not in fact
contribute her industry, despite the appellate court's
own finding that she has been paid for the services
allegedly rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of, her
alleged share, interests and participation, as an alleged
industrial partner, in the partnership Evangelista & Co., and its
profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of
the trial court whereby respondent was declared an industrial
partner of the petitioner, and petitioners were ordered to render
an accounting of the business operation of the partnership from
June 7, 1955, and to pay the respondent her alleged share in
the net profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of dismissing
respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer
to the facts as found by the Court of Appeals. The evidence presented by
the parties as the trial in support of their respective positions on the issue of
whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the
Articles of Co-partnership, identified in the record as Exhibit "A", was
conclusive evidence that the respondent was an industrial partner of the
said company, but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at the factual
conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that
the same were made after a through analysis of then evidence, and hence
are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under
Appellants' first assigned error, wherein it is pointed out that
"Appellee's documentary evidence does not conclusively prove
that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co." and that "The grounds relied upon
by the lower Court are untenable" (Pages 21 and 26,
Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S,
appellants' complaint being that "In finding that the appellee is
an industrial partner of appellant Evangelista & Co., herein
referred to as the partnership the lower court relied mainly
on the appellee's documentary evidence, entirely disregarding
facts and circumstances established by appellants" evidence
which contradict the said finding' (Page 21, Appellants' Brief).
The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted
their genuineness and due execution, hence they were
admitted without objection by the lower court when appellee
rested her case and, secondly the said exhibits indubitably
show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract
from the probative force of the said exhibits because they all
bear the imprint of their knowledge and consent, and there is no
credible showing that they ever protested against or opposed
their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr.,
would have us believe as against the cumulative force of
appellee's aforesaid documentary evidence is the appellee's
Exhibit "A", as confirmed and corroborated by the other exhibits
already mentioned, does not express the true intent and
agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit
sharer entitled to 30% of the net profits that may be realized
between the partners from June 7, 1955, until the mortgage
loan of P30,000.00 to be obtained from the RFC shall have
been fully paid. This version, however, is discredited not only by
the aforesaid documentary evidence brought forward by the
appellee, but also by the fact that from June 7, 1955 up to the
filing of their answer to the complaint on February 8, 1964 or
a period of over eight (8) years appellants did nothing to
correct the alleged false agreement of the parties contained in
Exhibit "A". It is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not
express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the
argument that 'there is an overriding fact which proves that the
parties to the Amended Articles of Partnership, Exhibit "A", did
not contemplate to make the appellee Estrella Abad Santos, an
industrial partner of Evangelista & Co. It is an admitted fact that
since before the execution of the amended articles of
partnership, Exhibit "A", the appellee Estrella Abad Santos has
been, and up to the present time still is, one of the judges of the
City Court of Manila, devoting all her time to the performance of
the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time and
industry which is the obligation of an industrial partner pursuant
to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on
this point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without
gaining the very definite impression that, even as she was and
still is a Judge of the City Court of Manila, she has rendered
services for appellants without which they would not have had
the wherewithal to operate the business for which appellant
company was organized. Article 1767 of the New Civil Code
which provides that "By contract of partnership two or more
persons bind themselves, to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves, 'does not specify the kind of industry
that a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied upon
appellants reads:
'ART. 1789. An industrial partner cannot engage in
business for himself, unless the partnership
expressly permits him to do so; and if he should do
so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits
which he may have obtained in violation of this
provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner
engaging in business for himself seeks to prevent any conflict
of interest between the industrial partner and the partnership,
and to insure faithful compliance by said partner with this
prestation. There is no pretense, however, even on the part of
the appellee is engaged in any business antagonistic to that of
appellant company, since being a Judge of one of the branches
of the City Court of Manila can hardly be characterized as a
business. That appellee has faithfully complied with her
prestation with respect to appellants is clearly shown by the fact
that it was only after filing of the complaint in this case and the
answer thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their
Supplemental Answer dated June 29, 1964 or after around
nine (9) years from June 7, 1955 subsequent to the filing of
defendants' answer to the complaint, defendants reached an
agreement whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as an
alleged industrial partner, in the defendant partnership and/or in
its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has
been and still is a judge of the City Court (formerly Municipal
Court) of the City of Manila, devoting her time to performance of
her duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from teaching
in law school in Manila, without the express consent of the
herein defendants' (Record On Appeal, pp. 24-25). Having
always knows as a appellee as a City judge even before she
joined appellant company on June 7, 1955 as an industrial
partner, why did it take appellants many yearn before excluding
her from said company as aforequoted allegations? And how
can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real
agreement evidenced by Exhibit "A" was to grant the appellee a
share of 30% of the net profits which the appellant partnership
may realize from June 7, 1955, until the mortgage of
P30,000.00 obtained from the Rehabilitation Finance Corporal
shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower
Court that appellee is an industrial partner of appellant
company, with the right to demand for a formal accounting and
to receive her share in the net profit that may result from such
an accounting, which right appellants take exception under their
second assigned error. Our said holding is based on the
following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a
formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this
Court's appellate jurisdiction to reviewing only errors of law, accepting as
conclusive the factual findings of the lower court upon its own assessment
of the evidence.
The judgment appealed from is affirmed, with costs.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and
Esguerra, JJ., concur.





G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.
Josue Soncuya in his own behalf.
Conrado V. Sanchez and Jesus de Veyra for appellee.
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First
Instance of Manila and amended complaint against Carmen de Luna in her
own name and as co-administratrix of the intestate estate, of Librada
Avelino, in which, upon the facts therein alleged, he prayed that defendant
be sentenced to pay him the sum of P700,432 as damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna
interposed a demurrer based on the following grounds: (1) That the
complaint does not contain facts sufficient to constitute a cause of action;
and (2) that the complaint is ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard, the court
found the same well-founded and sustained it, ordering the plaintiff to
amend his complaint within a period of ten days from receipt of notice of
the order.
Plaintiff having manifested that he would prefer not to amend his amended
complaint, the attorney for the defendant, Carmen de Luna, filed a motion
praying that the amended complaint be dismissed with costs against the
plaintiff. Said motion was granted by The Court of First Instance of Manila
which ordered the dismissal of the aforesaid amended complaint, with
costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty
alleged errors committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by
plaintiff having been sustained on the grounds that the facts alleged in said
complaint are not sufficient to constitute a cause of action and that the
complaint is ambiguous, unintelligible and vague, the only questions which
may be raised and considered in the present appeal are those which refer
to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be
sentenced to pay plaintiff damages in the sum of P700,432 as a result of
the administration, said to be fraudulent, of he partnership, "Centro Escolar
de Seoritas", of which plaintiff, defendant and the deceased Librada
Avelino were members. For the purpose of adjudicating to plaintiff damages
which he alleges to have suffered as a partner by reason of the supposed
fraudulent management of he partnership referred to, it is first necessary
that a liquidation of the business thereof be made to the end that the profits
and losses may be known and the causes of the latter and the
responsibility of the defendant as well as the damages which each partner
may have suffered, may be determined. It is not alleged in the complaint
that such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the action
for damages which he claims from the managing partner Carmen de Luna
(Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint are
not sufficient to constitute a cause of action on the part of plaintiff as
member of the partnership "Centro Escolar de Seoritas" to collect
damages from defendant as managing partner thereof, without a previous
liquidation, we do not deem it necessary to discuss the remaining question
of whether or not the complaint is ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold
that for a partner to be able to claim from another partner who manages the
general copartnership, damages allegedly suffered by him by reason of the
fraudulent administration of the latter, a previous liquidation of said
partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed
in all its parts, with costs against the appellant. So ordered.
Avancea, C. J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ.,
concur.


G.R. No. L-5236 January 10, 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.
Fernando de la Cantera for appellant.
O'Brien and DeWitt for appellee.
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the
defendants who, in a private document, acknowledged that they had
received the same with the agreement, as stated by them, "that we are to
invest the amount in a store, the profits or losses of which we are to divide
with the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel the
defendants to render him an accounting of the partnership as agreed to, or
else to refund him the P1,500 that he had given them for the said purpose.
Ong Pong Co alone appeared to answer the complaint; he admitted the
fact of the agreement and the delivery to him and to Ong Lay of the P1,500
for the purpose aforesaid, but he alleged that Ong Lay, who was then
deceased, was the one who had managed the business, and that nothing
had resulted therefrom save the loss of the capital of P1,500, to which loss
the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the
case ordered Ong Pong Co to return to the plaintiff one-half of the said
capital of P1,500 which, together with Ong Lay, he had received from the
plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the
rate of 12 per cent per annum for the six months that the store was
supposed to have been open, both sums in Philippine currency, making a
total of P840, with legal interest thereon at the rate of 6 per cent per
annum, from the 12th of June, 1901, when the business terminated and on
which date he ought to have returned the said amount to the plaintiff, until
the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned the
following errors:
1. For not having taken into consideration the fact that the reason for
the closing of the store was the ejectment from the premises
occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have yielded profits,
and that the latter should be calculated 12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed by
virtue of ejectment proceedings is of no importance for the effects of the
suit. The whole action is based upon the fact that the defendants received
certain capital from the plaintiff for the purpose of organizing a company;
they, according to the agreement, were to handle the said money and
invest it in a store which was the object of the association; they, in the
absence of a special agreement vesting in one sole person the
management of the business, were the actual administrators thereof; as
such administrators they were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that of rendering account
to the principal of their transactions, and paying him everything they may
have received by virtue of the mandatum. (Arts. 1695 and 1720, Civil
Code.) Neither of them has rendered such account nor proven the losses
referred to by Ong Pong Co; they are therefore obliged to refund the money
that they received for the purpose of establishing the said store the
object of the association. This was the principal pronouncement of the
judgment.
With regard to the second and third assignments of error, this court, like the
court below, finds no evidence that the entire capital or any part thereof
was lost. It is no evidence of such loss to aver, without proof, that the
effects of the store were ejected. Even though this were proven, it could not
be inferred therefrom that the ejectment was due to the fact that no rents
were paid, and that the rent was not paid on account of the loss of the
capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are based
on the statements of the defendant Ong Pong Co, to the effect that "there
were some profits, but not large ones." This court, however, does not find
that the amount thereof has been proven, nor deem it possible to estimate
them to be a certain sum, and for a given period of time; hence, it can not
admit the estimate, made in the judgment, of 12 per cent per annum for the
period of six months.
Inasmuch as in this case nothing appears other than the failure to fulfill an
obligation on the part of a partner who acted as agent in receiving money
for a given purpose, for which he has rendered no accounting, such agent
is responsible only for the losses which, by a violation of the provisions of
the law, he incurred. This being an obligation to pay in cash, there are no
other losses than the legal interest, which interest is not due except from
the time of the judicial demand, or, in the present case, from the filing of the
complaint. (Arts. 1108 and 1100, Civil Code.) We do not consider that
article 1688 is applicable in this case, in so far as it provides "that the
partnership is liable to every partner for the amounts he may have
disbursed on account of the same and for the proper interest," for the
reason that no other money than that contributed as is involved.
As in the partnership there were two administrators or agents liable for the
above-named amount, article 1138 of the Civil Code has been invoked; this
latter deals with debts of a partnership where the obligation is not a joint
one, as is likewise provided by article 1723 of said code with respect to the
liability of two or more agents with respect to the return of the money that
they received from their principal. Therefore, the other errors assigned
have not been committed.
In view of the foregoing judgment appealed from is hereby affirmed,
provided, however, that the defendant Ong Pong Co shall only pay the
plaintiff the sum of P750 with the legal interest thereon at the rate of 6 per
cent per annum from the time of the filing of the complaint, and the costs,
without special ruling as to the costs of this instance. So ordered.
Torres, Johnson, Carson, and Moreland, JJ., concur.


G.R. No. L-3745 October 26, 1907
JUAN AGUSTIN, ET AL., plaintiffs;
VICTOR DEL ROSARIO, appellant,
vs.
BARTOLOME INOCENCIO, defendant-appellee.
Salas and Soncuya, for appellant.
Southworth and Ingersoll, for appellee.

TRACEY, J.:
The parties to this controversy, who had been conducting a partnership as
industrial partners without capital, contributed from its profits the sum of
P807.28 as a fund toward the construction of a casco for use in their
business, to which they added P3,500, borrowed from Maria del Rosario,
the wife of the defendant, Bartolome Inocencio, he being the managing
partner. It is admitted that this total, a little over P4,300, was the estimated
cost of the casco, but in the progress of the work the defendant found that it
called for additional funds, which he advanced to the amount of P2,024.49.
It is satisfactorily appears from the evidence that this amount is necessary
in order to complete the work undertaken. Although it would seem that he
failed to notify his partners of the various items from time to time going to
make up this sum, it is shown that the books were at all times open to their
inspection, and that, being asked to examine them, they omitted to do so,
and that the plaintiff Juan Agustin, representing all the partners, was also
present at the construction of the casco, in charge of the practical work and
cognizant of its needs and its progress.
The work done in the casco having been within the scope of the
association and necessary to carry out its express object, the borrowing of
the money required to carry it on, with the acquiescence if not with the
affirmative consent of his associates, was not outside the powers of the
managing partner and constitutes a debt for which all the associates are
liable.
The note passed into the hands of the defendant by reason of the
successive deaths of his wife and of their only child, each without debts,
and for the amount thereof he became a creditor, subject, however, to the
deduction therefrom of his proportionate part of the indebtedness.
The trial court treated his claim on this note, as well as the sum of
P2,024.49 furnished by him, as an addition to his capital in the firm, rather
than as a loan, and this constitutes one of the grounds of error stated by
the appellant. We do not deem it necessary to pass upon this objection, for
the reason that, considered as a loan, this sum would place the defendant
as a creditor in a stronger position as against his associates than if
regarded as a mere contribution to capital. The error, if it be an error, is not,
therefore, prejudicial to the plaintiff, but is rather beneficial to him. The
respondent did not except to it. lawphil.net
Various small sums have been paid out of the profits to some of the
partners and these were properly allowed him in the judgment.
On the theory on which the action was disposed of, the trial court
committed no error in the computation of the various shares.
Of the four parties plaintiff, but one, Victor del Rosario, is interested in this
appeal, which has been dismissed as to the others, and as to him the
judgment of the trial court must be affirmed, with costs of this instance. So
ordered.
Arellano, C.J., Torres, Johnson and Willard, JJ., concur.








G.R. No. L-955 November 21, 1902
RAMON CHAVES, plaintiff-appellee,
vs.
RAMON NERY LINAN, defendant-appellant.
Felipe G. Calderon, for appellant.
Early and Levering, for appellee.

TORRES, J.:
By order of the 29th of October last the motion of the defendant for the
dismissal of the bill of exceptions was overruled. The defendant now moves
the court to issue an order to the clerk of the court of Misamis, directing him
to send to this court the original record of the case, to the end that the court
may do complete justice, upon the ground that the bill of exceptions is
incomplete and was prepared without the knowledge or participation of the
moving party or of his attorney.
The appellant, who for the purpose of his defense might really be interested
in presenting to this court the original record, opposes the motion of the
appellee. The appellee has not indicated in detail the deficiencies of the bill
of exceptions presented, and has not stated in what the incompleteness of
this bill consists. The attorney for the party which has presented the bill in
defense of his rights alleges that it is not incomplete.
In view of these facts we are of the opinion that the motion of the appellee
should be overruled, and it is so ordered.lawphi1.net
Arellano, C.J., Cooper, Smith, Willard, Mapa, and Ladd, JJ., concur.




G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E.
PECSON, respondents.

GUTIERREZ, JR., J.:+.wph!1
This is a petition for review on certiorari of the decision of the respondent
Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay
damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate
that: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to
the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission
of P l,000 a month starting on April 15, 1971 up to December
15, 1971; that on December 15, 1971, a liquidation of the
accounts in the distribution and printing of the 95,000 posters
would be made, that Pecson gave Moran P10,000 for which the
latter issued a receipt; that only a few posters were printed; that
on or about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first
installment on the date due, complete with the costs of
collection.
Private respondent Pecson filed with the Court of First Instance of Manila
an action for the recovery of a sum of money and alleged in his complaint
three (3) causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment of his
share in the profits that the partnership would have earned, and, payment
of unpaid commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and attorney's
fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the court
that by virtue of the partnership agreement entered into by the
parties-plaintiff and defendant the plaintiff did contribute
P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies
of the posters, the defendant was able to print 2,000 copies
only authorized of which, however, were sold at P5.00 each.
Nothing more was done after this and it can be said that the
venture did not really get off the ground. On the other hand, the
plaintiff failed to give his full contribution of P15,000.00. Thus,
each party is entitled to rescind the contract which right is
implied in reciprocal obligations under Article 1385 of the Civil
Code whereunder 'rescission creates the obligation to return
the things which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate
from the filing of the complaint on June 19, 1972, and the costs
of the suit.
For insufficiency of evidence, the counterclaim is hereby
dismissed.
From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the petitioner. The
dispositive portion of the decision reads: t.hqw
PREMISES CONSIDERED, the decision appealed from is
hereby SET ASIDE, and a new one is hereby rendered,
ordering defendant-appellant Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount
that could have accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint
was filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided
questions of substance in a way not in accord with law and with Supreme
Court decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE
FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT
EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON
FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR
DAMAGES.
The first question raised in this petition refers to the award of P47,500.00
as the private respondent's share in the unrealized profits of the
partnership. The petitioner contends that the award is highly speculative.
The petitioner maintains that the respondent court did not take into account
the great risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no
basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private respondent. It is a contract of partnership. The
latter in his complaint alleged that he was induced by the petitioner to enter
into a partnership with him under the following terms and conditions: t.
hqw
1. That the partnership will print colored posters of the
delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of
the said posters;
4. That plaintiff will receive a commission of One Thousand
Pesos (P1,000.00) a month starting April 15, 1971 up to
December 15, 1971;
5. That upon the termination of the partnership on December
15, 1971, a liquidation of the account pertaining to the
distribution and printing of the said 95,000 posters shall be
made.
The petitioner on the other hand admitted in his answer the existence of the
partnership.
The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have complied with his
obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598),
which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed
a total of P200,000.00 compensatory damages in favor of the appellee
because the appellant therein was remiss in his obligations as a partner
and as prime contractor of the construction projects in question. This case
was decided on a particular set of facts. We awarded compensatory
damages in the Uy case because there was a finding that the constructing
business is a profitable one and that the UP construction company derived
some profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that the
partnership made some profits during the periods from July 2, 1956 to
December 31, 1957 and from January 1, 1958 up to September 30, 1959.
The profits on two government contracts worth P2,327,335.76 were not
speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have
been a profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages in favor
of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution
while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to give
his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the agreement to print
95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in
the same proportion.
Being a contract of partnership, each partner must share in the profits and
losses of the venture. That is the essence of a partnership. And even with
an assurance made by one of the partners that they would earn a huge
amount of profits, in the absence of fraud, the other partner cannot claim a
right to recover the highly speculative profits. It is a rare business venture
guaranteed to give 100% profits. In this case, on an investment of
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00
a month for eight months and around P142,500.00 on 95,000 posters
costing P2.00 each but 2,000 of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious. We have to take various
factors into account. The failure of the Commission on Elections to proclaim
all the 320 candidates of the Constitutional Convention on time was a major
factor. The petitioner undesirable his best business judgment and felt that it
would be a losing venture to go on with the printing of the agreed 95,000
copies of the posters. Hidden risks in any business venture have to be
considered.
It does not follow however that the private respondent is not entitled to
recover any amount from the petitioner. The records show that the private
respondent gave P10,000.00 to the petitioner. The latter used this amount
for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies
were sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00 should be divided
between the petitioner and the private respondent. And since only
P4,000.00 was undesirable by the petitioner in printing the 2,000 copies,
the remaining P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that the award
of P8,000.00 as Pecson's supposed commission has no justifiable basis in
law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the
private respondent a monthly commission of Pl,000.00 from April 15, 1971
to December 15, 1971 for a total of eight (8) monthly commissions. The
agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant
profits. The parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent
Court of Appeals erred in holding him liable to the private respondent in the
sum of P7,000.00 as a supposed return of investment in a magazine
venture.
In awarding P7,000.00 to the private respondent as his supposed return of
investment in the "Voice of the Veterans" magazine venture, the
respondent court ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in
favor of Pecson. Moran does not question the due execution of
said note. Must Moran therefore pay the amount of P20,000?
The evidence indicates that the P20,000 was assigned by
Moran to cover the following: t.hqw
(a) P 7,000 the amount of the PNB
check given by Pecson to Moran
representing Pecson's investment in
Moran's other project (the publication
and printing of the 'Voice of the
Veterans');
(b) P10,000 to cover the return of
Pecson's contribution in the project of
the Posters;
(c) P3,000 representing Pecson's
commission for three months (April,
May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of
Pecson's investment for the Veterans' project, for this project
never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA
332). However, this rule admits of certain exceptions. Thus, in Carolina
Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we
held that this Court retains the power to review and rectify the findings of
fact of the Court of Appeals when (1) the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference
made is manifestly mistaken absurd and impossible; (3) where there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the
admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans"
project amounted to only P3,000.00. The remaining P4,000.00 was the
amount of profit that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated
March 22, 1971 in favor of defendant. Defendant admitted the
authenticity of this check and of his receipt of the proceeds
thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being
offered for the purpose of showing plaintiff's capital investment
in the printing of the "Voice of the Veterans" for which he was
promised a fixed profit of P8,000. This investment of P6,000.00
and the promised profit of P8,000 are covered by defendant's
promissory note for P14,000 dated March 31, 1971 marked by
defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by
plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the
P6,000.00 investment thereby proportionately reducing the
promised profit to P4,000. With the balance of P3,000 (capital)
and P4,000 (promised profit), defendant signed and executed
the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant
paid P4,000 representing full return of the capital investment
and P1,000 partial payment of the promised profit. The P3,000
balance of the promised profit was made part consideration of
the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972).
It is, therefore, being presented to show the consideration for
the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971
for P7,000 in favor of defendant. The authenticity of the check
and his receipt of the proceeds thereof were admitted by the
defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note
(t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show
the consideration for the P20,000 note and the existence and
validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered
for the purpose of showing the subject matter of the other
partnership agreement and in which plaintiff invested the
P6,000 (Exhibit E) which, together with the promised profit of
P8,000 made up for the consideration of the P14,000
promissory note (Exhibit 2; Exhibit P). As explained in
connection with Exhibit E. the P3,000 balance of the promised
profit was later made part consideration of the P20,000
promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is
also defendant's Exhibit E. This document is being offered for
the purpose of further showing the transaction as explained in
connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his
P3,000 out of his capital investment of P6,000 (Exh. E) in the
P14,000 promissory note (Exh. 2; P). This is also defendant's
Exhibit 4. This document is being offered in support of plaintiff's
explanation in connection with Exhibits E, L, and M to show the
transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's
Exhibit 2. It is being offered for the purpose of showing the
transaction as explained in connection with Exhibits E, L, M,
and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that: t.
hqw
Q During the pre-trial of this case, Mr. Pecson, the
defendant presented a promissory note in the
amount of P14,000.00 which has been marked as
Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with
your transaction with the defendant?
A This promissory note is for the printing of the
"Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.t.hqw
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00
indicated in the promissory note, Exhibit 2,
represent?
A It represents the P6,000.00 cash which I gave to
Mr. Moran, as evidenced by the Philippine National
Bank Manager's check and the P8,000.00 profit
assured me by Mr. Moran which I will derive from
the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is
covered by, a Manager's check. I show you Exhibit
E, is this the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of
P14,000.00 which you said represented P6,000.00
of your investment and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which
represented one-half (1/2) of the P6,000.00 capital I
gave to him.
Q As a consequence of the return by Mr. Moran of
one-half (1/2) of the P6,000.00 capital you gave to
him, what happened to the promised profit of
P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.
Q Was there any document executed by Mr. Moran
in connection with the Balance of P3,000.00 of your
capital investment and the P4,000.00 promised
profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of
P7,000.00 dated March 30, 1971 which for
purposes of Identification I request the same to be
marked as Exhibit M. . .
Court t.hqw
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you
said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice
of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed
by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the
P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this
payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of
P4,000.00 on account of the P7,000.00 covered by
the promissory note, Exhibit M. What does this
P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which
he has returned of my P6,000.00 capital investment
and the P1,000.00 represents partial payment of the
P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00
under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the
profit was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the
ground because the project did take place. Only it failed. It was the private
respondent himself who presented a copy of the book entitled "Voice of the
Veterans" in the lower court as Exhibit "L". Therefore, it would be error to
state that the project never took place and on this basis decree the return
of the private respondent's investment.
As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business judgment,
which seems to be true in this case. In view of the foregoing, there is no
reason to pass upon the fourth and fifth assignments of errors raised by the
petitioner. We likewise find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent
Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE
and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay
private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND
(P3,000.00) PESOS representing one half (1/2) of the net profits gained by
the partnership in the sale of the two thousand (2,000) copies of the
posters, with interests at the legal rate on both amounts from the date the
complaint was filed until full payment is made.
SO ORDERED.1wph1.t
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
De la Fuente J., took no part.

G.R. No. L-12371 March 23, 1918
LEOPOLDO CRIADO, plaintiff-appellant,
vs.
GUTIERREZ HERMANOS, defendant-appellant.
Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.
C. W. O'Brien for defendant-appellant.
TORRES, J.:
In the ordinary proceedings prosecuted in the Court of First Instance of
Manila by counsel for Leopoldo Criado against the firm of Gutierrez
Hermanos for the recovery of a sum of money, on September 11, 1916,
judgment was handed down whereby said firm was ordered to pay, in
addition to other amounts therein specified, P54,292.62 with interest
thereon at the rate of 6 per cent per annum from May 25, 1912, and
whereby it was held that plaintiff was entitled to a share of .34064 per cent
on P818,260.70, the total amount of the unpaid bills, subject to the liability
of 10 per cent contracted toward the defendant in respect to said bills or to
such part thereof as should be found to be uncollectible, with the costs
against the defendant. Both parties excepted from this judgment and
moved for a new trial, which motion was denied by an order of September
25th of the same year, to which both parties excepted. Plaintiff and
defendant by mutual consent have filed but a single bill of exceptions and
the same was approved, certified and forwarded to the clerk of this court,
together with the oral and documentary evidence of record.
The original complaint was filed in the Court of First Instance on May 25,
1912, and after being twice amended was finally filed on January 15, 1913.
Upon answering it, defendant interposed a cross-complaint. After full trial,
judgment was rendered on July 8, 1913, by which, dismissing plaintiff's
first, second, third, and fourth causes of action and the cross-complaint of
the defendant of the court sentenced the defendant, the firm of Gutierrez
Hermanos, to pay the several sums specified in the fifth, sixth, seventh,
eighth, ninth, and tenth causes of action, with legal interest thereon from
May 25, 1912, and ordered same further to render accounts to the plaintiff
for the reason therein stated, and to pay the costs. From this judgment
defendant appealed and moved for a trial. The motion was denied and
defendant excepted and filed the proper bill of exceptions which was
forwarded to this court. Upon hearing, a decision was rendered on March
24, 1915, whereby, for the reasons therein given, the judgment appealed
from was set aside and the record remanded to the court of origin for the
proper proceedings.
The proceedings in the Court of First Instance having been reopened upon
petition by plaintiff, on May 24, 1915, the judge ordered the defendant
Gutierrez Hermanos to render within a period of twenty days a detailed
account, supported by vouchers, of the share which the plaintiff might have
in the capital stock of said firm up to that date. In compliance with this
order, defendant presented an account (record, pp. 103-124) certified by
the bookkeeper of the firm of Gutierrez Hermanos to on June 3 of the same
year.
In view of the fact that the defendant firm had not complied with the order of
the court in respect to the account presented, counsel for plaintiff moved in
writing that the clerk of court, McMicking, be appointed so that, in his
presence and in that of the parties, G. B. Wicks might proceed to make true
liquidation of plaintiff's said share of the capital stock of the firm of Gutierrez
Hermanos, since he began his connection therewith, on January 1, 1900,
until his separation therefrom, on December 31, 1911. Said motion was
accompanied by an affidavit in which the plaintiff Leopoldo Criado declared
under oath that he had examined the accounts presented by the defendant
referring to his capital in that firm and that said accounts were based upon
a false debit balance of P26,349.13 a balance which had been
previously impeached by the affiant as well as the accounts from which
said sum is sought to be derived. Wherefore he gain assailed them in their
totality on the grounds that some of the entries thereof were improper, other
fraudulent, and still other false. Therefore plaintiff's counsel moved that
defendant be ordered to place immediately at the disposal of
Commissioner Wicks all the books, accounts, bills, vouchers, and other
documents that might be necessary, in order that said liquidation might be
made by defendants counsel, by an order of September 2, 1915, the court
ruled in conformity therewith, authorizing defendant to appoint another
expert accountant who, together with the one already designated. Wicks,
might examine the books and documents aforementioned. On motion by
plaintiff, and notwithstanding the arguments made by the defendant firm, it
was provided by another order of the court that said firm should comply
with what the court had previously ordered, to wit, to place said books and
documents at the disposal of the commissioner for his examination in the
office of the clerk of court, on the three specified days of the week, from
2.30 o'clock up every afternoon.
After a rehearing of the case and an examination of George B. Wicks was
made regarding the contents of the report that he submitted after studying
for that purpose the books and other documents placed at his disposal by
the defendant to which report he attached several documents in proof or
substantiation of the different items mentioned in said report (Exhibit Z-3)
in view of the result and the evidence adduced by the parties, and by the
said commissioner's report duly supported by vouchers, the court rendered
the judgment aforementioned, on September 11, 1916. This motion was
denied, exception was taken, and, upon receipt of the proper bill of
exceptions, both appeals were forwarded in the in the usual manner.
Counsel for the defendant-appellant assails in general the judgment
appealed from because the trial court did not determine the issues raised in
the first, second, third, fourth, sixth, seventh, eighth, ninth, and tenth
causes of action, and in defendant's cross-complaint; and inasmuch as in
the judgment the contrary appears with the exception of the first cause of
action, the court will now proceed to examine each of the causes of action
referred to in the cross-complaint filed by the latter in its answer.
The first cause of action consists in the obligation assumed by Miguel
Alonso, formerly one of the general partners and manager of the firm of
Gutierrez Hermanos, to pay to the plaintiff Leopoldo Criado, and sum
P1,100 by reason of the contract of loan prevent plaintiff from suing for the
recovery of that debt an action against the testate or intestate estate of the
debtor who died without having paid his debt; the other partner Miguel
Gutierrez de Celis, manager of the firm, succeeded in persuading the
plaintiff by promising to return said sum to Criado this not being a
strange obligation, for at the time of his death the deceased debtor Miguel
Alfonso, was a partner in the firm of Gutierrez Hermanos and had a share
in the firm's assets. But the fact is that from 1898, when Alfonso died, until
1912, the date the complaint was filed, such settlement had already been
made of the decedent's said share and in spite of the attempts to collect
made by the creditor he was unable to recover the loan.
Even on the supposition that at the time of his death the debtor Miguel
Alfonso certainly and positively left this debt and that in order to avoid
judicial proceedings on the part of the creditor, Miguel Gutierrez de Celis
subrogated and put himself in the place of the debtor, binding himself to
pay said amount to plaintiff, yet, in view of the fact that said, loan was made
as an independent private act, unconnected with the mercantile operations
of the firm of Gutierrez Hermanos, and that the record does not duly show
that this firm, though its manager assumed the obligation to reimbursed the
sum, there is no provision of law to warrant us in holding that the firm of
Gutierrez Hermanos is obliged to pay the amount claimed by the plaintiff as
the subject-matter of his first cause of action.
In the second cause of action plaintiff demands the payment of P43,410.86,
and alleges that, pursuant to a notarial instrument of March 29, 1900, he
became a partner of the firm of Gutierrez Hermanos; and that said
document stipulated that the partnership should last for four years from
January 1, 1900, and, among other conditions, it contained the following:
Second. Therefore the partnership is organized among the parties to
this instrument, Don Placido Gutierrez de Celis, Don Miguel Gutierrez
de Celis, Don Miguel Alonso y Gutierrez, Don Daniel Perez y Alberto,
and Don Leopoldo Criado y Garcia, the first three as capitalist
partners, and the last two as industrial partners.
Eighth. All earnings or profits that may be obtained shall be
distributed among the partners in the following proportion: 37 per cent
shall go to Don Placido Gutierrez de Celis; 37 per cent to Don Miguel
Gutierrez de Celis; 16 per cent to Don Miguel Alfonso y Gutierrez; 5
per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don
Leopoldo Criado y Garcia. In the same proportion above established
for the profits the capitalist partners shall be liable for all losses or
damages that may be sustained.
A copy of said instrument was presented as Exhibit A and made an integral
part of the complaint.
Plaintiff also alleged that, according to the books of the defendant firm, his
capital was P56,796.25 in 1902 and, according to the balance had on
December 31, 1903, the profits obtained amounted to P256,025.31, 5 per
cent of which, or P12,801.26, belonged to him, according to the eight
clause of the articles of partnership, although the manager Miguel Gutierrez
de Celis, by means of false and erroneous entries in the books, succeeded
in concealing such profits, thereby injuring him in said amount of
P43,410.86. Plaintiff testified that as soon as he learned of such entries, he
at once protested, but that said manager assured him that as soon as the
probate proceedings concerning the estate of the decedent Miguel Alfonso
should be determined said amount would be refunded although in spite of
his efforts said promise has not been fulfilled.
In its answer the defendant firm admitted that plaintiff Criado was an
industrial partner entitled to 5 per cent of the profits, but denied all the other
averments of the complaint. In special defense it alleged that on December
31, 1903, there was made a liquidation and balance of the business of the
firm operations which were approved by all the partners with no protest
made by the plaintiff before or after said liquidation, but contrary, he gave
his assent thereto and without reserve whatsoever he executed a new
partnership contract, inasmuch as the sum shown by said liquidation and
balance of the business of the firm at the end of December, 1903, formed
the basis of the capital mentioned in the articles of partnership executed
before a notary on May 9, 1904. Finally, the defendant alleged that, in
accordance with the provisions of section 43 of the Code of Civil
Procedure, this second cause of action had already prescribed, inasmuch
as its object, the recovery of personal property, prescribed after four years,
just as an action for damages by reason of fraud.
The purpose of the second cause of action exercised by plaintiff's counsel
is to obtain from the defendant the share of the profits earned by the firm
from 1900 to December 31, 1903, belonging to plaintiff, by reason of the
partnership contract a contract that produced reciprocal rights and
obligation between the partners and if the record shows as duly proven
that there were profits, the obligation on the part of the defendant firm to
pay to plaintiff his share of said profits at the rate of 5 per cent is inevitable,
there appearing no just and legal reason in the record for exempting the
defendant from the fulfillment of said obligation. It is therefore no proper to
assert that the action brought by the plaintiff has for its object the recovery
of personal property, or demand damages for fraud, and therefore the
period for prescription is not the four years fixed by section 43, paragraph 1
of the Code of Civil Procedure, but that of ten years, as provided in
paragraph 1 of said section, in as much as the action brought is founded on
a contract in writing and demand is thereby made for the payment of a
certain net sum, entered in the books of the firm of Gutierrez Hermanos, for
the prescription of which the lapse of ten years is required a period
which certainly has not elapsed since the last balance was made of the
business of the firm of which Leopoldo Criado was a partner.
In order to determine whether besides the sum of P25,129.09 which
constituted the capital brought by the plaintiff Leopoldo Criado, as
capitalist, during the second period of the firm newly organized in 1904
plaintiff still has a right to demand the sum that is the subject of his
complaint in the second cause of action, or any other sum that might be
found to be a remainder of the salary owing him in his capacity of industrial
partner during the first period of the firm organized for four years from
January, 1900, it becomes necessary first too decide whether in fact the
plaintiff is in estoppel and unable to oppose any valid objection against said
liquidation and balance; inasmuch as, according to the inventory of the
firm's business, made on December 31, 1903, which was signed by
Leopoldo Criado, Miguel Gutierrez de Celis and Daniel Perez de Celis,
plaintiff Criado's capital on that date was only P25,129.09, the sum
recorded as his capital in the articles of partnership, Exhibit O, which were
in force during the second period from January, 1904, although this
contract was executed on May 9 of that year. From clause 7 of said
contract, and according to said inventory of December 31, 1903, it appears
that the firm's capital stock amounted to P1,605,497.30, of which the sum
of P25,129.09 belonged to Leopoldo Criado.
In an affidavit plaintiff stated that when he learned of the contents of the
firm's books, he protested against the entries therein, but that the manager
Guiterrez de Celis assured him that he would lose nothing by those entries
made in connection with a serious matter then pending; that afterwards he
learned that said entries had been made in the books through fear that
Jose Fortiz, a creditor of 5 per cent of the profits, should claim his share of
the profits pertaining to the years 1902 and 1903; that in fact Fortiz did
bring suit against Gutierrez Hermanos and obtained a favorable judgment
not only in the Court of First Instance but also in the Supreme Court which
affirmed the judgment of the lower court (record, p. 381); that another
reason why said false and erroneous entries were made in the firm's books
by Gutierrez de Celis was to show the family of the deceased Miguel
Alonso that the losses reported in his letter received during his lifetime from
Gutierrez de Celis were due to his poor management of the firm's business
(record, pp. 381 and 382); that as, in spite of repeated steps taken by
plaintiff, said Gutierrez de Celis did not fulfill his promise to pay the sums
which had been unduly withheld by means of those improper entries,
plaintiff therefore finally refused to sign the balance sheet for the business
of 1909, but did sign the previous one containing the record of a loss of
P110,000 and also the partnership contract of 1904, showing his capital to
be P25,129.09 as he believed that Miguel Gutierrez de Celis would
reimburse him, as he had promised, his share of the sums which had been
entered as losses in the firm's books.
In Exhibit 10 (record, p. 205) there appears an entry which reads thus:
P501,513.57, amount of the bills cancelled in the books in this date
which should have been cancelled in previous years on account of
difficulty in their collection, some of these bills being of such a nature
that they should be charged to the account of the management as
they are contrary to the provisions of the 5th and 10th clauses of the
partnership contract . . . but, in view of the fact that the author of
these irregularities is not living so that compliance with the contract
may be demanded of him, we have distributed the losses equally
among the three principal partners . . . and 5 per cent against each of
the industrial partners, Leopoldo Criado's share of the losses being
P25,080.68.
Without doubt this entry was made for the purpose of showing that Miguel
Alonso, former manger of the partnership, was to blame for these losses. It
is to be noted that, according to the contract, plaintiff as an industrial
partner is not liable for said losses; therefore in this distribution said sum
was unduly deducted from his share of the assets.
In order to prove the certainty of the protest made by plaintiff and the
repeated promises of payment by Miguel Gutierrez de Celis, Attorney
Eduardo Gutierrez Repide was called as witness and testified that, as a
consequence to the complaint made by the plaintiff to the attorney Marple,
one of the members of the Hartigan law firm, against the acts of the
manager of the firm of Gutierrez Hermanos a proceeding which, as
plaintiff stated produced the effect of continually reducing his assets in the
firm by order of the said Marple he, witness, went to confer with said
manager Guiterrez de Celis who after learning of plaintiff's complaint stated
to witness that there was then good and sufficient reason for making it
appear in the firm's books that the industrial partner Leopoldo Criado had
less assets in the firm than in reality he had, but that he should not worry
further as later on the firm would pay him the reduced amount of the forty-
three thousand and odd pesos which made up the reduction, and that,
sometime afterwards, witness having been called as a friend, and not as an
attorney, by said manager of the firm, on meeting the latter, he learned that
just then Leopoldo Criado was refusing to sign the instrument setting forth
the new articles of partnership for a new period because said manager had
not fulfilled his promise to return to plaintiff the aforesaid sum deducted
from the capital stock, on which occasion the notary Barrera was there
waiting; that then Guiterrez de Celis directed the witness to tell plaintiff not
to worry, and that said sum would be returned to him; that therefore
witness, trusting in these words of the manger, advised plaintiff to sign the
instrument, just as he did; and that witness afterwards learned that these
promises had not been fulfilled.
In view of the evidence adduced by plaintiff, not rebutted by counsel for the
defendant, it cannot be held that plaintiff was in estoppel immediately after
having signed the partnership contract of May 9, 1904, in which it appears
that he brought into the new firm, as capital of his own, P25129.09, nor
may it be said that he was not entitled to claim the rest of his assets in the
firm during the first period from 1900 to 1903, to wit, the difference between
the sum of P56,793.25, plaintiff Criado's capital as an industrial partner and
said P25,129.09, the capital brought into the new firm, inasmuch as it was
not the plaintiff, but the manager of the firm, Miguel Gutierrez de Celis, who
intentionally and deliberately induced Leopoldo Criado to sign said
partnership contract of May, 1904, in which plaintiff appeared as capitalist
partner for the last mentioned sum brought into the general assets of the
firm under the repeated promise that he would afterwards be paid the rest
of the assets due him up to the aforestated sum of P56,793.25, the amount
of capital standing to his credit at the time of the termination of the previous
partnership on December 31, 1903.
As aforesaid, plaintiff signed the instrument of 1904 in the belief that the
manager of the firm of Gutierrez Hermanos would fulfill the promise he had
made not only to the plaintiff but also to the attorney Gutierrez Repide;
wherefore, it is evident that the defendant cannot set up estoppel against
the plaintiff, who relied upon said repeated promise (Act No. 190, sec. 333),
inasmuch as the defendant was aware that plaintiff, as an industrial partner,
was entitled to collect a greater sum as a part of his capital than that
brought into the new partnership and he had an indisputable right to
contradict and adduce oral evidence against the contents of said
instrument of May 9, 1904 (Act No. 190, sec. 285), in case the exception of
the plaintiff which the defendant denied were based on the contents of that
instrument, and likewise against the liquidation and balance made at the
expiration of the term of the first partnership, causing to appear in said
balance and in the books of the firm, among other entries, that
aforementioned sum of P501,513.57, certified to in the document Exhibit
10, this amount is sufficiently large when distributed among the partners, as
losses when plaintiff Criado, as one of the industrial partners is not liable
for the losses which the firm may have sustained according to the eighth
clause of the notarial instrument of May 29, 1900. The allotment to the
industrial partner Leopoldo Criado of the amount of P25,080.68 as losses
suffered by the firm in its business during the years 1900 to 1903 was
notoriously illegal, inasmuch as he, being merely an industrial partner, was
not liable for any loss whatever.
Plaintiff assails several entries made in the books of the firm consisting of
losses in hemp, merchandise, depreciation of steamers, and reduction in
capital stock belonging to the partners, all amounting to P793,199.24, as
well as the net loss estimated at P110,578.38. But it suffices our purpose to
mention the reduction as losses, distributed among the partners, of
P501,613.57, P25,080.68 of which was charged against the plaintiff as his
proportionate loss of the capital, in order to show the propriety of plaintiff's
averments that without any good reason or ground whatever he sustained
a loss by the decrease of his capital.
For the practical application and the fulfillment of the stipulations made by
the partners, in the second and eighth clauses of said articles of
partnership of March 29, 1900, it should be understood that, for the
purpose of determining the profits that correspond to an industrial partner
who shares in the profits from the different transactions carried on by the
firm must be added together from which sum must be subtracted that of the
losses sustained in its business, and in the difference which represents the
net profits if these are greater than the losses the industrial partner
shares, i. e., in the sum total of the profits. But if, on the contrary, the losses
are greater and exceed the profits in said difference the industrial partner
should not be liable, for this constitutes a real loss to the firm.
Wherefore, having examined the documents presented at the trial, among
them Exhibits C, F, H, P, 2 and 8 as well as the report of the commissioner,
Wicks, Exhibit Z-3, together with the documents attached by him to his
report, and taking into account that only sixty-seven thousand and odd
pesos could be collected from the credits considered as uncollectible, and
that the plaintiff, as an industrial partner, should not be liable for the losses,
according to the articles of partnership, it follows that, at the termination of
the partnership in 1903, plaintiff's assets were P56,793.25, and his
liabilities P1,054.56, there being in his favor consequently a balance of
P55,738.69; but as in the instrument of May, 1904, he was credited with
only P25,129.09, as capital brought into the new company, the plaintiff is
entitled to demand that the firm of Gutierrez Hermanos pay him in the sum
of P30,609.60.
Furthermore, in the instrument of May 9, 1904, it is not stated that the
amount brought in the plaintiff was the balance and sole asset that he had
as an industrial partner in the extinct firm in 1903, nor that he condoned
and renounced any other assets he might have therein; consequently, he
has not lost his right to collect the rest of his capital by having signed said
instrument, and it is not fair that his copartners should benefit with no just
reason and to his prejudice.
The commissioner, Wicks, awarded plaintiff P32,875.46, as a part of his
capital which he was entitled to collect (Exhibit Z-3). Plaintiff accepts this
sum, though he demanded more in his complaint; but this court can not
accept the commissioner's conclusion in this particular, inasmuch as
plaintiff admitted that his capital, on December 31, 1902, was the sum
aforementioned which appears in the defendant's books, and in 1903 the
firm of Gutierrez Hermanos netted no profits from its business; because, as
a result of the commissioner's examination if the books and papers of the
defendant firm, he unduly awarded plaintiff P6,205.25, as a part of his
capital, which the defendant had failed to pay him in the years 1900 to
1902, and P1,660.91, as a part of his assets unduly excluded by the
defendant firm from his account of invested capital in 1903, both amount
aggregating P7,866.17. It is to be observed that plaintiff agrees that his
capital in 1903, according to the defendant firm's books amounts to
P56,793.25, without the debt of P1,054.56.
On pages 8 to 12 of Exhibit Z-3 the commissioner Wicks also unduly
charged plaintiff 5 per cent of the interests on certain personal accounts
that were canceled in the books, and on certain sums which appeared on
the firm's books as losses pertaining to the years 1904 to 1911, as being
related to certain other accounts that originated during the period 1900 to
1903. These charges were improper because the interests on the accounts
stricken from the books are, like the principal debts, also losses for which,
according to the articles of partnership, the industrial partner should not be
held liable. The amount thus unduly charged against plaintiff on account of
the said 5 per cent interest aggregates P5,600.32, which sum, subtracted
from said P7,866.17, an amount also unduly paid, leaves a difference of
P2,265.85 likewise unduly credited to the plaintiff and which apparently
increases his assets. This latter sum, subtracted from that awarded by the
commissioner, shows that plaintiff is entitled only to the sum of P30,609.60,
a sum which, with the sole difference of one centavo through inaccuracy in
the calculations, we deem to be mathematically correct, lawful, just, and in
conformity with the stipulations made by and among the partners in said
instrument; and therefore the defendant should be ordered to pay the
same, together with the legal interest thereon from the date of the filing of
the complaint.
As regards the third cause of action in the previous judgment which was set
aside, the complaint, in so far as this cause of action was concerned, was
dismissed and upon a reopening of the case, in the subsequent judgment
rendered therein on September 11, 1916, the court abstained from granting
the petition made in connection with said third cause of action;
notwithstanding, the plaintiff-appellant in his brief made no assignment of
error with respect to this matter, nor did he request the court to make any
ruling on the petition submitted in connection with said cause of action.
Therefore, notwithstanding the agreement contained in the document
Exhibit 50, and in view of the fact that plaintiff tacitly waived any right he
might have had to enforce this claim, judging from his conduct in the matter
of the collection of the sum of P406.99, also mentioned by the
commissioner in his report Exhibit Z-3, this court dismisses the complaint in
so far as said third cause of action is concerned.
In the judgment appealed from, the trial court holds that the item relative to
the shares of stock in the Bataan mines pertained to the losses suffered in
1906 and should have been charged to the account of profits and losses
as, according to the 8th clause of the articles of partnership, plaintiff had
suffered a loss not only of 5 but 10 per cent. The plaintiff-appellant likewise
makes no assignment of error against this judicial declaration. Therefore
the complaint is also dismissed with respect to the fourth cause of action.
By the fifth cause of action counsel for plaintiff demands payment of the
sum of P88,245.93, and the trial court, for the reason stated in the
judgment, held that the defendant firm was obliged to pay to plaintiff the
sum of P51,296.62, with legal interest thereon from May 25, 1912, the date
of the filing of the complaint. This finding has not been assailed, nor has
any error been assigned against it by the plaintiff-appellant in his brief, but
the defendant-appellant, ordered in the judgment to pay that sum, made an
assignment of errors based on the reason set forth in its brief.
The plaintiff having impliedly acquiesced in the finding of the trial court with
respect to the fifth cause of action, we shall now proceed merely to inquire
whether that court actually committed the errors assigned to the judgment
by the defendant-appellant.
According to the document Exhibit 7, presented by the defendant, which
appears to be a copy of plaintiff's stock account, certified as authentic by
the defendant's bookkeeper, the capital stock of the plaintiff Leopoldo
Criado, prior to December 29, 1911, was P73,147.87, an amount which
also appears in the document (Exhibit P) and tends to prove that on
December 31, 1911, plaintiff's capital was the amount stated, before the
annotation of the entries assailed as false and fraudulent by plaintiff.
The eighth and sixteenth clauses of the articles of partnership, Exhibit O
(record, p. 82), executed in May, 1904, which ratified and approved the
transactions of the firm of Gutierrez Hermanos from January of that year
state the following:
Eighth. The earnings or profits which may be obtained shall be
distributed among the partners in the following proportion:
Forty per cent to D. Placido Gutierrez de Celis;
Forty per cent to D. Miguel Gutierrez de Celis;
Ten per cent to D. Daniel Perez Albertos; and
Ten per cent to D. Leopoldo Criado Garcia.
In the same proportion provided for the profits, the partners shall be
liable for the losses that may be incurred.
Sixteenth. In case the partnership business should incur such losses
as to prevent a continuance of the business or to make a dissolution
of the partnership advisable, same shall be liquidated, each capitalist
partner bearing such loss in a pro rata proportion to the capital he
represents, the expenses necessary for the prosecution of the
business being chargeable to the firm as a whole. Notwithstanding
these provisions the partners Don Placido and Don Miguel as
principal capitalist partners may liquidate the partnership or alienate
its rights whenever they deem proper so to do.
By a notarial instrument of January 2, 1908, the life of the partnership was
extended to another term of four years, upon the same bases and
conditions (Exh. X, p. 100).
From the two preinstated clauses of the partnership contract it is deduced
that the partners should be liable for all the losses incurred by the
partnership in the proportion fixed in the 8th clause; but that, in case such
losses should be of so great importance as to prevent a continuation of the
partnership business, or to make advisable the dissolution of the
partnership, then due action should be taken in conformity with the
provisions of said clause 16, and the partners should be liable from the
losses in a proportion pro rata to their share in the partnership assets; in
consequence whereof, plaintiff should be liable at the rate of 10 per cent of
the losses sustained.
The trial judge held that, according to the balance sheet (Exhibit P)
admitted by the defendant (sten. notes, p. 45), the profits in 1911 were
P120,986.34; but a mere reading of this balance sheet shows that the
profits were not so much as the plaintiff claims, even by adding thereto the
sum of P30,000, nor did they amount to the sum fixed by the court, for the
reason that same document shows losses of P21,963.38 for general
expenses and of P22,569.41 for the account on its face, which accounts
bear debit balances.
In order to determine the exact amount of the profits and losses during the
year 1911, it becomes necessary to examine the 1910 inventory, not
discussed by the litigants, and to make a comparison between its contents
and those of the 1911 inventory. Having examined various documents
stating accounts of several kinds relating to the business of the firm of
Gutierrez Hermanos, as those of the merchandise, various debtors,
furnitures, shares, consignments, vessels, cash operations of provincial
business, and rural and urban properties, it appears that the active capital
of the partnership was, on December 31, 1911, P2,685,096.40.
According to the inventory Exhibit 51 (record, p. 172), the liabilities of the
partnership were P789,228.65 in 1911.
The unpaid accounts aggregate a total of P148,965.66. In his report
(Exhibit Z-3) the commissioner classified these credits as uncollectible,
doubtful and slow collection, a classification we find very just, since entry
No. 1657, Exhibit T, admits that a part of such credits, without being
uncollectible or doubtful, is of slow collection. According to said
commissioner's report, the uncollectible credits amount to P33,746.58, an
amount which may, in justice, be considered as lost; those doubtful amount
to P39,864.49, and those of slow collection to P75,354.59, making a total of
P118,219.08.
We cannot consider as lost the credits of slow collection nor even the
doubtful ones, as there is the hope that they may be collected in the future;
therefore the sum of the doubtful credits and those of slow collection should
be deducted, as unpaid accounts from the liabilities which, consequently,
are reduced to P671,019.57, an amount that still must be reduced to
P662,337 because in 1912 the balance of P8,682.57, Ramon Madarieta's
debt, was collected as the commissioner states in his report. According to
the entry No. 1658, Exhibit U, the active capital was reduced on account of
the difference in the price of hemp, by the sum of P110,091.19. Therefore,
deducting from the liabilities the excess of P102,534.27, it appears that, on
December 31, 1911, the liabilities were only P2,125,293.67, and this sum,
compared with the capital that the defendant firm had on December 31,
1910, which according to Exhibit Z (record, p. 120) was P2,182,010.04,
shows a loss of P56,716.57. Consequently, there should be deducted from
plaintiff's capital 10 per cent of this sum or P5,671.64 as his share of the
loss.
The capital which the plaintiff had in the firm in 1911, according to Exhibit 7
(record, p. 197), amounts to P76,141.08, a balance which constituted his
capital on December 31, 1910, and adding thereto the sum of the amounts
collected, P605.50, the result is that plaintiff's true assets, in his account of
capital stock, must be P76,746.58. Deducting from this sum that of
P2,570.98 which is charged as a debit against plaintiff, there appears a net
balance in his favor of P74,175.60 and, deducting from this sum 10 per
cent of the P56,716.37 or P5,671.64 as losses, there results the difference
of P68,503.97, the sum which he was entitled to collect from the defendant
by this fifth cause of action although the amount was reduced to
P51,296.62 as fixed in the judgment the payment of which the defendant
is obliged in the manner stipulated in the 19th clause of the articles of
partnership, in proportion to the total net capital, the date is, at the rate of
3.22 per cent with legal interest from the date of the filing of the complaint.
By the sixth cause of action plaintiff claims the sum of P2,000, alleging that
same was unduly charged against his private account when, in truth and in
fact, in consequence of a compromise made by advice of the attorneys of
the defendant, the former firm of Del Pan and Ortigas, he, as manager of
the defendant firm, paid said sum to Leopoldo who for this reason, in spite
of his better right, desisted from claiming P8,000 from Tirso Nery against
whom the defendant then had an action pending.
The trial court rendered judgment in favor of the plaintiff for P2,000, with
legal interest thereon, at the first hearing of this case, and at the second
hearing held that plaintiff should be paid P1,800, considering the remaining
P200 as plaintiff's share in the loss suffered by the firm on account of said
compromise.
The defendant alleged that its manager's statement shows that this sum of
P2,000 was paid by Guiterrez Hermanos on the account of Leopoldo
Criado, as there was no need of buying this credit of Leopoldo Ferrer
against Tirso Nery, and that while acting as manager plaintiff took
advantage of the opportunity to buy said credit for 25 per cent of its nominal
value.
Plaintiff testified that Miguel Gutierrez de Celis read the complaint of
Leopoldo Ferrer and believed that it was advisable to pay this creditor's
claim; that therefore De Celis himself drew the check for the payment of
Ferrer's claim and ordered plaintiff to go to court in company with the
attorney to stipulate a compromise about the matter.
The manager, Miguel Gutierrez de Celis, testified that he had no knowledge
of that complaint and of that compromise; but the court, who saw and
observed these witnesses while they were testifying, gave credence to the
plaintiff's testimony, and we see no reason whatever for modifying his
judgment in this matter, for the evidence as a whole tends to prove that
plaintiff told the truth.
So therefore plaintiff is entitled to recover from the defendant the sum of
P1,800 but must suffer the loss of the remaining P200 as his share of the
loss of the credit.
In the seventh cause of action plaintiff claims compensation for the services
rendered the defendant firm at the instance of Miguel Gutierrez de Celis,
and alleged that a just and reasonable compensation from December 31,
1911, when he left the firm, until March 30, 1912, is P1,000 per month,
such services being rendered at the request of Miguel Gutierrez de Celis,
with the promise that compensation would be in accordance with the profits
obtained; that this value of services, P1,000 per month, was estimated on
the basis of the work done by him and the profits obtained; that he
therefore demanded of Miguel Gutierrez de Celis the payment of said
compensation, but that the latter refused to pay anything (record, p. 427).
The manager Miguel Gutierrez de Celis testified that Leopoldo Criado
lodged and boarded in the house of Gutierrez Hermanos during the months
of January, February, and March, 1912; that his work consisted solely in
being there and seeing that things were accomplished; that he intervened
in the preparation of the balance sheets; and that consequently his services
were of no value.
Upon the foregoing evidence the lower court rendered judgment in favor of
the plaintiff for the amount claimed and fixed by himself, and basing
judgment on the nature of his work and on what he had earned previously
as a partner.
In trying to prove that the trial court erred in its award in favor of plaintiff for
this cause of action, counsel for the defendant says, on page 33 of the
Spanish brief, No. 9300, that plaintiff could not establish his right under this
cause of action; that, according to the testimony of the defendant's
manager, the sole reason why plaintiff continued in the firm after December
31, 1911, was to make the final balance sheets; and that therefore he can
recover nothing for his services because the rule established in various
American cases cited is that a liquidator-partner is not entitled to any
compensation for his services as such, unless there are special stipulations
in the matter of circumstances from which such contractual stipulations
may be deducted.
Assuming that the rule cited were applicable in this country, the same rule
favors the plaintiff for, in the present case, there was not only an implied but
an express contract that the defendant should pay plaintiff a compensation
proportionate to the profits that might be obtained from the business of the
firm.
With respect to the amount of that compensation, counsel for the defendant
say on the aforecited page of their brief, that plaintiff testified that his salary
ought to be in accordance with the profits that might be obtained but that he
did not prove how much he could have earned elsewhere.
It is undeniable that plaintiff did render services to the defendant firm when
he was not obliged to do so gratuitously, for, neither in the partnership
contract (Exhibit O), nor in the law, is there any provision whatever to the
effect that plaintiff as a partner was obliged to liquidate the business
without compensation, since among the partner's obligations as prescribed
by articles 170 to 174 of the Code of Commerce, such an obligation does
not appear, but on the contrary, articles 228 and 229 of the said Code
provide that in general or limited partnerships, should there be no objection
on the part of any of the partners, the persons who managed the common
funds shall continue in charge of the liquidation. Plaintiff, without being
obliged, rendered service to the defendant at the manager's request, with
the understanding that his compensation should be in proportion to the
profits that might be obtained, and, therefore, it is just and reasonable that
such services should be remunerated.
As regards the amount of the compensation we do not find satisfactory
rebuttal of plaintiff's testimony in this matter, as the manager merely said
that plaintiff's services were worth nothing, a statement that falls by its own
weight, for, however insignificant may be the work one person does on
behalf of another, it is always worth something. There is no estimate of his
compensation were not received nor do we find his estimate exaggerated.
Nor does there appear any reason whatever for modifying the judgment of
the trial court in respect to this point.
Therefore the defendant ought in justice pay to the plaintiff the amount
claimed in this seventh cause of action.
In the eighth cause of action plaintiff claims the sum of P52 as his 10 per
cent share of the P520 which La Germinal paid the defendant as dividend
obtained in 1911 and corresponding to the shares of stock the defendant
held in that company, alleging that, notwithstanding the fact that the
defendant collected said amount, it failed to credit him with P52, the sum to
which he was entitled.
In its answer defendant admitted that it collected the dividend mentioned,
and that plaintiff was entitled to the payment of P52.
Plaintiff testified (record, p. 429) that the books do not show that the sum of
P520 was divided among the partners. Counsel for the defendant admitted
that they had no evidence to present in respect to this cause of action.
Therefore plaintiff has an unquestionable right to collect from the defendant
the sum of P52, as held by the trial court.
By the ninth cause of action plaintiff claims the payment of P1,171.11 as his
10 per cent share of the P11,711.16 which the insurers of several of the
defendant's steamers paid on account of certain damages suffered by
these vessels said repairs were paid proportionately by all the partners
and that, notwithstanding the collection of this sum, defendant did not
pay him his share thereof.
Defendant denied that is received P11,711.16, but admitted that it did
receive P9,032.92, and that this sum plaintiff should be credited with
P953.92.
The court below rendered in favor of plaintiff judgment for P953.90, from
which judgment he did not appeal, nor did the defendant make any
assignment of error in respect thereto. We see no reason whatever for
changing or modifying this finding, for the defendant admitted, as aforesaid,
that plaintiff was entitled to the amount awarded him in the judgment. We
therefore affirm this part of the judgment.
By the tenth cause of action plaintiff asks judgment for P3,000. alleging that
in 1911, after he had ceased to be a partner of Gutierrez Hermanos, the
defendant firm charged to the account of "Items pending collection" and
credited in favor of Movellan and Angulo, of Paris, insurers of the
defendant's steamers for the year 1912, thereby diminishing the partners'
capital; and that of said P35,334.09, he is entitled P3,000 which the
defendant's manager failed to pay plaintiff, notwithstanding the demand
made upon him so to do.
The defendant alleges that the premium pertaining to the year 1912
amount to only P958.97, of which P95.89 belongs to plaintiff, and admits
that said sum should be credited to plaintiff's account.
The lower court rendered judgment in favor of plaintiff for P1,001.22, from
which judgment he did not appeal, and although the defendant appealed he
from this award of the judgment, it was not included in its assignment of
errors. Nor do we find anything in the record to show that the trial court
erred; on the contrary, we see that the dates and premiums of the
insurance policies mentioned in the judgment, for which plaintiff should not
be held liable, agree with those given in Exhibit 45 (record, p. 297) which is
a copy of the insurance policies of the steamers Montaez, Dos Hermanos,
and Magallanes, certified to by the bookkeeper of the defendant firm, no
policies of other steamers having been presented, while the report of the
commissioner (record, p. 77), schedule 28 of Exhibit Z-3, differs very much
from Exhibit 45. Therefore said award of the trial court should likewise be
affirmed.
DEFENDANT'S CROSS-COMPLAINT.
The defendant asks therein that plaintiff be ordered to pay any amount
proved due the partnership, and alleges that during the time that plaintiff
acted as the official in charge and the manager of the defendant firm's
business, to wit, during the period between May 1 and December 10, 1903,
he, knowingly and in contravention of the stipulations contained in the
articles of partnership, sold and delivered various merchandise and other
effects to several debtors, such as Antonio de la Riva, whose debt had then
reached the amount of P88,617.96, and Gerena and Co. whose account
showed a debit balance of P39,417.16, without having the security required
by the articles of partnership; that therefore plaintiff alone is responsible for
losses occasioned through such procedure; and that, upon making the
balance sheet on December 31, 1911, a loss was found whereby plaintiff
owed the defendant more than P26,000.
The clause to which this cross-complaint refers and which was violated by
plaintiff is the fifth of the instrument of March 16, 1900, presented as Exhibit
A (record, p. 58), and is of the following tenor:
The purpose of the partnership shall be the transaction of business in
the purchase and sale of groceries and beverages from Europe and
America, and domestic merchandise; and in the advancement of
funds on goods under security to companies or to private parties, the
credit allowed thereon not to exceed thirty thousand pesos and
granted only on the approval of the principal capitalist partners.
The trial court dismissed this cross-complaint, for the reason that the
transactions, the responsibility for which the defendant claims to hold
plaintiff liable, were ratified by Miguel Gutierrez de Celis upon his arrival in
the Philippines.
The cross-complaint raises two questions, to wit: (First.) Is plaintiff liable for
the debts of Antonio de la Riva and of Gerena and Co.? (Second.) Is
plaintiff in debt to the defendant in the sum of twenty-six thousand and odd
pesos?
With respect to the second question we have already shown in discussing
the fifth cause of action, that, as disclosed by the record, the defendant is
indebted to plaintiff. This question should therefore be determined in the
negative.
As regards the first question, even supposing that plaintiff has violated the
stipulations of articles of partnership by giving credit to various persons
without taking the security required in the fifth clause of said articles, yet in
the cross-complaint no other reasons are alleged by virtue of which he
should be held liable for said breach of contract.
Article 144 of the Code of Commerce makes a partner liable for the
damages suffered by the partnership, by reason of his malice, abuse of
powers, or serious negligence, and requires him to indemnify the
partnership should the other partners so require, provided an express or
verbal approval or ratification of the act on which the claim is based can not
be deduced in any manner whatsoever. According to this legal provision, in
order that the partner at fault may be compelled to pay an indemnity, it is
indispensable, in the first, place, that his conduct shall have caused some
damage to the partnership, and, in the second place, that his conduct
should not have been expressly or impliedly ratified by the other partners or
the manager of the partnership.
In the cross-complaint the allegation is made that plaintiff, violating said fifth
clause of the articles of partnership, sold and delivered merchandise and
other effects to various debtors, such as Antonio de la Riva and Gerena
and Co., without the security required in said articles; and that, because of
the large sums which said debtors owe to the partnership, plaintiff is liable
for all the damage and harm caused, amounting to P128,035.12.
Plaintiff Leopoldo Criado testified, with respect to Gerena and Co., that
subsequent to his arrival in this country, Miguel Gutierrez de Celis
continued to maintain commercial relations with said debtor firm, whose
debt would have been collected had Gutierrez de Celis followed his
(plaintiff's) advice and that of the attorneys of the firm of Gutierrez
Hermanos aside from the fact that the firm of Genera and Co. was
solvent and could pay its debt; so it is that the manager Miguel Gutierrez de
Celis continuing said business ratified plaintiff's procedure during the three
months and several days that he acted temporarily, in 1903, as manager of
the partnership; and for said reason there is no ground upon which plaintiff
may be held liable for the harm occasioned by the non-payment of the debt
of Gerena and Co.; and that rather did the liability for such harm fall upon
the manager Gutierrez de Celis who conscientiously never believed that
plaintiff was solely liable for the loss, for the Entry No. 1889 (Exhibit 10,
aforecited) contains the statement that the author of such losses no longer
exists, the fault being attributed to the deceased Miguel Alfonso, although
Miguel Gutierrez de Celis testified (record, p. 557) that he gave his
approval to what had been done, without knowing what it was, and that the
plaintiff who gave the money to Gerena and Co. This testimony is in direct
contradiction to the evidence contained in the entry aforementioned, written
on December 31, 1903, and notwithstanding that error was discovered by
Gutierrez de Celis, as he stated, the truth is that the amount of the loss was
not charged to Leopoldo Criado, neither was a similar charge made in
respect to the amount paid to Leopoldo Ferrer of which mention has
previously been made herein above. So said Entry No. 1889 of the
document Exhibit 10 remained intact.
With respect to the account of Antonio de la Riva which shows, as of
December 31, 1903, a debit balance of P91,000 and odd pesos, plaintiff
testified (record, p. 590) that as security for this debt De la Riva had
delivered to the firm of Gutierrez Hermanos a lot of hemp worth
P33,218.06, a power of attorney to collect P26,000 from the store "Isla de
Cuba" in monthly installments of P2,000, and the insurance policy of the
launch Concha, which represented P34,000; whereby the debt was
reduced to P12,000, on December 31, 1903.
This testimony appears other corroborated documents and other evidence
of record for, with respect to the power of attorney to collect the sum
mentioned from the "Isla de Cuba," the same exhibit, No. 5, which is the
account of Antonio de la Riva, certified to by the defendant's bookkeeper,
shows that on July 3, August 5, and September 5, 1903, the account of
Antonio de la Riva's indebtedness to the partnership was credited with
various sums collected from the "Isla de Cuba." With respect to the hemp
referred to by witness, the manager himself Miguel Gutierrez de Celis
testified (record, p. 565) that upon his arrival in the Philippines, he allowed
an increase in De la Riva's debt, by reason of the security of the hemp
which this debtor was sending to the firm. With reference to the insurance
of the launch Concha, there is no evidence of record in contradiction of the
facts, except the testimony of Miguel Gutierrez de Celis in which the latter
claims that the launch was purchased by plaintiff in his own name with
money belonging to the firm, in order afterwards to sell it to Antonio de la
Riva (record, p. 567). The manager De Celis does not deny that the
partnership held said insurance policy on the launch as security, nor that
De la Riva was the owner of the boat, for, if the launch were sold to De la
Riva and the proceeds from the sale were charged to the latter's account,
together with the expenses occasioned by the trips made by that boat
(Exhibit 5), it is obvious that Antonio de la Riva was the owner of the
launch, although he was a debtor to the firm of Gutierrez Hermanos for its
price and the expenses incurred.
Consequently it is indisputable and beyond all doubt that when plaintiff
turned over to Miguel Gutierrez de Celis the management and
administration of the business of the firm, this business was in very good
condition, and if afterwards losses had been sustained same were due to
the fault of Gutierrez de Celis himself; so it is that, in canceling in the books
the account of Antonio de la Riva, he divided the amount thereof among all
the partners, in the belief that it was a loss that affected them all.
Starting from the fact that the record shows that the defendant owes
plaintiff various sums of greater or lesser importance, as stated in the
findings on the majority of the causes of action prosecuted by plaintiff, it is
logical that this court should not find any well-founded or legal reason by
virtue of which judgment may be rendered against plaintiff for whatever
amount he may be owing the defendant firm, inasmuch as the latter is
shown to be his debtor. Therefore plaintiff should be absolved from the
cross-complaint filed by the defendant.
As regards the amount of the collectible accounts and of unpaid credits
which total sum is stated in the part of this decision relative to the fifth
cause of action, it is undeniable that the plaintiff Leopoldo Criado, as
capitalist partner of the partnership organized in May, 1904, is entitled to
receive 10 per cent of every sum collected from the date on which he
ceased to belong to the firm, January, 1912, and of whatever sum that in
the future may be collected from said collectible accounts or unpaid credits,
and it is so held, without any liability on his part in relation to the bad or
uncollectible credits. Therefore, in view of section 126 of Act No. 190, we
reverse that part of the judgment of the court below whereby such liability
for 10 per cent is imposed upon the plaintiff.
The last error assigned by the defendant to the judgment of the court below
relates to the order of September 2, 1915, in which it is held that the
accounts presented by the defendant are not in accord with the orders
given by the Supreme Court in its previous decision, in so far as it was
directed that the firm of Gutierrez Hermanos should render a new account
supported by vouchers to determine exactly plaintiff's share in the firm's
assets. In fact the defendant was ordered immediately to present to the
court all its books, vouchers and other documents that might be necessary
for the settlement of the assets pertaining to plaintiff during the years 1900
to 1911, and to place the same at the disposal of the expert, G. B. Wicks,
and was authorized to appoint another expert who, with said Wicks, might
examine the books and papers of the firm of Gutierrez Hermanos. This
order is perfectly legal and just. It is an interlocutory order of mere
procedure, issued in compliance with and in consequence of the decision
of this court, to end that, with the result of the liquidation of the accounts
made by the expert appointed, without the defendant having wished to
appoint another in use of its right so to do, this court may decide this suit
equitably, in accordance with its true merits and in conformity with the law.
For the foregoing reasons, whereby the errors assigned to the judgment
appealed from with respect to the parts thereof discussed in this decision
have been refuted, the defendant should be, as it hereby is absolved from
the complaint by the first cause of action. By the second cause of action the
firm of Gutierrez Hermanos, the defendant, should be, as it hereby is
ordered to pay to the plaintiff Leopoldo Criado the sum of P30,609.60, with
legal interest thereon from May 25, 1912, the date of the filing of the
complaint. In so far as it is based on the third and the fourth causes of
action, said complaint is dismissed. In accordance with the fifth cause of
action, the defendant should be, as it hereby is, ordered to pay to plaintiff
the sum of P51,296.62 fixed in the judgment appealed from, with legal
interest thereon from the date when the original complaint was filed, May,
1912, and the plaintiff must pay said sum in the manner prescribed in the
19th clause of the articles of partnership of 1904. By the sixth cause of
action, the defendant is likewise ordered to pay P1,800; by the seventh,
P3,000; by the eighth, P52; by the ninth, P953.90; and by the tenth,
P1,001.22. That part of the judgment relating to the plaintiff's liability for 10
per cent of the outstanding and the uncollectible bills is reversed, and he is
reserved his right in the sums collected or which may be collected from
same. The plaintiff Leopoldo Criado is absolved from the cross-complaint
filed by the defendant Gutierrez Hermanos.
The plaintiff shall pay one-third, and the defendant two thirds, of the costs
of both instances. The judgment appealed from is thus affirmed in so far as
it is in accord with this decision, and is reversed in so far as it is not. So
ordered.
Arellano, C.J., Johnson, Araullo, Street, Avancea and Fisher, JJ., concur.

G.R. No. L-3704 December 12, 1907
LA COMPAIA MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUOZ, ET AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.

WILLARD, J.:
The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Franciso Muoz & Sons, and against Francisco
Muoz de Bustillo, Emilio Muoz de Bustillo, and Rafael Naval to recover
the sum of P26,828.30, with interest and costs. Judgment was rendered in
the court below acquitting Emilio Muoz de Bustillo and Rafael Naval of the
complaint, and in favor of the plaintiff and against the defendant
partnership, Francisco Muoz & Sons, and Francisco Muoz de Bustillo
form the sum of P26,828.30 with interest at the rate of 8 per cent per
annum from the 31st day of March, 1905, and costs. From this judgment
the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muoz, Emilio
Muoz, and Rafael Naval formed on ordinary general mercantile
partnership under the name of Francisco Muoz & Sons for the purpose of
carrying on the mercantile business in the Province of Albay which had
formerly been carried on by Francisco Muoz. Francisco Muoz was a
capitalist partner and Emilio Muoz and Rafael Naval were industrial
partners.
It is said in the decision of the court below that in the articles of partnership
it was called an ordinary, general mercantile partnership, but that from the
article it does not appear to be such a partnership. In the brief of the
appellees it is also claimed that it is not an ordinary, general commercial
partnership. We see nothing in the case to support either the statement of
the court below in its decision or the claim of the appellees in their brief. In
the articles of partnership signed by the partners it is expressly stated that
they have agreed to form, and do form, an ordinary, general mercantile
partnership. The object of the partnership, as stated in the fourth paragraph
of the articles, is a purely mercantile one and all the requirements of the
Code of Commerce in reference to such partnership were complied with.
The articles of partnership were recorded in the mercantile registry in the
Province of Albay. If it should be held that the contract made in this case
did not create an ordinary, general mercantile partnership we do not see
how one could be created.
The claim of the appellees that Emilio Muoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He
contributed as much as did the other industrial partner, Rafael Naval, the
difference between the two being that Rafael Naval was entitled by the
articles of agreement to a fixed salary of P2,500 as long as he was in
charge of the branch office established at Ligao. If he had left that branch
office soon after the partnership was organized, he would have been in the
same condition then that Emilio Muoz was from the beginning. Such a
change would have deprived him of the salary P2,500, but would not have
affected in any way the partnership nor have produced the effect of
relieving him from liability as a partner. The argument of the appellees
seems to be that, because no yearly or monthly salary was assigned to
Emilio Muoz, he contributed nothing to the partnership and received
nothing from it. By the articles themselves he was to receive at the end of
five years one-eighth of the profits. It can not be said, therefore, that he
received nothing from the partnership. The fact that the receipt of this
money was postponed for five years is not important. If the contention of
the appellees were sound, it would result that, where the articles of
partnership provided for a distribution of profits at the end of each year, but
did not assign any specific salary to an industrial partner during that time,
he would not be a member of the partnership. Industrial partners, by
signing the articles, agree to contribute their work to the partnership and
article 138 of the Code of Commerce prohibits them from engaging in other
work except by the express consent of the partnership. With reference to
civil partnerships, section 1683 of the Civil Code relates to the same
manner.
It is also said in the brief of the appellees that Emilio Muoz was entirely
excluded from the management of the business. It rather should be said
that he excluded himself from such management, for he signed the articles
of partnership by the terms of which the management was expressly
conferred by him and the others upon the persons therein named. That
partners in their articles can do this, admits of no doubt. Article 125 of the
Code of Commerce requires them to state the partners to whom the
management is intrusted. This right is recognized also in article 132. In the
case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519) the articles of
association provided that the directors for the first eight years should be
certain persons named therein. This court not only held that such provision
was valid but also held that those directors could not be removed from
office during the eight years, even by a majority vote of all the stockholders
of the company.
Emilio Muoz was, therefore, a general partner, and the important question
in the case is whether, as such general partner, he is liable to third persons
for the obligations contracted by the partnership, or whether he relieved
from such liability, either because he is an industrial partner or because he
was so relieved by the express terms of the articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as
well as such as may be obtained from the sale of property and other
assets which constitute the corporate capital, shall be distributed, on
completion of the term of five years agreed to for the continuation of
the partnership, in the following manner: Three-fourths thereof for the
capitalist partner Francisco Muoz de Bustillo and one-eighth thereof
for the industrial partner Emilio Muoz de Bustillo y Carpiso, and the
remaining one-eighth thereof for the partner Rafael Naval y Garcia. If,
in lieu of profits, losses should result in the winding up of the
partnership, the same shall be for the sole and exclusive account of
the capitalist partner Francisco Muoz de Bustillo, without either of
the two industrial partners participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each partner,
said profits shall be divided pro rata, in accordance with the interest
each one has on the copartnership, partners who have not
contributed any capital, but giving their services, receiving in the
distribution the same amount as the partner who contributed the
smallest capital.
ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who
have not, unless by special agreement the latter have been
constituted as participants therein.
A comparison of these articles with the twelfth paragraph above quoted will
show that the latter is simply a statement of the rule laid down in the former.
The article do not, therefore, change the rights of the industrial partners as
they are declared by the code, and the question may be reduced to the
very simple one namely, Is an industrial partner in an ordinary, general
mercantile partnership liable to third persons for the debts and obligations
contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership there is
no such distinction-- all the members are general partners. The fact that
some may be industrial and some capitalist partners does not make the
members of either of these classes alone such general partners. There is
nothing in the code which says that the industrial partners shall be the only
general partners, nor is there anything which says that the capitalist
partners shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in
solidum with all their property for the results of the transactions made
in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to make use
thereof.
Do the words "all the partners" found in this article include industrial
partners? The same expression is found in other articles of the code. In
article 129 it is said that, if the management of the partnership has not been
limited by special act to one of the partners, all shall have the right to
participate in the management. Does this mean that the capitalist partners
are the only ones who have that right, or does it include also industrial
partners? Article 132 provides that, when in the articles of partnership the
management has been intrusted to a particular person, he can not be
deprived of such management, but that in certain cases the remaining
partners may appoint a comanager. Does the phrase "remaining partners"
include industrial partners, or is it limited to capitalist partners, and do
industrial partners have no right to participate in the selection of the
comanager? Article 133 provides that all the partners shall have the right to
examine the books of the partnership. Under this article are the capitalist
partners the only ones who have such right? Article 135 provides that the
partners can not use the firm name in their private business. Does this
limitation apply only to capitalist partners or does it extend also to industrial
partners? Article 222 provides that a general partnership shall be dissolve
by the death of one of the general partners unless it is otherwise provided
in the articles. Would such a partnership continue if all the industrial
partners should die? Article 229 provides that upon a dissolution of a
general partnership it shall be liquidated by the former managers, but, if all
the partners do not agree to this, a general meeting shall be called, which
shall determine to whom the settlement of the affairs shall be intrusted.
Does this phrase "all the partners" include industrial partners, or are the
capitalist partners the only ones who have a voice in the selection of a
manager during a period of liquidation? Article 237 provides that the private
property of the general partners shall not be taken in payment of the
obligations of the partnership until its property has been exhausted. Does
the phrase "the general partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not
have been intended that, in such a partnership as the one in question,
where there were two industrial and only one capitalist partner, the
industrial partners should have no voice in the management of the
business when the articles of partnership were silent on that subject; that
when the manager appointed mismanages the business the industrial
partners should have no right to appoint a comanager; that they should
have no right to examine the books; that they might use the firm name in
their private business; or that they have no voice in the liquidation of the
business after dissolution. To give a person who contributed no more than,
say, P500, these rights and to take them away from a person who
contributed his services, worth, perhaps, infinitely more than P500, would
be discriminate unfairly against industrial partners.
If the phrase "all the partners" as found in the articles other than article 127
includes industrial partners, then article 127 must include them and they
are liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be
noticed in the first place that this article does not say that they shall not
be liable for losses. Article 140 declares how the profits shall be
divided among the partners. This article simply declares how the losses
shall be divided among the partners. The use of the words se imputaran is
significant. The verb means abonar una partida a alguno en su cuenta o
deducirla de su debito. Article 141 says nothing about third persons and
nothing about the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of
the code, where it is clearly intended to impose the liability to third persons,
it is not considered sufficient, but the word "obligations" is added. Thus
article 148, in speaking of the liability of limited partners, uses the
phrase las obligaciones y perdidas. There is the same use of the two same
words in article 153, relating to anonymous partnership. In article 237 the
word "obligations" is used and not the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the
industrial partners to third persons for the obligations of the company. If it
does, then it also fixes the liability of the capitalist partners to the same
persons for the same obligations. If this article says that industrial partners
are not liable for the debts of the concern, it also says that the capitalist
partners shall be only liable for such debts in proportion to the amount of
the money which they have contributed to the partnership; that is to say,
that if there are only two capitalist partners, one of whom has contributed
two-thirds of the capital and the other one-third, the latter is liable to a
creditor of the company for only one-third of the debt and the former for
only two-thirds. It is apparent that, when given this construction, article 141
is directly in conflict with article 127. It is not disputed by the appellees that
by the terms of article 127 each one of the capitalist partners is liable for all
of the debts, regardless of the amount of his contribution, but the
construction which they put upon article 141 makes such capitalist partners
liable for only a proportionate part of the debts.
There is no injustice in imposing this liability upon the industrial partners.
They have a voice in the management of the business, if no manager has
been named in the articles; they share in the profits and as to third persons
it is no more than right that they should share in the obligations. It is
admitted that if in this case there had been a capitalist partner who had
contributed only P100 he would be liable for this entire debt of P26,000.
Our construction of the article is that it relates exclusively to the settlement
of the partnership affairs among the partners themselves and has nothing
to do with the liability of the partners to third persons; that each one of the
industrial partners is liable to third persons for the debts of the firm; that if
he has paid such debts out of his private property during the life of the
partnership, when its affairs are settled he is entitled to credit for the
amount so paid, and if it results that there is not enough property in the
partnership to pay him, then the capitalist partners must pay him. In this
particular case that view is strengthened by the provisions of article 12,
above quoted. There it is stated that if, when the affairs of the partnership
are liquidated that is, at the end of five years it turns out that there
had been losses instead of gains, then the capitalist partner, Francisco
Muoz, shall pay such losses that is, pay them to the industrial partners
if they have been compelled to disburse their own money in payment of the
debts of the partnership.
While this is a commercial partnership and must be governed therefore by
the rules of the Code of Commerce, yet an examination of the provisions of
the Civil Code in reference to partnerships may throw some light upon the
question here to be resolved. Articles 1689 and 1691 contain, in substance,
the provisions of articles 140 and 141 of the Code of Commerce. It is to be
noticed that these articles are found in section 1 of Chapter II [Title VIII] of
Book IV. That section treats of the obligations of the partners between
themselves. The liability of the partners as to third persons is treated in a
distinct section, namely, section 2, comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third
persons for the debts of the firm, then industrial partners in civil
partnerships are not. Waiving the question as to whether there can be a
commercial partnership composed entirely of industrial partners, it seems
clear that there can be such civil partnership, for article 1678 of the Civil
Code provides as follows:
A particular partnership has for its object specified things only, their
use of profits, or a specified undertaking, or the exercise of a
profession or art.
It might very easily happen, therefor, that a civil partnership could be
composed entirely of industrial partners. If it were, according to the claim of
the appellees, there would be no personal responsibility whatever for the
debts of the partnership. Creditors could rely only upon the property which
the partnership had, which in the case of a partnership organized for the
practice of any art or profession would be practically nothing. In the case
of Agustin vs. Inocencio,
1
just decided by this court, it was alleged in
the complaint, and admitted by the answer
That is partnership has been formed without articles of association or
capital other than the personal work of each one of the partners,
whose profits are to be equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may
acquire by their by their industry or work during the continuation of
the partnership.
Personal or real property which each of the partners may possess at
the time of the celebration of the agreement shall continue to be their
private property, the usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of the
partners would have any private property and that if they did the usufruct
thereof would be inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two persons,
each with a large amount of private property, to form and carry on a
partnership and, upon the bankruptcy of the latter, to say to its creditors
that they contributed no capital to the company but only their services, and
that their private property is not, therefore, liable for its debts.
But little light is thrown upon this question by the authorities. No judgment
of the supreme court of Spain has been called to our attention, and we
have been able to find none which refers in any way to this question. There
is, therefore, no authority from the tribunal for saying that an industrial
partner is not liable to third persons for the debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho
mercantil) it is said that industrial partners are not liable for debts. The
author, at page 127, divides general partnership into ordinary and irregular.
The irregular partnership are those which include one or more industrial
partners. It may be said in passing that his views can not apply to this case
because the articles of partnership directly state that it is an ordinary
partnership and do not state that it is an irregular one. But his view of the
law seems to be derived from something other than the Code of Commerce
now in force. He says:
. . . but it has not been very fortunate in sketching the characters of a
regular collective partnership (since it says nothing conclusive in
reference to the irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not
because the writer entirely overlooked the fact that there might exist
industrial partners who did not contribute with capital in money,
credits, or goods, which partners generally participate in the profits
but not in the losses, and whose position must also be determined in
the articles of copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that it
has been forgotten that in collective partnerships there are industrial
partners who, not being jointly liable for the obligations of the
copartnership, should not include their names in that of the firm. (p.
129.)
As a logical result of his theory he says that an industrial partner has no
right to participate in the administration of the partnership and that his
name can not appear in the firm name. In this last respect his view is
opposed to that of Manresa, who says (Commentaries on the Spanish Civil
Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his
industry to the concern can also confer upon it the name or the
corporate name under which such industry should be carried on. In
this case, so long as the copartnership lasts, it can enjoy the credit,
reputation, and name or corporate name under which such industry is
carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same,
and he alone is entitled to use it, because such a name or style is an
accessory to the work of industrial partner, and upon recovering his
work or his industry he also recovers his name or the style under
which he exercised his activity. It has thus been decided by the
French court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are found
two kinds of partners, one with unlimited responsibility and the other with
limited responsibility, but adopting his view as to industrial partners, it
should be said that there are three kinds of partners, one with unlimited
responsibility, another with limited responsibility, and the third, the industrial
partner, with no responsibility at all. In Estasen's recent publication on
mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes
from the work of Benito, but we do not understand that he commits himself
to the doctrines therein laid down. In fact, in his former
treatise, Instituciones de Derecho Mercantil (vol. 3, pp. 1-99), we find
nothing which recognizes the existence of these irregular general
partnerships, or the exemption from the liability to third persons of the
industrial partners. He says in his latter work (p. 186) that according to Dr.
Benito the irregular general partner originated from the desire of the
partnership to associate with itself some old clerk or employee as a reward
for his services and the interest which he had shown in the affairs of the
partnership, giving him in place of a fixed salary a proportionate part of the
profits of the business. Article 269 of the Code of Commerce of 1829
relates to this subject and apparently provides that such partners shall not
be liable for debts. If this article was the basis for Dr. Benito's view, it can
be so no longer, for it does not appear in the present code. We held in the
case of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere
agreement of that kind does not make the employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil
Code, and of Blanco's Mercantile Law, will shows that no one of these
mentions in any way the irregular general partnership spoken of by Dr.
Benito, nor is there anything found in any one of these commentaries which
in any way indicates that an industrial partner is not liable to third persons
for the debts of the partnership. An examination of the French law will also
show that no distinction of that kind is therein anywhere made and nothing
can be found therein which indicates that the industrial partners are not
liable for the debts of the partnership. (Fuzier-Herman, Repertoire de Droit
Francais, vol. 34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the case that neither on principle nor
on authority can the industrial partner be relieved from liability to third
persons for the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not
be maintained against the partnership and the individual partners, this
claim being based upon the provisions of article 237 of the Code of
Commerce which provides that the private property of the partners shall not
be taken until the partnership property has been exhausted. But this article
furnishes to argument in support of the appellee's claim. An action can be
maintained against the partnership and partners, but the judgment should
recognize the rights of the individual partners which are secured by said
article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered
against all of the defendants for the sum of P26,828.30, with interest
thereon at the rate of 8 per cent per annum since the 31st day of March,
1905, and for the cost of this action. Execution of such judgment shall not
issue against the private property of the defendants Francisco Muoz,
Emilio Muoz, or Rafael Naval until the property of the defendant Francisco
Muoz & Sons is exhausted. No costs will be allowed to their party in this
court. So ordered.
Torres, Johnson and Tracey, JJ., concur.




Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is entirely in accordance with
the law.lawphil.net
The question set up in the majority decision, "In a regular collective
commercial company, is an industrial partner liable as to third persons by
reason of the debts and obligations contracted by the copartnership?" I
decide in a negative sense; he is not; by express provision of the law he
can not be held to be liable, save, of course, and agreement to the
contrary, which in such case would be a special law, and would set aside
the general law.
The basis for the contrary opinion and decision is article 127 of the Code of
Commerce:
All the members of the general copartnership, be they or be they not
managing partners of the same, are personally and in solidum liable
with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of
the latter, and by a person authorized to ake use thereof.
Now, do the words "all the members" found in this article include the
industrial partners?
At first it would appear that they do. In order to complete such reasoning
the following premise will be sufficient: That the industrial partners from the
collective partnership; therefore the industrial partners are personally and
jointly liable with all their property for the results of the transactions made in
the name and for account of the partnership.
But they form the collective partnership in the manner in which our laws
allows the same to be formed that is, by contributing with their industry,
not with property.
And the word all, in reference to property, which is common with the three
classes of partnership defined by the code, to wit, collective, limited
copartnership (comanditaria), and corporation (anonima), gives the rule for
such personal and joint liability, which is the purpose of the provision in the
above-quoted article.
The above three classes of partnership agree in that property must in each
of them be contributed. "The articles of general copartnership must
state . . . the capital which each partner contributes in cash, credits, or
property, stating the value given the latter or the basis on which their
appraisal is to be made." (Art. 125.) "The same statements shall be
included in articles of limited copartnerships (compaias en comandita)
which are required for those of general copartnerships" that is, among
other things, the capital which each partner contributes. (Art. 145.) "The
articles of incorporation (of corporations) must include . . . the corporate
capital, stating the value at which property, not cash, contributed has been
appraised, or the basis on which the appraisal is to be made; and the
number of shares into which the corporate capital is divided and
represented." (Art. 151.)
Now, then, "The liability of the members of a corporation for the obligations
and losses of the same shall be limited to the funds they contributed or
bound themselves to contribute to the corporate capital." (Art. 153.) "The
liability of special partners for the obligations and losses of the
copartnership shall be limited to the funds which they contributed or bound
themselves to contribute to the limited copartnership, with the exception of
the sense mentioned in article 147" that is, if any of them include his
name or permit its conclusion in the firm name. (Art. 148, par. 3.) However,
in a collective partnership the liability is not limited to the funds or property
contributed, but extends to all the property which partners may own within
or without the copartnership.
In every mercantile copartnership it is the corporate capital that responds
for the obligations of the same; this is elemental. The members of a joint
stock, a limited, or a collective company respond with their capital for the
obligations of the association; in the joint stock concerns, with their shares;
in the limited class, with the amount contributed; in the collective, with their
constituted capital. An industrial partner, with what principal sum, share, or
quota in the corporate capital does he or can he respond for the obligations
of the collective partnership? Evidently with none whatever.
If the capital of the association is exhausted, the extreme case
of losses incurred by the company arises, and third persons can not
recover the amount of the obligations of the company from the corporate
capital, because the latter is sufficient to recover them. Shareholders in the
case of a joint stock company, beyond the value of their stock, have no
longer to think of any ulterior subsidiary responsibility. Neither do the
partners of a limited company. In either case the partners are only liable to
the extent of their corporate capital. Collective partners have to respond not
only with their corporate capital but also with the whole of their property
outside of the association. And it is desired that the industrial partner who,
in a collective copartnership, did not primarily respond with his corporate
capital, because he had none, shall subsidiary respond with such property
as he may have outside of the company, and with which nobody, either
within or without the copartnership, had counted upon, since both inside
and outside of the company his industry or work only had been reckoned
with. Therefore, the word all, of article 127 cited above, simply denoted the
extent of the ulterior or subsidiary responsibility, and that which does not
appear, which does not materially exist, can hardly be made to apply.
An industrial partner can not engage in transactions of any class whatever,
otherwise he would be subject to serious consequences (art. 138), while a
capitalist partner, as a rule, may so engage without extending profits or
liabilities to the company (arts. 134 and 136); an industrial partner, as
regards profits, can only receive in the distribution the same amount as the
partner who contributed the smallest amount of capital (art. 140); in the
case at bar, one-eighth goes to each of the two industrial partners, three-
fourths being for the capitalist, and even at the expiration of the
copartnership they run the risk of having the one-eighth of the profits
earned in former years absorbed by a total loss incurred during the last
year of the contract of copartnership; and it is claimed that such industrial
partner, so much delayed with regard to profits, who has not
the same rights, shall be under the same obligations as regards obligations
because he is a collective partner? This seems neither just nor logical.
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital,
without including" the industrial partners (since they have not
the same rights), and they should not be included therein nor in the
corporation of the partner who contributed the smallest capital, simply for
the reason that the industrial partner has nothing to lose, he not having
contributed anything which the company may lose when the losses of the
copartnership are considered, either among the partners thereof or with
regard to third persons.
There need be no distinction made between obligations and losses. During
the existence of a company the gains or the losses are set off the one
against the other, and the difference is either in favor of or against the
concern. As to the industrial partner, in connection with the question
submitted, it is not a matter of striking a balance from time to time, but one
of the final adjustment of assets and liabilities, because the matter under
discussion refers only to his private property, which has nothing to do with
the company nor with losses in liquidating the same. Article 127 is affected
by article 237: "The private property of the general partners which is not
included in the assets of the copartnership when it is established can not
be seized for the payment of the obligations contracted by the
copartnership until after the common assets have been attached." And
such condition is stated in the majority decision. As long as there is
property belonging to the company, obligations in favor of third persons are
covered by the primary and direct responsibility of the company; the
question arises when the assets of the company are exhausted and it
becomes necessary to appeal to the ulterior or subsidiary liability of the
private property of the partners; in this case such obligations constitute the
extreme losses in the liquidation of the company.
The case at bar could only thus be set forth: Should an industrial partner be
responsible for such losses, for such obligations in favor of third persons?
Article 141 expressly states that he shall not. In order to state the contrary it
would be necessary to appeal to discriminations in the wording of said
article; and this is neither permitted where the law does not make them nor
would they lead to anything after all. In the aforesaid article 237 the
corroboration of the word all of article 127 may be found:
"The private property of the general partners which is not included in the
assets of the copartnership," differing from such as were included, can not
seized for the payment of obligations contracted by the copartnership, until
after the common assets have been attached; after such attachment all the
assets, according to article 127, such as were included, and those that
were not included, in this order, shall be subject to the results of the
transactions of the copartnership. An industrial partner has not contributed
any property whatever; he therefore offers no subject for the principal and
direct seizure when the assets of the copartnership are attached. How is it
possible to conceive any ulterior, subsidiary, indirect responsibility over the
property which it was not even thought to be included, since he only
contributed to the company his industry and work, not property of any class
whatever? It seems very anomalous that one who has not obligated himself
in the least should be responsible or the greater part, that he who is not
comprehended within the explicit terms should be included by implication,
and that he who pledge nothing should be held to respond with his
property.
As to the nature of the defendant company in this action, I take it to
be:lawphil.net
1. That the defendant company is really a collective one such as is
described in the Code of Commerce; the firm of "F. Muoz & Sons" and the
terms of the articles of association prove it so beyond all doubt.
2. That it is a regular collective company; the word regular means, as
employed in the Code of Commerce, that the collective company is the
rule, the standard in all commercial associations, the one combining all the
effects which are consequent upon this form of convention; and the limited
and the joint-stock companies are the exception.
3. That it is not irrelevant in view of the manner in which the present Code
of Commerce, like the former one of 1829, has defined the collective
company, that such a distinguished professor of law as Doctor Lorenzo de
Benito should have established in his "Lessons on Mercantile Law" a
difference between the regular collective associations and irregular
collective companies; "regular are those wherein, as article 122 reads, all
the members in a collective name and under a firm name bind themselves
to participate in the proportion which they may establish with the same
rights and obligations." "And irregular, those wherein one or more
members who, though not contributing toward the company with anything
but their industry, participate in the profits in the manner agreed to in the
articles of association or as determined by law, andordinarily do not share
in the losses which the copartnership may sustain. Such members are
called industrial partners, and the collective copartnership having a
member of said class is also sometimes called an association of capital
and industry.
This is what the law says (he continues), but it has not been very
fortunate in sketching the characters of a regular collective
partnership (since in conclusion it says nothing in reference to the
irregular partnership), because precisely the collective name and the
corporate name are applicable to both the collective and the limited
companies; and as to the covenant entered into by the partners to
participate in the proportion which they may establish with the same
rights and obligations, this is inherent to all partnerships without
distinction as to class. What characterizes this partnership is that all
the members, "with the exception of the industrial partners," are
jointly responsible and with all their property for the corporate
obligations.
4. That the code in force, by means of three articles, 138, 140, and 141,
among those which regulate collective partnerships, has involved this
association of capital and industry; whence irregularity necessarily arises;
the irregularity of such an irregular system is that in a collective partnership
wherein, besides the element property, common or generic to the three
aforesaid classes, there appears this one, to wit, industry, a special
features only in collective partnerships, according to the system of the
code.
Had the system adopted by the codes of Portugal, Brazil, and the Argentine
Republic been followed, a different classification would have been made of
the association of capital and industry which, according to the last of the
codes cited, is properly characterized by means of the following articles:
435. Habilitacion or association of capital and industry is the name
given to the partnership formed on the one part by one or more
persons who furnish funds for a general business, or for some
particular commercial transaction, and on the other part by one or
more individuals who join the copartnership with their industry alone.
438. The obligation of the partners who furnished capital is in
solidum, and extends beyond the capital contributed by them to the
concern.
439. The articles of association, besides the requirements contained
in article 395, must specify the obligations of the industrial partner or
partners and the share in the profits to which they are entitled in the
apportionment.
In the absence of such declaration, the industrial partner shall draw
from the profits a share equal to those of the partner who furnished
the smallest capital.
440. An industrial partner can not contract on behalf of the
partnership nor is he obligated with his own property toward the
creditors of the company.
Nevertheless, if besides his industry he should contribute some
capital toward the company either in money or thing of value, the
association shall then be considered as a collective one, and the
industrial partner, whatever might have been stipulated, shall
respond in solidum.
In my opinion it can not be denied that there is no substantial difference
between the three articles of our code and those transcribed from that of
the Argentine Republic as regards the rights and obligations of industrial
partners in conjunction with partners who furnish capital; there is no
difference except in the system, the code of the Argentine Republic dealing
with this class of association of capital and industry separately from the
only three defined in our code, all of them of capital only or essentially of
partners who furnish capital. Therefore, as said code has an article almost
literally identical with article 127 of our code, this question can not possibly
arise in that country. That code contains article 454, which reads: "All those
who form a collective commercial company, whether managing the
corporate funds or not, are obligated in solidum (with all their property, as
our code would state) for the results of the transactions made in the name
and for account of the partnership," etc. To the question, Do the words "all
the partners" found in said article include the industrial partners?
undoubtedly the answer would be no.
And it would not suffice to say that the above article of the code of the
Argentine Republic, namely, "on collective copartnership," involves no
section which may refer to industrial partners, and that, therefore, there can
be no question as to the words "all the members;" it is because, by reason
of the nature thereof, whether under one system or another, the provisions
and the principles being identical, the conclusions can not otherwise than
identical. In a copartnership, and as the result of the obligations thereunder,
an industrial partner can not lose except what he has actually contributed
thereto for a limited or an unlimited purpose, subject ultimately to company
or personal obligations; this is all that law and logic may demand of him;
anything else would not come under the law, but may be demanded of him
by reason of his express covenant, because he has consented to
something beyond the character and the effects of the contract of
partnership of capital and industry entered into by him, called collective;
nothing else has been the subject of his consent and obligation.
Manuel Duran y Bas, a former professor of the University of Barcelona, in
his addition to the work of Marti de Eixala, which is so generally and
specially consulted in that eminently commercial and industrial city, has
offered no remarks to the original text of said work which establish as an
elemental doctrine that "When the copartnership is purely a collective one,
each of its members is jointly obligated for the result of the transactions
which should be charged to the copartnership . . . . From the general rule
which we have just set up the industrial partners who contract no obligation
to secure the liabilities of the company should be excepted, unless there be
an express covenant to the contrary." (Art. 319 of the code of 1829,
identical with art. 141 of the code now in force.)
During almost half a century no obligation has been raised by the
professors of law, the press, or the bar, to this doctrine regarding the
exemption, not merely with respect to losses but to company obligations of
the industrial partner, on the suppositions, which I do not admit, as already
shown, that it may be possible to discriminate between losses and
obligations in connection with an industrial partner, for whom there are
none but the final losses, such as absorb the assets of the company, which
can not be otherwise than outstanding obligations in favor of third parties
inasmuch as, so long as there are company assets, no recourse can be
held to the private property of any partner.








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. Maeru, 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 ("%) from the original price of P1,870, with the costs to the
respondents. So ordered.
Avancea, 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.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:
In the year 1913, the individuals named as defendants in this action formed
a civil partnership, called "La Protectora," for the purpose of engaging in
the business of transporting passengers and freight at Laoag, Ilocos Norte.
In order to provide the enterprise with means of transportation, Marcelo
Barba, acting as manager, came to Manila and upon June 23, 1913,
negotiated the purchase of two automobile trucks from the plaintiff, E. M.
Bachrach, for the agree price of P16,500. He paid the sum of 3,000 in
cash, and for the balance executed promissory notes representing the
deferred payments. These notes provided for the payment of interest from
June 23, 1913, the date of the notes, at the rate of 10 per cent per annum.
Provision was also made in the notes for the payment of 25 per cent of the
amount due if it should be necessary to place the notes in the hands of an
attorney for collection. Three of these notes, for the sum of P3,375 each,
have been made the subject of the present action, and there are exhibited
with the complaint in the cause. One was signed by Marcelo Barba in the
following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By" omitted
before the name of Marcelo Barba in the second line of the signature. It is
obvious that in thus signing the notes Marcelo Barba intended to bind both
the partnership and himself. In the body of the note the word "I" (yo)
instead of "we" (nosotros) is used before the words "promise to
pay"(prometemos) used in the printed form. It is plain that the singular
pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon
June 12, 1913, executed in due form a document in which they declared
that they were members of the firm "La Protectora" and that they had
granted to its president full authority "in the name and representation of
said partnership to contract for the purchase of two automobiles" (en
nombre y representacion de la mencionada sociedad contratante la
compra de dos automoviles). This document was apparently executed in
obedience to the requirements of subsection 2 of article 1697 of the Civil
Code, for the purpose of evidencing the authority of Marcelo Barba to bind
the partnership by the purchase. The document in question was delivered
by him to Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased
of the plaintiff various automobile effects and accessories to be used in the
business of "La Protectora." Upon May 21, 1914, the indebtedness
resulting from these additional purchases amounted to the sum of
P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had
retained on the trucks in order to secure the purchase price. The amount
realized from this sale was P1,000. This was credited unpaid. To recover
this balance, together with the sum due for additional purchases, the
present action was instituted in the Court of First Instance of the city of
Manila, upon May 29, 1914, against "La Protectora" and the five individuals
Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and
Modesto Serrano. No question has been made as to the propriety of
impleading "La Protectora" as if it were a legal entity. At the hearing,
judgment was rendered against all of the defendants. From this judgment
no appeal was taken in behalf either of "La Protectora" or Marcelo Barba;
and their liability is not here under consideration. The four individuals who
signed the document to which reference has been made, authorizing Barba
to purchase the two trucks have, however, appealed and assigned errors.
The question here to be determined is whether or not these individuals are
liable for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the
principal of the debt is agreed to be P7,037. Of this amount it must now be
assumed, in view of the finding of the trial court, from which no appeal has
been taken by the plaintiff, that the unpaid balance of the notes amounts to
P4,121, while the remainder (P2,916) represents the amount due for
automobile supplies and accessories.
The business conducted under the name of "La Protectora" was evidently
that of a civil partnership; and the liability of the partners to this association
must be determined under the provisions of the Civil Code. The authority of
Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants upon June
12, 1913. The transaction by which Barba secured these trucks was in
conformity with the tenor of this document. The promissory notes constitute
the obligation exclusively of "La Protectora" and of Marcelo Barba; and they
do not in any sense constitute an obligation directly binding on the four
appellants. Their liability is based on the fact that they are members of the
civil partnership and as such are liable for its debts. It is true that article
1698 of the Civil Code declares that a member of a civil partnership is not
liable in solidum (solidariamente) with his fellows for its entire
indebtedness; but it results from this article, in connection with article 1137
of the Civil Code, that each is liable with the others (mancomunadamente)
for his aliquot part of such indebtedness. And so it has been held by this
court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment against the
appellants in part upon the idea that the document executed by them
constituted an authority for Marcelo Barba to bind them personally, as
contemplated in the second clause of article 1698 of the Civil Code. That
cause says that no member of the partnership can bind the others by a
personal act if they have not given him authority to do so. We think that the
document referred to was intended merely as an authority to enable Barba
to bind the partnership and that the parties to that instrument did not intend
thereby to confer upon Barba an authority to bind them personally. It is
obvious that the contract which Barba in fact executed in pursuance of that
authority did not by its terms profess to bind the appellants personally at all,
but only the partnership and himself. It follows that the four appellants
cannot be held to have been personally obligated by that instrument; but,
as we have already seen, their liability rests upon the general principles
underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for
automobile supplies and accessories, it is obvious that the document of
June 12, 1913, affords no authority for holding the appellants liable. Their
liability upon this account is, however, no less obvious than upon the debt
incurred by the purchase of the trucks; and such liability is derived from the
fact that the debt was lawfully incurred in the prosecution of the partnership
enterprise.
There is no proof in the record showing what the agreement, if any, was
made with regard to the form of management. Under these circumstances
it is declared in article 1695 of the Civil Code that all the partners are
considered agents of the partnership. Barba therefore must be held to have
had authority to incur these expenses. But in addition to this he is shown to
have been in fact the president or manager, and there can be no doubt that
he had actual authority to incur this obligation.
From what has been said it results that the appellants are severally liable
for their respective shares of the entire indebtedness found to be due; and
the Court of First Instance committed no error in giving judgment against
them. The amount for which judgment should be entered is P7,037, to
which shall be added (1) interest at 10 per cent per annum from June 23,
1913, to be calculated upon the sum of P4.121; (2) interest at 6 per cent
per annum from July 21, 1915, to be calculated upon the sum of P2,961;
(3) the further sum of P1,030.25, this being the amount stipulated to be
paid by way of attorney's fees. However, it should be noted that any
property pertaining to "La Protectora" should first be applied to this
indebtedness pursuant to the judgment already entered in this case in the
court below; and each of the four appellants shall be liable only for the one-
fifth part of the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs
of this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm, and Avancea, JJ., concur.





G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.

STREET, J.:
For several years prior to June 1, 1916, two of the litigating parties herein,
namely, Lo Seng and Pang Lim, Chinese residents of the City of Manila,
were partners, under the firm name of Lo Seng and Co., in the business of
running a distillery, known as "El Progreso," in the Municipality of
Paombong, in the Province of Bulacan. The land on which said distillery is
located as well as the buildings and improvements originally used in the
business were, at the time to which reference is now made, the property of
another Chinaman, who resides in Hongkong, named Lo Yao, who, in
September, 1911, leased the same to the firm of Lo Seng and Co. for the
term of three years.
Upon the expiration of this lease a new written contract, in the making of
which Lo Yao was represented by one Lo Shui as attorney in fact, became
effective whereby the lease was extended for fifteen years. The reason why
the contract was made for so long a period of time appears to have been
that the Bureau of Internal Revenue had required sundry expensive
improvements to be made in the distillery, and it was agreed that these
improvements should be effected at the expense of the lessees. In
conformity with this understanding many thousands of pesos were
expended by Lo Seng and Co., and later by Lo Seng alone, in enlarging
and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
x x x x x x x x x
1. That I, Lo Shui, as attorney in fact in charge of the properties
of Mr. Lo Yao of Hongkong, cede by way of lease for fifteen
years more said distillery "El Progreso" to Messrs. Pang Lim
and Lo Seng (doing business under the firm name of Lo Seng
and Co.), after the termination of the previous contract,
because of the fact that they are required, by the Bureau of
Internal Revenue, to rearrange, alter and clean up the distillery.
2. That all the improvements and betterments which they may
introduce, such as machinery, apparatus, tanks, pumps, boilers
and buildings which the business may require, shall be, after
the termination of the fifteen years of lease, for the benefit of
Mr. Lo Yao, my principal, the buildings being considered as
improvements.
3. That the monthly rent of said distillery is P200, as agreed
upon in the previous contract of September 11, 1911,
acknowledged before the notary public D. Vicente Santos; and
all modifications and repairs which may be needed shall be
paid for by Messrs. Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El
Progreso," which we are at present conducting, hereby accept this
contract in each and all its parts, said contract to be effective upon
the termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending the
same was inscribed in the property registry, for the reason that the estate
which is the subject of the lease has never at any time been so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner
Lo Seng, thus placing the latter in the position of sole owner; and on June
28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and
acknowledged before a notary public a deed purporting to convey to Pang
Lim and another Chinaman named Benito Galvez, the entire distillery plant
including the land used in connection therewith. As in case of the lease this
document also was never recorded in the registry of property. Thereafter
Pang Lim and Benito Galvez demanded possession from Lo Seng, but the
latter refused to yield; and the present action of unlawful detainer was
thereupon initiated by Pang Lim and Benito Galvez in the court of the
justice of the peace of Paombong to recover possession of the premises.
From the decision of the justice of the peace the case was appealed to the
Court of First Instance, where judgment was rendered for the plaintiffs; and
the defendant thereupon appealed to the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of article
1571 of the Civil Code, which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall be entitled to
terminate any lease in force at the time of making the sale, unless the
contrary is stipulated, and subject to the provisions of the Mortgage
Law.
In considering this provision it may be premised that a contract of lease is
personally binding on all who participate in it regardless of whether it is
recorded or not, though of course the unrecorded lease creates no real
charge upon the land to which it relates. The Mortgage Law was devised
for the protection of third parties, or those who have not participated in the
contracts which are by that law required to be registered; and none of its
provisions with reference to leases interpose any obstacle whatever to the
giving of full effect to the personal obligations incident to such contracts, so
far as concerns the immediate parties thereto. This is rudimentary, and the
law appears to be so understood by all commentators, there being, so far
as we are aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage Law,
we find the following pertinent observation: "The Mortgage Law is enacted
in aid of and in respect to third persons only; it does not affect the relations
between the contracting parties, nor their capacity to contract. Any question
affecting the former will be determined by the dispositions of the special law
[i.e., the Mortgage Law], while any question affecting the latter will be
determined by the general law." (Galindo y Escosura, Comentarios a la
Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards the
personal obligations expressed therein, the lease in question was from the
beginning, and has remained, binding upon all the parties thereto among
whom is to be numbered Pang Lim, then a member of the firm of Lo Seng
and Co. this does not really solve the problem now before us, which is,
whether the plaintiffs herein, as purchasers of the estate, are at liberty to
terminate the lease, assuming that it was originally binding upon all parties
participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie, by the
letter of article 1571 of the Civil Code; and the position of the defendant
derives no assistance from the mere circumstance that the lease was
admittedly binding as between the parties thereto. 1awph!l.net
The words "subject to the provisions of the Mortgage Law," contained in
article 1571, express a qualification which evidently has reference to the
familiar proposition that recorded instruments are effective against third
persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil.,
210); from whence it follows that a recorded lease must be respected by
any purchaser of the estate whomsoever. But there is nothing in the
Mortgage Law which, so far as we now see, would prevent a purchaser
from exercising the precise power conferred in article 1571 of the Civil
Code, namely, of terminating any lease which is unrecorded; nothing in that
law that can be considered as arresting the force of article 1571 as applied
to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for the
appellant as supplying authority for the proposition that the lease in
question cannot be terminated by one who, like Pang Lim, has taken part in
the contract. That provision is practically identical in terms with the first
paragraph of article 23 of the Mortgage Law, being to the effect that
unrecorded leases shall be of no effect as against third persons; and the
same observation will suffice to dispose of it that was made by us above in
discussing the Mortgage Law, namely, that while it recognizes the fact that
an unrecorded lease is binding on all persons who participate therein, this
does not determine the question whether, admitting the lease to be so
binding, it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation with the
Mortgage Law, as well as article 1549 of the Civil Coded all of which, as
we have seen, are undecisive we are brought to consider the aspect of
the case which seems to us conclusive. This is found in the circumstance
that the plaintiff Pang Lim has occupied a double role in the transactions
which gave rise to this litigation, namely, first, as one of the lessees; and
secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every
competent person is by law bond to maintain in all good faith the integrity of
his own obligations; and no less certainly is he bound to respect the rights
of any person whom he has placed in his own shoes as regards any
contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in
the creation of this lease, and when he sold out his interest in that firm to
Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the
firm assets, including the lease; and Pang Lim cannot now be permitted, in
the guise of a purchaser of the estate, to destroy an interest derived from
himself, and for which he has received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of this
lease is strikingly revealed in the circumstance that prior to the acquisition
of this property Pang Lim had been partner with Lo Seng and Benito
Galvez an employee. Both therefore had been in relations of confidence
with Lo Seng and in that position had acquired knowledge of the
possibilities of the property and possibly an experience which would have
enabled them, in case they had acquired possession, to exploit the distillery
with profit. On account of his status as partner in the firm of Lo Seng and
Co., Pang Lim knew that the original lease had been extended for fifteen
years; and he knew the extent of valuable improvements that had been
made thereon. Certainly, as observed in the appellant's brief, it would be
shocking to the moral sense if the condition of the law were found to be
such that Pang Lim, after profiting by the sale of his interest in a business,
worthless without the lease, could intervene as purchaser of the property
and confiscate for his own benefit the property which he had sold for a
valuable consideration to Lo Seng. The sense of justice recoils before the
mere possibility of such eventuality.
Above all other persons in business relations, partners are required to
exhibit towards each other the highest degree of good faith. In fact the
relation between partners is essentially fiduciary, each being considered in
law, as he is in fact, the confidential agent of the other. It is therefore
accepted as fundamental in equity jurisprudence that one partner cannot,
to the detriment of another, apply exclusively to his own benefit the results
of the knowledge and information gained in the character of partner. Thus,
it has been held that if one partner obtains in his own name and for his own
benefit the renewal of a lease on property used by the firm, to commence
at a date subsequent to the expiration of the firm's lease, the partner
obtaining the renewal is held to be a constructive trustee of the firm as to
such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a
renewal taken in the name of one partner after the dissolution of the firm
and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb.,
754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)
An additional consideration showing that the position of the plaintiff Pang
Lim in this case is untenable is deducible from articles 1461 and 1474 of
the Civil Code, which declare that every person who sells anything is bound
to deliver and warrant the subject-matter of the sale and is responsible to
the vendee for the legal and lawful possession of the thing sold. The
pertinence of these provisions to the case now under consideration is
undeniable, for among the assets of the partnership which Pang Lim
transferred to Lo Seng, upon selling out his interest in the firm to the latter,
was this very lease; and while it cannot be supposed that the obligation to
warrant recognized in the articles cited would nullify article 1571, if the
latter article had actually conferred on the plaintiffs the right to terminate
this lease, nevertheless said articles (1461, 1474), in relation with other
considerations, reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as purchaser of the estate
to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is analogous to
the doctrine recognized in courts of common law under the head of
estoppel by deed, in accordance with which it is held that if a person,
having no title to land, conveys the same to another by some one or
another of the recognized modes of conveyance at common law, any title
afterwards acquired by the vendor will pass to the purchaser; and the
vendor is estopped as against such purchaser from asserting such after-
acquired title. The indenture of lease, it may be further noted, was
recognized as one of the modes of conveyance at common law which
created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a
participant in the contract of lease now in question, is not in a position to
terminate it: and this is a fatal obstacle to the maintenance of the action of
unlawful detainer by him. Moreover, it is fatal to the maintenance of the
action brought jointly by Pang Lim and Benito Galvez. The reason is that in
the action of unlawful detainer, under section 80 of the Code of Civil
Procedure, the only question that can be adjudicated is the right to
possession; and in order to maintain the action, in the form in which it is
here presented, the proof must show that occupant's possession is
unlawful, i. e., that he is unlawfully withholding possession after the
determination of the right to hold possession. In the case before us quite
the contrary appears; for, even admitting that Pang Lim and Benito Galvez
have purchased the estate from Lo Yao, the original landlord, they are, as
between themselves, in the position of tenants in common or owners pro
indiviso, according to the proportion of their respective contribution to the
purchase price. But it is well recognized that one tenant in common cannot
maintain a possessory action against his cotenant, since one is as much
entitled to have possession as the other. The remedy is ordinarily by an
action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo
Seng is vested with the possessory right as against Pang Lim, he cannot
be ousted either by Pang Lim or Benito Galvez. Having lawful possession
as against one cotenant, he is entitled to retain it against both.
Furthermore, it is obvious that partition proceedings could not be
maintained at the instance of Benito Galvez as against Lo Seng, since
partition can only be effected where the partitioners are cotenants, that is,
have an interest of an identical character as among themselves. (30 Cyc.,
178-180.) The practical result is that both Pang Lim and Benito Galvez are
bound to respect Lo Seng's lease, at least in so far as the present action is
concerned.
We have assumed in the course of the preceding discussion that the deed
of sale under which the plaintiffs acquired the right of Lo Yao, the owner of
the fee, is competent proof in behalf of the plaintiffs. It is, however,
earnestly insisted by the attorney for Lo Seng that this document, having
never been recorded in the property registry, cannot under article 389 of
the Mortgage Law, be used in court against him because as to said
instrument he is a third party. The important question thus raised is not
absolutely necessary to the decision of this case, and we are inclined to
pass it without decision, not only because the question does not seem to
have been ventilated in the Court of First Instance but for the further reason
that we have not had the benefit of any written brief in this case in behalf of
the appellees.
The judgment appealed from will be reversed, and the defendant will be
absolved from the complaint. It is so ordered, without express adjudication
as to costs.
Johnson, Araullo, Avancea and Villamor, JJ., concur.

CATALAN vs. GATCHALIAN
105 Phil 1270, G.R. No. L-11648, April 22, 1959
FACTS:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr.
Maravetogether with the improvements thereon to secure a credit
from the latter. Thepartnership failed to pay the obligation. The
properties were sold to Dr. Marave at apublic auction. Catalan
redeemed the property and he contends that title should becancelled
and a new one must be issued in his name.
ISSUE:
Did Catalans redemp
tion of the properties make him the absolute owner of the lands?
HELD:
No. Under Article 1807 of the NCC every partner becomes a trustee for
hiscopartner with regard to any benefits or profits derived from his
act as a partner.Consequently, when Catalan redeemed the properties
in question, he became a trusteeand held the same in trust for his
copartner Gatchalian, subject to his right to demandfrom the latter his
contribution to the amount of redemption.





G.R. No. L-14617 February 18, 1920
R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.
Cohn and Fisher for appellants.
Thomas D. Aitken and Gibbs, McDonough and Johnson for appellees.
STREET, J.:
This action was originally instituted by R. Y. Hanlon to compel the
defendants, John W. Haussermann and A. W. Beam, to account for a share
of the profits gained by them in rehabilitating the plant of the Benguet
Consolidated Mining Company and in particular to compel them to
surrender to the plaintiff 50,000 shares of the stock of said company, with
dividends paid thereon. A few days after the action was begun G. C. Sellner
was permitted to intervene in like interest with Hanlon and to the same
extent. Thereafter the case was conducted in all respects as if Hanlon and
Sellner had been co-plaintiffs from the beginning. At the hearing judgment
was rendered requiring the defendants to surrender to Hanlon and Sellner
respectively 24,000 shares each of the stock of said company, and to pay
the dividends declared and paid on said stock for the years 1916 and 1917.
From this judgment the defendants appealed.
The controlling features of this controversy are disclosed in documentary
evidence, and the other facts necessary to a proper understanding of the
case are stated in the narrative part of the opinion of the trial judge. As both
parties to the appeal agree that his statement of facts is substantially
correct, we adopt his findings of fact as the basis of our own statement,
with such transposition, omissions, and additions as seen desirable for the
easier comprehension of the case.
The Benguet Consolidated Mining Company is a corporation which was
organized in 1903 with an authorized capital stock of one million dollars, of
the par value of one dollar per share, of which stock 499,000 shares had
been issued prior to November 1913, and 501,000 shares then remained in
the treasury as unissued stock. The par value of the shares was changed
to one peso per share after the organization of the corporation.
In the year 1909 the milling plant of said company, situated near Baguio in
the subprovince of Benguet, Philippine Islands upon a partially developed
quartz mine, was badly damaged and partly destroyed by high water, and
in 1911 it was completely destroyed by like causes. The company was
thereafter without working capital, and without credit, and therefore unable
to rebuild the plant.
In October and November 1913, and for a long time prior thereto, the
defendant John W. Haussermann and A. W. Beam were shareholders in
said mining company and members of its board of directors, and were at
said time vice-president and secretary-treasurer, respectively, of said
company.
In October, 1913, the plaintiff R. Y. Hanlon, an experienced mining
engineer, upon the solicitation of the defendant Beam, presented to the
board of directors of the Benguet Consolidated Mining Company a
proposition for the rehabilitation of the company, and asked an option for
thirty days within which to thoroughly examine the property; which
proposition, with certain amendments, was finally accepted by said
company; and thereafter, on November 6, 1913, within the option period,
the terms of that proposition and acceptance were incorporated in a written
contract between the plaintiff and the company, in which the said company
acted by and through the defendant John W. Haussermann as vice-
president and the defendant A. W. Beam as secretary. In this contract it
appears that for and in consideration of the issuance and delivery to said
Hanlon or to his order of the 501,000 shares of the unissued capital stock
of said mining company, the said Hanlon undertook, promised, and agreed
to do or cause to be done sufficient development work on the mining
properties of said company to enable the company to mine and take out not
less than sixty tons of ore per day, and to give an extraction of not less than
85 per cent of the gold content of the ore; and the terms and conditions
upon which said undertaking was based may be briefly stated as follows:
(1) said Hanlon was to pay into the treasury of the mining company the
sum of P75,000 in cash within six months from that date; (2) upon the
payment of said P75,000 in cash there was to be issued and delivered to
said Hanlon or to his order 250,000 shares of said unissued stock; (3)
prescribing the purposes for which said P75,000 should be disbursed by
said mining company upon the order of said Hanlon; (4) providing for
raising an additional sum of P75,000 by obtaining a loan in the name of
said mining company upon the security of its properties and assets, such
additional indebtedness to be paid and discharged within eighteen months
from date of said agreement; (5) providing for the payment of the then
indebtedness of said mining company amounting to P13,105.08; (6)
providing for the distribution of the net earnings after the payment of the
indebtedness mentioned in paragraphs 4 and 5; (7) providing that, for the
purpose of securing and guaranteeing the faithful performance of each and
every undertaking in said agreement mentioned to be fulfilled by said
Hanlon, 250,000 of said 501,000 shares should remain on deposit with said
mining company, to be released, surrendered and delivered to said Hanlon
or to his order, as follows: "151,000 shares to be released, surrendered and
delivered to the said party of the first part, or his order, when said milling
plant shall have been duly completed and the operation thereof
commenced; the balance of said shares to wit: 100,000, shall remain on
deposit with the party of the second part until the above mentioned loan to
be secured by the assets of the company shall have been fully paid and
discharged, in which event said shares shall be released, surrendered and
delivered to the party of the first part, or his order;" (8) providing that in the
event the earnings of the company should be insufficient to pay all
indebtedness within the time provided in paragraphs 4 and 6, the balance
remaining due thereon was to be paid by said Hanlon, and if he neglected
to pay off and discharge the balance due, then the said mining company
was to have the right and authority to sell and dispose of the 100,000
shares of stock remaining in its possession at public or private sale at the
prevailing market price, or as many of said shares as might be necessary
to fully liquidate and discharge the balance of said indebtedness remaining
unpaid; (9) providing for taking out insurance by said mining company for
the protection of said Hanlon, to cover the full value of said plant during its
erection and after the completion thereof for a period of not less than
eighteen months after the same shall have been placed in operation.
As was at the time well known to all parties concerned herein the plaintiff
Hanlon was personally without the financial resources necessary to enable
him to contribute P75,000 towards the project indicated in the contract
Exhibit B, above set forth; and in order to overcome this obstacle he was
compelled to seek the assistance of others. Haussermann and Beam,
being cognizant of this necessity, agreed to find P25,000 of the necessary
capital, and for the remainder the plaintiff relied upon G. C. Sellner, a
business man of the city of Manila, who, upon being approached, agreed to
advance P50,000. A verbal understanding with reference to his matter had
been attained by the four parties to this litigation before the contract Exhibit
B between Hanlon and the mining company had been formally executed,
and this agreement was in fact reduced to writing and signed on November
5, 1913, one day prior to the execution of the contract between Hanlon and
the mining company.
In this contract of November 5, 1913, (Exhibit A), the four parties, to wit:
Hanlon, Sellner, Haussermann, and Beam, agreed to collaborate in the
flotation of the project outlined in the contract Exhibit B, and defined the
manner in which the necessary capital of P75,000 was to be raised. As this
contract is absolutely vital in the present litigation its provisions are set out
in full:
Whereas, R. Y. Hanlon has submitted a proposition to the Benguet
Consolidated Mining Co., a copy of which is hereto attached for
reference; and
Whereas, the Board of Directors of the Benguet Consolidated Mining
Co., has accepted such proposition as amended; and
Whereas, said parties have agreed to cooperate and assist the said
Hanlon in the flotation of said proposition;
Now, therefore, this agreement made by and between the
undersigned as follows:
I.
It is mutually agreed by and between the parties hereto that each
shall do all in his power to float said proposition and make the same a
success.
II.
It is mutually agreed that said proposition shall be floated in the
following manner, to wit:
(a) That 301,000 shares of the Benguet Consolidated Mining
Company shall be set aside and offered for sale for the purpose of
raising the sum of P75,000 required to be paid to the Benguet
Consolidated Mining Company in accordance with said proposition.
(b) That of said sum of P75,000, the said George Seller agrees and
undertakes to secure and obtain subscriptions for the sum of
P50,000.
(c) That John W. Haussermann and A. W. Beam undertake and agree
to secure and obtain subscriptions for the sum of P25,000.
(d) The said Sellner, Haussermann and Beam hereby guarantee that
the subscriptions to be obtained by them as hereinabove stated shall
be fully paid within six (6) months from the date of the acceptance on
the part of the said Hanlon of the option granted by said company; it
being understood and agreed that if for any cause the said Sellner
shall fail to obtain subscriptions and payment thereof to the amount of
P50,000 within the time herein specified, then and in that event the
obligation of said Haussermann and Beam shall be discharged; and,
on the other hand, if for any cause said Haussermann and Beam
shall fail to obtain subscriptions for the P25,000 and payment thereof
within the time herein mentioned, then and in that event, the said
Sellner shall be released from his obligation.
It is mutually understood and agreed that each of the parties
mentioned in this paragraph shall from time to time advise the other
parties as to the number of subscriptions obtained and the amount of
payments thereon.
III.
That out of the remaining 200,000 shares of the Benguet
Consolidated Mining Co., to be issued under said proposition each of
said parties hereto, that is to say: George Sellner, John W.
Haussermann, A. W. Beam and R. Y. Hanlon shall be entitled to
receive one-fourth thereof, or 50,000 shares, as compensation for the
services rendered in the flotation of this proposition.
IV.
They necessary funds to cover preliminary expenses, such as
expenses to examining the properties of the Benguet Consolidated
Mining Co., freight charges and other charges on ore samples, costs
of testing same, etc., shall be supplied by Messrs. Sellner,
Haussermann and Beam, which said sum shall be reimbursed to said
parties out of the P75,000 fund raised by the sale of the P301,000
shares of stock hereinabove in Paragraph II, Subsection A, hereof,
mentioned.
V.
Cash for the loan of P5,000 to be made to the Benguet Consolidated
Mining Co., as provided in the proposition of the said Hanlon, shall be
furnished by Messrs. Sellner, Haussermann and Beam, in equal
proportions as needed by the company.
In witness whereof, the respective parties hereto have hereunto set
their hands at Manila, P. I., this 5th day of November, 1913.
(Sgd.) R. Y. HANLON,
(Sgd.)GEORGE C. SELLER,
(Sgd.)JOHN W. HAUSSERMANN,
(Sgd.)A. W. BEAM.
During the period which intervened between the making of the
preliminary verbal agreement and the final execution of this contract,
the plaintiff, Hanlon, at the expenses of the joint adventure went from
Manila to the Benguet Consolidated mining properties, near Baguio,
accompanied by the defendant Beam at the expense of said mining
company, and said Hanlon made a preliminary investigation and
examination of the properties, selected and surveyed a suitable mill
site and took out about half a ton of ore samples which it had been
agreed were to be forwarded to the United States for tests for use by
him in the selection of the machinery best suited for the treatment of
such ore; and said Hanlon reported to his coadventurers that it was a
very feasible scheme, and that there was enough ore in sight to well
repay the investment of P125,000, which was the sum estimated by
said Hanlon to be necessary to equip the property.
Soon after the contract Exhibits B and A were made the plaintiff
Hanlon departed for the United States, in contemplation of which
event he executed a special power of attorney, on November 10,
1913, constituting and appointing Beam his special agent and
attorney in fact, for and in his name, to do and perform the following
acts:
To vote at the meetings of any company or companies, and
otherwise to act as my proxy or representative, in respect of
any shares of stock now held, or which may hereafter be
acquired by me therein, and for that purpose to sign and
execute any proxy or other instrument in my name and on my
behalf;
To secure subscriptions in my name for the shares of the
Benguet Consolidated Mining Co., to be issued to me under
and by virtue of an agreement entered into with said company
on November 6, 1013, and to enter into the necessary
agreements for the same of said shares.
To demand, sue for, and receive all debts, moneys, securities
for money, goods, chattels or other personal property to which I
am now or may hereafter become entitled, or which are now or
may become due, owing or payable to me from any person or
persons whomsoever, and in my name to give effectual receipts
and discharges for the same.
Prior to that time, on May 27, 1913, the plaintiff Hanlon had given one
A. Gnandt of the city of Manila a power of attorney with general and
comprehensive powers, and "with full power of substitution and
revocation;" and thereafter on March 14, 1914, said Gnandt, owing to
his intended departure from the Philippine Islands, executed a power
of attorney in favor of said A. W. Beam, with the same general powers
which had been conferred upon him, and Beam became Hanlon's
sole agent in the Philippine Islands. Said original power of attorney
had no special relation to the substitute specifically authorized the
attorney in fact:
To make, sign, execute and deliver any and all contracts,
agreements, receipts and documents of any nature and kind
whatsoever.
After the enumeration of other general and specific powers, Beam
was finally authorized:
To do any and all things necessary or proper for the due
performance and execution of the foregoing powers.
By reference to the contract of November 5, 1913, (Exhibit A), it will
be seen that 301,000 shares of the stock of the Benguet
Consolidated Mining Company were to be used to raise the P75,000
which Hanlon was bound to supply to the mining company; and the
contract contemplated that these shares should be disposed of at 25
centavos per share. As Sellner had agreed to raise P50,000, it
resulted that 200,000 shares had to be allocated to him; while
Haussermann and Beam had at their disposal 100,000 shares, with
which to raise P25,000. Sellner, Haussermann, and Beam
furthermore guaranteed that the subscriptions to be obtained by them
should be fully paid within six months from the date of the acceptance
by Hanlon of the contract with the mining company, that is, from
November 6, 1913.
In prosecution of the common purpose, Haussermann and Beam
proceeded, after the departure of Hanlon, to procure subscriptions
upon the stock at their disposal, part being subscribed by themselves
severally and part sold upon subscription to outsiders; and during the
next two or three months the block of shares allotted to them was
subscribed. As a consequence of this they were thereafter prepared
to pay in, or to cause to be paid in, the entire amount which they were
obligated to raise. Doubts, however, presently arose as to the ability
of Sellner to obtain subscriptions or produce the P75,000, which he
obligated to bring in; and as early as in February of 1914, Beam
cabled to Hanlon in America "Sellner unable to pay. Have you any
instructions?" Upon receipt of this cablegram, Hanlon cabled Sellner
to use every effort to raise the money and also cable Beam to obtain
the money elsewhere if Sellner could not supply it. Furthermore, in
order to be prepared against the contingency of Sellner's ultimate
inability to respond, Hanlon attempted to enlist the interest of
capitalists in San Francisco but in this was unsuccessful. It will be
observed that, although by the exact letter of the contract, Sellner
was obligated to obtain subscriptions for the sum of P50,000, he
nevertheless desired to keep the entire 200,000 shares assigned to
him exclusively for himself, and proceeding on the assumption that he
had in effect underwritten a subscription for the whole block of
shares, he made no effort to obtain subscriptions from anybody else
for any part of these shares. Meanwhile Haussermann and Beam
were in touch with Sellner, urging him to action but without avail,
Sellner being in fact wholly unable to fulfill his undertaking. In this
condition of affairs the period of six months specified in the contracts
of November 5 and 6 for the raising of the sum of P75,000 passed.
Thereafter Haussermann and Beam assumed that they were
absolved from the obligations of their contract of November 5, 1913,
with Hanlon and Sellner, and that the mining company was no longer
bound by its contract of November 6, 1913, with Hanlon. They
therefore proceeded, as parties interest in the rehabilitation of the
mining company, to make other arrangements for financing the
project. They found it possible to effectuate this through the offices of
Sendres of the Bank of the Philippine Islands, and in order to do so, a
new contract was made between the mining company and Beam,
with Haussermann as silent partner of the latter, whereby a bonus of
96,000 shares was conceded to the promoter instead of the 100,000
shares which would have accrued to Haussermann and Beam if the
Hanlon project had gone through. As a result of this, the profits of
each were reduced by the amount of 2,000 shares below what they
might have realized under the Hanlon contract of November 5.
Another feature of the new project was that some of those who had
subscribed to the stock of the mining company through Beam under
the Hanlon project were retained as stockholders in the new scheme
of flotation. Some, however, dropped out, with the result that
Haussermann and Beam were compelled to increase their
subscriptions materially.
As preliminary to the new scheme of financing the corporation, the
board of directors of the mining company, composed of Haussermann
Beam, and Sendres, saw fit at a special meeting on June 19, 1914, to
adopt a resolution declaring the contract of November 6, 1913,
between Hanlon and the company to be cancelled by reason of the
failure of Hanlon to pay in the sum of P75,000 in cash on or before
May 6, 1914.
Immediately after the adoption of this resolution, the new plan for
financing the mining company was unfolded by Mr. Beam to the
Board in a letter, addressed by him to the Directors. In its parts
relating to financial arrangements said letter is as follows:
MANILA, P. I., June 17, 1914.
To the DIRECTORS OF THE BENGUET CONSOLIDATED MINING
CO.,
Manila, P. I.
GENTLEMEN:
The undersigned hereby applies for an option for 30 days over 501,000
shares of unissued stock of your corporation. . . .
I have canvassed the local field for capital and am reasonably assured that
the required capital will be available as follows:
405,000 shares have been subscribed for at 20 and 25 cents per share,
making up a total of P86,000, which sums is payable to the company in
four equal monthly installments commencing July 15, 1914. . . . .
Arrangements have been made whereby the Bank of Philippine Islands will
grant the company an overdraft to the extent of P50,000, thus affording
P136,000. . . .
The balance of the 501,000 shares of unissued stock, or 96,000 shares,
are to be issued to my order when the total sum of 86,000 subscribed as
above stated shall have been paid to the company. The said shares are to
be placed in the hands of the Bank of the Philippine Islands in escrow to be
held by the said bank and delivered to my order as soon as the overdraft
hereinbefore mentioned shall be fully paid and liquidated.
It is further understood that the bank shall have full power and authority to
vote said shares until such time as said overdraft is repaid to the company.
For the payment of the overdraft guaranteed by the Bank of the Philippine
Islands, it is understood that the total net earning of the company shall be
used, and the term "net earnings" shall be understood to mean the gross
value of gold recovered less actual operation expense.
Trusting that the foregoing may meet with your approval and acceptance, I
am
Yours very truly,
(Sgd.) A. W. BEAM.
Upon motion of Senders, the proposition of Beam was accepted; Sendres
and Haussermann voting in favor of the same. At the same special meeting
it was moved and seconded and unanimously carried that a meeting of the
shareholders of the company be called for the purpose of passing upon the
action of the directors in accepting the proposition made by Beam. At this
special meeting of the shareholders, held at 4:30 p. m., June 29, 1914,
there were 310,405 shares of the 499,000 shares of issued stock
represented at the meeting. The stockholders personally present were A.
W. Beam, E. Sendres, and O. M. Shuman; and various other shareholders
were represented by Beam as proxy, and the Bank of the Philippine Islands
was represented by Sendres as proxy. It appears from the minutes of said
special meeting that Beam's proposition, which had been accepted by the
board of directors, as above stated, was submitted to the meeting and after
being read was ordered to be attached to the minutes. After due discussion
by the shareholders present, Shuman moved that the action of the board of
directors accepting Beam's proposition be approved, and this motion was
duly seconded and unanimously carried.
The Beam project was carried out, and the mining company was brought to
a dividend-paying basis, paying a quarterly dividend of five per cent; and at
the time of the trial of this case the shares of stock in the market had risen
from twenty centavos to P1.50 or higher. The defendants about 1916
received 48,000 shares each as their profits. It is stated in the appellants'
brief, without denial from the appellee, that said shares have appreciated
subsequently to the trial below to the value of P2 each. The trial court held
that the plaintiffs, as coadventurers with the defendants in the project for
the rehabilitation of the mining company, are each entitled to recover the
one-fourth part of the 96,000 shares obtained from the mining company by
the defendants, or 24,000 shares, with dividends paid, and to be paid
beginning with the year 1916. It is thus apparent that the value of the
interest awarded to each of the plaintiffs is considerably in excess of
$25,000 (U. S. currency).
So far as Beam's material scheme for the improvement of the mining
property is concerned it followed the same lines and embodied the same
ideas as had been entertained while the Hanlon project was in course of
promotion; and it is contended for the plaintiffs that there was an unfair
appropriation by Beam of the labors and ideas of Hanlon. This is denied by
the defendants, whose testimony tends to minimize the extent of Hanlon's
contribution to the project in labor and ideas. We believe it unnecessary to
enter into the merits of this contention, as in our opinion the solution of the
case must be determined by other considerations.
An examination of the rights of the parties to this litigation must begin with
the interpretation of the contract of November 5, 1913. Some discussion is
indulged in the briefs of counsel upon the question whether that contract
constitutes a partnership among the four signatories or a mere enterprise
upon joint account (cuenta en participacion) under the Code of Commerce.
This question seems to us of academy rather than practical importance; for
whatever be the character of the relation thus created, each party was
undoubtedly bound to use good faith towards the other, so long as the
relation subsisted.
In paragraph I of said contract each party obligates himself to do all in his
power to "float" the Hanlon proposition, i. e., as indicated in the contract of
November 6, between Hanlon and the mining company. This means of
course that each was to do what he could to make that project for the
rehabilitation of the mining company a success. The word flotation,
however, points more particularly to the effort to raise money, since, as all
man know, it takes capital to make any enterprise of this kind go. In
paragraph II of the same contract the manner in which the flotation is to be
effected is described, namely, that Sellner is to obtain subscriptions for
P50,000 and Haussermann and Beam for P25,000. This involved, as we
have already stated, the allocation of 200,000 shares to Sellner and
100,000 to Hanlon and Beam.
Now the two paragraphs of the contract to which reference has been made
must be construed together, and it is entirely clear that the general
language used in the first paragraph is limited by that used in the second
paragraph. In other words, though in the first paragraph the parties agree to
help float the project, they are tied up, in regard to the manner of effecting
the flotation, to the method agreed upon in the second. We can by no
means lend our assent to the proposition that the first paragraph created an
obligation, independent of the provisions of paragraph II, which continued
to subsist after the method of flotation described in paragraph II became
impossible of fulfillment. It is a rudimentary canon of interpretation that all
parts of a writing are to be construed together (6 R. C. L., p. 837) and that
the particular controls the general. (Art. 1283, Civ. Code; 13 C. J., p. 537.)
It seems too plain for argument that so long as that contract was in force,
Sellner did not have any right to inter-meddle with the 100,000 shares
allotted to Haussermann and Beam. Neither could the latter dispose of the
200,000 shares allotted to Sellner. Indeed, Sellner, by reserving to himself
all of these 200,000 shares and sitting tightly, as he did, on this block of
stock, made it impossible for Haussermann, Beam, or anybody else, to
raise money by selling those shares within the period fixed as the limit of
his guaranty. There was absolutely, as everybody knew, no other means to
raise money except by the sale of stock; and when Hanlon cabled to Beam
in February to obtain the money elsewhere if Sellner could not supply it, he
was directing the impossible, unless Sellner should release the block of
shares assigned to him, which he never did. As a matter of fact it appears
that this quantity of the stock of the mining company could not then have
been sold at 25 cents per share in the Manila market to anybody; and in the
end in order to get Sendres and the Bank of the Philippine Islands to take
part in the Beam project 260,000 shares had to go at 20 centavos per
share.
By referring to subsection (d) to paragraph II of the contract of November 5,
1913, it will be seen that the promises with reference to the obtaining of
subscriptions are mutual concurrent conditions; and it is expressly declared
in the contract that upon the default of either party the obligation of the
other shall be discharged. From this it is clear that upon the happening of
the condition which occurred in this case, i.e., the default of Sellner to pay
to the mining company on or before May 6, 1914, the sum of money which
he had undertaken to find, Haussermann and Beam were discharged.
This is a typical case of a resolutory condition under the civil law. The
contract expressly provides that upon the happening of a future and
uncertain negative event, the obligation created by the agreement shall
cease to exist.
In conditional obligations the acquisition of rights as well as the
extinction of those already acquired shall depend upon the event
constituting the condition. (Civ. Code, art. 1114.)
If the condition consists in the happening of an event within a fixed
period the obligation shall be extinguished from the time the period
elapses or when it becomes certain that the event will not take place.
(Civ. code, art. 1117.)
The right of Hanlon to require any further aid or assistance from these
defendants after May 6, 1914, was expressly subordinated to a resolutory
condition, and the contract itself declares in precise language that the effect
of the non-fulfillment of the condition shall be precisely the same as that
which the statute attaches to it the extinction of the obligation.
In the argument of the plaintiffs at this point a distinction is drawn between
the discharge from the guaranty to raise money at the stated time and the
discharge from the contract as an entirety; and it is insisted that while the
defendants were discharged from liability to Sellner on their guaranty to
have the money forthcoming on May 6, they were not discharged from their
liability on the contract, considered in its broader features, and especially
were not discharged with reference to their obligation to Hanlon. This
argument proceeds on the erroneous assumption that the defendants were
bound to discover some other method of flotation after the plan prescribed
in the contract had become impossible of fulfillment and to proceeds
therewith for the benefit of all four of the parties. Furthermore, this
conception of the case is apparently over-refined and not in harmony with
the common-sense view of the situation as it must have presented itself to
the contracting parties at the time. The obtaining of capital was
fundamentally necessary before the project could be proceeded with; and it
was obvious enough that, if the parties should fail to raise the money, the
whole scheme must collapse like a stock of cards. The provisions relative
to the getting in of capital are the principal features of the contract, other
matters being of subordinate importance. In our opinion the contracting
parties must have understood and intended that Haussermann and Beam
would be discharged from the contract in its entirety by the failure of Sellner
to comply with his obligation. This is the plainest, simplest, and most
obvious meaning of which the words used are capable and we believe it to
be their correct interpretation. We are not to suppose that either of the
signatories intended for those words to operate as a trap for the others; and
such would certainly be the effect of the provision in question if the words
are to be understood as referring to a discharge from the guaranty merely,
leaving the contract intact in other respects.
It is insisted in behalf of the plaintiffs that Haussermann and Beam, as well
as Sellner, defaulted in the performance of the contract of November 5,
1913, and that not having performed their obligation to obtain subscriptions
for the sum of P25,000 and to cause payment to be made into the
company's treasury on or before May 6, 1914, they cannot take advantage
of the similar default of Sellner. This suggestion is irrelevant to the
fundamental issue. The question here is not whether Haussermann and
Beam have a right of action for damaged against Sellner. If they were suing
him, it would be pertinent to say that they could not maintain the action
because they themselves had not caused the money to be paid in which
they had agreed to raise. The question here is different, namely, whether
Haussermann and Beam have been discharged from the contract of
November 5, 1913, by the default of Sellner; and this question must, under
the contract, be answered by reference to the acts of Sellner. Upon this
point it is irrelevant to say that the discharged was mutual as between the
two parties and not merely one-sided.
The interpretation which we have placed upon the contract of November 5,
1913, exerts a decisive influence upon this litigation, and makes a reversal
of the appealed judgment inevitable. There are, however, certain
subordinate features of the case which, as disposed in the appellee's brief,
appear to justify the conclusion of the trial judge; and we deem it desirable
to say something with reference to the questions thus presented.
It will be noted that there is no resolutory provision in the contract of
November 6, 1913, between Hanlon and the mining company, declaring
that said contract would be discharged or abrogated upon the failure of
Hanlon to supply, within the period specified, the money which he had
obligated himself to raise. In other words, time is not expressly made of the
essence of this contract. From this it is argued for the plaintiffs that this
contract remained in force after May 6, 1914, notwithstanding the failure of
Hanlon to supply the funds which he had agreed to find, and indeed it is
insisted upon the authority of Ocejo, Perez & Co. vs. International Banking
Corporation (37 Phil. Rep., 631), that the mining company could not be
relieved from that contract without obtaining a judicial rescission in an
action specially brought for that purpose. The reply to this is two-fold.
In the first place the present action is not based upon the contract between
Hanlon and the mining company; and it is clear that if Hanlon had sued the
mining company, as for example, in an action seeking to recover damages
for breach of its contract with him, he would have been confronted by the
insuperable obstacle that he had never supplied, nor offered to supply, one
penny of the P75,000, which he had obligated himself to bind, and which
was absolutely necessary to the rehabilitation of the company. The benefits
of a contract are not for him who has failed to comply with its obligations. It
may be admitted that the resolution of the Board of Directors of the mining
company, on June 19, 1914, declaring the contract of November 6, 1913,
with Hanlon to be cancelled, considered alone, was without legal effect,
since one party to a contract cannot absolve himself from its obligations
without the consent of the other.
With reference to the second point, namely, that a judicial rescission was
necessary to absolve the mining company from its obligations to Hanlon
under the contract of December 6, 1913, we will say that we consider the
doctrine of Ocejo, Perez & Co., vs. International Banking Corporation (37
Phil. Rep., 631), to be inapplicable. The contract there in question was one
relating to a sale of goods, and it had been fully performed on the part of
the vendor by delivery. This court held that delivery had the effect of
passing title, and that while the failure of the purchaser to pay the price
gave the seller a right to sue for a rescission of the contract, the failure of
the buyer to pay the purchase price did not ipso facto produce a reversion
of title to the vendor, or authorize him, upon his election to rescind, to treat
the goods as his own property and retake them by writ of replevin. In the
present case the contract between Hanlon and the mining company was
executory as to both parties, and the obligation of the company to deliver
the shares could not arise until Hanlon should pay or tender payment of the
money. The situation is similar to that which arises every day in business
transactions in which the purchaser of goods upon an executory contract
fails to take delivery and pay the purchase price. The vendor in such case
is entitled to resell the goods. If he is obliged to sell for less than the
contract price, he holds the buyer for the difference; if he sells for as much
as or more than the contract price, the breach of the contract by the original
buyer is damnum absque injuria. But it has never been held that there is
any need of an action of rescission to authorize the vendor, who is still in
possession, to dispose of the property where the buyer fails to pay the
price and take delivery. Of course no judicial proceeding could be
necessary to rescind a contract which, like that of November 5, 1913,
contains a resolutory provision by virtue of which the obligation is already
extinguished.
Much reliance is placed by counsel for the plaintiffs upon certain American
decisions holding that partners, agents, joint adventurers, and other
persons occupying similar fiduciary relations to one another, must not be
allowed to obtain any undue advantage of their associates or to retain any
profit which others do not share. We have no criticism to make against this
salutary doctrine when properly applied and would be slow to assume that
our civil law requires any less degree of good faith between parties so
circumstanced than is required by the courts of equity in other countries.
For instance, we feel quite sure that this Court would have no difficulty in
subscribing to the doctrine which is stated in Lind vs. Webber (36 Nev.,
623; 50 L. R. A. [N. S.], 1046}, with reference to joint adventurers as
follows:
We further find that the law is well established that the relation
between joint adventurers is fiduciary in its character and the utmost
good faith is required of the trustee, to whom the deal or property
may be instrusted, and such trustee will be held strictly to account to
his co-adventurers, and that he will not be permitted, by reason of the
possession of the property or profits whichever the case may be to
enjoy an unfair advantage, or have any greater rights in the property
or profits as trustee, than his co-adventurers are entitled to. The mere
fact that he is intrusted with the rights of his co-adventurers imposes
upon him the sacred duty of guarding their rights equally with his
own, and he is required to account strictly to his co-adventurers, and,
if he is recreant to his trust, any rights they may be denied are
recoverable.
In Flagg vs. Mann (9 Fed. Cas., 202; Fed. Case No. 4847), it appeared that
Flagg and Mann had an agreement to purchase a tract of land on joint
account. The court held that where parties are interested together by
mutual agreement, and a purchase is made agreeably thereto, neither
party can excuse the other from what was intended to be for the common
benefit; and any private benefit, touching the common right, which is
secured by either party must be shared by both. Justice Story, acting as
Circuit Justice, said that the doctrine in question was "a wholesome and
equitable principle, which by declaring the sole purchase to be for the joint
benefit, takes away the temptation to commit a dishonest act, founded in
the desire of obtaining a selfish gain to the injury of a co-contractor, and
thus adds strength to wavering virtue, by making good faith an essential
ingredient in the validity of the purchase. There is not, therefore, any
novelty in the doctrine of Mr. Chancellor Kent, notwithstanding the
suggestion at the bar to the contrary; and it stands approved equally by
ancient and modern authority, by the positive rule of the Roman Law, the
general recognition of continental Europe, and the actual jurisprudence of
England and America."
We deem it unnecessary to proceed to an elaborate analysis of the array of
cases cited by the appellee as containing applications of the doctrine above
stated. Suffice it to say that, upon examination, such of these decisions as
have reference to joint adventures will be found to deal with the situation
where the associates are not only joint adventurers but are joint
adventurers merely. In the present case Haussermann and Beam were
stockholders and officials in the mining company from a time long anterior
to the beginning of their relations with Hanlon. They were not merely co-
adventurers with Hanlon, but in addition were in a fiduciary relation with the
mining company and its other shareholders, to whom they owned duties as
well as to Hanlon. It does not appear that the defendants acquired any
special knowledge of the mine or of the feasibility of its reconstruction by
reason of their relation with Hanlon which they did not already have; and
they probably were in no better situation as regards the facts relating to the
mine after the failure of the Hanlon contract than they were before. The fact
of their having been formerly associated with Hanlon certainly did not
preclude them from making use of the information which they possessed as
stockholders and officers of the mining company long before they came
into contact with him.
After the termination of an agency, partnership, or joint adventure, each of
the parties is free to act in his own interest, provided he has done nothing
during the continuance of the relation to lay a foundation for an undue
advantage to himself. To act as agent for another does not necessarily
imply the creation of a permanent disability in the agent to act for himself in
regard to the same subject-matter; and certainly no case has been called to
our attention in which the equitable doctrine above referred to has been so
applied as to prevent an owner of property from doing what he pleased with
his own after such a contract as that of November 5, 1913, between the
parties to this lawsuit had lapsed.
In the present case so far as we can see, the defendants acted in good
faith for the accomplishment of the common purpose and to the full extent
of their obligation during the continuance of their contract; and if Sellner
had not defaulted, or if Hanlon had been able to produce the necessary
capital from some other source, during the time set for raising the money,
the original project would undoubtedly have proceeded to its
consummation. Certainly, no act of the defendants can be pointed to which
prevented or retarded its realization; and we are of the opinion that, under
the circumstances, nothing more could be required of the defendants than
a full and honest compliance with their contract. As this had been discharge
through the fault of another they can not be held liable upon it. Certainly,
we cannot accede to the proposition that the defendants by making the
contracts in question had discapacitated themselves and their company for
an indefinite period from seeking other means of financing the company's
necessities, save only upon the penalty of surrendering a share of their
ultimate gain to the two adventurers who are plaintiffs in this action.
The power of attorney which Hanlon left with Beam upon departing for
America was executed chiefly to enable Haussermann and Beam to
comply with their obligation to raise P25,000 by the sale of shares. This
feature of the power of attorney was manifestly subordinate to the purpose
of the joint agreement of November 5, 1913. Certainly, under that power,
Beam could not have disposed of any of the stock allotted to Sellner;
neither was he bound, or even authorized, after the joint agreement was at
an end, to use the power for Hanlon's benefit, even supposing contrary
to the proven fact that purchasers to the necessary extent could have
been found for the shares at 25 centavos per share.
As we have already stated, some of the individuals who originally
subscribed to the Hanlon project were carried as stockholders into the new
project engineered by Beam, being credited with any payments previously
made by them. In other words, the mining company honored these
subscriptions, although the Hanlon project on which they were based had
fallen through. This circumstance cannot in our opinion alter the
fundamental features of the case. Taken all together these subscriptions
were for only a part of the P25,000 which the defendants had undertaken to
raise and were by no means sufficient to finance the Hanlon project without
the assistance which Sellner had agreed to give. Of course if Beam, acting
as attorney in fact of Hanlon, had obtained a sufficient number of
subscriptions to finance the Hanlon project, and concealing this fact, had
subsequently utilized the same subscriptions to finance his own scheme,
the case would be different. But the revealed facts do not bear out this
imputation.
It should be noted in this connection that the mining company had
approved the subscriptions obtained by Haussermann and Beam and had,
prior to May 6, 1914, accepted part payment of the amount due upon some
of them. It is not at all clear that, under these circumstances, the company
could have repudiated these subscriptions, even if its officers had desired
to do so; and if the mining company was bound either legally or morally to
recognize them, if cannot be imputed to the defendants as an act of bad
faith that such subscriptions were so recognized.
The trial court held that Haussermann, by reason of his interest in the
Beam project, was disqualified to act as a director of the mining company
upon the resolution accepting that project; and it was accordingly declared
that said resolution was without legal effect. We are of the opinion that the
circumstance referred to could at the most have had no further effect than
to render the contract with Beam voidable and not void; and the irregularity
involved in Haussermann's participation in that resolution was doubtless
cured by the later ratification of the contract at a meeting of the
stockholders. However this may be, the plaintiffs are not in a position to
question the validity of the contract of the mining company with Beam since
the purpose of the action is to secure a share in the gains acquired under
that contract.
In the course of the preceding discussion we have already noted the fact
that no resolutory provision contemplating the possible failure of Hanlon to
supply the necessary capital within the period of six months is found in the
contract of November 6, 1913, between Hanlon and the mining company.
In other words, time was not expressly made of the essence of that
contract. It should not be too hastily inferred from this that the mining
company continued to be bound by that contract after Hanlon dad defaulted
in procuring the money which he had obligated himself to supply. Whether
that contract continued to be binding after the date stated is a question
which does not clearly appear to be necessary to the decision of this case,
but the attorneys for Hanlon earnestly insist that said contract did in fact
continue to be binding upon the mining company after May 6, 1914; and
upon this assumption taken in connection with the power held by Beam as
attorney in fact of Hanlon, It is argued that the right of action of Hanlon is
complete, as against Beam and Haussermann, even without reference to
the profit-sharing agreement of November 5. We consider this contention to
be unsound; and the correctness of our position on this point can, we think,
be clearly demonstrated by considering for a moment the question whether
time was in fact of the essence of the contract of November 6, 1913, in
other words, Was the mining company discharged by the default of Hanlon
in the performance of that agreement?
Whether a party to a contract is impliedly discharged by the failure of the
other to comply with a certain stipulation on or before the time set for
performance, must be determined with reference to the intention of the
parties as deduced from the contract itself in relation with the
circumstances under which the contract was made.
Upon referring to the contract now in question i. e., the contract of
November 6, 1913 it will be seen that the leading stipulation following
immediately after the general paragraph at the beginning of the contract, is
that which relates to the raising of capital by Hanlon. It reads as follows:
1. Said party of the first part agrees to pay into the treasury of the
party of the second part the sum of Seventy-five Thousand Pesos
( P75,000) in cash within six (6) months from the date of this
agreement.
Clearly, all the possibilities and potentialities of the situation with respect to
the rehabilitation of the Benguet mining property, depended upon the
fulfillment of that stipulation; and in fact nearly all the other subsequent
provisions of the contract are concerned in one way or another with the
acts and things that were contemplated to be done with that money after it
should be paid into the company's treasury. Only in the event of such
payment were shares to be issued to Hanlon, and it was stipulated that the
money so to be paid in should be disbursed to pay the expenses of the
very improvements which Hanlon had agreed to make. There can then be
no doubt that compliance on the part of Hanlon with this stipulation was
viewed by the parties as the pivotal fact in the whole scheme.
Again, it will be recalled that this contract (Exhibit B) between Hanlon and
the mining company was not in fact executed until the day following that on
which the profit-sharing agreement (Exhibit A) was executed by the four
parties to this lawsuit. In other words, Haussermann and Beam, as officials
of the mining company, refrained from executing the company's contract
until Hanlon had obligated himself by the profit-sharing agreement. Indeed,
these two contracts should really be considered as constituting a single
transaction; and it is obvious enough that the prime motive which induced
Haussermann and Beam to place their signature upon the contract of
November 6 was that they already had the profit-sharing agreement
securely in their hands. Therefore, when the contract of November 6,
between Hanlon and the mining company was signed, all the parties who
participated therein acted with full knowledge of the provisions contained in
the profit-sharing agreement; and in particular the minds of all must have
riveted upon the provisions of paragraph II of the profit-sharing agreement,
wherein is described the manner in which the project to which the parties
were then affixing their signatures should be financially realized ("floated").
In subsection (d) of the same paragraph II, as will be remembered, are
found the words which declare that Haussermann and Beam would be
discharged if Sellner should fail to pay into the company's treasury on or
before the expiration of the prescribed period the money which he had
agreed to raise. Under these conditions it is apparent enough that the
parties to the later contract treated time as of the essence of the agreement
and intended that the failure of Hanlon to supply the necessary capital
within the time stated should put an end to the whole project. In view of the
fact that an express resolutory provision had been inserted in the profit-
sharing agreement, it must have seemed superfluous to insert such
express clause in the later contract. Any extension of time, therefore, that
the mining company might have made after May 6, 1914, with respect to
the date of performance by Hanlon would have been purely a matter of
grace, and not demandable by Hanlon as of absolute right. It is needless to
say in this connection that the default of Sellner was the default of Hanlon.
An examination of the decisions of the American and English courts reveals
a great mass of material devoted to the discussion of the question whether
in a given case time is of the essence of a contract. As presented in those
courts, the question commonly arises where a contracting party, who has
himself failed to comply with some agreement, tenders performance after
the stipulated time has passed, and upon the refusal of the other party to
accept the delayed performance the delinquent party resorts to the court of
equity to compel the other party to proceed. The equitable doctrine there
recognized as applicable in such situation is that if the contracting parties
have treated time as of the essence of the contract, the delinquency will not
be excused and specific performance will not be granted; but on the other
hand, if it appears that time has not been made of the essence of the
contract, equity will relieve from the delinquency and specific performance
may be granted, due compensation being made for the damage caused by
the delay. In such cases the courts take account of the difference between
that which is matter of substance and that which is matter of mere form.
To illustrate: the rule has been firmly established from an early date in
courts of equity that in agreements for the sale of land, time is not ordinarily
of the essence of the contract; that is to say, acts which one of the parties
has stipulated to perform on a given date may be performed at a later date.
Delay in the payment of the purchase money, for instance, does not
necessarily result in the forfeiture of the rights of the purchaser under the
contract, since mere delay in the payment of money may be compensated
by the allowance of interest. (36 Cyc., 707-708.) In discussing this subject,
Pomeroy says: "Time may be essential. It is so whenever the intention of
the parties is clear that the performance of its terms shall be accomplished
exactly at the stipulated day. The intention must then govern. A delay
cannot be excused. A performance at the time is essential; any default will
defeat the right to specific enforcement." (4 Pomeroy Eq. Jur., 3rd ed., sec.
1408.) Again, says the same writer: "It is well settled that where the parties
have so stipulated as to make the time of payment of the essence of the
contract, within the view of equity as well as of the law, a court of equity
cannot relieve a vendee who has made default. With respect to this rule
there is no doubt; the only difficulty is in determining when time has thus
been made essential. It is also equally certain that when the contract is
made to depend upon a condition precedent in other words, when no
right shall vest until certain acts have been done, as, for example, until the
vendee has paid certain sums at certain specified times then, also a
court of equity will not relieve the vendee against the forfeiture incurred by
a breach of such condition precedent." (1 Pomeroy Eq. Jur., 3rd ed., sec.
455.)
As has been determined in innumerable cases it is not necessary, in order
to make time of the essence of a contract, that the contract should
expressly so declare. Words of this import need not to be used. It is
sufficient that the intention to this effect should appear; and there are
certain situations wherein it is held, from the nature of the agreement itself,
that time is of the essence of the contract.
Time may be of the essence, without express stipulation to that effect,
by implication from the nature of the contract itself, or of the subject-
matter, or of the circumstances under which the contract is made. (36
Cyc., 709.)
In agreements which are executed in the form of options, time is always
held to be of the essence of the contract; and it is well recognized that in
such contracts acceptance of the option and payment of the purchase price
constitute conditions precedent to specific enforcement. The same is true
generally of all unilateral contracts. (36 Cyc., 711.) In mercantile contracts
for the manufacture and sale of goods time is also held to be of the
essence of the agreement. (13 C. J., 688.) Likewise, where the subject-
matter of a contract is of speculative or fluctuating value it is held that the
parties must have intended time to be of the essence (13 C. J., 668.) Most
conspicuous among all the situations where time is presumed to be of the
essence of a contract from the mere nature of the subject-matter is that
where the contract relates to mining property. As has been well said by the
Supreme Court of the United States, such property requires, and of all
properties perhaps the most requires, the persons interested in it to be
vigilant and active in asserting their rights. (Waterman vs.Banks, 144 U. S.,
394; 36 L. ed., 479, 483.) Hence it is uniformly held that time is of the
essence of the contract for the sale of an option on mining property, or a
contract for the sale thereof, even though there is no express stipulation to
that effect. (27 Cyc., 675). The same idea is clearly applicable to a contract
like that now under consideration which provides for the rehabilitation of a
mining plant with funds to be supplied by the contractor within a limited
period.
Under the doctrine above expounded it is evident that Hanlon would be
entitled to no relief against the mining company in an action of specific
performance, even if he had been prepared and had offered, after May 6,
1914, to advance the requisite money and proceed with the performance of
the contract. Much less can he be considered entitled to relief where he
has remained in default throughout and has at no time offered to comply
with the obligations incumbent upon himself.
Our conclusion, upon a careful examination of the whole case, is that the
action cannot be maintained. The judgment is accordingly reversed and the
defendants are absolved from the complaint. No express pronouncement
will be made as to costs of either instance.
Arellano, C.J., Torres, Araullo, Malcolm and Avancea, JJ., concur.




G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA
and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu
and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of
respondent Court of First Instance of Cebu Branch III in its Civil Case No.
12328, an action for accounting of properties and money totalling allegedly
about P15 million pesos filed with a common cause of action against six
defendants, in which after declaring four of the said defendants herein
petitioners, in default and while the trial as against the two defendants not
declared in default was in progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted defendants were concerned
and thereafter proceeded to hear ex-parte the rest of the plaintiffs evidence
and subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to dismiss was
not duly served on any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and the judgment so
rendered granted reliefs not prayed for in the complaint, and (2) prohibition
to enjoin further proceedings relative to the motion for immediate execution
of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by
respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu
and Dy Ochay. Subsequently, in an amended complaint dated September
26, 1972, their son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended complaint, respondent Tan
alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory Commercial Company ... with
Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo,
through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to use the funds of the
partnership to purchase lands and building's in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some
of which were hidden, but the description of those already discovered were
as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation continued the business of Glory
Commercial Company by purportedly organizing a corporation
known as the Glory Commercial Company, Incorporated, with
paid up capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct Glory
Commercial Company partnership, of which the plaintiff has a
share equivalent to one third (#/
3
) thereof;
14. (P)laintiff, on several occasions after the death of her
husband, has asked defendants of the above-mentioned
properties and for the liquidation of the business of the defunct
partnership, including investments on real estate in Hong Kong,
but defendants kept on promising to liquidate said properties
and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants,
Antonio Lim Tanhu, by means of fraud deceit and
misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in
the assets of the partnership of Glory Commercial Company,
which is null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the possession of
the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim,
defendant Antonio Lim Tanhu offered to pay the plaintiff the
amount P65,000.00 within a period of one (1) month, for which
plaintiff was made to sign a receipt for the amount of
P65,000.00 although no such amount was given and plaintiff
was not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and assets
in favor among others of plaintiff and until the middle of the year
1970 when the plaintiff formally demanded from the defendants
the accounting of real and personal properties of the Glory
Commercial Company, defendants refused and stated that they
would not give the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be
rendered:
a) Ordering the defendants to render an accounting of the real
and personal properties of the Glory Commercial Company
including those registered in the names of the defendants and
other persons, which properties are located in the Philippines
and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after
accounting, one third (#/
3
) of the total value of all the properties
which is approximately P5,000,000.00 representing the just
share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff
the sum of Two Hundred Fifty Thousand Pesos (P250,000.00)
by way of attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs
consistent with law and equity and order the defendants to pay
the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants
upon the ground that there were material modifications of the causes of
action previously alleged, but respondent judge nevertheless allowed the
amendment reasoning that:
The present action is for accounting of real and personal
properties as well as for the recovery of the same with
damages.
An objective consideration of pars. 13 and 15 of the amended
complaint pointed out by the defendants to sustain their
opposition will show that the allegations of facts therein are
merely to amplify material averments constituting the cause of
action in the original complaint. It likewise include necessary
and indispensable defendants without whom no final
determination can be had in the action and in order that
complete relief is to be accorded as between those already
parties.
Considering that the amendments sought to be introduced do
not change the main causes of action in the original complaint
and the reliefs demanded and to allow amendments is the rule,
and to refuse them the exception and in order that the real
question between the parties may be properly and justly
threshed out in a single proceeding to avoid multiplicity of
actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common
counsel, defendants denied specifically not only the allegation that
respondent Tan is the widow of Tee Hoon because, according to them, his
legitimate wife was Ang Siok Tin still living and with whom he had four (4)
legitimate children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the allegations of
fraud and conversion quoted above, the truth being, according to them, that
proper liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his death, as
a result of which the partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote the pertinent portions
of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in
the answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint
as an heir of Tee Hoon Lim Po Chuan, then, she has no legal
capacity to sue as such, considering that the legitimate wife,
namely: Ang Siok Tin, together with their children are still alive.
Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack
of legal capacity to sue is one of the grounds for a motion to
dismiss and so defendants prays that a preliminary hearing be
conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the
present case under Art. 144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim' Annex 'A' hereof,
the ground cited is another ground for a motion to dismiss (Sec.
1, (h), Rule 16) and hence defendants pray that a preliminary
hearing be made in connection therewith pursuant to Section 5
of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang
Siok Tin and were blessed with the following children, to wit:
Ching Siong Lim and Ching Hing Lim (twins) born on February
16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng
Lu born on June 25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the
plaintiff was no longer his common law wife and even though
she was not entitled to anything left by Tee Hoon Lim Po
Chuan, yet, out of the kindness and generosity on the part of
the defendants, particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim' (Annex
'A');
5. That the defendants have acquired properties out of their
own personal fund and certainly not from the funds belonging to
the partnership, just as Tee Hoon Lim Po Chuan had acquired
properties out of his personal fund and which are now in the
possession of the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from
funds belonging to the partnership without the other partners
knowing about it considering that the amount taken allegedly is
quite big and with such big amount withdrawn the partnership
would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed
with children who would have been lawfully entitled to succeed
to the properties left by the latter together with the widow and
legitimate children;
8. That despite the fact that plaintiff knew that she was no
longer entitled to anything of the shares of the late Tee Hoon
Lim Po Chuan, yet, this suit was filed against the defendant
who have to interpose the following
C O U N T E R C L A I M
A. That the defendants hereby reproduced, by way of
reference, all the allegations and foregoing averments as part
of this counterclaim; .
B. That plaintiff knew and was aware she was merely the
common-law wife of Tee Hoon Lim Po Chuan and that the
lawful and legal is still living, together with the legitimate
children, and yet she deliberately suppressed this fact, thus
showing her bad faith and is therefore liable for exemplary
damages in an amount which the Honorable Court may
determine in the exercise of its sound judicial discretion. In the
event that plaintiff is married to Tee Hoon Lim Po Chuan, then,
her marriage is bigamous and should suffer the consequences
thereof;
C. That plaintiff was aware and had knowledge about the
'quitclaim', even though she was not entitled to it, and yet she
falsely claimed that defendants refused even to see her and for
filing this unfounded, baseless, futile and puerile complaint,
defendants suffered mental anguish and torture conservatively
estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were
constrained to engage the services of the undersigned counsel,
obligating themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this
case will be before this Honorable Court and until the same will
be finally terminated and adjudicated, defendants will have to
spend at least P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely
permissive and should be dismissed for non-payment of the corresponding
filing fee, and after being overruled by the court, in due time, plaintiff
answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two
defendants-spouses the Lim Tanhus and Ng Suas, did not appear, for
which reason, upon motion of plaintiff dated February 16, 1973, in an order
of March 12, 1973, they were all "declared in DEFAULT as of February 3,
1973 when they failed to appear at the pre-trial." They sought to hive this
order lifted thru a motion for reconsideration, but the effort failed when the
court denied it. Thereafter, the trial started, but at the stage thereof where
the first witness of the plaintiff by the name of Antonio Nuez who testified
that he is her adopted son, was up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the following simple and
unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto
the Honorable Court most respectfully moves to drop from the
complaint the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed insofar as said
defendants Lim Teck Chuan and Eng Chong Leonardo are
concerned.
WHEREFORE, it is most respectfully prayed of the Honorable
Court to drop from the complaint the defendants Lim Teck
Chuan and Eng Chong Leonardo and to dismiss the case
against them without pronouncement as to costs. (Page 50,
Record.)
which she set for hearing on December 21, 1974. According to
petitioners, none of the defendants declared in default were
notified of said motion, in violation of Section 9 of Rule 13,
since they had asked for the lifting of the order of default, albeit
unsuccessfully, and as regards the defendants not declared in
default, the setting of the hearing of said motion on October 21,
1974 infringed the three-day requirement of Section 4 of Rule
15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was
served with a copy of the motion personally only on October 19,
1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was
served by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as
simply as plaintiff had couched her motion, and also without any
legal grounds stated, respondent court granted the prayer of
the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of
the complaint as against defendants Lim Teck Chuan and Eng
Chong Leonardo.
The same is hereby GRANTED. The complaint as against
defendant Lim Teck Chuan and Eng Chong Leonardo is hereby
ordered DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse
Dy Ochay as well as defendants Alfonso Ng Sua and his
spouse Co Oyo have been declared in default for failure to
appear during the pre-trial and as to the other defendants the
complaint had already been ordered dismissed as against
them.
Let the hearing of the plaintiff's evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of
Court who is deputized for the purpose, to swear in witnesses
and to submit her report within ten (10) days thereafter. Notify
the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of
evidence did not take place on November 20, 1974, for on October 28,
1974, upon verbal motion of plaintiff, the court issued the following self-
explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18,
1974, the Court deputized the Branch Clerk of Court to receive
the evidence of the plaintiff ex-parte to be made on November
20, 1974. However, on October 28, 1974, the plaintiff, together
with her witnesses, appeared in court and asked, thru counsel,
that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in
bringing her witnesses to the court, the Branch Clerk of Court is
hereby authorized to receive immediately the evidence of the
plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim
Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration
thereof, and on November 1, 1974, defendant Eng Chong Leonardo, thru
counsel Atty. Alcudia, filed also his own motion for reconsideration and
clarification of the same orders. These motions were denied in an order
dated December 6, 1974 but received by the movants only on December
23, 1974. Meanwhile, respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties were served
copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a
motion to quash the order of October 28, 1974. Without waiting however for
the resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng
Chong Leonardo went to the Court of Appeals with a petition for certiorari
seeking the annulment of the above-mentioned orders of October 21, 1974
and October 28, 1974 and decision of December 20, 1974. By resolution of
January 24, 1975, the Court of Appeals dismissed said petition, holding that
its filing was premature, considering that the motion to quash the order of
October 28, 1974 was still unresolved by the trial court. This holding was
reiterated in the subsequent resolution of February 5, 1975 denying the
motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners
herein, filed their notice of appeal, appeal bond and motion for extension to
file their record on appeal, which was granted, the extension to expire after
fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu
and Ng Suas, respectively. But on February 7, 1975, before the perfection
of their appeal, petitioners filed the present petition with this Court. And with
the evident intent to make their procedural position clear, counsel for
defendants, Atty. Manuel Zosa, filed with respondent court a manifestation
dated February 14, 1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of
Appeals, they in effect abandoned their motion to quash the order of
October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and
prohibition ... in the Supreme Court, they likewise abandoned their motion
to quash." This manifestation was acted upon by respondent court together
with plaintiffs motion for execution pending appeal in its order of the same
date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October
28, 1974 and the motion for execution pending appeal were
called for hearing today, counsel for the defendants-movants
submitted their manifestation inviting the attention of this Court
that by their filing for certiorari and prohibition with preliminary
injunction in the Court of Appeals which was dismissed and
later the defaulted defendants filed with the Supreme Court
certiorari with prohibition they in effect abandoned their motion
to quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for execution
pending appeal shall be resolved after the petition for certiorari
and prohibition shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court
acted illegally, in violation of the rules or with grave abuse of discretion in
acting on respondent's motion to dismiss of October 18, 1974 without
previously ascertaining whether or not due notice thereof had been served
on the adverse parties, as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and
no notice at all was ever sent to the other defendants, herein petitioners,
and more so, in actually ordering the dismissal of the case by its order of
October 21, 1974 and at the same time setting the case for further hearing
as against the defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December 20, 1974
granting respondent Tan even reliefs not prayed for in the complaint.
According to the petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants the nature of which
is such that it cannot be decided in an independent action and as to which
the attention of respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under Section 4 of Rule
18, respondent court had no authority to divide the case before it by
dismissing the same as against the non-defaulted defendants and
thereafter proceeding to hear it ex-parte and subsequently rendering
judgment against the defaulted defendants, considering that in their view,
under the said provision of the rules, when a common cause of action is
alleged against several defendants, the default of any of them is a mere
formality by which those defaulted are not allowed to take part in the
proceedings, but otherwise, all the defendants, defaulted and not defaulted,
are supposed to have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be one common
judgment for or against all the defendant, the non-defaulted and the
defaulted. Thus, petitioners contend that the order of dismissal of October
21, 1974 should be considered also as the final judgment insofar as they
are concerned, or, in the alternative, it should be set aside together with all
the proceedings and decision held and rendered subsequent thereto, and
that the trial be resumed as of said date, with the defendants Lim Teck
Chuan and Eng Chong Leonardo being allowed to defend the case for all
the defendants.
On the other hand, private respondent maintains the contrary view that
inasmuch as petitioners had been properly declared in default, they have
no personality nor interest to question the dismissal of the case as against
their non-defaulted co-defendants and should suffer the consequences of
their own default. Respondent further contends, and this is the only position
discussed in the memorandum submitted by her counsel, that since
petitioners have already made or at least started to make their appeal, as
they are in fact entitled to appeal, this special civil action has no reason for
being. Additionally, she invokes the point of prematurity upheld by the Court
of Appeals in regard to the above-mentioned petition therein of the non-
defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally,
she argues that in any event, the errors attributed to respondent court are
errors of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court
below and mature deliberation, the Court has arrived at the conclusion that
petitioners should be granted relief, if only to stress emphatically once more
that the rules of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how
some members of the bar, availing of their proficiency in invoking the letter
of the rules without regard to their real spirit and intent, succeed in inducing
courts to act contrary to the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor
for speedy disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be liberally
construed in order to promote their object and to assist the parties in
obtaining not only 'speedy' but more imperatively, "just ... and inexpensive
determination of every action and proceeding." We cannot simply pass over
the impression that the procedural maneuvers and tactics revealed in the
records of the case at bar were deliberately planned with the calculated
end in view of depriving petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of more than
substantial character, considering the millions of pesos worth of properties
involved as found by respondent judge himself in the impugned decision, a
claim that appears, in the light of the allegations of the answer and the
documents already brought to the attention of the court at the pre-trial, to
be rather dubious. What is most regrettable is that apparently, all of these
alarming circumstances have escaped respondent judge who did not seem
to have hesitated in acting favorably on the motions of the plaintiff
conducive to the deplorable objective just mentioned, and which motions,
at the very least, appeared to be 'of highly controversial' merit, considering
that their obvious tendency and immediate result would be to convert the
proceedings into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more
on the contentions of private respondent may be discerned from the
manner it resolved the attempts of defendants Dy Ochay and Antonio Lim
Tanhu to have the earlier order of default against them lifted.
Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed by
her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent
answer herein) was over the jurat of the notary public before whom she
took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held
that "the oath appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of
the rules. It is not even a verification. (See. 6, Rule 7.) What the rule
requires as interpreted by the Supreme Court is that the motion must have
to be accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point that the
ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781, relied
upon by His Honor, under which a separate affidavit of merit is required
refers obviously to instances where the motion is not over oath of the party
concerned, considering that what the cited provision literally requires is no
more than a "motion under oath." Stated otherwise, when a motion to lift an
order of default contains the reasons for the failure to answer as well as the
facts constituting the prospective defense of the defendant and it is sworn
to by said defendant, neither a formal verification nor a separate affidavit of
merit is necessary.
What is worse, the same order further held that the motion to lift the order
of default "is an admission that there was a valid service of summons" and
that said motion could not amount to a challenge against the jurisdiction of
the court over the person of the defendant. Such a rationalization is
patently specious and reveals an evident failure to grasp the import of the
legal concepts involved. A motion to lift an order of default on the ground
that service of summons has not been made in accordance with the rules is
in order and is in essence verily an attack against the jurisdiction of the
court over the person of the defendant, no less than if it were worded in a
manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the
order of default as against defendant Lim Tanhu, His Honor posited that
said defendant "has a defense (quitclaim) which renders the claim of the
plaintiff contentious." We have read defendants' motion for reconsideration
of November 25, 1971 (Annex 5, id.), but We cannot find in it any reference
to a "quitclaim". Rather, the allegation of a quitclaim is in the amended
complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through fraud and deceit.
In truth, the motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971,
Annex 2, to set aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife was still alive,
which allegation, His Honor held in the order of November 2, 1971, Annex
3, to be "not good and meritorious defense". To top it all, whereas, as
already stated, the order of February 19, 1972, Annex 6, lifted the default
against Lim Tanhu because of the additional consideration that "he has a
defense (quitclaim) which renders the claim of the plaintiff contentious," the
default of Dy Ochay was maintained notwithstanding that exactly the same
"contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest
inconsistency in the legal postures in the orders in question can hardly
convince Us that the matters here in issue were accorded due and proper
consideration by respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in view the rather
substantial value of the subject matter involved together with the obviously
contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid
the slightest suspicion of improper motivations on the part of anyone
concerned. Upon the considerations hereunder to follow, the Court
expresses its grave concern that much has to be done to dispel the
impression that herein petitioners and their co-defendants are being
railroaded out of their rights and properties without due process of law, on
the strength of procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court, whose orders,
gauged by their tenor and the citations of supposedly pertinent provisions
and jurisprudence made therein, cannot be said to have proceeded from
utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the
seeming alacrity with which the motion to dismiss the case against non-
defaulted defendants Lim Teck Chuan and Eng Chong Leonardo was
disposed of, which definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff and he was still
under re-cross-examination. Undoubtedly, the motion to dismiss at that
stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to rightly assume that
the parties in a judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are imbued with the
requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the
adverse parties who were entitled to be notified of such unanticipated
dismissal motion did not get due notice thereof. Certainly, the non-defaulted
defendants had the right to the three-day prior notice required by Section 4
of Rule 15. How could they have had such indispensable notice when the
motion was set for hearing on Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy was personally served with the
notice only on Saturday, October 19, 1974 and the counsel for Eng Chong
Leonardo, Atty. Alcudia, was notified by registered mail which was posted
only that same Saturday, October 19, 1974? According to Chief Justice
Moran, "three days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may not validly
act on the motion." (Comments on the Rules of Court by Moran, Vol. 1,
1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15.
And in the instant case, there can be no question that the notices to the
non-defaulted defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is
incomprehensible is the seeming inattention of respondent judge to the
explicit mandate of the pertinent rule, not to speak of the imperatives of
fairness, considering he should have realized the far-reaching implications,
specially from the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of dismissal, he
immediately set the case for the ex-parte hearing of the evidence against
the defaulted defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by him motu
propio As a matter of fact, plaintiff's motion also quoted above did not pray
for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores
or is inconsistent with a number of known juridical principles concerning
defaults, which We will here take occasion to reiterate and further elucidate
on, if only to avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply projected and
elaborated before, and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific
warrant under the terms of existing rules or binding jurisprudence. Extreme
care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to
all the parties concerned. Indeed, a keen sense of fairness, equity and
justice that constantly looks for consistency between the letter of the
adjective rules and these basic principles must be possessed by every
judge, If substance is to prevail, as it must, over form in our courts. Literal
observance of the rules, when it is conducive to unfair and undue
advantage on the part of any litigant before it, is unworthy of any court of
justice and equity. Withal, only those rules and procedure informed, with
and founded on public policy deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case,
however, it should not be amiss to advert first to the patent incorrectness,
apparent on the face of the record, of the aforementioned order of
dismissal of October 21, 1974 of the case below as regards non-defaulted
defendants Lim and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view of the
outrageous procedural strategy conceived by respondent's counsel and
sanctioned by respondent court to also make reference to the very evident
fact that in ordering said dismissal respondent court disregarded
completely the existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it refused to
dismiss the same on the ground alleged by respondent Tan that he
docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations hereof aforequoted, it arose
out of or is necessarily connected with the occurrence that is the subject
matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly
being the widow of the deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged late husband as
partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in
Glory Commercial Company, the truth of which allegations all the
defendants have denied. Defendants maintain in their counterclaim that
plaintiff knew of the falsity of said allegations even before she filed her
complaint, for she had in fact admitted her common-law relationship with
said deceased in a document she had jointly executed with him by way of
agreement to terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with respect to her pretended
share in the capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in November, 1967, for the
sum of P25,000 duly receipted by her, which quitclaim was, however,
executed, according to respondent herself in her amended complaint,
through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations
thereof are false and baseless, she has caused them to suffer damages.
Undoubtedly, with such allegations, defendants' counterclaim is
compulsory, not only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintiff's complaint,
(Moran, suprap. 352) but also because from its very nature, it is obvious
that the same cannot "remain pending for independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a
counterclaim has been pleaded by a defendant prior to the service upon
him of the plaintiff's motion to dismiss, the action shall not be dismissed
against the defendant's objection unless the counterclaim can remain
pending for independent adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to dismiss before the
order granting the same was issued, for the simple reason that they were
not opportunity notified of the motion therefor, but the record shows clearly
that at least defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other
defendant, Leonardo, predicated his motion on other grounds. In its order
of December 6, 1974, however, respondent court not only upheld the
plaintiffs supposed absolute right to choose her adversaries but also held
that the counterclaim is not compulsory, thereby virtually making
unexplained and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to
dismiss should not have been granted. As the plaintiff's complaint has been
framed, all the six defendants are charged with having actually taken part in
a conspiracy to misappropriate, conceal and convert to their own benefit
the profits, properties and all other assets of the partnership Glory
Commercial Company, to the extent that they have allegedly organized a
corporation, Glory Commercial Company, Inc. with what they had illegally
gotten from the partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of the corporation
to be the money of the partnership is legally possible without the presence
of all the defendants. The non-defaulted defendants are alleged to be
stockholders of the corporation and any decision depriving the same of all
its assets cannot but prejudice the interests of said defendants.
Accordingly, upon these premises, and even prescinding from the other
reasons to be discussed anon it is clear that all the six defendants below,
defaulted and non-defaulted, are indispensable parties. Respondents could
do no less than grant that they are so on page 23 of their answer. Such
being the case, the questioned order of dismissal is exactly the opposite of
what ought to have been done. Whenever it appears to the court in the
course of a proceeding that an indispensable party has not been joined, it
is the duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by Senator
Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101
Phil. 705.) Such an order is unavoidable, for the "general rule with
reference to the making of parties in a civil action requires the joinder of all
necessary parties wherever possible, and the joinder of all indispensable
parties under any and all conditions, the presence of those latter being
a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47
Phil. 345, at p. 347.) It is precisely " when an indispensable party is not
before the court (that) the action should be dismissed." (People v.
Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable
party renders all subsequent actuations of the court null and void, for want
of authority to act, not only as to the absent parties but even as to those
present. In short, what respondent court did here was exactly the reverse of
what the law ordains it eliminated those who by law should precisely be
joined.
As may he noted from the order of respondent court quoted earlier, which
resolved the motions for reconsideration of the dismissal order filed by the
non-defaulted defendants, His Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to
choose, the theory upon which he predicates his right of action,
or the parties he desires to sue, without dictation or imposition
by the court or the adverse party. If he makes a mistake in the
choice of his right of action, or in that of the parties against
whom he seeks to enforce it, that is his own concern as he
alone suffers therefrom. The plaintiff cannot be compelled to
choose his defendants, He may not, at his own expense, be
forced to implead anyone who, under the adverse party's
theory, is to answer for defendant's liability. Neither may the
Court compel him to furnish the means by which defendant may
avoid or mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to
continue prosecuting her cause of action against the
defendants-movants if in the course of the trial she believes she
can enforce it against the remaining defendants subject only to
the limitation provided in Section 2, Rule 17 of the Rules of
Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in
plaintiff's motion of October 18, 1974 by referring to the action he had taken
as being "dismissal of the complaint against them or their being dropped
therefrom", without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the theory that
under Section 11 of Rule 3, parties may be dropped by the court upon
motion of any party at any stage of the action, hence "it is the absolute right
prerogative of the plaintiff to choosethe parties he desires to sue, without
dictation or imposition by the court or the adverse party." In other words,
the ambivalent pose is suggested that plaintiff's motion of October 18, 1974
was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule
3. But the truth is that nothing can be more incorrect. To start with, the latter
rule does not comprehend whimsical and irrational dropping or adding of
parties in a complaint. What it really contemplates is erroneous or mistaken
non-joinder and misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at the pleasure of
the plaintiff. The rule presupposes that the original inclusion had been
made in the honest conviction that it was proper and the subsequent
dropping is requested because it has turned out that such inclusion was a
mistake. And this is the reason why the rule ordains that the dropping be
"on such terms as are just" just to all the other parties. In the case at bar,
there is nothing in the record to legally justify the dropping of the non-
defaulted defendants, Lim and Leonardo. The motion of October 18, 1974
cites none. From all appearances, plaintiff just decided to ask for it, without
any relevant explanation at all. Usually, the court in granting such a motion
inquires for the reasons and in the appropriate instances directs the
granting of some form of compensation for the trouble undergone by the
defendant in answering the complaint, preparing for or proceeding partially
to trial, hiring counsel and making corresponding expenses in the premises.
Nothing of these, appears in the order in question. Most importantly, His
Honor ought to have considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their objection at that, would
certainly be unjust not only to the petitioners, their own parents, who would
in consequence be entirely defenseless, but also to Lim and Leonardo
themselves who would naturally correspondingly suffer from the eventual
judgment against their parents. Respondent court paid no heed at all to the
mandate that such dropping must be on such terms as are just" meaning
to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of
dismissal of October 21, 1974 as well as its order of December 6, 1974
denying reconsideration of such dismissal. As We make this ruling, We are
not oblivious of the circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The fate of the
case of petitioners is inseparably tied up with said order of dismissal, if only
because the order of ex-partehearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to decide
the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further
their questioning of the dismissal is from another point of view
understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her claims? On
the other hand, as far as their respective parents-co-defendants are
concerned, they must have realized that they (their parents) could even be
benefited by such dismissal because they could question whether or not
plaintiff can still prosecute her case against them after she had secured the
order of dismissal in question. And it is in connection with this last point that
the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of
Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the petition
for certiorari of non-defaulted defendants Lim and Leonardo impugning the
order of dismissal of October 21, 1974, has no bearing at all in this case,
not only because that dismissal was premised by the appellate court on its
holding that the said petition was premature inasmuch as the trial court had
not yet resolved the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because herein
petitioners were not parties in that proceeding and cannot, therefore, be
bound by its result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his allegations in paragraphs XI
to XIV of his answer, which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear to the Court that the
appeals court had upheld the legality and validity of the actuations of the
trial court being questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on its being
premature without in any manner delving into its merits. The Court must
and does admonish counsel that such manner of pleading, being deceptive
and lacking in candor, has no place in any court, much less in the Supreme
Court, and if We are adopting a passive attitude in the premises, it is due
only to the fact that this is counsel's first offense. But similar conduct on his
part in the future will definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts to befuddle the
issues as invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession. Moreover,
almost always they only betray the inherent weakness of the cause of the
party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the
impugned orders must have proceeded from inadequate apprehension of
the fundamental precepts governing such procedure under the Rules of
Court. It is time indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely taken for granted
as being that of a simple expedient of not allowing the offending party to
take part in the proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of such
opponent, with hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of default, Rule
18. But said rule is concerned solely with default resulting from failure of
the defendant or defendants to answer within the reglementary period.
Referring to the simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time, Section 1 of the rule
provides that upon "proof of such failure, (the court shall) declare the
defendant in default. Thereupon the court shall proceed to receive the
plaintiff's evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant." This last clause is clarified by
Section 5 which says that "a judgment entered against a party in default
shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not
readily convey the full import of what they contemplate. To begin with,
contrary to the immediate notion that can be drawn from their language,
these provisions are not to be understood as meaning that default or the
failure of the defendant to answer should be "interpreted as an admission
by the said defendant that the plaintiff's cause of action find support in the
law or that plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535
citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval
Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v.
Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111.
A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that
of being heard and of presenting evidence in the trial court. According to
Section 2, "except as provided in Section 9 of Rule 13, a party declared in
default shall not be entitled to notice of subsequent proceedings, nor to
take part in the trial." That provision referred to reads: "No service of
papers other than substantially amended pleadings and final orders or
judgments shall be necessary on a party in default unless he files a motion
to set aside the order of default, in which event he shall be entitled to notice
of all further proceedings regardless of whether the order of default is set
aside or not." And pursuant to Section 2 of Rule 41, "a party who has been
declared in default may likewise appeal from the judgment rendered
against him as contrary to the evidence or to the law, even if no petition for
relief to set aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court.
While in a sense it may be said that by defaulting he leaves himself at the
mercy of the court, the rules see to it that any judgment against him must
be in accordance with law. The evidence to support the plaintiff's cause is,
of course, presented in his absence, but the court is not supposed to admit
that which is basically incompetent. Although the defendant would not be in
a position to object, elementary justice requires that, only legal evidence
should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot
exceed in amount or be different in kind from what is prayed for in the
complaint.
Incidentally, these considerations argue against the present widespread
practice of trial judges, as was done by His Honor in this case, of
delegating to their clerks of court the reception of the plaintiff's evidence
when the defendant is in default. Such a Practice is wrong in principle and
orientation. It has no basis in any rule. When a defendant allows himself to
be declared in default, he relies on the faith that the court would take care
that his rights are not unduly prejudiced. He has a right to presume that the
law and the rules will still be observed. The proceedings are held in his
forced absence, and it is but fair that the plaintiff should not be allowed to
take advantage of the situation to win by foul or illegal means or with
inherently incompetent evidence. Thus, in such instances, there is need for
more attention from the court, which only the judge himself can provide.
The clerk of court would not be in a position much less have the authority to
act in the premises in the manner demanded by the rules of fair play and as
contemplated in the law, considering his comparably limited area of
discretion and his presumably inferior preparation for the functions of a
judge. Besides, the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and conduct of
the witnesses of the plaintiff, the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial policy that there
being no imperative reason for judges to do otherwise, the practice should
be discontinued.
Another matter of practice worthy of mention at this point is that it is
preferable to leave enough opportunity open for possible lifting of the order
of default before proceeding with the reception of the plaintiff's evidence
and the rendition of the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the possibility of
such serious consequences necessitates a careful and liberal examination
of the grounds upon which the defendant may seek to set it
aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446;
449-450.) The expression, therefore, in Section 1 of Rule 18 aforequoted
which says that "thereupon the court shall proceed to receive the plaintiff's
evidence etc." is not to be taken literally. The gain in time and dispatch
should the court immediately try the case on the very day of or shortly after
the declaration of default is far outweighed by the inconvenience and
complications involved in having to undo everything already done in the
event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the
only defendant or all the defendants, there being several, are declared in
default. There are additional rules embodying more considerations of
justice and equity in cases where there are several defendants against
whom a common cause of action is averred and not all of them answer
opportunely or are in default, particularly in reference to the power of the
court to render judgment in such situations. Thus, in addition to the
limitation of Section 5 that the judgment by default should not be more in
amount nor different in kind from the reliefs specifically sought by plaintiff in
his complaint, Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other
make difficult. When a complaint states a common cause of
action against several defendant some of whom answer, and
the others fail to do so, the court shall try the case against all
upon the answer thus filed and render judgment upon the
evidence presented. The same proceeding applies when a
common cause of action is pleaded in a counterclaim, cross-
claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the
controlling jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against
several defendants and some appear to defend the case on the
merits while others make default, the defense interposed by
those who appear to litigate the case inures to the benefit of
those who fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be
absolved. In other words, the answer filed by one or some of
the defendants inures to the benefit of all the others, even those
who have not seasonably filed their answer. (Bueno v. Ortiz,
L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common cause of action
against several defendants, and one of them makes default, is
simply to enter a formal default order against him, and proceed
with the cause upon the answers of the others. The defaulting
defendant merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor to appear in
the suit in any way. He cannot adduce evidence; nor can he be
heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.)
although he may appeal the judgment rendered against him on
the merits. (Rule 41, sec. 2.) If the case is finally decided in the
plaintiff's favor, a final decree is then entered against all the
defendants; but if the suit should be decided against the
plaintiff, the action will be dismissed as to all the defendants
alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15
Wal. 552,21 L. Ed. 60.) In other words the judgment will affect
the defaulting defendants either favorably or adversely. (Castro
v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his
favor. (Castro v. Pea, supra.) (Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases
cited by Moran, this Court elaborated on the construction of the
same rule when it sanctioned the execution, upon motion and
for the benefit of the defendant in default, of a judgment which
was adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was
a movant in the petition for execution Annex 1. Did she have a
right to be such, having been declared in default? In Frow vs.
De la Vega, supra, cited as authority in Velez vs. Ramas, supra,
the Supreme Court of the United States adopted as ground for
its own decision the following ruling of the New York Court of
Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant
had made default, the plaintiff should have a decree even
against him, where the court is satisfied from the proofs offered
by the other, that in fact the plaintiff is not entitled to a decree.
(21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against several
defendants, the complainant's rights or lack of them in the
controversy have to be the same, and not different, as against
all the defendant's although one or some make default and the
other or others appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris above cited, the New
York Court of Errors in effect held that in such a case if the
plaintiff is not entitled to a decree, he will not be entitled to it,
not only as against the defendant appearing and resisting his
action but also as against the one who made default. In the
case at bar, the cause of action in the plaintiff's complaint was
common against the Mayor of Manila, Emilia Matanguihan, and
the other defendants in Civil Case No. 1318 of the lower court.
The Court of First Instance in its judgment found and held upon
the evidence adduced by the plaintiff and the defendant mayor
that as between said plaintiff and defendant Matanguihan the
latter was the one legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff immediately
vacate them. Paraphrasing the New York Court of Errors, it
would be unreasonable to hold now that because Matanguihan
had made default, the said plaintiff should be declared, as
against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so
firmly satisfied, from the proofs offered by the other defendant,
that the same plaintiff was not entitled to such occupancy that it
peremptorily ordered her to vacate the stalls. If in the cases
of Clason vs. Morris, supra, Frow vs. De la Vega, supra,
andVelez vs. Ramas, supra the decrees entered inured to the
benefit of the defaulting defendants, there is no reason why that
entered in said case No. 1318 should not be held also to have
inured to the benefit of the defaulting defendant Matanguihan
and the doctrine in said three cases plainly implies that there is
nothing in the law governing default which would prohibit the
court from rendering judgment favorable to the defaulting
defendant in such cases. If it inured to her benefit, it stands to
reason that she had a right to claim that benefit, for it would not
be a benefit if the supposed beneficiary were barred from
claiming it; and if the benefit necessitated the execution of the
decree, she must be possessed of the right to ask for the
execution thereof as she did when she, by counsel, participated
in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the
above considerations. It provides that when a complaint states
a common cause of action against several defendants, some of
whom answer, and the others make default, 'the court shall try
the case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties in court'.
It is obvious that under this provision the case is tried jointly not
only against the defendants answering but also against those
defaulting, and the trial is held upon the answer filed by the
former; and the judgment, if adverse, will prejudice the
defaulting defendants no less than those who answer. In other
words, the defaulting defendants are held bound by the answer
filed by their co-defendants and by the judgment which the
court may render against all of them. By the same token, and
by all rules of equity and fair play, if the judgment should
happen to be favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the defaulting ones,
for it would not be just to let the judgment produce effects as to
the defaulting defendants only when adverse to them and not
when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under
discussion in the following words:
In answer to the charge that respondent Judge had committed
a grave abuse of discretion in rendering a default judgment
against the PC, respondents allege that, not having filed its
answer within the reglementary period, the PC was in default,
so that it was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said judgment. It
should be noted, however, that in entering the area in question
and seeking to prevent Patanao from continuing his logging
operations therein, the PC was merely executing an order of
the Director of Forestry and acting as his agent. Patanao's
cause of action against the other respondents in Case No. 190,
namely, the Director of Forestry, the District Forester of Agusan,
the Forest Officer of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant to Rule 18,
Section 4, of the Rules of Court, 'when a complaint states a
common cause of action against several defendants some of
whom answer and the others fail to do so, the court shall try the
case against all upon the answer thus filed (by some) and
render judgment upon the evidence presented.' In other words,
the answer filed by one or some of the defendants inures to the
benefit of all the others, even those who have not seasonably
filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common
cause of action against all of the respondents therein, a
decision in favor of one of them would necessarily favor the
others. In fact, the main issue, in said case, is whether Patanao
has a timber license to undertake logging operations in the
disputed area. It is not possible to decide such issue in the
negative, insofar as the Director of Forestry, and to settle it
otherwise, as regards the PC, which is merely acting as agent
of the Director of Forestry, and is, therefore, his alter ego, with
respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is
alleged against several defendants, some of whom answer and the others
do not, the latter or those in default acquire a vested right not only to own
the defense interposed in the answer of their co- defendant or co-
defendants not in default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable or unfavorable.
The substantive unity of the plaintiff's cause against all the defendants is
carried through to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. Indeed, since the singleness
of the cause of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot be
split such that it cannot relieve any of them and at the same time render
judgment against the rest. Considering the tenor of the section in question,
it is to be assumed that when any defendant allows himself to be declared
in default knowing that his defendant has already answered, he does so
trusting in the assurance implicit in the rule that his default is in essence a
mere formality that deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or for the answering
defendant as done by or for him. The presumption is that otherwise he
would not -have seen to that he would not be in default. Of course, he has
to suffer the consequences of whatever the answering defendant may do or
fail to do, regardless of possible adverse consequences, but if the
complaint has to be dismissed in so far as the answering defendant is
concerned it becomes his inalienable right that the same be dismissed also
as to him. It does not matter that the dismissal is upon the evidence
presented by the plaintiff or upon the latter's mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the cause. The
integrity of the common cause of action against all the defendants and the
indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiff's right only as to one or some of them,
without including all of them, and so, as a rule, withdrawal must be deemed
to be a confession of weakness as to all. This is not only elementary
justice; it also precludes the concomitant hazard that plaintiff might resort to
the kind of procedural strategem practiced by private respondent herein
that resulted in totally depriving petitioners of every opportunity to defend
themselves against her claims which, after all, as will be seen later in this
opinion, the record does not show to be invulnerable, both in their factual
and legal aspects, taking into consideration the tenor of the pleadings and
the probative value of the competent evidence which were before the trial
court when it rendered its assailed decision where all the defendants are
indispensable parties, for which reason the absence of any of them in the
case would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them must, as
a matter of correct procedure, have to await until after the rendition of the
judgment, at which stage the plaintiff may then treat the matter of its
execution and the satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the dismissal of the
complaint against the non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants here
have already joined genuine issues with plaintiff. Their default was only at
the pre-trial. And as to such absence of petitioners at the pre-trial, the same
could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and
Leonardo, with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by them at such
pre-trial could have been done for them by their children, at least initially,
specially because in the light of the pleadings before the court, the
prospects of a compromise must have appeared to be rather remote. Such
attitude of petitioners is neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably in default was
not an absolute necessity. Practical considerations and reasons of equity
should have moved respondent court to be more understanding in dealing
with the situation. After all, declaring them in default as respondent court
did not impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not
herein petitioners were entitled to notice of plaintiff's motion to drop their
co-defendants Lim and Leonardo, considering that petitioners had been
previously declared in default. In this connection, the decisive consideration
is that according to the applicable rule, Section 9, Rule 13, already quoted
above, (1) even after a defendant has been declared in default, provided he
"files a motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of default
is set aside or not" and (2) a party in default who has not filed such a
motion to set aside must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot be denied that
petitioners had all filed their motion for reconsideration of the order
declaring them in default. Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8 of said answer,
which denied said motion for reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the parties with a
copy of the said motion, We do not even know the excuse given for
petitioners' failure to appear at the pre-trial, and We cannot, therefore,
determine whether or not the motion complied with the requirements of
Section 3 of Rule 18 which We have held to be controlling in cases of
default for failure to answer on time. (The Philippine-British Co. Inc. etc. et
al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for
failure to answer but one for failure to appear at the pre-trial. We reiterate,
in the situation now before Us, issues have already been joined. In fact,
evidence had been partially offered already at the pre-trial and more of it at
the actual trial which had already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in mind and considering
that issues had already been joined even as regards the defaulted
defendants, it would be requiring the obvious to pretend that there was still
need for an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their default. Inasmuch
as none of the parties had asked for a summary judgment there can be no
question that the issues joined were genuine, and consequently, the reason
for requiring such oath or verification no longer holds. Besides, it may also
be reiterated that being the parents of the non-defaulted defendants,
petitioners must have assumed that their presence was superfluous,
particularly because the cause of action against them as well as their own
defenses are common. Under these circumstances, the form of the motion
by which the default was sought to be lifted is secondary and the
requirements of Section 3 of Rule 18 need not be strictly complied with,
unlike in cases of default for failure to answer. We can thus hold as We do
hold for the purposes of the revival of their right to notice under Section 9 of
Rule 13, that petitioner's motion for reconsideration was in substance
legally adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from
plaintiff's amended complaint was virtually a second amendment of
plaintiffs complaint. And there can be no doubt that such amendment was
substantial, for with the elimination thereby of two defendants allegedly
solidarily liable with their co-defendants, herein petitioners, it had the effect
of increasing proportionally what each of the remaining defendants, the
said petitioners, would have to answer for jointly and severally. Accordingly,
notice to petitioners of the plaintiff's motion of October 18, 1974 was legally
indispensable under the rule above-quoted. Consequently, respondent
court had no authority to act on the motion, to dismiss, pursuant to Section
6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court
clearly provide that no motion shall be acted upon by the Court without the
proof of service of notice thereof, together with a copy of the motion and
other papers accompanying it, to all parties concerned at least three days
before the hearing thereof, stating the time and place for the hearing of the
motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new
Rules). When the motion does not comply with this requirement, it is not a
motion. It presents no question which the court could decide. And the Court
acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36,
citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil.,
866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of
Court in the Philippines, pp. 861-862.) Thus, We see again, from a different
angle, why respondent court's order of dismissal of October 21, 1974 is
fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position
that certiorari is not the proper remedy of petitioners. It is contended that
inasmuch as said petitioners have in fact made their appeal already by
filing the required notice of appeal and appeal bond and a motion for
extension to file their record on appeal, which motion was granted by
respondent court, their only recourse is to prosecute that appeal.
Additionally, it is also maintained that since petitioners have expressly
withdrawn their motion to quash of January 4, 1975 impugning the order of
October 28, 1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned, respondent court not
having been given the opportunity to correct any possible error it might
have committed.
We do not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand that prompt
action is needed to restore order in the entangled situation created by the
series of plainly illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule of law may prevail at
all times and arbitrariness, whimsicality and unfairness which justice abhors
may immediately be stamped out before graver injury, juridical and
otherwise, ensues. While generally these objectives may well be attained in
an ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its
consequences that the long and cumbersome procedure of appeal will only
further aggravate the situation of the aggrieved party because other
untoward actuations are likely to materialize as natural consequences of
those already perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective
measures in the case at bar. Verily, this is one case that calls for the
exercise of the Supreme Court's inherent power of supervision over all
kinds of judicial actions of lower courts. Private respondent's procedural
technique designed to disable petitioners to defend themselves against her
claim which appears on the face of the record itself to be at least highly
controversial seems to have so fascinated respondent court that none
would be surprised should her pending motion for immediate execution of
the impugned judgment receive similar ready sanction as her previous
motions which turned the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter considerably substantial; there
is the more important aspect that not only the spirit and intent of the rules
but even the basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the proceedings below
would be nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted application of
procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here
in question is legally anomalous. It is predicated on two fatal malactuations
of respondent court namely (1) the dismissal of the complaint against the
non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception
of the evidence of the plaintiff by the clerk of court, the subsequent using of
the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above,
the order of dismissal of October 21, 1974 is unworthy of Our sanction: (1)
there was no timely notice of the motion therefor to the non-defaulted
defendants, aside from there being no notice at all to herein petitioners; (2)
the common answer of the defendants, including the non-defaulted,
contained a compulsory counterclaim incapable of being determined in an
independent action; and (3) the immediate effect of such dismissal was the
removal of the two non-defaulted defendants as parties, and inasmuch as
they are both indispensable parties in the case, the court consequently lost
the" sine qua non of the exercise of judicial power", perBorlasa vs.
Polistico, supra. This is not to mention anymore the irregular delegation to
the clerk of court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon, We have seen that it
was violative of the right of the petitioners, under the applicable rules and
principles on default, to a common and single fate with their non-defaulted
co-defendants. And We are not yet referring, as We shall do this anon to
the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws
in respondent court's actuations do not call for a common corrective
remedy. We cannot simply rule that all the impugned proceedings are null
and void and should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be reviewing the case
as against the two non-defaulted defendants who are not before Us not
being parties hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents
themselves who insist that the same is already final, not only because the
period for its finality has long passed but also because allegedly, albeit not
very accurately, said 'non-defaulted defendants unsuccessfully tried to have
it set aside by the Court of Appeals whose decision on their petition is also
already final, We would have to disregard whatever evidence had been
presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision shows, are
adverse to them. In other words, whichever of the two apparent remedies
the Court chooses, it would necessarily entail some kind of possible
juridical imperfection. Speaking of their respective practical or pragmatic
effects, to annul the dismissal would inevitably prejudice the rights of the
non-defaulted defendants whom We have not heard and who even
respondents would not wish to have anything anymore to do with the case.
On the other hand, to include petitioners in the dismissal would naturally
set at naught every effort private respondent has made to establish or
prove her case thru means sanctioned by respondent court. In short, We
are confronted with a legal para-dilemma. But one thing is certain this
difficult situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective law, even when
apparently accurate from the literal point of view, cannot prevail over the
imperatives of the substantive law and of equity that always underlie them
and which have to be inevitably considered in the construction of the
pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court has
arrived at the conclusion that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to uphold the position of
petitioners. In other words, We rule that the order of dismissal of October
21, 1974 is in law a dismissal of the whole case of the plaintiff, including as
to petitioners herein. Consequently, all proceedings held by respondent
court subsequent thereto including and principally its decision of December
20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private
respondent in securing the decision in her favor was ill-conceived. It was
characterized by that which every principle of law and equity disdains
taking unfair advantage of the rules of procedure in order to unduly deprive
the other party of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common cause
of action to which they have countered with a common defense readily
connotes an intent to secure a one-sided decision, even improperly. And
when, in this connection, the obvious weakness of plaintiff's evidence is
taken into account, one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our assent to the
commission of unfairness and inequity in the application of the rules of
procedure, particularly when the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private respondents, although
approved by His Honor, run counter to such basic principles in the rules on
default and such elementary rules on dismissal of actions and notice of
motions that no trial court should be unaware of or should be mistaken in
applying. We are at a loss as to why His Honor failed to see through
counsel's inequitous strategy, when the provisions (1) on the three-day rule
on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions
on motion of plaintiff when there is a compulsory counterclaim, Section 2,
Rule 17, (3) against permitting the absence of indispensable parties,
Section 7, Rule 3, (4) on service of papers upon defendants in default when
there are substantial amendments to pleadings, Section 9, Rule 13, and (5)
on the unity and integrity of the fate of defendants in default with those not
in default where the cause of action against them and their own defenses
are common, Section 4, Rule 18, are so plain and the jurisprudence
declaratory of their intent and proper construction are so readily
comprehensible that any error as to their application would be unusual in
any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the
initiative of private respondent and/or her counsel. She cannot, therefore,
complain that she is being made to unjustifiably suffer the consequences of
what We have found to be erroneous orders of respondent court. It is only
fair that she should not be allowed to benefit from her own frustrated
objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own
recitals, the decision in question cannot stand close scrutiny. What is more,
the very considerations contained therein reveal convincingly the inherent
weakness of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a resumption of
trial by setting aside the order of dismissal of October 21, 1974, with all its
attendant difficulties on account of its adverse effects on parties who have
not been heard, but upon closer study of the pleadings and the decision
and other circumstances extant in the record before Us, We are now
persuaded that such a course of action would only lead to more legal
complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel
confident that by and large, there is enough basis here and now for Us to
rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal
that it is littered on its face with deficiencies and imperfections which would
have had no reason for being were there less haste and more
circumspection in rendering the same. Recklessness in jumping to
unwarranted conclusions, both factual and legal, is at once evident in its
findings relative precisely to the main bases themselves of the reliefs
granted. It is apparent therein that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a
litigation which, considering the substantial value of the subject matter it
involves and the unprecedented procedure that was followed by
respondent's counsel, calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make it highly improbable
that if We took another course of action, private respondent would still be
able to make out any case against petitioners, not to speak of their co-
defendants who have already been exonerated by respondent herself thru
her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the
widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then
one of the partners in the commercial partnership, Glory Commercial Co.
with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso
Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of
her husband on March 11, 1966 she is entitled to share not only in the
capital and profits of the partnership but also in the other assets, both real
and personal, acquired by the partnership with funds of the latter during its
lifetime."
Relatedly, in the latter part of the decision, the findings are to the following
effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan
married at the Philippine Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on March 11, 1966;
that the plaintiff and the late Po Chuan were childless but the
former has a foster son Antonio Nuez whom she has reared
since his birth with whom she lives up to the present; that prior
to the marriage of the plaintiff to Po Chuan the latter was
already managing the partnership Glory Commercial Co. then
engaged in a little business in hardware at Manalili St., Cebu
City; that prior to and just after the marriage of the plaintiff to Po
Chuan she was engaged in the drugstore business; that not
long after her marriage, upon the suggestion of Po Chuan the
plaintiff sold her drugstore for P125,000.00 which amount she
gave to her husband in the presence of defendant Lim Tanhu
and was invested in the partnership Glory Commercial Co.
sometime in 1950; that after the investment of the above-stated
amount in the partnership its business flourished and it
embarked in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets and under
huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the
one who made the final decisions and approved the
appointments of new personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu
and Ng Sua are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese citizen; that the three
(3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua
were partners in name but they were mere employees of Po
Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear
in the decision whether or not in making its findings of fact the court took
into account the allegations in the pleadings of the parties and whatever
might have transpired at the pre-trial. All that We can gather in this respect
is that references are made therein to pre-trial exhibits and to Annex A of
the answer of the defendants to plaintiff's amended complaint. Indeed, it
was incumbent upon the court to consider not only the evidence formally
offered at the trial but also the admissions, expressed or implied, in the
pleadings, as well as whatever might have been placed before it or brought
to its attention during the pre-trial. In this connection, it is to be regretted
that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the
pre-trial order, if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every
opportunity to compromise or settle their differences, is for the court to be
apprised of the unsettled issues between the parties and of their respective
evidence relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least observance of technical
rules. In other words whatever is said or done by the parties or their
counsel at the pre- trial serves to put the judge on notice of their respective
basic positions, in order that in appropriate cases he may, if necessary in
the interest of justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at the pre-trial,
before finally resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence, matters dealt
with therein may not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be insignificant
and worthless.
Now, applying these postulates to the findings of respondent court just
quoted, it will be observed that the court's conclusion about the supposed
marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to
the weight of the evidence brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties
that they take each other as husband and wife "shall be set forth in an
instrument" signed by the parties as well as by their witnesses and the
person solemnizing the marriage. Accordingly, the primary evidence of a
marriage must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the absence of
the contract must first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not admissible evidence
of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In
the case at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is not,
therefore, competent evidence, there being absolutely no showing as to
unavailability of the marriage contract and, indeed, as to the authenticity of
the signature of said certifier, the jurat allegedly signed by a second
assistant provincial fiscal not being authorized by law, since it is not part of
the functions of his office. Besides, inasmuch as the bishop did not testify,
the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of
her witness Antonio Nuez, there can be no question that they are both
self-serving and of very little evidentiary value, it having been disclosed at
the trial that plaintiff has already assigned all her rights in this case to said
Nuez, thereby making him the real party in interest here and, therefore,
naturally as biased as herself. Besides, in the portion of the testimony of
Nuez copied in Annex C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which means that he was less
than eight years old at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have been sufficiently
aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the
certificate of birth of one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis Occidental, the son of one Uy
Bien, father, and Tan Put, mother. Significantly, respondents have not made
any adverse comment on this document. It is more likely, therefore, that the
witness is really the son of plaintiff by her husband Uy Kim Beng. But she
testified she was childless. So which is which? In any event, if on the
strength of this document, Nuez is actually the legitimate son of Tan Put
and not her adopted son, he would have been but 13 years old in 1949, the
year of her alleged marriage to Po Chuan, and even then, considering such
age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it,
two documents of great weight belying the pretended marriage. We refer to
(1) Exhibit LL, the income tax return of the deceased Tee Hoon Lim Po
Chuan indicating that the name of his wife was Ang Sick Tin and (2) the
quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that she
had been living with the deceased without benefit of marriage and that she
was his "common-law wife". Surely, these two documents are far more
reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is
evidence offered to the judge himself, not to the clerk of court, and should
have at least moved him to ask plaintiff to explain if not rebut it before
jumping to the conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the admission of a
common-law relationship only, it is to be observed that His Honor found
that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a
quitclaim on November 29, 1967 (Annex "A", Answer) where they gave
plaintiff the amount of P25,000 as her share in the capital and profits of the
business of Glory Commercial Co. which was engaged in the hardware
business", without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that no
evidence to prove that allegation of the plaintiff had been presented by her
or that whatever evidence was actually offered did not produce persuasion
upon the court. Stated differently, since the existence of the quitclaim has
been duly established without any circumstance to detract from its legal
import, the court should have held that plaintiff was bound by her admission
therein that she was the common-law wife only of Po Chuan and what is
more, that she had already renounced for valuable consideration whatever
claim she might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations,
there are mentioned and discussed in the memorandum of petitioners (1)
the certification of the Local Civil Registrar of Cebu City and (2) a similar
certification of the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show any
marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to
reason that plaintiff's claim of marriage is really unfounded. Withal, there is
still another document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written agreement
executed in Chinese, but purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the
following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City,
Philippines
T R A N S L A T I O N
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have
lived with Mr. Lim Po Chuan alias TeeHoon since 1949 but it
recently occurs that we are incompatible with each other and
are not in the position to keep living together permanently. With
the mutual concurrence, we decided to terminate the existing
relationship of common law-marriage and promised not to
interfere each other's affairs from now on. The Forty Thousand
Pesos (P40,000.00) has been given to me by Mr. Lim Po
Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the
Republic of China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284,
Record.)
Indeed, not only does this document prove that plaintiff's relation to the
deceased was that of a common-law wife but that they had settled their
property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold
that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po
Chuan has not been satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife and furthermore, that all her claims against
the company and its surviving partners as well as those against the estate
of the deceased have already been settled and paid. We take judicial
notice of the fact that the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are members in good
standing of the Philippine Bar, with the particularity that the latter has been
a member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed
themselves to be parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due legal significance to
its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as
legitimate wife of Po Chuan is not only unconvincing but has been actually
overcome by the more competent and weighty evidence in favor of the
defendants, her attempt to substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory
Commercial Co. and converted its properties to themselves is even more
dismal. From the very evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof exists of such alleged
misdeeds.
Of course, the existence of the partnership has not been denied, it is
actually admitted impliedly in defendants' affirmative defense that Po
Chuan's share had already been duly settled with and paid to both the
plaintiff and his legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the operation of
the business that could have enabled them to make the extractions of
funds alleged by plaintiff is at best confusing and at certain points
manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po
Chuan she is entitled to #/
3
share of the assets and properties of the
partnership. In fact, her prayer in said complaint is, among others, for the
delivery to her of such #/
3
share. His Honor's statement of the case as well
as his findings and judgment are all to that same effect. But what did she
actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her
own when she "married" Po Chuan and "that prior to and just after the
marriage of the plaintiff to Po Chuan, she was engaged in the drugstore
business; that not long after her marriage, upon the suggestion of Po
Chuan, the plaintiff sold her drugstore for P125,000 which amount she
gave to her husband in the presence of Tanhu and was invested in the
partnership Glory Commercial Co. sometime in 1950; that after the
investment of the above-stated amount in the partnership, its business
flourished and it embarked in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the
capital of the partnership by reason of which the business flourished and
amassed all the millions referred to in the decision has not been alleged in
the complaint, and inasmuch as what was being rendered was a judgment
by default, such theory should not have been allowed to be the subject of
any evidence. But inasmuch as it was the clerk of court who received the
evidence, it is understandable that he failed to observe the rule. Then, on
the other hand, if it was her capital that made the partnership flourish, why
would she claim to be entitled to only to #/
3
of its assets and profits? Under
her theory found proven by respondent court, she was actually the owner of
everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of
Po Chuan that defendants Lim Tanhu and Ng Sua had no means of
livelihood at the time of their employment with the Glory Commercial Co.
under the management of the late Po Chuan except their salaries
therefrom; ..." (p. 27, id.) Why then does she claim only #/
3
share? Is this an
indication of her generosity towards defendants or of a concocted cause of
action existing only in her confused imagination engendered by the death
of her common-law husband with whom she had settled her common-law
claim for recompense of her services as common law wife for less than
what she must have known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was
confused as to the participation of defendants Lim Tanhu and Ng Sua in
Glory Commercial Co. At one point, they were deemed partners, at another
point mere employees and then elsewhere as partners-employees, a newly
found concept, to be sure, in the law on partnership. And the confusion is
worse comfounded in the judgment which allows these "partners in name"
and "partners-employees" or employees who had no means of livelihood
and who must not have contributed any capital in the business, "as Po
Chuan was practically the owner of the partnership having the controlling
interest", #/
3
each of the huge assets and profits of the partnership.
Incidentally, it may be observed at this juncture that the decision has made
Po Chuan play the inconsistent role of being "practically the owner" but at
the same time getting his capital from the P125,000 given to him by plaintiff
and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to
be in the names of defendants Lim Tanhu and Ng Sua were bought by
them with partnership funds, His Honor confirmed the same by finding and
holding that "it is likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants were only partners-
employees of deceased Po Chuan in the Glory Commercial Co. until the
time of his death on March 11, 1966." (p. 30, id.) It Is Our considered view,
however, that this conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision how said
defendants could have extracted money from the partnership in the
fraudulent and illegal manner pretended by plaintiff. Neither in the
testimony of Nuez nor in that of plaintiff, as these are summarized in the
decision, can there be found any single act of extraction of partnership
funds committed by any of said defendants. That the partnership might
have grown into a multi-million enterprise and that the properties described
in the exhibits enumerated in the decision are not in the names of Po
Chuan, who was Chinese, but of the defendants who are Filipinos, do not
necessarily prove that Po Chuan had not gotten his share of the profits of
the business or that the properties in the names of the defendants were
bought with money of the partnership. In this connection, it is decisively
important to consider that on the basis of the concordant and mutually
cumulative testimonies of plaintiff and Nuez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co. he was the
one who made the final decisions and approved the
appointments of new Personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim Tanhu
and Ng Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese citizen; that the three
(3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua
were partners in name but they were mere employees of Po
Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership,
how could the defendants have defrauded him of such huge amounts as
plaintiff had made his Honor believe? Upon the other hand, since Po
Chuan was in control of the affairs of the partnership, the more logical
inference is that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the knowledge and
consent of Po Chuan, for which reason no accounting could be demanded
from them therefor, considering that Article 1807 of the Civil Code refers
only to what is taken by a partner without the consent of the other partner
or partners. Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a substantial deviation
from the allegation in the amended complaint to the effect that "defendants
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng
Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was
the manager of Glory Commercial Co., defendants managed to use the
funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know
any better.
Moreover, it is very significant that according to the very tax declarations
and land titles listed in the decision, most if not all of the properties
supposed to have been acquired by the defendants Lim Tanhu and Ng Sua
with funds of the partnership appear to have been transferred to their
names only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly,
defendants have no obligation to account to anyone for such acquisitions in
the absence of clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs. Hansserman and.
Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily
disbelieve plaintiffs' pretensions. Nuez testified that "for about 18 years he
was in charge of the GI sheets and sometimes attended to the imported
items of the business of Glory Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or 1948. Since according to
Exhibit LL, the baptismal certificate produced by the same witness as his
birth certificate, shows he was born in March, 1942, how could he have
started managing Glory Commercial Co. in 1949 when he must have been
barely six or seven years old? It should not have escaped His Honor's
attention that the photographs showing the premises of Philippine Metal
Industries after its organization "a year or two after the establishment of
Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How
could Nuez have been only 13 years old then as claimed by him to have
been his age in those photographs when according to his "birth certificate",
he was born in 1942? His Honor should not have overlooked that according
to the same witness, defendant Ng Sua was living in Bantayan until he was
directed to return to Cebu after the fishing business thereat floundered,
whereas all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership money for him
were only told to him allegedly by Po Chuan, which testimonies are
veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according to plaintiff
herself, "Lim Tanhu was employed by her husband although he did not go
there always being a mere employee of Glory Commercial Co." (p. 22,
Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no
known income except their salaries. Actually, it is not stated, however, from
what evidence such conclusion was derived in so far as Ng Sua is
concerned. On the other hand, with respect to Lim Tanhu, the decision itself
states that according to Exhibit NN-Pre trial, in the supposed income tax
return of Lim Tanhu for 1964, he had an income of P4,800 as salary from
Philippine Metal Industries alone and had a total assess sable net income
of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex
L, id.) And per Exhibit GG-Pretrial in the year, he had a net income of
P32,000 for which be paid a tax of P3,512.40. (id.) As early as 1962, "his
fishing business in Madridejos Cebu was making money, and he reported
"a net gain from operation (in) the amount of P865.64" (id., per Exhibit VV-
Pre-trial.) From what then did his Honor gather the conclusion that all the
properties registered in his name have come from funds malversed from
the partnership?
It is rather unusual that His Honor delved into financial statements and
books of Glory Commercial Co. without the aid of any accountant or without
the same being explained by any witness who had prepared them or who
has knowledge of the entries therein. This must be the reason why there
are apparent inconsistencies and inaccuracies in the conclusions His
Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of
the company amounted to P2,328,460.27 as of December, 1965, and yet,
Exhibit TT-Pre-trial, according to His Honor, showed that the total value of
goods available as of the same date was P11,166,327.62. On the other
hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company
for 1966, "the value of inventoried merchandise, both local and imported",
as found by His Honor, was P584,034.38. Again, as of December 31, 1966,
the value of the company's goods available for sale was P5,524,050.87,
per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the
supposed Book of Account, whatever that is, of the company showed its
"cash analysis" was P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certified public accountant, was
hardly qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In any event,
there is no comprehensible explanation in the decision of the conclusion of
His Honor that there were P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly seen in Exhibits 11-4,
11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts
payable as of December 31, 1965 in the amount of P4,801,321.17. (p.
15, id.) Under the circumstances, We are not prepared to permit anyone to
predicate any claim or right from respondent court's unaided exercise of
accounting knowledge.
Additionally, We note that the decision has not made any finding regarding
the allegation in the amended complaint that a corporation denominated
Glory Commercial Co., Inc. was organized after the death of Po Chuan with
capital from the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy Ochay and Co
Oyo could in any way be accountable to plaintiff, just because they happen
to be the wives of Lim Tanhu and Ng Sua, respectively. We further note that
while His Honor has ordered defendants to deliver or pay jointly and
severally to the plaintiff P4,074,394.18 or #/
3
of the P12,223,182.55, the
supposed cash belonging to the partnership as of December 31, 1965, in
the same breath, they have also been sentenced to partition and give
#/
3
share of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly purchased from
the funds of the partnership which would naturally include the
P12,223,182.55 defendants have to account for. Besides, assuming there
has not yet been any liquidation of the partnership, contrary to the
allegation of the defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right plaintiff could have
would be to what might result after such liquidation to belong to the
deceased partner, and before this is finished, it is impossible to determine,
what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the deceased partner
without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more
extended than it is already prevent us from further pointing out the
inexplicable deficiencies and imperfections of the decision in question. After
all, what have been discussed should be more than sufficient to support
Our conclusion that not only must said decision be set aside but also that
the action of the plaintiff must be totally dismissed, and, were it not
seemingly futile and productive of other legal complications, that plaintiff is
liable on defendants' counterclaims. Resolution of the other issues raised
by the parties albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No. 12328
subsequent to the order of dismissal of October 21, 1974 are hereby
annulled and set aside, particularly the ex-parte proceedings against
petitioners and the decision on December 20, 1974. Respondent court is
hereby ordered to enter an order extending the effects of its order of
dismissal of the action dated October 21, 1974 to herein petitioners Antonio
Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking any further
action in said civil case gave and except as herein indicated. Costs against
private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of
the then Court of First Instance of Manila, Branch II in Civil Case No.
116725 declaring private respondent Leung Yiu a partner of petitioner Dan
Fue Leung in the business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in the annual profits of
the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street,
Sta. Cruz, Manila, was established sometime in October, 1955. It was
registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was
one of the partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit "A" wherein the
petitioner acknowledged his acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in Chinese characters so that the
trial court commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification and
testified that the translation to the best of her knowledge and belief was
correct. The private respondent identified the signature on the receipt as
that of the petitioner (Exhibit A-3) because it was affixed by the latter in his
(private respondents') presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they were
both present when the receipt (Exhibit "A") was signed by the petitioner. So
Sia further testified that he himself received from the petitioner a similar
receipt (Exhibit D) evidencing delivery of his own investment in another
amount of P4,000.00 An examination was conducted by the PC Crime
Laboratory on orders of the trial court granting the private respondents
motion for examination of certain documentary exhibits. The signatures in
Exhibits "A" and 'D' when compared to the signature of the petitioner
appearing in the pay envelopes of employees of the restaurant, namely Ah
Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures
in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check
(Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the
Equitable Banking Corporation. Another witness Elvira Rana of the
Equitable Banking Corporation testified that the check in question was in
fact and in truth drawn by the petitioner and debited against his own
account in said bank. This fact was clearly shown and indicated in the
petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to the
petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was the
sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by himself alone. Fue
Leung also flatly denied having issued to the private respondent the receipt
(Exhibit G) and the Equitable Banking Corporation's Check No. 13389470
B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter to deliver
and pay to the former, the sum equivalent to 22% of the annual
profit derived from the operation of Sun Wah Panciteria from
October, 1955, until fully paid, and attorney's fees in the amount
of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing
the trial court rendered an amended decision, the dispositive portion of
which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion
for reconsideration filed by the plaintiff, which was granted
earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby
amended. The dispositive portion of said decision should read
now as follows:
WHEREFORE, judgment is hereby rendered, ordering the
plaintiff (sic) and against the defendant, ordering the latter to
pay the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until fully
paid, plus the sum of P5,000.00 as and for attorney's fees and
costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified
by the appellate court. The dispositive portion of the appellate court's
decision reads:
WHEREFORE, the decision appealed from is modified, the
dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00 a day
from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of
the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed
in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former
the sum equivalent to 22% of the net profit of P8,000.00 per
day from the time of judicial demand, until fully paid, plus the
sum of P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner
was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations of
the panciteria. While the dispositive portions merely ordered the payment of
the respondents share, there is no question from the factual findings that
the respondent invested in the business as a partner. Hence, the two courts
declared that the private petitioner is entitled to a share of the annual profits
of the restaurant. The petitioner, however, claims that this factual finding is
erroneous. Thus, the petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the time of
the establishment of the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits of the restaurant.
The same complaint did not claim that private respondent is a partner of
the business. It was, therefore, a serious error for the lower court and the
Hon. Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate Court to
interpret or construe 'financial assistance' to mean the contribution of
capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for
such financial assistance. plaintiff would be entitled to twenty-
two percentum (22%) of the annualprofit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant
the sum of four thousand pesos (P4,000.00), Philippine
Currency, of which copy for the receipt of such amount, duly
acknowledged by the defendant is attached hereto as Annex
"A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of the
annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because
Article 1767 of the Civil Code provides that "By the contract of partnership
two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among
themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria, notwithstanding
the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without
the expectation of any returns therefrom'. It connotes an ex gratia dole out
in favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in
this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for
such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation
of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the
'"... nature of the action filed in court is determined by the facts alleged in
the complaint as constituting the cause of action." (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of
Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous objection
of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on
the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah
Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures
appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to
"H-24") were presented by the private respondent for marking as exhibits,
the petitioner did not interpose any objection. Neither did the petitioner file
an opposition to the motion of the private respondent to have these exhibits
together with the two receipts examined by the PC Crime Laboratory
despite due notice to him. Likewise, no explanation has been offered for his
silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no written demands were ever
made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they
are filed before the court, when there is a written extra-judicial
demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria.
The requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110)-have been established. As stated by the respondent, a partner shares
not only in profits but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and all the partners are
more interested in seeing the firm grow rather than get immediate returns,
a deferment of sharing in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert his rights anytime within
ten years from the start of operations, such rights are irretrievably lost. The
private respondent's cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was asking for an accounting of
his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right
to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when
the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor
of the private respondent for being excessive and unconscionable and
above the claim of private respondent as embodied in his complaint and
testimonial evidence presented by said private respondent to support his
claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup,
to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties
was that you were in charge of the custody of the
cashier's box, of the money, being the cashier, is
that correct?
A Yes, sir.
Q So that every time there is a customer who pays,
you were the one who accepted the money and you
gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time
as you said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue
Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or
confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or
less, will you please tell us, how much is the gross
income of the restaurant?
A For regular days, I received around P7,000.00 a
day during my shift alone and during pay days I
receive more than P10,000.00. That is excluding the
catering outside the place.
Q What about the catering service, will you please
tell the Honorable Court how many times a week
were there catering services?
A Sometimes three times a month; sometimes two
times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the
catering service?
A Yes, because I am the one who receives the
payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand
pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift
alone in a single day from 3:30 P.M. to 11:30 P.M. in
the evening the restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of income
but he failed to comply with his promise to produce pertinent records. When
a subpoena duces tecumwas issued to the petitioner for the production of
their records of sale, his counsel voluntarily offered to bring them to court.
He asked for sufficient time prompting the court to cancel all hearings for
January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to
state:
Counsel for the defendant admitted that the sales of Sun Wah
were registered or recorded in the daily sales book. ledgers,
journals and for this purpose, employed a bookkeeper. This
inspired the Court to ask counsel for the defendant to bring said
records and counsel for the defendant promised to bring those
that were available. Seemingly, that was the reason why this
case dragged for quite sometime. To bemuddle the issue,
defendant instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court
gave warning to the defendant's counsel that if he failed to
produce the books, the same will be considered a waiver on the
part of the defendant to produce the said books inimitably
showing decisive records on the income of the eatery pursuant
to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
The defendant was given all the chance to present all
conceivable witnesses, after the plaintiff has rested his case on
February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will present
the defendant as his last witness. Notably there were several
postponement asked by counsel for the defendant and the last
one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in
Hongkong and he (defendant) will be back after said period.
The Court acting with great concern and understanding reset
the hearing to November 17, 1981. On said date, the counsel
for the defendant who again failed to present the defendant
asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date
that if the defendant cannot be presented, counsel is deemed to
have waived the presentation of said witness and will submit his
case for decision.
On November 24, 1981, there being a typhoon prevailing in
Manila said date was declared a partial non-working holiday, so
much so, the hearing was reset to December 7 and 22, 1981.
On December 7, 1981, on motion of defendant's counsel, the
same was again reset to December 22, 1981 as previously
scheduled which hearing was understood as intransferable in
character. Again on December 22, 1981, the defendant's
counsel asked for postponement on the ground that the
defendant was sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and
gave the parties 30 days from December 23, 1981, within which
to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in
front of the Republic Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun
Wah.
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of
the restaurant in 1955, it is because of the petitioner's contentions that all
profits were being plowed back into the expansion of the business. There is
no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the
factual findings of both the trial court and the appellate court, it cannot refer
to any portion of the records for such modification. There is no basis in the
records for this Court to change or set aside the factual findings of the trial
court and the appellate court. The petitioner was given every opportunity to
refute or rebut the respondent's submissions but, after promising to do so,
it deliberately failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of
the petitioner's obligation shows that the same continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall
decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties is
ordered dissolved.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.