G.R. No.
127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
1
This is a petition for review on certiorari of the decision of the Court of Appeals,
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall
buy the above-described property from the FIRST PARTY
[Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a
Deed of Absolute Sale shall be executed by the FIRST PARTY
conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos
(P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY
the option to repurchase the said property within a period of ninety
(90) days from the execution of this memorandum of agreement
effective April 18, 1991, for the amount of TWO HUNDRED
THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option
to repurchase the said property within a period of ninety (90) days,
the FIRST PARTY is obliged to deliver peacefully the possession
of the property to the SECOND PARTY within fifteen (15) days
after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges
herself not to file any lis pendens or whatever claims on the
property nor shall be cause the annotation of say claim at the back
of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST
PARTY warrants her ownership of the property and shall defend
the rights of the SECOND PARTY against any party whom may
have any interests over the property;
(6) All expenses for documentation and other incidental expenses
shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession
of the property to the SECOND PARTY after the expiration of the
15-day grace period given in paragraph 3 above, the FIRST
PARTY shall pay an amount equivalent to Five Percent of the
principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated
damages;
(8) Should the FIRST PARTY fail to exercise her option to
repurchase the property within ninety (90) days period above-
mentioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties
and the SECOND PARTY shall proceed to transfer ownership of
the property above described to its name free from lines and
encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale, 3 dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan
Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private
respondent did not redeem the subject property before the expiration of the 90-day
On appeal, the Court of Appeals reversed. It held:
period provided in the Memorandum of Agreement. Private respondent appealed first
to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale
with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4,
1993. She alleged that the signature of her husband on the deed of sale was a forgery
because he was already dead when the deed was supposed to have been executed on
June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City
which was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a
forgery because they could not personally appear before Notary
Public Lamberto C. Nanquil on June 11, 1991 because her
husband, Ruben Abrogar, died on May 8, 1991 or one month and 2
days before the execution of the Deed of Absolute Sale, while the
plaintiff was still in the Quezon City Medical Center recuperating
from wounds which she suffered at the same vehicular accident on
May 8, 1991, cannot be sustained. The Court is convinced that the
three required documents, to wit: the Memorandum of Agreement,
the Special Power of Attorney, and the Deed of Absolute Sale were
all signed by the parties on the same date on April 18, 1991. It is a
common and accepted business practice of those engaged in
money lending to prepare an undated absolute deed of sale in loans
of money secured by real estate for various reasons, foremost of
which is the evasion of taxes and surcharges. The plaintiff never
questioned receiving the sum of P200,000.00 representing her loan
from the defendant. Common sense dictates that an established
lending and realty firm like the Aguila & Sons, Co. would not part
with P200,000.00 to the Abrogar spouses, who are virtual strangers
to it, without the simultaneous accomplishment and signing of all
the required documents, more particularly the Deed of Absolute
Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption
is hereby ORDERED DISMISSED, with costs against the plaintiff.
The facts and evidence show that the transaction between plaintiff-
appellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong
application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to
repurchase is unusually inadequate. The property is a two hundred
forty (240) sq. m. lot. On said lot, the residential house of plaintiff-
appellant stands. The property is inside a subdivision/village. The
property is situated in Marikina which is already part of Metro
Manila. The alleged sale took place in 1991 when the value of the
land had considerably increased.
For this property, defendant-appellee pays only a measly
P200,000.00 or P833.33 per square meter for both the land and for
the house.
Second: The disputed Memorandum of Agreement specifically
provides that plaintiff-appellant is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said ninety (90) day grace
period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property
"sold" as if they were still the absolute owners. There was no
provision for maintenance or expenses, much less for payment of
rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to
pay taxes on the property "sold". It is well-known that payment of
taxes accompanied by actual possession of the land covered by the
tax declaration, constitute evidence of great weight that a person
under whose name the real taxes were declared has a claim of right
over the land.
It is well-settled that the presence of even one of the circumstances
in Article 1602 of the New Civil Code is sufficient to declare a
contract of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price
which is unusually inadequate, has retained possession of the
subject property and has continued paying the realty taxes over the
subject property, (circumstances mentioned in par. (1) (2) and (5)
of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is an
equitable mortgage, not a sale with right to repurchase. The factors
cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in
actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of
repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of loan being
the same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of
debt, now deemed to be repurchase price: the transaction shall then
be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in
the nature of a pactum commissorium which is clearly prohibited
by Article 2088 of the New Civil Code. Article 2088 of the New
Civil Code reads:
Art. 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary
is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or mortgaged by way of
security for the payment of principal obligation; and (2) that there
should be a stipulation for an automatic appropriation by the
creditor of the thing pledged and mortgaged in the event of non-
payment of the principal obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00
loan to plaintiff-appellant secured by a mortgage on the property of
plaintiff-appellant. The loan was payable within ninety (90) days,
the period within which plaintiff-appellant can repurchase the
property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan
extended. Failure of plaintiff-appellee to pay the P230,000.00
within the ninety (90) days period, the property shall automatically
belong to defendant-appellee by virtue of the deed of sale
executed.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being
violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is
hereby REVERSED and SET ASIDE. The questioned Deed of
Sale and the cancellation of the TCT No. 195101 issued in favor of
plaintiff-appellant and the issuance of TCT No. 267073 issued in
favor of defendant-appellee pursuant to the questioned Deed of
Sale is hereby declared VOID and is hereby ANNULLED.
Transfer Certificate of Title No. 195101 of the Registry of
Marikina is hereby ordered REINSTATED. The loan in the
amount of P230,000.00 shall be paid within ninety (90) days from
the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be
sold at public auction to satisfy the mortgage debt and costs and if
there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held by
the appellate court.
The petition is meritorious.
Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that "every action must be prosecuted and defended in the name of
the real party in interest." A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling is
now embodied in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case
cannot be executed. 8 Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action. 9

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

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

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

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

G.R. No. 144214 July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ,respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's
dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000
Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-
GR CV No. 41026. The assailed Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July
21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City is
hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is
rendered ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No pronouncement
as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering
business under the name "Aquarius Food House and Catering Services." 5 Villareal
was appointed general manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on
September 5, 1984. His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his capital
contribution of P250,000 was refunded to him in cash by agreement of the partners. 7
In the same month, without prior knowledge of respondents, petitioners closed down
the restaurant, allegedly because of increased rental. The restaurant furniture and
equipment were deposited in the respondents' house for storage. 8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and
that they were accepting the latter's offer to return their capital contribution. 9
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners
of the deterioration of the restaurant furniture and equipment stored in their house.
She also reiterated the request for the return of their one-third share in the equity of
the partnership. The repeated oral and written requests were, however, left
unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint11 dated November 10, 1987, for the collection of a
sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to
withdraw from the partnership and had called for its dissolution under Articles 1830
and 1831 of the Civil Code; that respondents had been paid, upon the turnover to
them of furniture and equipment worth over P400,000; and that the latter had no
right to demand a return of their equity because their share, together with the rest of
the capital of the partnership, had been spent as a result of irreversible business
losses.12
In their Reply, respondents alleged that they did not know of any loan encumbrance
on the restaurant. According to them, if such allegation were true, then the loans
incurred by petitioners should be regarded as purely personal and, as such, not
chargeable to the partnership. The former further averred that they had not received
any regular report or accounting from the latter, who had solely managed the
business. Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as the latter
found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of
Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the
equipment stored in their house were inventoried and appraised at P29,000.15 The
display freezer was sold for P5,000 and the proceeds were paid to them. 16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time. Petitioners clearly intended to
dissolve it when they stopped operating the restaurant. Hence, the trial court, in its
July 21, 1992 Decision, held there liable as follows:18
 "WHEREFORE, judgment is hereby rendered in favor of [respondents] and
against the [petitioners] ordering the [petitioners] to pay jointly and
severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return of their
capital contribution, the partnership was nonetheless dissolved when petitioners lost
interest in continuing the restaurant business with them. Because petitioners never
gave a proper accounting of the partnership accounts for liquidation purposes, and
because no sufficient evidence was presented to show financial losses, the CA.
computed their liability as follows:
"Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before [respondents'] have joined the
partnership but in accordance with Article 1826 of the New Civil Code,
they are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount of
P1,000,000.00 resulting in the amount of P759,342.00, and in order to get
the share of [respondents], this amount of P759,342.00 must be divided into
three (3) shares or in the amount of P253,114.00 for each share and which is
the only amount which [petitioner] will return to [respondents'] representing
the contribution to the partnership minus the outstanding debt thereof." 19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our
consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the
distribution of the capital contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latter's share in the partnership; (2) whether the CA's
computation of P253,114 as respondents' share is correct; and (3) whether the CA
was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed,
and that it was dissolved on March 1, 1987. They found that the dissolution took
place when respondents informed petitioners of the intention to discontinue it
because of the former's dissatisfaction with, and loss of trust in, the latter's
management of the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from petitioners the return
of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally
hold its equity or assets. "The partnership has a juridical personality separate and
distinct from that of each of the partners."23 Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that must refund the equity of the
retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. 25 After all the creditors have
been paid, whatever is left of the partnership assets becomes available for the
payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents'
one-third share in the partnership cannot be determined until all the partnership
assets will have been liquidated — in other words, sold and converted to cash — and
all partnership creditors, if any, paid. The CA's computation of the amount to be
refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the partners
at the time of the dissolution of the partnership. We cannot sustain the underlying
idea that the capital contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by
profits earned or decreased by losses sustained. It does not remain static and
unaffected by the changing fortunes of the business. In the present case, the financial
statements presented before the trial court showed that the business had made
meager profits.26 However, notable therefrom is the omission of any provision for the
depreciation27 of the furniture and the equipment. The amortization of the
goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these
non-cash items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the partnership. Both
the trial and the appellate courts in fact recognized the decrease of the partnership
assets to almost nil, but the latter failed to recognize the consequent corresponding
decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary finding
of the RTC, which had rejected the contention that the obligation belonged to the
partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. '4') does not reveal the
total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation
of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. '8') shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case, who obtained a loan of
P355,000.00 on Oct. 1983, when the original partnership was not yet
formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the amount
paid by the partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually
reduced. When petitioners and respondents ventured into business together, they
should have prepared for the fact that their investment would either grow or shrink.
In the present case, the investment of respondents substantially dwindled. The
original amount of P250,000 which they had invested could no longer be returned to
them, because one third of the partnership properties at the time of dissolution did
not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects
of unwise, foolish or disastrous contracts they have entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power
to relieve them from obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments. 29
Petitioners further argue that respondents acted negligently by permitting the
partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible assets of
the partnership and considered the proceeds as payment of their net capital. Hence,
petitioners argue that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully settling the latter's
share in the partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the restaurant
would no longer be reopened by petitioners. Hence, the former cannot be faulted for
not disposing of the stored items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as a
matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic
of the Philippines unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have
discretion, "for special reasons," to decree otherwise. When a lower court is reversed,
the higher court normally does not award costs, because the losing party relied on the
lower court's judgment which is presumed to have been issued in good faith, even if
found later on to be erroneous. Unless shown to be patently capricious, the award
shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper proceedings
for the accounting, the liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 142612. July 29, 2005]
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON.
SECRETARY OF JUSTICE and FELINO MERCADO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1
February 2000 of the Secretary of Justice in Resolution No. 155.[3] The Secretary of
Justice affirmed the resolution[4]in I.S. No. 96-939 dated 28 February 1997 rendered
by the Provincial Prosecution Office of the Department of Justice in Santa Cruz,
Laguna (Provincial Prosecution Office). The Provincial Prosecution Office resolved
to dismiss the complaint for estafa filed by petitioners Oscar and Emerita Angeles
(Angeles spouses) against respondent Felino Mercado (Mercado).
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for
estafa under Article 315 of the Revised Penal Code against Mercado before the
Provincial Prosecution Office. Mercado is the brother-in-law of the Angeles spouses,
being married to Emerita Angeles sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992,
Mercado convinced them to enter into a contract of antichresis, [5] colloquially known
as sanglaang-perde, covering eight parcels of land (subject land) planted with fruit-
bearing lanzones trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years withP210,000 as consideration. As
the Angeles spouses stay in Manila during weekdays and go to Laguna only on
weekends, the parties agreed that Mercado would administer the lands and complete
the necessary paperwork.[6]
After three years, the Angeles spouses asked for an accounting from Mercado.
Mercado explained that the subject land earned P46,210 in 1993, which he used to
buy more lanzones trees. Mercado also reported that the trees bore no fruit in 1994.
Mercado gave no accounting for 1995. The Angeles spouses claim that only after
this demand for an accounting did they discover that Mercado had put the contract
of sanglaang-perde over the subject land under Mercado and his spouses
names.[7] The relevant portions of the contract of sanglaang-perde, signed by Juana
Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT GNG.
FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may pahatirang
sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking
ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila
G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana, kahalili at ibang
dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng
lanzones, hindi kasama ang ibang halaman na napapalooban nito, ng nabanggit na
WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic]
TAON, magpapasimula sa taong 1993, at magtatapos sa taong 1997, kayat
pagkatapos ng lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat
na puno ng lanzones sa nabanggit na WALONG (8) Lagay na Lupang Cocal-
Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang dapat
pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang halaga, sa
mag[-] asawa nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo
na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng
LIMA (5) na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo
na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng
dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic]
aming kasunduang ito.[8]
In his counter-affidavit, Mercado denied the Angeles spouses allegations.
Mercado claimed that there exists an industrial partnership, colloquially known
as sosyo industrial, between him and his spouse as industrial partners and the
Angeles spouses as the financiers. This industrial partnership had existed since 1991,
before the contract of antichresis over the subject land. As the years passed, Mercado
used his and his spouses earnings as part of the capital in the business transactions
which he entered into in behalf of the Angeles spouses. It was their practice to enter
into business transactions with other people under the name of Mercado because the
Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles
and contracts under his name for the Angeles spouses. Mercado also attached the
minutes of the barangay conciliation proceedings held on 7 September 1996. During
the barangay conciliation proceedings, Oscar Angeles stated that there was a
written sosyo industrial agreement: capital would come from the Angeles spouses
while the profit would be divided evenly between Mercado and the Angeles
spouses.[9]
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution
recommending the filing of criminal information for estafa against Mercado. This
resolution, however, was issued without Mercados counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On
receiving the 3 January 1997 resolution, Mercado moved for its reconsideration.
Hence, on 26 February 1997, the Provincial Prosecution Office issued an amended
resolution dismissing the Angeles spouses complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was
initially unsaddled [with] problems. Management became the source of
misunderstanding including the accounting of profits, which led to further
misunderstanding until it was revealed that the contract with the orchard owner was
only with the name of the respondent, without the names of the complainants.
The accusation of estafa here lacks enough credible evidentiary support to sustain a
prima facie finding.
Premises considered, it is respectfully recommended that the complaint for estafa be
dismissed.
RESPECTFULLY SUBMITTED.[10]
The Angeles spouses filed a motion for reconsideration, which the Provincial
Prosecution Office denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
document evidencing the contract of sanglaang-perde with Juana Suazo was
executed in the name of the Mercado spouses, instead of the Angeles spouses. The
Angeles spouses allege that this document alone proves Mercados misappropriation
of their P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of
[Mercado] for the crime of estafa cannot be sustained. [The Angeles spouses] failed
to show sufficient proof that [Mercado] deliberately deceived them in the sanglaang
perde transaction. The document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false representation on the part
of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily
part with their money without holding on to some document to evidence the receipt
of money, or at least to inspect the document involved in the said transaction. Under
the circumstances, we are inclined to believe that [the Angeles spouses] knew from
the very start that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles
spouses] and [Mercado]. The formation of a partnership was clear from the fact that
they contributed money to a common fund and divided the profits among
themselves. Records would show that [Mercado] was able to make deposits for the
account of the [Angeles spouses]. These deposits represented their share in the
profits of their business venture. Although the [Angeles spouses] deny the existence
of a partnership, they, however, never disputed that the deposits made by [Mercado]
were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and
[Mercado] during the hearing of their barangay conciliation case reveals that the
[Angeles spouses] acknowledged their joint business ventures with [Mercado]
although they assailed the manner by which [Mercado] conducted the business and
handled and distributed the funds. The veracity of this transcript was not raised in
issued [sic] by [the Angeles spouses]. Although the legal formalities for the
formation of a partnership were not adhered to, the partnership relationship of the
[Angeles spouses] and [Mercado] is evident in this case. Consequently, there is no
estafa where money is delivered by a partner to his co-partner on the latters
representation that the amount shall be applied to the business of their partnership. In
case of misapplication or conversion of the money received, the co-partners liability
is civil in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.[11]
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion
amounting to lack of jurisdiction in dismissing the appeal of the
Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and
Mercado even without any documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was
misappropriation by Mercado of the proceeds of the lanzones after the
Angeles spouses demanded an accounting from him of the income at
the office of the barangay authorities on 7 September 1996, and
Mercado failed to do so and also failed to deliver the proceeds to the
Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the
information for estafa against Mercado.[12]
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the
same is performed in a capricious or whimsical exercise of judgment amounting to
lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount
to an evasion of positive duty, or to a virtual refusal to perform a duty enjoined by
law, as where the power is exercised in an arbitrary and despotic manner because of
passion or personal hostility.[13]
The Angeles spouses fail to convince us that the Secretary of Justice committed
grave abuse of discretion when he dismissed their appeal. Moreover, the Angeles
spouses committed an error in procedure when they failed to file a motion for
reconsideration of the Secretary of Justices resolution. A previous motion for
reconsideration before the filing of a petition for certiorari is necessary unless: (1)
the issue raised is one purely of law; (2) public interest is involved; (3) there is
urgency; (4) a question of jurisdiction is squarely raised before and decided by the
lower court; and (5) the order is a patent nullity.[14] The Angeles spouses failed to
show that their case falls under any of the exceptions. In fact, this present petition
for certiorari is dismissible for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The
Angeles spouses rely on Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall
be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect
the liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
The Angeles spouses position that there is no partnership because of the lack of
a public instrument indicating the same and a lack of registration with the Securities
and Exchange Commission (SEC) holds no water. First, the Angeles spouses
contributed money to the partnership and not immovable property. Second, mere
failure to register the contract of partnership with the SEC does not invalidate a
contract that has the essential requisites of a partnership. The purpose of registration
of the contract of partnership is to give notice to third parties. Failure to register the
contract of partnership does not affect the liability of the partnership and of the
partners to third persons. Neither does such failure to register affect the partnerships
juridical personality. A partnership may exist even if the partners do not use the
words partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a
partnership: a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.
Whether there was
Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged misappropriation by

Mercado: The document alone, which was in the name of [Mercado and his spouse],
failed to convince us that there was deceit or false representation on the part of
[Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers.[15]
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which
decided the civil case for damages, injunction and restraining order filed by the
Angeles spouses against Mercado and Leo Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their partnership
secured in [Mercados] name as [the Angeles spouses] are apprehensive that, if they
come out into the open as financiers of said contracts, they might be kidnapped by
the New Peoples Army or their business deals be questioned by the Bureau of
Internal Revenue or worse, their assets and unexplained income be sequestered, as
xxx Oscar Angeles was then working with the government. [16]

Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his
discretion in dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The
present petition for certiorari is DISMISSED.
SO ORDERED.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN
T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in
toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was
duly registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to change
the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . .
to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18
April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on
4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA &
LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December
1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees
a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa
and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the
proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another
letter stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved
soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
"The partnership has ceased to be mutually satisfactory
because of the working conditions of our employees
including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of
our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the
Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's
share in the partnership assets plus the profits, rent or
interest attributable to the use of his right in the assets of
the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito,
Misa & Lozada in any of their correspondence, checks
and pleadings and to pay petitioners damages for the use
thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in such
amounts as maybe proven during the trial and which the
 Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of the
value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages
with the amount of P500,000.00 and exemplary damages
in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and equitable
under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989
is hereby REVERSED insofar as it concludes that the partnership of Bito,
Misa & Lozada has not been dissolved. The case is hereby REMANDED to
the Hearing Officer for determination of the respective rights and
obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting
the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was not
in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the
manner stipulated in the partnership agreement; (d) that the case should be remanded
to the SEC Hearing Officer for the corresponding determination of the value of
Attorney Misa's share in the partnership assets; and (e) that the appointment of a
receiver was unnecessary as no sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost, removed or materially
impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo)
is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get
a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such
a partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long
as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to
counsel and advise such persons and entities with respect
to their legal and other affairs; and to appear for and
represent their principals and client in all courts of justice
and government departments and offices in the
Philippines, and elsewhere when legally authorized to do
so."
The "purpose" of the partnership is not the specific undertaking referred to
in the law. Otherwise, all partnerships, which necessarily must have a
purpose, would all be considered as partnerships for a definite undertaking.
There would therefore be no need to provide for articles on partnership at
will as none would so exist. Apparently what the law contemplates, is a
specific undertaking or "project" which has a definite or definable period of
completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with
each partner's capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the partnership 4 but
that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished
from the winding up of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed
by various provisions of the Civil Code; 10 however, an agreement of the partners,
like any other contract, is binding among them and normally takes precedence to the
extent applicable over the Code's general provisions. We here take note of paragraph
8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior
Partners for allocation as the Senior Partners may determine; provided,
however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th
floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or retirement shall
be determined by two (2) independent appraisers, one to be appointed (by
the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring or deceased partner
in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every month in installments of
not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of
two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal,
from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did
not act in bad faith. Public respondents viewed his withdrawal to have been spurred
by "interpersonal conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of
a partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its
normal concept of a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.

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

costs.

SO ORDERED.

G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, represented by the Solicitor General, respondents.
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court
(RTC), Branch 93, Quezon City, in an information which reads as follows.
That on or between the month of May 19, 1988 and August, 1988
in Quezon City, Philippines and within the jurisdiction of this
Honorable Court, the said accused, with intent of gain, with
unfaithfulness, and abuse of confidence, did then and there,
willfully, unlawfully and feloniously defraud one ISIDORA
ROSALES, in the following manner, to wit: on the date and in the
place aforementioned, said accused received in trust from the
offended party cash money amounting toP536,650.00, Philippine
Currency, with the express obligation involving the duty to act as
complainant's agent in purchasing local cigarettes (Philip Morris
and Marlboro cigarettes), to resell them to several stores, to give
her commission corresponding to 40% of the profits; and to return
the aforesaid amount of offended party, but said accused, far from
complying her aforesaid obligation, and once in possession thereof,
misapplied, misappropriated and converted the same to her
personal use and benefit, despite repeated demands made upon her,
accused failed and refused and still fails and refuses to deliver
and/or return the same to the damage and prejudice of the said
ISIDORA ROSALES, in the aforementioned amount and in such
other amount as may be awarded under the provision of the Civil
Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the
house of complainant Isidora Rosales (Rosales) and asked her to join them in the
business of buying and selling cigarettes. Convinced of the feasibility of the venture,
Rosales readily agreed. Under their agreement, Rosales would give the money
needed to buy the cigarettes while Liwanag and Tabligan would act as her agents,
with a corresponding 40% commission to her if the goods are sold; otherwise the
money would be returned to Rosales. Consequently, Rosales gave several cash
advances to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales
to report on the progress of the transactions. The visits, however, suddenly stopped,
and all efforts by Rosales to obtain information regarding their business proved
futile.
Alarmed by this development and believing that the amounts she advanced were
being misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9, 1991,
finding Liwanag guilty as charged. The dispositive portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has
established the guilt of the accused, beyond reasonable doubt, and
therefore, imposes upon the accused, Carmen Liwanag, an
Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS
AND TWENTY ONE (21) DAYS OF PRISION
CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT
(8) MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO
PAY THE COSTS.
The accused is likewise ordered to reimburse the private
complainant the sum of P526,650.00, without subsidiary
imprisonment, in case of insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a decision
dated November 29, 1993, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the judgment appealed
from is hereby affirmed with the correction of the nomenclature of
the penalty which should be: SIX (6) YEARS, EIGHT (8)
MONTHS and TWENTY ONE (21) DAYS of prision mayor, as
minimum, to FOURTEEN (14) YEARS and EIGHT (8) MONTHS
of reclusion temporal, as maximum. In all other respects, the
decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution of March 16,
1994, Liwanag filed the instant petition, submitting the following assignment of
errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN
THE AFFIRMING THE CONVICTION OF THE ACCUSED-
PETITIONER FOR THE CRIME OF ESTAFA, WHEN
CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN
THE ACCUSED-PETITIONER AND COMPLAINANT IS
EITHER THAT OF A SIMPLE LOAN OR THAT OF A
PARTNERSHIP OR JOINT VENTURE HENCE THE NON
RETURN OF THE MONEY OF THE COMPLAINANT IS
PURELY CIVIL IN NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN
NOT ACQUITTING THE ACCUSED-PETITIONER ON
GROUNDS OF REASONABLE DOUBT BY APPLYING THE
"EQUIPOISE RULE".
Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would
buy and sell the cigarettes, and later divide the profits between
them. 1 She also argues that the transaction can also be interpreted as a simple loan,
with Rosales lending to her the amount stated on an installment basis. 2
The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the
factual findings of the trial court, 3 we deem it more expedient to resolve the instant
petition on its merits.
Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of
fraudulent acts. 4
From the foregoing, the elements of estafa are present, as follows: (1) that the
accused defrauded another by abuse of confidence or deceit; and (2) that damage or
prejudice capable of pecuniary estimation is caused to the offended party or third
party, 5 and it is essential that there be a fiduciary relation between them either in the
form of a trust, commission or administration. 6
The receipt signed by Liwanag states thus:
May 19, 1988 Quezon City
Received from Mrs. Isidora P. Rosales the sum of FIVE
HUNDRED TWENTY SIX THOUSAND AND SIX HUNDRED
FIFTY PESOS (P526,650.00) Philippine Currency, to purchase
cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the
event the said cigarrets (sic) are not sold, the proceeds of the sale
or the said products (shall) be returned to said Mrs. Isidora P.
Rosales the said amount of P526,650.00 or the said items on or
before August 30, 1988.
(SGD & Thumbedmarked) (sic)
CARMEN LIWANAG
26 H. Kaliraya St.
Quezon City
Signed in the presence of:
(Sgd) Illegible (Sgd) Doming Z. Baligad
The language of the receipt could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of
cigarettes, and in the event the cigarettes cannot be sold, the money must be returned
to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received
by a partner for a specific purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is guilty of estafa. 7
Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred. 8 Being the
owner, the borrower can dispose of it for whatever purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not dispose of the
money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return the
money to Rosales. Since in this case there was no transfer of ownership of the money
delivered, Liwanag is liable for conversion under Art. 315, par. l(b) of the Revised
Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the Court of
Appeals dated November 29, 1993, is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:ñé+.£ªwph!1
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate
that: têñ.£îhqwâ£
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into
an agreement whereby both would contribute P15,000
each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with
Moran actually supervising the work; that Pecson would
receive a commission of P l,000 a month starting on April
15, 1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution and
printing of the 95,000 posters would be made, that Pecson
gave Moran P10,000 for which the latter issued a receipt;
that only a few posters were printed; that on or about May
28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two
equal installments (P10,000 payable on or before June 15,
1971 and P10,000 payable on or before June 30, 1971),
the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the
costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action
for the recovery of a sum of money and alleged in his complaint three (3) causes of
action, namely: (1) on the alleged partnership agreement, the return of his
contribution of P10,000.00, payment of his share in the profits that the partnership
would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.
After the trial, the Court of First Instance held that: têñ.£îhqwâ£
From the evidence presented it is clear in the mind of the
court that by virtue of the partnership agreement entered
into by the parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of P7,000.00 for
the Voice of the Veteran or Delegate Magazine. Of the
expected 95,000 copies of the posters, the defendant was
able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more was
done after this and it can be said that the venture did not
really get off the ground. On the other hand, the plaintiff
failed to give his full contribution of P15,000.00. Thus,
each party is entitled to rescind the contract which right is
implied in reciprocal obligations under Article 1385 of the
Civil Code whereunder 'rescission creates the obligation
to return the things which were the object of the contract
...
WHEREFORE, the court hereby renders judgment
ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint
on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby
dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The
latter likewise rendered a decision against the petitioner. The dispositive portion of
the decision reads: têñ.£îhqwâ£
PREMISES CONSIDERED, the decision appealed from
is hereby SET ASIDE, and a new one is hereby rendered,
ordering defendant-appellant Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the
amount that could have accrued to Pecson under their
agreement);
(b) Eight thousand (P8,000), (the commission for eight
months);
 (c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the
complaint was filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of
substance in a way not in accord with law and with Supreme Court decisions when it
committed the following errors:
I private respondent. It is a contract of partnership. The latter in his complaint alleged
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
that he was induced by the petitioner to enter into a partnership with him under the
following terms and conditions: têñ.£îhqwâ£
1. That the partnership will print colored posters of the
delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand
Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000)
copies of the said posters;
4. That plaintiff will receive a commission of One
Thousand Pesos (P1,000.00) a month starting April 15,
1971 up to December 15, 1971;
5. That upon the termination of the partnership on
December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said
95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the
partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to
do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from the time he
should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v.
Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory damages in favor of
the appellee because the appellant therein was remiss in his obligations as a partner
and as prime contractor of the construction projects in question. This case was
decided on a particular set of facts. We awarded compensatory damages in
the Uy case because there was a finding that the constructing business is a profitable
one and that the UP construction company derived some profits from its contractors
in the construction of roads and bridges despite its deficient capital." Besides, there
was evidence to show that the partnership made some profits during the periods from
July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30,
1959. The profits on two government contracts worth P2,327,335.76 were not
speculative. In the instant case, there is no evidence whatsoever that the partnership
between the petitioner and the private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start. There is therefore no basis for
the award of speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while
Uy contributed much more than what was expected of him. In this case, however,
there was mutual breach. Private respondent failed to give his entire contribution in
the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise
failed to give any of the amount expected of him. He further failed to comply with
the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000
copies.
Article 1797 of the Civil Code provides: têñ.£îhqwâ£
The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and losses of
the venture. That is the essence of a partnership. And even with an assurance made
by one of the partners that they would earn a huge amount of profits, in the absence
of fraud, the other partner cannot claim a right to recover the highly speculative
profits. It is a rare business venture guaranteed to give 100% profits. In this case, on
an investment of P15,000.00, the respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters
costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature
of expected profits is obvious. We have to take various factors into account. The
failure of the Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner undesirable his
best business judgment and felt that it would be a losing venture to go on with the
printing of the agreed 95,000 copies of the posters. Hidden risks in any business
venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any
amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records
further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross
income of P10,000.00 and with no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00 should be divided between
the petitioner and the private respondent. And since only P4,000.00 was undesirable
by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should
therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of
P8,000.00 as Pecson's supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The agreement does not state the
basis of the commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not have intended the
giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of
Appeals erred in holding him liable to the private respondent in the sum of P7,000.00
as a supposed return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment
in the "Voice of the Veterans" magazine venture, the respondent court ruled
that: têñ.£îhqwâ£
xxx xxx xxx
... Moran admittedly signed the promissory note of
P20,000 in favor of Pecson. Moran does not question the
due execution of said note. Must Moran therefore pay the
amount of P20,000? The evidence indicates that the
P20,000 was assigned by Moran to cover the
following: têñ.£îhqwâ£
(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, inCarolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA
734), we held that this Court retains the power to review and rectify the findings of
fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely
on speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; and (5) when the court, in
making its findings, went beyond the issues of the case and the same are contrary to
the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that
the private respondent expected to receive.
The records show the following exhibits- têñ.£îhqwâ£
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: têñ.£îhqwâ£
Q During the pre-trial of this case, Mr.
Pecson, the defendant presented a
promissory note in the amount of
P14,000.00 which has been marked as
Exhibit 2. Do you know this promissory
note?
A Yes, sir.
Q What is this promissory note, in
connection with your transaction with
the defendant?
A This promissory note is for the
printing of the "Voice of the Veterans".
Q What is this "Voice of the Veterans",
Mr. Pecson?
A It is a book.têñ.£îhqwâ£
(T.S.N., p. 19, Nov.
29, 1972)
Q And what does the amount of
P14,000.00 indicated in the promissory
note, Exhibit 2, represent?
A It represents the P6,000.00 cash
which I gave to Mr. Moran, as
evidenced by the Philippine National
Bank Manager's check and the
P8,000.00 profit assured me by Mr.
Moran which I will derive from the
printing of this "Voice of the Veterans"
book.
Q You said that the P6,000.00 of this
P14,000.00 is covered by, a Manager's
check. I show you Exhibit E, is this the
Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory
note of P14,000.00 which you said
represented P6,000.00 of your
investment and P8,000.00 promised
profits?
A Latter, Mr. Moran returned to me
P3,000.00 which represented one-half
(1/2) of the P6,000.00 capital I gave to
him.
Q As a consequence of the return by
Mr. Moran of one-half (1/2) of the
P6,000.00 capital you gave to him, what
happened to the promised profit of
P8,000.00?
A It was reduced to one-half (1/2)
which is P4,000.00.
Q Was there any document executed by
Mr. Moran in connection with the
Balance of P3,000.00 of your capital
investment and the P4,000.00 promised
profits?
A Yes, sir, he executed a promissory
note.
Q I show you a promissory note in the
amount of P7,000.00 dated March 30,
1971 which for purposes of
Identification I request the same to be
marked as Exhibit M. . .
Court têñ.£îhqwâ£
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.1äwphï1.ñët
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL
defendants. BENJAMIN C. DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of
the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the
dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer
General Construction Company to pay plaintiff the sum of
P7,119.07 with interest at the rate of 12% per annum until it is
fully paid, plus attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C.
Sim and Augusto Palisoc are sentenced to pay the plaintiff in this
case with the understanding that the judgment against these
individual defendants shall be enforced only if the defendant
company has no more leviable properties with which to satisfy the
judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered
under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the
installment basis and for this purpose executed a promissory note for P9,440.00,
payable in twelve (12) equal monthly installments of P786.63, the first installment
payable on or before May 22, 1961 and the subsequent installments on the 22nd day
of every month thereafter, until fully paid, with the condition that failure to pay any
of said installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc
were included as co-defendants in their capacity as general partners of the defendant
company.
Daniel A. Guizona failed to file an answer and was consequently declared in
default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels failed to
appear notwithstanding the notices sent to them. Consequently, the trial court
authorized the plaintiff to present its evidence ex-parte 3 , after which the trial court
rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary
liability of each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the
defendant company. But the trial court denied the said motion notwithstanding the
conformity of the plaintiff to limit the liability of the defendants Daco and Sim to
only one-fifth ( 1/ 5 ) of the obligations of the defendant company. 4Hence, this
appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor
one of the general partners of a partnership increases the joint and subsidiary liability
of each of the remaining partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a
partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation
of a sugar estate in Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership. Being a civil
partnership, by the express provisions of articles l698 and 1137 of
 the Civil Code, the partners are not liable each for the whole debt
of the partnership. The liability is pro rata and in this case Pedro
Yulo is responsible to plaintiff for only one-half of the debt. The
fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to
only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED,

without pronouncement as to costs.

SO ORDERED.
G.R. No. L-39780 November 11, 1985 changing the payee's name from Elmo Muñasque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial
ELMO MUÑASQUE, petitioner, and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his
vs. construction business and subjecting him to demands of creditors to pay' for
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL construction materials, the payment of which should have been made from the
COMPANY and RAMON PONS,respondents. P13,000.00 received by Galan; that petitioner undertook the construction at his own
expense completing it prior to the March 16, 1967 deadline;that because of the
John T. Borromeo for petitioner. unauthorized disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between the petitioner and
Juan D. Astete for respondent C. Galan. respondent company.

Paul Gornes for respondent R. Pons. The respondents answered the complaint by denying some and admitting some of the
material averments and setting up counterclaims.
Viu Montecillo for respondent Tropical.
During the pre-trial conference, the petitioners and respondents agreed that the issues
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace. to be resolved are:

(1) Whether or not there existed a partners between

Celestino Galan and Elmo Muñasque; and
GUTTIERREZ, JR., J.:
(2) Whether or not there existed a justifiable cause on the
In this petition for certiorari, the petitioner seeks to annul and set added the decision part of respondent Tropical to disburse money to
of the Court of Appeals affirming the existence of a partnership between petitioner respondent Galan.
and one of the respondents, Celestino Galan and holding both of them liable to the
two intervenors which extended credit to their partnership. The petitioner wants to be The business firms Cebu Southern Hardware Company and Blue Diamond Glass
excluded from the liabilities of the partnership. Palace were allowed to intervene, both having legal interest in the matter in
litigation.
Petitioner Elmo Muñasque filed a complaint for payment of sum of money and
damages against respondents Celestino Galan, Tropical Commercial, Co., Inc. After trial, the court rendered judgment, the dispositive portion of which states:
(Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons for remodelling a IN VIEW WHEREOF, Judgment is hereby rendered:
portion of its building without exchanging or expecting any consideration from
Galan although the latter was casually named as partner in the contract; that by virtue
(1) ordering plaintiff Muñasque and defendant Galan to
of his having introduced the petitioner to the employing company (Tropical). Galan
would receive some kind of compensation in the form of some percentages or pay jointly and severally the intervenors Cebu and
commission; that Tropical, under the terms of the contract, agreed to give petitioner Southern Hardware Company and Blue Diamond Glass
Palace the amount of P6,229.34 and P2,213.51,
the amount of P7,000.00 soon after the construction began and thereafter, the amount
respectively;
of P6,000.00 every fifteen (15) days during the construction to make a total sum of
P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for
P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who succeeded (2) absolving the defendants Tropical Commercial
in getting petitioner's indorsement on the same check persuading the latter that the Company and Ramon Pons from any liability,
same be deposited in a joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse said cheek presented to No damages awarded whatsoever.
him by Galan but through later manipulations, respondent Pons succeeded in
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu
filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to
make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to
pay jointly and severally the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company and Tan
Siu jointly and severally interest at 12% per annum of the
sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to
Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the
sole modification that the liability imposed in the dispositive part of the decision on
the credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed
from "jointly and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of the
partnership of "Galan and Muñasque" as Contractor entered into a written contract
with respondent Tropical for remodelling the respondent's Cebu branch building. A
total amount of P25,000.00 was to be paid under the contract for the entire services
of the Contractor. The terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the balance thereof divided into
three equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen
(15) working days.
The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in
favor of respondent Galan to enable the latter to deposit it in the bank and pay for the
materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal
use so that when the second check in the amount of P6,000.00 came and Galan asked
the petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch
of Tropical that there was a"misunderstanding" between him and petitioner,
respondent Tropical changed the name of the payee in the second check from
Muñasque to "Galan and Associates" which was the duly registered name of the
partnership between Galan and petitioner and under which name a permit to do
construction business was issued by the mayor of Cebu City. This enabled Galan to
encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure
of Galan to pay what was partly due the laborers and partly due for the materials, the
construction work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given
to the petitioner alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and
damages against the respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the hands of respondent Galan,
the additional expenses that the petitioner incurred in the construction, moral and
exemplary damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and its
Cebu Manager, Pons, from any liability but they also held the petitioner together
with respondent Galan, hable to the intervenors Cebu Southern Hardware Company
and Blue Diamond Glass Palace for the credit which the intervenors extended to the
partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1) Whether
or not the appellate court erred in holding that a partnership existed between
petitioner and respondent Galan. (2) Assuming that there was such a partnership,
whether or not the court erred in not finding Galan guilty of malversing the
P13,000.00 covered by the first and second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not the court committed grave
abuse of discretion in holding that the payment made by Tropical through its
manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and respondent
Galan were partners, the truth being that Galan was a sham and a perfidious partner
who misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also
contends that the appellate court committed grave abuse of discretion in holding that
the payment made by Tropical to Galan was "good" payment when the same gave
occasion for the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with Tropical for
the renovation of the latter's building on behalf of the partnership of "Galan and
Muñasque." This is readily seen in the first paragraph of the contract where it states:
This agreement made this 20th day of December in the
year 1966 by Galan and Muñasque hereinafter called the
Contractor, and Tropical Commercial Co., Inc.,
hereinafter called the owner do hereby for and in
consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by the two
men was not a genuine one. If there was a falling out or misunderstanding between
the partners, such does not convert the partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of
Galan. Respondent Tropical therefore, had every right to presume that the petitioner
and Galan were true partners. If they were not partners as petitioner claims, then he
has only himself to blame for making the relationship appear otherwise, not only to
Tropical but to their other creditors as well. The payments made to the partnership
were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno
had acted in good faith, the appellees also acted in good
faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave
occasion for the damages to be caused must bear the
consequences.
No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner.
Since the two were partners when the debts were incurred, they, are also both liable
to third persons who extended credit to their partnership. In the case of George Litton
v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
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 Pan, 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.)
Petitioner also maintains that the appellate court committed grave abuse of discretion
in not holding Galan liable for the amounts which he "malversed" to the prejudice of
the petitioner. He adds that although this was not one of the issues agreed upon by
the parties during the pretrial, he, nevertheless, alleged the same in his amended
complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner made
allegations as to the alleged malversations of Galan, these were the same allegations
in his original complaint. The malversation by one partner was not an issue actually
raised in the amended complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues during the
pre-trial because he himself agreed to the same. In Permanent Concrete Products,
Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues
contained in the trial court's order issued on the very day
the pre-trial conference was held. Such an order controls
the subsequent course of the action, unless modified
before trial to prevent manifest injustice.In the case at bar,
modification of the pre-trial order was never sought at the
instance of any party.
Petitioner could have asked at least for a modification of the issues if he really
wanted to include the determination of Galan's personal liability to their partnership
but he chose not to do so, as he vehemently denied the existence of the partnership.
At any rate, the issue raised in this petition is the contention of Muñasque that the
amounts payable to the intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the obligations of their illstarred
partnership. The records show that there is an existing judgment against respondent
Galan, holding him liable for the total amount of P7,000.00 in favor of Eden
Hardware which extended credit to the partnership aside from the P2, 000. 00 he
already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the
law to third persons for contracts executed inconnection with partnership business is
only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including
industrial ones, shall be liable prorate with all their property and after all the
partnership assets have been exhausted, for the contracts which may be entered into
the name and fm the account cd the partnership, under its signature and by a person
authorized to act for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and
1823." In short, while the liability of the partners are merely joint in transactions
entered into by the partnership, a third person who transacted with said partnership
can hold the partners solidarily liable for the whole obligation if the case of the third
person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partner-ship 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.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and t he
money or property so received is misapplied by any
partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. That is
why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as
well as the legal entity which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error can be
imputed against it for making payments to "Galan and Associates" and delivering the
same to Galan because as far as it was concerned, Galan was a true partner with real
authority to transact on behalf of the partnership with which it was dealing. This is
even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the partnership. Thus, it is but fair that the
consequences of any wrongful act committed by any of the partners therein should
be answered solidarily by all the partners and the partnership as a whole
However. as between the partners Muñasque and Galan,justice also dictates that
Muñasque be reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his dealings with Muñasque
as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to intervenors
Blue Diamond Glass and Cebu Southern Hardware is declared to be joint and
solidary. Petitioner may recover from respondent Galan any amount that he pays, in
his capacity as a partner, to the above intervenors,
SO ORDERED.
 On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
J. TIOSEJO INVESTMENT CORP., G.R. No. 174149 Primetown Property Group, Inc. (PPGI) for the development of a residential
Petitioner,
Present: condominium project to be known as The Meditel on the formers 9,502 square meter
property along Samat St., Highway Hills, Mandaluyong City.[3] With petitioner
CORONA, C.J.,
Chairperson, contributing the same property to the joint venture and PPGI undertaking to develop
VELASCO, JR., the condominium, the JVA provided, among other terms and conditions, that the
- versus - LEONARDO-DE CASTRO,
PEREZ, and developed units shall be shared by the former and the latter at a ratio of 17%-83%,
MENDOZA,* JJ.
respectively.[4] While both parties were allowed, at their own individual
Promulgated: responsibility, to pre-sell the units pertaining to them,[5]PPGI further undertook to

SPOUSES BENJAMIN AND ELEANOR ANG, September 8, 2010 use all proceeds from the pre-selling of its saleable units for the completion of the
Respondents. Condominium Project. [6]

x--------------------------------------------------x

DECISION

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project
PEREZ, J.:
owners.[7] By virtue of said license, PPGI executed Contract to Sell No. 0212 with
Spouses Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square
meter condominium unit denominated as Unit A-1006, for the agreed contract price
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for
of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same date PPGI
review at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9
and respondents also executed Contract to Sell No. 0214 over the 12.50 square meter
August 2006 issued by the Third Division of the Court of Appeals (CA) in CA-G.R.
parking space identified as Parking Slot No. 0405, for the stipulated consideration
SP No. 93841 which, respectively, dismissed the petition for review of petitioner J.
of P26,400.00 square meters or a total of P313,500.00.[9]
Tiosejo Investment Corp. (JTIC) for having been filed out of time[1] and denied the
motion for reconsideration of said dismissal.[2]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
The Facts rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB
Case No. REM 072199-10567. Contending that they were assured by petitioner and
PPGI that the subject condominium unit and parking space would be available for
turn-over and occupancy in December 1998, respondents averred, among other
matters, that in view of the non-completion of the project according to said
representation, respondents instructed petitioner and PPGI to stop depositing the
post-dated checks they issued and to cancel said Contracts to Sell; and, that despite
several demands, petitioner and PPGI have failed and refused to refund
the P611,519.52 they already paid under the circumstances. Together with the refund
of said amount and interests thereon at the rate of 12% per annum, respondents
prayed for the grant of their claims for moral and exemplary damages as well as
attorneys fees and the costs.[10]
Specifically denying the material allegations of the foregoing complaint, PPGI filed
its 7 September 1999 answer alleging that the delay in the completion of the project
was attributable to the economic crisis which affected the country at the time; that
the unexpected and unforeseen inflation as well as increase in interest rates and cost
of building materials constitute force majeure and were beyond its control; that
aware of its responsibilities, it offered several alternatives to its buyers like
respondents for a transfer of their investment to its other feasible projects and for the
amounts they already paid to be considered as partial payment for the replacement
unit/s; and, that the complaint was prematurely filed in view of the on-going
negotiations it is undertaking with its buyers and prospective joint venture
partners. Aside from the dismissal of the complaint, PPGI sought the readjustment of
the contract price and the grant of its counterclaims for attorneys fees and litigation
expenses.[11]
Petitioner also specifically denied the material allegations of the complaint in
separate answer dated 5 February 2002[12] which it amended on 20 May
2002. Calling attention to the fact that its prestation under the JVA consisted in
contributing the property on which The Meditel was to be constructed, petitioner
asseverated that, by the terms of the JVA, each party was individually responsible for
the marketing and sale of the units pertaining to its share; that not being privy to the
Contracts to Sell executed by PPGI and respondents, it did not receive any portion of
the payments made by the latter; and, that without any contributory fault and
negligence on its part, PPGI breached its undertakings under the JVA by failing to
complete the condominium project. In addition to the dismissal of the complaint and
the grant of its counterclaims for exemplary damages, attorneys fees, litigation
expenses and the costs, petitioner interposed a cross-claim against PPGI for full
reimbursement of any sum it may be adjudged liable to pay respondents. [13]
Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to
render the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and
rescinded on account of the non-completion of the condominium project. On the
ground that the JVA created a partnership liability on their part, petitioner and PPGI,
as co-owners of the condominium project, were ordered to pay: (a) respondents
claim for refund of theP611,519.52 they paid, with interest at the rate of 12% per
annum from 5 February 1997; (b) damages in the sum of P75,000.00; (c) attorneys
fees in the sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the
sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of Presidential
Decree No. 957. [15] Elevated to the HLURB Board of Commissioners via the
petition for review filed by petitioner,[16] the foregoing decision was modified to
grant the latters cross-claim in the 14 September 2004 decision rendered by said
administrative bodys Second Division in HLURB Case No. REM-A-031007-
0240,[17] to wit:
 Wherefore, the petition for review of the respondent Corporation is
dismissed. However, the decision of the Office below dated July the former an additional 10 days from 15 March 2005 or until 25 March 2005 within
30, 2003 is modified, hence, its dispositive portion shall read: which to file its appeal memorandum, provided no further extension shall be

1. Declaring the contracts to sell, both dated allowed.[24] Claiming to have received the aforesaid 3 March 2005 order only on 16
February 5, 1997, as cancelled and March 2005, however, petitioner filed its 31 March 2005 motion seeking yet another
rescinded, and ordering the respondents to
immediately pay the complainants the extension of 10 days or until 10 April 2005 within which to file its appeal
following: memorandum.[25]
a. The amount of P611,519.52, with
interest at the legal rate reckoned
from February 5, 1997 until fully
paid;
b. Damages of P75,000.00; On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
c. Attorneys fees equivalent
extension of petitioner[26] which eventually filed its appeal memorandum by
to P30,000.00; and
d. The Cost of suit; registered mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a

2. Ordering respondents to pay this Office Sunday.[27] On 25 October 2005, the OP rendered a decision dismissing petitioners
administrative fine of P10,000.00 for appeal on the ground that the latters appeal memorandum was filed out of time and
violation of Section 20 in relation to Section
38 of P.D. 957; and that the HLURB Board committed no grave abuse of discretion in rendering the
3. Ordering respondent Primetown to reimburse appealed decision.[28] Aggrieved by the denial of its motion for reconsideration of the
the entire amount which the respondent
Corporation will be constrained to pay the foregoing decision in the 3 March 2006 order issued by the OP, [29] petitioner filed
complainants.
before the CA its 29 March 2006 motion for an extension of 15 days from 31 March
[18]
So ordered. 2006 or until 15 April 2006 within which to file its petition for
review.[30] Accordingly, a non-extendible period of 15 days to file its petition for
review was granted petitioner in the 31 March 2006 resolution issued by the CA
With the denial of its motion for reconsideration of the foregoing Third Division in CA-G.R, SP No. 93841.[31]
decision,[19] petitioner filed a Notice of Appeal dated 28 February 2005 which was
docketed before the Office of the President (OP) as O.P. Case No. 05-B-072.[20] On 3
March 2005, the OP issued an order directing petitioner to submit its appeal
Maintaining that 15 April 2006 fell on a Saturday and that pressures of
memorandum within 15 days from receipt thereof.[21] Acting on the motion therefor
work prevented its counsel from finalizing its petition for review, petitioner filed a
filed, the OP also issued another order on the same date, granting petitioner a period
motion on 17 April 2006, seeking for an additional time of 10 days or until 27 April
of 15 days from 28 February 2005 or until 15 March 2005 within which to file its
2006 within which to file said pleading.[32] Although petitioner filed by registered
appeal memorandum.[22] In view of petitioners filing of a second motion for
mail a motion to admit its attached petition for review on 19 April 2006, [33] the CA
extension dated 15 March 2005,[23] the OP issued the 18 March 2005 order granting
 II. THE COURT OF APPEALS ERRED IN REFUSING TO
issued the herein assailed 23 May 2006 resolution, [34] disposing of the formers
RESOLVE THE PETITION ON THE MERITS
pending motion for extension as well as the petition itself in the following wise: THEREBY AFFIRMING THE OFFICE OF THE
PRESIDENTS DECISION (A) DISMISSING JTICS
APPEAL ON A MERE TECHNICALITY; (B)
We resolve to DENY the second extension motion and AFFIRMING THE HLURB BOARDS DECISION
rule to DISMISS the petition for being filed late. INSOFAR AS IT FOUND JTIC SOLIDARILY
LIABLE WITH PRIMETOWN TO PAY SPOUSES
Settled is that heavy workload is by no means excusable ANG DAMAGES, ATTORNEYS FEES AND THE
(Land Bank of the Philippines vs. Natividad, 458 SCRA 441 COST OF THE SUIT; AND (C) AFFIRMING THE
[2005]). If the failure of the petitioners counsel to cope up with HLURB BOARDS DECISION INSOFAR AS IT
heavy workload should be considered a valid justification to FAILED TO AWARD JITC ITS COUNTERCLAIMS
sidestep the reglementary period, there would be no end to AGAINST SPOUSES ANG.[38]
litigations so long as counsel had not been sufficiently diligent or
experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA
254, 259-260 [2005], citing Sublay vs. National Labor Relations The Courts Ruling
Commission, 324 SCRA 188 [2000]).

Moreover, lawyers should not assume that their motion

for extension or postponement will be granted the length of time
they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]). We find the petition bereft of merit.

SO ORDERED.[35]

While the dismissal of an appeal on purely technical grounds is concededly frowned

upon,[39] it bears emphasizing that the procedural requirements of the rules on appeal
[36]
Petitioners motion for reconsideration of the foregoing resolution was are not harmless and trivial technicalities that litigants can just discard and disregard
denied for lack of merit in the CAs second assailed 9 August 2006 at will.[40] Neither being a natural right nor a part of due process, the rule is settled
[37]
resolution, hence, this petition.
that the right to appeal is merely a statutory privilege which may be exercised only in

The Issues the manner and in accordance with the provisions of the law. [41] The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only
mandatory but jurisdictional.[42] Considering that they are requirements which cannot
be trifled with as mere technicality to suit the interest of a party,[43] failure to perfect
Petitioner seeks the reversal of the assailed resolutions on the following
an appeal in the prescribed manner has the effect of rendering the judgment final and
grounds, to wit:
executory.[44]

I. THE COURT OF APPEALS ERRED IN DISMISSING

THE PETITION ON MERE TECHNICALITY;
Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit
and dismissing its petition for review for having been filed out of time. Acting on
the 29 March 2006 motion filed for the purpose, after all, the CA had already granted
petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April
2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of
Civil Procedure provides as follows:
Sec. 4. Period of appeal. The appeal shall be taken within fifteen
(15) days from notice of the award, judgment, final order or
resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioners
motion for new trial or reconsideration duly filed in accordance
with the governing law of the court or agency a quo. Only one (1)
motion for reconsideration shall be allowed. Upon proper motion
and payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals may
grant an additional period of fifteen (15) days only within which to
file the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to exceed
fifteen (15) days. (Underscoring supplied)
The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10
days from 17 April 2006 within which to file its petition for review, on the ground
that pressures of work and the demands posed by equally important cases prevented
its counsel from finalizing the same. As correctly ruled by the CA, however, heavy
workload cannot be considered as a valid justification to sidestep the reglementary
period[45] since to do so would only serve to encourage needless delays and
interminable litigations. Indeed, rules prescribing the time for doing specific acts or
for taking certain proceedings are considered absolutely indispensable to prevent
needless delays and to orderly and promptly discharge judicial business. [46] Corollary
to the principle that the allowance or denial of a motion for extension of time is
addressed to the sound discretion of the court,[47] moreover, lawyers cannot expect
that their motions for extension or postponement will be granted [48] as a matter of
course.
Although technical rules of procedure are not ends in themselves, they are necessary
for an effective and expeditious administration of justice and cannot, for said reason,
be discarded with the mere expediency of claiming substantial merit. [49] This holds
particularly true in the case at bench where, prior to the filing of its petition for
review before the CA, petitioners appeal before the OP was likewise dismissed in
view of its failure to file its appeal memorandum within the extensions of time it had
been granted by said office.After being granted an initial extension of 15 days to do
the same, the records disclose that petitioner was granted by the OP a second
extension of 10 days from 15 March 2005 or until 25 March 2005 within which to
file its appeal memorandum, on the condition that no further extensions shall be
allowed. Aside from not heeding said proviso, petitioner had, consequently, no more
time to extend when it filed its 31 March 2005 motion seeking yet another extension
of 10 days or until 10 April 2005 within which to file its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure against further extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its counsels heavy workload as
ground for seeking an additional extension of 10 days within which to file its petition
for review. To our mind, petitioner would do well to remember that, rather than the
low gate to which parties are unreasonably required to stoop, procedural rules are
designed for the orderly conduct of proceedings and expeditious settlement of cases

in the courts of law. Like all rules, they are required to be followed[50] and utter
disregard of the same cannot be expediently rationalized by harping on the policy of
liberal construction[51] which was never intended as an unfettered license to disregard
the letter of the law or, for that matter, a convenient excuse to substitute substantial
compliance for regular adherence thereto. When it comes to compliance with time
rules, the Court cannot afford inexcusable delay.[52]
Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for
respondents claims and the P10,000.00 administrative fine imposed pursuant
to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA,
it appears that petitioner not only retained ownership of the property pending
completion of the condominium project[53] but had also bound itself to answer
liabilities proceeding from contracts entered into by PPGI with third parties. Article
VIII, Section 1 of the JVA distinctly provides as follows:
Sec. 1. Rescission and damages. Non-performance by either party
of its obligations under this Agreement shall be excused when the
same is due to Force Majeure. In such cases, the defaulting party
must exercise due diligence to minimize the breach and to remedy
the same at the soonest possible time. In the event that either party
defaults or breaches any of the provisions of this Agreement other
than by reason of Force Majeure, the other party shall have the
right to terminate this Agreement by giving notice to the defaulting
party, without prejudice to the filing of a civil case for damages
arising from the breach of the defaulting party.
In the event that the Developer shall be rendered unable to
complete the Condominium Project, and such failure is directly
and solely attributable to the Developer, the Owner shall send
written notice to the Developer to cause the completion of the
Condominium Project. If the developer fails to comply within One
Hundred Eighty (180) days from such notice or, within such time,
indicates its incapacity to complete the Project, the Owner shall
have the right to take over the construction and cause the
completion thereof. If the Owner exercises its right to complete the
Condominium Project under these circumstances, this Agreement
shall be automatically rescinded upon written notice to the
Developer and the latter shall hold the former free and harmless
from any and all liabilities to third persons arising from such
rescission. In any case, the Owner shall respect and strictly comply
with any covenant entered into by the Developer and third parties
with respect to any of its units in the Condominium Project.To
enable the owner to comply with this contingent liability, the
Developer shall furnish the Owner with a copy of its contracts with
the said buyers on a month-to-month basis. Finally, in case the
Owner would be constrained to assume the obligations of the
Developer to its own buyers, the Developer shall lose its right to
ask for indemnity for whatever it may have spent in the
Development of the Project.
Nevertheless, with respect to the buyers of the Developer for the
First Phase, the area intended for the Second Phase shall not be
bound and/or subjected to the said covenants and/or any other
liability incurred by the Developer in connection with the
development of the first phase. (Underscoring supplied)
Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell
executed by PPGI and respondents. As correctly argued by the latter, moreover, a
joint venture is considered in this jurisdiction as a form of partnership and is,
accordingly, governed by the law of partnerships. [54] Under Article 1824 of the Civil
Code of the Philippines, all partners are solidarily liable with the partnership for
everything chargeable to the partnership, including loss or injury caused to a third
person or penalties incurred due to 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.[55] Whether innocent or guilty, all the partners are solidarily liable
with the partnership itself.[56]
WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.