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G.R. No. 153788 November 27, 2009
ROGER V. NAVARRO, Petitioner, 
 presented for payment and/or credit, the same were dishonored
vs.HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch
37, Cagayan de Oro City, and KAREN T. GO, doing business
under the name KARGO ENTERPRISES, Respondents.
DECISION BRION, J.:
This is a petition for review on certiorari1 that seeks to set aside
the Court of Appeals (CA) Decision2 dated October 16, 2001
and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701.
These CA rulings affirmed the July 26, 20004 and March 7,
20015 orders of the Regional Trial Court (RTC), Misamis
Oriental, Cagayan de Oro City, denying petitioner Roger V.
Navarro’s (Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two
complaints, docketed as Civil Case Nos. 98-599 (first
complaint)6 and 98-598 (second complaint),7 before the RTC for
replevin and/or sum of money with damages against Navarro. In
these complaints, Karen Go prayed that the RTC issue writs of
replevin for the seizure of two (2) motor vehicles in Navarro’s
possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married
to GLENN O. GO, a resident of Cagayan de Oro City and doing
business under the trade name KARGO ENTERPRISES, an
entity duly registered and existing under and by virtue of the
laws of the Republic of the Philippines, which has its business
address at Bulua, Cagayan de Oro City; that defendant ROGER
NAVARRO is a Filipino, of legal age, a resident of 62 Dolores
Street, Nazareth, Cagayan de Oro City, where he may be
served with summons and other processes of the Honorable
Court; that defendant "JOHN DOE" whose real name and
address are at present unknown to plaintiff is hereby joined as
party defendant as he may be the person in whose possession
and custody the personal property subject matter of this suit
may be found if the same is not in the possession of defendant
ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among
others, buying and selling motor vehicles, including hauling
trucks and other heavy equipment;
3. That for the cause of action against defendant ROGER
NAVARRO, it is hereby stated that on August 8, 1997, the said
defendant leased [from] plaintiff a certain motor vehicle which is
more particularly described as follows –
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
 that the two complaints stated no cause of action, since Karen
Motor No. 6D15-338735
 Go was not a party to the Lease Agreements with Option to
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO
PURCHASE entered into by and between KARGO
ENTERPRISES, then represented by its Manager, the
aforementioned GLENN O. GO, and defendant ROGER
NAVARRO xxx; that in accordance with the provisions of the
above LEASE AGREEMENT WITH OPTION TO PURCHASE,
defendant ROGER NAVARRO delivered unto plaintiff six (6)
post-dated checks each in the amount of SIXTY-SIX
THOUSAND THREE HUNDRED THIRTY-THREE & 33/100
PESOS (₱66,333.33) which were supposedly in payment of the
agreed rentals; that when the fifth and sixth checks, i.e.
PHILIPPINE BANK OF COMMUNICATIONS – CAGAYAN DE
ORO BRANCH CHECKS NOS. 017112 and 017113,
respectively dated January 8, 1998 and February 8, 1998, were
and/or returned by the drawee bank for the common reason that
the current deposit account against which the said checks were
issued did not have sufficient funds to cover the amounts
thereof; that the total amount of the two (2) checks, i.e. the sum
of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED
SIXTY-SIX & 66/100 PESOS (₱132,666.66) therefore
represents the principal liability of defendant ROGER
NAVARRO unto plaintiff on the basis of the provisions of the
above LEASE AGREEMENT WITH RIGHT TO PURCHASE;
that demands, written and oral, were made of defendant
ROGER NAVARRO to pay the amount of ONE HUNDRED
THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX &
66/100 PESOS (₱132,666.66), or to return the subject motor
vehicle as also provided for in the LEASE AGREEMENT WITH
RIGHT TO PURCHASE, but said demands were, and still are,
in vain to the great damage and injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the
subject of any tax assessment and/or fine pursuant to law, or
seized under an execution or an attachment as against herein
plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the
Honorable Court for the immediate delivery of the above-
described motor vehicle from defendants unto plaintiff pending
the final determination of this case on the merits and, for that
purpose, there is attached hereto an affidavit duly executed and
bond double the value of the personal property subject matter
hereof to answer for damages and costs which defendants may
suffer in the event that the order for replevin prayed for may be
found out to having not been properly issued.
The second complaint contained essentially the same
allegations as the first complaint, except that the Lease
Agreement with Option to Purchase involved is dated October
1, 1997 and the motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-510528

Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three
post-dated checks, each for the amount of ₱100,000.00, to
Karen Go in payment of the agreed rentals; however, the third
check was dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued
writs of replevin for both cases; as a result, the Sheriff seized
the two vehicles and delivered them to the possession of Karen
Go.
In his Answers, Navarro alleged as a special affirmative defense
Purchase (collectively, the lease agreements) – the actionable
documents on which the complaints were based.
On Navarro’s motion, both cases were duly consolidated on
December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the
ground that the complaints did not state a cause of action.
In response to the motion for reconsideration Karen Go filed
dated May 26, 2000,11 the RTC issued another order dated July
26, 2000 setting aside the order of dismissal. Acting on the
presumption that Glenn Go’s leasing business is a conjugal

property, the RTC held that Karen Go had sufficient interest in
his leasing business to file the action against Navarro. However,
the RTC held that Karen Go should have included her husband,
Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen
Go to file a motion for the inclusion of Glenn Go as co-plaintiff.
1avvphi1
When the RTC denied Navarro’s motion for reconsideration on
March 7, 2001, Navarro filed a petition for certiorari with the CA,
essentially contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the case and
directed Karen Go to amend her complaints by including her
husband Glenn Go as co-plaintiff. According to Navarro, a
complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment
or supplemental pleading.
On October 16, 2001, the CA denied Navarro’s petition and
affirmed the RTC’s order.13 The CA also denied Navarro’s
motion for reconsideration in its resolution of May 29,
2002,14 leading to the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the
name of Kargo Enterprises, since it did not have the requisite
juridical personality to sue, the actual parties to the agreement
are himself and Glenn Go. Since it was Karen Go who filed the
complaints and not Glenn Go, she was not a real party-in-
interest and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the
amendment of the complaint to include Glenn Go as a co-
plaintiff, instead of dismissing the complaint outright because a
complaint which does not state a cause of action cannot be
converted into one with a cause of action by a mere amendment
or a supplemental pleading. In effect, the lower court created a
cause of action for Karen Go when there was none at the time
she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as
co-plaintiff drastically changed the theory of the complaints, to
his great prejudice. Navarro claims that the lower court gravely
abused its discretion when it assumed that the leased vehicles
are part of the conjugal property of Glenn and Karen Go. Since
Karen Go is the registered owner of Kargo Enterprises, the
vehicles subject of the complaint are her paraphernal properties
and the RTC gravely erred when it ordered the inclusion of
Glenn Go as a co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the
case in the same order that required Karen Go to amend her
complaints, claiming that by issuing this order, the trial court
violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against
him, Navarro maintains that the complaints were premature
because no prior demand was made on him to comply with the
provisions of the lease agreements before the complaints for
replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were
issued based on flawed complaints, the vehicles were illegally
seized from his possession and should be returned to him
immediately.
Karen Go, on the other hand, claims that it is misleading for
Navarro to state that she has no real interest in the subject of
the complaint, even if the lease agreements were signed only
by her husband, Glenn Go; she is the owner of Kargo
Enterprises and Glenn Go signed the lease agreements merely
as the manager of Kargo Enterprises. Moreover, Karen Go
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maintains that Navarro’s insistence that Kargo Enterprises is
Karen Go’s paraphernal property is without basis. Based on the
law and jurisprudence on the matter, all property acquired
during the marriage is presumed to be conjugal property. Finally,
Karen Go insists that her complaints sufficiently established a
cause of action against Navarro. Thus, when the RTC ordered
her to include her husband as co-plaintiff, this was merely to
comply with the rule that spouses should sue jointly, and was
not meant to cure the complaints’ lack of cause of action.
THE COURT’S RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action
must be prosecuted or defended in the name of the real party-
in-interest, i.e., the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of
the suit.15
Interestingly, although Navarro admits that Karen Go is the
registered owner of the business name Kargo Enterprises, he
still insists that Karen Go is not a real party-in-interest in the
case. According to Navarro, while the lease contracts were in
Kargo Enterprises’ name, this was merely a trade name without
a juridical personality, so the actual parties to the lease
agreements were Navarro and Glenn Go, to the exclusion of
Karen Go.
As a corollary, Navarro contends that the RTC acted with grave
abuse of discretion when it ordered the inclusion of Glenn Go as
co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.
We do not find Navarro’s arguments persuasive.
The central factor in appreciating the issues presented in this
case is the business name Kargo Enterprises. The name
appears in the title of the Complaint where the plaintiff was
identified as "KAREN T. GO doing business under the name
KARGO ENTERPRISES," and this identification was repeated
in the first paragraph of the Complaint. Paragraph 2 defined the
business KARGO ENTERPRISES undertakes. Paragraph 3
continued with the allegation that the defendant "leased from
plaintiff a certain motor vehicle" that was thereafter described.
Significantly, the Complaint specifies and attaches as its integral
part the Lease Agreement that underlies the transaction
between the plaintiff and the defendant. Again, the name
KARGO ENTERPRISES entered the picture as this Lease
Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at
xxx, herein referred to as the LESSOR-SELLER; representing
KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the
principal that Glenn O. Go represented. In other words, by the
express terms of this Lease Agreement, Glenn Go did sign the
agreement only as the manager of Kargo Enterprises and the
latter is clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole
proprietorship, which is neither a natural person, nor a juridical
person, as defined by Article 44 of the Civil Code:

Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest
or purpose, created by law; their personality begins as soon as
they have been constituted according to law;
(3) Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder,
partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo
Enterprises cannot be a party to a civil action. This legal reality
leads to the question: who then is the proper party to file an
action based on a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza,
17 where we said:
Finally, there is no law authorizing sole proprietorships like
petitioner to bring suit in court. The law merely recognizes the
existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and
requires the proprietor or owner thereof to secure licenses and
permits, register the business name, and pay taxes to the
national government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower it to file or
defend an action in court.
Thus, the complaint in the court below should have been filed in
the name of the owner of Juasing Hardware. The allegation in
the body of the complaint would show that the suit is brought by
such person as proprietor or owner of the business conducted
under the name and style Juasing Hardware. The descriptive
words "doing business as Juasing Hardware" may be added to
the title of the case, as is customarily done.18 [Emphasis
supplied.]
This conclusion should be read in relation with Section 2, Rule 3
of the Rules, which states:
SEC. 2. Parties in interest. – A real party in interest is the party
who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in
interest.
As the registered owner of Kargo Enterprises, Karen Go is the
party who will directly benefit from or be injured by a judgment
in this case. Thus, contrary to Navarro’s contention, Karen Go is
the real party-in-interest, and it is legally incorrect to say that her
Complaint does not state a cause of action because her name
did not appear in the Lease Agreement that her husband signed
in behalf of Kargo Enterprises. Whether Glenn Go can legally
sign the Lease Agreement in his capacity as a manager of
Kargo Enterprises, a sole proprietorship, is a question we do not
decide, as this is a matter for the trial court to consider in a trial
on the merits.
Glenn Go’s Role in the Case
We find it significant that the business name Kargo Enterprises
is in the name of Karen T. Go,19 who described herself in the
Complaints to be "a Filipino, of legal age, married to GLENN O.
GO, a resident of Cagayan de Oro City, and doing business
under the trade name KARGO ENTERPRISES."20 That Glenn
Go and Karen Go are married to each other is a fact never
brought in issue in the case. Thus, the business name KARGO
ENTERPRISES is registered in the name of a married woman,
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a fact material to the side issue of whether Kargo Enterprises
and its properties are paraphernal or conjugal properties. To
restate the parties’ positions, Navarro alleges that Kargo
Enterprises is Karen Go’s paraphernal property, emphasizing
the fact that the business is registered solely in Karen Go’s
name. On the other hand, Karen Go contends that while the
business is registered in her name, it is in fact part of their
conjugal property.
The registration of the trade name in the name of one person –
a woman – does not necessarily lead to the conclusion that the
trade name as a property is hers alone, particularly when the
woman is married. By law, all property acquired during the
marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is
presumed to be conjugal unless the contrary is proved.21 Our
examination of the records of the case does not show any proof
that Kargo Enterprises and the properties or contracts in its
name are conjugal. If at all, only the bare allegation of Navarro
to this effect exists in the records of the case. As we
emphasized in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It
provides that "all property of the marriage is presumed to be
conjugal partnership, unless it be prove[n] that it pertains
exclusively to the husband or to the wife." This article does not
require proof that the property was acquired with funds of
the partnership. The presumption applies even when the
manner in which the property was acquired does not appear.
23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue
of whether Kargo Enterprises as a sole proprietorship is
conjugal or paraphernal property, we hold that it is conjugal
property.
Article 124 of the Family Code, on the administration of the
conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal
partnership property shall belong to both spouses
jointly. In case of disagreement, the husband’s decision shall
prevail, subject to recourse to the court by the wife for proper
remedy, which must be availed of within five years from the date
of the contract implementing such decision.xxx
This provision, by its terms, allows either Karen or Glenn Go to
speak and act with authority in managing their conjugal
property, i.e., Kargo Enterprises. No need exists, therefore, for
one to obtain the consent of the other before performing an act
of administration or any act that does not dispose of or
encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership
is governed by the rules on the contract of partnership in all that
is not in conflict with what is expressly determined in this
Chapter or by the spouses in their marriage settlements. In
other words, the property relations of the husband and wife shall
be governed primarily by Chapter 4 on Conjugal Partnership of
Gains of the Family Code and, suppletorily, by the spouses’
marriage settlement and by the rules on partnership under the
Civil Code. In the absence of any evidence of a marriage
settlement between the spouses Go, we look at the Civil Code
provision on partnership for guidance.
A rule on partnership applicable to the spouses’ circumstances
is Article 1811 of the Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of
specific partnership property.
The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for
partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-
owners of Kargo Enterprises and the properties registered
under this name; hence, both have an equal right to seek
possession of these properties. Applying Article 484 of the Civil
Code, which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the provisions of
this Title," we find further support in Article 487 of the Civil Code
that allows any of the co-owners to bring an action in ejectment
with respect to the co-owned property.
While ejectment is normally associated with actions involving
real property, we find that this rule can be applied to the
circumstances of the present case, following our ruling in
Carandang v. Heirs of De Guzman.24 In this case, one spouse
filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other
spouse in the action. In resolving the issue of whether the other
spouse was required to be included as a co-plaintiff in the action
for the recovery of the credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the
credits allegedly extended to the spouses Carandang, seems to
be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely
a necessary party, dismissal is not warranted, whether or not
there was an order for her inclusion in the complaint pursuant to
Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter or by the
spouses in their marriage settlements.
This provision is practically the same as the Civil Code provision
it superseded:
Art. 147. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that
"[a] partner is a co-owner with the other partners of specific
partnership property." Taken with the presumption of the
conjugal nature of the funds used to finance the four checks
used to pay for petitioners’ stock subscriptions, and with the
presumption that the credits themselves are part of conjugal
funds, Article 1811 makes Quirino and Milagros de Guzman co-
owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery
t h e r e o f . I n t h e f a i r l y r e c e n t c a s e s o f B a l o l o y v.
Hular and Adlawan v. Adlawan, we held that, in a co-ownership,
co-owners may bring actions for the recovery of co-owned
property without the necessity of joining all the other co-owners
as co-plaintiffs because the suit is presumed to have been filed
for the benefit of his co-owners. In the latter case and in that
of De Guia v. Court of Appeals, we also held that Article 487 of
the Civil Code, which provides that any of the co-owners may
bring an action for ejectment, covers all kinds of action for the
recovery of possession.
In sum, in suits to recover properties, all co-owners are real
parties in interest. However, pursuant to Article 487 of the Civil
Code and relevant jurisprudence, any one of them may bring an
action, any kind of action, for the recovery of co-owned
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properties. Therefore, only one of the co-owners, namely the
co-owner who filed the suit for the recovery of the co-owned
property, is an indispensable party thereto. The other co-owners
are not indispensable parties. They are not even necessary
parties, for a complete relief can be accorded in the suit even
without their participation, since the suit is presumed to have
been filed for the benefit of all co-owners.25 [Emphasis
supplied.]
Under this ruling, either of the spouses Go may bring an action
against Navarro to recover possession of the Kargo
Enterprises-leased vehicles which they co-own. This conclusion
is consistent with Article 124 of the Family Code, supporting as
it does the position that either spouse may act on behalf of the
conjugal partnership, so long as they do not dispose of or
encumber the property in question without the other spouse’s
consent.
On this basis, we hold that since Glenn Go is not strictly an
indispensable party in the action to recover possession of the
leased vehicles, he only needs to be impleaded as a pro-forma
party to the suit, based on Section 4, Rule 4 of the Rules, which
states:
Section 4. Spouses as parties. – Husband and wife shall sue or
be sued jointly, except as provided by law.
Non-joinder of indispensable parties not ground to dismiss
action
Even assuming that Glenn Go is an indispensable party to the
action, we have held in a number of cases26 that the misjoinder
or non-joinder of indispensable parties in a complaint is not a
ground for dismissal of action. As we stated in Macababbad v.
Masirag:27
Rule 3, Section 11 of the Rules of Court provides that neither
misjoinder nor nonjoinder of parties is a ground for the dismissal
of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither
misjoinder nor non-joinder of parties is ground for dismissal of
an action. Parties may be dropped or added by order of the
court on motion of any party or on its own initiative at any stage
of the action and on such terms as are just. Any claim against a
misjoined party may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy
when a party is left out is to implead the indispensable party at
any stage of the action. The court, either motu proprio or upon
the motion of a party, may order the inclusion of the
indispensable party or give the plaintiff opportunity to amend his
complaint in order to include indispensable parties. If the plaintiff
to whom the order to include the indispensable party is directed
refuses to comply with the order of the court, the complaint may
be dismissed upon motion of the defendant or upon the court's
own motion. Only upon unjustified failure or refusal to obey the
order to include or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff
Karen Go to join her husband as a party plaintiff is fully in order.
Demand not required prior

to filing of replevin action
In arguing that prior demand is required before an action for a
writ of replevin is filed, Navarro apparently likens a replevin
action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to
file an affidavit and bond, pursuant to Section 2, Rule 60 of the
Rules, which states:

Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some
other person who personally knows the facts:
(a) That the applicant is the owner of the property claimed,
particularly describing it, or is entitled to the
possession thereof;
(b) That the property is wrongfully detained by the adverse
party, alleging the cause of detention thereof according to the
best of his knowledge, information, and belief;
(c) That the property has not been distrained or taken for a tax
assessment or a fine pursuant to law, or seized under a writ of
execution or preliminary attachment, or otherwise placed
under custodia legis, or if so seized, that it is exempt from such
seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse
party in double the value of the property as stated in the affidavit
aforementioned, for the return of the property to the adverse
party if such return be adjudged, and for the payment to the
adverse party of such sum as he may recover from the
applicant in the action.
We see nothing in these provisions which requires the applicant
to make a prior demand on the possessor of the property before
he can file an action for a writ of replevin. Thus, prior demand is
not a condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim
that a prior demand is necessary, as he has already admitted in
his Answers that he had received the letters that Karen Go sent
him, demanding that he either pay his unpaid obligations or
return the leased motor vehicles. Navarro’s position that a
demand is necessary and has not been made is therefore totally
unmeritorious.
WHEREFORE, premises considered, we DENY the petition for
review for lack of merit. Costs against petitioner Roger V.
Navarro.
SO ORDERED.
[G.R. No. 45662. April 26, 1939.]
ENRIQUE CLEMENTE, Plaintiff-Appellee, v. DIONISIO
GALVAN, Defendant-Appellee. JOSE
ECHEVARRIA, Intervenor-Appellant.
1. POSSESSION; CONSTRICTIVE POSSESSION. — From the
facts stated in the decision of the court. it is clear that plaintiff
could not obtain possession of the machines in question. The
constructive possession deducible from the fact that he had
control of the keys to the place where the machines were found
(Ylaya Street Nos. 705-707), as they had been delivered to him
by the receiver, does not help him any because the lower court
suspended the effects of the order whereby the keys were
delivered to him a few days after its issuance; and thereafter
revolved it entirely in the appealed decision.
2. ID.; ACTUAL POSSESSION. — Furthermore, when he
attempted to take material possession of the machines, the
defendant did not allow him to do so. Consequently, if he did not
have material possession of the said machines, he could not in
any manner mortgage them. While it is true that the deed of
mortgage Exhibit B was annotated in the registry of property, it
is no less true that the machines to which it refers are not the
same as those in question because the latter are on Ylaya
5
Street Nos. 705-707 and the former are on Singalong Street N
o. 1163.
3. ID.; PRIVATE DOCUMENT DOES NOT CHANGE TERMS
OF A PUBLIC DOCUMENT. — It can not be said that Exhibit
B-1 allegedly a supplementary contract between the plaintiff and
the intervenor, shows that the machines referred to in the deed
of mortgage are the same as those which are in dispute and
which are found on Ylaya Street, for the reason that said exhibit
being merely a private document, the same cannot vary or alter
the terms of a public document which is Exhibit B or the deed of
mortgage.
DECISION DIAZ, J.:
The intervenor Jose Echevarria having lost in the Court of First
Instance of Manila which rendered judgment against him, the
pertinent portion of which reads: "and with respect to the
complaint of the intervenor, the mortgage executed in his favor
by plaintiff is declared null and void, and said complaint in
intervention. as well as the counterclaim filed by the defendant
against the intervenor, is dismissed, without pronouncement as
to costs," he appealed to this court on the ground that,
according to him, the lower court committed the errors assigned
in his brief as follows:jgc:chanrobles.com.ph
"I. The court a quo erred in finding in the appealed decision that
plaintiff was unable to take possession of the machines subject
of the deed of mortgage Exhibit B either before or after the
execution thereof.
"II. The court a quo likewise erred in deciding the present case
against the intervenor-appellant, on the ground, among others,
that ’plaintiff has not adduced any evidence nor has he testified
to show that the machines mortgaged by him to the intervenor
have ever belonged to him, notwithstanding that said intervenor
is his close relative.’
"III. The lower court also erred in declaring null and void the
mortgage executed by plaintiff in favor of the intervenor and,
thereby, dismissing the complaint in intervention.
"IV. The lower court lastly erred in ordering the receiver J. D.
Mencarini to deliver to the defendant the aforesaid machines
upon petition of the plaintiff."cralaw virtua1aw library
In order to have a clear idea of the question, it is proper to state
the facts bearing on the case as they appear in the decision and
judgment of the lower court and in the documents which
constitute all the evidence adduced by the parties during the
trial.
On June 6, 1931, plaintiff and defendant organized a civil
partnership which they named "Galvan y Compañia" to engage
in the manufacture and sale of paper and other stationery. They
agreed to invest therein a capital of P100,000, but as a matter
of fact they did not cover more than one-fifth thereof, each
contributing P10,000. Hardly a y ear after such organization, the
plaintiff commenced the present case in the above-mentioned
court to ask for the dissolution of the partnership and to compel
defendant to whom the management thereof was entrusted to
submit an accounting of his administration and to deliver to him
his share as such partner. In his answer defendant expressed
his conformity to the dissolution of the partnership and the
liquidation of its affairs; but by way of counterclaim he asked
that, having covered a deficit incurred by the partnership
amounting to P4,000 with his own money, plaintiff reimburse
him of one-half of said sum. On petition of the plaintiff a receiver
and liquidator to take charge of the properties and business of
the partnership while the same was not yet definitely dissolved,
was appointed, the person chosen being Juan D. Mencarini.
The latter was already discharging the duties of his office when
the court, by virtue of a petition ex parte of the plaintiff, issued
the order of May 24, 1933, requiring said receiver to deliver to
him (plaintiff) certain machines which were then at Nos.
705-707 Ylaya Street, Manila, but authorizing him to charge
their value of P4,500 against the portion which may eventually

be due to said plaintiff. To comply with said order. the receiver
delivered to plaintiff the keys to the place where the machines
were found, which was the same place where defendant had his
home; but before he could take actual possession of said
machines, upon the strong opposition of defendant, the court,
on motion of the latter, suspended the effects of its order of May
24, 1933. In the meantime the judgments rendered in cases
Nos. 42794 and 43070 entitled "Philippine Education Co., Inc. v.
Enrique Clemente" for the recovery of a sum of money, and
"Jose Echevarria v. Enrique Clemente", also for the recovery of
a sum of money, respectively, were made executory; and in
order to avoid the attachment and subsequent sale of the
machines by the sheriff for the satisfaction from the proceeds
thereof of the judgments rendered in the two cases aforecited,
plaintiff agreed with the intervenor, who is his nephew, to
execute, as he in fact executed in favor of the latter, a deed of
mortgage Exhibit B encumbering the machines described in
said deed in which it is stated that "they are situated on
Singalong Street No. 1163", which is a place entirely different
from the house Nos. 705 and 707 on Ylaya Street hereinbefore
mentioned. The one year agreed upon in the deed of mortgage
for the fulfillment by the plaintiff of the obligation he had
contracted with the intervenor, having expired, the latter
commenced case No. 49629 to collect his mortgage credit. The
intervenor, as plaintiff in the said case, obtained judgment in his
favor because the defendant did not interpose any defense or
objection, and, moreover, admitted being really indebted to the
intervenor in the amount set forth in the deed of mortgage
Exhibit B. The machines which the intervenor said were
mortgaged to him were then in fact in custodia legis, as they
were under the control of the receiver and liquidator Juan D.
Mencarini. It was, therefore, useless for the intervenor to attach
the same in view of the receiver’s opposition; and the question
having been brought to court, it decided that nothing could be
done because the receiver was not a party to the case which
the intervenor instituted to collect his aforesaid credit. (Civil
case. No. 49629.) The question ended thus because the
intervenor did not take any other step until he thought of joining
in this case as intervenor.
1. From the foregoing facts, it is clear that plaintiff could not
obtain possession of the machines in question. The constructive
possession deducible from the fact that he had the keys to the
place where the machines were found (Ylaya Street Nos.
705-707), as they had been delivered to him by the receiver,
does not help him any because the lower court suspended the
effects of the order whereby the keys were delivered to him a
few days after its issuance; and thereafter revoked it entirely in
the appealed decision. Furthermore, when he attempted to take
actual possession of the machines, the defendant did not allow
him to do so. Consequently, if he did not have actual
possession of the machines, he could not in any manner
mortgage them, for while it is true that the oft-mentioned deed of
mortgage Exhibit B was annotated in the registry of property, it
is no less true that the machines to which it refers are not the
same as those in question because the latter are on Ylaya
Street Nos. 705-707 and the former are on Singalong Street No.
1163. It can not be said that Exhibit B-1, allegedly a
supplementary contract between the plaintiff and the intervenor,
shows that the machines referred to in the deed of mortgage
are the same as those in dispute and which are found on Ylaya
Street because said exhibit being merely a private document,
the same cannot vary or alter the terms of a public document
which is Exhibit B or the deed of mortgage.
2. The second error attributed to the lower court is baseless.
The evidence of record shows that the machines in contention
originally belonged to the defendant and from him were
transferred to the partnership Galvan y Compañia. This being
the case, said machines belong to the partnership and not to
him, and shall belong to it until partition is effected according to
the result thereof after the liquidation.
3. The last two errors attributed by the appellant to the lower
court have already been disposed of by the considerations
above set forth. They are as baseless as the previous ones.
6
In view of all the foregoing, the judgment appealed from is
affirmed, with costs against the appellant. So ordered.
ART. 1813
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
7
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.26However, 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
8
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. 178782 September 21, 2011
JOSEFINA P. REALUBIT, Petitioner, vs.

PROSENCIO D. JASO and EDEN G. JASO, Respondents.
DECISION PEREZ, J.:
The validity as well as the consequences of an assignment of
rights in a joint venture are at issue in this petition for review
filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure,
1 assailing the 30 April 2007 Decision2rendered by the Court of
Appeals’ (CA) then Twelfth Division in CA-G.R. CV No.
73861,3 the dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and
we order the dissolution of the joint venture between defendant-
appellant Josefina Realubit and Francis Eric Amaury Biondo
and the subsequent conduct of accounting, liquidation of assets
and division of shares of the joint venture business.
Let a copy hereof and the records of the case be remanded to
the trial court for appropriate proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina)
entered into a Joint Venture Agreement with Francis Eric

Amaury Biondo (Biondo), a French national, for the operation of
an ice manufacturing business. With Josefina as the industrial
partner and Biondo as the capitalist partner, the parties agreed
that they would each receive 40% of the net profit, with the
remaining 20% to be used for the payment of the ice making
machine which was purchased for the business.5 For and in
consideration of the sum of ₱500,000.00, however, Biondo
subsequently executed a Deed of Assignment dated 27 June
1997, transferring all his rights and interests in the business in
favor of respondent Eden Jaso (Eden), the wife of respondent
Prosencio Jaso.6 With Biondo’s eventual departure from the
country, the Spouses Jaso caused their lawyer to send Josefina
a letter dated 19 February 1998, apprising her of their
acquisition of said Frenchman’s share in the business and
formally demanding an accounting and inventory thereof as well
as the remittance of their portion of its profits.7
Faulting Josefina with unjustified failure to heed their demand,
the Spouses Jaso commenced the instant suit with the filing of
their 3 August 1998 Complaint against Josefina, her husband,
Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of
assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil
Case No. 98-0331 before respondent Branch 257 of the
Regional Trial Court (RTC) of Parañaque City, said complaint
alleged, among other matters, that the Spouses Realubit had no
gainful occupation or business prior to their joint venture with
Biondo; that with the income of the business which earned not
less than ₱3,000.00 per day, they were, however, able to
acquire the two-storey building as well as the land on which the
joint venture’s ice plant stands, another building which they
used as their office and/or residence and six (6) delivery vans;
and, that aside from appropriating for themselves the income of
the business, the Spouses Realubit have fraudulently concealed
the funds and assets thereof thru their relatives, associates or
dummies.8
Served with summons, the Spouses Realubit filed their Answer
dated 21 October 1998, specifically denying the material
allegations of the foregoing complaint. Claiming that they have
been engaged in the tube ice trading business under a single
proprietorship even before their dealings with Biondo, the
Spouses Realubit, in turn, averred that their said business
partner had left the country in May 1997 and could not have
executed the Deed of Assignment which bears a signature
markedly different from that which he affixed on their Joint
Venture Agreement; that they refused the Spouses Jaso’s
demand in view of the dubious circumstances surrounding their
acquisition of Biondo’s share in the business which was
established at Don Antonio Heights, Commonwealth Avenue,
Quezon City; that said business had already stopped operations
on 13 January 1996 when its plant shut down after its power
supply was disconnected by MERALCO for non-payment of
utility bills; and, that it was their own tube ice trading business
which had been moved to 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City that the Spouses Jaso
mistook for the ice manufacturing business established in
partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference
subsequently terminated, the RTC went on to try the case on its
merits and, thereafter, to render its Decision dated 17
September 2001, discounting the existence of sufficient
evidence from which the income, assets and the supposed
dissolution of the joint venture can be adequately reckoned.
Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondo’s rights in the business in
view of their valid acquisition of the latter’s share as capitalist
partner,10 the RTC disposed of the case in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a
complete accounting and inventory of the assets and liabilities
of the joint venture from its inception to the present, to allow
plaintiffs access to the books and accounting records of the joint
9
venture, to deliver to plaintiffs their share in the profits, if any,
and to pay the plaintiffs the amount of ₱20,000. for moral
damages. The claims for exemplary damages and attorney’s
fees are denied for lack of basis.11
On appeal before the CA, the foregoing decision was set aside
in the herein assailed Decision dated 30 April 2007, upon the
following findings and conclusions: (a) the Spouses Jaso validly
acquired Biondo’s share in the business which had been
transferred to and continued its operations at 66-C Cenacle
Drive, Sanville Subdivision, Project 6, Quezon City and not
dissolved as claimed by the Spouses Realubit; (b) absent
showing of Josefina’s knowledge and consent to the transfer of
Biondo’s share, Eden cannot be considered as a partner in the
business, pursuant to Article 1813 of the Civil Code of the
Philippines; (c) while entitled to Biondo’s share in the profits of
the business, Eden cannot, however, interfere with the
management of the partnership, require information or account
of its transactions and inspect its books; (d) the partnership
should first be dissolved before Eden can seek an accounting of
its transactions and demand Biondo’s share in the business;
and, (e) the evidence adduced before the RTC do not support
the award of moral damages in favor of the Spouses Jaso.12
The Spouses Realubit’s motion for reconsideration of the
foregoing decision was denied for lack of merit in the CA’s 28
June 2007 Resolution,13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision
upon the negative of the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT
OF RIGHTS TO THE JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER
[JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS
NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO]
HAVE ANY RIGHT IN THE JOINT VENTURE AND IN THE
SEPARATE ICE BUSINESS OF PETITIONER[S].14
The Court’s Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both
the RTC and the CA inordinately gave premium to the
notarization of the 27 June 1997 Deed of Assignment executed
by Biondo in favor of the Spouses Jaso. Calling attention to the
latter’s failure to present before the RTC said assignor or, at the
very least, the witnesses to said document, the Spouses
Realubit maintain that the testimony of Rolando Diaz, the
Notary Public before whom the same was acknowledged, did
not suffice to establish its authenticity and/or validity. They insist
that notarization did not automatically and conclusively confer
validity on said deed, since it is still entirely possible that Biondo
did not execute said deed or, for that matter, appear before said
notary public.15 The dearth of merit in the Spouses Realubit’s
position is, however, immediately evident from the settled rule
that documents acknowledged before notaries public are public
documents which are admissible in evidence without necessity
of preliminary proof as to their authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of
Assignment Biondo executed in favor of Eden not only enjoys a
presumption of regularity17 but is also considered prima facie
evidence of the facts therein stated.18 A party assailing the
authenticity and due execution of a notarized document is,

consequently, required to present evidence that is clear,
convincing and more than merely preponderant.19 In view of the
Spouses Realubit’s failure to discharge this onus, we find that
both the RTC and the CA correctly upheld the authenticity and
validity of said Deed of Assignment upon the combined strength
of the above-discussed disputable presumptions and the
testimonies elicited from Eden20 and Notary Public Rolando
Diaz.21 As for the Spouses’ Realubit’s bare assertion that
Biondo’s signature on the same document appears to be
forged, suffice it to say that, like fraud,22 forgery is never
presumed and must likewise be proved by clear and convincing
evidence by the party alleging the same.23 Aside from not being
borne out by a comparison of Biondo’s signatures on the Joint
Venture Agreement24 and the Deed of Assignment,25 said
forgery is, moreover debunked by Biondo’s duly authenticated
certification dated 17 November 1998, confirming the transfer of
his interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some
temporary purpose, a joint venture is likened to a particular
partnership or one which "has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation."27 The rule is settled that joint ventures
are governed by the law on partnerships28 which are, in turn,
based on mutual agency or delectus personae.29 Insofar as a
partner’s conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides
as follows:
Art. 1813. A conveyance by a partner of his whole interest in the
partnership does not itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle
the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership
business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books;
but it merely entitles the assignee to receive in accordance with
his contracts the profits to which the assigning partners would
otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself
of the usual remedies.
In the case of a dissolution of the partnership, the assignee is
entitled to receive his assignor’s interest and may require an
account from the date only of the last account agreed to by all
the partners.
From the foregoing provision, it is evident that "(t)he transfer by
a partner of his partnership interest does not make the assignee
of such interest a partner of the firm, nor entitle the assignee to
interfere in the management of the partnership business or to
receive anything except the assignee’s profits. The assignment
does not purport to transfer an interest in the partnership, but
only a future contingent right to a portion of the ultimate residue
as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital."30 Since a partner’s interest
in the partnership includes his share in the profits,31 we find that
the CA committed no reversible error in ruling that the Spouses
Jaso are entitled to Biondo’s share in the profits, despite
Juanita’s lack of consent to the assignment of said Frenchman’s
interest in the joint venture. Although Eden did not, moreover,
become a partner as a consequence of the assignment and/or
acquire the right to require an accounting of the partnership
business, the CA correctly granted her prayer for dissolution of
the joint venture conformably with the right granted to the
purchaser of a partner’s interest under Article 1831 of the Civil
Code.32 1âwphi1
Considering that they involve questions of fact, neither are we
inclined to hospitably entertain the Spouses Realubit’s
insistence on the supposed fact that Josefina’s joint venture
with Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City was merely a continuation
of the same business they previously operated under a single
10
proprietorship. It is well-entrenched doctrine that questions of
fact are not proper subjects of appeal by certiorari under Rule
45 of the Rules of Court as this mode of appeal is confined to
questions of law.33 Upon the principle that this Court is not a
trier of facts, we are not duty bound to examine the evidence
introduced by the parties below to determine if the trial and the
appellate courts correctly assessed and evaluated the evidence
on record. 34 Absent showing that the factual findings
complained of are devoid of support by the evidence on record
or the assailed judgment is based on misapprehension of facts,
the Court will limit itself to reviewing only errors of law.35
Based on the evidence on record, moreover, both the
RTC36 and the CA37 ruled out the dissolution of the joint venture
and concluded that the ice manufacturing business at the
aforesaid address was the same one established by Juanita
and Biondo. As a rule, findings of fact of the CA are binding and
conclusive upon this Court,38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the
following recognized exceptions: (1) when the conclusion is a
finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the CA, in making its findings, went beyond
the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the
findings are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and, (10) when the
findings of fact of the CA are premised on the supposed
absence of evidence and contradicted by the evidence on
record.40Unfortunately for the Spouses Realubit’s cause, not
one of the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the
assailed CA Decision dated 30 April 2007 is, accordingly,
AFFIRMED in toto.
SO ORDERED.
ART. 1815
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR.,
ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL
A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG,
ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO
CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO,
DE LEON, MABANTA & REYES." RICARDO J. ROMULO,
BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA,
REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES,
and JOSE F. BUENAVENTURA, petitioners.
Two separate Petitions were filed before this Court 1) by the
surviving partners of Atty. Alexander Sycip, who died on May 5,
1975, and 2) by the surviving partners of Atty. Herminio Ozaeta,
who died on February 14, 1976, praying that they be allowed to
continue using, in the names of their firms, the names of
partners who had passed away. In the Court's Resolution of
September 2, 1976, both Petitions were ordered consolidated.

Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing
its business under a firm name which includes the name of a
deceased partner; in fact, Article 1840 of the Civil Code
explicitly sanctions the practice when it provides in the last
paragraph that: têñ.£îhqwâ£
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as
part thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such
person or partnership. 1
2. In regulating other professions, such as accountancy and
engineering, the legislature has authorized the adoption of firm
names without any restriction as to the use, in such firm name,
of the name of a deceased partner; 2 the legislative
authorization given to those engaged in the practice of
accountancy — a profession requiring the same degree of trust
and confidence in respect of clients as that implicit in the
relationship of attorney and client — to acquire and use a trade
name, strongly indicates that there is no fundamental policy that
is offended by the continued use by a firm of professionals of a
firm name which includes the name of a deceased partner, at
least where such firm name has acquired the characteristics of
a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by
the continued use of the name of a deceased partner in the firm
name of a law partnership because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar Association
declares that: têñ.£îhqwâ£
... The continued use of the name of a deceased or former
partner when permissible by local custom, is not unethical but
care should be taken that no imposition or deception is
practiced through this use. ... 4
4. There is no possibility of imposition or deception because the
deaths of their respective deceased partners were well-
publicized in all newspapers of general circulation for several
days; the stationeries now being used by them carry new
letterheads indicating the years when their respective deceased
partners were connected with the firm; petitioners will notify all
leading national and international law directories of the fact of
their respective deceased partners' deaths. 5
5. No local custom prohibits the continued use of a deceased
partner's name in a professional firm's name; 6 there is no
custom or usage in the Philippines, or at least in the Greater
Manila Area, which recognizes that the name of a law firm
necessarily Identifies the individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm
name of law partnerships has been consistently allowed by U.S.
Courts and is an accepted practice in the legal profession of
most countries in the world.8
The question involved in these Petitions first came under
consideration by this Court in 1953 when a law firm in Cebu (the
Deen case) continued its practice of including in its firm name
that of a deceased partner, C.D. Johnston. The matter was
resolved with this Court advising the firm to desist from
including in their firm designation the name of C. D. Johnston,
who has long been dead."
The same issue was raised before this Court in 1958 as an
incident in G. R. No. L-11964, entitled Register of Deeds of
Manila vs. China Banking Corporation. The law firm of Perkins
& Ponce Enrile moved to intervene as amicus curiae. Before
acting thereon, the Court, in a Resolution of April 15, 1957,
stated that it "would like to be informed why the name of Perkins
11
is still being used although Atty. E. A. Perkins is already dead."
In a Manifestation dated May 21, 1957, the law firm of Perkins
and Ponce Enrile, raising substantially the same arguments as
those now being raised by petitioners, prayed that the continued
use of the firm name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: têñ.£îhqwâ£
After carefully considering the reasons given by Attorneys
Alfonso Ponce Enrile and Associates for their continued use of
the name of the deceased E. G. Perkins, the Court found no
reason to depart from the policy it adopted in June 1953 when it
required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu
City to desist from including in their firm designation, the name
of C. D. Johnston, deceased. The Court believes that, in view of
the personal and confidential nature of the relations between
attorney and client, and the high standards demanded in the
canons of professional ethics, no practice should be allowed
which even in a remote degree could give rise to the possibility
of deception. Said attorneys are accordingly advised to drop the
name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus
far enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings
thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and
Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes"
are partnerships, the use in their partnership names of the
names of deceased partners will run counter to Article 1815 of
the Civil Code which provides: têñ.£îhqwâ£
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners.
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability, of a
partner.
It is clearly tacit in the above provision that names in a firm
name of a partnership must either be those of living partners
and. in the case of non-partners, should be living persons who
can be subjected to liability. In fact, Article 1825 of the Civil
Code prohibits a third person from including his name in the firm
name under pain of assuming the liability of a partner. The heirs
of a deceased partner in a law firm cannot be held liable as the
old members to the creditors of a firm particularly where they
are non-lawyers. Thus, Canon 34 of the Canons of Professional
Ethics "prohibits an agreement for the payment to the widow
and heirs of a deceased lawyer of a percentage, either gross or
net, of the fees received from the future business of the
deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not
represent service or responsibility on the part of the recipient. "
Accordingly, neither the widow nor the heirs can be held liable
for transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there ran be no
corresponding liability.
Prescinding the law, there could be practical objections to
allowing the use by law firms of the names of deceased
partners. The public relations value of the use of an old firm
name can tend to create undue advantages and disadvantages
in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting from
scratch. Another able lawyer, who can join an old firm, can
initially ride on that old firm's reputation established by
deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil
Code cited by petitioners, supra, the first factor to consider is
that it is within Chapter 3 of Title IX of the Code entitled
"Dissolution and Winding Up." The Article primarily deals with
the exemption from liability in cases of a dissolved partnership,
of the individual property of the deceased partner for debts
contracted by the person or partnership which continues
the business using the partnership name or the name of the
deceased partner as part thereof. What the law contemplates
therein is a hold-over situation preparatory to formal
reorganization.
Secondly, Article 1840 treats more of a commercial partnership
with a good will to protect rather than of
a professional partnership, with no saleable good will but whose
reputation depends on the personal qualifications of its
individual members. Thus, it has been held that a saleable
goodwill can exist only in a commercial partnership and cannot
arise in a professional partnership consisting of lawyers. 9têñ.
£îhqwâ£
As a general rule, upon the dissolution of a commercial
partnership the succeeding partners or parties have the right to
carry on the business under the old name, in the absence of a
stipulation forbidding it, (s)ince the name of a commercial
partnership is a partnership asset inseparable from the good will
of the firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand, têñ.£îhqwâ£
... a professional partnership the reputation of which depends
or; the individual skill of the members, such as partnerships of
attorneys or physicians, has no good win to be distributed as a
firm asset on its dissolution, however intrinsically valuable such
skill and reputation may be, especially where there is no
provision in the partnership agreement relating to good will as
an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)
C. A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business. For
one thing, the law on accountancy specifically allows the use of
a trade name in connection with the practice of accountancy.
10 têñ.£îhqwâ£
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. ... It is
not a partnership formed for the purpose of carrying on trade or
business or of holding property." 11 Thus, it has been stated that
"the use of a nom de plume, assumed or trade name in law
practice is improper. 12
The usual reason given for different standards of conduct being
applicable to the practice of law from those pertaining to
business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey
of the Legal Profession, (The Lawyer from Antiquity to Modern
Times, p. 5) defines a profession as "a group of men pursuing a
learned art as a common calling in the spirit of public service, —
no less a public service because it may incidentally be a means
of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession
from business are:
1. A duty of public service, of which the emolument is a
byproduct, and in which one may attain the highest eminence
without making much money.
12
2. A relation as an "officer of court" to the administration of
justice involving thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business
methods of advertising and encroachment on their practice, or
dealing directly with their clients. 13
"The right to practice law is not a natural or constitutional right
but is in the nature of a privilege or franchise. 14 It is limited to
persons of good moral character with special qualifications duly
ascertained and certified. 15 The right does not only presuppose
in its possessor integrity, legal standing and attainment, but also
the exercise of a special privilege, highly personal and partaking
of the nature of a public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional
Ethics of the American Bar Association" in support of their
petitions.
It is true that Canon 33 does not consider as unethical the
continued use of the name of a deceased or former partner in
the firm name of a law partnership when such a practice
is permissible by local custom but the Canon warns that care
should be taken that no imposition or deception is practiced
through this use.
It must be conceded that in the Philippines, no local
custom permits or allows the continued use of a deceased or
former partner's name in the firm names of law partnerships.
Firm names, under our custom, Identify the more active and/or
more senior members or partners of the law firm. A glimpse at
the history of the firms of petitioners and of other law firms in
this country would show how their firm names have evolved and
changed from time to time as the composition of the partnership
changed. têñ.£îhqwâ£
The continued use of a firm name after the death of one or more
of the partners designated by it is proper only where sustained
by local custom and not where by custom this purports to
Identify the active members. ...
There would seem to be a question, under the working of the
Canon, as to the propriety of adding the name of a new partner
and at the same time retaining that of a deceased partner who
was never a partner with the new one. (H.S. Drinker, op.
cit., supra, at pp. 207208) (Emphasis supplied).
The possibility of deception upon the public, real or
consequential, where the name of a deceased partner
continues to be used cannot be ruled out. A person in search of
legal counsel might be guided by the familiar ring of a
distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed
the continued use of a deceased partner's name in the firm
name of law partnerships. But that is so because it is
sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance
Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al.
quoted in their memorandum, the New York Supreme Court
sustained the use of the firm name Alexander & Green even if
none of the present ten partners of the firm bears either
name because the practice was sanctioned by custom and did
not offend any statutory provision or legislative policy and was
adopted by agreement of the parties. The Court stated
therein: têñ.£îhqwâ£

The practice sought to be proscribed has the sanction of
custom and offends no statutory provision or legislative policy.
Canon 33 of the Canons of Professional Ethics of both the
American Bar Association and the New York State Bar
Association provides in part as follows: "The continued use of
the name of a deceased or former partner, when permissible by
local custom is not unethical, but care should be taken that no
imposition or deception is practiced through this use." There is
no question as to local custom. Many firms in the city use the
names of deceased members with the approval of other
attorneys, bar associations and the courts. The Appellate
Division of the First Department has considered the matter and
reached The conclusion that such practice should not be
prohibited. (Emphasis supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the
practice in question. The use of the firm name herein is also
sustainable by reason of agreement between the partners. 18
Not so in this jurisdiction where there is no local custom that
sanctions the practice. Custom has been defined as a rule of
conduct formed by repetition of acts, uniformly observed
(practiced) as a social rule, legally binding and
obligatory. 19 Courts take no judicial notice of custom. A custom
must be proved as a fact, according to the rules of
evidence. 20 A local custom as a source of right cannot be
considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. 21 We
find such proof of the existence of a local custom, and of the
elements requisite to constitute the same, wanting herein.
Merely because something is done as a matter of practice does
not mean that Courts can rely on the same for purposes of
adjudication as a juridical custom. Juridical custom must be
differentiated from social custom. The former can supplement
statutory law or be applied in the absence of such statute. Not
so with the latter.
Moreover, judicial decisions applying or interpreting the laws
form part of the legal system. 22 When the Supreme Court in the
Deen and Perkins cases issued its Resolutions directing
lawyers to desist from including the names of deceased
partners in their firm designation, it laid down a legal rule
against which no custom or practice to the contrary, even if
proven, can prevail. This is not to speak of our civil law which
clearly ordains that a partnership is dissolved by the death of
any partner. 23 Custom which are contrary to law, public order or
public policy shall not be countenanced. 24
The practice of law is intimately and peculiarly related to the
administration of justice and should not be considered like an
ordinary "money-making trade." têñ.£îhqwâ£
... It is of the essence of a profession that it is practiced in a
spirit of public service. A trade ... aims primarily at personal
gain; a profession at the exercise of powers beneficial to
mankind. If, as in the era of wide free opportunity, we think of
free competitive self assertion as the highest good, lawyer and
grocer and farmer may seem to be freely competing with their
fellows in their calling in order each to acquire as much of the
world's good as he may within the allowed him by law. But the
member of a profession does not regard himself as in
competition with his professional brethren. He is not bartering
his services as is the artisan nor exchanging the products of his
skill and learning as the farmer sells wheat or corn. There
should be no such thing as a lawyers' or physicians' strike. The
best service of the professional man is often rendered for no
equivalent or for a trifling equivalent and it is his pride to do
what he does in a way worthy of his profession even if done
with no expectation of reward, This spirit of public service in
which the profession of law is and ought to be exercised is a
prerequisite of sound administration of justice according to law.
The other two elements of a profession, namely, organization
13
and pursuit of a learned art have their justification in that they
secure and maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in
the eyes of the public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and
petitioners advised to drop the names "SYCIP" and "OZAETA"
from their respective firm names. Those names may, however,
be included in the listing of individuals who have been partners
in their firms indicating the years during which they served as
such.
SO ORDERED.
G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee. 

SANTIAGO JO CHUNG, ET AL., partners, 

vs.PACIFIC COMMERCIAL COMPANY, ET AL., creditors-
appellants.
Following the presentation of an application to be adjudged an
insolvent by the "Sociedad Mercantil, Teck Seing & Co., Ltd.,"
the creditors, the Pacific Commercial Company, Piñol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed
a motion in which the Court was prayed to enter an order: "(A)
Declaring the individual partners as described in paragraph 5
parties to this proceeding; (B) to require each of said partners to
file an inventory of his property in the manner required by
section 51 of Act No. 1956; and (C) that each of said partners
be adjudicated insolvent debtors in this proceeding." The trial
judge first granted the motion, but, subsequently, on opposition
being renewed, denied it. It is from this last order that an appeal
was taken in accordance with section 82 of the Insolvency Law.
There has been laid before us for consideration and decision a
question of some importance and of some intricacy. The issue in
the case relates to a determination of the nature of the
mercantile establishment which operated under the name of
Teck Seing & co., Ltd., and this issue requires us to look into,
and analyze, the document constituting Teck Seing & Co., Ltd. It
reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang, mayor de edad
comerciante, vecino y residente del municipio de Tabogon
Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu
Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor de edad,
comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad comerciante,
vecino y residente del municipio de Cebu, Provincia de Cebu,
Islas Filipinas, y Jo Ybec, mayor de edad, comerciante, vecino y
residente del municipio de Jagna, Provincia de Bohol, Islas
Filipinas, hacemos constar por la presente, que constituimos y
formamos una sociedad mercantil limitada, bajo las leyes
vigentes en las Islas Filipinas y para ser registrada de acuerdo
con los reglamentos vigentes del Codigo de Comercio en
Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y
tendra su domicilio principal en la Calle Magallanes No. 94, de
la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.

Que el capital social sera de treinta mil pesos (P30,000)
moneda legal de las Islas Filipinas, dividido en cinco acciones
de a P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . .
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . .
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
Que la duracion de la sociedad sera la de seis años, a contar
de la fecha de esta escritura, pudiendo prorrogarse este tiempo
a discrecion unanime de todos los accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias
en general.
El administrador o administradores de la sociedad podran,
previa conformidad de los accionistas, establecer cuantas
sucursales o establecimientos considere necesarios para
facilitar sus negocios y el mayor desarrollo del comercio a que
se dedica la sociedad, verificando todas las operaciones que
crean convenientes para el fomento de su capital.
14
Que ambos administradores podran disponer de mil discientos
pesos (P1,200) moneda filipina, anualmente, para sus gastos
particulares, siendo dicha cantidad de P1,200 la que
corresponde a cada uno de dichos administradores, como
P6,000.00 emolumentos o salarios que se les asigna a cas uno, por sus
trabajos en la administracion de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de añola
6,000.00 gratificacion quese concedera a cada administrador, si los
negocios del año fueran boyantes y justifiquen la concesion de
6,000.00 una gratificacion especial, aparte del salario aqui dispuesto y
especificado.
6,000.00
Que pasado el termino de seis años, y es de la conveniencia de
los accionistas la continuacion del negocio de esta sociedad,
6,000.00 dicho termino sera prorrogado por igual numero de años, sin
necesidas del otorgamiento de ulteriores escrituras, quedando
30,000.00 la presente en vigor hasta el termino dispuesto por todos los
accionistas.
Que las diferencias que pudieran suscitarse entre los
accionistas, bien sea por razon de lo estipulado en esta en ella
comprendidos, se procurara arreglar entre los mismos amistosa
y extrajudicialmente, y si no se consiguiere un arreglo de este
modo, dichos accionistas nombraran un arbitro, cuya resolucion
estan todos obligados y por la presente se comprometen y se
obligan a acatarla en todas sus partes, renunciando ulteriores
recursos.
En cuyos terminos dejamos formalizada esta escritura de
sociedad mercantillimitada, y prometemos cumplirla fiel y
estrictamente segun los pactos que hemos establecido.

Las ganancias o perdidas que resultaren durante cada año
comercial, se distribuiran proporcionalmente entre los
accionistas, de acuerdo con el capital aportado por cada uno de
los mismos.
Las ganancias que resultaren en cada año comercial, si
resultaren algunas ganancias, no podran ser retiradas pors los
accionistas hasta dentro del termino de tres años a contar de la
fecha del primer balance anual del negocio, quedadno por tanto
estas ganancias en reserva, para ampliar el capital aportado
opor los accionistas y ampliar por tanto la esfera de accion
emprendida por la misma sociedad. Al pasar o expirar el
termino de tres años, cada accionista podra retirar o depositar
en poder de la sociedad, las ganancias que le debiera
corresponder durante dicho termino de tres años.
Que los accionistas no podran extraer ni disponer en ningun
tiempo cualesquiera cantidad o cantidades de la sociedad, que
haya sido aportado por los mismos, para atender sus gastos
particulares ni aun pagando redito alguno sobre la cantidad que
intenen disponer o extraer de dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr.
Vicente Jocson Jo, la administracion de la Compañia, quienes
podran usar indistintamente la firma social, quedando por
consiguiente autorizados amobs para hacer en nombre de ella
toda calse de operaciones, negocios y especulaciones
mercantiles, practicando judicial y extra-judicialment cuantos
actos se requieran para el bien de la sociedad, nombrar
procuradores o abogados para reclamaciones y cobro de
creditos y proponer ante los tribunales las demandas,
convenios, transacciones y excepciones procdentes. En caso
de ausencia, enfermedad o cualquier otro impedimento del
accionista administrador Sr. Lim Yogsing, este podra conferir
poder general o especial al accionista que crea conveniente
para que en union del administrador auxiliar Sr. Vicente Jocson
Jo, pudieran ambos administrar convenientemente los negocios
de la sociedad. Que los administradores podran tener los
empleados necesarios para el mejor que debieran percibir
dichos empleados por servicios rendidos a la sociedad.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil
novecientos diez y nueve.
(Fdos.) "LIM YOGSING

"Jo YBec por Ho Seng Sian

"SANTIAGO JO CHUNG CANG

"GO TAYCO

"YAP GUECO
Firnando en presencia de:

(Fdos.) "ATILANO LEYSON

"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA

"ISLAS FILIPINAS 

"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia antes mencionada,
I.F., hoy 31 de octubre de 1919, A.D., ante mi, Notario Publico
que subscribe, comprecieron personalmente Santiago Jo
Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec,
representado este ultimo por Ho Seng Sian, segun autorizacion
hecha en telegrama de fecha 27 de septiembre de 1919 que se
me ha presentado en este mismo acto, de quienes doy fe de
que les conozco por ser las mismas personas que otorgaron el
preinserto documento, ratificando ant emi su contenido y
manifestando ser el mismo un acto de su libre y voluntario
otorgamiento. El Sr. Santiago Jo Chung Cang me exhibio su
cedula personal expedida en Cebu, Cebu, I.F. el dia 19 de
septiembre de 1919 bajo el No. H77742, Go Tayco tambien me
exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de
octubre de 1919 bajo el No. G2042490, Yap Gueco tambien me
exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero
de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio
la suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de
1919 bajo el No. F1455662, y Ho Seng Sian representante de
Jo Ybec, me exhibio su cedula personal expedida en Cebu,
Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.
Ante mi,
 15
(Fdo.) "F.V.ARIAS
 partner contributes in cash, credits, or property, stating the
"Notario Publico
 value given the latter or the basis on which their appraisement
"Hasta el 1.º de enero de 1920 is to be made; the duration of the copartnership; and the
amounts which, in a proper case, are to be given to each
"Asiento No. 157
 managing partner annually for his private expenses, while the
Pagina No. 95 de mi
 succeeding article of the Code provides that the general
Registro Notarial
 copartnership must transact business under the name of all its
Serie 1919
 members, of several of them, or of one only. Turning to the
Libro 2.º document before us, it will be noted that all of the requirements
of the Code have been met, with the sole exception of that
relating to the composition of the firm name. We leave
Presentado a las diez y cuarenta y tres minutos de la mañana consideration of this phase of the case for later discussion.
de hoy, segun el asiento No. 125, pagina 9 del Tomo 1.º del
Libro Diario. Cebu, 11 de febrero de 1920.
The remaining possibility is the revised contention of counsel for
the petitioners to the effect that Teck Seing & Co., Ltd., is "una
(Fdo.) "QUIRICO ABETO
 sociedad mercantil "de facto" solamente" (only a de
[SELLO] "Registrador Mercantil Ex-Officio" facto commercial association), and that the decision of the
Supreme court in the case of Hung-Man-Yoc vs. Kieng-Chiong-
Inscrito el documento que preced al folio 84 hoja No. 188, Seng [1906], 6 Phil., 498), is controlling. It was this argument
inscripcion 1.a del Tomo 3.º del Libro Registro de Sociedades which convinced the trial judge, who gave effect to his
Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta understanding of the case last cited and which here must be
pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo given serious attention.
Administrativo.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra,
(Fdo.) "QUIRICO ABETO
 discloses that the firm Kieng-Chiong-Seng was not organized by
[SELLO] "Registrador Mercantil Ex-Officio" means of any public document; that the partnership had not
been recorded in the mercantile registry; and that Kieng-
Chiong-Seng was not proven to be the firm name, but rather the
Proceeding by process of elimination, it is self-evident that Teck designation of the partnership. The conclusion then was, that
Seing & Co., Ltd., is not a corporation. Neither is it contended the partnership in question was merely de facto and that,
by any one that Teck Seing & Co., Ltd., is accidental partnership therefore, giving effect to the provisions of article 120 of the
denominated cuenta en participacion (joint account Code of Commerce, the right of action was against the persons
association). in charge of the management of the association.

Counsel for the petitioner and appellee described his client in
once place in his opposition to the motion of the creditors
as "una verdadera sociedad anonima" (a true sociedad
anonima). The provisions of the Code of Commerce relating
to sociedades anonimas were, however, repealed by section
191 of the Corporation Law (Act No. 1459), with the exceptions
the sociedades anonimas lawfully organized at the time of the
passage of the Corporation Law were recognized, which is not
our case.
The document providing for the partnership contract purported
to form "una sociedad mercantil limitada," and counsel for the
petitioner's first contention was that Teck Seing & Co., Ltd., was
not "una sociedad regular colectiva, ni siquiera comanditaria,
sino una sociedad mercantil limitada." Let us see if the
partnership contract created a "sociedad en comandita," or, as it
is known in English, and will hereafter be spoken of, "a limited
partnership."
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, side by side with the facts before us, a marked
difference is at once disclosed. In the cited case, the
organization of the partnership was not evidenced by any public
document; here, it is by a public document. In the cited case,
the partnership naturally could not present a public instrument
for record in the mercantile registry; here, the contract of
partnership has been duly registered. But the two cases are
similar in that the firm name failed to include the name of any of
the partners.
We come then to the ultimate question, which is, whether we
should follow the decision in Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, or whether we should differentiate the two cases,
holding Teck Seing & Co., Ltd., a general copartnership,
notwithstanding the failure of the firm name to include the name
of one of the partners. Let us now notice this decisive point in
the case.

To establish a limited partnership there must be, at least, one
general partner and the name of the least one of the general
partners must appear in the firm name. (Code of Commerce,
arts. 122 [2], 146, 148.) But neither of these requirements have
been fulfilled. The general rule is, that those who seek to avail
themselves of the protection of laws permitting the creation of
limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied with
the law of its creation is not considered a limited partnership at
all, but a general partnership in which all the members are
liable. (Mechem, Elements of Partnership, p. 412; Gilmore,
Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the
partnership contract established a general partnership.
Article 125 of the Code of Commerce provides that the articles
of general copartnership must estate the names, surnames, and
domiciles of the partners; the firm name; the names, and
surnames of the partners to whom the management of the firm
and the use of its signature is instrusted; the capital which each
Article 119 of the Code of Commerce requires every commercial
association before beginning its business to state its article,
agreements, and conditions in a public instrument, which shall
be presented for record in the mercantile registry. Article 120,
next following, provides that the persons in charge of the
management of the association who violate the provisions of the
foregoing article shall be responsible in solidum to the persons
not members of the association with whom they may have
transacted business in the name of the association. Applied to
the facts before us, it would seem that Teck Seing & Co., Ltd.
has fulfilled the provisions of article 119. Moreover, to permit the
creditors only to look to the person in charge of the
management of the association, the partner Lim Yogsing, would
not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to
the general copartnership transacting business under the name
of all its members or of several of them or of one only, is wisely
included in our commercial law. It would appear, however, that
this provision was inserted more for the protection of the
creditors than of the partners themselves. A distinction could

well be drawn between the right of the alleged partnership to
institute action when failing to live up to the provisions of the
law, or even the rights of the partners as among themselves,
and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to
make it a partnership de jure.
The civil law and the common law alike seem to point to a
difference between the rights of the partners who have failed to
comply with the law and the rights of third persons who have
dealt with the partnership.
The supreme court of Spain has repeatedly held that
notwithstanding the obligation of the members to register the
articles of association in the commercial registry, agreements
containing all the essential requisites are valid as between the
contracting parties, whatever the form adopted, and that, while
the failure to register in the commercial registry necessarily
precludes the members from enforcing rights acquired by them
against third persons, such failure cannot prejudice the rights of
third persons. (See decisions of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.) The same
reasoning would be applicable to the less formal requisite
pertaining to the firm name.
The common law is to the same effect. The State of Michigan
had a statute prohibiting the transaction of business under an
assumed name or any other than the real name of the individual
conducting the same, unless such person shall file with the
county clerk a certificate setting forth the name under which the
business is to be conducted and the real name of each of the
partners, with their residences and post-office addresses, and
making a violation thereof a misdemeanor. The supreme Court
of Michigan said:
The one object of the act is manifestly to protect the public
against imposition and fraud, prohibiting persons from
concealing their identity by doing business under an assumed
name, making it unlawful to use other than their real names in
transacting business without a public record of who they are,
available for use in courts, and to punish those who violate the
prohibition. The object of this act is not limited to facilitating the
collection of debts, or the protection of those giving credit to
persons doing business under an assumed name. It is not
unilateral in its application. It applies to debtor and creditor,
contractor and contractee, alike. Parties doing business with
those acting under an assumed name, whether they buy or sell,
have a right, under the law, to know who they are, and who to
hold responsible, in case the question of damages for failure to
perform or breach of warranty should arise.
The general rule is well settled that, where statutes enacted to
protect the public against fraud or imposition, or to safeguard
the public health or morals, contain a prohibition and impose a
penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects
only money interests, we think it should be construed as
rendering contracts made in violation of it unlawful and
unforceable at the instance of the offending party only, but not
as designed to take away the rights of innocent parties who may
have dealt with the offenders in ignorance of their having
violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386;
Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch
Scholes & Co. vs. Hernandez [1903], 1 Phil., 705), contains the
following pertinent observations:
Another case may be supposed. A partnership is organized for
commercial purposes. It fails to comply with the requirements of
article 119. A creditor sues the partnership for a debt contracted
by it, claiming to hold the partners severally. They answer that
their failure to comply with the Code of Commerce makes them
16
a civil partnership and that they are in accordance with article
1698 of the Civil Code only liable jointly. To allow such liberty of
action would be to permit the parties by a violation of the Code
to escape a liability which the law has seen fit to impose upon
persons who organized commercial partnership; "Because it
would be contrary to all legal principles that the nonperformance
of a duty should redound to the benefit of the person in default
either intentional or unintentional." (Mercantile Law, Eixala,
fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio,
includes the following comment after articles 121 and 126 of the
Code:
From the decisions cited in this and in the previous comments,
the following is deduced: 1st. Defects in the organization cannot
affect relations with third persons. 2d. Members who contract
with other persons before the association is lawfully organized
are liable to these persons. 3d. The intention to form an
association is necessary, so that if the intention of mutual
participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no
association. 4th. An association, the articles of which have not
been registered, is valid in favor of third persons. 5th. The
private pact or agreement to form a commercial association is
governed not by the commercial law but by the civil law. 6th.
Secret stipulations expressed in a public instrument, but not
inserted in the articles of association, do not affect third
persons, but are binding on the parties themselves. 7th. An
agreement made in a public instrument, other than the articles
of association, by means of which one of the partners
guarantees to another certain profits or secures him from
losses, is valid between them, without affecting the association.
8th. Contracts entered into by commercial associations
defectively organized are valid when they are voluntarily
executed by the parties, if the only controversy relates to
whether or not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this
name, the new being is distinguished from others, its sphere of
action fixed, and the juridical personality better determined,
without constituting an exclusive character of the general
partnership to such an extent as to serve the purpose of giving
a definition of said kind of a mercantile partnership, as is the
case in our Code.
Having in mind that these partnerships are prevailingly of a
personal character, article 126 says that they must transact
business under the name of all its members, of some of them,
or of one only, the words "and company" to be added in the
latter two cases.
It is rendered impossible for the general partnership to adopt a
firm name appropriate to its commercial object; the law wants to
link, and does link, the solidary and unlimited responsibility of
the members of this partnership with the formation of its name,
and imposes a limitation upon personal liberty in its selection,
not only by prescribing the requisites, but also by prohibiting
persons not members of the company from including their
names in its firm name under penalty of civil solidary
responsibility.
Of course, the form required by the Code for the adoption of the
firm name does not prevent the addition thereto of any other title
connected with the commercial purpose of the association. The
reader may see our commentaries on the mercantile registry
about the business names and firm names of associations, but
it is proper to establish here that, while the business name may
be alienated by any of the means admitted by the law, it seems
impossible to separate the firm names of general partnerships

from the juridical entity for the creation of which it was formed.
(Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck
Seing & Co., Ltd." does not contain the name of all or any of the
partners as prescribed by the Code of Commerce prevents the
creation of a general partnership, Professor Jose A. Espiritu,
as amicus curiæ, states:
My opinion is that such a fact alone cannot and will not be a
sufficient cause of preventing the formation of a general
partnership, especially if the other requisites are present and
the requisite regarding registration of the articles of association
in the Commercial Registry has been complied with, as in the
present case. I do not believe that the adoption of a wrong
name is a material fact to be taken into consideration in this
case; first, because the mere fact that a person uses a name
not his own does not prevent him from being bound in a
contract or an obligation he voluntarily entered into; second,
because such a requirement of the law is merely a formal and
not necessarily an essential one to the existence of the
partnership, and as long as the name adopted sufficiently
identity the firm or partnership intended to use it, the acts and
contracts done and entered into under such a name bind the
firm to third persons; and third, because the failure of the
partners herein to adopt the correct name prescribed by law
cannot shield them from their personal liabilities, as neither law
nor equity will permit them to utilize their own mistake in order to
put the blame on third persons, and much less, on the firm
creditors in order to avoid their personal possibility.
The legal intention deducible from the acts of the parties
controls in determining the existence of a partnership. If they
intend to do a thing which in law constitutes a partnership, they
are partners, although their purpose was to avoid the creation of
such relation. Here, the intention of the persons making up Teck
Seing & co., Ltd. was to establish a partnership which they
erroneously denominated a limited partnership. If this was their
purpose, all subterfuges resorted to in order to evade liability for
possible losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity
under a designation distinct from that of any of the members of
the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the
members of the general copartnership liable personally and in
solidum with all their property for the results of the transactions
made in the name and for the account of the partnership.
Section 51 of the Insolvency Law, likewise, makes all the
property of the partnership and also all the separate property of
each of the partners liable. In other words, if a firm be insolvent,
but one or more partners thereof are solvent, the creditors may
proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing
the property of the partners. (Brandenburg of Bankcruptcy, sec.
108; De los Reyes vs. Lukban and Borja [1916], 35 Phil., 757;
Involuntary Insolvency of Campos Rueda & Co. vs. Pacific
Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found
in the document hereinbefore quoted established a general
partnership or, to be more exact, a partnership as this word is
used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record
shall be returned to the court of origin for further proceedings
pursuant to the motion presented by the creditors, in conformity
with the provisions of the Insolvency Law. Without special
findings as to the costs in this instance, it is ordered.
17
ART. 1816
[G.R. No. L-22493. July 31, 1975.]
ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED
PIONEERS GENERAL CONSTRUCTION COMPANY, ET
AL, Defendants. BENJAMIN C. DACO, Defendant-Appellant.
SYNOPSIS
The defendant company, a general partnership, purchased from
Island Sales, Inc. a motor vehicle, executing for that purpose a
promissory note for the entire price, payable in twelve monthly
installments. Having failed to receive the third installment, Island
Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later
dismissed insofar as one of the partners was concerned. After
trial, judgment was entered sentencing the defendant to pay the
sum due, with interest, and expressly stating that the four of the
five partners would pay in case the company has no properties
with which to satisfy judgment. One of the partners appealed
claiming that the liability of each partner should not exceed 1/5
of the obligation due inasmuch as there are five partners in the
company.
The Supreme Court ruled that under Art. 1816 of the Civil Code,
the liability of partners shall be pro-rata; that the dismissal of the
complaint to favor one of the general partners results in the
condonation of the debt of that partner’s individual share and
that appellant’s share in the obligation shall not be increased
thereby but shall be limited to 1/5 of the obligation of defendant
company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF
GENERAL PARTNERS, PRO-RATA; CONDONATION OF
INDIVIDUAL LIABILITY DOES NOT AFFECT THE OTHER’S
SHARE IN THE OBLIGATION. — Where there was five general
partners when the promissory note in question executed for and
in behalf of the partnership, and the complaint against one of
them was dismissed upon motion of the plaintiff, the general
partner’s share in the obligation remains limited to only 1/5 of
the amount due and demandable, their liability being pro-rata.
DECISION 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:jgc:chanrobles.com.ph
"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."cralaw
virtua1aw library
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 4 . Hence, 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:jgc:chanrobles.com.ph
"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."cralaw virtua1aw
library
In the case of Co-Pitco v. Yulo (8 Phil. 544) this Court
held:jgc:chanrobles.com.ph
"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
1698 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."cralaw virtua1aw library
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.
18
G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner, vs.

COURT OF APPEALS,CELESTINO GALAN TROPICAL
COMMERCIAL COMPANY and RAMON PONS, respondents.
In this petition for certiorari, the petitioner seeks to annul and set
added the decision of the Court of Appeals affirming the
existence of a partnership between petitioner 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 excluded from the liabilities of the
partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum
of money and damages against respondents Celestino Galan,
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons,
alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or
expecting any consideration from Galan although the latter was
casually named as partner in the contract; that by virtue of his
having introduced the petitioner to the employing company
(Tropical). Galan would receive some kind of compensation in
the form of some percentages or commission; that Tropical,
under the terms of the contract, agreed to give petitioner the
amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days
during the construction to make a total sum of P25,000.00; 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 in getting petitioner's indorsement on
the same check persuading the latter that the 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 him by Galan but through later
manipulations, respondent Pons succeeded in 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 and Industrial Bank (PCIB) placing
the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay' for
construction materials, the payment of which should have been
made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it
prior to the March 16, 1967 deadline;that because of the
unauthorized disbursement by respondents Tropical and Pons
of the sum of P13,000.00 to Galan petitioner demanded that
said amount be paid to him by respondents under the terms of
the written contract between the petitioner and respondent
company.
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and respondents
agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino
Galan and Elmo Muñasque; and
(2) Whether or not there existed a justifiable cause on the part
of respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and
Blue Diamond Glass Palace were allowed to intervene, both
having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion
of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay
jointly and severally the intervenors Cebu and Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.
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
19
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
20
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.
G.R. No. L-26937 October 5, 1927
PHILIPPINE NATIONAL BANK, plaintiff-appellee, 

vs.SEVERO EUGENIO LO, ET AL., defendants. 
 After the hearing, the court found:
SEVERIO EUGENIO LO, NG KHEY LING and YEP
SENG, appellants.
On September 29, 1916, the appellants Severo Eugenio Lo and
Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun,
On Yem Ke Lam and Co Sieng Peng formed a commercial
partnership under the name of "Tai Sing and Co.," with a capital
of P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the partnership was to
last for five years from after the date of its organization, and that
its purpose was to do business in the City of Iloilo, Province of
Iloilo, or in any other part of the Philippine Islands the partners
might desire, under the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods, and native, as well
as Chinese and Japanese, products, and to carry on such
business and speculations as they might consider profitable.
One of the partners, J. A. Say Lian Ping was appointed general
manager of the partnership, with the appointed general
manager of the partnership, with the powers specified in said
articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a
power of attorney (Exhibit C-1) in favor of A. Y. Kelam,
authorizing him to act in his stead as manager and administrator
of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of
P8,000 in current account from the plaintiff bank. (Exhibit C). As
security for said loan, he mortgaged certain personal property of
"Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A.
Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed a
chattel mortgage in favor of plaintiff bank as security for a loan
of P20,000 with interest (Exhibit D). This mortgage was again
renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact
of "Tai Sing & Co., executed another chattel mortgage for the
said sum of P20,000 in favor of plaintiff bank. (Exhibit E.)
According to this mortgage contract, the P20,000 loan was to
earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam
and Ng Khey Ling, the latter represented by M. Pineda Tayenko,
executed a power of attorney in favor of Sy Tit by virtue of which
Sy Tit, representing "Tai Sing & Co., obtained a credit of
P20,000 from plaintiff bank on January 7, 1921, executing a
chattel mortgage on certain personal property belonging to "Tai
Sing & Co.
Defendants had been using this commercial credit in a current
account with the plaintiff bank, from the year 1918, to May 22,
1921, and the debit balance of this account, with interest to
December 31, 1924, is as follows:
21
TAI SING & CO.
To your outstanding account (C. O. D.)
with us on June 30, 1922 P16,518.74
Interest on same from June 30, 1922 to
December 31,1924, at 9 per cent per annum 3,720.86
Total 20, 239.00
=========
This total is the sum claimed in the complaint, together with
interest on the P16,518.74 debt, at 9 per cent per annum from
January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai
Sing & Co. was not a general partnership, and that the
commercial credit in current account which "Tai Sing & Co.
obtained from the plaintiff bank had not been authorized by the
board of directors of the company, nor was the person who
subscribed said contract authorized to make the same, under
the article of copartnership. The other defendants, Yap Sing and
Ng Khey Ling, answered the complaint denying each and every
one of the allegations contained therein.
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng
Co., Sieng Peng indebted to plaintiff Philippine National Bank in
sum of P22,595.26 to July 29, 1926, with a daily interest of
P4.14 on the balance on account of the partnership "Tai Sing &
Co. for the sum of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August
31, 1926, and from the date, P4.14 daily interest on the
principal; and
(3) The defendants are furthermore ordered to pay the costs of
the action.1awph!l.net
Defendants appealed, making the following assignments of
error:
I. The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.
II. The trial court erred in finding that the partnership agreement
of "Tai Sing & Co., (Exhibit A), is in accordance with the
requirements of article 125 of the Code of Commerce for the
organization of a regular partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's
death in China in November, 1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian
Ping cannot extinguish the defendants' obligation to the plaintiff
bank, because the last debt incurred by the commercial
partnership "Tai Sing & Co., was that evidence by Exhibit F,
signed by Sy Tit as attorney-in-fact of the members of "Tai Sing
& Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not
able to collect its credit from the goods of "Tai Sing & Co., given
as security therefor through its own fault and negligence; and
that the action brought by plaintiff is a manifest violation of
article 237 of the present Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai
Sing & Co. with plaintiff bank shows a debit balance of
P16,518.74, which in addition to interest at 9 per cent per
annum from July 29, 1926, amount to P16,595.26, with a daily
interest of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the defendants appellants to
pay jointly and severally to the Philippine National Bank the sum

of P22,727.74 up to August 31, 1926, and interest on
P16,518.74 from that date until fully paid, with the costs of the
action.
VIII. The trial court erred in denying the motion for a new trial
filed by defendants-appellants.
Appellants admit, and it appears from the context of Exhibit A,
that the defendant association formed by the defendants is a
general partnership, as defined in article 126 of the Code
Commerce. This partnership was registered in the mercantile
register of the Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm name the
names of all of the partners, of several of them, or only one of
them, to be followed in the last two cases, by the words "and to
be followed in the last two cases, by the words "and company"
the partners agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-
Sing vs. Kieng-Chiong-Seng, cited by appellants, this court held
that, as the company formed by defendants had existed in fact,
though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of
the plaintiff, the same must be paid by someone. This applies
more strongly to the obligations contracted by the defendants,
for they formed a partnership which was registered in the
mercantile register, and carried on business contracting debts
with the plaintiff bank. The anomalous adoption of the firm name
above noted does not affect the liability of the general partners
to third parties under article 127 of the Code of Commerce. And
the Supreme Court so held in the case of Jo Chung Cang vs.
Pacific Commercial Co., (45 Phil., 142), in which it said that the
object of article 126 of the Code of Commerce in requiring a
general partnership to transact business under the name of all
its members, of several of them, or of one only, is to protect the
public from imposition and fraud; and that the provision of said
article 126 is for the protection of the creditors rather than of the
partners themselves. And consequently the doctrine was
enunciated that the law must be unlawful and unenforceable
only as between the partners and at the instance of the violating
party, but not in the sense of depriving innocent parties of their
rights who may have dealt with the offenders in ignorance of the
latter having violated the law; and that contracts entered into by
commercial associations defectively organized are valid when
voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore,
the defendants cannot invoke in their defense the anomaly in
the firm name which they themselves adopted.
As to the alleged death of the manager of the company, Say
Lian Ping, before the attorney-in-fact Ou Yong Kelam executed
Exhibits C, D and E, the trial court did not find this fact proven at
the hearing. But even supposing that the court had erred, such
an error would not justify the reversal of the judgment, for two
reasons at least: (1) Because Ou Yong Kelam was a partner
who contracted in the name of the partnership, without any
objection of the other partners; and (2) because it appears in
the record that the appellant-partners Severo Eugenio Lo, Ng
Khey Ling and Yap Seng, appointed Sy Tit as manager, and he
obtained from the plaintiff bank the credit in current account, the
debit balance of which is sought to be recovered in this action.
Appellants allege that such of their property as is not included in
the partnership assets cannot-be seized for the payment of the
debts contracted by the partnership until after the partnership
property has been exhausted. The court found that the
partnership property described in the mortgage Exhibit F no
loner existed at the time of the filing of the herein complaint nor
has its existence been proven, nor was it offered to the plaintiff
for sale. We find no just reason to reverse this conclusion of the
trial court, and this being so, it follows that article 237 of the
Code of Commerce, invoked by the appellant, can in no way
have any application here.
22
Appellants also assign error to the action of the trial court in
ordering them to pay plaintiff, jointly and severally, the sums
claimed with 9 per cent interest on P16,518.74, owing from
them.
The judgment against the appellants is in accordance with
article 127 of the Code of Commerce which provides that all the
members of a general partnership, be they managing partners
thereof or not, shall be personally and solidarily liable with all
their property, for the results of the transactions made in the
name and for the account of the partnership, under the
signature of the latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the
credit in current account sued on in this case as been renewed
by the parties in such a way that while it appears in the
mortgage Exhibit D executed on March 25, 1919 by the
attorney-in-fact Ou Yong Kelam that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on April
16, 1920, Exhibit E, it appears that the P20,000 would earn 9
per cent interest per annum. The credit was renewed in
January, 1921, and in the deed of pledge, Exhibit F, executed by
"Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums
received by the partnership, not to exceed P20,000 with interest
and collection fees. There can be no doubt that the parties
agreed upon the rate of interest fixed in the document Exhibit E,
namely 9 per cent per annum.
The judgment appealed from is in accordance with the law, and
must therefore be, as it is hereby, affirmed with costs against
the appellants. So ordered.
G.R. No. 206147
MICHAEL C. GUY, Petitioner, vs.ATTY. GLENN C.
GACOTT, Respondent.
Before this Court is a petition for review on certiorari under Rule
45 of the Rules of Court filed by petitioner Michael C.
Guy (Guy), assailing the June 25, 2012 Decision1 and the
March 5, 2013 Resolution2 of the Court of Appeals (CA) in CA-
G.R. CV No. 94816, which affirmed the June 28, 20093 and
February 19, 20104 Orders of the Regional Trial Court, Branch
52, Puerto Princesa City, Palawan (RTC), in Civil Case No.
3108, a case for damages. The assailed RTC orders denied
Guy's Motion to Lift Attachment Upon Personalty5 on the ground
that he was not a judgment debtor.
The Facts
It appears from the records that on March 3, 1997, Atty. Glenn
Gacott (Gacott) from Palawan purchased two (2) brand new
transreceivers from Quantech Systems Corporation (QSC) in
Manila through its employee Rey
Medestomas (Medestomas), amounting to a total of
P18,000.00. On May 10, 1997, due to major defects, Gacott
personally returned the transreceivers to QSC and requested
that they be replaced. Medestomas received the returned
transreceivers and promised to send him the replacement units
within two (2) weeks from May 10, 1997.
Time passed and Gacott did not receive the replacement units
as promised. QSC informed him that there were no available
units and that it could not refund the purchased price. Despite
several demands, both oral and written, Gacott was never given
a replacement or a refund. The demands caused Gacott to incur
expenses in the total amount of P40,936.44. Thus, Gacott filed
a complaint for damages. Summons was served upon QSC and
Medestomas, afterwhich they filed their Answer, verified by
Medestomas himself and a certain Elton Ong (Ong). QSC and
Medestomas did not present any evidence during the trial.6

In a Decision,7 dated March 16, 2007, the RTC found that the
two (2) transreceivers were defective and that QSC and
Medestomas failed to replace the same or return Gacott's
money. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendants to jointly and severally pay
plaintiff the following:
1. Purchase price plus 6% per annum from March 3, 1997 up to
and until fully paid ------------ P 18,000.00
2. Actual Damages ———————————————40,000.00
3. Moral Damages ———————————————75,000.00
4. Corrective Damages ————————————100,000.00
5. Attorney’s Fees ———————————————60,000.00
6. Costs.
SO ORDERED.
The decision became final as QSC and Medestomas did not
interpose an appeal. Gacott then secured a Writ of Execution,
8 dated September 26, 2007.
During the execution stage, Gacott learned that QSC was not a
corporation, but was in fact a general partnership registered
with the Securities and Exchange Commission (SEC). In the
articles of partnership,9 Guy was appointed as General
Manager of QSC.
To execute the judgment, Branch Sheriff Ronnie L.
Felizarte (Sheriff Felizarte) went to the main office of the
Department of Transportation and Communications, Land
Transportation Office (DOTC-LTO), Quezon City, and verified
whether Medestomas, QSC and Guy had personal properties
registered therein.10 Upon learning that Guy had vehicles
registered in his name, Gacott instructed the sheriff to proceed
with the attachment of one of the motor vehicles of Guy based
on the certification issued by the DOTC-LTO.11
On March 3, 2009, Sheriff Felizarte attached Guy’s vehicle by
virtue of the Notice of Attachment/Levy upon
Personalty12 served upon the record custodian of the DOTC-
LTO of Mandaluyong City. A similar notice was served to Guy
through his housemaid at his residence.
Thereafter, Guy filed his Motion to Lift Attachment Upon
Personalty, arguing that he was not a judgment debtor and,
therefore, his vehicle could not be attached.13 Gacott filed an
opposition to the motion.
The RTC Order
On June 28, 2009, the RTC issued an order denying Guy’s
motion. It explained that considering QSC was not a
corporation, but a registered partnership, Guy should be treated
as a general partner pursuant to Section 21 of the Corporation
Code, and he may be held jointly and severally liable with QSC
and Medestomas. The trial court wrote:
All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for
all debts, liabilities and damages incurred or arising as a result
thereof x x x. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership x x x, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the
partnership is liable therefore to the same extent as the partner
so acting or omitting to act. All partners are liable solidarily with
the partnership for everything chargeable to the partnership
under Article 1822 and 1823.14
Accordingly, it disposed:
23
WHEREFORE, with the ample discussion of the matter, this
Court finds and so holds that the property of movant Michael
Guy may be validly attached in satisfaction of the liabilities
adjudged by this Court against Quantech Co., the latter being
an ostensible Corporation and the movant being considered by
this Court as a general partner therein in accordance with the
order of this court impressed in its decision to this case
imposing joint and several liability to the defendants. The Motion
to Lift Attachment Upon Personalty submitted by the movant is
therefore DENIED for lack of merit.
SO ORDERED.15
Not satisfied, Guy moved for reconsideration of the denial of his
motion. He argued that he was neither impleaded as a
defendant nor validly served with summons and, thus, the trial
court did not acquire jurisdiction over his person; that under
Article 1824 of the Civil Code, the partners were only solidarily
liable for the partnership liability under exceptional
circumstances; and that in order for a partner to be liable for the
debts of the partnership, it must be shown that all partnership
assets had first been exhausted.16
On February 19, 2010, the RTC issued an order17denying his
motion.
The denial prompted Guy to seek relief before the CA.
The CA Ruling
On June 25, 2012, the CA rendered the assailed decision
dismissing Guy’s appeal for the same reasons given by the trial
court. In addition thereto, the appellate court stated:
We hold that Michael Guy, being listed as a general partner of
QSC during that time, cannot feign ignorance of the existence of
the court summons. The verified Answer filed by one of the
partners, Elton Ong, binds him as a partner because the Rules
of Court does not require that summons be served on all the
partners. It is sufficient that service be made on the "president,
managing partner, general manager, corporate secretary,
treasurer or in-house counsel." To Our mind, it is immaterial
whether the summons to QSC was served on the theory that it
was a corporation. What is important is that the summons was
served on QSC’s authorized officer xxx.18
The CA stressed that Guy, being a partner in QSC, was bound
by the summons served upon QSC based on Article 1821 of the
Civil Code. The CA further opined that the law did not require a
partner to be actually involved in a suit in order for him to be
made liable. He remained “solidarily liable whether he
participated or not, whether he ratified it or not, or whether he
had knowledge of the act or omission.”19
Aggrieved, Guy filed a motion for reconsideration but it was
denied by the CA in its assailed resolution, dated March 5,
2013.
Hence, the present petition raising the following
ISSUE
THE HONORABLE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN HOLDING THAT PETITIONER GUY
IS SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR
DAMAGES ARISING FROM THE BREACH OF THE
CONTRACT OF SALE WITH RESPONDENT GACOTT.20
Guy argues that he is not solidarily liable with the partnership
because the solidary liability of the partners under Articles 1822,
1823 and 1824 of the Civil Code only applies when it stemmed
from the act of a partner. In this case, the alleged lapses were

not attributable to any of the partners. Guy further invokes
Article 1816 of the Civil Code which states that the liability of the
partners to the partnership is merely joint and subsidiary in
nature.
In his Comment,21 Gacott countered, among others, that
because Guy was a general and managing partner of QSC, he
could not feign ignorance of the transactions undertaken by
QSC. Gacott insisted that notice to one partner must be
considered as notice to the whole partnership, which included
the pendency of the civil suit against it.
In his Reply,22 Guy contended that jurisdiction over the person
of the partnership was not acquired because the summons was
never served upon it or through any of its authorized office. He
also reiterated that a partner’s liability was joint and subsidiary,
and not solidary.
The Court’s Ruling
The petition is meritorious.
The service of summons was flawed; voluntary appearance
cured the defect
Jurisdiction over the person, or jurisdiction in personam – the
power of the court to render a personal judgment or to subject
the parties in a particular action to the judgment and other
rulings rendered in the action – is an element of due process
that is essential in all actions, civil as well as criminal, except in
actions in rem or quasi in rem.23Jurisdiction over the person of
the plaintiff is acquired by the mere filing of the complaint in
court. As the initiating party, the plaintiff in a civil action
voluntarily submits himself to the jurisdiction of the court. As to
the defendant, the court acquires jurisdiction over his person
either by the proper service of the summons, or by his voluntary
appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil
Procedure, when the defendant is a corporation, partnership or
association organized under the laws of the Philippines with a
juridical personality, the service of summons may be made on
the president, managing partner, general manager, corporate
secretary, treasurer, or in-house counsel. Jurisprudence is
replete with pronouncements that such provision provides
an exclusive enumeration of the persons authorized to receive
summons for juridical entities.25
The records of this case reveal that QSC was never shown to
have been served with the summons through any of the
enumerated authorized persons to receive such, namely:
president, managing partner, general manager, corporate
secretary, treasurer or in-house counsel. Service of summons
upon persons other than those officers enumerated in
Section 11 is invalid. Even substantial compliance is not
sufficient service of summons.26 The CA was obviously
mistaken when it opined that it was immaterial whether the
summons to QSC was served on the theory that it was a
corporation.27
Nevertheless, while proper service of summons is necessary to
vest the court jurisdiction over the defendant, the same is
merely procedural in nature and the lack of or defect in the
service of summons may be cured by the defendant’s
subsequent voluntary submission to the court’s jurisdiction
through his filing a responsive pleading such as an answer. In
this case, it is not disputed that QSC filed its Answer despite the
defective summons. Thus, jurisdiction over its person was
acquired through voluntary appearance.
A partner must be separately and distinctly impleaded before he
can be bound by a judgment
24
The next question posed is whether the trial court’s jurisdiction
over QSC extended to the person of Guy insofar as holding him
solidarily liable with the partnership. After a thorough study of
the relevant laws and jurisprudence, the Court answers in the
negative.
Although a partnership is based on delectus personae or mutual
agency, whereby any partner can generally represent the
partnership in its business affairs, it is non sequitur that a suit
against the partnership is necessarily a suit impleading each
and every partner. It must be remembered that a partnership is
a juridical entity that has a distinct and separate personality
from the persons composing it.28
In relation to the rules of civil procedure, it is elementary that a
judgment of a court is conclusive and binding only upon the
parties and their successors-in-interest after the
commencement of the action in court.29 A decision rendered on
a complaint in a civil action or proceeding does not bind or
prejudice a person not impleaded therein, for no person shall be
adversely affected by the outcome of a civil action or
proceeding in which he is not a party.30The principle that a
person cannot be prejudiced by a ruling rendered in an action or
proceeding in which he has not been made a party conforms to
the constitutional guarantee of due process of law.31
In Muñoz v. Yabut, Jr.,32 the Court declared that a person not
impleaded and given the opportunity to take part in the
proceedings was not bound by the decision declaring as null
and void the title from which his title to the property had been
derived. The effect of a judgment could not be extended to non-
parties by simply issuing an alias writ of execution against them,
for no man should be prejudiced by any proceeding to which he
was a stranger.
In Aguila v. Court of Appeals,33 the complainant had a cause of
action against the partnership. Nevertheless, it was the partners
themselves that were impleaded in the complaint. The Court
dismissed the complaint and held that it was the partnership,
not its partners, officers or agents, which should be impleaded
for a cause of action against the partnership itself. The Court
added that the partners could not be held liable for the
obligations of the partnership unless it was shown that the legal
fiction of a different juridical personality was being used for
fraudulent, unfair, or illegal purposes.34
Here, Guy was never made a party to the case. He did not have
any participation in the entire proceeding until his vehicle was
levied upon and he suddenly became QSC’s “co-defendant
debtor” during the judgment execution stage. It is a basic
principle of law that money judgments are enforceable only
against the property incontrovertibly belonging to the judgment
debtor.35 Indeed, the power of the court in executing judgments
extends only to properties unquestionably belonging to the
judgment debtor alone. An execution can be issued only against
a party and not against one who did not have his day in court.
The duty of the sheriff is to levy the property of the judgment
debtor not that of a third person. For, as the saying goes, one
man's goods shall not be sold for another man's debts.36
In the spirit of fair play, it is a better rule that a partner must first
be impleaded before he could be prejudiced by the judgment
against the partnership. As will be discussed later, a partner
may raise several defenses during the trial to avoid or mitigate
his obligation to the partnership liability. Necessarily, before he
could present evidence during the trial, he must first be
impleaded and informed of the case against him. It would be the
height of injustice to rob an innocent partner of his hard-earned
personal belongings without giving him an opportunity to be
heard. Without any showing that Guy himself acted maliciously
on behalf of the company, causing damage or injury to the
complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the
judgment debtor, because he was not a party to the case.

Further, Article 1821 of the Civil Code does not state that
there is no need to implead a partner in order to be bound by
the partnership liability. It provides that:
Notice to any partner of any matter relating to partnership
affairs, and the knowledge of the partner acting in the
particular matter, acquired while a partner or then present to
his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the
acting partner, operate as notice to or knowledge of the
partnership, except in the case of fraud on the partnership,
committed by or with the consent of that partner.
[Emphases and Underscoring Supplied]
A careful reading of the provision shows that notice to any
partner, under certain circumstances, operates as notice to or
knowledge to the partnership only. Evidently, it does not provide
for the reverse situation, or that notice to the partnership is
notice to the partners. Unless there is an unequivocal law which
states that a partner is automatically charged in a complaint
against the partnership, the constitutional right to due process
takes precedence and a partner must first be impleaded before
he can be considered as a judgment debtor. To rule otherwise
would be a dangerous precedent, harping in favor of the
deprivation of property without ample notice and hearing, which
the Court certainly cannot countenance.
Partners’ liability is subsidiary and generally joint; immediate
levy upon the property of a partner cannot be made
Granting that Guy was properly impleaded in the complaint, the
execution of judgment would be improper. Article 1816 of the
Civil Code governs the liability of the partners to third persons,
which states that:
Article 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.
[Emphasis Supplied]
This provision clearly states that, first, the partners’ obligation
with respect to the partnership liabilities is subsidiary in nature.
It provides that the partners shall only be liable with their
property after all the partnership assets have been exhausted.
To say that one’s liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable
fails to sufficiently satisfy the obligation. Resort to the properties
of a partner may be made only after efforts in exhausting
partnership assets have failed or that such partnership assets
are insufficient to cover the entire obligation. The subsidiary
nature of the partners’ liability with the partnership is one of the
valid defenses against a premature execution of judgment
directed to a partner.
In this case, had he been properly impleaded, Guy’s liability
would only arise after the properties of QSC would have been
exhausted. The records, however, miserably failed to show that
the partnership’s properties were exhausted. The report37 of the
sheriff showed that the latter went to the main office of the
DOTC-LTO in Quezon City and verified whether Medestomas,
QSC and Guy had personal properties registered therein.
Gacott then instructed the sheriff to proceed with the attachment
of one of the motor vehicles of Guy.38 The sheriff then served
the Notice of Attachment/Levy upon Personalty to the record
custodian of the DOTC-LTO of Mandaluyong City. A similar
notice was served to Guy through his housemaid at his
residence.
25
Clearly, no genuine efforts were made to locate the properties of
QSC that could have been attached to satisfy the judgment −
contrary to the clear mandate of Article 1816. Being subsidiarily
liable, Guy could only be held personally liable if properly
impleaded and after all partnership assets had been exhausted.
Second, Article 1816 provides that the partners’ obligation to
third persons with respect to the partnership liability is pro
rata or joint.1âwphi1 Liability is joint when a debtor is liable only
for the payment of only a proportionate part of the debt. In
contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does
not presume solidary liability unless: 1) the obligation
expressly so states; or 2) the law or nature requires solidarity.
With regard to partnerships, ordinarily, the liability of the
partners is not solidary.39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a
complaint against the partnership.
In other words, only in exceptional circumstances shall the
partners’ liability be solidary in nature. Articles 1822, 1823 and
1824 of the Civil Code provide for these exceptional conditions,
to wit:
Article 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury
is caused to any person, not being a partner in the partnership,
or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the loss:
(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 the money or property
so received is misapplied by any partner while it is in the
custody of the partnership.
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership under
Articles 1822 and 1823.
[Emphases Supplied]
In essence, these provisions articulate that it is the act of a
partner which caused loss or injury to a third person that makes
all other partners solidarily liable with the partnership because
of the words "any wrongful act or omission of any
partner acting in the ordinary course of the business," "one
partner acting within the scope of his apparent
authority" and "misapplied by any partner while it is in the
custody of the partnership." The obligation is solidary because
the law protects the third person, who in good faith relied upon
the authority of a partner, whether such authority is real or
apparent.40
In the case at bench, it was not shown that Guy or the other
partners did a wrongful act or misapplied the money or property
he or the partnership received from Gacott. 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 1823.41 Gacott’s claim stemmed
from the alleged defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was for a breach
of warranty in a contractual obligation entered into in the name
and for the account of QSC, not due to the acts of any of the
partners. For said reason, it is the general rule under Article
1816 that governs the joint liability of such breach, and not the

exceptions under Articles 1822 to 1824. Thus, it was improper
to hold Guy solidarily liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code,42 as invoked by the
RTC, cannot be applied to sustain Guy's liability. The said
provision states that a general partner shall be liable for all
debts, liabilities and damages incurred by an ostensible
corporation. It must be read, however, in conjunction with Article
1816 of the Civil Code, which governs the liabilities of partners
against third persons. Accordingly, whether QSC was an alleged
ostensible corporation or a duly registered partnership, the
liability of Guy, if any, would remain to be joint and subsidiary
because, as previously stated, all partners 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.
WHEREFORE, the petition is GRANTED. The June 25, 2012
Decision and the March 5, 2013 Resolution of the Court of
Appeals in CA-G.R. CV No. 94816 are
hereby REVERSED and SET ASIDE. Accordingly, the Regional
Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO
RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the
Notice of Levy/ Attachment upon Personalty.
SO ORDERED.
Aniceto Saludo - SAFA case
ART. 1818
G.R. No. 175885 February 13, 2009
ZENAIDA G. MENDOZA, Petitioner, 
 MENDOZA, CRUZ addressed his demands for payment of
vs.ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA
and NATIONAL IRRIGATION ADMINISTRATION (NIA
MUÑOZ, NUEVA ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271 February 13, 2009
MANUEL DELA CRUZ Petitioner, 
 On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with
vs.ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL IRRIGATION ADMINISTRATION
(NIA MUÑOZ, NUEVA ECIJA), Respondents.
These consolidated petitions assail the August 28, 2006
Decision1 of the Court of Appeals in CA-G.R. CV No. 80819
dismissing the complaint in Civil Case No. 18-SD (2000),2 and
its December 11, 2006 Resolution3 denying the herein
petitioners’ motion for reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M.
Paule Construction and Trading (EMPCT). On May 24, 1999,
PAULE executed a special power of attorney (SPA) authorizing
Zenaida G. Mendoza (MENDOZA) to participate in the pre-
qualification and bidding of a National Irrigation Administration
(NIA) project and to represent him in all transactions related
thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING of
which I (PAULE) am the General Manager in all my business
transactions with National Irrigation Authority, Muñoz, Nueva
Ecija.
26
2. To participate in the bidding, to secure bid bonds and other
documents pre-requisite in the bidding of Casicnan Multi-
Purpose Irrigation and Power Plant (CMIPPL 04-99), National
Irrigation Authority, Muñoz, Nueva Ecija.
3. To receive and collect payment in check in behalf of E.M.
PAULE CONSTRUCTION & TRADING.
4. To do and perform such acts and things that may be
necessary and/or required to make the herein authority
effective.4
On September 29, 1999, EMPCT, through MENDOZA,
participated in the bidding of the NIA-Casecnan Multi-Purpose
Irrigation and Power Project (NIA-CMIPP) and was awarded
Packages A-10 and B-11 of the NIA-CMIPP Schedule A. On
November 16, 1999, MENDOZA received the Notice of Award
which was signed by Engineer Alexander M. Coloma
(COLOMA), then Acting Project Manager for the NIA-CMIPP.
Packages A-10 and B-11 involved the construction of a road
system, canal structures and drainage box culverts with a
project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is in
need of heavy equipment for use in the NIA project, he met up
with MENDOZA in Bayuga, Muñoz, Nueva Ecija, in an
apartment where the latter was holding office under an EMPCT
signboard. A series of meetings followed in said EMPCT office
among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ signed
two Job Orders/Agreements5 for the lease of the latter’s heavy
equipment (dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked6 the SPA he previously
issued in favor of MENDOZA; consequently, NIA refused to
make payment to MENDOZA on her billings. CRUZ, therefore,
could not be paid for the rent of the equipment. Upon advice of
lease rentals directly to NIA but the latter refused to
acknowledge the same and informed CRUZ that it would be
remitting payment only to EMPCT as the winning contractor for
the project.
In a letter dated April 5, 2000, CRUZ demanded from
MENDOZA and/or EMPCT payment of the outstanding rentals
which amounted to P726,000.00 as of March 31, 2000.
Branch 37 of the Regional Trial Court of Nueva Ecija, for
collection of sum of money with damages and a prayer for the
issuance of a writ of preliminary injunction against PAULE,
COLOMA and the NIA. PAULE in turn filed a third-party
complaint against MENDOZA, who filed her answer thereto,
with a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because of PAULE’s
"whimsical revocation" of the SPA, she was barred from
collecting payments from NIA, thus resulting in her inability to
fund her checks which she had issued to suppliers of materials,
equipment and labor for the project. She claimed that estafa
and B.P. Blg. 22 cases were filed against her; that she could no
longer finance her children’s education; that she was evicted
from her home; that her vehicle was foreclosed upon; and that
her reputation was destroyed, thus entitling her to actual and
moral damages in the respective amounts of P3 million and P1
million.
Meanwhile, on August 23, 2000, PAULE again constituted
MENDOZA as his attorney-in-fact –

1. To represent me (PAULE), in my capacity as General
Manager of the E.M. PAULE CONSTRUCTION AND TRADING,
in all meetings, conferences and transactions exclusively for the
construction of the projects known as Package A-10 of
Schedule A and Package No. B-11 Schedule B, which are
38.61% and 63.18% finished as of June 21, 2000, per attached
Accomplishment Reports x x x;
2. To implement, execute, administer and supervise the said
projects in whatever stage they are in as of to date, to collect
checks and other payments due on said projects and act as the
Project Manager for E.M. PAULE CONSTRUCTION AND
TRADING;
3. To do and perform such acts and things that may be
necessary and required to make the herein power and authority
effective.7
At the pre-trial conference, the other parties were declared as in
default and CRUZ was allowed to present his evidence ex
parte. Among the witnesses he presented was MENDOZA, who
was impleaded as defendant in PAULE’s third-party complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-
party plaintiff PAULE non-suited with prayer that she be allowed
to present her evidence ex parte.
However, without resolving MENDOZA’s motion to declare
PAULE non-suited, and without granting her the opportunity to
present her evidence ex parte, the trial court rendered its
decision dated August 7, 2003, the dispositive portion of which
states, as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff as follows:
1. Ordering defendant Paule to pay the plaintiff the sum of
P726,000.00 by way of actual damages or compensation for the
services rendered by him;
2. Ordering defendant Paule to pay plaintiff the sum of
P500,000.00 by way of moral damages;
3. Ordering defendant Paule to pay plaintiff the sum of
P50,000.00 by way of reasonable attorney’s fees;
4. Ordering defendant Paule to pay the costs of suit; and
5. Ordering defendant National Irrigation Administration (NIA) to
withhold the balance still due from it to defendant Paule/E.M.
Paule Construction and Trading under NIA-CMIPP Contract
Package A-10 and to pay plaintiff therefrom to the extent of
defendant Paule’s liability herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that MENDOZA
was duly constituted as EMPCT’s agent for purposes of the NIA
project and that MENDOZA validly contracted with CRUZ for the
rental of heavy equipment that was to be used therefor. It found
unavailing PAULE’s assertion that MENDOZA merely borrowed
and used his contractor’s license in exchange for a
consideration of 3% of the aggregate amount of the project. The
trial court held that through the SPAs he executed, PAULE
clothed MENDOZA with apparent authority and held her out to
the public as his agent; as principal, PAULE must comply with
the obligations which MENDOZA contracted within the scope of
her authority and for his benefit. Furthermore, PAULE knew of
the transactions which MENDOZA entered into since at various
times when she and CRUZ met at the EMPCT office, PAULE
was present and offered no objections. The trial court declared
27
that it would be unfair to allow PAULE to enrich himself and
disown his acts at the expense of CRUZ.
PAULE and MENDOZA both appealed the trial court’s decision
to the Court of Appeals.
PAULE claimed that he did not receive a copy of the order of
default; that it was improper for MENDOZA, as third-party
defendant, to have taken the stand as plaintiff CRUZ’s witness;
and that the trial court erred in finding that an agency was
created between him and MENDOZA, and that he was liable as
principal thereunder.
On the other hand, MENDOZA argued that the trial court erred
in deciding the case without affording her the opportunity to
present evidence on her cross-claim against PAULE; that, as a
result, her cross-claim against PAULE was not resolved, leaving
her unable to collect the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in
excess of payments made by NIA.
On August 28, 2006, the Court of Appeals rendered the assailed
Decision which dismissed CRUZ’s complaint, as well as
MENDOZA’s appeal. The appellate court held that the SPAs
issued in MENDOZA’s favor did not grant the latter the authority
to enter into contract with CRUZ for hauling services; the SPAs
limit MENDOZA’s authority to only represent EMPCT in its
business transactions with NIA, to participate in the bidding of
the project, to receive and collect payment in behalf of EMPCT,
and to perform such acts as may be necessary and/or required
to make the said authority effective. Thus, the engagement of
CRUZ’s hauling services was done beyond the scope of
MENDOZA’s authority.
As for CRUZ, the Court of Appeals held that he knew the limits
of MENDOZA’s authority under the SPAs yet he still transacted
with her. Citing Manila Memorial Park Cemetery, Inc. v.
Linsangan,9 the appellate court declared that the principal
(PAULE) may not be bound by the acts of the agent
(MENDOZA) where the third person (CRUZ) transacting with
the agent knew that the latter was acting beyond the scope of
her power or authority under the agency.
With respect to MENDOZA’s appeal, the Court of Appeals held
that when the trial court rendered judgment, not only did it rule
on the plaintiff’s complaint; in effect, it resolved the third-party
complaint as well;10 that the trial court correctly dismissed the
cross-claim and did not unduly ignore or disregard it; that
MENDOZA may not claim, on appeal, the amounts of
P3,018,864.04, P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and the amount
PAULE received in excess of payments made by NIA, as these
are not covered by her cross-claim in the court a quo, which
seeks reimbursement only of the amounts of P3 million and P1
million, respectively, for actual damages (debts to suppliers,
laborers, lessors of heavy equipment, lost personal property)
and moral damages she claims she suffered as a result of
PAULE’s revocation of the SPAs; and that the revocation of the
SPAs is a prerogative that is allowed to PAULE under Article
192011 of the Civil Code.
CRUZ and MENDOZA’s motions for reconsideration were
denied; hence, these consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial court’s
failure to resolve her motion praying that PAULE be declared
non-suited on his third-party complaint, as well as her motion
seeking that she be allowed to present evidence ex parte on her
cross-claim;

b) The Court of Appeals erred when it sanctioned the trial
court’s failure to resolve her cross-claim against PAULE; and,
c) The Court of Appeals erred in its application of Article 1920 of
the Civil Code, and in adjudging that MENDOZA had no right to
claim actual damages from PAULE for debts incurred on
account of the SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of Appeals is
contrary to the provisions of law on agency, and conflicts with
the Resolution of the Court in G.R. No. 173275, which affirmed
the Court of Appeals’ decision in CA-G.R. CV No. 81175, finding
the existence of an agency relation and where PAULE was
declared as MENDOZA’s principal under the subject SPAs and,
thus, liable for obligations (unpaid construction materials, fuel
and heavy equipment rentals) incurred by the latter for the
purpose of implementing and carrying out the NIA project
awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the scope of
her authority when she hired his services as hauler of debris
because the NIA project (both Packages A-10 and B-11 of the
NIA-CMIPP) consisted of construction of canal structures, which
involved the clearing and disposal of waste, acts that are
necessary and incidental to PAULE’s obligation under the NIA
project; and that the decision in a civil case involving the same
SPAs, where PAULE was found liable as MENDOZA’s principal
already became final and executory; that in Civil Case No. 90-
SD filed by MENDOZA against PAULE,12 the latter was
adjudged liable to the former for unpaid rentals of heavy
equipment and for construction materials which MENDOZA
obtained for use in the subject NIA project. On September 15,
2003, judgment was rendered in said civil case against PAULE,
to wit:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff (MENDOZA) and against the defendant (PAULE) as
follows:
1. Ordering defendant Paule to pay plaintiff the sum of
P138,304.00 representing the obligation incurred by the plaintiff
with LGH Construction;
2. Ordering defendant Paule to pay plaintiff the sum of
P200,000.00 representing the balance of the obligation incurred
by the plaintiff with Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff the sum of
P520,000.00 by way of moral damages, and further sum of
P100,000.00 by way of exemplary damages;
4. Ordering defendant Paule to pay plaintiff the sum of
P25,000.00 as for attorney’s fees; and
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it was dismissed by
the Court of Appeals in a Decision15 which reads, in part:
As to the finding of the trial court that the principle of agency is
applicable in this case, this Court agrees therewith. It must be
emphasized that appellant (PAULE) authorized appellee
(MENDOZA) to perform any and all acts necessary to make the
business transaction of EMPCT with NIA effective. Needless to
state, said business transaction pertained to the construction of
canal structures which necessitated the utilization of
construction materials and equipments.1avvphi1 Having given
said authority, appellant cannot be allowed to turn its back on
the transactions entered into by appellee in behalf of EMPCT.
28
The amount of moral damages and attorney’s fees awarded by
the trial court being justifiable and commensurate to the
damage suffered by appellee, this Court shall not disturb the
same. It is well-settled that the award of damages as well as
attorney’s fees lies upon the discretion of the court in the
context of the facts and circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the appealed
Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as G.R. No.
173275 but it was denied with finality on September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard
on her cause of action as stated in her cross-claim against
PAULE; that the trial court’s failure to resolve the cross-claim
was a violation of her constitutional right to be apprised of the
facts or the law on which the trial court’s decision is based; that
PAULE may not revoke her appointment as attorney-in-fact for
and in behalf of EMPCT because, as manager of their
partnership in the NIA project, she was obligated to collect from
NIA the funds to be used for the payment of suppliers and
contractors with whom she had earlier contracted for labor,
materials and equipment.
PAULE, on the other hand, argues in his Comment that
MENDOZA’s authority under the SPAs was for the limited
purpose of securing the NIA project; that MENDOZA was not
authorized to contract with other parties with regard to the works
and services required for the project, such as CRUZ’s hauling
services; that MENDOZA acted beyond her authority in
contracting with CRUZ, and PAULE, as principal, should not be
made civilly liable to CRUZ under the SPAs; and that
MENDOZA has no cause of action against him for actual and
moral damages since the latter exceeded her authority under
the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT) and
MENDOZA had entered into a partnership in regard to the NIA
project. PAULE‘s contribution thereto is his contractor’s license
and expertise, while MENDOZA would provide and secure the
needed funds for labor, materials and services; deal with the
suppliers and sub-contractors; and in general and together with
PAULE, oversee the effective implementation of the project. For
this, PAULE would receive as his share three per cent (3%) of
the project cost while the rest of the profits shall go to
MENDOZA. PAULE admits to this arrangement in all his
pleadings.17
Although the SPAs limit MENDOZA’s authority to such acts as
representing EMPCT in its business transactions with NIA,
participating in the bidding of the project, receiving and
collecting payment in behalf of EMPCT, and performing other
acts in furtherance thereof, the evidence shows that when
MENDOZA and CRUZ met and discussed (at the EMPCT office
in Bayuga, Muñoz, Nueva Ecija) the lease of the latter’s heavy
equipment for use in the project, PAULE was present and
interposed no objection to MENDOZA’s actuations. In his
pleadings, PAULE does not even deny this. Quite the contrary,
MENDOZA’s actions were in accord with what she and PAULE
originally agreed upon, as to division of labor and delineation of
functions within their partnership. Under the Civil Code, every
partner is an agent of the partnership for the purpose of its
business;18 each one may separately execute all acts of
administration, unless a specification of their respective duties
has been agreed upon, or else it is stipulated that any one of
them shall not act without the consent of all the others.19 At any
rate, PAULE does not have any valid cause for opposition
because his only role in the partnership is to provide his
contractor’s license and expertise, while the sourcing of funds,

materials, labor and equipment has been relegated to
MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated
MENDOZA as his attorney-in-fact, this time with broader powers
to implement, execute, administer and supervise the NIA
project, to collect checks and other payments due on said
project, and act as the Project Manager for EMPCT, even after
CRUZ has already filed his complaint. Despite knowledge that
he was already being sued on the SPAs, he proceeded to
execute another in MENDOZA’s favor, and even granted her
broader powers of administration than in those being sued
upon. If he truly believed that MENDOZA exceeded her
authority with respect to the initial SPA, then he would not have
issued another SPA. If he thought that his trust had been
violated, then he should not have executed another SPA in favor
of MENDOZA, much less grant her broader authority.
Given the present factual milieu, CRUZ has a cause of action
against PAULE and MENDOZA. Thus, the Court of Appeals
erred in dismissing CRUZ’s complaint on a finding of exceeded
agency. Besides, that PAULE could be held liable under the
SPAs for transactions entered into by MENDOZA with laborers,
suppliers of materials and services for use in the NIA project,
has been settled with finality in G.R. No. 173275. What has
been adjudged in said case as regards the SPAs should be
made to apply to the instant case. Although the said case
involves different parties and transactions, it finally disposed of
the matter regarding the SPAs – specifically their effect as
among PAULE, MENDOZA and third parties with whom
MENDOZA had contracted with by virtue of the SPAs – a
disposition that should apply to CRUZ as well. If a particular
point or question is in issue in the second action, and the
judgment will depend on the determination of that particular
point or question, a former judgment between the same parties
or their privies will be final and conclusive in the second if that
same point or question was in issue and adjudicated in the first
suit. Identity of cause of action is not required but merely
identity of issues.20
There was no valid reason for PAULE to revoke MENDOZA’s
SPAs. Since MENDOZA took care of the funding and sourcing
of labor, materials and equipment for the project, it is only
logical that she controls the finances, which means that the
SPAs issued to her were necessary for the proper performance
of her role in the partnership, and to discharge the obligations
she had already contracted prior to revocation. Without the
SPAs, she could not collect from NIA, because as far as it is
concerned, EMPCT – and not the PAULE-MENDOZA
partnership – is the entity it had contracted with. Without these
payments from NIA, there would be no source of funds to
complete the project and to pay off obligations incurred. As
MENDOZA correctly argues, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling
an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable.21
PAULE’s revocation of the SPAs was done in evident bad faith.
Admitting all throughout that his only entitlement in the
partnership with MENDOZA is his 3% royalty for the use of his
contractor’s license, he knew that the rest of the amounts
collected from NIA was owing to MENDOZA and suppliers of
materials and services, as well as the laborers. Yet, he
deliberately revoked MENDOZA’s authority such that the latter
could no longer collect from NIA the amounts necessary to
proceed with the project and settle outstanding
obligations.lawphil.net
From the way he conducted himself, PAULE committed a willful
and deliberate breach of his contractual duty to his partner and
those with whom the partnership had contracted. Thus, PAULE
should be made liable for moral damages.
29
Bad faith does not simply connote bad judgment or negligence;
it imputes a dishonest purpose or some moral obliquity and
conscious doing of a wrong; a breach of a sworn duty through
some motive or intent or ill-will; it partakes of the nature of fraud
(Spiegel v. Beacon Participation, 8 NE 2nd Series, 895, 1007). It
contemplates a state of mind affirmatively operating with furtive
design or some motive of self-interest or ill will for ulterior
purposes (Air France v. Carrascoso, 18 SCRA 155, 166-167).
Evident bad faith connotes a manifest deliberate intent on the
part of the accused to do wrong or cause damage.22
Moreover, PAULE should be made civilly liable for abandoning
the partnership, leaving MENDOZA to fend for her own, and for
unduly revoking her authority to collect payments from NIA,
payments which were necessary for the settlement of
obligations contracted for and already owing to laborers and
suppliers of materials and equipment like CRUZ, not to mention
the agreed profits to be derived from the venture that are owing
to MENDOZA by reason of their partnership agreement. Thus,
the trial court erred in disregarding and dismissing MENDOZA’s
cross-claim – which is properly a counterclaim, since it is a
claim made by her as defendant in a third-party complaint –
against PAULE, just as the appellate court erred in sustaining it
on the justification that PAULE’s revocation of the SPAs was
within the bounds of his discretion under Article 1920 of the Civil
Code.
Where the defendant has interposed a counterclaim (whether
compulsory or permissive) or is seeking affirmative relief by a
cross-complaint, the plaintiff cannot dismiss the action so as to
affect the right of the defendant in his counterclaim or prayer for
affirmative relief. The reason for that exception is clear. When
the answer sets up an independent action against the plaintiff, it
then becomes an action by the defendant against the plaintiff,
and, of course, the plaintiff has no right to ask for a dismissal of
the defendant’s action. The present rule embodied in Sections 2
and 3 of Rule 17 of the 1997 Rules of Civil Procedure ordains a
more equitable disposition of the counterclaims by ensuring that
any judgment thereon is based on the merit of the counterclaim
itself and not on the survival of the main complaint. Certainly, if
the counterclaim is palpably without merit or suffers
jurisdictional flaws which stand independent of the complaint,
the trial court is not precluded from dismissing it under the
amended rules, provided that the judgment or order dismissing
the counterclaim is premised on those defects. At the same
time, if the counterclaim is justified, the amended rules now
unequivocally protect such counterclaim from peremptory
dismissal by reason of the dismissal of the complaint.23
Notwithstanding the immutable character of PAULE’s liability to
MENDOZA, however, the exact amount thereof is yet to be
determined by the trial court, after receiving evidence for and in
behalf of MENDOZA on her counterclaim, which must be
considered pending and unresolved.
WHEREFORE, the petitions are GRANTED. The August 28,
2006 Decision of the Court of Appeals in CA-G.R. CV No.
80819 dismissing the complaint in Civil Case No. 18-SD (2000)
and its December 11, 2006 Resolution denying the motion for
reconsideration are REVERSED and SET ASIDE. The August 7,
2003 Decision of the Regional Trial Court of Nueva Ecija,
Branch 37 in Civil Case No. 18-SD (2000) finding PAULE liable
is REINSTATED, with the MODIFICATION that the trial court is
ORDERED to receive evidence on the counterclaim of petitioner
Zenaida G. Mendoza.
SO ORDERED.

G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN
SIN AN and ANTONIO C. GOQUIOLAY, plaintiffs-appellants, 
 lands and buildings of the co-partnership in any manner he may
vs.WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Direct appeal from the decision of the Court of First Instance of
Davao (the amount involved being more than P200,00)
dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on
record, it would appear that on May 29, 1940, Tan Sin An and
Antonio C. Goquiolay", entered into a general commercial
partnership under the partnership name "Tan Sin An and
Antonio C. Goquiolay", for the purpose in dealing in real state.
The partnership had a capital of P30,000.00, P18,000.00 of
which was contributed by Goquiolay and P12,000.00 by Tan Sin
An. The agreement lodge upon Tan Sin An the sole
management of the partnership affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as
sole managing and partner (sic), and Antonio C. Goquiolay as
co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively
by the managing and partner (sic) or by his authorized agent,
and it is expressly stipulated that the managing and partner (sic)
may delegate the entire management of the affairs of the co-
partnership by irrevocable power of attorney to any person, firm
or corporation he may select upon such terms as regards
compensation as he may deem proper, and vest in such
persons, firm or corporation full power and authority, as the
agent of the co-partnership and in his name, place and stead to
do anything for it or on his behalf which he as such managing
and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the
management of the affairs of the co-partnership; but he may
examine its accounts once every six (6) months at any time
during ordinary business hours, and in accordance with the
provisions of the Code of Commerce. (Article of Co-
Partnership).
The lifetime of the partnership was fixed at ten (10) years and
also that —
In the event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs
liquidated at any time upon mutual agreement in writing of the
partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power
of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An
by the articles of co-partnership of said co-partnership "Tan Sin
An and Antonio Goquiolay", that said Tan Sin An should act as
the Manager for said co-partnership for the full period of the
term for which said co-partnership was organized or until the
whole period that the said capital of P30,000.00 of the co-
partnership should last, to carry on to the best advantage and
interest of the said co-partnership, to make and execute, sign,
seal and deliver for the co-partnership, and in its name, all bills,
bonds, notes, specialties, and trust receipts or other instruments
or documents in writing whatsoever kind or nature which shall
be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal
30
properties, to secure the obligation of the co-partnership, to buy
real or personal properties for cash or upon such terms as he
may deem advisable, to sell personal or real properties, such as
deem advisable for the best interest of said co-partnership, to
borrow money on behalf of the co-partnership and to issue
promissory notes for the repayment thereof, to deposit the funds
of the co-partnership in any local bank or elsewhere and to draw
checks against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and
Goquiolay" purchased the three (3) parcels of land, known as
Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the payment of
a mortgage obligation of P25,000.00, payable to "La Urbana
Sociedad Mutua de Construccion y Prestamos" for a period of
ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he
assumed payment of a mortgage debt thereon for P35,000.00
with interest. The downpayment and the amortization were
advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were
consolidated in an instrument executed by the partnership and
Tan Sin An, whereby the entire 49 lots were mortgaged in favor
of the "Banco Hipotecario de Filipinas" (as successor to "La
Urbana") and the covenantors bound themselves to pay, jointly
and severally, the remaining balance of their unpaid accounts
amounting to P52,282.80 within eight 8 years, with 8% annual
interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs
his widow, Kong Chai Pin, and four minor children, namely: Tan
L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan.
Defendant Kong Chai Pin was appointed administratrix of the
intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by
the Banco Hipotecario on the partnership and on Tan Sin An. In
March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sans Hardware Co., paid the
remaining balance of the mortgage debt, and the mortgage was
cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and
Cuan Co., Inc. filed their claims in the intestate proceedings of
Tan Sin An for P62,415.91 and P54,310.13, respectively, as
alleged obligations of the partnership "Tan Sin An and Antonio
C. Goquiolay" and Tan Sin An, for advances, interest and taxes
paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of
said claims at first, Kong Chai Pin later admitted the claims in
her amended answer and they were accordingly approved by
the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the
probate court for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin An and the
partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale1 of the
49 parcels of land to the defendants Washington Sycip and
Betty Lee in consideration of P37,000.00 and of vendees'
assuming payments of the claims filed by Yutivo Sons Hardware
Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49
parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner
Antonio Goquiolay filed, on or about July 25, 1949, a petition in
the intestate proceedings seeking to set aside the order of the
probate court approving the sale in so far as his interest over
the parcels of land sold was concerned. In its order of

December 29, 1949, the probate court annulled the sale
executed by the administratrix with respect to the 60% interest
of Antonio Goquiolay over the properties sold. Kong Chai Pin
appealed to the Court of Appeals, which court later certified the
case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30,
1953, we rendered decision setting aside the orders of the
probate court complained of and remanding the case for new
trial, due to the non-inclusion of indispensable parties.
Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays,
among other things, for the annulment of the sale in favor of
Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of Insular Development Co., Inc., in so far
as the three (3) lots owned by the plaintiff partnership are
concerned. The answer averred the validity of the sale by Kong
Chai Pin as successor partner, in lieu of the late Tan Sin An.
After hearing, the complaint was dismissed by the lower court in
its decision dated October 30, 1956; hence, this appeal taken
directly to us by the plaintiffs, as the amount involved is more
than P200,000.00. Plaintiffs-appellants assign as errors that —
I — The lower court erred in holding that Kong Chai Pin became
the managing partner of the partnership upon the death of her
husband, Tan Sin An, by virtue of the articles of Partnership
executed between Tan Sin An and Antonio Goquiolay, and the
general power of attorney granted by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could
act alone as sole managing partner in view of the minority of the
other heirs.
III — The lower court erred in holding that Kong Chai Pin was
the only heir qualified to act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had
authority to sell the partnership properties by virtue of the
articles of partnership and the general power of attorney
granted to Tan Sin An in order to pay the partnership
indebtedness.
V — The lower court erred in finding that the partnership did not
pay its obligation to the Banco Hipotecario.
VI — The lower court erred in holding that the consent of
Antonio Goquiolay was not necessary to consummate the sale
of the partnership properties.
VII — The lower court erred in finding that Kong Chai Pin
managed the business of the partnership after the death of her
husband, and that Antonio Goquiolay knew it.
VIII — The lower court erred in holding that the failure of
Antonio Goquiolay to oppose the management of the
partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the
partnership properties acted in good faith.
X — The lower court erred in holding that the sale was not
fraudulent against the partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only
necessary but beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in
ordering Antonio Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in
holding that the widow, Kong Chai Pin, succeeded her husband,
31
Tan Sin An, in the sole management of the partnership, upon
the latter's death. While, as we previously stated in our narration
of facts, the Articles of Co-Partnership and the power of attorney
executed by Antonio Goquiolay, conferred upon Tan Sin An the
exclusive management of the business, such power, premised
as it is upon trust and confidence, was a mere personal right
that terminated upon Tan's demise. The provision in the articles
stating that "in the event of death of any one of the partners
within the 10-year term of the partnership, the deceased partner
shall be represented by his heirs", could not have referred to the
managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each
partner. The covenant that Antonio Goquiolay shall have no
voice or participation in the management of the partnership,
being a limitation upon his right as a general partner, must be
held coextensive only with Tan's right to manage the affairs, the
contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-
partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under
the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The validity
of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause
in the articles of co-partnership (2 Vivante, Tratado de Derecho
Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p.
177).
Appellants argue, however, that since the "new" members'
liability in the partnership was limited merely to the value of the
share or estate left by the deceased Tan Sin An, they became
no more than limited partners and, as such, were disqualified
from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from
the continuance of the heirs in the partnership,3 it was not so
with respect to the widow Kong Chai Pin, who, by her
affirmative actions, manifested her intent to be bound by the
partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington
Sycip and Betty Lee. In fact, by executing the deed of sale of
the parcels of land in dispute in the name of the partnership,
she was acting no less than as a managing partner. Having thus
preferred to act as such, she could be held liable for the
partnership debts and liabilities as a general partner, beyond
what she might have derived only from the estate of her
deceased husband. By allowing her to retain control of the firm's
property from 1942 to 1949, plaintiff estopped himself to deny
her legal representation of the partnership, with the power to
bind it by the proper contracts.
The question now arises as to whether or not the consent of the
other partners was necessary to perfect the sale of the
partnership properties to Washington Sycip and Betty Lee. The
answer is, we believe, in the negative. Strangers dealing with a
partnership have the right to assume, in the absence of
restrictive clauses in the co-partnership agreement, that every
general partner has power to bind the partnership, specially
those partners acting with ostensible authority. And so, we held
in one case:
. . . Third persons, like the plaintiff, are not bound in entering
into a contract with any of the two partners, to ascertain whether
or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make inquiries
as to the agreements had between the partners. Its knowledge
is enough that it is contracting with the partnership which is
represented by one of the managing partners.

"There is a general presumption that each individual partner is
an agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." [Mills vs. Riggle, 112
Pac., 617]
"The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of the members
of the firm acting apparently in its behalf and within the scope of
his authority." [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391]
(George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code
of Commerce to the effect that —
If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management of
the common business, and the members present shall come to
an agreement for all contracts or obligations which may concern
the association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the
acts of a partner, while acting within the scope of the ordinary
course of business of the partnership, as regards third persons
without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in
behalf of the firm and that, furthermore, he would not ordinarily
act to the prejudice of his co-partners. The regular course of
business procedure does not require that each time a third
person contracts with one of the managing partners, he should
inquire as to the latter's authority to do so, or that he should first
ascertain whether or not the other partners had given their
consent thereto. In fact, Article 130 of the same Code of
Commerce provides that even if a new obligation was
contracted against the express will of one of the managing
partners, "it shall not be annulled for such reason, and it shall
produce its effects without prejudice to the responsibility of the
member or members who contracted it, for the damages they
may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115)
points out:
367. Primera hipotesis. — A falta de pactos especiales, la
facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la
disciplina del Codigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiza
el legislador privar de la administracion a uno de los socios en
beneficio del otro? Seria una arbitrariedad. Debera quiza
declarar nula la Sociedad que no haya elegido Administrador?
El remedio seria peor que el mal. Debera, tal vez, pretender
que todos los socios concurran en todo acto de la Sociedad?
Pero este concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas
horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Codigo, el cual se confia al espiritu de
reciproca confianza que deberia animar la colaboracion de los
socios, y en la ley inflexible de responsabilidad que implica
comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los
otros, porque cada uno de ellos ejerce la administracion en la
totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracion culpable. Si debiera dar noticia, el
beneficio de su simultania actividad, frecuentemente distribuida
en lugares y en tiempos diferentes, se echaria a perder. Se
objetara el que de esta forma, el derecho de oposicion de cada
uno de los socios puede quedar frustrado. Pero se puede
contestar que este derecho de oposicion concedido por la ley
como un remedio excepcional, debe subordinarse al derecho
32
de ejercer el oficio de Administrador, que el Codigo concede sin
limite: "se presume que los socios se han concedido
reciprocamente la facultad de administrar uno para otro." Se
haria precipitar esta hipotesis en la otra de una administracion
colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios — lo que
el Codigo excluye ........, si se obligase al socio Administrador a
dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de
Comercio, Tomo II, 147-148) opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del
Codigo), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que
es preciso el concurso de estos dos elementos, uno, que el
socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en
nombre de la Sociedad y usando de su firma social. Asi se que
toda obligacion contraida bajo la razon social, se presume
contraida por la Compañia. Esta presunion es impuesta por
motivos de necesidad practica. El tercero no puede cada vez
que trata con la Compañia, inquirir si realmente el negocio
concierne a la Sociedad. La presuncion es juris tantum y no
juris et de jure, de modo que si el gerente suscribe bajo la razon
social una obligacion que no interesa a la Sociedad, este podra
rechazar la accion del tercero probando que el acreedor
conocia que la obligacion no tenia ninguna relacion con ella. Si
tales actos y contratos no comportasen la concurrencia de
ambos elementos, seria nulos y podria decretarse la
responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente
aprobados por la Compañia, o contabilizados en sus libros, si el
acto o contrato ha sido convalidado sin protesta y se trata de
acto o contrato que ha producido beneficio social, tendria plena
validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.
Cuando los Estatutos o la escritura social no contienen ninguna
clausula relativa al nombramiento o designacion de uno o mas
de un socio para administrar la Compañia (art. 129 del Codigo)
todos tienen por un igual el derecho de concurir a la decision y
manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of
Commerce, the provisions of the old Civil Code may give us
some light on the right of one partner to bind the partnership.
States Art. 1695 thereof:
Should no agreement have been made with respect to the form
of management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any
one of the may do individually shall bind the partnership; but
each one may oppose any act of the others before it has
become legally binding.
The records fail to disclose that appellant Goquiolay made any
opposition to the sale of the partnership realty to Washington Z.
Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court,
and, consequently, his opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the
account of the partnership as found by the trial court. This
question, however, need not be resolved here, as in the deed of
conveyance executed by Kong Chai Pin, the purchasers
Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two

creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons
Hardware Co.
Appellants also question the validity of the sale covering the
entire firm realty, on the ground that it, in effect, threw the
partnership into dissolution, which requires consent of all the
partners. This view is untenable. That the partnership was left
without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these
precise lots but to engage in buying and selling real estate, and
"in general real estate agency and brokerage business".
Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution
between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership
properties was only a fraudulent device by the appellees, with
the connivance of Kong Chai Pin, to ease out Antonio Goquiolay
from the partnership. The "devise", according to the appellants,
started way back sometime in 1945, when one Yu Khe Thai
sounded out Antonio Goquiolay on the possibility of selling his
share in the partnership; and upon his refusal to sell, was
followed by the filing of the claims of Yutivo Sons Hardware Co.
and Sing Yee and Cuan Co., Inc. in the intestate estate
proceedings of Tan Sin An. As creditors of Tan Sin An and the
plaintiff partnership (whose liability was alleged to be joint and
several), Yutivo Sons Hardware Co., and Sing Yee Cuan Co.,
Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin (
for lack of sufficient knowledge) negatives any conspiracy on
her part in the alleged fraudulent scheme, even if she
subsequently decided to admit their validity after studying the
claims and finding it best to admit the same. It may not be amiss
to remark that the probate court approved the questioned
claims.
There is complete failure of proof, moreover, that the price for
which the properties were sold was unreasonably low, or in any
way unfair, since appellants presented no evidence of the
market value of the lots as of the time of their sale to appellees
Sycip and Lee. The alleged value of P31,056.58 in May of 1955
is no proof of the market value in 1949, specially because in the
interval, the new owners appear to have converted the land into
a subdivision, which they could not do without opening roads
and otherwise improving the property at their own expense.
Upon the other hand, Kong Chai Pin hardly had any choice but
to execute the questioned sale, as it appears that the
partnership had neither cash nor other properties with which to
pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly
indicating fraud in the questioned transactions, leading to the
conveyance of the lots in dispute to the appellee Insular
Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment,
we affirm the same, with costs against appellant Antonio
Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,
Endencia, Barrera, and Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for
reconsideration of our main decision, wherein we have upheld
the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the
managing partner, Tan Sin An (executed in her dual capacity of
33
Administratrix of her husband's estate and as partner, in lieu of
the husband), in favor of buyers Washington Sycip and Betty
Lee for the following consideration:
Cash paid P37,000.00
Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists
that, contrary to our holding, Kong Chai Pin, widow of the
deceased partner Tan Sin An, never became more than
a limited partner, incapacitated by law to manage the affairs of
the partnership; that the testimony of her witnesses Young and
Lim belies that she took over administration of the partnership
property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of
his share in the properties sold.
Three things must be always held in mind in the discussion of
this motion to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership
property by one partner, acting in behalf of the firm, to
a stranger. There is no question between partners inter se, and
this aspects of the case was expressly reserved in the main
decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in
real estate business, either by buying and selling real estate".
The Article of co-partnership, in fact, expressly provided that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and
selling real estates; to subdivide real estates into lots for the
purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed
capital (which was in cash) but land precisely acquired to be
sold, although subject a mortgage in favor of the original
owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted
upon by appellant.
It is first averred that there is "not one iota evidence" that Kong
Chai Pin managed and retained possession of the partnership
properties. Suffice it to point out that appellant Goquiolay
himself admitted that —
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in God and
I wanted to help her.
Q. — So the answer to my question is you did not take any
steps?
A. — I did not.

Q. — And this conversation which you had with Mrs. Yu Eng Lai
was few months after 1945?
A. — In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his
deposition of 30 June 1956, page 8-9, wherein he sated:
that plantation was being occupied at that time by the widow,
Mrs. Tan Sin An, and of course they are receiving quite a lot of
benefit from that plantation.
Discarding the self-serving expressions, these admissions of
Goquiolay are certainly entitled to greater weight than those of
Hernando Young and Rufino Lim, having been made against the
party's own interest.
Moreover, the appellant's reference to the testimony of
Hernando Young, that the witness found the properties
"abandoned and undeveloped", omits to mention that said part
of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao.
Did you meet Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the
properties of the partnership were undeveloped, and the family
of the widow (Kong Chai Pin) did not receive any income from
the partnership properties, was given in answer to the question:
A c c o r d i n g t o M r. G o q u i o l a y, d u r i n g t h e J a p a n e s e
occupation Tan Sin An and his family lived on the plantation of
the partnership and derived their subsistence from that
plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also —
What can you say so to the development of these other
properties of the partnership which you saw during the
occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third
property which is in Tigatto is about eleven (11) hectares and
planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army.
They planted camotes and vegetables to feed the Japanese
Army. Of course they never paid any money to Tan Sin An or his
family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or
contradict, Goquiolay's admission that he told Mr. Yu Eng Lai
that the widow "could just do it" (i e., continue to manage the
properties. Witnesses Lim and Young referred to the period
of Japanese occupation; but Goquiolay's authority was, in fact,
given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That
Kong Chai Pin carried out no acts of management during the
Japanese occupation (1942-1944) does not mean that she did
not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from
Lim and Young; he actually manifested his willingness that the
widow should manage the partnership properties. Whether or
not she complied with this authority is a question between her
and the appellant, and is not here involved. But the authority
was given, and she did have it when she made the questioned
sale, because it has never revoked.
34
It is argued that the authority given by Goquiolay to the widow
Kong Chai Pin was only to manage the property, and that it did
not include the power to alienate, citing Article 1713 of the Civil
Code of 1889. What this argument overlooks is that the widow
was not a mere agent, because she had become a partner upon
her husband's death, as expressly provided by the articles of
co-partnership. Even more, granting that by succession to her
h u s b a n d , Ta n S i n A n , t h e w i d o w o n l y a b e c a m e
the limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and
recognized her has general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph, Code
of Commerce), appellant could not empower the widow, if she
were only a limited partner, to administer the properties of the
firm, even as a mere agent:
Limited partners may not perform any act of administration with
respect to the interests of the co-partnership, not even in the
capacity agents of the managing partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin
An's widow showed that she desired to be considered
a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such partner,
and is now in estoppel to deny her position as a general partner,
with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the
heir ordinarily (and we did not say "necessarily") becomes a
limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the
estate inherited so as not to jeopardize his personal assets. But
this statutory limitation of responsibility being designed to
protect the heir, the latter may disregard it and instead elect to
become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not
only with the inheritance bud also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does
not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here
involved expressly stipulated that:
In that event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would
be merely limited partner; on the contrary they expressly
stipulated that in case of death of either partner "the co-
partnership ... will have to be continued" with the heirs or
assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership,
since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a
limited association would leave the heirs of the deceased
partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs
would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the
deceased partner should they refuse to assume personal and
unlimited responsibility for the obligations of the firm. The heirs,
in other words, can not be compelled to become general
partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not
voluntarily choose to become general partners, waiving the
protective mantle of the general laws of succession. And in the
latter event, it is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir

never was a limited partner, but chose to be, and became, a
general partner right at the start.
It is immaterial that the heirs name was not included in the firm
name, since no conversion of status is involved, and the articles
of co-partnership expressly contemplated the admission of the
partner's heirs into the partnership.
It must never be overlooked that this case involves the rights
acquired by strangers, and does not deal with the rights arising
between partners Goquiolay and the widow of Tan Sin An. The
issues between the partners inter se were expressly reversed in
our main decision. Now, in determining what kind of partner the
widow of partner Tan Sin An had elected to become, strangers
had to be guided by her conduct and actuations and those of
appellant Goquiolay. Knowing that by law a limited partner is
barred from managing the partnership business or property,
third parties (like the purchasers) who found the widow
possessing and managing the firm property with the
acquiescense (or at least without apparent opposition) of the
surviving partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in negotiating
with her as such a partner, having authority to act for, and in
behalf of, the firm. This belief, be it noted, was shared even by
the probate court that approved the sale by the widow of the
real property standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay. Note that
for seven long years, from partner Tan Sin An's death in 1942 to
the sale in 1949, there was more than ample time for Goquiolay
to take up the management of these properties, or at least
ascertain how its affairs stood. For seven years Goquiolay could
have asserted his alleged rights, and by suitable notice in the
commercial registry could have warned strangers that they must
deal with him alone, as sole general partner. But he did nothing
of the sort, because he was not interested (supra), and he did
not even take steps to pay, or settle, the firm debts that were
overdue since before the outbreak of the last war. He did not
even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would
have no intervention in the management of the partnership. This
laches certainly contributed to confirm the view that the widow
of Tan Sin An had, or was given, authority to manage and deal
with the firm's properties, apart from the presumption that a
general partner dealing with partnership property has the
requisite authority from his co-partners (Litton vs. Hill and
Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates
an obligation between the two partners, which consists in asking
the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who
contracts with the partnership. Neither is it necessary for the
third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A
third person may and has a right to presume that the partner
with whom he contracts has, in the ordinary and natural course
of business, the consent of his co-partner; for otherwise he
would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into
the transaction is violating the articles of partnership, but on the
contrary, is acting in accordance therewith. And this finds
support in the legal presumption that the ordinary course of
business has been followed (No. 18, section 334, Code of Civil
Procedure), and that the law has been obeyed (No. 31, section
334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill
& Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no
authority to sell the real estate of the firm. This argument is
lamentably superficial because it fails to differentiate between
real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller o banco social")
35
for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its
real property (immovables) is not within the ordinary powers of a
partner, because it is not in line with the normal business of the
firm. But where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present
case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the
partner. This distinction is supported by the opinion of Gay de
Montella1, in the very passage quoted in the appellant's motion
for reconsideration:
La enajenacion puede entrar en las facultades del gerente:
cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comecio o a los productos de la
fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estaria facultado para otorgar las ventas que
fuere necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either
partner has the legal right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real
estate, one partner has ample power, as a general agent of the
firm, to enter into an executory contract for the sale of real
estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am.
St., Rep. 83:
If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales of
such property made in the regular course of business, then they
are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership
at all, but a several agency.
Since the sale by the widow was in conformity with the express
objective of the partnership, "to engage * * * in buying
and selling real estate" (Art IV, No. 1, Articles of Copartnership),
it can not be maintained that the sale was made in excess of
her powers as general partner.
Considerable stress is laid by appellant in the ruling of the
Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al., 49
N. E., 338. But the facts of that case are vastly different from the
one before us. In the McGrath case, the Court expressly found
that:
The firm was then, and for some time had been, insolvent, in
the sense that its property was insufficient to pay its debts,
though it still had good credit, and was actively engaged in the
prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four
chattel mortgages in question, which cover all the tangible
property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and
used in carrying on, its business, and signed the same in this
form: "In witness whereof, the said Cowen & McGrath, a firm,
and Owen McGrath, surviving partner of said firm, and Owen
McGrath, individually, have here-unto set their hands, this 20th
day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath.

Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath" At the same time, the plaintiff had prepared, ready for
filing, the petition for the dissolution of the partnership and
appointment of a receiver, which he subsequently filed, as
hereinafter stated. On the day the mortgages were signed, they
were placed in the hands of the mortgagees, which was the first
intimation to them that there was any intention to make then. At
that time none of the claims secured by the mortgages were
due, except, it may be, a small part of one of them, and none of
the creditors to whom the mortgages were made had requested
security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of
defeasance, and contain a stipulation authorizing the
mortgagees to take immediate possession of the property,
which they did as soon as the mortgages were filed, through the
attorney who then represented them, as well as the plaintiff; and
the stores were at once closed, andpossession delivered by
them to the receiver appointed upon the filing of the
petition. The avowed purpose of the plaintiff in the course
pursued by him, was to terminate the partnership, place its
property beyond the control of the firm, and insure the
preference of the mortgages, all of which was known to them at
the time: ... . (Cas cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio
should draw the conclusion that conveyances were made with
intent to terminate the partnership, and that they were not within
the powers of McGrath as partner. But there is no similarly
between those acts and the sale by the widow of Tan Sin An. In
the McGrath case, the sale included even the fixtures used in
the business, in our case, the lands sold were those acquired to
be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been
unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath
case, the partnership received nothing beyond the discharge of
its debts; in the present case, not only were its debts assumed
by the buyers, but the latter paid, in addition, P37,000.00 in
cash to the widow, to the profit of the partnership. Clearly, the
McGrath ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of
it exists; but appellant points out, as indicia thereof, the
allegedly low price paid for the property, and the relationship
between the buyers, the creditors of the partnership, and the
widow of Tan Sin An.
First, as to the price: As already noted, this property was
actually sold for a total of P153,726.04, of which P37,000.00
was in cash, and the rest in partnership debts assumed by the
purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13
to Sing Yee Cuan & Co.) are not questioned; they were
approved by the Court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase price of
the land sold (due first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes, redeemed by the
two creditors-claimants. To show that the price was inadequate,
appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land
was worth P312,000.00. Taking into account the continued rise
of real estate values since liberation, and the fact that the sale
in question was practically a forced sale because the
partnership had no other means to pay its legitimate debts, this
evidence certainly does not show such "gross inadequacy" as to
justify rescission of the sale. If at the time of the sale (1949 the
price of P153,726.04 was really low, how is it that appellant was
not able to raise the amount, even if the creditor's
representative, Yu Khe Thai, had already warned him four years
before (1946) that the creditors wanted their money back, as
they were justly entitled to?
It is argued that the land could have been mortgaged to raise
the sum needed to discharge the debts. But the lands were
already mortgaged, and had been mortgaged since 1940, first
to La Urbana, and then to the Banco Hipotecario. Was it
36
reasonable to expect that other persons would loan money to
the partnership when it was unable even to pay the taxes on the
property, and the interest on the principal since 1940? If it had
been possible to find lenders willing to take a chance on such a
bad financial record, would not Goquiolay have taken
advantage of it? But the fact is clear on the record that since
liberation until 1949 Goquiolay never lifted a finger to discharge
the debts of the partnership. Is he entitled now to cry fraud after
the debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to
say that the Supreme Court has ruled that relationship alone is
not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243;
also Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40
Off. Gaz., 1685). There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without independent
means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither
illegal nor immoral; at the very least, these buyers did not have
a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim
of a conspiracy between the Yutivo firm and their component
members. But no proof is adduced. If he was such a victim, he
could have easily defeated the conspirators by raising money
and paying off the firm's debts between 1945 and 1949; but he
did; he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to defraud
him arose (as he claims) because of his refusal to sell the lands
when in 1945 Yu Khe Thai asked him to do so, it is certainly
strange that the conspirators should wait 4 years, until 1949, to
have the sale effected by the widow of Tan Sin An, and that the
sale should have been routed through the probate court taking
cognizance of Tan Sin An's estate, all of which increased the
risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of
Yutivo and Sing Yee Cuan & Co., (as subrogees of the Banco
Hipotecario) in proceedings for the settlement of the estate of
Tan Sin An. This for two reasons: First, Tan Sin An and the
partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco
Hipotecario), and Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filed against the decedent as
if he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor. (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a mortgage
on the properties of the partnership and those of Tan Sin An
personally, and a mortgage in indivisible, in the sense that each
and every parcel under mortgage answers for the totality of the
debt (Civ. Code of 1889, Article 1860; New Civil Code, Art.
2089).
A final and conclusive consideration. The fraud charged not
being one used to obtain a party's consent to a contract (i.e.,
not being deceit or dolus in contrahendo), if there is fraud at all,
it can only be a fraud of creditors that gives rise to a rescission
of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code),
"the action for rescission is subsidiary; it can not be instituted
except when the party suffering damage has no other legal
means to obtain reparation for the same". Since there is no
allegation, or evidence, that Goquiolay can not obtain reparation
from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintenable, even if the fraud
charged actually did exist.
Premises considered, the motion for reconsideration is denied.

ART. 1819
G.R. No. 70403 July 7, 1989
SANTIAGO SYJUCO, INC., petitioner, vs.
 presided over by Judge Conrado M. Vasquez 6 rendered
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE
REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL
JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE
CITY SHERIFF OF THE CITY OF MANILA, THE CITY
REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO
LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO
LIM, NILA LIM and/ or THE PARTNERSHIP OF THE HEIRS
OF HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.
This case may well serve as a textbook example of how judicial
processes, designed to promote the swift and efficient
disposition of disputes at law, can be so grossly abused and
manipulated as to produce precisely the opposite result; how
they can be utilized by parties with small scruples to forestall for
an unconscionably long time so essentially simple a matter as
making the security given for a just debt answer for its payment.
The records of the present proceedings and of two other cases
already decided by this Court expose how indeed the routine
procedure of an extrajudicial foreclosure came by dint of brazen
forum shopping and other devious maneuvering to grow into a
veritable thicket of litigation from which the mortgagee has been
trying to extricate itself for the last twenty years.
Back in November 1964, Eugenio Lim, for and in his own behalf
and as attorney-in-fact of his mother, the widow Maria Moreno
(now deceased) and of his brother Lorenzo, together with his
other brothers, Aramis, Mario and Paulino, and his sister, Nila,
all hereinafter collectively called the Lims, borrowed from
petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the
sum of P800,000.00. The loan was given on the security of a
first mortgage on property registered in the names of said
borrowers as owners in common under Transfer Certificates of
Title Numbered 75413 and 75415 of the Registry of Deeds of
Manila. Thereafter additional loans on the same security were
obtained by the Lims from Syjuco, so that as of May 8, 1967,
the aggregate of the loans stood at P2,460,000.00, exclusive of
interest, and the security had been augmented by bringing into
the mortgage other property, also registered as owned pro
indiviso by the Lims under two titles: TCT Nos. 75416 and
75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional
circumstance that as stipulated in the mortgage deed the
obligation matured on November 8, 1967; that the Lims failed to
pay it despite demands therefor; that Syjuco consequently
caused extra-judicial proceedings for the foreclosure of the
mortgage to be commenced by the Sheriff of Manila; and that
the latter scheduled the auction sale of the mortgaged property
on December 27, 1968. 1 The attempt to foreclose triggered off
a legal battle that has dragged on for more than twenty years
now, fought through five (5) cases in the trial courts, 2 two (2) in
the Court of Appeals, 3 and three (3) more in this Court, 4 with
the end only now in sight.
1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO.
00242-R; G.R. NO. L-34683
To stop the foreclosure, the Lims — through Atty. Marcial G.
Mendiola, who was later joined by Atty. Raul Correa — filed Civil
Case No. 75180 on December 24,1968 in the Court of First
Instance of Manila (Branch 5). In their complaint they alleged
that their mortgage was void, being usurious for stipulating
interest of 23% on top of 11 % that they had been required to
pay as "kickback." An order restraining the auction sale was
issued two days later, on December 26,1968, premised inter
alia on the Lims' express waiver of "their rights to the notice and
37
re-publication of the notice of sale which may be conducted at
some future date." 5
On November 25,1970, the Court of First Instance (then
judgment finding that usury tained the mortgage without,
however, rendering it void, declaring the amount due to be only
Pl,136,235.00 and allowing the foreclosure to proceed for
satisfaction of the obligation reckoned at only said amount .7
Syjuco moved for new trial to enable it to present additional
evidence to overthrow the finding of usury, and the Court
ordered the case reopened for that purpose. The Lims tried to
negate that order of reopening in the Court of Appeals, the
proceedings being docketed as CA-G.R. No. 00242-R. They
failed. The Court of Appeals upheld the Trial Court. The Lims
then sought to nullify this action of the Appellate Court; towards
that end, they filed with this Court a petition for certiorari and
prohibition, docketed as G.R. No. L-34683. But here, too, they
failed; their petition was dismissed.8
Thereafter, and on the basis of the additional evidence adduced
by Syjuco on remand of the case from this Court, the Trial Court
promulgated an amended decision on August 16, 1972,
reversing its previous holding that usury had flawed the Lims'
loan obligation. It declared that the principal of said obligation
indeed amounted to P2,460,000.00, exclusive of interest at the
rate of 12% per annum from November 8, 1967, and, that
obligation being already due, the defendants (Syjuco and the
Sheriff of Manila) could proceed with the extrajudicial
foreclosure of the mortgage given to secure its satisfaction.9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO.
51752; G.R. NO. L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his
appearance in Civil Case No. 75180 as counsel for the Lims in
collaboration with Atty. Raul Correa, and on the same date
appealed to the Court of Appeals from the amended decision of
August 16, 1972. 10 In that appeal, which was docketed as CA
G.R. No. 51752, Messrs. Canlas and Correa prayed that the
loans be declared usurious; that the principal of the loans be
found to be in the total amount of Pl,269,505.00 only, and the
interest thereon fixed at only 6% per annum from the filing of the
complaint; and that the mortgage be also pronounced
void ab initio. 11
The appeal met with no success. In a decision promulgated on
October 25,1976, the Court of Appeals affirmed in toto the Trial
Court's amended decision. 12
The Lims came to this Court seeking reversal of the appellate
Court's decision. However, their petition for review-filed in their
behalf by Canlas, and Atty. Pio R. Marcos, and docketed as
G.R. No. L-45752-was denied for lack of merit in a minute
resolution dated August 5, 1977. The Lims' motion for
reconsideration was denied and entry of judgment was made on
September 24,1977. 13 Here the matter should have ended; it
marked only the beginning of Syjuco's travails.
3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure.
It caused the auction sale of the mortgaged property to be
scheduled on December 20, 1977, only to be frustrated again
by another action filed by the Lims on December 19, 1977,
docketed as Civil Case No. 112762 of the Court of First
Instance of Manila. 14 The action sought to stop the sale on the
ground that the notice of foreclosure had not been republished;
this, notwithstanding that as earlier stressed, the restraining
order of December 26, 1968 issued in Civil Case No 75180
explicitly declared itself to be predicated on the Lims' waiver of
"their rights to the notice and republication of the notice of sale

which may be conducted at some future date." 15 An order
restraining the sale issued in the case, although the petition for
preliminary injunction was subsequently denied. A supplemental
complaint was also filed by the Lims seeking recovery of some
Pl million in damages allegedly suffered by reason of said lack
of republication. 16
4. CIVIL CASE NO. 75180
That very same claim — that there had been no republication of
the notice of sale, which was the foundation of the Lims' action
in Civil Case No. 112762 as aforesaid — was made by the Lims
the basis of an urgent motion filed on December 15, 1977 in
Civil Case No. 75180, in which, as earlier narrated, the
judgement authorizing the foreclosure had been affirmed by
both the Court of Appeals and this Court, and had become final
and executory. And that motion sought exactly the same remedy
prayed for in Civil Case No. 112762 (filed by the Lims four [4]
days later, on December 19, 1977), i.e., the prevention of the
auction sale. The Court -- Branch 5, then presided over by
Judge Jose H. Tecson — granted the restraining order on
December 19, 1977, 17 the very same day that the Lims
commenced Civil Case No. 112762 in the same Court and in
which subsequent action they asked for and obtained a similar
restraining order.
The Lims' counsel thus brought about the anomalous situation
of two (2) restraining orders directed against the same auction
sale, based on the same ground, issued by different courts
having cognizance of two (2) separate proceedings instituted for
identical objectives. This situation lasted for all of three (3)
years, despite the republication of the notice of sale caused by
Syjuco in January, 1978 in an effort to end all dispute about the
matter, and despite Judge Tecson's having been made aware of
Civil Case No. 112762. It should have been apparent to Judge
Tecson that there was nothing more to be done in Civil Case
No. 75180 except to enforce the judgment, already final and
executory, authorizing the extrajudicial foreclosure of the
mortgage, a judgment sanctioned, to repeat, by both the Court
of Appeals and the Supreme Court; that there was in truth no
need for another publication of the notice since the Lims had
precisely waived such republication, this waiver having been the
condition under which they had earlier obtained an order
restraining the first scheduled sale; that, in any event, the
republication effected by Syjuco had removed the only asserted
impediment to the holding of the same; and that, finally, the
Lims were acting in bad faith: they were maintaining
proceedings in two (2) different courts for essentially the same
relief. 18 Incredibly, not only did Judge Tecson refuse to allow
the holding of the auction sale, as was the only just and lawful
course indicated by the circumstances, 19 he authorized the
Lims to sell the mortgaged property in a private sale,20 with the
evident intention that the proceeds of the sale, which he
directed to be deposited in court, would be divided between
Syjuco and the Lims; this, in line with the patently specious
theory advocated by the Lims' counsel that the bond flied by
them for the postponement of the sale, set at P6 million by the
Court (later increased by P 3 million) had superseded and
caused novation of the mortgage. 21 The case lay fallow for a
year, certain other, incidents arising and remaining unresolved
on account of numerous postponements.
5. G.R. No. L-56014
Finally, on January 28, 1981, Syjuco betook itself to this Court,
presumably no longer disposed to await Judge Tecson's
pleasure or the Lims' convenience. It filed a petition
for certiorari and prohibition, docketed as G.R. No. L-56014,
alleging that in Civil Case No. 75180, Judge Tecson had gravely
abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
38
(2) entertaining the Lims' motion to discharge said mortgage
grounded on the theory that it had been superseded and
novated by the Lims' act of filing the bond required by Judge
Tecson in connection with the postponement of the foreclosure
sale, and unreasonably delaying resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the
private sale of the mortgaged property and motu proprio
extending the period granted the Lims for the purpose, in
disregard of the final and executory judgment rendered in the
case.
By judgment rendered on September 21, 1982, after due
proceedings, this Court 22 issued the writ prayed for and nullified
the orders and actuations of Judge Tecson in Civil Case No.
75180. The judgment declared that:
(1) the republication by Syjuco of the notice of foreclosure sale
rendered the complaint in Civil Case No. 112762 moot and
academic; hence, said case could not operate to bar the sale;
(2) the Lims' bonds (of P 6 million and P 3 million), having by
the terms thereof been given to guarantee payment of damages
to Syjuco and the Sheriff of Manila resulting from the
suspension of the auction sale, could not in any sense and from
any aspect have the effect of superseding the mortgage or
novating it;
(3) in fact, the bonds had become worthless when, as shown by
the record, the bondsman's authority to transact non-life
insurance business in the Philippines was not renewed, for
cause, as of July 1, 1981.
The decision consequently decreed that the Sheriff of Manila
should proceed with the mortgage sale, there being no further
impediment thereto.23
Notice of the decision was served on the Lims, through Atty.
Canlas, on October 2, 1982. A motion for reconsideration was
filed, 24 but the same was denied with finality for lack of merit
and entry of final judgment was made on March 22,1983. 25
6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE
REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P.
CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above
mentioned, with notice of this Court's judgment in G.R. No.
56014, or on October 14,1982, they caused the filing with the
Regional Trial Court of Quezon City of still another action, the
third, also designed, like the first two, to preclude enforcement
of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual
names, but in the name of a partnership of which they
themselves were the only partners: "Heirs of Hugo Lim." The
complaint advocated the theory that the mortgage which they,
together with their mother, had individually constituted (and
thereafter amended during the period from 1964 to 1967) over
lands standing in their names in the Property Registry as
owners pro indiviso, in fact no longer belonged to them at that
time, having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim", more precisely, on March 30,
1959, hence, said mortgage was void because executed by
them without authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas,
but the records disclose that Atty. Canlas took over as counsel
as of November 4,1982. The case, docketed as Civil Case No.
Q-39295, was assigned to Branch 35 of the Quezon City
Regional Trial Court, then presided over by Judge Jose P.
Castro.

Judge Castro issued a restraining order on October 15, 1982.
Then, Sheriff Perfecto G. Dalangin submitted a return of
summons to the effect that on December 6, 1982 he —
.. served personally and left a copy of summons together with a
copy of Complaint and its annexes x x upon defendant's office
formerly at 313 Quirino Ave., Paranaque, Metro-Manila and now
at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft
Avenue, Manila, through the Manager, a person of sufficient age
and discretion duly authorized to receive service of such nature,
but who refused to accept service and signed receipt thereof.26
A vaguer return will be hard to find. It is impossible to discern
from it where precisely the summons was served, whether at
Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is
inexplicable that the name of the person that the sheriff had
been able to identify as the manager is not stated, the latter
being described merely as "a person of sufficient age and
discretion." In any event, as it was to claim later, Syjuco asserts
that it was never so served with summons, or with any other
notice, pleading, or motion relative to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex-parte motion to
declare Syjuco in default. The order of default issued the next
day, also directing the plaintiff partnership to present evidence
ex parte within three (3) days. On February 22, 1983, judgment
by default was rendered, declaring void the mortgage in
question because executed by the Lims without authority from
the partnership which was and had been since March 30,1959
the exclusive owner of the mortgaged property, and making
permanent an injunction against the foreclosure sale that had
issued on January 14,1983. 27 Service of notice of the default
judgment was, according to the return of the same Sheriff
Perfecto Dalangin, effected on the following day, February 23,
1983. His return is a virtual copy of his earlier one regarding
service of summons: it also states the place of service as the
defendant's office, either at its former location, 313 Quirino
Avenue, Paranaque, or at the later address, 407 Dona Felisa,
Syjuco Building, Taft Avenue, Manila; and it also fails to identify
the person on whom service was made, describing him only as
"the clerk or person in charge" of the office. 28
Unaccountably, and contrary to what might be expected from
the rapidity with which it was decided-twelve (12) days from
February 10, 1983, when the motion to declare defendant
Syjuco in default was filed-the case was afterwards allowed by
Atty. Canlas to remain dormant for seventeen (17) months. He
made no effort to have the judgment executed, or to avail of it in
other actions instituted by him against Syjuco. The judgment
was not to be invoked until sometime in or after July, 1984,
again to stop the extrajudicial mortgage sale scheduled at or
about that time at the instance of Syjuco, as shall presently be
recounted.
7. Other Actions in the Interim:
a. CIVIL CASE No. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo Lim"),
were prosecuting their action in the sala of Judge Castro, as
above narrated, Syjuco once again tried to proceed with the
foreclosure after entry of judgment had been made in G.R. No.
56014 on March 22, 1983. It scheduled the auction sale on July
30, 1983. But once again it was frustrated. Another obstacle
was put up by the Lims and their counsel, Atty. Canlas. This was
Civil Case No. 83-19018 of the Manila Regional Trial Court. The
case was filed to stop the sale on the theory that what was
sought to be realized from the sale was much in excess of the
judgment in Civil Case No. 75180, and that there was absence
of the requisite notice. It is significant that the judgment by
default rendered by Judge Castro in Civil Case No. Q-36485
was not asserted as additional ground to support the cause of
action. Be this as it may, a restraining order was issued on July
20,1983 in said Civil Case No. 83-9018. 29
39
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear. What
is certain is (1) that the auction sale was re-scheduled for
September 20, 1983, (2) that it was aborted because the Lims
managed to obtain still another restraining order in another case
commenced by their lawyer, Atty. Canlas: Civil Case No.
Q-32924 of the Court of First Instance of Quezon City, grounded
on the proposition that the publication of the notice of sale was
defective; and (3) that the action was dismissed by the Regional
Trial Court on February 3, 1984. 30
No other salient details about these two (2) cases are available
in the voluminous records before the Court, except that it was
Atty. Canlas who had filed them. He admits having done so
unequivocally: "Thus, the undersigned counsel filed injunction
cases in Civil Case No. 83-19018 and Civil Case No. 39294,
Regional Trial Courts of Manila and Quezon City. ... " 31
7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q
QUEZON CITY, BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more
resumed its efforts to effect the mortgage sale which had
already been stymied for more than fifteen (15) years. At its
instance, the sheriff once again set a date for the auction sale.
But on the date of the sale, a letter of Atty. Canlas was handed
to the sheriff drawing attention to the permanent injunction of
the sale embodied in the judgment by default rendered by
Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no time
in inquiring about Civil Case No. Q-36485, and was very quickly
made aware of the judgment by default therein promulgated and
the antecedent events leading thereto. It was also made known
that on July 9, 1984, Judge Castro had ordered execution of the
judgment; that Judge Castro had on July 16, 1984 granted Atty.
Canlas' motion to declare cancelled the titles to the Lims'
mortgaged properties and as nun and void the annotation of the
mortgage and its amendments on said titles, and to direct the
Register of Deeds of Manila to issue new titles, in lieu of the old,
in the name of the partnership, "Heirs of Hugo Lim." 33
On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a
motion for reconsideration of the decision and for dismissal of
the action, alleging that it had never been served with
summons; that granting arguendo that service had somehow
been made, it had never received notice of the decision and
therefore the same had not and could not have become final;
and that the action should be dismissed on the ground of bar by
prior judgment premised on the final decisions of the Supreme
Court in G.R. No. L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly followed. The first, dated
July 20, 1984, prayed for abatement of Judge Castro's order
decreeing the issuance of new certificates of title over the
mortgaged lands in the name of the plaintiff partnership. 34 The
second, filed on July 24, 1984, was a supplement to the motion
to dismiss earlier filed, asserting another ground for the
dismissal of the action, i.e., failure to state a cause of action, it
appearing that the mortgaged property remained registered in
the names of the individual members of the Lim family
notwithstanding that the property had supposedly been
conveyed to the plaintiff partnership long before the execution of
the mortgage and its amendments,-and that even assuming
ownership of the property by the partnership, the mortgage
executed by all the partners was valid and binding under
Articles 1811 and 1819 of the Civil Code.35
The motions having been opposed in due course by the plaintiff
partnership, they remained pending until January 31, 1985
when Syjuco moved for their immediate resolution. Syjuco now
claims that Judge Castro never acted on the motions. The latter
however states that that he did issue an order on February 22,
1985 declaring that he had lost jurisdiction to act thereon

because, petitio principii, his decision had already become final
and executory.
8. G.R.NO.L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same
matter. It filed on April 3, 1985 the instant petition for certiorari,
prohibition and mandamus. It prays in its petition that the default
judgment rendered against it by Judge Castro in said Civil Case
No. Q-36485 be annulled on the ground of lack of service of
summons, res judicata and laches, and failure of the complaint
to state a cause of action; that the sheriff be commanded to
proceed with the foreclosure of the mortgage on the property
covered by Transfer Certificates of Title Numbered 75413,
75415, 75416 and 75418 of the Manila Registry; and that the
respondents the Lims, Judge Castro, the Sheriff and the
Register of Deeds of Manila, the partnership known as "Heirs of
Hugo Lim," and Atty. Paterno R. Canlas, counsel for-the Lims
and their partnership-be perpetually enjoined from taking any
further steps to prevent the foreclosure.
The comment filed for the respondents by Atty. Canlas in
substance alleged that (a) Syjuco was validly served with
summons in Civil Case No. Q-36485, hence, that the decision
rendered by default therein was also valid and, having been
also duly served on said petitioner, became final by operation of
law after the lapse of the reglementary appeal period; (b) finality
of said decision removed the case from the jurisdiction of the
trial court, which was powerless to entertain and act on the
motion for reconsideration and motion to dismiss; (c) the petition
was in effect an action to annul a judgment, a proceeding within
the original jurisdiction of the Court of Appeals; (d) the plea of
res judicata came too late because raised after the decision had
already become final; moreover, no Identity of parties existed
between the cases invoked, on the one hand, and Civil Case
No. Q-36485, on the other, the parties in the former being the
Lims in their personal capacities and in the latter, the Lim
Partnership, a separate and distinct juridical entity; and the
pleaded causes of action being different, usury in the earlier
cases and authority of the parties to encumber partnership
property in the case under review; (e) the plea of laches also
came too late, not having been invoked in the lower court; and
(f) the property involved constituted assets of the Lim
partnership, being registered as such with the Securities and
Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no
knowledge of the institution of Civil Case No. Q-36485 (though
he admitted being collaborating counsel in said case); that he
did not represent the Lims in all their cases against Syjuco,
having been counsel for the former only since 1977, not for the
last seventeen years as claimed by Syjuco; and that he had no
duty to inform opposing counsel of the pendency of Civil Case
No. Q-36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming
knowledge of previous controversies regarding the mortgaged
property. He asserted that Syjuco had been properly declared in
default for having failed to answer the complaint despite service
of summons upon it, and that his decision in said case which
was also properly served on Syjuco became final when it was
not timely appealed, after which he lost jurisdiction to entertain
the motion for reconsideration and motion to dismiss. He also
denied having failed to act on said motions, adverting to an
alleged order of February 22, 1985 where he declared his lack
of jurisdiction to act thereon.
The respondent Register of Deeds for his part presented a
comment wherein he stated that by virtue of an order of
execution in Civil Case No. Q-36485, he had cancelled TCTs
Nos. 75413, 75415, 75416 and 75418 of his Registry and
prepared new certificates of title in lieu thereof, but that
cancellation had been held in abeyance for lack of certain
registration requirements and by reason also of the motion of
40
Syjuco's Atty. Formoso to hold in abeyance enforcement of the
trial court's order of July 16, 1984 as well as of the temporary
restraining order subsequently issued by the Court. 39
It is time to write finis to this unedifying narrative which is
notable chiefly for the deception, deviousness and trickery
which have marked the private respondents' thus far successful
attempts to avoid the payment of a just obligation. The record of
the present proceeding and the other records already referred
to, which the Court has examined at length, make it clear that
the dispute should have been laid to rest more than eleven
years ago, with entry of judgment of this Court (on September
24, 1977) in G.R. No. L-45752 sealing the fate of the Lims'
appeal against the amended decision in Civil Case No. 75180
where they had originally questioned the validity of the
mortgage and its foreclosure. That result, the records also
show, had itself been nine (9) years in coming, Civil Case No.
75180 having been instituted in December 1968 and, after trial
and judgment, gone through the Court of Appeals (in CA-G.R.
No. 00242-R) and this Court (in G.R. No. 34683), both at the
instance of the Lims, on the question of reopening before the
amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil
Case No. 75180) to stop the foreclosure sale on the ground of
lack of republication. On December 19,1977 they obtained a
restraining order in said case, but this notwithstanding, on the
very same date they filed another action (Civil Case No.
117262) in a different branch of the same Court of First Instance
of Manila to enjoin the foreclosure sale on the same ground of
alleged lack of republication. At about this time, Syjuco
republished the notice of sale in order, as it was later to
manifest, to end all further dispute.
That move met with no success. The Lims managed to
persuade the judge in Civil Case No. 75180, notwithstanding his
conviction that the amended decision in said case had already
become final, not only to halt the foreclosure sale but also to
authorize said respondents to dispose of the mortgaged
property at a private sale upon posting a bond of P6,000,000.00
(later increased by P3,000,000.00) to guarantee payment of
Syjuco's mortgage credit. This gave the Lims a convenient
excuse for further suspension of the foreclosure sale by
introducing a new wrinkle into their contentions-that the bond
superseded the mortgage which should, they claimed, therefore
be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a
period of three years, Syjuco found itself fighting a legal battle
on two fronts: in the already finally decided Civil Case No.
75180 and in Civil Case No. 117262, upon the single issue of
alleged lack of republication, an issue already mooted by the
Lims' earlier waiver of republication as a condition for the
issuance of the original restraining order of December 26,1968
in Civil Case No. 75180, not to mention the fact that said
petitioner had also tried to put an end to it by actually
republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having
apparently fallen on deaf ears, Syjuco went to this Court (in
G.R. No. L-56014) from which, on September 21, 1982, it
obtained the decision already referred to holding, in fine, that
there existed no further impediment to the foreclosure sale and
that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the
foreclosure, apparently gave the signal for the clandestine filing
this time — by the Partnership of the Heirs of Hugo Lim -on
October 14,1982 of Civil Case No. Q-36485, the subject of the
present petition, which for the first time asserted the claim that
the mortgaged property had been contributed to the plaintiff
partnership long before the execution of the Syjuco's mortgage
in order to defeat the foreclosure.

Syjuco now maintains that it had no actual knowledge of the
existence and pendency of Civil Case No. Q-36485 until
confronted, in the manner already adverted to, with the fait
accompli of a "final" judgment with permanent injunction therein,
and nothing in the record disabuses the Court about the truth of
this disclaimer. Indeed, considering what had transpired up to
that denouement, it becomes quite evident that actuations of the
Lims and their lawyer had been geared to keeping Syjuco in the
dark about said case. Their filing of two other cases also
seeking to enjoin the foreclosure sale (Civil Case No. 83-19018,
Regional Trial Court of Manila in July 1983, and Civil Case No.
Q-32924, Regional Trial Court of Quezon City in September of
the same year) after said sale had already been permanently
enjoined by default judgment in Civil Case No. Q-36485,
appears in retrospect to be nothing but a brace of feints
calculated to keep Syjuco in that state of ignorance and to lull
any apprehensions it mat may have harbored about
encountering further surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid
movement of Civil Case No. Q-36485 itself in its earlier stages,
which saw the motion to declare Syjuco in default filed, an order
of default issued, evidence ex partefor the plaintiffs received
and judgment by default rendered, all within the brief span of
twelve days, February 10-22, 1983. Notice of said judgment
was "served" on February 23, 1983, the day after it was handed
down, only to be followed by an unaccountable lull of well over a
year before it was ordered executed on July 9, 1984 —
unaccountable, considering that previous flurry of activity,
except in the context of a plan to rush the case to judgment and
then divert Syjuco's attention to the Lims' moves in other
directions so as to prevent discovery of the existence of the
case until it was too late.
The Court cannot but condemn in the strongest terms this
trifling with the judicial process which degrades the
administration of justice, mocks, subverts and misuses that
process for purely dilatory purposes, thus tending to bring it into
disrepute, and seriously erodes public confidence in the will and
competence of the courts to dispense swift justice.
Upon the facts, the only defense to the foreclosure that could
possibly have merited the full-blown trial and appeal
proceedings it actually went through was that of alleged usury
pleaded in Civil Case No. 75180 and finally decided against the
respondent Lims in G.R. No. L-45752 in September 1977. The
other issues of failure to republish and discharge of mortgage
by guarantee set up in succeeding actions were sham issues,
questions without substance raised only for purposes of delay
by the private respondents, in which they succeeded only too
well. The claim urged in this latest case: that the mortgaged
property had been contributed to the respondent partnership
and was already property of said partnership when the
individual Lims unauthorizedly mortgaged it to Syjuco, is of no
better stripe, and this, too, is clear from the undisputed facts
and the legal conclusions to be drawn therefrom.
The record shows that the respondent partnership is composed
exclusively of the individual Lims in whose name all the cases
herein referred to, with the sole exception of Civil Case No.
Q-36485, were brought and prosecuted, their contribution to the
partnership consisting chiefly, if not solely, of the property
subject of the Syjuco mortgage. It is also a fact that despite its
having been contributed to the partnership, allegedly on March
30, 1959, the property was never registered with the Register of
Deeds in the name of the partnership, but to this date remains
registered in the names of the Lims as owners in common. The
original mortgage deed of November 14,1964 was executed by
the Lims as such owners, as were all subsequent amendments
of the mortgage. There can be no dispute that in those
circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution.
The legal fiction of a separate juridical personality and existence
will not shield it from the conclusion of having such knowledge
which naturally and irresistibly flows from the undenied facts. It
41
would violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as commonly
known to all the partners or of acts in which all of the latter,
without exception, have taken part, where such matters or acts
affect property claimed as its own by said partnership.
If, therefore, the respondent partnership was inescapably
chargeable with knowledge of the mortgage executed by all the
partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than
seventeen years, brought into play the doctrine of estoppel to
preclude any attempt to avoid the mortgage as allegedly
unauthorized.
The principles of equitable estoppel, sometimes called
estoppel in pais, are made part of our law by Art. 1432 of the
Civil Code. Coming under this class is estoppel by silence,
which obtains here and as to which it has been held that:
... an estoppel may arise from silence as well as from words.
'Estoppel by silence' arises where a person, who by force of
circumstances is under a duty to another to speak, refrains from
doing so and thereby leads the other to believe in the existence
of a state of facts in reliance on which he acts to his prejudice.
Silence may support an estoppel whether the failure to speak is
intentional or negligent.
Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise
an equitable estoppel. When the silence is of such a character
and under such circumstances that it would become a fraud on
the other party to permit the party who has kept silent to deny
what his silence has induced the other to believe and act on, it
will operate as an estoppel. This doctrine rests on the principle
that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience
he ought to remain silent. He who remains silent when he ought
to speak cannot be heard to speak when he should be silent. 40
And more to the point:
A property owner who knowingly permits another to sell or
encumber the property, without disclosing his title or objecting to
the transaction, is estopped to set up his title or interest as
against a person who has been thereby misled to his injury.
xxx
An owner of real property who stands by and sees a third
person selling or mortgaging it under claim of title without
asserting his own title or giving the purchaser or mortgagee any
notice thereof is estopped, as against such purchaser or
mortgagee, afterward to assert his title; and, although title does
not pass under these circumstances, a conveyance will be
decreed by a court of equity. Especially is the rule applicable
where the party against whom the estoppel is claimed, in
addition to standing by, takes part in malting the sale or
mortgage. 41
More specifically, the concept to which that species of estoppel
which results from the non-disclosure of an estate or interest in
real property has ordinarily been referred is fraud, actual or
constructive. ... Although fraud is not an essential element of the
original conduct working the estoppel, it may with perfect
property be said that it would be fraudulent for the party to
repudiate his conduct, and to assert a right or claim in
contravention thereof. 42
Equally or even more preclusive of the respondent partnership's
claim to the mortgaged property is the last paragraph of Article
1819 of the Civil Code, which contemplates a situation
duplicating the circumstances that attended the execution of the

mortgage in favor of Syjuco and therefore applies foursquare
thereto:
Where the title to real property is in the names of all the
partners a conveyance executed by all the partners passes all
their rights in such property.
The term "conveyance" used in said provision, which is taken
from Section 10 of the American Uniform Partnership Act,
includes a mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it has been
held that the right to mortgage is included in the right to convey.
This is different from the rule in agency that a special power to
sell excludes the power to mortgage (Art. 1879). 43
As indisputable as the propositions and principles just stated is
that the cause of action in Civil Case No. Q-36485 is barred by
prior judgment. The right subsumed in that cause is the
negation of the mortgage, postulated on the claim that the
parcels of land mortgaged by the Lims to Syjuco did not in truth
belong to them but to the partnership. Assuming this to be so,
the right could have been asserted at the time that the Lims
instituted their first action on December 24, 1968 in the Manila
Court of First Instance, Civil Case No. 75180, or when they filed
their subsequent actions: Civil Case No. 112762, on December
19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case No.
Q-39294, also in 1983. The claim could have been set up by the
Lims, as members composing the partnership, "Heirs of Hugo
Lim." It could very well have been put forth by the partnership
itself, as co-plaintiff in the corresponding complaints,
considering that the actions involved property supposedly
belonging to it and were being prosecuted by the entire
membership of the partnership, and therefore, the partnership
was in actuality, the real party in interest. In fact, consistently
with the Lims' theory, they should be regarded, in all the actions
presented by them, as having sued for vindication, not of their
individual rights over the property mortgaged, but those of the
partnership. There is thus no reason to distinguish between the
Lims, as individuals, and the partnership itself, since the former
constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for
all intents and purposes and consistently with the Lims' own
theory, it was that partnership which was the real party in
interest in all the actions; it was actually represented in said
actions by all the individual members thereof, and consequently,
those members' acts, declarations and omissions cannot be
deemed to be simply the individual acts of said members, but in
fact and in law, those of the partnership.
What was done by the Lims — or by the partnership of which
they were the only members-was to split their cause of action in
violation of the well known rule that only one suit may be
instituted for a single cause of action. 44 The right sought to be
enforced by them in all their actions was, at bottom, to strike
down the mortgage constituted in favor of Syjuco, a right which,
in their view, resulted from several circumstances, namely that
the mortgage was constituted over property belonging to the
partnership without the latter's authority; that the principal
obligation thereby secured was usurious; that the publication of
the notice of foreclosure sale was fatally defective,
circumstances which had already taken place at the time of the
institution of the actions. They instituted four (4) actions for the
same purpose on one ground or the other, making each ground
the subject of a separate action. Upon these premises,
application of the sanction indicated by law is caned for, i.e., the
judgment on the merits in any one is available as a bar in the
others. 45
The first judgment-rendered in Civil Case No. 75180 and
affirmed by both the Court of Appeals (CA-G.R. No. 51752) and
this Court (G.R. No. L-45752) should therefore have barred all
the others, all the requisites of res judicata being present. The
judgment was a final and executory judgment; it had been
42
rendered by a competent court; and there was, between the first
and subsequent cases, not only identity of subject-matter and of
cause of action, but also of parties. As already pointed out, the
plaintiffs in the first four (4) actions, the Lims, were representing
exactly the same claims as those of the partnership, the plaintiff
in the fifth and last action, of which partnership they were the
only members, and there was hence no substantial difference
as regards the parties plaintiff in all the actions. Under the
doctrine of res judicata, the judgment in the first was and should
have been regarded as conclusive in all other, actions not only
"with respect to the matter directly adjudged," but also "as to
any other matter that could have been raised in relation thereto.
" 46 It being indisputable that the matter of the partnership's
being the owner of the mortgaged properties "could have been
raised in relation" to those expressly made issuable in the first
action, it follows that that matter could not be re-litigated in the
last action, the fifth.
Though confronted with the facts thus precluding the
respondent partnership's claim to the property under both the
principle of estoppel and the provisions of Article 1819, last
paragraph, of the Civil Code, as well as the familiar doctrine of
res judicata, the respondent Judge refused to act on Syjuco's
motions on the ground that he no longer had jurisdiction to do
so because they were filed after judgment by default against
Syjuco, which failed to answer the complaint despite valid
service of summons, had been rendered and become final. The
sheriffs return, however, creates grave doubts about the
correctness of the Judge's basic premise that summons had
been validly served on Syjuco. For one thing, the return 47 is
unspecific about where service was effected. No safe
conclusion about the place of service can be made from its
reference to a former and a present office of Syjuco in widely
separate locations, with nothing to indicate whether service was
effected at one address or the other, or even at both. A more
serious defect is the failure to name the person served who is,
with equal ambiguity, identified only as "the Manager" of the
defendant corporation (petitioner herein). Since the sheriffs
return constitutes primary evidence of the manner and incidents
of personal service of a summons, the Rules are quite specific
about what such a document should contain:
SEC. 20. Proof of service. — The proof of service of a
summons shall be made in writing by the server and shall set
forth the manner, place and date of service; shall specify any
papers which have been served with the process and the name
of the person who received the same; and shall be sworn to
when made by a person other than a sheriff or his deputy. 48
In the case of Delta Motor Sales Corporation vs. Mangosing 49 it
was held that:"
(a) strict compliance with the mode of service is necessary to
confer jurisdiction of the court over a corporation. The officer
upon whom service is made must be one who is named in the
statute; otherwise the service is insufficient. So, where the
statute requires that in the case of a domestic corporation
summons should be served on 'the president or head of the
corporation, secretary, treasurer, cashier or managing agent
thereof, service of summons on the secretary's wife did not
confer jurisdiction over the corporation in the foreclosure
proceeding against it. Hence, the decree of foreclosure and the
deficiency judgment were void and should be vacated (Reader
vs. District Court, 94 Pacific 2nd 858).
The purpose is to render it reasonably certain that the
corporation will receive prompt and proper notice in an action
against it or to insure that the summons be served on a
representative so integrated with the corporation that such
person will know what to do with the legal papers served on
him. In other words, 'to bring home to the corporation notice of
the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes
Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C.
Fla., 23 F.R.D. 249).

The liberal construction rule cannot be invoked and utilized as a
substitute for the plain legal requirements as to the manner in
which summons should be served on a domestic corporation
(U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd
260).'
The rule cannot be any less exacting as regards adherence to
the requirements of proof of service, it being usually by such
proof that sufficiency of compliance with the prescribed mode of
service is measured. Here the only proof of service of summons
is the questioned sheriff's return which, as already pointed out,
is not only vague and unspecific as to the place of service, but
also neglects to Identify by name the recipient of the summons
as required by Rule 20, Section 14, of the Rules of Court.
Where the sheriffs return is defective the presumption of
regularity in the performance of official functions will not
lie. 50 The defective sheriffs return thus being insufficient and
incompetent to prove that summons was served in the manner
prescribed for service upon corporations, there is no alternative
to affirming the petitioner's claim that it had not been validly
summoned in Civil Case No. Q-36485. It goes without saying
that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void all
subsequent proceedings and issuances in the action from the
order of default up to and including the judgment by default and
the order for its execution. 51
The respondents' contention that the petition is in effect an
action to annul a judgment which is within the exclusive original
jurisdiction of the Court of Appeals52 has already been
answered in Matanguihan vs. Tengco 53 where, by declaring
that an action for annulment of judgment is not a plain, speedy
and adequate remedy, this Court in effect affirmed that certiorari
is an appropriate remedy against judgments or proceedings
alleged to have been rendered or had without valid service of
summons. 54
Respondent Judge Castro begged the question when, instead
of resolving on the merits the issue of the invalidity of his default
judgment and of the proceedings leading thereto because of
absence of valid service of summons on the defendant, which
had been expressly raised in the defendant's motion for
reconsideration, he simply refused to do so on the excuse that
he had lost jurisdiction over the case. This refusal was, in the
premises, a grave abuse of judicial discretion which must be
rectified.
What has been said makes unnecessary any further
proceedings in the Court below, which might otherwise be
indicated by the consideration that two of the postulates of
petitioner's unresolved motions which the Court considers
equally as decisive as res judicata, to wit: estoppel by silence
and Article 1819, last paragraph, of the Civil Code, do not
constitute grounds for a motion to dismiss under rule 16, of the
Rules of Court. Such a step would only cause further delay. And
delay has been the bane of petitioner's cause, defying through
all these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that
the claim to the mortgaged property belatedly and in apparent
bad faith pressed by the respondent partnership is foreclosed
by both law and equity. Further proceedings will not make this
any clearer than it already is. The Court is clothed with ample
authority, in such a case, to call a halt to all further proceedings
and pronounce judgment on the basis of what is already
manifestly of record.
So much for the merits; the consequences that should attend
the inexcusable and indefensible conduct of the respondents
Lims, the respondent partnership and their counsel, Atty.
Paterno R. Canlas, should now be addressed. That the Lims
and their partnership acted in bad faith and with intent to
defraud is manifest in the record of their actuations, presenting
as they did, piecemeal and in one case after another, defenses
43
to the foreclosure or claims in derogation thereof that were
available to them from the very beginning — actuations that
were to stave off the liquidation of an undenied debt for more
than twenty years and culminated in the clandestine filing and
prosecution of the action subject of the present petition.
What has happened here, it bears repeating, is nothing less
than an abuse of process, a trifling with the courts and with the
rights of access thereto, for which Atty. Canlas must share
responsibility equally with his clients. The latter could not have
succeeded so well in obstructing the course of justice without
his aid and advice and his tireless espousal of their claims and
pretensions made in the various cases chronicled here. That the
cause to which he lent his advocacy was less than just or
worthy could not have escaped him, if not at the start of his
engagement, in the years that followed when with his willing
assistance, if not instigation, it was shuttled from one forum to
another after each setback. This Court merely stated what is
obvious and cannot be gainsaid when, in Surigao Mineral
Reservation Board vs. Cloribel, 55 it held that a party's lawyer of
record has control of the proceedings and that '(w)hatever steps
his client takes should be within his knowledge and
responsibility."
In Prudential Bank vs. Castro, 56 strikingly similar actuations in a
case, which are described in the following paragraph taken from
this Court's decision therein:
Respondents' foregoing actuations reveal an 'unholy alliance'
between them and a clear indication of partiality for the party
represented by the other to the detriment of the objective
dispensation of justice. Writs of Attachment and Execution were
issued and implemented with lightning speed; the case itself
was railroaded to a swift conclusion through a similar judgment;
astronomical sums were awarded as damages and attorney's
fees; and topping it all, the right to appeal was foreclosed by
clever maneuvers," and which, the Court found, followed a
pattern of conduct in other cases of which judicial notice was
taken, were deemed sufficient cause for disbarment.
Atty. Canlas even tried to mislead this Court by claiming that he
became the Lims' lawyer only in 1977, 57 when the record
indubitably shows that he has represented them since
September 9, 1972 when he first appeared for them to
prosecute their appeal in Civil Case No. 75180. 58 He has also
quite impenitently disclaimed a duty to inform opposing counsel
in Civil Case No. Q-39294 of the existence of Civil Case No.
Q-36485, as plaintiffs' counsel in both actions, even while the
former, which involved the same mortgage, was already being
litigated when the latter was filed, although in the circumstances
such disclosure was required by the ethics of his profession, if
not indeed by his lawyer's oath.
A clear case also exists for awarding at least nominal damages
to petitioner, though damages are not expressly prayed for,
under the general prayer of the petition for "such other reliefs as
may be just and equitable under the premises," and the action
being not only of certiorari and prohibition, but also of
mandamus-in which the payment of "damages sustained by the
petitioner by reason of the wrongful acts of the defendant' is
expressly authorized. 59
There is no question in the Court's mind that such interests as
may have accumulated on the mortgage loan will not offset the
prejudice visited upon the petitioner by the excruciatingly long
delay in the satisfaction of said debt that the private
respondents have engineered and fomented.
These very same considerations dictate the imposition of
exemplary damages in accordance with Art. 2229 of the Civil
Code.
WHEREFORE, so that complete justice may be dispensed here
and, as far as consistent with that end, all the matters and
 44
incidents with which these proceedings are concerned may be
brought to a swift conclusion:

(1) the assailed judgment by default in Civil Case No.Q-36485,

the writ of execution and all other orders issued in
implementation thereof, and all proceedings in the case leading
to said judgment after the filing of the complaint are DECLARED
null and void and are hereby SET ASIDE; and the complaint in
said case is DISMISSED for being barred by prior judgment and
estoppel, and for lack of merit;

(2) the City Sheriff of Manila is ORDERED, upon receipt of this

Decision, to schedule forthwith and thereafter conduct with all
due dispatch the sale at public auction of the mortgaged
property in question for the satisfaction of the mortgage debt of
the respondents Lims to petitioner, in the principal amount of
P2,460,000.00 as found in the amended decision in Civil Case
No. 75180 of the Court of First Instance of Manila, interests
thereon at the rate of twelve (12%) percent per annum from
November 8, 1967 until the date of sale, plus such other and
additional sums for commissions, expenses, fees, etc. as may
be lawfully chargeable in extrajudicial foreclosure and sale
proceedings;

(3) the private respondents, their successors and assigns, are

PERPETUALLY ENJOINED from taking any action whatsoever
to obstruct, delay or prevent said auction sale;

(4) the private respondents (the Lims, the Partnership of the

Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced,
jointly and severally, to pay the petitioner P25,000.00 as
nominal damages and P100,000.00 as exemplary damages, as
well as treble costs; and

(5) let this matter be referred to the Integrated Bar of the

Philippines for investigation, report, and recommendation
insofar as the conduct of Atty. Canlas as counsel in this case
and in the other cases hereinabove referred to is concerned.

SO ORDERED.