Business ORG 1 Final Part 2 of 4 From PDF

Bus Org1 Atty Ong Abrantes Part 2 of 4
G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.
MALCOLM, J.:
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.
Page 1 of 303
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio
principal en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de
Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las
Islas Filipinas, dividido en cinco acciones de a P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . P6,000.00

....
Go Tayco . . . . . . . . . . . . . . . . . . . . . 6,000.00
.....
Yap Gueco . . . . . . . . . . . . . . . . . . . . 6,000.00

....
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . 6,000.00
.....
Lim Yogsing . . . . . . . . . . . . . . . . . . . 6,000.00

....
Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00
Que la duracion de la sociedad sera la de seis años, a contar de la fecha de esta

escritura, pudiendo prorrogarse este tiempo a discrecion unanime de todos los
accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en general.
El administrador o administradores de la sociedad podran, previa conformidad

de los accionistas, establecer cuantas sucursales o establecimientos considere
necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que
se dedica la sociedad, verificando todas las operaciones que crean convenientes
para el fomento de su capital.
Las ganancias o perdidas que resultaren durante cada año comercial, se

distribuiran proporcionalmente entre los accionistas, de acuerdo con el capital
aportado por cada uno de los mismos.
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.
Page 2 of 303
Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera
cantidad o cantidades de la sociedad, que haya sido aportado por los mismos,
para atender sus gastos particulares ni aun pagando redito alguno sobre la
cantidad que intenen disponer o extraer de dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson
Jo, la administracion de la Compañia, quienes podran usar indistintamente la
firma social, quedando por consiguiente autorizados amobs para hacer en
nombre de ella toda calse de operaciones, negocios y especulaciones
mercantiles, practicando judicial y extra-judicialment cuantos actos se requieran
para el bien de la sociedad, nombrar procuradores o abogados para
reclamaciones y cobro de creditos y proponer ante los tribunales las demandas,
convenios, transacciones y excepciones procdentes. En caso de ausencia,
enfermedad o cualquier otro impedimento del accionista administrador Sr. Lim
Yogsing, este podra conferir poder general o especial al accionista que crea
conveniente para que en union del administrador auxiliar Sr. Vicente Jocson Jo,
pudieran ambos administrar convenientemente los negocios de la sociedad. Que
los administradores podran tener los empleados necesarios para el mejor que
debieran percibir dichos empleados por servicios rendidos a la sociedad.
Que ambos administradores podran disponer de mil discientos pesos (P1,200)

moneda filipina, anualmente, para sus gastos particulares, siendo dicha cantidad
de P1,200 la que corresponde a cada uno de dichos administradores, como
emolumentos o salarios que se les asigna a cas uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas podran
disponer cada fin de añola gratificacion quese concedera a cada administrador,
si los negocios del año fueran boyantes y justifiquen la concesion de una
gratificacion especial, aparte del salario aqui dispuesto y especificado.
Que pasado el termino de seis años, y es de la conveniencia de los accionistas

la continuacion del negocio de esta sociedad, dicho termino sera prorrogado por
igual numero de años, sin necesidas del otorgamiento de ulteriores escrituras,
quedando la presente en vigor hasta el termino dispuesto por todos los
accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por
razon de lo estipulado en esta en ella comprendidos, se procurara arreglar entre
los mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de
este modo, dichos accionistas nombraran un arbitro, cuya resolucion estan todos
obligados y por la presente se comprometen y se obligan a acatarla en todas sus
partes, renunciando ulteriores recursos.
En cuyos terminos dejamos formalizada esta escritura de sociedad

mercantillimitada, y prometemos cumplirla fiel y estrictamente segun los pactos
que hemos establecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de

Cebu, Islas Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
Page 3 of 303
(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,
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920
"Asiento No. 157

Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º
Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun el

asiento No. 125, pagina 9 del Tomo 1.º del Libro Diario. Cebu, 11 de febrero de
1920.
Page 4 of 303
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-
Officio"
Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del
Tomo 3.º del Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de
1920. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711,
Codigo Administrativo.
(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-
Officio"
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not
a corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is
accidental partnership denominated cuenta en participacion (joint account association).
Counsel for the petitioner and appellee described his client in once place in his
opposition to the motion of the creditors as "una verdadera sociedad anonima" (a
true sociedad anonima). The provisions of the Code of Commerce relating
to sociedades anonimas were, however, repealed by section 191 of the Corporation
Law (Act No. 1459), with the exceptions the sociedades anonimas lawfully organized at
the time of the passage of the Corporation Law were recognized, which is not our case.
The document providing for the partnership contract purported to form "una sociedad
mercantil limitada," and counsel for the petitioner's first contention was that Teck Seing
& Co., Ltd., was not "una sociedad regular colectiva, ni siquiera comanditaria, sino una
sociedad mercantil limitada." Let us see if the partnership contract created a "sociedad
en comandita," or, as it is known in English, and will hereafter be spoken of, "a limited
partnership."
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
Page 5 of 303
of its signature is instrusted; the capital which each partner contributes in cash, credits,
or property, stating the value given the latter or the basis on which their appraisement is
to be made; the duration of the copartnership; and the amounts which, in a proper case,
are to be given to each managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of one only. Turning
to the document before us, it will be noted that all of the requirements of the Code have
been met, with the sole exception of that relating to the composition of the firm name.
We leave consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to the
effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto"
solamente" (only a de facto commercial association), and that the decision of the
Supreme court in the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil.,
498), is controlling. It was this argument which convinced the trial judge, who gave
effect to his understanding of the case last cited and which here must be given serious
attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm
Kieng-Chiong-Seng was not organized by means of any public document; that the
partnership had not been recorded in the mercantile registry; and that Kieng-Chiong-
Seng was not proven to be the firm name, but rather the designation of the partnership.
The conclusion then was, that the partnership in question was merely de facto and that,
therefore, giving effect to the provisions of article 120 of the Code of Commerce, the
right of action was against the persons in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by
side with the facts before us, a marked difference is at once disclosed. In the cited case,
the organization of the partnership was not evidenced by any public document; here, it
is by a public document. In the cited case, the partnership naturally could not present a
public instrument for record in the mercantile registry; here, the contract of partnership
has been duly registered. But the two cases are similar in that the firm name failed to
include the name of any of the partners.
We come then to the ultimate question, which is, whether we should follow the decision
in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the
two cases, holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding the
failure of the firm name to include the name of one of the partners. Let us now notice
this decisive point in the case.
Article 119 of the Code of Commerce requires every commercial association before
beginning its business to state its article, agreements, and conditions in a public
instrument, which shall be presented for record in the mercantile registry. Article 120,
next following, provides that the persons in charge of the management of the
association who violate the provisions of the foregoing article shall be responsible in
solidum to the persons not members of the association with whom they may have
transacted business in the name of the association. Applied to the facts before us, it
would seem that Teck Seing & Co., Ltd. has fulfilled the provisions of article 119.
Moreover, to permit the creditors only to look to the person in charge of the
Page 6 of 303
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.
Page 7 of 303
The general rule is well settled that, where statutes enacted to protect the public
against fraud or imposition, or to safeguard the public health or morals, contain a
prohibition and impose a penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
violation of it unlawful and unforceable at the instance of the offending party only,
but not as designed to take away the rights of innocent parties who may have
dealt with the offenders in ignorance of their having violated the statute. (Cashin
vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial

purposes. It fails to comply with the requirements of article 119. A creditor sues
the partnership for a debt contracted by it, claiming to hold the partners severally.
They answer that their failure to comply with the Code of Commerce makes them
a civil partnership and that they are in accordance with article 1698 of the Civil
Code only liable jointly. To allow such liberty of action would be to permit the
parties by a violation of the Code to escape a liability which the law has seen fit
to impose upon persons who organized commercial partnership; "Because it
would be contrary to all legal principles that the nonperformance of a duty should
redound to the benefit of the person in default either intentional or unintentional."
(Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco
[1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following
comment after articles 121 and 126 of the Code:
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.
Page 8 of 303
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
Page 9 of 303
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.
Araullo, C.J., Johnson, Street, Avanceña, Villamor, Johns and Romualdez, JJ., concur.
Page 10 of 303
G.R. No. L-3704 December 12, 1907
LA COMPAÑIA MARITIMA, plaintiff-appellant,

vs.
FRANCISCO MUÑOZ, ET AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.
WILLARD, J.:
The plaintiff brought this action in the Court of First Instance of Manila against the
partnership of Franciso Muñoz & Sons, and against Francisco Muñoz de Bustillo, Emilio
Muñoz de Bustillo, and Rafael Naval to recover the sum of P26,828.30, with interest
and costs. Judgment was rendered in the court below acquitting Emilio Muñoz de
Bustillo and Rafael Naval of the complaint, and in favor of the plaintiff and against the
defendant partnership, Francisco Muñoz & Sons, and Francisco Muñoz de Bustillo form
the sum of P26,828.30 with interest at the rate of 8 per cent per annum from the 31st
day of March, 1905, and costs. From this judgment the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and
Rafael Naval formed on ordinary general mercantile partnership under the name of
Francisco Muñoz & Sons for the purpose of carrying on the mercantile business in the
Province of Albay which had formerly been carried on by Francisco Muñoz. Francisco
Muñoz was a capitalist partner and Emilio Muñoz and Rafael Naval were industrial
partners.
It is said in the decision of the court below that in the articles of partnership it was called
an ordinary, general mercantile partnership, but that from the article it does not appear
to be such a partnership. In the brief of the appellees it is also claimed that it is not an
ordinary, general commercial partnership. We see nothing in the case to support either
the statement of the court below in its decision or the claim of the appellees in their
brief. In the articles of partnership signed by the partners it is expressly stated that they
have agreed to form, and do form, an ordinary, general mercantile partnership. The
object of the partnership, as stated in the fourth paragraph of the articles, is a purely
mercantile one and all the requirements of the Code of Commerce in reference to such
partnership were complied with. The articles of partnership were recorded in the
mercantile registry in the Province of Albay. If it should be held that the contract made in
this case did not create an ordinary, general mercantile partnership we do not see how
one could be created.
The claim of the appellees that Emilio Muñoz contributed nothing to the partnership,
either in property, money, or industry, can not be sustained. He contributed as much as
did the other industrial partner, Rafael Naval, the difference between the two being that
Rafael Naval was entitled by the articles of agreement to a fixed salary of P2,500 as
Page 11 of 303
long as he was in charge of the branch office established at Ligao. If he had left that
branch office soon after the partnership was organized, he would have been in the
same condition then that Emilio Muñoz was from the beginning. Such a change would
have deprived him of the salary P2,500, but would not have affected in any way the
partnership nor have produced the effect of relieving him from liability as a partner. The
argument of the appellees seems to be that, because no yearly or monthly salary was
assigned to Emilio Muñoz, he contributed nothing to the partnership and received
nothing from it. By the articles themselves he was to receive at the end of five years
one-eighth of the profits. It can not be said, therefore, that he received nothing from the
partnership. The fact that the receipt of this money was postponed for five years is not
important. If the contention of the appellees were sound, it would result that, where the
articles of partnership provided for a distribution of profits at the end of each year, but
did not assign any specific salary to an industrial partner during that time, he would not
be a member of the partnership. Industrial partners, by signing the articles, agree to
contribute their work to the partnership and article 138 of the Code of Commerce
prohibits them from engaging in other work except by the express consent of the
partnership. With reference to civil partnerships, section 1683 of the Civil Code relates
to the same manner.
It is also said in the brief of the appellees that Emilio Muñoz was entirely excluded from
the management of the business. It rather should be said that he excluded himself from
such management, for he signed the articles of partnership by the terms of which the
management was expressly conferred by him and the others upon the persons therein
named. That partners in their articles can do this, admits of no doubt. Article 125 of the
Code of Commerce requires them to state the partners to whom the management is
intrusted. This right is recognized also in article 132. In the case of Reyes vs. The
Compania Maritima (3 Phil. Rep., 519) the articles of association provided that the
directors for the first eight years should be certain persons named therein. This court
not only held that such provision was valid but also held that those directors could not
be removed from office during the eight years, even by a majority vote of all the
stockholders of the company.
Emilio Muñoz was, therefore, a general partner, and the important question in the case
is whether, as such general partner, he is liable to third persons for the obligations
contracted by the partnership, or whether he relieved from such liability, either because
he is an industrial partner or because he was so relieved by the express terms of the
articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as well as
such as may be obtained from the sale of property and other assets which
constitute the corporate capital, shall be distributed, on completion of the term of
five years agreed to for the continuation of the partnership, in the following
manner: Three-fourths thereof for the capitalist partner Francisco Muñoz de
Bustillo and one-eighth thereof for the industrial partner Emilio Muñoz de Bustillo
y Carpiso, and the remaining one-eighth thereof for the partner Rafael Naval y
Garcia. If, in lieu of profits, losses should result in the winding up of the
partnership, the same shall be for the sole and exclusive account of the capitalist
Page 12 of 303
partner Francisco Muñoz de Bustillo, without either of the two industrial partners
participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of copartnership the
portion of the profits to be received by each partner, said profits shall be divided
pro rata, in accordance with the interest each one has on the copartnership,
partners who have not contributed any capital, but giving their services, receiving
in the distribution the same amount as the partner who contributed the smallest
capital.
ART. 141. Losses shall be charged in the same proportion among the partners
who have contributed capital, without including those who have not, unless by
special agreement the latter have been constituted as participants therein.
A comparison of these articles with the twelfth paragraph above quoted will show that
the latter is simply a statement of the rule laid down in the former. The article do not,
therefore, change the rights of the industrial partners as they are declared by the code,
and the question may be reduced to the very simple one namely, Is an industrial partner
in an ordinary, general mercantile partnership liable to third persons for the debts and
obligations contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference between general

and special partners, but in a general partnership there is no such distinction-- all the
members are general partners. The fact that some may be industrial and some capitalist
partners does not make the members of either of these classes alone such general
partners. There is nothing in the code which says that the industrial partners shall be the
only general partners, nor is there anything which says that the capitalist partners shall
be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property
for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to make
use thereof.
Do the words "all the partners" found in this article include industrial partners? The
same expression is found in other articles of the code. In article 129 it is said that, if the
management of the partnership has not been limited by special act to one of the
partners, all shall have the right to participate in the management. Does this mean that
the capitalist partners are the only ones who have that right, or does it include also
industrial partners? Article 132 provides that, when in the articles of partnership the
management has been intrusted to a particular person, he can not be deprived of such
management, but that in certain cases the remaining partners may appoint a
comanager. Does the phrase "remaining partners" include industrial partners, or is it
limited to capitalist partners, and do industrial partners have no right to participate in the
Page 13 of 303
selection of the comanager? Article 133 provides that all the partners shall have the
right to examine the books of the partnership. Under this article are the capitalist
partners the only ones who have such right? Article 135 provides that the partners can
not use the firm name in their private business. Does this limitation apply only to
capitalist partners or does it extend also to industrial partners? Article 222 provides that
a general partnership shall be dissolve by the death of one of the general partners
unless it is otherwise provided in the articles. Would such a partnership continue if all
the industrial partners should die? Article 229 provides that upon a dissolution of a
general partnership it shall be liquidated by the former managers, but, if all the partners
do not agree to this, a general meeting shall be called, which shall determine to whom
the settlement of the affairs shall be intrusted. Does this phrase "all the partners"
include industrial partners, or are the capitalist partners the only ones who have a voice
in the selection of a manager during a period of liquidation? Article 237 provides that the
private property of the general partners shall not be taken in payment of the obligations
of the partnership until its property has been exhausted. Does the phrase "the general
partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not have been
intended that, in such a partnership as the one in question, where there were two
industrial and only one capitalist partner, the industrial partners should have no voice in
the management of the business when the articles of partnership were silent on that
subject; that when the manager appointed mismanages the business the industrial
partners should have no right to appoint a comanager; that they should have no right to
examine the books; that they might use the firm name in their private business; or that
they have no voice in the liquidation of the business after dissolution. To give a person
who contributed no more than, say, P500, these rights and to take them away from a
person who contributed his services, worth, perhaps, infinitely more than P500, would
be discriminate unfairly against industrial partners.
If the phrase "all the partners" as found in the articles other than article 127 includes
industrial partners, then article 127 must include them and they are liable by the terms
thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be noticed in the
first place that this article does not say that they shall not be liable for losses. Article 140
declares how the profits shall be divided among the partners. This article simply
declares how the losses shall be divided among the partners. The use of the words se
imputaran is significant. The verb means abonar una partida a alguno en su cuenta o
deducirla de su debito. Article 141 says nothing about third persons and nothing about
the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of the code,
where it is clearly intended to impose the liability to third persons, it is not considered
sufficient, but the word "obligations" is added. Thus article 148, in speaking of the
liability of limited partners, uses the phrase las obligaciones y perdidas. There is the
same use of the two same words in article 153, relating to anonymous partnership. In
article 237 the word "obligations" is used and not the word "losses."
Page 14 of 303
The claim of the appellees is that this article 141 fixes the liability of the industrial
partners to third persons for the obligations of the company. If it does, then it also fixes
the liability of the capitalist partners to the same persons for the same obligations. If this
article says that industrial partners are not liable for the debts of the concern, it also
says that the capitalist partners shall be only liable for such debts in proportion to the
amount of the money which they have contributed to the partnership; that is to say, that
if there are only two capitalist partners, one of whom has contributed two-thirds of the
capital and the other one-third, the latter is liable to a creditor of the company for only
one-third of the debt and the former for only two-thirds. It is apparent that, when given
this construction, article 141 is directly in conflict with article 127. It is not disputed by
the appellees that by the terms of article 127 each one of the capitalist partners is liable
for all of the debts, regardless of the amount of his contribution, but the construction
which they put upon article 141 makes such capitalist partners liable for only a
proportionate part of the debts.
There is no injustice in imposing this liability upon the industrial partners. They have a
voice in the management of the business, if no manager has been named in the
articles; they share in the profits and as to third persons it is no more than right that they
should share in the obligations. It is admitted that if in this case there had been a
capitalist partner who had contributed only P100 he would be liable for this entire debt
of P26,000.
Our construction of the article is that it relates exclusively to the settlement of the
partnership affairs among the partners themselves and has nothing to do with the
liability of the partners to third persons; that each one of the industrial partners is liable
to third persons for the debts of the firm; that if he has paid such debts out of his private
property during the life of the partnership, when its affairs are settled he is entitled to
credit for the amount so paid, and if it results that there is not enough property in the
partnership to pay him, then the capitalist partners must pay him. In this particular case
that view is strengthened by the provisions of article 12, above quoted. There it is stated
that if, when the affairs of the partnership are liquidated — that is, at the end of five
years — it turns out that there had been losses instead of gains, then the capitalist
partner, Francisco Muñoz, shall pay such losses — that is, pay them to the industrial
partners if they have been compelled to disburse their own money in payment of the
debts of the partnership.
While this is a commercial partnership and must be governed therefore by the rules of
the Code of Commerce, yet an examination of the provisions of the Civil Code in
reference to partnerships may throw some light upon the question here to be resolved.
Articles 1689 and 1691 contain, in substance, the provisions of articles 140 and 141 of
the Code of Commerce. It is to be noticed that these articles are found in section 1 of
Chapter II [Title VIII] of Book IV. That section treats of the obligations of the partners
between themselves. The liability of the partners as to third persons is treated in a
distinct section, namely, section 2, comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third persons for
the debts of the firm, then industrial partners in civil partnerships are not. Waiving the
question as to whether there can be a commercial partnership composed entirely of
Page 15 of 303
industrial partners, it seems clear that there can be such civil partnership, for article
1678 of the Civil Code provides as follows:
A particular partnership has for its object specified things only, their use of profits,
or a specified undertaking, or the exercise of a profession or art.
It might very easily happen, therefor, that a civil partnership could be composed entirely
of industrial partners. If it were, according to the claim of the appellees, there would be
no personal responsibility whatever for the debts of the partnership. Creditors could rely
only upon the property which the partnership had, which in the case of a partnership
organized for the practice of any art or profession would be practically nothing. In the
case of Agustin vs. Inocencio, 1 just decided by this court, it was alleged in the
complaint, and admitted by the answer —
That is partnership has been formed without articles of association or capital

other than the personal work of each one of the partners, whose profits are to be
equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may acquire by their by
their industry or work during the continuation of the partnership.
Personal or real property which each of the partners may possess at the time of
the celebration of the agreement shall continue to be their private property, the
usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of the partners would
have any private property and that if they did the usufruct thereof would be
inconsiderable.
Having in mind these different cases which may arise in the practice, that construction
of the law should be avoided which would enable two persons, each with a large
amount of private property, to form and carry on a partnership and, upon the bankruptcy
of the latter, to say to its creditors that they contributed no capital to the company but
only their services, and that their private property is not, therefore, liable for its debts.
But little light is thrown upon this question by the authorities. No judgment of the
supreme court of Spain has been called to our attention, and we have been able to find
none which refers in any way to this question. There is, therefore, no authority from the
tribunal for saying that an industrial partner is not liable to third persons for the debts of
the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is

said that industrial partners are not liable for debts. The author, at page 127, divides
general partnership into ordinary and irregular. The irregular partnership are those
which include one or more industrial partners. It may be said in passing that his views
can not apply to this case because the articles of partnership directly state that it is an
ordinary partnership and do not state that it is an irregular one. But his view of the law
Page 16 of 303
seems to be derived from something other than the Code of Commerce now in force.
He says:
. . . but it has not been very fortunate in sketching the characters of a regular
collective partnership (since it says nothing conclusive in reference to the
irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not because the writer
entirely overlooked the fact that there might exist industrial partners who did not
contribute with capital in money, credits, or goods, which partners generally
participate in the profits but not in the losses, and whose position must also be
determined in the articles of copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that it has been
forgotten that in collective partnerships there are industrial partners who, not
being jointly liable for the obligations of the copartnership, should not include
their names in that of the firm. (p. 129.)
As a logical result of his theory he says that an industrial partner has no right to
participate in the administration of the partnership and that his name can not appear in
the firm name. In this last respect his view is opposed to that of Manresa, who says
(Commentaries on the Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his industry to the
concern can also confer upon it the name or the corporate name under which
such industry should be carried on. In this case, so long as the copartnership
lasts, it can enjoy the credit, reputation, and name or corporate name under
which such industry is carried on; but upon dissolution thereof the aforesaid
name or corporate name pertains to the partner who contributed the same, and
he alone is entitled to use it, because such a name or style is an accessory to the
work of industrial partner, and upon recovering his work or his industry he also
recovers his name or the style under which he exercised his activity. It has thus
been decided by the French court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are found two kinds of
partners, one with unlimited responsibility and the other with limited responsibility, but
adopting his view as to industrial partners, it should be said that there are three kinds of
partners, one with unlimited responsibility, another with limited responsibility, and the
third, the industrial partner, with no responsibility at all. In Estasen's recent publication
on mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes from the
work of Benito, but we do not understand that he commits himself to the doctrines
therein laid down. In fact, in his former treatise, Instituciones de Derecho Mercantil (vol.
3, pp. 1-99), we find nothing which recognizes the existence of these irregular general
partnerships, or the exemption from the liability to third persons of the industrial
partners. He says in his latter work (p. 186) that according to Dr. Benito the irregular
Page 17 of 303
general partner originated from the desire of the partnership to associate with itself
some old clerk or employee as a reward for his services and the interest which he had
shown in the affairs of the partnership, giving him in place of a fixed salary a
proportionate part of the profits of the business. Article 269 of the Code of Commerce of
1829 relates to this subject and apparently provides that such partners shall not be
liable for debts. If this article was the basis for Dr. Benito's view, it can be so no longer,
for it does not appear in the present code. We held in the case of Fortis vs. Gutirrez
Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not make the
employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil Code, and of
Blanco's Mercantile Law, will shows that no one of these mentions in any way the
irregular general partnership spoken of by Dr. Benito, nor is there anything found in any
one of these commentaries which in any way indicates that an industrial partner is not
liable to third persons for the debts of the partnership. An examination of the French law
will also show that no distinction of that kind is therein anywhere made and nothing can
be found therein which indicates that the industrial partners are not liable for the debts
of the partnership. (Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361,
510, and 512.)
Our conclusion is upon this branch of the case that neither on principle nor on authority
can the industrial partner be relieved from liability to third persons for the debts of the
partnership.
It is apparently claimed by the appellee in his brief that one action can not be
maintained against the partnership and the individual partners, this claim being based
upon the provisions of article 237 of the Code of Commerce which provides that the
private property of the partners shall not be taken until the partnership property has
been exhausted. But this article furnishes to argument in support of the appellee's claim.
An action can be maintained against the partnership and partners, but the judgment
should recognize the rights of the individual partners which are secured by said article
237.lawphil.net
The judgment of the court below is reversed and judgment is ordered against all of the
defendants for the sum of P26,828.30, with interest thereon at the rate of 8 per cent per
annum since the 31st day of March, 1905, and for the cost of this action. Execution of
such judgment shall not issue against the private property of the defendants Francisco
Muñoz, Emilio Muñoz, or Rafael Naval until the property of the defendant Francisco
Muñoz & Sons is exhausted. No costs will be allowed to their party in this court. So
ordered.
Torres, Johnson and Tracey, JJ., concur.
Page 18 of 303
Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is entirely in accordance with the
law.lawphil.net
The question set up in the majority decision, "In a regular collective commercial
company, is an industrial partner liable as to third persons by reason of the debts and
obligations contracted by the copartnership?" I decide in a negative sense; he is not; by
express provision of the law he can not be held to be liable, save, of course, and
agreement to the contrary, which in such case would be a special law, and would set
aside the general law.
The basis for the contrary opinion and decision is article 127 of the Code of Commerce:
All the members of the general copartnership, be they or be they not managing
partners of the same, are personally and in solidum liable with all their property
for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to ake
use thereof.
Now, do the words "all the members" found in this article include the industrial partners?
At first it would appear that they do. In order to complete such reasoning the following
premise will be sufficient: That the industrial partners from the collective partnership;
therefore the industrial partners are personally and jointly liable with all their property for
the results of the transactions made in the name and for account of the partnership.
But they form the collective partnership in the manner in which our laws allows the
same to be formed — that is, by contributing with their industry, not with property.
And the word all, in reference to property, which is common with the three classes of
partnership defined by the code, to wit, collective, limited copartnership (comanditaria),
and corporation (anonima), gives the rule for such personal and joint liability, which is
the purpose of the provision in the above-quoted article.
The above three classes of partnership agree in that property must in each of them be
contributed. "The articles of general copartnership must state . . . the capital which each
partner contributes in cash, credits, or property, stating the value given the latter or the
basis on which their appraisal is to be made." (Art. 125.) "The same statements shall be
included in articles of limited copartnerships (compañias en comandita) which are
required for those of general copartnerships" — that is, among other things, the capital
which each partner contributes. (Art. 145.) "The articles of incorporation (of
corporations) must include . . . the corporate capital, stating the value at which property,
not cash, contributed has been appraised, or the basis on which the appraisal is to be
made; and the number of shares into which the corporate capital is divided and
represented." (Art. 151.)
Page 19 of 303
Now, then, "The liability of the members of a corporation for the obligations and losses
of the same shall be limited to the funds they contributed or bound themselves to
contribute to the corporate capital." (Art. 153.) "The liability of special partners for the
obligations and losses of the copartnership shall be limited to the funds which they
contributed or bound themselves to contribute to the limited copartnership, with the
exception of the sense mentioned in article 147" — that is, if any of them include his
name or permit its conclusion in the firm name. (Art. 148, par. 3.) However, in a
collective partnership the liability is not limited to the funds or property contributed, but
extends to all the property which partners may own within or without the copartnership.
In every mercantile copartnership it is the corporate capital that responds for the
obligations of the same; this is elemental. The members of a joint stock, a limited, or a
collective company respond with their capital for the obligations of the association; in
the joint stock concerns, with their shares; in the limited class, with the amount
contributed; in the collective, with their constituted capital. An industrial partner,
with what principal sum, share, or quota in the corporate capital does he or can he
respond for the obligations of the collective partnership? Evidently with none whatever.
If the capital of the association is exhausted, the extreme case of losses incurred by the
company arises, and third persons can not recover the amount of the obligations of the
company from the corporate capital, because the latter is sufficient to recover them.
Shareholders in the case of a joint stock company, beyond the value of their stock, have
no longer to think of any ulterior subsidiary responsibility. Neither do the partners of a
limited company. In either case the partners are only liable to the extent
of their corporate capital. Collective partners have to respond not only with their
corporate capital but also with the whole of their property outside of the association. And
it is desired that the industrial partner who, in a collective copartnership, did not
primarily respond with his corporate capital, because he had none, shall subsidiary
respond with such property as he may have outside of the company, and with which
nobody, either within or without the copartnership, had counted upon, since both inside
and outside of the company his industry or work only had been reckoned with.
Therefore, the word all, of article 127 cited above, simply denoted the extent of the
ulterior or subsidiary responsibility, and that which does not appear, which does not
materially exist, can hardly be made to apply.
An industrial partner can not engage in transactions of any class whatever, otherwise he
would be subject to serious consequences (art. 138), while a capitalist partner, as a
rule, may so engage without extending profits or liabilities to the company (arts. 134 and
136); an industrial partner, as regards profits, can only receive in the distribution the
same amount as the partner who contributed the smallest amount of capital (art. 140);
in the case at bar, one-eighth goes to each of the two industrial partners, three-fourths
being for the capitalist, and even at the expiration of the copartnership they run the risk
of having the one-eighth of the profits earned in former years absorbed by a total loss
incurred during the last year of the contract of copartnership; and it is claimed that such
industrial partner, so much delayed with regard to profits, who has not the same rights,
shall be under the same obligations as regards obligations because he is a collective
partner? This seems neither just nor logical.
Page 20 of 303
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital, without
including" the industrial partners (since they have not the same rights), and they should
not be included therein nor in the corporation of the partner who contributed the
smallest capital, simply for the reason that the industrial partner has nothing to lose, he
not having contributed anything which the company may lose when the losses of the
copartnership are considered, either among the partners thereof or with regard to third
persons.
There need be no distinction made between obligations and losses. During the
existence of a company the gains or the losses are set off the one against the other,
and the difference is either in favor of or against the concern. As to the industrial
partner, in connection with the question submitted, it is not a matter of striking a balance
from time to time, but one of the final adjustment of assets and liabilities, because the
matter under discussion refers only to his private property, which has nothing to do with
the company nor with losses in liquidating the same. Article 127 is affected by article
237: "The private property of the general partners which is not included in the assets of
the copartnership when it is established can not be seized for the payment of the
obligations contracted by the copartnership until after the common assets have been
attached." And such condition is stated in the majority decision. As long as there is
property belonging to the company, obligations in favor of third persons are covered by
the primary and direct responsibility of the company; the question arises when the
assets of the company are exhausted and it becomes necessary to appeal to the
ulterior or subsidiary liability of the private property of the partners; in this case such
obligations constitute the extreme losses in the liquidation of the company.
The case at bar could only thus be set forth: Should an industrial partner be responsible
for such losses, for such obligations in favor of third persons? Article 141 expressly
states that he shall not. In order to state the contrary it would be necessary to appeal to
discriminations in the wording of said article; and this is neither permitted where the law
does not make them nor would they lead to anything after all. In the aforesaid article
237 the corroboration of the word all of article 127 may be found: "The private property
of the general partners which is not included in the assets of the copartnership,"
differing from such as were included, can not seized for the payment of obligations
contracted by the copartnership, until after the common assets have been attached;
after such attachment all the assets, according to article 127, such as were included,
and those that were not included, in this order, shall be subject to the results of the
transactions of the copartnership. An industrial partner has not contributed any property
whatever; he therefore offers no subject for the principal and direct seizure when the
assets of the copartnership are attached. How is it possible to conceive any ulterior,
subsidiary, indirect responsibility over the property which it was not even thought to be
included, since he only contributed to the company his industry and work, not property
of any class whatever? It seems very anomalous that one who has not obligated himself
in the least should be responsible or the greater part, that he who is not comprehended
within the explicit terms should be included by implication, and that he who pledge
nothing should be held to respond with his property.
As to the nature of the defendant company in this action, I take it to be:lawphil.net
Page 21 of 303
1. That the defendant company is really a collective one such as is described in the
Code of Commerce; the firm of "F. Muñoz & Sons" and the terms of the articles of
association prove it so beyond all doubt.
2. That it is a regular collective company; the word regular means, as employed in the
Code of Commerce, that the collective company is the rule, the standard in all
commercial associations, the one combining all the effects which are consequent upon
this form of convention; and the limited and the joint-stock companies are the exception.
3. That it is not irrelevant in view of the manner in which the present Code of
Commerce, like the former one of 1829, has defined the collective company, that such a
distinguished professor of law as Doctor Lorenzo de Benito should have established in
his "Lessons on Mercantile Law" a difference between the regular collective
associations and irregular collective companies; "regular are those wherein, as article
122 reads, all the members in a collective name and under a firm name bind
themselves to participate in the proportion which they may establish with the same
rights and obligations." "And irregular, those wherein one or more members who,
though not contributing toward the company with anything but their industry, participate
in the profits in the manner agreed to in the articles of association or as determined by
law, and ordinarily do not share in the losses which the copartnership may sustain.
Such members are called industrial partners, and the collective copartnership having a
member of said class is also sometimes called an association of capital and industry.
This is what the law says (he continues), but it has not been very fortunate in
sketching the characters of a regular collective partnership (since in conclusion it
says nothing in reference to the irregular partnership), because precisely the
collective name and the corporate name are applicable to both the collective and
the limited companies; and as to the covenant entered into by the partners to
participate in the proportion which they may establish with the same rights and
obligations, this is inherent to all partnerships without distinction as to class.
What characterizes this partnership is that all the members, "with the exception
of the industrial partners," are jointly responsible and with all their property for the
corporate obligations.
4. That the code in force, by means of three articles, 138, 140, and 141, among those
which regulate collective partnerships, has involved this association of capital and
industry; whence irregularity necessarily arises; the irregularity of such an irregular
system is that in a collective partnership wherein, besides the element property,
common or generic to the three aforesaid classes, there appears this one, to
wit, industry, a special features only in collective partnerships, according to the system
of the code.
Had the system adopted by the codes of Portugal, Brazil, and the Argentine Republic
been followed, a different classification would have been made of the association of
capital and industry which, according to the last of the codes cited, is properly
characterized by means of the following articles:
435. Habilitacion or association of capital and industry is the name given to the
partnership formed on the one part by one or more persons who furnish funds for
Page 22 of 303
a general business, or for some particular commercial transaction, and on the
other part by one or more individuals who join the copartnership with their
industry alone.
438. The obligation of the partners who furnished capital is in solidum, and
extends beyond the capital contributed by them to the concern.
439. The articles of association, besides the requirements contained in article

395, must specify the obligations of the industrial partner or partners and the
share in the profits to which they are entitled in the apportionment.
In the absence of such declaration, the industrial partner shall draw from the
profits a share equal to those of the partner who furnished the smallest capital.
440. An industrial partner can not contract on behalf of the partnership nor is he
obligated with his own property toward the creditors of the company.
Nevertheless, if besides his industry he should contribute some capital toward

the company either in money or thing of value, the association shall then be
considered as a collective one, and the industrial partner, whatever might have
been stipulated, shall respond in solidum.
In my opinion it can not be denied that there is no substantial difference between the
three articles of our code and those transcribed from that of the Argentine Republic as
regards the rights and obligations of industrial partners in conjunction with partners who
furnish capital; there is no difference except in the system, the code of the Argentine
Republic dealing with this class of association of capital and industry separately from
the only three defined in our code, all of them of capital only or essentially of partners
who furnish capital. Therefore, as said code has an article almost literally identical with
article 127 of our code, this question can not possibly arise in that country. That code
contains article 454, which reads: "All those who form a collective commercial company,
whether managing the corporate funds or not, are obligated in solidum (with all their
property, as our code would state) for the results of the transactions made in the name
and for account of the partnership," etc. To the question, Do the words "all the partners"
found in said article include the industrial partners? undoubtedly the answer would be
no.
And it would not suffice to say that the above article of the code of the Argentine
Republic, namely, "on collective copartnership," involves no section which may refer to
industrial partners, and that, therefore, there can be no question as to the words "all the
members;" it is because, by reason of the nature thereof, whether under one system or
another, the provisions and the principles being identical, the conclusions can not
otherwise than identical. In a copartnership, and as the result of the obligations
thereunder, an industrial partner can not lose except what he has actually contributed
thereto for a limited or an unlimited purpose, subject ultimately to company or personal
obligations; this is all that law and logic may demand of him; anything else would not
come under the law, but may be demanded of him by reason of his express covenant,
because he has consented to something beyond the character and the effects of the
Page 23 of 303
contract of partnership of capital and industry entered into by him, called collective;
nothing else has been the subject of his consent and obligation.
Manuel Duran y Bas, a former professor of the University of Barcelona, in his addition to
the work of Marti de Eixala, which is so generally and specially consulted in that
eminently commercial and industrial city, has offered no remarks to the original text of
said work which establish as an elemental doctrine that "When the copartnership is
purely a collective one, each of its members is jointly obligated for the result of the
transactions which should be charged to the copartnership . . . . From the general rule
which we have just set up the industrial partners who contract no obligation to secure
the liabilities of the company should be excepted, unless there be an express covenant
to the contrary." (Art. 319 of the code of 1829, identical with art. 141 of the code now in
force.)
During almost half a century no obligation has been raised by the professors of law, the
press, or the bar, to this doctrine regarding the exemption, not merely with respect to
losses but to company obligations of the industrial partner, on the suppositions, which I
do not admit, as already shown, that it may be possible to discriminate between losses
and obligations in connection with an industrial partner, for whom there are none but the
final losses, such as absorb the assets of the company, which can not be otherwise
than outstanding obligations in favor of third parties inasmuch as, so long as there are
company assets, no recourse can be held to the private property of any partner.
Page 24 of 303
G.R. No. 10695 December 15, 1916
TEODORO DE LOS REYES, plaintiff-appellee,

vs.
VICENTE LUKBAN and ESPERIDION BORJA, defendants. VICENTE
LUKBAN, appellant.
Ramon Diokno for appellant.

Ramon Salinas for appellee.
TORRES, J.:
On December 5, 1913, Teodoro de los Reyes brought suit in the Court of First Instance
of this city against Vicente Lukban and Esperidion Borja, to recover from them
individually the sum of P853, the balance of a debt of P1,086.65 owing for merchandise
bought on credit in October and November, 1904, by the firm Lukban & Borja, from the
plaintiff's ship supply store, named La Industria.
In case No. 3759, prosecuted in the said court by the creditor Reyes against the said
firm of Lukban & Borja, the latter was ordered by a final judgment of October 19, 1905,
to pay the said sum of P1,086.65, together with the interest thereon, amounting to a
total of P1,102.95, in addition to the costs, P46.24.
One of the partner, Esperidion Borja, paid P522.69 on account of the

debt.lawphi1.net There still remains to be paid P610.21, and this sum, together with the
costs and legal interest thereon from July 14, 1905, to the date of the complaint,
December 5, 1913, aggregates the total sum of P894.17. The plaintiff prayed the court
to order the defendants jointly or severally to pay him, the plaintiff, this last mentioned
amount, together with the legal interest thereon from the date of the complaint, and the
costs.
After due summons the defendants appeared, and one of them, Esperidion Borja, in
answer to the complaint entered a general and specific denial of each and all of the
allegations therein contained, and, as a special defense, alleged that it was res
judicata and that the plaintiff's action, if it existed, had already prescribed.
The other defendant, Vicente Lukban, in his amended answer set forth (1) that he
denied generally and specifically each and all of the facts alleged in each and all of the
paragraphs of the complaint; (2) that the issues raised by the complaint had already
been decided in case No. 10908, in which the firm of Lukban & Borja was acquitted,
without costs; (3) that the defendant Lukban was merely an industrial partner in the firm
of Lukban & Borja, Espiridion Borja being the partner thereof who furnished the capital;
(4) that the assets of the firm of Lukban & Borja had not been exhausted (by
attachment), wherefore the present action is premature; and (5) that the plaintiff Reyes'
action, as regards this defendant Lukban, has prescribed.
Page 25 of 303
At the trial of the case the parties made the following stipulation:
1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes brought suit
against the firm of Lukban & Borja to recover the sum of P1,086.65 owing for
merchandise bought on credit in the months of October and November, 1904,
from the ship supply store known by the name of La Industria. The said suit was
heard before the Honorable John C. Sweeney, on October 19, 1905, on which
date the said judge sentenced the defendant firm to pay the sum of P1,086.65,
Philippine currency, with legal interest thereon from July 14, 1905, to the date of
the judgment, amounting to P16.30, Philippine currency, and costs amounting to
P46.24. It does not appear that this obligation was set forth in writing. All the
preceding has been taken from the record of that court in case No. 3759, De los
Reyes vs, Lukban & Borja.
2. On August 19, 1913, the same plaintiff Teodoro de los Reyes brought suit
against Lukban & Borja to recover the sum of P853, alleging for this purpose that
the defendant Espiridion Borja paid P522.69 on account of the sum of P1,086.65
allowed in the judgment referred to in the preceding paragraph, there remaining
unpaid P610.21 of the principal debt, to which is added the legal interest thereon
from January 1, 1906, to the date of the commencement of the said suit, thus
forming the total sum above stated of P853. After hearing the case, the
Honorable Judge Del Rosario, on November 20, 1913, rendered judgment
absolving the firm of Lukban & Borja from the complaint without special finding as
to costs. All the facts related in this paragraph appear in case No. 10908 of this
court.
3. That several years ago and seven months after its organization, or, more
specifically, on April 13, 1909, the firm of Lukban & Borja was lawfully dissolved,
as stated by Borja; and that the five years from the 13th of the same month of the
year 1904, stipulated for its duration had elapsed. (Judgment in case No. 10908.)
The articles of incorporation of the firm of Lukban & Borja are found in the
attached document, which, for its identification, is marked as Exhibit A of this
agreement.
4. That the assets of the firm of Lukban & Borja had not been exhausted (by
attachment) for the reason that the plaintiff did not know what property belonged
to it.
5. Vicente Lukban and Espiridion Borja, notwithstanding that they alleged

themselves to be copartners of the firm of Lukban & Borja, were not sued by the
herein plaintiff in cases Nos. 3759 and 10908, but that plaintiff sued the firm of
Lukban & Borja, represented by Borja.
After hearing the evidence, the court rendered judgment on November 25, 1914,
sentencing the defendants Vicente Lukban and Espiridion Borja jointly and severally to
pay to the plaintiff Teodoro de los Reyes the sum of P610.20, together with the legal
interest thereon from December 17, 1913, and the costs. To this judgment Lukban
excepted, announced his intention to file the proper bill of exceptions and moved for a
new trial on the grounds that the evidence did not justify the decision and that the latter
Page 26 of 303
was contrary to law. By an order of December 10, the motion for a new trial was
overruled and an exception was entered by this defendant-appellant. The other
defendant, Espiridion Borja, made no exception to the said ruling so the judgment
became final with respect to him.
The subject matter of this suit is an acknowledged debt held to be owing by a judicial
pronouncement contained in a judgment rendered in case No. 3759, prosecuted by the
creditor Teodor de los Reyes against the general partnership of Lukban & Borja, which
was sentenced to pay the said debt. The creditor was unable to collect it in its entirety
but recovered only a part thereof, to wit, P522.69, which was paid by the partner Borja.
In order to demonstrate the propriety of the judgment appealed from, rendered against
the parties who were the partners of the said firm, we shall confine ourselves in this
decision to the four errors assigned to the said judgment by the defendant Lukban,
inasmuch as the other defendant Borja acquiesced in the said judgment and the same
became final as to him. These error are the following:
1. In not holding that the action brought against this defendant is improper,
inasmuch as prior to its prosecution no attachment was levied on the assets of
the said partnership.
2. In not holding that the action brought against this appellee [defendant] has not
been proven.
3. In not holding that the present is not a true case of res judicata.
4. In not holding that the appellee's action has prescribed in so far as it concerns
this appellant.
With respect to the first assignment of error, the contents of the writ and the return of
the execution of the final judgment rendered in the said case No. 3759 show that the
dissolved partnership of Lukban & Borja had absolutely no property whatever of its own.
Had any property whatever of the said partnership still remained, the defendant Lukban
would have pointed it out inorder to avoid being obliged to pay in solidum all the balance
of the sum which the firm was sentenced to pay by the said final judgment of October
19, 1905. He did not do so because the firm of Lukban & Borja no longer had any kind
of property or credits, as shown by the document setting forth the agreement made by
and between several creditors of the said firm, a third party named Ramon Tinsay and
the former partner of the firm, Espiridion Borja, in which document it appears that the
firm Lukban & Borja owed four creditors, among them the plaintiff De los Reyes, the
total sum of P10,165.01 and these creditors with some difficulty succeeded in collecting
the sum of P5,000 through a transaction with the said Ramon Tinsay who paid this last
amount for the account of the partner Espiridion Borja. It appears that the latter paid to
the creditor De los Reyes the aforementioned sum of P522.69, on account of the firm's
debt to Teodoro de los Reyes, a debt which was recognized in the said judgment of
October 19, 1905. The attachment, or recourse to the property, the lack of which
proceeding was complained of, is a proceeding that was resorted to when attempt was
made to execute the final judgment rendered against the partnership of Lukban & Borja,
which proceeding gave negative results; therefore, if the requirement of article 237 of
the Code of Commerce must be complied with by the creditor it is evident that it has
Page 27 of 303
already been done for the defendant Lukban was unable to show that the partnership to
which he belonged actually possessed any more assets.
With respect to the second assignment of error, if Teodoro de los Reyes is entitled to
collect individually from the partners Lukban and Borja the amount of the debt that the
dissolved partnership owed at the time of its dissolution, it is unquestionable that such a
right has given rise to the corresponding right of action to demand the payment of the
debt from the partners individually, or from each of them, by the insolvency of the
partnership, inasmuch as they are personally and severally liable with all their property
for the results of the operations of the partnership which they conducted.
Article 127 of the Code of Commerce provides:
All the member of the general copartnership, be they or be they not managing
partners of the same, are personally and severally 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 make
use thereof.
With regard to the third assignment of error. Although the action brought in case No.
10908 by the creditor Teodoro de los Reyes against the partnership Lukban & Borja be
not different from that brought in the present case No. 11296, and although it be
deemed to have arisen out of the right of the plaintiff-creditor to collect his credit, yet the
first time it was brought against the partnership. The action against Vicente Lukban and
Espiridion Borja individually ca not be demurred to on the ground of res judicata by the
judgment of acquittal entered in case No. 10908.
Article 1252 of the Civil Code provides:
In order that the presumption of the res judicata may be valid in another suit, it is
necessary that, between the case decided by the sentence and that in which the
name is invoked, there must be the most perfect identity between the things
causes, and persons of the litigants, and their capacity as such.
There may be perfect identity between the cause of action and the things demanded in
case no. 10908, wherein the said partnership was absolved from the complaint, and in
the present case No. 11296; it is, however, undeniable that the parties defendant are
not the same nor is their capacity as such. In the first case it was the partnership that
was sued, while in the present case it is Lukban and Borja individually, as former
members of that dissolved partnership, who are sued jointly and severally. Therefore,
pursuant to the above-cited article of the Civil Code, the provisions of which harmonize
with those of section 307 of the Code of Civil Procedure, the former judgment can not
be set up as res judicata in the present action.
As regards the last assignment of error, alleging prescription of action, suffice it to say
that from October 19, 1905, to December 5, 1913, even without counting the
interruption caused by the action brought on August 18th of this latter year, the ten year
period fixed by section 43 of the Code of Civil Procedure has not elapsed. In view of the
negative results of the proceedings had by the sheriff in levying execution of the final
Page 28 of 303
judgment rendered against the partnership of Lukban & Borja, the creditor in the
exercise of his rights has brought the proper action against those who were the
members of that firm for the recovery of the unpaid balance of his credit, and he filed his
complaint within the period fixed by the law of procedure and the defendants cannot
allege that it is now res judicata.
For the foregoing reasons the judgment appealed from is affirmed with the costs of this
instance against the appellant. So ordered.
Johnson, Carson, Trent and Araullo, JJ., concur.
Separate Opinions
MORELAND, J., dissenting:
This action was begun against Vicente Lukban and Espiridion Borja personally to
recover the sum of P853, the balance due on a judgment obtained against the
partnership known as "Lukban & Borja." The facts preceding the beginning of this action
are stated in a stipulation between the parties as follows:
1st. That on the 15th of July, 1905, the plaintiff, Teodoro de los Reyes, sued the
firm of Lukban and Borja, a copartnership, for the recovery of P1,086.65, the
purchase price of article sold to the said partnership during the months of
October and November, 1904. The action was tried before the Hon. John C.
Sweeney who, on October 19, 1905, found in favor of the plaintiff for P1,086.65,
Philippine currency, with interest from the 14th of July, 1905, to the date of the
judgment, amounting to P16.30, and costs, amounting to P46.24. . . .
2d. That on the 19th of August, 1913, the said plaintiff, Tedoro de los Reyes,
began an action against the said partnership, Lukban and Borja, to recover the
sum of P853, alleging that the defendant Espiridion Borja paid on the above-
mentioned judgment the sum of P522.69, leaving a balance due thereon of
P610.21, with interest from the 1st of January, 1906, to the date of filing the
complaint, principal and interest amounting to P853, already mentioned. On the
trial of the case the Hon. Judge Del Rosario in the month of November, 1913,
entered a judgment dismissing the complaint on the merits against the said
partnership of Lukban and Borja without costs.
3d. That the partnership of Lukban and Borja was dissolved by operation of law
about five years ago, that is to say, about the 13th of April, 1909, on which date
the five years stipulated in the contract of partnerships the duration of the same
expired, said partnership having been formed on the 13th of April, 1904. . . .
Page 29 of 303
4th That the plaintiff made no attempt to collect the said judgment of P1,086.65,
or any part thereof, from the partnership property for the reason that he did not
know of the existence of any such property.
5th. That Vicente Lukban and Espiridion Borja, although they were members of
the firm of Lukban and Borja, were not made parties to the actions in which the
judgments above referred to were obtained, but in each of said actions the
partnership of Lukban and Borja was the sole defendant.
The trial court found in favor of the plaintiff and entered judgment against the
defendants Vicente Lukban and Espiridion Borja jointly and severally for the sum of
P610.20, with interest from the 17th day of December, 1913. From that judgment this
appeal was taken.
We have these facts before us:
The partnership of Lukban and Borja was formed on the 13th of April, 1904, to run for a
period of five years. On the 19th of October, 1905, the plaintiff obtained a judgment
against the said partnership for the sum of P1,086.65. Later the partnership paid on said
judgment the sum of P522.69, a balance of P610.21. On the 19th of August, 1913, and
after the lapse of more than five years from the date of the judgment and without
execution having been issued thereon, the plaintiff began the action for the recovery of
the balance due on said judgment. The complaint in that action was dismissed on the
ground that, on the date on which the action was brought, the partnership had ceased to
exist, the five years term having expired, and that no action could be brought against it.
Later the present action was commenced against the members of the partnership
personally for the recovery of the balance due on said judgment. It is admitted that no
attempt has been made by the plaintiff to collect the original judgment out of the
partnership property.
The first question which arises is: Can an action be maintained against the partnership,
or against any or all of the members thereof, on the old judgment for the purpose of
obtaining another judgment of precisely similar character? We think not. The only action
on a judgment authorized either by the Civil Code or by the Code of Civil Procedure is
one for the enforcement of the judgment (section 447, Code of Civil Procedure). 1 A
judgment is not recognized by the Civil Code, or by the Code of Civil Procedure or any
other law called to our attention, as a contract either express or implied, or as a quasi
contract, or as a debt, or any other kind of obligation which can be made the basis of an
action to obtain another judgment of precisely the same nature. In some cases it is
regarded more in the nature of an order for the specific performance of the contract on
which the action is founded; and in every case it is considered the highest form which
men's relations can take under the law and no action based thereon can make it any
better or higher; and an action for that purpose is useless. It would seem to be but
natural that the law not permit the courts to be moved and parties perturbed and cause
loss of time and money for the sole purpose of obtaining a thing not one with better than
that which the courts have already given him and cannot be of the slightest legal value
to him. When courts have given a party the very highest thing of which they are capable
their powers cannot be again exercised in that particular regard. They exhausted. Why
Page 30 of 303
should a party who has one judgment which is completely enforceable be permitted to
have another on top of it no more enforceable?
An action on a judgment as a debt, obligation, or contract being unknown to the Civil

Code or the Spanish law generally, it is a necessary result that , if any right of action on
a judgment exists in this jurisdiction, it must have been conferred by a statute passed
since the American occupation. The only legislation on that subject is found, as we have
stated, in section 447 of the Code of Civil Procedure, which permits an action to be
brought, not on the judgment as a debt or for the purpose of securing a new judgment of
precisely similar character to the old one, but to enforce the old judgment after the
explanation of the time during which an execution may be issued. In other words, the
action authorized by section 447 is not to obtain a new judgment but to enforce the old;
and the judgment secured in such an action is not for a sum of money, but it is simply
an order directing the execution of the old judgment. It simply takes the place of the
execution which, five years having elapsed, is not issuable. In a word, it is another
means of obtaining an execution. 2
We are of the opinion, therefore, that the second action against the partnership to
procure a new judgment for the amount remaining due on the old judgment was not
maintainable and was property dismissed by the court; and, while the dismissal was
based on an untenable ground, it was, nevertheless, correct. No appeal was taken from
that judgment, and it is now, of course, final and was when this action was commenced.
The second question which arises is: Can an action to recover a judgment on a
judgment be maintained against the members of a partnership personally if it cannot be
maintained against the partnership itself? As we have already said, the present action is
directed against the members of the partnership personally and is to recover a joint and
several judgment against them upon the old judgment against the partnership.
It is clear that our reasoning in connection with the first question is correct, then this
action cannot be maintained. If there is no authority of law for bringing an action on a
judgment to secure a new judgment, then this action cannot be maintained any more
than the action against the partnership under similar circumstances. There is no law
giving a right of action on a judgment in favor of or against anybody, except that
conferred by section 447 above quoted; and that, as we have seen, is simply a right
to enforce the old judgment.
The third question which presents itself is: Even admitting the right of the plaintiff to
maintain an action on the old judgment, is the remedy of the plaintiff a new judgment
against the members of the partnership personally or it is the execution of
the old judgment against them? Under the law and procedure existing in this jurisdiction
prior to American occupation, a new judgment against the members of the firm
personally under circumstances such as appear in this case was not permitted. The first
step required of a plaintiff who had a judgment against a partnership of the character
described in this action was to execute the judgment as far as possible against the
property of the partnership; and, after was exhausted, to proceed, by execution, against
the property of the individual members under the same judgment. It was not necessary,
nor was it permitted, to bring a new action against the members of the firm personally
on the old judgment and obtain a new judgment against them. That procedure has not
Page 31 of 303
been changed by any legislation since American occupation and that is the practice to-
day.
As a necessary result the plaintiff is not entitled to a judgment in this action.
We do not stop to discuss the question presented by the appellant as to whether the
exhaustion of the property of the partnership is a necessary prerequisite to the bringing
of this action. That question is not involved, inasmuch as it cannot be reached until has
been determined whether such as an action can be maintained. If the action cannot be
maintained under any theory, then it is unnecessary to determine the validity of the
defenses to that action, one of which is, appellant claims, that the plaintiff has not
exhausted his remedy against the partnership property.
Nor do we find it necessary to consider at this time whether or not the judgment in the
second action against the plaintiff and in favor of the partnership is res adjudicata in the
present action. For the same reason we find it unnecessary to decide whether the
action has prescribed under the provisions of the Code of Civil Procedure.
The judgment appealed from should be reversed and the cause dismissed on the
merits, without costs in this instance.
Page 32 of 303
G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS, respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.
GUTTIERREZ, JR., J.:
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
Page 33 of 303
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,
Page 34 of 303
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally interest at
12% per annum of the sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing

attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial Company and Ramon

Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole
modification that the liability imposed in the dispositive part of the decision on the credit
of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly
and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of the partnership
of "Galan and Muñasque" as Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch building. A total amount of
P25,000.00 was to be paid under the contract for the entire services of the Contractor.
The terms of payment were as follows: thirty percent (30%) of the whole amount upon
the signing of the contract and the balance thereof divided into three equal installments
at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in favor
of respondent Galan to enable the latter to deposit it in the bank and pay for the
materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use
so that when the second check in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of
Tropical that there was a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check from Muñasque to "Galan
and Associates" which was the duly registered name of the partnership between Galan
and petitioner and under which name a permit to do construction business was issued
by the mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure of
Galan to pay what was partly due the laborers and partly due for the materials, the
Page 35 of 303
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.
Page 36 of 303
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

Page 37 of 303
... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice.In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party.
Petitioner could have asked at least for a modification of the issues if he really wanted
to include the determination of Galan's personal liability to their partnership but he
chose not to do so, as he vehemently denied the existence of the partnership. At any
rate, the issue raised in this petition is the contention of Muñasque that the amounts
payable to the intervenors should be shouldered exclusively by Galan. We note that the
petitioner is not solely burdened by the obligations of their illstarred partnership. The
records show that there is an existing judgment against respondent Galan, holding him
liable for the total amount of P7,000.00 in favor of Eden Hardware which extended
credit to the partnership aside from the P2, 000. 00 he already paid to Universal
Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the law
to third persons for contracts executed inconnection with partnership business is only
pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial
ones, shall be liable prorate with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into the name and fm the
account cd the partnership, under its signature and by a person authorized to act for the
partner-ship. ...". this provision should be construed together with Article 1824 which
provides that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while the liability
of the partners are merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners solidarily liable for
the whole obligation if the case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partner-ship or with the authority
of his co-partners, loss or injury is caused to any person, not being a
partner in the partnership or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to
act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
Page 38 of 303
(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.
Page 39 of 303
G.R. No. L-11840 July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.

GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.
REYES, J. B. L., J.:
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear
that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a general
commercial partnership under the partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by Tan
Sin An. The agreement lodge upon Tan Sin An the sole management of the partnership
affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as sole managing
and partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing

and partner (sic) or by his authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire management of the affairs of
the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may
deem proper, and vest in such persons, firm or corporation full power and
authority, as the agent of the co-partnership and in his name, place and stead to
do anything for it or on his behalf which he as such managing and partner (sic)
might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the

affairs of the co-partnership; but he may examine its accounts once every six (6)
months at any time during ordinary business hours, and in accordance with the
provisions of the Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that —
In the event of the death of any of the partners at any time before the expiration
of said term, the co-partnership shall not be dissolved but will have to be
continued and the deceased partner shall be represented by his heirs or assigns
in said co-partnership (Art. XII, Articles of Co-Partnership).
Page 40 of 303
However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this
effect:
That besides the powers and duties granted the said Tan Sin An by the articles
of co-partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that
said Tan Sin An should act as the Manager for said co-partnership for the full
period of the term for which said co-partnership was organized or until the whole
period that the said capital of P30,000.00 of the co-partnership should last, to
carry on to the best advantage and interest of the said co-partnership, to make
and execute, sign, seal and deliver for the co-partnership, and in its name, all
bills, bonds, notes, specialties, and trust receipts or other instruments or
documents in writing whatsoever kind or nature which shall be necessary to the
proper conduction of the said businesses, including the power to mortgage and
pledge real and personal properties, to secure the obligation of the co-
partnership, to buy real or personal properties for cash or upon such terms as he
may deem advisable, to sell personal or real properties, such as lands and
buildings of the co-partnership in any manner he may deem advisable for the
best interest of said co-partnership, to borrow money on behalf of the co-
partnership and to issue promissory notes for the repayment thereof, to deposit
the funds of the co-partnership in any local bank or elsewhere and to draw
checks against funds so deposited ... .
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
Page 41 of 303
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.
Page 42 of 303
III — The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority to sell the
partnership properties by virtue of the articles of partnership and the general
power of attorney granted to Tan Sin An in order to pay the partnership
indebtedness.
V — The lower court erred in finding that the partnership did not pay its obligation
to the Banco Hipotecario.
VI — The lower court erred in holding that the consent of Antonio Goquiolay was
not necessary to consummate the sale of the partnership properties.
VII — The lower court erred in finding that Kong Chai Pin managed the business
of the partnership after the death of her husband, and that Antonio Goquiolay
knew it.
VIII — The lower court erred in holding that the failure of Antonio Goquiolay to
oppose the management of the partnership by Kong Chai Pin estops him now
from attacking the validity of the sale of the partnership properties.
IX — The lower court erred in holding that the buyers of the partnership
properties acted in good faith.
X — The lower court erred in holding that the sale was not fraudulent against the
partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only necessary but
beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in ordering Antonio
Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow,
Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the
partnership, upon the latter's death. While, as we previously stated in our narration of
facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business, such
power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in the event of
death of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred to the
managerial right given to Tan Sin An; more appropriately, it related to the succession in
the proprietary interest of each partner. The covenant that Antonio Goquiolay shall have
no voice or participation in the management of the partnership, being a limitation upon
his right as a general partner, must be held coextensive only with Tan's right to manage
the affairs, the contrary not being clearly apparent.
Page 43 of 303
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]
Page 44 of 303
"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
Page 45 of 303
responsabilidad en el caso de una administracion culpable. Si debiera dar
noticia, el beneficio de su simultania actividad, frecuentemente distribuida en
lugares y en tiempos diferentes, se echaria a perder. Se objetara el que de esta
forma, el derecho de oposicion de cada uno de los socios puede quedar
frustrado. Pero se puede contestar que este derecho de oposicion concedido por
la ley como un remedio excepcional, debe subordinarse al derecho de ejercer el
oficio de Administrador, que el Codigo concede sin limite: "se presume que los
socios se han concedido reciprocamente la facultad de administrar uno
para otro." Se haria precipitar esta hipotesis en la otra de una administracion
colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a lo
menos tacito, de todos los socios — lo que el Codigo excluye ........, si se
obligase al socio Administrador a dar noticia previa del negocio a los otros, a fin
de que pudieran oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-
148) opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es
bastante que los actos y contratos hayan sido ejecutados por un socio o varios
en nombre colectivo, sino que es preciso el concurso de estos dos elementos,
uno, que el socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la
Sociedad y usando de su firma social. Asi se que toda obligacion contraida bajo
la razon social, se presume contraida por la Compañia. Esta presunion es
impuesta por motivos de necesidad practica. El tercero no puede cada vez que
trata con la Compañia, inquirir si realmente el negocio concierne a la Sociedad.
La presuncion es juris tantum y no juris et de jure, de modo que si el gerente
suscribe bajo la razon social una obligacion que no interesa a la Sociedad, este
podra rechazar la accion del tercero probando que el acreedor conocia que la
obligacion no tenia ninguna relacion con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, seria nulos y podria
decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la
Compañia, o contabilizados en sus libros, si el acto o contrato ha sido
convalidado sin protesta y se trata de acto o contrato que ha producido beneficio
social, tendria plena validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa

al nombramiento o designacion de uno o mas de un socio para administrar la
Compañia (art. 129 del Codigo) todos tienen por un igual el derecho de concurir
a la decision y manejo de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership and,

therefore, to be governed by the Code of Commerce, the provisions of the old Civil
Code may give us some light on the right of one partner to bind the partnership. States
Art. 1695 thereof:
Page 46 of 303
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
Page 47 of 303
value in 1949, specially because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do without opening roads
and otherwise improving the property at their own expense. Upon the other hand, Kong
Chai Pin hardly had any choice but to execute the questioned sale, as it appears that
the partnership had neither cash nor other properties with which to pay its obligations.
Anyway, we cannot consider seriously the inferences freely indulged in by the
appellants as allegedly indicating fraud in the questioned transactions, leading to the
conveyance of the lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same,
with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and

Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main
decision, wherein we have upheld the validity of the sale of the lands owned by the
partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing
partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's
estate and as partner, in lieu of the husband), in favor of buyers Washington Sycip and
Betty Lee for the following consideration:
Cash paid P37,000.00

Debts assumed by
purchase:
To Yutivo 62,415.91
To Sing Yee Cuan 54,310.13
& Co.
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:
Page 48 of 303
(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.
Page 49 of 303
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:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his
family lived on the plantation of the partnership and derived their subsistence
from that plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also —
What can you say so to the development of these other properties of the
partnership which you saw during the occupation?" (Dep., p. 13, Emphasis
supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in
Tigatto is about eleven (11) hectares and planted with abaca seedlings planted
by Mr. Sin An. When I went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid
any money to Tan Sin An or his family. (Dep., Lim. pp. 13-14.) (Emphasis
supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i e., continue to
manage the properties. Witnesses Lim and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried
out no acts of management during the Japanese occupation (1942-1944) does not
mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between her
and the appellant, and is not here involved. But the authority was given, and she did
have it when she made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article
Page 50 of 303
1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not
a mere agent, because she had become a partner upon her husband's death, as
expressly provided by the articles of co-partnership. Even more, granting that by
succession to her husband, Tan Sin An, the widow only a became
the limited partner, Goquiolay's authorization to manage the partnership property
was proof that he considered and recognized her has general partner, at least since
1945. The reason is plain: Under the law (Article 148, last paragraph, Code of
Commerce), appellant could not empower the widow, if she were only a limited partner,
to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the co-partnership, not even in the capacity agents of the managing
partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he would
normally 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.
Page 51 of 303
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
Page 52 of 303
managing partner with whom he contracts has previously obtained the consent of
the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business,
the consent of his co-partner; for otherwise he would not enter into the contract.
The third person would naturally not presume that the partner with whom he
enters into the transaction is violating the articles of partnership, but on the
contrary, is acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18,
section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31,
section 334). This last presumption is equally applicable to contracts which have
the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509,
516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real estate
of the firm. This argument is lamentably superficial because it fails to differentiate
between real estate acquired and held as stock-in-trade and real state held merely
as business site (Vivante's "taller o banco social") for the partnership. Where the
partnership business is to deal in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the ordinary powers of a partner,
because it is not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the present
case), the immovables thus acquired by the firm form part of its stock-in-trade, and the
sale thereof is in pursuance of partnership purposes, hence within the ordinary powers
of the partner. This distinction is supported by the opinion of Gay de Montella1, in the
very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme

a los fines sociales. Pero esta facultad de enajenar limitada a las ventas
conforme a los fines sociales, viene limitada a los objetos de comecio o a los
productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la
compra y venta de inmuebles, en cuyo caso el gerente estaria facultado para
otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the
legal right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner
has ample power, as a general agent of the firm, to enter into an executory
contract for the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
Page 53 of 303
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, and possession 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
Page 54 of 303
acquired to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven years, and
their claims had been approved by the probate court for payment. In the McGrath case,
the partnership received nothing beyond the discharge of its debts; in the present case,
not only were its debts assumed by the buyers, but the latter paid, in addition,
P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists; but appellant
points out, as indicia thereof, the allegedly low price paid for the property, and the
relationship between the buyers, the creditors of the partnership, and the widow of Tan
Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts
assumed by the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to Sing
Yee Cuan & Co.) are not questioned; they were approved by the Court, and its approval
is now final. The claims were, in fact, for the balance on the original purchase price of
the land sold (due first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show that the price
was inadequate, appellant relies on the testimony of the realtor Mata, who in 1955, six
years after the sale in question, asserted that the land was worth P312,000.00. Taking
into account the continued rise of real estate values since liberation, and the fact that
the sale in question was practically a forced sale because the partnership had no other
means to pay its legitimate debts, this evidence certainly does not show such "gross
inadequacy" as to justify rescission of the sale. If at the time of the sale (1949 the price
of P153,726.04 was really low, how is it that appellant was not able to raise the amount,
even if the creditor's representative, Yu Khe Thai, had already warned him four years
before (1946) that the creditors wanted their money back, as they were justly entitled
to?
It is argued that the land could have been mortgaged to raise the sum needed to
discharge the debts. But the lands were already mortgaged, and had been mortgaged
since 1940, first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to
expect that other persons would loan money to the partnership when it was unable even
to pay the taxes on the property, and the interest on the principal since 1940? If it had
been possible to find lenders willing to take a chance on such a bad financial record,
would not Goquiolay have taken advantage of it? But the fact is clear on the record that
since liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the
partnership. Is he entitled now to cry fraud after the debts were discharged with no help
from him?
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
Page 55 of 303
immoral; at the very least, these buyers did not have a record of inveterate defaults like
the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between
the Yutivo firm and their component members. But no proof is adduced. If he was such
a victim, he could have easily defeated the conspirators by raising money and paying off
the firm's debts between 1945 and 1949; but he did; he did not even care to look for a
purchaser of the partnership assets. Were it true that the conspiracy to defraud him
arose (as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the conspirators should wait 4 years, until
1949, to have the sale effected by the widow of Tan Sin An, and that the sale should
have been routed through the probate court taking cognizance of Tan Sin An's estate,
all of which increased the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan &
Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the
estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan
Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N" mortgage to
the Banco Hipotecario), and Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with another debtor, the
claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor.
(Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sin An personally, and a mortgage in indivisible, in the
sense that each and every parcel under mortgage answers for the totality of the debt
(Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is
fraud at all, it can only be a fraud of creditors that gives rise to a rescission of the
offending contract. But by express provision of law (Article 1294, Civil Code of 1889;
Article 1383, New Civil Code), "the action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolay can
not obtain reparation from the widow and heirs of Tan Sin An, the present suit to rescind
the sale in question is not maintenable, even if the fraud charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.
Page 56 of 303
G.R. No. 70403 July 7, 1989
SANTIAGO SYJUCO, INC., petitioner,

vs.
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.
Doroteo B. Daguna and Felix D. Carao for petitioner.
Paterno Canlas for private respondents.
NARVASA, J.:
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
Page 57 of 303
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 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 presided over by Judge
Conrado M. Vasquez 6 rendered 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
Page 58 of 303
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
Page 59 of 303
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;
(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
Page 60 of 303
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
Page 61 of 303
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
Page 62 of 303
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
Page 63 of 303
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;
Page 64 of 303
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 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
Page 65 of 303
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 parte for 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.
Page 66 of 303
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 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
Page 67 of 303
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.
Page 68 of 303
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
Page 69 of 303
barred all the others, all the requisites of res judicata being present. The judgment was
a final and executory judgment; it had been 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
Page 70 of 303
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 Appeals 52 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
Page 71 of 303
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
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.
Page 72 of 303
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 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;
Page 73 of 303
(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.
Page 74 of 303
G.R. No. 159139 January 13, 2004
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA.

CORAZON M. AKOL, MIGUEL UY, EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN,
REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL ALCUAZ
JR., petitioners,
vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN ABALOS SR.;
COMELEC BIDDING and AWARD COMMITTEE CHAIRMAN EDUARDO D. MEJOS
and MEMBERS GIDEON DE GUZMAN, JOSE F. BALBUENA, LAMBERTO P.
LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.;
and MEGA PACIFIC CONSORTIUM, respondents.
DECISION
PANGANIBAN, J.:
There is grave abuse of discretion (1) when an act is done contrary to the Constitution,
the law or jurisprudence;1 or (2) when it is executed whimsically, capriciously or
arbitrarily out of malice, ill will or personal bias. 2 In the present case, the Commission on
Elections approved the assailed Resolution and awarded the subject Contract not only
in clear violation of law and jurisprudence, but also in reckless disregard of its own
bidding rules and procedure. For the automation of the counting and canvassing of the
ballots in the 2004 elections, Comelec awarded the Contract to "Mega Pacific
Consortium" an entity that had not participated in the bidding. Despite this grant, the poll
body signed the actual automation Contract with "Mega Pacific eSolutions, Inc.," a
company that joined the bidding but had not met the eligibility requirements.
Comelec awarded this billion-peso undertaking with inexplicable haste, without

adequately checking and observing mandatory financial, technical and legal
requirements. It also accepted the proferred computer hardware and software even if, at
the time of the award, they had undeniably failed to pass eight critical requirements
designed to safeguard the integrity of elections, especially the following three items:
· They failed to achieve the accuracy rating criteria of 99.9995 percent set-up by
the Comelec itself
· They were not able to detect previously downloaded results at various

canvassing or consolidation levels and to prevent these from being inputted
again
· They were unable to print the statutorily required audit trails of the
count/canvass at different levels without any loss of data
Because of the foregoing violations of law and the glaring grave abuse of discretion
committed by Comelec, the Court has no choice but to exercise its solemn
"constitutional duty"3 to void the assailed Resolution and the subject Contract. The
illegal, imprudent and hasty actions of the Commission have not only desecrated legal
and jurisprudential norms, but have also cast serious doubts upon the poll body’s ability
Page 75 of 303
and capacity to conduct automated elections. Truly, the pith and soul of democracy --
credible, orderly, and peaceful elections -- has been put in jeopardy by the illegal and
gravely abusive acts of Comelec.
The Case
Before us is a Petition4 under Rule 65 of the Rules of Court, seeking (1) to declare null
and void Resolution No. 6074 of the Commission on Elections (Comelec), which
awarded "Phase II of the Modernization Project of the Commission to Mega Pacific
Consortium (MPC);" (2) to enjoin the implementation of any further contract that may
have been entered into by Comelec "either with Mega Pacific Consortium and/or Mega
Pacific eSolutions, Inc. (MPEI);" and (3) to compel Comelec to conduct a re-bidding of
the project.
The Facts
The following facts are not disputed. They were culled from official documents, the
parties’ pleadings, as well as from admissions during the Oral Argument on October 7,
2003.
On June 7, 1995, Congress passed Republic Act 8046, 5 which authorized Comelec to
conduct a nationwide demonstration of a computerized election system and allowed the
poll body to pilot-test the system in the March 1996 elections in the Autonomous Region
in Muslim Mindanao (ARMM).
On December 22, 1997, Congress enacted Republic Act 8436 6 authorizing Comelec to
use an automated election system (AES) for the process of voting, counting votes and
canvassing/consolidating the results of the national and local elections. It also
mandated the poll body to acquire automated counting machines (ACMs), computer
equipment, devices and materials; and to adopt new electoral forms and printing
materials.
Initially intending to implement the automation during the May 11, 1998 presidential
elections, Comelec -- in its Resolution No. 2985 dated February 9, 19987 -- eventually
decided against full national implementation and limited the automation to the
Autonomous Region in Muslim Mindanao (ARMM). However, due to the failure of the
machines to read correctly some automated ballots in one town, the poll body later
ordered their manual count for the entire Province of Sulu. 8
In the May 2001 elections, the counting and canvassing of votes for both national and
local positions were also done manually, as no additional ACMs had been acquired for
that electoral exercise allegedly because of time constraints.
On October 29, 2002, Comelec adopted in its Resolution 02-0170 a modernization

program for the 2004 elections. It resolved to conduct biddings for the three (3) phases
of its Automated Election System; namely, Phase I - Voter Registration and Validation
System; Phase II - Automated Counting and Canvassing System; and Phase III -
Electronic Transmission.
Page 76 of 303
On January 24, 2003, President Gloria Macapagal-Arroyo issued Executive Order No.
172, which allocated the sum of P2.5 billion to fund the AES for the May 10, 2004
elections. Upon the request of Comelec, she authorized the release of an additional
P500 million.
On January 28, 2003, the Commission issued an "Invitation to Apply for Eligibility and to
Bid," which we quote as follows:
"INVITATION TO APPLY FOR ELIGIBILITY AND TO BID
The Commission on Elections (COMELEC), pursuant to the mandate of Republic

Act Nos. 8189 and 8436, invites interested offerors, vendors, suppliers or lessors
to apply for eligibility and to bid for the procurement by purchase, lease, lease
with option to purchase, or otherwise, supplies, equipment, materials and
services needed for a comprehensive Automated Election System, consisting of
three (3) phases: (a) registration/verification of voters, (b) automated counting
and consolidation of votes, and (c) electronic transmission of election results,
with an approved budget of TWO BILLION FIVE HUNDRED MILLION
(Php2,500,000,000) Pesos.
Only bids from the following entities shall be entertained:
a. Duly licensed Filipino citizens/proprietorships;
b. Partnerships duly organized under the laws of the Philippines and of

which at least sixty percent (60%) of the interest belongs to citizens of the
Philippines;
c. Corporations duly organized under the laws of the Philippines, and of

which at least sixty percent (60%) of the outstanding capital stock belongs
to citizens of the Philippines;
d. Manufacturers, suppliers and/or distributors forming themselves into a

joint venture, i.e., a group of two (2) or more manufacturers, suppliers
and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract, provided that Filipino ownership thereof
shall be at least sixty percent (60%); and
e. Cooperatives duly registered with the Cooperatives Development

Authority.
Bid documents for the three (3) phases may be obtained starting 10 February
2003, during office hours from the Bids and Awards Committee (BAC)
Secretariat/Office of Commissioner Resurreccion Z. Borra, 7th Floor, Palacio del
Governador, Intramuros, Manila, upon payment at the Cash Division,
Commission on Elections, in cash or cashier’s check, payable to the Commission
on Elections, of a non-refundable amount of FIFTEEN THOUSAND PESOS
(Php15,000.00) for each phase. For this purpose, interested offerors, vendors,
Page 77 of 303
suppliers or lessors have the option to participate in any or all of the three (3)
phases of the comprehensive Automated Election System.
A Pre-Bid Conference is scheduled on 13 February 2003, at 9:00 a.m. at the

Session Hall, Commission on Elections, Postigo Street, Intramuros, Manila.
Should there be questions on the bid documents, bidders are required to submit
their queries in writing to the BAC Secretariat prior to the scheduled Pre-Bid
Conference.
Deadline for submission to the BAC of applications for eligibility and bid
envelopes for the supply of the comprehensive Automated Election System shall
be at the Session Hall, Commission on Elections, Postigo Street, Intramuros,
Manila on 28 February 2003 at 9:00 a.m.
The COMELEC reserves the right to review the qualifications of the bidders after
the bidding and before the contract is executed. Should such review uncover any
misrepresentation made in the eligibility statements, or any changes in the
situation of the bidder to materially downgrade the substance of such statements,
the COMELEC shall disqualify the bidder upon due notice without any obligation
whatsoever for any expenses or losses that may be incurred by it in the
preparation of its bid."9
On February 11, 2003, Comelec issued Resolution No. 5929 clarifying certain eligibility
criteria for bidders and the schedule of activities for the project bidding, as follows:
"1.) Open to Filipino and foreign corporation duly registered and licensed to do
business and is actually doing business in the Philippines, subject to Sec. 43 of
RA 9184 (An Act providing In the Modernization Standardization and Regulation
of the Procurement Activities of the Government and for other purposes etc.)
2.) Track Record:
a) For counting machines – should have been used in at least one (1)
political exercise with no less than Twenty Million Voters;
b) For verification of voters – the reference site of an existing data base

installation using Automated Fingerprint Identification System (AFIS) with
at least Twenty Million.
3.) Ten percent (10%) equity requirement shall be based on the total project cost;
and
4.) Performance bond shall be twenty percent (20%) of the bid offer.
RESOLVED moreover, that:
1) A. Due to the decision that the eligibility requirements and the rest of
the Bid documents shall be released at the same time, and the
memorandum of Comm. Resurreccion Z. Borra dated February 7, 2003,
Page 78 of 303
the documents to be released on Friday, February 14, 2003 at 2:00
o’clock p.m. shall be the eligibility criteria, Terms of Reference (TOR) and
other pertinent documents;
B. Pre-Bid conference shall be on February 18, 2003; and
C. Deadline for the submission and receipt of the Bids shall be on

March 5, 2003.
2) The aforementioned documents will be available at the following offices:
a) Voters Validation: Office of Comm. Javier
b) Automated Counting Machines: Office of Comm. Borra
c) Electronic Transmission: Office of Comm. Tancangco"10
On February 17, 2003, the poll body released the Request for Proposal (RFP) to
procure the election automation machines. The Bids and Awards Committee (BAC) of
Comelec convened a pre-bid conference on February 18, 2003 and gave prospective
bidders until March 10, 2003 to submit their respective bids.
Among others, the RFP provided that bids from manufacturers, suppliers and/or
distributors forming themselves into a joint venture may be entertained, provided that
the Philippine ownership thereof shall be at least 60 percent. Joint venture is defined in
the RFP as "a group of two or more manufacturers, suppliers and/or distributors that
intend to be jointly and severally responsible or liable for a particular contract." 11
Basically, the public bidding was to be conducted under a two-envelope/two stage

system. The bidder’s first envelope or the Eligibility Envelope should establish the
bidder’s eligibility to bid and its qualifications to perform the acts if accepted. On the
other hand, the second envelope would be the Bid Envelope itself. The RFP outlines the
bidding procedures as follows:
"25. Determination of Eligibility of Prospective Bidders
"25.1 The eligibility envelopes of prospective Bidders shall be opened first

to determine their eligibility. In case any of the requirements specified in
Clause 20 is missing from the first bid envelope, the BAC shall declare
said prospective Bidder as ineligible to bid. Bid envelopes of ineligible
Bidders shall be immediately returned unopened.
"25.2 The eligibility of prospective Bidders shall be determined using

simple ‘pass/fail’ criteria and shall be determined as either eligible or
ineligible. If the prospective Bidder is rated ‘passed’ for all the legal,
technical and financial requirements, he shall be considered eligible. If the
prospective Bidder is rated ‘failed’ in any of the requirements, he shall be
considered ineligible.
Page 79 of 303
"26. Bid Examination/Evaluation
"26.1 The BAC will examine the Bids to determine whether they are
complete, whether any computational errors have been made, whether
required securities have been furnished, whether the documents have
been properly signed, and whether the Bids are generally in order.
"26.2 The BAC shall check the submitted documents of each Bidder
against the required documents enumerated under Clause 20, to ascertain
if they are all present in the Second bid envelope (Technical Envelope). In
case one (1) or more of the required documents is missing, the BAC shall
rate the Bid concerned as ‘failed’ and immediately return to the Bidder its
Third bid envelope (Financial Envelope) unopened. Otherwise, the BAC
shall rate the first bid envelope as ‘passed’.
"26.3 The BAC shall immediately open the Financial Envelopes of the
Bidders whose Technical Envelopes were passed or rated on or above the
passing score. Only Bids that are determined to contain all the bid
requirements for both components shall be rated ‘passed’ and shall
immediately be considered for evaluation and comparison.
"26.4 In the opening and examination of the Financial Envelope, the BAC
shall announce and tabulate the Total Bid Price as calculated. Arithmetical
errors will be rectified on the following basis: If there is a discrepancy
between words and figures, the amount in words will prevail. If there is a
discrepancy between the unit price and the total price that is obtained by
multiplying the unit price and the quantity, the unit price shall prevail and
the total price shall be corrected accordingly. If there is a discrepancy
between the Total Bid Price and the sum of the total prices, the sum of the
total prices prevail and the Total Bid Price shall be corrected accordingly.
"26.5 Financial Proposals which do not clearly state the Total Bid Price
shall be rejected. Also, Total Bid Price as calculated that exceeds the
approved budget for the contract shall also be rejected.
27. Comparison of Bids
27.1 The bid price shall be deemed to embrace all costs, charges and
fees associated with carrying out all the elements of the proposed
Contract, including but not limited to, license fees, freight charges and
taxes.
27.2 The BAC shall establish the calculated prices of all Bids rated
‘passed’ and rank the same in ascending order.
xxxxxxxxx
"29. Postqualification
Page 80 of 303
"29.1 The BAC will determine to its satisfaction whether the Bidder
selected as having submitted the lowest calculated bid is qualified to
satisfactorily perform the Contract.
"29.2 The determination will take into account the Bidder’s financial,
technical and production capabilities/resources. It will be based upon an
examination of the documentary evidence of the Bidder’s qualification
submitted by the Bidder as well as such other information as the BAC
deems necessary and appropriate.
"29.3 A bid determined as not substantially responsive will be rejected by

the BAC and may not subsequently be made responsive by the Bidder by
correction of the non-conformity.
"29.4 The BAC may waive any informality or non-conformity or irregularity

in a bid which does not constitute a material deviation, provided such
waiver does not prejudice or affect the relative ranking of any Bidder.
"29.5 Should the BAC find that the Bidder complies with the legal, financial
and technical requirements, it shall make an affirmative determination
which shall be a prerequisite for award of the Contract to the Bidder.
Otherwise, it will make a negative determination which will result in
rejection of the Bidder’s bid, in which event the BAC will proceed to the
next lowest calculated bid to make a similar determination of that Bidder’s
capabilities to perform satisfactorily."12
Out of the 57 bidders,13 the BAC found MPC and the Total Information Management
Corporation (TIMC) eligible. For technical evaluation, they were referred to the BAC’s
Technical Working Group (TWG) and the Department of Science and Technology
(DOST).
In its Report on the Evaluation of the Technical Proposals on Phase II, DOST said that
both MPC and TIMC had obtained a number of failed marks in the technical evaluation.
Notwithstanding these failures, Comelec en banc, on April 15, 2003, promulgated
Resolution No. 6074 awarding the project to MPC. The Commission publicized this
Resolution and the award of the project to MPC on May 16, 2003.
On May 29, 2003, five individuals and entities (including the herein Petitioners
Information Technology Foundation of the Philippines, represented by its president,
Alfredo M. Torres; and Ma. Corazon Akol) wrote a letter 14 to Comelec Chairman
Benjamin Abalos Sr. They protested the award of the Contract to Respondent MPC
"due to glaring irregularities in the manner in which the bidding process had been
conducted." Citing therein the noncompliance with eligibility as well as technical and
procedural requirements (many of which have been discussed at length in the Petition),
they sought a re-bidding.
In a letter-reply dated June 6, 2003,15 the Comelec chairman -- speaking through Atty.
Jaime Paz, his head executive assistant -- rejected the protest and declared that the
award "would stand up to the strictest scrutiny."
Page 81 of 303
Hence, the present Petition.16
The Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"1. The COMELEC awarded and contracted with a non-eligible entity; x x x
"2. Private respondents failed to pass the Technical Test as required in the RFP.
Notwithstanding, such failure was ignored. In effect, the COMELEC changed the
rules after the bidding in effect changing the nature of the contract bidded upon.
"3. Petitioners have locus standi.
"4. Instant Petition is not premature. Direct resort to the Supreme Court is
justified."17
In the main, the substantive issue is whether the Commission on Elections, the agency
vested with the exclusive constitutional mandate to oversee elections, gravely abused
its discretion when, in the exercise of its administrative functions, it awarded to MPC the
contract for the second phase of the comprehensive Automated Election System.
Before discussing the validity of the award to MPC, however, we deem it proper to first
pass upon the procedural issues: the legal standing of petitioners and the alleged
prematurity of the Petition.
This Court’s Ruling
The Petition is meritorious.
First Procedural Issue:
Locus Standi of Petitioners
Respondents chorus that petitioners do not possess locus standi, inasmuch as they are
not challenging the validity or constitutionality of RA 8436. Moreover, petitioners
supposedly admitted during the Oral Argument that no law had been violated by the
award of the Contract. Furthermore, they allegedly have no actual and material interest
in the Contract and, hence, do not stand to be injured or prejudiced on account of the
award.
On the other hand, petitioners -- suing in their capacities as taxpayers, registered voters
and concerned citizens -- respond that the issues central to this case are "of
transcendental importance and of national interest." Allegedly, Comelec’s flawed
bidding and questionable award of the Contract to an unqualified entity would impact
directly on the success or the failure of the electoral process. Thus, any taint on the
sanctity of the ballot as the expression of the will of the people would inevitably affect
their faith in the democratic system of government. Petitioners further argue that the
award of any contract for automation involves disbursement of public funds in
Page 82 of 303
gargantuan amounts; therefore, public interest requires that the laws governing the
transaction must be followed strictly.
We agree with petitioners. Our nation’s political and economic future virtually hangs in
the balance, pending the outcome of the 2004 elections. Hence, there can be no
serious doubt that the subject matter of this case is "a matter of public concern and
imbued with public interest";18 in other words, it is of "paramount public interest"19 and
"transcendental importance."20 This fact alone would justify relaxing the rule on legal
standing, following the liberal policy of this Court whenever a case involves "an issue of
overarching significance to our society."21 Petitioners’ legal standing should therefore be
recognized and upheld.
Moreover, this Court has held that taxpayers are allowed to sue when there is a claim of
"illegal disbursement of public funds,"22 or if public money is being "deflected to any
improper purpose";23 or when petitioners seek to restrain respondent from "wasting
public funds through the enforcement of an invalid or unconstitutional law."24 In the
instant case, individual petitioners, suing as taxpayers, assert a material interest in
seeing to it that public funds are properly and lawfully used. In the Petition, they claim
that the bidding was defective, the winning bidder not a qualified entity, and the award
of the Contract contrary to law and regulation. Accordingly, they seek to restrain
respondents from implementing the Contract and, necessarily, from making any
unwarranted expenditure of public funds pursuant thereto. Thus, we hold that petitioners
possess locus standi.
Second Procedural Issue:
Alleged Prematurity Due to Non-Exhaustion of Administrative Remedies
Respondents claim that petitioners acted prematurely, since they had not first utilized
the protest mechanism available to them under RA 9184, the Government Procurement
Reform Act, for the settlement of disputes pertaining to procurement contracts.
Section 55 of RA 9184 states that protests against decisions of the Bidding and Awards
Committee in all stages of procurement may be lodged with the head of the procuring
entity by filing a verified position paper and paying a protest fee. Section 57 of the same
law mandates that in no case shall any such protest stay or delay the bidding process,
but it must first be resolved before any award is made.
On the other hand, Section 58 provides that court action may be resorted to only after
the protests contemplated by the statute shall have been completed. Cases filed in
violation of this process are to be dismissed for lack of jurisdiction. Regional trial courts
shall have jurisdiction over final decisions of the head of the procuring entity, and court
actions shall be instituted pursuant to Rule 65 of the 1997 Rules of Civil Procedure.
Respondents assert that throughout the bidding process, petitioners never questioned
the BAC Report finding MPC eligible to bid and recommending the award of the
Contract to it (MPC). According to respondents, the Report should have been appealed
to the Comelc en banc, pursuant to the aforementioned sections of RA 9184. In the
Page 83 of 303
absence of such appeal, the determination and recommendation of the BAC had
become final.
The Court is not persuaded.
Respondent Comelec came out with its en banc Resolution No. 6074 dated April 15,
2003, awarding the project to Respondent MPC even before the BAC managed to issue
its written report and recommendation on April 21, 2003. Thus, how could petitioners
have appealed the BAC’s recommendation or report to the head of the procuring entity
(the chairman of Comelec), when the Comelec en banc had already approved the
award of the contract to MPC even before petitioners learned of the BAC
recommendation?
It is claimed25 by Comelec that during its April 15, 2003 session, it received and
approved the verbal report and recommendation of the BAC for the award of the
Contract to MPC, and that the BAC subsequently re-affirmed its verbal report and
recommendation by submitting it in writing on April 21, 2003. Respondents insist that
the law does not require that the BAC Report be in writing before Comelec can act
thereon; therefore, there is allegedly nothing irregular about the Report as well as the en
banc Resolution.
However, it is obvious that petitioners could have appealed the BAC’s report and
recommendation to the head of the procuring entity (the Comelec chair) only upon their
discovery thereof, which at the very earliest would have been on April 21, 2003, when
the BAC actually put its report in writing and finally released it. Even then, what would
have been the use of protesting/appealing the report to the Comelec chair, when by that
time the Commission en banc (including the chairman himself) had already approved
the BAC Report and awarded the Contract to MPC?
And even assuming arguendo that petitioners had somehow gotten wind of the verbal
BAC report on April 15, 2003 (immediately after the en banc session), at that point the
Commission en banc had already given its approval to the BAC Report along with the
award to MPC. To put it bluntly, the Comelec en banc itself made it legally impossible
for petitioners to avail themselves of the administrative remedy that the Commission is
so impiously harping on. There is no doubt that they had not been accorded the
opportunity to avail themselves of the process provided under Section 55 of RA 9184,
according to which a protest against a decision of the BAC may be filed with the head of
the procuring entity. Nemo tenetur ad impossible,26 to borrow private respondents’
favorite Latin excuse.27
Some Observations on the BAC Report to the Comelec
We shall return to this issue of alleged prematurity shortly, but at this interstice, we
would just want to put forward a few observations regarding the BAC Report and the
Comelec en banc’s approval thereof.
First, Comelec contends that there was nothing unusual about the fact that the Report
submitted by the BAC came only after the former had already awarded the Contract,
because the latter had been asked to render its report and recommendation orally
Page 84 of 303
during the Commission’s en banc session on April 15, 2003. Accordingly, Comelec
supposedly acted upon such oral recommendation and approved the award to MPC on
the same day, following which the recommendation was subsequently reduced into
writing on April 21, 2003. While not entirely outside the realm of the possible, this
interesting and unique spiel does not speak well of the process that Comelec
supposedly went through in making a critical decision with respect to a multi-billion-peso
contract.
We can imagine that anyone else standing in the shoes of the Honorable
Commissioners would have been extremely conscious of the overarching need for utter
transparency. They would have scrupulously avoided the slightest hint of impropriety,
preferring to maintain an exacting regularity in the performance of their duties, instead
of trying to break a speed record in the award of multi-billion-peso contracts. After all,
between April 15 and April 21 were a mere six (6) days. Could Comelec not have waited
out six more days for the written report of the BAC, instead of rushing pell-mell into the
arms of MPC? Certainly, respondents never cared to explain the nature of the
Commission’s dire need to act immediately without awaiting the formal, written BAC
Report.
In short, the Court finds it difficult to reconcile the uncommon dispatch with which
Comelec acted to approve the multi-billion-peso deal, with its claim of having been
impelled by only the purest and most noble of motives.
At any rate, as will be discussed later on, several other factors combine to lend negative
credence to Comelec’s tale.
Second, without necessarily ascribing any premature malice or premeditation on the

part of the Comelec officials involved, it should nevertheless be conceded that this cart-
before-the-horse maneuver (awarding of the Contract ahead of the BAC’s written report)
would definitely serve as a clever and effective way of averting and frustrating any
impending protest under Section 55.
Having made the foregoing observations, we now go back to the question of exhausting
administrative remedies. Respondents may not have realized it, but the letter addressed
to Chairman Benjamin Abalos Sr. dated May 29, 200328 serves to eliminate the
prematurity issue as it was an actual written protest against the decision of the poll body
to award the Contract. The letter was signed by/for, inter alia, two of herein petitioners:
the Information Technology Foundation of the Philippines, represented by its president,
Alfredo M. Torres; and Ma. Corazon Akol.
Such letter-protest is sufficient compliance with the requirement to exhaust

administrative remedies particularly because it hews closely to the procedure outlined in
Section 55 of RA 9184.
And even without that May 29, 2003 letter-protest, the Court still holds that petitioners
need not exhaust administrative remedies in the light of Paat v. Court of Appeals. 29 Paat
enumerates the instances when the rule on exhaustion of administrative remedies may
be disregarded, as follows:
Page 85 of 303
"(1) when there is a violation of due process,
(2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal amounting to lack or excess
of jurisdiction,
(4) when there is estoppel on the part of the administrative agency concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose acts as an alter ego of
the President bears the implied and assumed approval of the latter,
(7) when to require exhaustion of administrative remedies would be

unreasonable,
(8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case proceedings,
(10) when the rule does not provide a plain, speedy and adequate remedy, and
(11) when there are circumstances indicating the urgency of judicial

intervention."30
The present controversy precisely falls within the exceptions listed as Nos. 7, 10 and
11: "(7) when to require exhaustion of administrative remedies would be unreasonable;
(10) when the rule does not provide a plain, speedy and adequate remedy, and (11)
when there are circumstances indicating the urgency of judicial intervention." As already
stated, Comelec itself made the exhaustion of administrative remedies legally
impossible or, at the very least, "unreasonable."
In any event, the peculiar circumstances surrounding the unconventional rendition of the
BAC Report and the precipitate awarding of the Contract by the Comelec en banc --
plus the fact that it was racing to have its Contract with MPC implemented in time for the
elections in May 2004 (barely four months away) -- have combined to bring about the
urgent need for judicial intervention, thus prompting this Court to dispense with the
procedural exhaustion of administrative remedies in this case.
Main Substantive Issue:
Validity of the Award to MPC
We come now to the meat of the controversy. Petitioners contend that the award is
invalid, since Comelec gravely abused its discretion when it did the following:
1. Awarded the Contract to MPC though it did not even participate in the bidding
Page 86 of 303
2. Allowed MPEI to participate in the bidding despite its failure to meet the
mandatory eligibility requirements
3. Issued its Resolution of April 15, 2003 awarding the Contract to MPC despite
the issuance by the BAC of its Report, which formed the basis of the assailed
Resolution, only on April 21, 200331
4. Awarded the Contract, notwithstanding the fact that during the bidding
process, there were violations of the mandatory requirements of RA 8436 as well
as those set forth in Comelec’s own Request for Proposal on the automated
election system
5. Refused to declare a failed bidding and to conduct a re-bidding despite the

failure of the bidders to pass the technical tests conducted by the Department of
Science and Technology
6. Failed to follow strictly the provisions of RA 8436 in the conduct of the bidding
for the automated counting machines
After reviewing the slew of pleadings as well as the matters raised during the Oral
Argument, the Court deems it sufficient to focus discussion on the following major areas
of concern that impinge on the issue of grave abuse of discretion:
A. Matters pertaining to the identity, existence and eligibility of MPC as a bidder
B. Failure of the automated counting machines (ACMs) to pass the DOST

technical tests
C. Remedial measures and re-testings undertaken by Comelec and DOST after

the award, and their effect on the present controversy
A.
Failure to Establish the Identity, Existence and Eligibility of the Alleged Consortium as a
Bidder
On the question of the identity and the existence of the real bidder, respondents insist
that, contrary to petitioners’ allegations, the bidder was not Mega Pacific eSolutions, Inc.
(MPEI), which was incorporated only on February 27, 2003, or 11 days prior to the
bidding itself. Rather, the bidder was Mega Pacific Consortium (MPC), of which MPEI
was but a part. As proof thereof, they point to the March 7, 2003 letter of intent to bid,
signed by the president of MPEI allegedly for and on behalf of MPC. They also call
attention to the official receipt issued to MPC, acknowledging payment for the bidding
documents, as proof that it was the "consortium" that participated in the bidding
process.
We do not agree. The March 7, 2003 letter, signed by only one signatory -- "Willy U. Yu,
President, Mega Pacific eSolutions, Inc., (Lead Company/ Proponent) For: Mega Pacific
Consortium" -- and without any further proof, does not by itself prove the existence of
Page 87 of 303
the consortium. It does not show that MPEI or its president have been duly pre-
authorized by the other members of the putative consortium to represent them, to bid on
their collective behalf and, more important, to commit them jointly and severally to the
bid undertakings. The letter is purely self-serving and uncorroborated.
Neither does an official receipt issued to MPC, acknowledging payment for the bidding
documents, constitute proof that it was the purported consortium that participated in the
bidding. Such receipts are issued by cashiers without any legally sufficient inquiry as to
the real identity orexistence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility and qualification) of
the putative consortium, Comelec’s BAC should have examined the bidding documents
submitted on behalf of MPC. They would have easily discovered the following fatal
flaws.
Two-Envelope,
Two-Stage System
As stated earlier in our factual presentation, the public bidding system designed by
Comelec under its RFP (Request for Proposal for the Automation of the 2004 Election)
mandated the use of a two-envelope, two-stage system. A bidder’s first envelope
(Eligibility Envelope) was meant to establish its eligibility to bid and its qualifications and
capacity to perform the contract if its bid was accepted, while the second envelope
would be the Bid Envelope itself.
The Eligibility Envelope was to contain legal documents such as articles of

incorporation, business registrations, licenses and permits, mayor’s permit, VAT
certification, and so forth; technical documents containing documentary evidence to
establish the track record of the bidder and its technical and production capabilities to
perform the contract; and financial documents, including audited financial statements for
the last three years, to establish the bidder’s financial capacity.
In the case of a consortium or joint venture desirous of participating in the bidding, it

goes without saying that the Eligibility Envelope would necessarily have to include a
copy of the joint venture agreement, the consortium agreement or memorandum of
agreement -- or a business plan or some other instrument of similar import --
establishing the due existence, composition and scope of such aggrupation. Otherwise,
how would Comelec know who it was dealing with, and whether these parties are
qualified and capable of delivering the products and services being offered for
bidding?32
In the instant case, no such instrument was submitted to Comelec during the bidding
process. This fact can be conclusively ascertained by scrutinizing the two-inch thick
"Eligibility Requirements" file submitted by Comelec last October 9, 2003, in partial
compliance with this Court’s instructions given during the Oral Argument. This file
purports to replicate the eligibility documents originally submitted to Comelec by MPEI
allegedly on behalf of MPC, in connection with the bidding conducted in March 2003.
Included in the file are the incorporation papers and financial statements of the
Page 88 of 303
members of the supposed consortium and certain certificates, licenses and permits
issued to them.
However, there is no sign whatsoever of any joint venture agreement, consortium

agreement, memorandum of agreement, or business plan executed among the
members of the purported consortium.
The only logical conclusion is that no such agreement was ever submitted to the
Comelec for its consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract, there was no documentary or other
basis for Comelec to conclude that a consortium had actually been formed amongst
MPEI, SK C&C and WeSolv, along with Election.com and ePLDT.33 Neither was there
anything to indicate the exact relationships between and among these firms; their
diverse roles, undertakings and prestations, if any, relative to the prosecution of the
project, the extent of their respective investments (if any) in the supposed consortium or
in the project; and the precise nature and extent of their respective liabilities with
respect to the contract being offered for bidding. And apart from the self-serving letter of
March 7, 2003, there was not even any indication that MPEI was the lead company duly
authorized to act on behalf of the others.
So, it necessarily follows that, during the bidding process, Comelec had no basis at all
for determining that the alleged consortium really existed and was eligible and qualified;
and that the arrangements among the members were satisfactory and sufficient to
ensure delivery on the Contract and to protect the government’s interest.
Notwithstanding such deficiencies, Comelec still deemed the "consortium" eligible to

participate in the bidding, proceeded to open its Second Envelope, and eventually
awarded the bid to it, even though -- per the Comelec’s own RFP -- the BAC should
have declared the MPC ineligible to bid and returned the Second (Bid) Envelope
unopened.
Inasmuch as Comelec should not have considered MPEI et al. as comprising a

consortium or joint venture, it should not have allowed them to avail themselves of the
provision in Section 5.4 (b) (i) of the IRR for RA 6957 (the Build-Operate-Transfer Law),
as amended by RA 7718. This provision states in part that a joint venture/consortium
proponent shall be evaluated based on the individual or collective experience of the
member-firms of the joint venture or consortium and of the contractor(s) that it has
engaged for the project. Parenthetically, respondents have uniformly argued that the
said IRR of RA 6957, as amended, have suppletory application to the instant case.
Hence, had the proponent MPEI been evaluated based solely on its own experience,
financial and operational track record or lack thereof, it would surely not have qualified
and would have been immediately considered ineligible to bid, as respondents readily
admit.
At any rate, it is clear that Comelec gravely abused its discretion in arbitrarily failing to
observe its own rules, policies and guidelines with respect to the bidding process,
thereby negating a fair, honest and competitive bidding.
Page 89 of 303
Commissioners Not Aware of Consortium
In this regard, the Court is beguiled by the statements of Commissioner Florentino

Tuason Jr., given in open court during the Oral Argument last October 7, 2003. The
good commissioner affirmed that he was aware, of his own personal knowledge, that
there had indeed been a written agreement among the "consortium"
members,34 although it was an internal matter among them, 35 and of the fact that it
would be presented by counsel for private respondent. 36
However, under questioning by Chief Justice Hilario G. Davide Jr. and Justice Jose C.
Vitug, Commissioner Tuason in effect admitted that, while he was the commissioner-in-
charge of Comelec’s Legal Department, he had never seen, even up to that late date,
the agreement he spoke of.37 Under further questioning, he was likewise unable to
provide any information regarding the amounts invested into the project by several
members of the claimed consortium.38 A short while later, he admitted that the
Commission had not taken a look at the agreement (if any). 39
He tried to justify his position by claiming that he was not a member of the BAC. Neither
was he the commissioner-in-charge of the Phase II Modernization project (the
automated election system); but that, in any case, the BAC and the Phase II
Modernization Project Team did look into the aspect of the composition of the
consortium.
It seems to the Court, though, that even if the BAC or the Phase II Team had taken
charge of evaluating the eligibility, qualifications and credentials of the consortium-
bidder, still, in all probability, the former would have referred the task to Commissioner
Tuason, head of Comelec’s Legal Department. That task was the appreciation and
evaluation of the legal effects and consequences of the terms, conditions, stipulations
and covenants contained in any joint venture agreement, consortium agreement or a
similar document -- assuming of course that any of these was available at the time. The
fact that Commissioner Tuason was barely aware of the situation bespeaks the
complete absence of such document, or the utter failure or neglect of the Comelec to
examine it -- assuming it was available at all -- at the time the award was made on April
15, 2003.
In any event, the Court notes for the record that Commissioner Tuason basically
contradicted his statements in open court about there being one written agreement
among all the consortium members, when he subsequently referred40 to the four (4)
Memoranda of Agreement (MOAs) executed by them. 41
At this juncture, one might ask: What, then, if there are four MOAs instead of one or
none at all? Isn’t it enough that there are these corporations coming together to carry
out the automation project? Isn’t it true, as respondent aver, that nowhere in the RFP
issued by Comelec is it required that the members of the joint venture execute a single
written agreement to prove the existence of a joint venture. Indeed, the intention to be
jointly and severally liable may be evidenced not only by a single joint venture
agreement, but also by supplementary documents executed by the parties signifying
such intention. What then is the big deal?
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The problem is not that there are four agreements instead of only one. The problem is
that Comelec never bothered to check. It never based its decision on documents or
other proof that would concretely establish the existence of the claimed consortium or
joint venture or agglomeration. It relied merely on the self-serving representation in an
uncorroborated letter signed by only one individual, claiming that his company
represented a "consortium" of several different corporations. It concluded forthwith that
a consortium indeed existed, composed of such and such members, and thereafter
declared that the entity was eligible to bid.
True, copies of financial statements and incorporation papers of the alleged

"consortium" members were submitted. But these papers did not establish the existence
of a consortium, as they could have been provided by the companies concerned for
purposes other than to prove that they were part of a consortium or joint venture. For
instance, the papers may have been intended to show that those companies were each
qualified to be a sub-contractor (and nothing more) in a major project. Those documents
did not by themselves support the assumption that a consortium or joint venture existed
among the companies.
In brief, despite the absence of competent proof as to the existence and eligibility of the
alleged consortium (MPC), its capacity to deliver on the Contract, and the members’
joint and several liability therefor, Comelec nevertheless assumed that such consortium
existed and was eligible. It then went ahead and considered the bid of MPC, to which
the Contract was eventually awarded, in gross violation of the former’s own bidding
rules and procedures contained in its RFP. Therein lies Comelec’s grave abuse of
discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by, and effective and binding on, all the
five "consortium members" -- as earlier claimed by Commissioner Tuason in open court
-- it turns out that what was actually executed were four (4) separate and distinct
bilateral Agreements.42 Obviously, Comelec was furnished copies of these Agreements
only after the bidding process had been terminated, as these were not included in the
Eligibility Documents. These Agreements are as follows:
· A Memorandum of Agreement between MPEI and SK C&C
· A Memorandum of Agreement between MPEI and WeSolv
· A "Teaming Agreement" between MPEI and Election.com Ltd.
· A "Teaming Agreement" between MPEI and ePLDT
In sum, each of the four different and separate bilateral Agreements is valid and binding
only between MPEI and the other contracting party, leaving the other "consortium"
members total strangers thereto. Under this setup, MPEI dealt separately with each of
the "members," and the latter (WeSolv, SK C&C, Election.com, and ePLDT) in turn had
nothing to do with one another, each dealing only with MPEI.
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Respondents assert that these four Agreements were sufficient for the purpose of
enabling the corporations to still qualify (even at that late stage) as a consortium or joint
venture, since the first two Agreements had allegedly set forth the joint and several
undertakings among the parties, whereas the latter two clarified the parties’ respective
roles with regard to the Project, with MPEI being the independent contractor and
Election.com and ePLDT the subcontractors.
Additionally, the use of the phrase "particular contract" in the Comelec’s Request for
Proposal (RFP), in connection with the joint and several liabilities of companies in a joint
venture, is taken by them to mean that all the members of the joint venture need not be
solidarily liable for the entire project or joint venture, because it is sufficient that the lead
company and the member in charge of a particular contract or aspect of the joint
venture agree to be solidarily liable.
At this point, it must be stressed most vigorously that the submission of the four bilateral
Agreements to Comelec after the end of the bidding process did nothing to eliminate the
grave abuse of discretion it had already committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation Contract awarded by Comelec
incorporates all documents executed by the "consortium" members, even if these
documents are not referred to therein. The basis of this assertion appears to be the
passages from Section 1.4 of the Contract, which is reproduced as follows:
"All Contract Documents shall form part of the Contract even if they or any one of
them is not referred to or mentioned in the Contract as forming a part thereof.
Each of the Contract Documents shall be mutually complementary and
explanatory of each other such that what is noted in one although not shown in
the other shall be considered contained in all, and what is required by any one
shall be as binding as if required by all, unless one item is a correction of the
other.
"The intent of the Contract Documents is the proper, satisfactory and timely
execution and completion of the Project, in accordance with the Contract
Documents. Consequently, all items necessary for the proper and timely
execution and completion of the Project shall be deemed included in the
Contract."
Thus, it is argued that whatever perceived deficiencies there were in the supplementary
contracts -- those entered into by MPEI and the other members of the "consortium" as
regards their joint and several undertakings -- have been cured. Better still, such
deficiencies have supposedly been prevented from arising as a result of the above-
quoted provisions, from which it can be immediately established that each of the
members of MPC assumes the same joint and several liability as the other members.
The foregoing argument is unpersuasive. First, the contract being referred to, entitled
"The Automated Counting and Canvassing Project Contract," is between Comelec and
MPEI, not the alleged consortium, MPC. To repeat, it is MPEI -- not MPC -- that is a
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party to the Contract. Nowhere in that Contract is there any mention of a consortium or
joint venture, of members thereof, much less of joint and several liability. Supposedly
executed sometime in May 2003,43 the Contract bears a notarization date of June 30,
2003, and contains the signature of Willy U. Yu signing as president of MPEI (not for
and on behalf of MPC), along with that of the Comelec chair. It provides in Section 3.2
that MPEI (not MPC) is to supply the Equipment and perform the Services under the
Contract, in accordance with the appendices thereof; nothing whatsoever is said about
any consortium or joint venture or partnership.
Second, the portions of Section 1.4 of the Contract reproduced above do not have the
effect of curing (much less preventing) deficiencies in the bilateral agreements entered
into by MPEI with the other members of the "consortium," with respect to their joint and
several liabilities. The term "Contract Documents," as used in the quoted passages of
Section 1.4, has a well-defined meaning and actually refers only to the following
documents:
· The Contract itself along with its appendices
· The Request for Proposal (also known as "Terms of Reference") issued by the
Comelec, including the Tender Inquiries and Bid Bulletins
· The Tender Proposal submitted by MPEI
In other words, the term "Contract Documents" cannot be understood as referring to or

including the MOAs and the Teaming Agreements entered into by MPEI with SK C&C,
WeSolv, Election.com and ePLDT. This much is very clear and admits of no debate.
The attempt to use the provisions of Section 1.4 to shore up the MOAs and the Teaming
Agreements is simply unwarranted.
Third and last, we fail to see how respondents can arrive at the conclusion that, from the
above-quoted provisions, it can be immediately established that each of the members of
MPC assumes the same joint and several liability as the other members. Earlier,
respondents claimed exactly the opposite -- that the two MOAs (between MPEI and SK
C&C, and between MPEI and WeSolv) had set forth the joint and several undertakings
among the parties; whereas the two Teaming Agreements clarified the parties’
respective roles with regard to the Project, with MPEI being the independent contractor
and Election.com and ePLDT the subcontractors.
Obviously, given the differences in their relationships, their respective liabilities cannot
be the same. Precisely, the very clear terms and stipulations contained in the MOAs
and the Teaming Agreements -- entered into by MPEI with SK C&C, WeSolv,
Election.com and ePLDT -- negate the idea that these "members" are on a par with one
another and are, as such, assuming the same joint and several liability.
Moreover, respondents have earlier seized upon the use of the term "particular
contract" in the Comelec’s Request for Proposal (RFP), in order to argue that all the
members of the joint venture did not need to be solidarily liable for the entire project or
joint venture. It was sufficient that the lead company and the member in charge of a
particular contract or aspect of the joint venture would agree to be solidarily liable. The
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glaring lack of consistency leaves us at a loss. Are respondents trying to establish the
same joint and solidary liability among all the "members" or not?
Enforcement of Liabilities Problematic
Next, it is also maintained that the automation Contract between Comelec and the MPEI
confirms the solidary undertaking of the lead company and the consortium member
concerned for each particular Contract, inasmuch as the position of MPEI and anyone
else performing the services contemplated under the Contract is described therein as
that of an independent contractor.
The Court does not see, however, how this conclusion was arrived at. In the first place,
the contractual provision being relied upon by respondents is Article 14, "Independent
Contractors," which states: "Nothing contained herein shall be construed as establishing
or creating between the COMELEC and MEGA the relationship of employee and
employer or principal and agent, it being understood that the position of MEGA and of
anyone performing the Services contemplated under this Contract, is that of an
independent contractor."
Obviously, the intent behind the provision was simply to avoid the creation of an
employer-employee or a principal-agent relationship and the complications that it would
produce. Hence, the Article states that the role or position of MPEI, or anyone else
performing on its behalf, is that of an independent contractor. It is obvious to the Court
that respondents are stretching matters too far when they claim that, because of this
provision, the Contract in effect confirms the solidary undertaking of the lead company
and the consortium member concerned for the particular phase of the project. This
assertion is an absolute non sequitur.
Enforcement of Liabilities Under the Civil Code Not Possible
In any event, it is claimed that Comelec may still enforce the liability of the "consortium"
members under the Civil Code provisions on partnership, reasoning that MPEI et al.
represented themselves as partners and members of MPC for purposes of bidding for
the Project. They are, therefore, liable to the Comelec to the extent that the latter relied
upon such representation. Their liability as partners is solidary with respect to
everything chargeable to the partnership under certain conditions.
The Court has two points to make with respect to this argument. First, it must be
recalled that SK C&C, WeSolv, Election.com and ePLDT never represented themselves
as partners and members of MPC, whether for purposes of bidding or for something
else. It was MPEI alone that represented them to be members of a "consortium" it
supposedly headed. Thus, its acts may not necessarily be held against the other
"members."
Second, this argument of the OSG in its Memorandum44 might possibly apply in the
absence of a joint venture agreement or some other writing that discloses the
relationship of the "members" with one another. But precisely, this case does not deal
with a situation in which there is nothing in writing to serve as reference, leaving
Comelec to rely on mere representations and therefore justifying a falling back on the
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rules on partnership. For, again, the terms and stipulations of the MOAs entered into by
MPEI with SK C&C and WeSolv, as well as the Teaming Agreements of MPEI with
Election.com and ePLDT (copies of which have been furnished the Comelec) are very
clear with respect to the extent and the limitations of the firms’ respective liabilities.
In the case of WeSolv and SK C&C, their MOAs state that their liabilities, while joint and
several with MPEI, are limited only to the particular areas of work wherein their services
are engaged or their products utilized. As for Election.com and ePLDT, their separate
"Teaming Agreements" specifically ascribe to them the role of subcontractor vis-à-vis
MPEI as contractor and, based on the terms of their particular agreements, neither
Election.com nor ePLDT is, with MPEI, jointly and severally liable to Comelec. 45 It
follows then that in the instant case, there is no justification for anyone, much less
Comelec, to resort to the rules on partnership and partners’ liabilities.
Eligibility of a Consortium Based on the Collective Qualifications of Its Members
Respondents declare that, for purposes of assessing the eligibility of the bidder, the
members of MPC should be evaluated on a collective basis. Therefore, they contend,
the failure of MPEI to submit financial statements (on account of its recent
incorporation) should not by itself disqualify MPC, since the other members of the
"consortium" could meet the criteria set out in the RFP.
Thus, according to respondents, the collective nature of the undertaking of the members
of MPC, their contribution of assets and sharing of risks, and the community of their
interest in the performance of the Contract lead to these reasonable conclusions: (1)
that their collective qualifications should be the basis for evaluating their eligibility; (2)
that the sheer enormity of the project renders it improbable to expect any single entity to
be able to comply with all the eligibility requirements and undertake the project by itself;
and (3) that, as argued by the OSG, the RFP allows bids from manufacturers, suppliers
and/or distributors that have formed themselves into a joint venture, in recognition of the
virtual impossibility of a single entity’s ability to respond to the Invitation to Bid.
Additionally, argues the Comelec, the Implementing Rules and Regulations of RA 6957
(the Build-Operate-Transfer Law) as amended by RA 7718 would be applicable, as
proponents of BOT projects usually form joint ventures or consortiums. Under the IRR,
a joint venture/consortium proponent shall be evaluated based on the individual or the
collective experience of the member-firms of the joint venture/consortium and of the
contractors the proponent has engaged for the project.
Unfortunately, this argument seems to assume that the "collective" nature of the
undertaking of the members of MPC, their contribution of assets and sharing of risks,
and the "community" of their interest in the performance of the Contract entitle MPC to
be treated as a joint venture or consortium; and to be evaluated accordingly on the
basis of the members’ collective qualifications when, in fact, the evidence before the
Court suggest otherwise.
This Court in Kilosbayan v. Guingona46 defined joint venture as "an association of

persons or companies jointly undertaking some commercial enterprise; generally, all
contribute assets and share risks. It requires a community of interest in the performance
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of the subject matter, a right to direct and govern the policy in connection therewith, and
[a] duty, which may be altered by agreement to share both in profit and losses."
Going back to the instant case, it should be recalled that the automation Contract with
Comelec was not executed by the "consortium" MPC -- or by MPEI for and on behalf of
MPC -- but by MPEI, period. The said Contract contains no mention whatsoever of any
consortium or members thereof. This fact alone seems to contradict all the suppositions
about a joint undertaking that would normally apply to a joint venture or consortium: that
it is a commercial enterprise involving a community of interest, a sharing of risks, profits
and losses, and so on.
Now let us consider the four bilateral Agreements, starting with the Memorandum of
Agreement between MPEI and WeSolv Open Computing, Inc., dated March 5, 2003.
The body of the MOA consists of just seven (7) short paragraphs that would easily fit in
one page! It reads as follows:
"1. The parties agree to cooperate in successfully implementing the Project in the
substance and form as may be most beneficial to both parties and other
subcontractors involved in the Project.
"2. Mega Pacific shall be responsible for any contract negotiations and signing
with the COMELEC and, subject to the latter’s approval, agrees to give WeSolv
an opportunity to be present at meetings with the COMELEC concerning
WeSolv’s portion of the Project.
"3. WeSolv shall be jointly and severally liable with Mega Pacific only for the
particular products and/or services supplied by the former for the Project.
"4. Each party shall bear its own costs and expenses relative to this agreement
unless otherwise agreed upon by the parties.
"5. The parties undertake to do all acts and such other things incidental to,
necessary or desirable or the attainment of the objectives and purposes of this
Agreement.
"6. In the event that the parties fail to agree on the terms and conditions of the
supply of the products and services including but not limited to the scope of the
products and services to be supplied and payment terms, WeSolv shall cease to
be bound by its obligations stated in the aforementioned paragraphs.
"7. Any dispute arising from this Agreement shall be settled amicably by the
parties whenever possible. Should the parties be unable to do so, the parties
hereby agree to settle their dispute through arbitration in accordance with the
existing laws of the Republic of the Philippines." (Underscoring supplied.)
Even shorter is the Memorandum of Agreement between MPEI and SK C&C Co. Ltd.,
dated March 9, 2003, the body of which consists of only six (6) paragraphs, which we
quote:
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"1. All parties agree to cooperate in achieving the Consortium’s objective of
successfully implementing the Project in the substance and form as may be most
beneficial to the Consortium members and in accordance w/ the demand of the
RFP.
"2. Mega Pacific shall have full powers and authority to represent the Consortium
with the Comelec, and to enter and sign, for and in behalf of its members any
and all agreement/s which maybe required in the implementation of the Project.
"3. Each of the individual members of the Consortium shall be jointly and
severally liable with the Lead Firm for the particular products and/or services
supplied by such individual member for the project, in accordance with their
respective undertaking or sphere of responsibility.
"4. Each party shall bear its own costs and expenses relative to this agreement
unless otherwise agreed upon by the parties.
"5. The parties undertake to do all acts and such other things incidental to,
necessary or desirable for the attainment of the objectives and purposes of this
Agreement.
"6. Any dispute arising from this Agreement shall be settled amicably by the
parties whenever possible. Should the parties be unable to do so, the parties
hereby agree to settle their dispute through arbitration in accordance with the
existing laws of the Republic of the Philippines." (Underscoring supplied.)
It will be noted that the two Agreements quoted above are very similar in wording.
Neither of them contains any specifics or details as to the exact nature and scope of the
parties’ respective undertakings, performances and deliverables under the Agreement
with respect to the automation project. Likewise, the two Agreements are quite bereft of
pesos-and-centavos data as to the amount of investments each party contributes, its
respective share in the revenues and/or profit from the Contract with Comelec, and so
forth -- all of which are normal for agreements of this nature. Yet, according to public
and private respondents, the participation of MPEI, WeSolv and SK C&C comprises
fully 90 percent of the entire undertaking with respect to the election automation project,
which is worth about P1.3 billion.
As for Election.com and ePLDT, the separate "Teaming Agreements" they entered into
with MPEI for the remaining 10 percent of the entire project undertaking are ironically
much longer and more detailed than the MOAs discussed earlier. Although specifically
ascribing to them the role of subcontractor vis-à-vis MPEI as contractor, these
Agreements are, however, completely devoid of any pricing data or payment terms.
Even the appended Schedules supposedly containing prices of goods and services are
shorn of any price data. Again, as mentioned earlier, based on the terms of their
particular Agreements, neither Election.com nor ePLDT -- with MPEI -- is jointly and
severally liable to Comelec.
It is difficult to imagine how these bare Agreements -- especially the first two -- could be
implemented in practice; and how a dispute between the parties or a claim by Comelec
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against them, for instance, could be resolved without lengthy and debilitating litigations.
Absent any clear-cut statement as to the exact nature and scope of the parties’
respective undertakings, commitments, deliverables and covenants, one party or
another can easily dodge its obligation and deny or contest its liability under the
Agreement; or claim that it is the other party that should have delivered but failed to.
Likewise, in the absence of definite indicators as to the amount of investments to be

contributed by each party, disbursements for expenses, the parties’ respective shares in
the profits and the like, it seems to the Court that this situation could readily give rise to
all kinds of misunderstandings and disagreements over money matters.
Under such a scenario, it will be extremely difficult for Comelec to enforce the supposed
joint and several liabilities of the members of the "consortium." The Court is not even
mentioning the possibility of a situation arising from a failure of WeSolv and MPEI to
agree on the scope, the terms and the conditions for the supply of the products and
services under the Agreement. In that situation, by virtue of paragraph 6 of its MOA,
WeSolv would perforce cease to be bound by its obligations -- including its joint and
solidary liability with MPEI under the MOA -- and could forthwith disengage from the
project. Effectively, WeSolv could at any time unilaterally exit from its MOA with MPEI
by simply failing to agree. Where would that outcome leave MPEI and Comelec?
To the Court, this strange and beguiling arrangement of MPEI with the other companies
does not qualify them to be treated as a consortium or joint venture, at least of the type
that government agencies like the Comelec should be dealing with. With more reason is
it unable to agree to the proposal to evaluate the members of MPC on a collective
basis.
In any event, the MPC members claim to be a joint venture/consortium; and

respondents have consistently been arguing that the IRR for RA 6957, as amended,
should be applied to the instant case in order to allow a collective evaluation of
consortium members. Surprisingly, considering these facts, respondents have not
deemed it necessary for MPC members to comply with Section 5.4 (a) (iii) of the IRR for
RA 6957 as amended.
According to the aforementioned provision, if the project proponent is a joint venture or

consortium, the members or participants thereof are required to submit a sworn
statement that, if awarded the contract, they shall bind themselves to be jointly,
severally and solidarily liable for the project proponent’s obligations thereunder. This
provision was supposed to mirror Section 5 of RA 6957, as amended, which states: "In
all cases, a consortium that participates in a bid must present proof that the members of
the consortium have bound themselves jointly and severally to assume responsibility for
any project. The withdrawal of any member of the consortium prior to the
implementation of the project could be a ground for the cancellation of the contract."
The Court has certainly not seen any joint and several undertaking by the MPC
members that even approximates the tenor of that which is described above. We fail to
see why respondents should invoke the IRR if it is for their benefit, but refuse to comply
with it otherwise.
B.
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DOST Technical Tests Flunked by the Automated Counting Machines
Let us now move to the second subtopic, which deals with the substantive issue: the
ACM’s failure to pass the tests of the Department of Science and Technology (DOST).
After respondent "consortium" and the other bidder, TIM, had submitted their respective
bids on March 10, 2003, the Comelec’s BAC -- through its Technical Working Group
(TWG) and the DOST -- evaluated their technical proposals. Requirements that were
highly technical in nature and that required the use of certain equipment in the
evaluation process were referred to the DOST for testing. The Department reported
thus:
TEST RESULTS MATRIX47
Technical Evaluation of Automated Counting Machine
MEGA-PACIFIC TOTAL
KEY REQUIREMENTS CONSORTIUM INFORMATION
QUESTIONS MANAGEMENT
YES NO YES NO
1. Does the machine have an √ √
accuracy rating of at least 99.995
percent
At COLD environmental condition √ √
At NORMAL environmental √ √
conditions
At HARSH environmental conditions
2. Accurately records and reports the √ √
date and time of the start and end of
counting of ballots per precinct?
3. Prints election returns without any √ √
loss of date during generation of such
reports?
4. Uninterruptible back-up power
system, that will engage immediately √ √
to allow operation of at least 10
minutes after outage, power surge or
abnormal electrical occurrences?
5. Machine reads two-sided ballots in √ √
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one pass?
Note: This
particular
requirement
needs further
verification
6. Machine can detect previously √ √
counted ballots and prevent
previously counted ballots from being
counted more than once?
7. Stores results of counted votes by √ √
precinct in external (removable)
storage device? Note: This
particular
requirement
needs further
verification
8. Data stored in external media is √ √
encrypted?
Note: This
particular
requirement
needs further
verification
9. Physical key or similar device √ √
allows, limits, or restricts operation of
the machine?
10. CPU speed is at least 400mHz? √ √
Note: This
particular
requirement
needs further
verification
11. Port to allow use of dot-matrix √ √
printers?
12. Generates printouts of the
election returns in a format specified
by the COMELEC?
Generates printouts √ √
In format specified by COMELEC √ √
13. Prints election returns without any √ √
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loss of data during generation of such
report?
14. Generates an audit trail of the
counting machine, both hard copy
and soft copy?
Hard copy √ √
Soft copy √ √
Note: This
particular
requirement
needs further
verification
15. Does the City/Municipal √ √
Canvassing System consolidate
results from all precincts within it Note: This
using the encrypted soft copy of the particular
data generated by the counting requirement
machine and stored on the needs further
removable data storage device? verification
16. Does the City/Municipal √ √
Canvassing System consolidate
results from all precincts within it Note: This Note: This
using the encrypted soft copy of the particular particular
data generated by the counting requirement requirement
machine and transmitted through an needs further needs further
electronic transmission media? verification verification
17. Does the system output a Zero √ √
City/Municipal Canvass Report,
which is printed on election day prior Note: This
to the conduct of the actual canvass particular
operation, that shows that all totals requirement
for all the votes for all the candidates needs further
and other information, are indeed verification
zero or null?
18. Does the system consolidate √ √
results from all precincts in the
city/municipality using the data Note: This
storage device coming from the particular
counting machine? requirement
needs further
verification
19. Is the machine 100% accurate? √ √
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Note: This
particular
requirement
needs further
verification
20. Is the Program able to detect √ √
previously downloaded precinct
results and prevent these from being Note: This
inputted again into the System? particular
requirement
needs further
verification
21. The System is able to print the
specified reports and the audit trail
without any loss of data during
generation of the above-mentioned
reports?
Prints specified reports √ √
Audit Trail √ √
22. Can the result of the √ √
city/municipal consolidation be stored
in a data storage device? Note: This
particular
requirement
needs further
verification
23. Does the system consolidate √ √
results from all precincts in the
provincial/district/ national using the Note: This
data storage device from different particular
levels of consolidation? requirement
needs further
verification
24. Is the system 100% accurate? √ √
Note: This
particular
requirement
needs further
verification
25. Is the Program able to detect √ √
previously downloaded precinct
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results and prevent these from being
inputted again into the System? Note: This
particular
requirement
needs further
verification
26. The System is able to print the
specified reports and the audit trail
without any loss of data during
generation of the abovementioned
reports?
Prints specified reports √ √
Audit Trail √ √
Note: This
particular
requirement
needs further
verification
27. Can the results of the √ √
provincial/district/national
consolidation be stored in a data Note: This
storage device? particular
requirement
needs further
verification
According to respondents, it was only after the TWG and the DOST had conducted their
separate tests and submitted their respective reports that the BAC, on the basis of
these reports formulated its comments/recommendations on the bids of the consortium
and TIM.
The BAC, in its Report dated April 21, 2003, recommended that the Phase II project
involving the acquisition of automated counting machines be awarded to MPEI. It said:
"After incisive analysis of the technical reports of the DOST and the Technical
Working Group for Phase II – Automated Counting Machine, the BAC considers
adaptability to advances in modern technology to ensure an effective and
efficient method, as well as the security and integrity of the system.
"The results of the evaluation conducted by the TWG and that of the DOST (14
April 2003 report), would show the apparent advantage of Mega-Pacific over the
other competitor, TIM.
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"The BAC further noted that both Mega-Pacific and TIM obtained some ‘failed
marks’ in the technical evaluation. In general, the ‘failed marks’ of Total
Information Management as enumerated above affect the counting machine itself
which are material in nature, constituting non-compliance to the RFP. On the
other hand, the ‘failed marks’ of Mega-Pacific are mere formalities on certain
documentary requirements which the BAC may waive as clearly indicated in the
Invitation to Bid.
"In the DOST test, TIM obtained 12 failed marks and mostly attributed to the
counting machine itself as stated earlier. These are requirements of the RFP and
therefore the BAC cannot disregard the same.
"Mega-Pacific failed in 8 items however these are mostly on the software which
can be corrected by reprogramming the software and therefore can be readily
corrected.
"The BAC verbally inquired from DOST on the status of the retest of the counting
machines of the TIM and was informed that the report will be forthcoming after
the holy week. The BAC was informed that the retest is on a different parameters
they’re being two different machines being tested. One purposely to test if
previously read ballots will be read again and the other for the other features
such as two sided ballots.
"The said machine and the software therefore may not be considered the same
machine and program as submitted in the Technical proposal and therefore may
be considered an enhancement of the original proposal.
"Advance information relayed to the BAC as of 1:40 PM of 15 April 2003 by

Executive Director Ronaldo T. Viloria of DOST is that the result of the test in the
two counting machines of TIM contains substantial errors that may lead to the
failure of these machines based on the specific items of the RFP that DOST has
to certify.
OPENING OF FINANCIAL BIDS
"The BAC on 15 April 2003, after notifying the concerned bidders opened the
financial bids in their presence and the results were as follows:
Mega-Pacific:
Option 1 – Outright purchase: Bid Price if Php1,248,949,088.00
Option 2 – Lease option:
70% Down payment of cost of hardware or Php642,755,757.07
Remainder payable over 50 months or a total of Php642,755,757.07
Discount rate of 15% p.a. or 1.2532% per month.

Page 104 of 303
Total Number of Automated Counting Machine – 1,769 ACMs (Nationwide)
TIM:
Total Bid Price – Php1,297,860,560.00
Total Number of Automated Counting Machine – 2,272 ACMs (Mindanao and

NCR only)
"Premises considered, it appears that the bid of Mega Pacific is the lowest
calculated responsive bid, and therefore, the Bids and Awards Committee (BAC)
recommends that the Phase II project re Automated Counting Machine be
awarded to Mega Pacific eSolutions, Inc."48
The BAC, however, also stated on page 4 of its Report: "Based on the 14 April 2003
report (Table 6) of the DOST, it appears that both Mega-Pacific and TIM (Total
Information Management Corporation) failed to meet some of the requirements. Below
is a comparative presentation of the requirements wherein Mega-Pacific or TIM or both
of them failed: x x x." What followed was a list of "key requirements," referring to
technical requirements, and an indication of which of the two bidders had failed to meet
them.
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the counting machines were to have
an accuracy rating of at least 99.9995 percent. The BAC Report indicates that both
Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be part and parcel of the Comelec’s
Request for Proposal (RFP). The RFP, on page 26, even states that the ballot counting
machines and ballot counting software "must have an accuracy rating of 99.9995% (not
merely 99.995%) or better as certified by a reliable independent testing agency."
When questioned on this matter during the Oral Argument, Commissioner Borra tried to
wash his hands by claiming that the required accuracy rating of 99.9995 percent had
been set by a private sector group in tandem with Comelec. He added that the
Commission had merely adopted the accuracy rating as part of the group’s
recommended bid requirements, which it had not bothered to amend even after being
advised by DOST that such standard was unachievable. This excuse, however, does
not in any way lessen Comelec’s responsibility to adhere to its own published bidding
rules, as well as to see to it that the consortium indeed meets the accuracy
standard. Whichever accuracy rating is the right standard -- whether 99.995 or 99.9995
percent -- the fact remains that the machines of the so-called "consortium" failed to
even reach the lesser of the two. On this basis alone, it ought to have been disqualified
and its bid rejected outright.
At this point, the Court stresses that the essence of public bidding is violated by the
practice of requiring very high standards or unrealistic specifications that cannot be met
-- like the 99.9995 percent accuracy rating in this case -- only to water them down after
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the bid has been award. Such scheme, which discourages the entry of prospective bona
fide bidders, is in fact a sure indication of fraud in the bidding, designed to eliminate fair
competition. Certainly, if no bidder meets the mandatory requirements, standards or
specifications, then no award should be made and a failed bidding declared.
Failure of Software to Detect Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears that the "consortium" as well as
TIM failed to meet another key requirement -- for the counting machine’s software
program to be able to detect previously downloaded precinct results and to
prevent these from being entered again into the counting machine. This same
deficiency on the part of both bidders reappears on page 7 of the BAC Report, as a
result of the recurrence of their failure to meet the said key requirement.
That the ability to detect previously downloaded data at different canvassing or

consolidation levels is deemed of utmost importance can be seen from the fact that it is
repeated three times in the RFP. On page 30 thereof, we find the requirement that
the city/municipal canvassing system software must be able to detect previously
downloaded precinct results and prevent these from being "inputted" again into the
system. Again, on page 32 of the RFP, we read that the provincial/district canvassing
system software must be able to detect previously downloaded city/municipal results
and prevent these from being "inputted" again into the system. And once more, on page
35 of the RFP, we find the requirement that the national canvassing system software
must be able to detect previously downloaded provincial/district results and prevent
these from being "inputted" again into the system.
Once again, though, Comelec chose to ignore this crucial deficiency, which should have
been a cause for the gravest concern. Come May 2004, unscrupulous persons may
take advantage of and exploit such deficiency by repeatedly downloading and feeding
into the computers results favorable to a particular candidate or candidates. We are
thus confronted with the grim prospect of election fraud on a massive scale by
means of just a few key strokes. The marvels and woes of the electronic age!
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate that the
ACMs of both bidders were unable to print the audit trail without any loss of data. In
the case of MPC, the audit trail system was "not yet incorporated" into its ACMs.
This particular deficiency is significant, not only to this bidding but to the cause of free
and credible elections. The purpose of requiring audit trails is to enable Comelec to
trace and verify the identities of the ACM operators responsible for data entry and
downloading, as well as the times when the various data were downloaded into the
canvassing system, in order to forestall fraud and to identify the perpetrators.
Thus, the RFP on page 27 states that the ballot counting machines and ballot counting
software must print an audit trail of all machine operations for documentation and
verification purposes. Furthermore, the audit trail must be stored on the internal storage
device and be available on demand for future printing and verifying. On pages 30-31,
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the RFP also requires that the city/municipal canvassing system software be able to
print an audit trail of the canvassing operations, including therein such data as the date
and time the canvassing program was started, the log-in of the authorized users (the
identity of the machine operators), the date and time the canvass data were
downloaded into the canvassing system, and so on and so forth. On page 33 of the
RFP, we find the same audit trail requirement with respect to
the provincial/district canvassing system software; and again on pages 35-36 thereof,
the same audit trail requirement with respect to the national canvassing
system software.
That this requirement for printing audit trails is not to be lightly brushed aside by the
BAC or Comelec itself as a mere formality or technicality can be readily gleaned from
the provisions of Section 7 of RA 8436, which authorizes the Commission to use an
automated system for elections.
The said provision which respondents have quoted several times, provides that ACMs
are to possess certain features divided into two classes: those that the statute itself
considers mandatory and other features or capabilities that the law deems optional.
Among those considered mandatory are "provisions for audit trails"! Section 7 reads as
follows: "The System shall contain the following features: (a) use of appropriate ballots;
(b) stand-alone machine which can count votes and an automated system which can
consolidate the results immediately; (c) with provisions for audit trails; (d) minimum
human intervention; and (e) adequate safeguard/security measures." (Italics and
emphases supplied.)
In brief, respondents cannot deny that the provision requiring audit trails is indeed
mandatory, considering the wording of Section 7 of RA 8436. Neither can Respondent
Comelec deny that it has relied on the BAC Report, which indicates that the machines
or the software was deficient in that respect. And yet, the Commission simply
disregarded this shortcoming and awarded the Contract to private respondent, thereby
violating the very law it was supposed to implement.
C.
Inadequacy of Post Facto Remedial Measures
Respondents argue that the deficiencies relating to the detection of previously

downloaded data, as well as provisions for audit trails, are mere shortcomings or minor
deficiencies in software or programming, which can be rectified. Perhaps Comelec
simply relied upon the BAC Report, which states on page 8 thereof that "Mega Pacific
failed in 8 items[;] however these are mostly on the software which can be corrected by
re-programming x x x and therefore can be readily corrected."
The undersigned ponente’s questions, some of which were addressed to Commissioner

Borra during the Oral Argument, remain unanswered to this day. First of all, who made
the determination that the eight "fail" marks of Mega Pacific were on account of the
software -- was it DOST or TWG? How can we be sure these failures were not the
results of machine defects? How was it determined that the software could actually be
re-programmed and thereby rectified? Did a qualified technical expert read and analyze
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the source code49 for the programs and conclude that these could be saved and
remedied? (Such determination cannot be done by any other means save by the
examination and analysis of the source code.)
Who was this qualified technical expert? When did he carry out the study? Did he
prepare a written report on his findings? Or did the Comelec just make a wild guess? It
does not follow that all defects in software programs can be rectified, and the programs
saved. In the information technology sector, it is common knowledge that there are
many badly written programs, with significant programming errors written into them;
hence it does not make economic sense to try to correct the programs; instead,
programmers simply abandon them and just start from scratch. There’s no telling if any
of these programs is unrectifiable, unless a qualified programmer reads the source
code.
And if indeed a qualified expert reviewed the source code, did he also determine how
much work would be needed to rectify the programs? And how much time and money
would be spent for that effort? Who would carry out the work? After the rectification
process, who would ascertain and how would it be ascertained that the programs have
indeed been properly rectified, and that they would work properly thereafter? And of
course, the most important question to ask: could the rectification be done in time for
the elections in 2004?
Clearly, none of the respondents bothered to think the matter through. Comelec simply
took the word of the BAC as gospel truth, without even bothering to inquire from DOST
whether it was true that the deficiencies noted could possibly be remedied by re-
programming the software. Apparently, Comelec did not care about the software, but
focused only on purchasing the machines.
What really adds to the Court’s dismay is the admission made by Commissioner Borra
during the Oral Argument that the software currently being used by Comelec was
merely the "demo" version, inasmuch as the final version that would actually be used in
the elections was still being developed and had not yet been finalized.
It is not clear when the final version of the software would be ready for testing and
deployment. It seems to the Court that Comelec is just keeping its fingers crossed and
hoping the final product would work. Is there a "Plan B" in case it does not? Who
knows? But all these software programs are part and parcel of the bidding and the
Contract awarded to the Consortium. Why is it that the machines are already being
brought in and paid for, when there is as yet no way of knowing if the final version of the
software would be able to run them properly, as well as canvass and consolidate the
results in the manner required?
The counting machines, as well as the canvassing system, will never work
properly without the correct software programs. There is an old adage that is still valid to
this day: "Garbage in, garbage out." No matter how powerful, advanced and
sophisticated the computers and the servers are, if the software being utilized is
defective or has been compromised, the results will be no better than garbage. And to
think that what is at stake here is the 2004 national elections -- the very basis of our
democratic life.
Page 108 of 303
Correction of Defects?
To their Memorandum, public respondents proudly appended 19 Certifications issued

by DOST declaring that some 285 counting machines had been tested and had passed
the acceptance testing conducted by the Department on October 8-18, 2003. Among
those tested were some machines that had failed previous tests, but had undergone
adjustments and thus passed re-testing.
Unfortunately, the Certifications from DOST fail to divulge in what manner and by what
standards or criteria the condition, performance and/or readiness of the machines were
re-evaluated and re-appraised and thereafter given the passing mark. Apart from that
fact, the remedial efforts of respondents were, not surprisingly, apparently focused
again on the machines -- the hardware. Nothing was said or done about the software --
the deficiencies as to detection and prevention of downloading and entering previously
downloaded data, as well as the capability to print an audit trail. No matter how many
times the machines were tested and re-tested, if nothing was done about the
programming defects and deficiencies, the same danger of massive electoral fraud
remains. As anyone who has a modicum of knowledge of computers would say, "That’s
elementary!"
And only last December 5, 2003, an Inq7.net news report quoted the Comelec chair as
saying that the new automated poll system would be used nationwide in May
2004, even as the software for the system remained unfinished. It also reported that a
certain Titus Manuel of the Philippine Computer Society, which was helping Comelec
test the hardware and software, said that the software for the counting still had to be
submitted on December 15, while the software for the canvassing was due in early
January.
Even as Comelec continues making payments for the ACMs, we keep asking ourselves:
who is going to ensure that the software would be tested and would work properly?
At any rate, the re-testing of the machines and/or the 100 percent testing of all
machines (testing of every single unit) would not serve to eradicate the grave abuse of
discretion already committed by Comelec when it awarded the Contract on April 15,
2003, despite the obvious and admitted flaws in the bidding process, the failure of the
"winning bidder" to qualify, and the inability of the ACMs and the intended software to
meet the bid requirements and rules.
Comelec’s Latest "Assurances" Are Unpersuasive
Even the latest pleadings filed by Comelec do not serve to allay our apprehensions.
They merely affirm and compound the serious violations of law and gravely abusive acts
it has committed. Let us examine them.
The Resolution issued by this Court on December 9, 2003 required respondents to

inform it as to the number of ACMs delivered and paid for, as well as the total payment
made to date for the purchase thereof. They were likewise instructed to submit a
certification from the DOST attesting to the number of ACMs tested, the number found
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to be defective; and "whether the reprogrammed software has been tested and found to
have complied with the requirements under Republic Act No. 8436."50
In its "Partial Compliance and Manifestation" dated December 29, 2003, Comelec
informed the Court that 1,991 ACMs had already been delivered to the Commission as
of that date. It further certified that it had already paid the supplier the sum of
P849,167,697.41, which corresponded to 1,973 ACM units that had passed the
acceptance testing procedures conducted by the MIRDC-DOST51 and which had
therefore been accepted by the poll body.
In the same submission, for the very first time, Comelec also disclosed to the Court the
following:
"The Automated Counting and Canvassing Project involves not only the
manufacturing of the ACM hardware but also the development of three (3) types
of software, which are intended for use in the following:
1. Evaluation of Technical Bids
2. Testing and Acceptance Procedures
3. Election Day Use."
Purchase of the First Type of Software Without Evaluation
In other words, the first type of software was to be developed solely for the purpose of
enabling the evaluation of the bidder’s technical bid. Comelec explained thus: "In
addition to the presentation of the ACM hardware, the bidders were required to develop
a ‘base’ software program that will enable the ACM to function properly. Since the
software program utilized during the evaluation of bids is not the actual software
program to be employed on election day, there being two (2) other types of software
program that will still have to be developed and thoroughly tested prior to actual election
day use, defects in the ‘base’ software that can be readily corrected by reprogramming
are considered minor in nature, and may therefore be waived."
In short, Comelec claims that it evaluated the bids and made the decision to award the
Contract to the "winning" bidder partly on the basis of the operation of the ACMs
running a "base" software. That software was therefore nothing but a sample or "demo"
software, which would not be the actual one that would be used on election day.
Keeping in mind that the Contract involves the acquisition of not just the ACMs or the
hardware, but also the software that would run them, it is now even clearer that the
Contract was awarded without Comelec having seen, much less evaluated, the final
product -- the software that would finally be utilized come election day. (Not even the
"near-final" product, for that matter).
What then was the point of conducting the bidding, when the software that was the
subject of the Contract was still to be created and could conceivably undergo
innumerable changes before being considered as being in final form? And that is not all!
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No Explanation for Lapses in the Second Type of Software
The second phase, allegedly involving the second type of software, is simply
denominated "Testing and Acceptance Procedures." As best as we can construe,
Comelec is claiming that this second type of software is also to be developed and
delivered by the supplier in connection with the "testing and acceptance" phase of the
acquisition process. The previous pleadings, though -- including the DOST reports
submitted to this Court -- have not heretofore mentioned any statement, allegation or
representation to the effect that a particular set of software was to be developed and/or
delivered by the supplier in connection with the testing and acceptance of delivered
ACMs.
What the records do show is that the imported ACMs were subjected to the testing and
acceptance process conducted by the DOST. Since the initial batch delivered included
a high percentage of machines that had failed the tests, Comelec asked the DOST to
conduct a 100 percent testing; that is, to test every single one of the ACMs delivered.
Among the machines tested on October 8 to 18, 2003, were some units that had failed
previous tests but had subsequently been re-tested and had passed. To repeat,
however, until now, there has never been any mention of a second set or type of
software pertaining to the testing and acceptance process.
In any event, apart from making that misplaced and uncorroborated claim, Comelec in
the same submission also professes (in response to the concerns expressed by this
Court) that the reprogrammed software has been tested and found to have
complied with the requirements of RA 8436. It reasoned thus: "Since the software
program is an inherent element in the automated counting system, the certification
issued by the MIRDC-DOST that one thousand nine hundred seventy-three (1,973)
units passed the acceptance test procedures is an official recognition by the MIRDC-
DOST that the software component of the automated election system, which has been
reprogrammed to comply with the provisions of Republic Act No. 8436 as prescribed in
the Ad Hoc Technical Evaluation Committee’s ACM Testing and Acceptance Manual,
has passed the MIRDC-DOST tests."
The facts do not support this sweeping statement of Comelec. A scrutiny of the MIRDC-
DOST letter dated December 15, 2003,52 which it relied upon, does not justify its grand
conclusion. For clarity’s sake, we quote in full the letter-certification, as follows:
"15 December 2003
"HON. RESURRECCION Z. BORRA
Commissioner-in-Charge
Phase II, Modernization Project
Commission on Elections
Intramuros, Manila
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Attention: Atty. Jose M. Tolentino, Jr.
Project Director
"Dear Commissioner Borra:
"We are pleased to submit 11 DOST Test Certifications representing 11 lots and
covering 158 units of automated counting machines (ACMs) that we have tested
from 02-12 December 2003.
"To date, we have tested all the 1,991 units of ACMs, broken down as follow:
(sic)
1st batch - 30 units 4th batch - 438 units
2nd batch - 288 units 5th batch - 438 units
3rd batch - 414 units 6th batch - 383 units
"It should be noted that a total of 18 units have failed the test. Out of these 18
units, only one (1) unit has failed the retest.
"Thank you and we hope you will find everything in order.
"Very truly yours,
"ROLANDO T. VILORIA, CESO III
Executive Director cum
Chairman, DOST-Technical Evaluation Committee"
Even a cursory glance at the foregoing letter shows that it is completely bereft of
anything that would remotely support Comelec’s contention that the "software
component of the automated election system x x x has been reprogrammed to comply
with" RA 8436, and "has passed the MIRDC-DOST tests." There is no mention at all of
any software reprogramming. If the MIRDC-DOST had indeed undertaken the supposed
reprogramming and the process turned out to be successful, that agency would have
proudly trumpeted its singular achievement.
How Comelec came to believe that such reprogramming had been undertaken is
unclear. In any event, the Commission is not forthright and candid with the factual
details. If reprogramming has been done, who performed it and when? What exactly did
the process involve? How can we be assured that it was properly performed? Since the
facts attendant to the alleged reprogramming are still shrouded in mystery, the Court
cannot give any weight to Comelec’s bare allegations.
The fact that a total of 1,973 of the machines has ultimately passed the MIRDC-DOST
tests does not by itself serve as an endorsement of the soundness of the software
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program, much less as a proof that it has been reprogrammed. In the first place, nothing
on record shows that the tests and re-tests conducted on the machines were intended
to address the serious deficiencies noted earlier. As a matter of fact, the MIRDC-DOST
letter does not even indicate what kinds of tests or re-tests were conducted, their exact
nature and scope, and the specific objectives thereof. 53 The absence of relevant
supporting documents, combined with the utter vagueness of the letter, certainly fails to
inspire belief or to justify the expansive confidence displayed by Comelec. In any event,
it goes without saying that remedial measures such as the alleged reprogramming
cannot in any way mitigate the grave abuse of discretion already committed as early as
April 15, 2003.
Rationale of Public Bidding Negated
by the Third Type of Software
Respondent Comelec tries to assuage this Court’s anxiety in these words: "The
reprogrammed software that has already passed the requirements of Republic Act No.
8436 during the MIRDC-DOST testing and acceptance procedures will require further
customization since the following additional elements, among other things, will have to
be considered before the final software can be used on election day: 1. Final Certified
List of Candidates x x x 2. Project of Precincts x x x 3. Official Ballot Design and
Security Features x x x 4. Encryption, digital certificates and digital signatures x x x. The
certified list of candidates for national elective positions will be finalized on or before 23
January 2004 while the final list of projects of precincts will be prepared also on the
same date. Once all the above elements are incorporated in the software program, the
Test Certification Group created by the Ad Hoc Technical Evaluation Committee will
conduct meticulous testing of the final software before the same can be used on
election day. In addition to the testing to be conducted by said Test Certification Group,
the Comelec will conduct mock elections in selected areas nationwide not only for
purposes of public information but also to further test the final election day program.
Public respondent Comelec, therefore, requests that it be given up to 16 February 2004
to comply with this requirement."
The foregoing passage shows the imprudent approach adopted by Comelec in the
bidding and acquisition process. The Commission says that before the software can be
utilized on election day, it will require "customization" through addition of data -- like the
list of candidates, project of precincts, and so on. And inasmuch as such data will
become available only in January 2004 anyway, there is therefore no perceived need on
Comelec’s part to rush the supplier into producing the final (or near-final) version of the
software before that time. In any case, Comelec argues that the software needed for the
electoral exercise can be continuously developed, tested, adjusted and perfected,
practically all the way up to election day, at the same time that the Commission is
undertaking all the other distinct and diverse activities pertinent to the elections.
Given such a frame of mind, it is no wonder that Comelec paid little attention to the
counting and canvassing software during the entire bidding process, which took place in
February-March 2003. Granted that the software was defective, could not detect and
prevent the re-use of previously downloaded data or produce the audit trail -- aside from
its other shortcomings -- nevertheless, all those deficiencies could still be corrected
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down the road. At any rate, the software used for bidding purposes would not be the
same one that will be used on election day, so why pay any attention to its defects? Or
to the Comelec’s own bidding rules for that matter?
Clearly, such jumbled ratiocinations completely negate the rationale underlying the
bidding process mandated by law.
At the very outset, the Court has explained that Comelec flagrantly violated the public
policy on public biddings (1) by allowing MPC/MPEI to participate in the bidding even
though it was not qualified to do so; and (2) by eventually awarding the Contract to
MPC/MPEI. Now, with the latest explanation given by Comelec, it is clear that the
Commission further desecrated the law on public bidding by permitting the winning
bidder to change and alter the subject of the Contract (the software), in effect allowing a
substantive amendment without public bidding.
This stance is contrary to settled jurisprudence requiring the strict application of

pertinent rules, regulations and guidelines for public bidding for the purpose of placing
each bidder, actual or potential, on the same footing. The essence of public bidding is,
after all, an opportunity for fair competition, and a fair basis for the precise comparison
of bids. In common parlance, public bidding aims to "level the playing field." That means
each bidder must bid under the same conditions; and be subject to the same guidelines,
requirements and limitations, so that the best offer or lowest bid may be determined, all
other things being equal.
Thus, it is contrary to the very concept of public bidding to permit a variance between
the conditions under which bids are invited and those under which proposals are
submitted and approved; or, as in this case, the conditions under which the bid is won
and those under which the awarded Contract will be complied with. The substantive
amendment of the contract bidded out, without any public bidding -- after the bidding
process had been concluded -- is violative of the public policy on public biddings, as
well as the spirit and intent of RA 8436. The whole point in going through the public
bidding exercise was completely lost. The very rationale of public bidding was totally
subverted by the Commission.
From another perspective, the Comelec approach also fails to make sense. Granted
that, before election day, the software would still have to be customized to each
precinct, municipality, city, district, and so on, there still was nothing at all to prevent
Comelec from requiring prospective suppliers/bidders to produce, at the very start of the
bidding process, the "next-to-final" versions of the software (the best software the
suppliers had) -- pre-tested and ready to be customized to the final list of candidates
and project of precincts, among others, and ready to be deployed thereafter. The
satisfaction of such requirement would probably have provided far better bases for
evaluation and selection, as between suppliers, than the so-called demo
software.Respondents contend that the bidding suppliers’ counting machines were
previously used in at least one political exercise with no less than 20 million voters. If
so, it stands to reason that the software used in that past electoral exercise would
probably still be available and, in all likelihood, could have been adopted for use in this
instance. Paying for machines and software of that category (already tried and proven in
actual elections and ready to be adopted for use) would definitely make more sense
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than paying the same hundreds of millions of pesos for demo software and empty
promises of usable programs in the future.
But there is still another gut-level reason why the approach taken by Comelec is
reprehensible. It rides on the perilous assumption that nothing would go wrong; and
that, come election day, the Commission and the supplier would have developed,
adjusted and "re-programmed" the software to the point where the automated system
could function as envisioned. But what if such optimistic projection does not
materialize? What if, despite all their herculean efforts, the software now being hurriedly
developed and tested for the automated system performs dismally and inaccurately or,
worse, is hacked and/or manipulated?54 What then will we do with all the machines and
defective software already paid for in the amount of P849 million of our tax money?
Even more important, what will happen to our country in case of failure of the
automation?
The Court cannot grant the plea of Comelec that it be given until February 16, 2004 to
be able to submit a "certification relative to the additional elements of the software that
will be customized," because for us to do so would unnecessarily delay the resolution of
this case and would just give the poll body an unwarranted excuse to postpone the
2004 elections. On the other hand, because such certification will not cure the gravely
abusive actions complained of by petitioners, it will be utterly useless.
Is this Court being overly pessimistic and perhaps even engaging in speculation?
Hardly. Rather, the Court holds that Comelec should not have gambled on the
unrealistic optimism that the supplier’s software development efforts would turn out well.
The Commission should have adopted a much more prudent and judicious approach to
ensure the delivery of tried and tested software, and readied alternative courses of
action in case of failure. Considering that the nation’s future is at stake here, it should
have done no less.
Epilogue
Once again, the Court finds itself at the crossroads of our nation’s history. At stake in
this controversy is not just the business of a computer supplier, or a questionable
proclamation by Comelec of one or more public officials. Neither is it about whether this
country should switch from the manual to the automated system of counting and
canvassing votes. At its core is the ability and capacity of the Commission on Elections
to perform properly, legally and prudently its legal mandate to implement the transition
from manual to automated elections.
Unfortunately, Comelec has failed to measure up to this historic task. As stated at the
start of this Decision, Comelec has not merely gravely abused its discretion in awarding
the Contract for the automation of the counting and canvassing of the ballots. It has also
put at grave risk the holding of credible and peaceful elections by shoddily accepting
electronic hardware and software that admittedly failed to pass legally mandated
technical requirements. Inadequate as they are, the remedies it proffers post facto do
not cure the grave abuse of discretion it already committed (1) on April 15, 2003, when
it illegally made the award; and (2) "sometime" in May 2003 when it executed the
Page 115 of 303

Contract for the purchase of defective machines and non-existent software from a non-
eligible bidder.
For these reasons, the Court finds it totally unacceptable and unconscionable to place
its imprimatur on this void and illegal transaction that seriously endangers the
breakdown of our electoral system. For this Court to cop-out and to close its eyes to
these illegal transactions, while convenient, would be to abandon its constitutional duty
of safeguarding public interest.
As a necessary consequence of such nullity and illegality, the purchase of the machines
and all appurtenances thereto including the still-to-be-produced (or in Comelec’s words,
to be "reprogrammed") software, as well as all the payments made therefor, have no
basis whatsoever in law. The public funds expended pursuant to the void Resolution
and Contract must therefore be recovered from the payees and/or from the persons
who made possible the illegal disbursements, without prejudice to possible criminal
prosecutions against them.
Furthermore, Comelec and its officials concerned must bear full responsibility for the
failed bidding and award, and held accountable for the electoral mess wrought by their
grave abuse of discretion in the performance of their functions. The State, of course, is
not bound by the mistakes and illegalities of its agents and servants.
True, our country needs to transcend our slow, manual and archaic electoral process.
But before it can do so, it must first have a diligent and competent electoral agency that
can properly and prudently implement a well-conceived automated election system.
At bottom, before the country can hope to have a speedy and fraud-free automated
election, it must first be able to procure the proper computerized hardware and software
legally, based on a transparent and valid system of public bidding. As in any democratic
system, the ultimate goal of automating elections must be achieved by a legal, valid and
above-board process of acquiring the necessary tools and skills therefor. Though the
Philippines needs an automated electoral process, it cannot accept just any system
shoved into its bosom through improper and illegal methods. As the saying goes, the
end never justifies the means. Penumbral contracting will not produce enlightened
results.
WHEREFORE, the Petition is GRANTED. The Court hereby

declares NULL and VOID Comelec Resolution No. 6074 awarding the contract for
Phase II of the AES to Mega Pacific Consortium (MPC). Also declared null and void is
the subject Contract executed between Comelec and Mega Pacific eSolutions
(MPEI).55 Comelec is further ORDERED to refrain from implementing any other contract
or agreement entered into with regard to this project.
Let a copy of this Decision be furnished the Office of the Ombudsman which shall
determine the criminal liability, if any, of the public officials (and conspiring private
individuals, if any) involved in the subject Resolution and Contract. Let the Office of the
Solicitor General also take measures to protect the government and vindicate public
interest from the ill effects of the illegal disbursements of public funds made by reason
of the void Resolution and Contract.
Page 116 of 303
SO ORDERED.
Page 117 of 303

Dissolution and Winding Up
Ortega vs. CA 245 SCRA 529
G.R. No. 109248

July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.
Commercial Law; Partnership; A partnership that does not fix its term is a partnership at
will.—A partnership that does not fix its term is a partnership at will. That the law firm
“Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter.
Same; Same; The birth and life of a partnership at will is predicated on the mutual
desire and consent of the partners.—The birth and life of a partnership at will is
predicated on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and the absence of a
cause for dissolution provided by the law itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act
in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.
Same; Same; Neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.— In passing, neither would the presence of a
period for its specific duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a partner. Among partners,
mutual agency arises and the doctrine of delectus personae allows them to have the
power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.
Same; Same; Upon its dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business culminating in its termination.—
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished from
the winding up of, the business. Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in
its termination.
Same; Same; The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code.—The liquidation of the assets of the
partnership following its dissolution is governed by various provisions of the Civil Code;
Page 118 of 303
however, an agreement of the partners, like any other contract, is binding among them
and normally takes precedence to the extent applicable over the Code’s general
provisions.
Same; Same; It would not be right to let any of the partners remain in the partnership
under such an atmosphere of animosity.—On the third and final issue, we accord due
respect to the appellate court and respondent Commission on their common factual
finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by “interpersonal conflict” among the partners. It would
not be right, we agree, to let any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. Indeed, for as long as the
reason for withdrawal of a partner is not contrary to the dictates of justice and fairness,
nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith
cannot be said to characterize the act. Bad faith, in the context here used, is no different
from its normal concept of a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
PETITION for review on certiorari of a decision of the Court of Appeals.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and

quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA;
on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a

letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and

Lozada, effective at the end of this month.
Page 119 of 303

"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter

stating:
"Further to my letter to you today, I would like to have a meeting

with all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another

letter stating:
"The partnership has ceased to be mutually satisfactory because of

the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation

and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate

liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in

the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and
to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner

attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or
P100,000.00;
Page 120 of 303

"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner
and respondents are hereby enjoined to abide by the provisions of
the Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that
the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa
& Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is

hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well as rejecting the
petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.
Page 121 of 303

The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate
court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was unnecessary as no sufficient
proof had been shown to indicate that the partnership assets were in any such danger
of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not

provide for a specified period or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long as mutually

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

act as legal adviser and representative of any individual, firm and
Page 122 of 303
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership4 but that it can result in a liability for
damages.5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among partners,7 mutual agency arises and
the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished from
the winding up of, the business.8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in
its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Page 123 of 303
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be appointed
by them whose decision shall be final. The share of the retiring or deceased
partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did not
act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, we agree, to let any of
the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its normal
concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
Tocao vs CA 342 SCRA 20
G.R. No. 127405 October 4, 2000
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
Partnerships; Appeals; The issue of whether or not a partnership exists is a factual

matter which are within the exclusive domain of both the trial court and the Court of
Appeals.—The issue of whether or not a partnership exists is a factual matter which are
within the exclusive domain of both the trial and appellate courts. This Court cannot set
aside factual findings of such courts absent any showing that there is no evidence to
support the conclusion drawn by the court a quo. In this case, both the trial court and
Page 124 of 303

the Court of Appeals are one in ruling that petitioners and private respondent
established a business partnership. This Court finds no reason to rule otherwise.
Same; Requisites for a Partnership to Have Juridical Personality; Since a contract of

partnership is consensual, an oral contract of partnership is as good as a written one;
Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership.—To be considered a juridical
personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto. This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a written one.
Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to
be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not
cause the nullification of the partnership. The pertinent provision of the Civil Code on
the matter states: Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Same; Guaranty; While Article 2055 of the Civil Code simply provides that guaranty
must be “express,” Article 1403, the Statute of Frauds, requires that “a special promise
to answer for the debt, default or miscarriage of another” be in writing.—Petitioner
Belo’s denial that he financed the partnership rings hollow in the face of the established
fact that he presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987, on a stationery
of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted
otherwise than that he had a proprietary interest in the business. His claim that he was
merely a guarantor is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article
2053 of the Civil Code, he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be “express,”
Article 1403, the Statute of Frauds, requires that “a special promise to answer for the
debt, default or miscarriage of another” be in writing.
Same; Employer-Employee Relationship; While it is true that the receipt of a percentage

of net profits constitutes only prima facie evidence that the recipient is a partner in the
business, the evidence in the instant case at bar controverts an employer-employee
relationship between the parties.—The business venture operated under Geminesse
Enterprise did not result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of net profits
constitutes only prima facie evidence that the recipient is a partner in the business, the
evidence in the case at bar controverts an employer-employee relationship between the
parties. In the first place, private respondent had a voice in the management of the
affairs of the cookware distributorship, including selection of people who would
constitute the administrative staff and the sales force. Secondly, petitioner Tocao’s
Page 125 of 303
admissions militate against an employer-employee relationship. She admitted that, like
her who owned Geminesse Enterprise, private respondent received only commissions
and transportation and representation allowances and not a fixed salary.
Same; Same; If indeed a person is employed by another, it is difficult to believe that the
former and the latter shall receive the same income in the business.—If indeed
petitioner Tocao was private respondent’s employer, it is difficult to believe that they
shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not
be liable for the losses. As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her share in the net
profit.
Same; The best evidence of the existence of the partnership, which is not yet
terminated (though in the winding up stage), are the unsold goods and uncollected
receivables.—Petitioners underscore the fact that the Court of Appeals did not return
the “unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00.” Obviously a ploy to offset the damages awarded to private respondent,
that claim, more than anything else, proves the existence of a partnership between
them. In Idos v. Court of Appeals, this Court said: “The best evidence of the existence of
the partnership, which was not yet terminated (though in the winding up stage), were
the unsold goods and uncollected receivables, which were presented to the trial court.
Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.”
Same; Dissolution of Partnerships; A mere falling out or misunderstanding between

partners does not convert the partnership into a sham organization—the partnership
exists until dissolved under the law.—Undoubtedly, petitioner Tocao unilaterally
excluded private respondent from the partnership to reap for herself and/or for petitioner
Belo financial gains resulting from private respondent’s efforts to make the business
venture a success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private
respondent in front of other people. Her instruction to Lina Torda Cruz, marketing
manager, not to allow private respondent to hold office in both the Makati and Cubao
sales offices concretely spoke of her perception that private respondent was no longer
necessary in the business operation, and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization. The partnership exists until dissolved under the
law.
Same; Same; Any one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will, though he must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can
result in a liability for damages; An unjustified dissolution by a partner can subject him to
action for damages.——Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus: “x x x. The
right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the
Page 126 of 303
constancy of that mutual resolve, along with each partner’s capability to give it, and the
absence of cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages.” An
unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows
the partners to have the power, although not necessarily the right to dissolve the
partnership.
Same; Same; Even if one partner had effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the partnership in the
carrying on of the business, the partnership was not terminated thereby—it continues
until the winding up of the business.—Petitioner Tocao’s unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer the vice-president
for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the
business.
PETITION for review on certiorari of a decision of the Court of Appeals.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a
joint venture with her for the importation and local distribution of kitchen cookwares.
Belo volunteered to finance the joint venture and assigned to Anay the job of marketing
the product considering her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint
venture, Belo acted as capitalist, Tocao as president and general manager, and Anay
as head of the marketing department and later, vice-president for sales. Anay organized
the administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belo’s name should not appear in any
documents relating to their transactions with West Bend Company. Instead, they agreed
to use Anay’s name in securing distributorship of cookware from that company. The
parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the
annual net profits of the business; (2) overriding commission of six percent (6%) of the
Page 127 of 303
overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4)
two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo’s assurances that he was sincere, dependable and
honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocao’s name, with office at 712
Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited
Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to
21, 1987 and to the southwestern regional convention in Pismo Beach, California,
U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of Geminesse Enterprise, even wrote a
letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of
the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of
our company, will attend in response to the invitation." (Italics supplied.) 3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao4 for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed a memo 5
entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec
31/87." Belo explained to her that said commission was apart from her ten percent
(10%) share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had
signed a letter6 addressed to the Cubao sales office to the effect that she was no longer
the vice-president of Geminesse Enterprise. The following day, October 10, she
received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred
her from holding office and conducting demonstrations in both Makati and Cubao
offices.7 Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters were not answered,
Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.
Anay still received her five percent (5%) overriding commission up to December 1987.
The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages8 against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140.
Page 128 of 303

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8,
1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was "illegally dismissed"
to determine her ten percent (10%) share in the net profits. She further prayed that she
be paid the five percent (5%) "overriding commission" on the remaining 150 West Bend
cookware sets before her "dismissal."
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with
Anay that was "neither reduced in writing, nor ratified," was "either unenforceable or
void or inexistent." As far as Belo was concerned, his only role was to introduce Anay to
Marjorie Tocao. There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an
agreed remuneration, and her complaint referred to either her compensation or
dismissal, such complaint should have been lodged with the Department of Labor and
not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account
of "ill-will and resentment" because Marjorie Tocao did not allow her to "lord it over in
the Geminesse Enterprise." Anay had acted like she owned the enterprise because of
her experience and expertise. Hence, petitioners were the ones who suffered actual
damages "including unreturned and unaccounted stocks of Geminesse Enterprise," and
"serious anxiety, besmirched reputation in the business world, and various damages not
less than P500,000.00." They also alleged that, to "vindicate their names," they had to
hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties
are entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share in the profit of
the business. He, however, admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the cookware. He denied
contributing capital to the business or receiving a share in its profits as he merely
served as a guarantor of Marjorie Tocao, who was new in the business. He attended
and/or presided over business meetings of the venture in his capacity as a guarantor
but he never participated in decision-making. He claimed that he wrote the memo
granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business
and hence, they agreed to grant her the following commissions: thirty-seven percent
(37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
Page 129 of 303
garments business and from Peter Lo, a Singaporean friend-financier who loaned her
the funds with interest. Because she treated Anay as her "co-equal," Marjorie received
the same amounts of commissions as her. However, Anay failed to account for stocks
valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership

affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to
determine the ten percent (10%) share of plaintiff in the net profits of the cookware
business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production

which for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as

exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs

of suit.
SO ORDERED."
The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants," based on the following: (a) there was an intention to create
a partnership; (b) a common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits. The testimony of
Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the distributorship to
Anay and Marjorie Tocao because he was convinced that with Marjorie’s financial
contribution and Anay’s experience, the combination of the two would be invaluable to
the partnership, also supported that conclusion. Belo’s claim that he was merely a
"guarantor" has no basis since there was no written evidence thereof as required by
Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over
meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37%
commission on personal sales belied this. On the contrary, it demonstrated his
involvement as a partner in the business.
Page 130 of 303

The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was
not in writing because Article 1771 of the Civil Code provides that a partnership may be
"constituted in any form." The fact that Geminesse Enterprise was registered in Marjorie
Tocao’s name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in the profits "realized from
the appropriation of the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time he was wrongfully expelled."
Petitioners’ appeal to the Court of Appeals11 was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and
P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by
the Court of Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao are now
before this Court on a petition for review on certiorari, asserting that there was no
business partnership between them and herein private respondent Nenita A. Anay who
is, therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise "came into being" exactly a year before the "alleged partnership" was
formed, and that it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any "memorandum
whatsoever regarding the alleged partnership."13
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside
factual findings of such courts absent any showing that there is no evidence to support
the conclusion drawn by the court a quo.14 In this case, both the trial court and the Court
of Appeals are one in ruling that petitioners and private respondent established a
business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)

two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto. 16 This implies that since
a contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is
that the parties have complied with the requisites of a partnership. The fact that there
appears to be no record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to Article 1772 of the Civil
Page 131 of 303

Code17 did not cause the nullification of the partnership. The pertinent provision of the
Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It
was through her reputation with the West Bend Company that the partnership was able
to open the business of distributorship of that company’s cookware products; it was
through the same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondent’s indispensable role in putting up the
business when, upon being asked if private respondent held the positions of marketing
manager and vice-president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there were no one to
sell yet, it’s only me there then her and then two (2) people, so about four (4). Now, after
that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people
were given the designation of marketing managers of which definitely Nita as superior to
them would be the Vice President."18
By the set-up of the business, third persons were made to believe that a partnership
had indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the

operations. Marge does not have cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance and
the products to sell."19
On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow
in the face of the established fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing on
October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal
sales, could not be interpreted otherwise than that he had a proprietary interest in the
business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code, 20 he should have presented
documentary evidence therefor. While Article 2055 of the Civil Code simply provides
that guaranty must be "express," Article 1403, the Statute of Frauds, requires that "a
special promise to answer for the debt, default or miscarriage of another" be in writing. 21
Page 132 of 303

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belo’s roles as both
capitalists to the partnership with private respondent are buttressed by petitioner
Tocao’s admissions that petitioner Belo was her boyfriend and that the partnership was
not their only business venture together. They also established a firm that they called
"Wiji," the combination of petitioner Belo’s first name, William, and her nickname, Jiji. 23
The special relationship between them dovetails with petitioner Belo’s claim that he was
acting in behalf of petitioner Tocao. Significantly, in the early stage of the business
operation, petitioners requested West Bend Company to allow them to "utilize their
banking and trading facilities in Singapore" in the matter of importation and payment of
the cookware products.24 The inevitable conclusion, therefore, was that petitioners
merged their respective capital and infused the amount into the partnership of
distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is
true that the receipt of a percentage of net profits constitutes only prima facie evidence
that the recipient is a partner in the business, 25 the evidence in the case at bar
controverts an employer-employee relationship between the parties. In the first place,
private respondent had a voice in the management of the affairs of the cookware
distributorship,26 including selection of people who would constitute the administrative
staff and the sales force. Secondly, petitioner Tocao’s admissions militate against an
employer-employee relationship. She admitted that, like her who owned Geminesse
Enterprise,27 private respondent received only commissions and transportation and
representation allowances28 and not a fixed salary.29 Petitioner Tocao testified:
"Q: Of course. Now, I am showing to you certain documents already marked as Exhs.
‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated `Cubao overrides’ 8-21-87 with
ending August 21, 1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own knowledge the
amount ---
A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a
certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words
which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this means that you have
received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay
P21,410.50’, what is this?
Page 133 of 303

A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that
there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you
know in a sense because of her expertise in the business she is vital to my business.
So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten
from the company P21,140.50 is your way of indicating that you were treating her as an
equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’
the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the
same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not
Page 134 of 303
be liable for the losses.31 As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her share in the net
profit.32
The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau
of Domestic Trade on August 19, 1987 was merely the name of that enterprise. 33 While
it is true that in her undated application for renewal of registration of that firm name,
petitioner Tocao indicated that it would be engaged in retail of "kitchenwares,
cookwares, utensils, skillet,"34 she also admitted that the enterprise was only "60% to
70% for the cookware business," while 20% to 30% of its business activity was devoted
to the sale of water sterilizer or purifier.35 Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons - it was utilized as the
common name for petitioner Tocao’s various business activities, which included the
distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
"unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00."36 Obviously a ploy to offset the damages awarded to private respondent,
that claim, more than anything else, proves the existence of a partnership between
them. In Idos v. Court of Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated,
the petitioner and private complainant remained as co-partners. x x x."37
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding
commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the

partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondent’s efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the
extent that she would even shout at private respondent in front of other people. 38 Her
instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, 39
and resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a sham
organization.40 The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner’s capability
Page 135 of 303
to give it, and the absence of cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in a liability for
damages."41
An unjustified dissolution by a partner can subject him to action for damages because
by the mutual agency that arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although not necessarily the right to dissolve the
partnership.42
In this case, petitioner Tocao’s unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal
from the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business. 44
The winding up of partnership affairs has not yet been undertaken by the
partnership.1âwphi1 This is manifest in petitioners’ claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court. 45 The Court of Appeals may
modify that amount only when its factual findings are diametrically opposed to that of
the lower court,46 or the award is palpably or scandalously and unreasonably
excessive.47 However, exemplary damages that are awarded "by way of example or
correction for the public good,"48 should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly,
attorney’s fees that should be granted on account of the award of exemplary damages
and petitioners’ evident bad faith in refusing to satisfy private respondent’s plainly valid,
just and demandable claims,49 appear to have been excessively granted by the trial
court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are
ordered to effect the winding up and liquidation of the partnership pursuant to the
pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court
for proper proceedings relative to said dissolution. The appealed decisions of the
Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS,
as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal account
of the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of
the Civil Code, in order to determine private respondent’s ten percent (10%)
share in the net profits of the partnership;
Page 136 of 303

2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent

overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorney’s fees in the amount of P25,000.00.
SO ORDERED.
Page 137 of 303

Bearneza vs Dequilla 43 Phil 237
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle,

vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.

Montinola, Montinola & Hontiveros for appellee.
PARTNERSHIPS ; DISSOLUTION.—When, in the organization of a partnership, none

of the mercantile forms has been adopted and, therefore, the provisions of the Code of
Commerce are not applicable to it, said partnership is dissolved by the death of any of
the members, as provided in subsection 3 of article 1700 of the Civil Code, unless there
is a stipulation to the contrary, pursuant to the provisions of article 1704 of the same
Code.
ID. ; ID. ; LIQUIDATION.—After the dissolution of a partnership by the death of one of

its members, its legal status is that of a partnership in liquidation, and the only rights
and interests transmitted to the legal successor or successors of the said deceased are
those resulting in his favor from such liquidation.
APPEAL from a judgment of the Court of First Instance of Iloilo. Camus.
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza
formed a partnership for the purpose of exploiting a fish pond situated in the barrio of
Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to
contribute to the payment of the expenses of the business, which obligation she made
good, and both agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez,
the herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond
in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the
delivery of the part of the fish pond belonging to his decedent, Perpetua, and delivery
having been refused, Domingo Bearneza brought this action to recover said part of the
fish pond belonging to his decedent, Perpetua, and delivery having been refused,
Domingo Bearneza brought this action recover said part of the fish pond and one-half of
the profits received by the defendant from the fish pond from the year 1913 to 1919, as
damages (the amended complaint was filed on April 12, 1920), amounting, according to
plaintiff, to the sum of thirteen thousand one hundred pesos (13,100).
Page 138 of 303

In his answer, the defendant denies generally and specifically the allegations of the
complaint, and alleges, as special defense, that "the formation of the supposed
partnership between the plaintiff and the defendant for the exploitation of the aforesaid
fish pond was not carried into effect, on account of the plaintiff having refused to defray
the expenses of reconstruction and exploitation of said fish pond." As another special
defense, the defendant alleges "that in the event that the court should hold the plaintiff
to be entitled to the undivided one-half of the fish pond, claimed in the complaint, the
plaintiff's action has prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring
the plaintiff owner of one-half of the fish pond, which was composed of the portions
known as "Alimango" and "Dalusan," but without awarding him any of the damages
claimed by him, the same not having been proven, in the opinion of the court, and
ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages;
hence the only question we are called upon to decide is whether or not the plaintiff has
any right to maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence
of which the proof contained in the record is conclusive and there is no dispute, was of a
civil nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it
having had for its subject-matter a specified thing, to with, the exploitation of the
aforementioned fish pond. Although, as the trial court says in its decision, the
defendant, in his letters to Perpetua or her husband, makes reference to the fish pond,
calling it "our," or "your fish pond," this reference cannot be held to include the land on
which the said fish pond was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3 of the defendant show
that he has been paying, as exclusive owner of the fish pond, the land tax thereon,
although in Exhibit X he says that the said land belongs to the State. The conclusion,
therefore, from the evidence is that the land on which the fish pond was constructed did
not constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto
(article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza,
and falls under the provisions of article 1700, subsection 3, of the same Code, and not
under the exception established in the last paragraph of said article 1700 of the Civil
Code.
Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever
been made by her and the defendant, pursuant to the provisions of article 1704 of the
Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its
subsequent legal status was that of a partnership in liquidation, and the only rights
inherited by her testamentary heir, the herein plaintiff, were those resulting from the said
Page 139 of 303
liquidation in favor of the deceased partner, and nothing more. Before this liquidation is
made, which up to the present has not been effected, it is impossible to determine what
rights or interests, if any, the deceased had, the partnership bond having been
dissolved.
There is no sufficient ground for holding that a community of property existed between
the plaintiff and the defendant, it not being known whether the deceased still had any
interest in the partnership property which could have been transmitted by will to the
plaintiff. There being no community of property, article 395 of the Civil Code cited by the
plaintiff in support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the
defendant. It is true that the latter's act in requiring the heirs of Perpetua to contribute to
the payment of the expenses of exploitation of the aforesaid fishing industry was an
attempt to continue the partnership, but it is also true that neither the said heirs
collectively, nor the plaintiff individually, took any action in response to that requirement,
nor made any promise to that effect, and therefore no new contract of partnership
existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies
the plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff
owner of one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
Page 140 of 303

Eufracio D. Rojas vs. Constancio B. Maglana, G.R. No. 30616, December 10, 1990
[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,
Defendant-Appellee.
Partnership; Withdrawing partner is liable for damages if the cause of withdrawal is not
justified or no cause was given but in no case can he be compelled to be in the firm.—
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one
partner can cause its dissolution by expressly withdrawing even before the expiration of
the period, with or without justifiable cause. Of course, if the cause is not justified or no
cause was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. And in whatever way we may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share alike" between
the partners.
Same; Same; A party who has undertaken to contribute a sum of money fails to do so,
he becomes a debtor of the partnership for whatever he promised to contribute.—On
the basis of the Commissioners' Report, the corresponding contribution of the partners
from 19561961 are as follows: Eufracio Rojas who should have contributed
P158,158.00, contributed only P18,750.00 while Maglana who should have contributed
P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that
when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute
(Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals,
133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
DIRECT APPEAL from the decision of the then Court of First Instance of Davao, Br. 3.
Reyes, J. Rojas vs. Maglana, 192 SCRA 110, G.R. No. 30616 December 10, 1990
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance
of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing
appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
Page 141 of 303
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership
(Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them
as partners. The partnership EDE with an indefinite term of existence was duly
registered on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests rights and concessions." (Rollo,
p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a
timber concession covering the area located at Cateel and Baganga, Davao with the
Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued
and became the basis of subsequent renewals made for and in behalf of the duly
registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business
affairs of the partnership, including marketing and handling of cash and is authorized to
sign all papers and instruments relating to the partnership, while appellant Rojas shall
be the logging superintendent and shall manage the logging operations of the
partnership. It is also provided in the said articles of co-partnership that all profits and
losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of
said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the
services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of
Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose
of the second partnership which is to hold and secure renewal of timber license instead
of to secure the license as in the first partnership and the term of the second partnership
is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May
1, 1956, and was able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled
"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves
that Maglana and Rojas shall purchase the interest, share and participation in the
Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed
in the said instrument that after payment of the sum of P31,501.12 to Pahamotang
including the amount of loan secured by Pahamotang in favor of the partnership, the
two (Maglana and Rojas) shall become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also
given to the second partnership, be dissolved. Pahamotang was paid in fun on August
31, 1957. No other rights and obligations accrued in the name of the second partnership
(R.A. 921).
Page 142 of 303

After the withdrawal of Pahamotang, the partnership was continued by Maglana and
Rojas without the benefit of any written agreement or reconstitution of their written
Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the
newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and
was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the partnership
as well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply
with the promised contributions and he will not work as logging superintendent. Maglana
then told Rojas that the latter's share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved
the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao
against Maglana for the recovery of properties, accounting, receivership and damages,
docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development Enterprises
(Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-
114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also
required the inclusion of the entire year 1961 in the report to be submitted by the
commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining
the records and supporting papers of the partnership as well as the information
furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with
counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was
granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report
(Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,
1964 approving the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp.
446-451).
Page 143 of 303

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following
issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after
the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and
share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving
the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive
portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby
rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas
after Pahamotang retired from the second partnership, that is, after August 31,
1957, when Pahamotang was finally paid his share — the partnership of the
defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions, or
on the basis of share and share alike — this covered by actual contributions of
the plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959,
the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of
the profits, but from 1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed
in his or in his wife's name were acquired with partnership funds or with funds of
the defendant and — the Court declares that there is no evidence that these
properties were acquired by the partnership funds, and therefore the same
should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused
them and who should be liable for them — the Court declares that neither parties
is entitled to damages, for as already stated above it is not a wise policy to place
a price on the right of a person to litigate and/or to come to Court for the
assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not — the Court declares
that the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
Page 144 of 303

"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and
other merchandise to the laborers and employees of the Eastcoast Development
Enterprises, — the COURT DECLARES THE SAME AS NOT BELONGING TO
THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David — is VALID AND BINDING UPON THE PARTIES AND SHOULD
BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE
PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS
Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually
received, and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount
he should have received as logging superintendent, and which was not paid to
him, and this should be considered as part of Maglana's contribution likewise to
the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that
when the second partnership was dissolved there was no written contract of co-
partnership; there was no reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership which was carried on by
Rojas and Maglana after the dissolution of the second partnership was a de facto
partnership and at will. It was considered as a partnership at will because there was no
term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp.
962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of
Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership
dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or
dissolved by the unregistered articles of co-partnership among appellant Rojas,
appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and
accordingly, the terms and stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of
Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally
constituted partnership EDE (Exhibit "A") continues to govern the relations between
Page 145 of 303
them and it was legal error to consider a de facto partnership between said two partners
or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961,
did not legally dissolve the registered partnership between them, being in contravention
of the partnership agreement agreed upon and stipulated in their Articles of Co-
Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article
1837 of the Civil Code and to the sharing profits between them of "share and share
alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and
Maglana, it appears evident that it was not the intention of the partners to dissolve the
first partnership, upon the constitution of the second one, which they unmistakably
called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-
25). Except for the fact that they took in one industrial partner; gave him an equal share
in the profits and fixed the term of the second partnership to thirty (30) years, everything
else was the same. Thus, they adopted the same name, EASTCOAST
DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital
contributions of Rojas and Maglana as stipulated in both partnerships call for the same
amounts. Just as important is the fact that all subsequent renewals of Timber License
No. 35-36 were secured in favor of the First Partnership, the original licensee. To all
intents and purposes therefore, the First Articles of Partnership were only amended, in
the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never
registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the
existence of the second partnership, all business transactions were carried out under
the duly registered articles. As found by the trial court, it is an admitted fact that even up
to now, there are still subsisting obligations and contracts of the latter (Decision, R.A.
pp. 950-957). No rights and obligations accrued in the name of the second partnership
except in favor of Pahamotang which was fully paid by the duly registered partnership
(Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang.
Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,
reminding the latter of his obligation to contribute either in cash or in equipment, to the
capital investment of the partnership as well as his obligation to perform his duties as
logging superintendent. This reminder cannot refer to any other but to the provisions of
the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he
will not be able to comply with the promised contributions and he will not work as
logging superintendent. By such statements, it is obvious that Roxas understood what
Maglana was referring to and left no room for doubt that both considered themselves
governed by the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in
the case at bar, the answer is in the affirmative.
Page 146 of 303

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one
partner can cause its dissolution by expressly withdrawing even before the expiration of
the period, with or without justifiable cause. Of course, if the cause is not justified or no
cause was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share alike" between
the partners.
But an accounting must first be made and which in fact was ordered by the trial court
and accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the
partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed
P158,158.00, contributed only P18,750.00 while Maglana who should have contributed
P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that
when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute
(Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals,
133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In
their voluminous reports which was approved by the trial court, they showed that on 50-
50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be
liable for P40,092.96 and finally on the basis of actual capital contribution, he will be
liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of
Pahamotang which is unquestionably a continuation of the duly registered partnership
and the sharing of profits and losses which should be on the basis of share and share
alike as provided for in the duly registered Articles of Co-Partnership, no plausible
reason could be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be
recalled that after the withdrawal of Pahamotang, Rojas entered into a management
contract with another logging enterprise, the CMS Estate, Inc., a company engaged in
the same business as the partnership. He withdrew his equipment, refused to contribute
either in cash or in equipment to the capital investment and to perform his duties as
logging superintendent, as stipulated in their partnership agreement. The records also
show that Rojas not only abandoned the partnership but also took funds in an amount
more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.
Page 147 of 303

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of
Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership
of Eastcoast Development Enterprises continued to exist until liquidated and that the
sharing basis of the partners should be on share and share alike as provided for in its
Articles of Partnership, in accordance with the computation of the commissioners. We
also hereby AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.
Page 148 of 303

Fue Leung vs IAC 169 SCRA 746
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
Remedial Law; Civil Procedure; Pleadings; Complaint; The nature of the action may be
determined from the facts alleged in the complaint as constituting the cause of action.—
Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his right as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance
therein. We agree with the appellate court’s observation to the effect that “x x x given its
ordinary meaning, financial assistance ‘is the giving out of money to another without the
expectation of any returns therefrom’. It connotes an ex gratia dole out in favor of
someone driven into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.” (p. 99, Rollo) The
complaint explicitly stated that “as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit
derived from the operation of the said panciteria.” (p. 107, Rollo) The well-settled
doctrine is that the “x x x nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action.” (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
Civil Law; Partnership; Prescription; The right to demand an accounting exists as long
as the partnership exists.—Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807 and 1809 show that the
right to demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final accounting is
done.
Same; Same; Dissolution of Partnerships; The Court may order the dissolution of the
partnership in question because its continuation has become inequitable.—Considering
the facts of this case, the Court may decree a dissolution of the partnership under
Article 1831 of the Civil Code which, in part, provides: “Art. 1831. On application by or
for a partner the court shall decree a dissolution whenever: x x x x x x xxx "(3) A partner
has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business; (4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry on the business in partnership with
him; xxx xxx xxx (6) Other circumstances render a dissolution equitable.” There shall be
a liquidation and winding up of partnership affairs, return of capital, and other incidents
Page 149 of 303
of dissolution because the continuation of the partnership has become
inequitable.PETITION to review the decision of the then Intermediate Appellate Court.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First
Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria
and ordering the petitioner to pay to the private respondent his share in the annual
profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court
of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two
percent (22%) of the annual profits derived from the operation of Sun Wah Panciteria
since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by
a receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of
the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the person of Ms.
Florence Yap to translate its contents into English. Florence Yap issued a certification
and testified that the translation to the best of her knowledge and belief was correct.
The private respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents') presence.
Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony
to the effect that they were both present when the receipt (Exhibit "A") was signed by
the petitioner. So Sia further testified that he himself received from the petitioner a
similar receipt (Exhibit D) evidencing delivery of his own investment in another amount
of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of
the trial court granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the
signature of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check No. 13389470-
B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo
Page 150 of 303
Diaz, Chief of the Savings Department of the China Banking Corporation testified that
said check (Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by the petitioner and
debited against his own account in said bank. This fact was clearly shown and indicated
in the petitioner's statement of account after the check (Exhibit B) was duly cleared.
Rana further testified that upon clearance of the check and pursuant to normal banking
procedure, said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg
in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that
he was the sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt (Exhibit G) and the Equitable
Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that
of the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and

against the defendant, ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit derived from the operation
of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's
fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a
motion for new trial and, as supplement to the said motion, he requested that the
decision rendered should include the net profit of the Sun Wah Panciteria which was not
specified in the decision, and allow private respondent to adduce evidence so that the
said decision will be comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for

reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of said
decision should read now as follows:
Page 151 of 303

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic)
and against the defendant, ordering the latter to pay the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate
Appellate Court. The questioned decision was further modified by the appellate court.
The dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive

portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate

damages 22% of the net profit of P2,000.00 a day from judicial demand to
May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day
from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit
of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other
respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower
court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the

court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against

the defendant, ordering the latter to pay to the former the sum equivalent
to 22% of the net profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and for attorney's
fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner
of the petitioner in the setting up and operations of the panciteria. While the dispositive
portions merely ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the business as a partner.
Hence, the two courts declared that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner, however, claims that this factual finding
Page 152 of 303
is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent
extended 'financial assistance' to herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private respondent allegedly will receive a share
in the profits of the restaurant. The same complaint did not claim that private respondent
is a partner of the business. It was, therefore, a serious error for the lower court and the
Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was
also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75,
Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought

the financial assistance of plaintiff in operating the defendant's eatery
known as Sun Wah Panciteria, located in the given address of defendant;
as a return for such financial assistance. plaintiff would be entitled to
twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of

four thousand pesos (P4,000.00), Philippine Currency, of which copy for
the receipt of such amount, duly acknowledged by the defendant is
attached hereto as Annex "A", and form an integral part hereof; (p. 11,
Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he would
be entitled to twenty-two percent (22%) of the annual profit derived from the operation of
the said panciteria. These allegations, which were proved, make the private respondent
and the petitioner partners in the establishment of Sun Wah Panciteria because Article
1767 of the Civil Code provides that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance
therein. We agree with the appellate court's observation to the effect that "... given its
ordinary meaning, financial assistance is the giving out of money to another without the
expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of
someone driven into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit
derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled
doctrine is that the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine
Page 153 of 303
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment
of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative
value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in arriving at the conclusion
were never testified to by any witness nor has any witness identified the handwriting in
the standards or specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous objection of the petitioner's
counsel.
The records show that the PC Crime Laboratory upon orders of the lower court
examined the signatures in the two receipts issued separately by the petitioner to the
private respondent and So Sia (Exhibits "A" and "D") and compared the signatures on
them with the signatures of the petitioner on the various pay envelopes (Exhibits "H",
"H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After
the usual examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in
both receipts (Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not
interpose any objection. Neither did the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with the two receipts examined by
the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or
ignored. The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of prescription in
favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months
and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were
ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
Page 154 of 303

(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by the
debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are — 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund; and 2) intention on the part
of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the respondent,
a partner shares not only in profits but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner
does not assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is premised upon
the failure of the petitioner to give him the agreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was asking for an accounting of his interests
in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date
of dissolution, in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting
exists as long as the partnership exists. Prescription begins to run only upon the
dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the
private respondent for being excessive and unconscionable and above the claim of
private respondent as embodied in his complaint and testimonial evidence presented by
said private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the
cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of
the restaurant.
Page 155 of 303
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that
you were in charge of the custody of the cashier's box, of the
money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you

were the one who accepted the money and you gave the
change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you

said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer

together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will

you please tell us, how much is the gross income of the
restaurant?
A For regular days, I received around P7,000.00 a day

during my shift alone and during pay days I receive more
than P10,000.00. That is excluding the catering outside the
place.
Q What about the catering service, will you please tell the
Honorable Court how many times a week were there
catering services?
A Sometimes three times a month; sometimes two times a

month or more.
xxx xxx xxx
Page 156 of 303

Q Now more or less, do you know the cost of the catering
service?
A Yes, because I am the one who receives the payment also

of the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a

single day from 3:30 P.M. to 11:30 P.M. in the evening the
restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November

15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoena duces tecum was issued to the
petitioner for the production of their records of sale, his counsel voluntarily offered to
bring them to court. He asked for sufficient time prompting the court to cancel all
hearings for January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and for
this purpose, employed a bookkeeper. This inspired the Court to ask
counsel for the defendant to bring said records and counsel for the
Page 157 of 303
defendant promised to bring those that were available. Seemingly, that
was the reason why this case dragged for quite sometime. To bemuddle
the issue, defendant instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have supplied
chicken, meat, shrimps, egg and other poultry products which, however,
did not show the gross sales nor does it prove that the same is the best
evidence. This Court gave warning to the defendant's counsel that if he
failed to produce the books, the same will be considered a waiver on the
part of the defendant to produce the said books inimitably showing
decisive records on the income of the eatery pursuant to the Rules of
Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the
petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On
said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial magnanimity and
substantial due process. It was however a condition in the order granting
the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and
will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said

date was declared a partial non-working holiday, so much so, the hearing
was reset to December 7 and 22, 1981. On December 7, 1981, on motion
of defendant's counsel, the same was again reset to December 22, 1981
as previously scheduled which hearing was understood as intransferable
in character. Again on December 22, 1981, the defendant's counsel asked
for postponement on the ground that the defendant was sick. the Court,
after much tolerance and judicial magnanimity, denied said motion and
ordered that the case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December 23, 1981, within
which to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the
trial court, it is in the heart of Chinatown where people who buy and sell jewelries,
Page 158 of 303

businessmen, brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court
and the appellate court. If the respondent court awarded damages only from judicial
demand in 1978 and not from the opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being plowed back into the expansion of the
business. There is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of
the records for such modification. There is no basis in the records for this Court to
change or set aside the factual findings of the trial court and the appellate court. The
petitioner was given every opportunity to refute or rebut the respondent's submissions
but, after promising to do so, it deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the
petitioner's obligation shows that the same continues until fully paid. The question now
arises as to whether or not the payment of a share of profits shall continue into the
future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a

dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership

agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated
above, the partnership of the parties is ordered dissolved.
Page 159 of 303

SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
Page 160 of 303

Emilio Emnace vs. Court of Appeals, G.R. No. 126334, November 23, 2001
G.R. No. 126334 November 23, 2001
EMILIO EMNACE, petitioner,

vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY
TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986,
they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto
Divinagracia's withdrawal from the partnership.1 Among the assets to be distributed
were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño
and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of
the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets
and liabilities of the partnership, and to render an accounting of the partnership's
finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the partnership, amounting to
P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment
thereof.2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action

for accounting, payment of shares, division of assets and damages. 3 In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and
liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to

pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral

damages;
Page 161 of 303

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the plaintiffs
as entitled to plus P1,000.00 for every appearance in court. 4
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue,
lack of jurisdiction over the nature of the action or suit, and lack of capacity of the estate
of Tabanao to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It
held that venue was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability; hence, the
action is not only a personal action but also an action in personam. As regards
petitioner's argument of lack of jurisdiction over the action because the prescribed
docket fee was not paid considering the huge amount involved in the claim, the trial
court noted that a request for accounting was made in order that the exact value of the
partnership may be ascertained and, thus, the correct docket fee may be paid. Finally,
the trial court held that the heirs of Tabanao had aright to sue in their own names, in
view of the provision of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the decedent. 6
The following day, respondents filed an amended complaint, 7 incorporating the

additional prayer that petitioner be ordered to "sell all (the partnership's) assets and
thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in
the proceeds thereof. In due time, petitioner filed a manifestation and motion to
dismiss,8 arguing that the trial court did not acquire jurisdiction over the case due to the
plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an additional ground warranting the
outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, 10 denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time
the right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, 11 raising the following
issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave

abuse of discretion in taking cognizance of a case despite the failure to pay the
required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of land
situated outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in allowing the estate of the deceased to appear as party
Page 162 of 303

plaintiff, when there is no intestate case and filed by one who was never
appointed by the court as administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision, 12 dismissing
the petition for certiorari, upon a finding that no grave abuse of discretion amounting to
lack or excess of jurisdiction was committed by the trial court in issuing the questioned
orders denying petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside
the said court's territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective in instituting the
action below was to recover the decedent's 1/3 share in the partnership' s assets. While
they ask for an accounting of the partnership' s assets and finances, what they are
actually asking is for the trial court to compel petitioner to pay and turn over their share,
or the equivalent value thereof, from the proceeds of the sale of the partnership assets.
They also assert that until and unless a proper accounting is done, the exact value of
the partnership' s assets, as well as their corresponding share therein, cannot be
ascertained. Consequently, they feel justified in not having paid the commensurate
docket fee as required by the Rules of Court.1âwphi1.nêt
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily
pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is
one which is really not beyond pecuniary estimation, but rather partakes of the nature of
a simple collection case where the value of the subject assets or amount demanded is
pecuniarily determinable.13 While it is true that the exact value of the partnership's total
assets cannot be shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount they expect to collect
from the partnership, particularly from petitioner, in order to determine the proper
amount of docket and other fees.14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire jurisdiction over the
action.15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of

Appeals,16 where there was clearly an effort to defraud the government in avoiding to
pay the correct docket fees, we see no attempt to cheat the courts on the part of
Page 163 of 303
respondents. In fact, the lower courts have noted their expressed desire to remit to the
court "any payable balance or lien on whatever award which the Honorable Court may
grant them in this case should there be any deficiency in the payment of the docket fees
to be computed by the Clerk of Court."17 There is evident willingness to pay, and the
fact that the docket fee paid so far is inadequate is not an indication that they are trying
to avoid paying the required amount, but may simply be due to an inability to pay at the
time of filing. This consideration may have moved the trial court and the Court of
Appeals to declare that the unpaid docket fees shall be considered a lien on the
judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in
condoning the non-payment of the proper legal fees and in allowing the same to
become a lien on the monetary or property judgment that may be rendered in favor of
respondents. There is merit in petitioner's assertion. The third paragraph of Section 16,
Rule 141 of the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of
the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents are
litigating as paupers, and as such are exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court,
which defines the two kinds of claims as: (1) those which are immediately ascertainable;
and (2) those which cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded
or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court pronounced

that the above-quoted provision "clearly contemplates an Initial payment of the filing
fees corresponding to the estimated amount of the claim subject to adjustment as to
what later may be proved."20 Moreover, we reiterated therein the principle that the
payment of filing fees cannot be made contingent or dependent on the result of the
case. Thus, an initial payment of the docket fees based on an estimated amount must
be paid simultaneous with the filing of the complaint. Otherwise, the court would stand
to lose the filing fees should the judgment later turn out to be adverse to any claim of
the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary
to defray court expenses in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government as well, the payment of
docket fees cannot be made dependent on the outcome of the case, except when the
claimant is a pauper-litigant.
Page 164 of 303
Applied to the instant case, respondents have a specific claim - 1/3 of the value of all
the partnership assets - but they did not allege a specific amount. They did, however,
estimate the partnership's total assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now say
that they are unable to make an estimate, for the said letter and the admissions therein
form part of the records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This estimate can be
made the basis for the initial docket fees that respondents should pay. Even if it were
later established that the amount proved was less or more than the amount alleged or
estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the
court may refund the 'excess or exact additional fees should the initial payment be
insufficient. It is clear that it is only the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is subject to adjustment and which
may be subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion, 22 this
Court held that when the specific claim "has been left for the determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate
the initial payment of filing and docket fees based on the estimated claims of the
plaintiff, and it is only when there is a deficiency that a lien may be constituted on the
judgment award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright
despite their failure to pay the proper docket fees. Nevertheless, as in other procedural
rules, it may be liberally construed in certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment of the docket fee in the
proper amount should be adhered to, there are certain exceptions which must be strictly
construed.23
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
allowing the plaintiff to pay the proper docket fees within a reasonable time before the
expiration of the applicable prescriptive or reglementary period. 24
In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory pleading
is accompanied by the payment of the requisite fees, or, if the fees are not paid
at the time of the filing of the pleading, as of the time of full payment of the fees
within such reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of docket
fees. Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the same
within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the
Page 165 of 303
defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be considered a lien
or any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee
based on the estimated amount that respondents seek to collect from petitioner, and
direct them to pay the same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired, Failure to comply therewith, and
upon motion by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the
Court of Appeals in holding that the case below is a personal action which, under the
Rules, may be commenced and tried where the defendant resides or may be found, or
where the plaintiffs reside, at the election of the latter. 26
Petitioner, however, insists that venue was improperly laid since the action is a real
action involving a parcel of land that is located outside the territorial jurisdiction of the
court a quo. This contention is not well-taken. The records indubitably show that
respondents are asking that the assets of the partnership be accounted for, sold and
distributed according to the agreement of the partners. The fact that two of the assets of
the partnership are parcels of land does not materially change the nature of the action.
It is an action in personam because it is an action against a person, namely, petitioner,
on the basis of his personal liability. It is not an action in rem where the action is against
the thing itself instead of against the person. 27 Furthermore, there is no showing that the
parcels of land involved in this case are being disputed. In fact, it is only incidental that
part of the assets of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including
the fishpond in question, did not change the nature or character of the action,
such sale being merely a necessary incident of the liquidation of the partnership,
which should precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks
the enforcement of, and petitioner's compliance with, the contract that the partners
executed to formalize the partnership's dissolution, as well as to implement the
liquidation and partition of the partnership's assets. Clearly, it is a personal action that,
in effect, claims a debt from petitioner and seeks the performance of a personal duty on
his part.29 In fine, respondents' complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal action which may be filed in the
proper court where any of the parties reside.30 Besides, venue has nothing to do with
jurisdiction for venue touches more upon the substance or merits of the case. 31 As it is,
venue in this case was properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has
no legal capacity to sue since she was never appointed as administratrix or executrix of
Page 166 of 303
his estate. Petitioner's objection in this regard is misplaced. The surviving spouse does
not need to be appointed as executrix or administratrix of the estate before she can file
the action. She and her children are complainants in their own right as successors of
Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar
as the partnership was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance of a person are transmitted. 33 Moreover,
respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died.34
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as

executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity
to sue. As successors who stepped into the shoes of their decedent upon his death,
they can commence any action originally pertaining to the decedent. 35 From the
moment of his death, his rights as a partner and to demand fulfillment of petitioner's
obligations as outlined in their dissolution agreement were transmitted to respondents.
They, therefore, had the capacity to sue and seek the court's intervention to compel
petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on
the ground of prescription, arguing that respondents' action prescribed four (4) years
after it accrued in 1986. The trial court and the Court of Appeals gave scant
consideration to petitioner's hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.36 The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the partners.37 For as
long as the partnership exists, any of the partners may demand an accounting of the
partnership's business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done.38
Contrary to petitioner's protestations that respondents' right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of a final accounting. Article 1842
of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account,
the above-cited provision states that the right to demand an accounting accrues at the
date of dissolution in the absence of any agreement to the contrary. When a final
Page 167 of 303
accounting is made, it is only then that prescription begins to run. In the case at bar, no
final accounting has been made, and that is precisely what respondents are seeking in
their action before the trial court, since petitioner has failed or refused to render an
accounting of the partnership's business and assets. Hence, the said action is not
barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
upholding the trial court's orders. Precious time has been lost just to settle this
preliminary issue, with petitioner resurrecting the very same arguments from the trial
court all the way up to the Supreme Court. The litigation of the merits and substantial
issues of this controversy is now long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of
merit, and the case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60,
which is ORDERED to determine the proper docket fee based on the estimated amount
that plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C.
Costs against petitioner.1âwphi1.nêt
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.
Page 168 of 303

Aurbach vs Sanitary Wares
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES

CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.

LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6)
candidates and in the event they cannot agree on the six (6) nominees, they shall vote
Page 169 of 303

only among themselves to determine who the six (6) nominees will be, with cumulative
voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could help
in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in
Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties
agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in

the form annexed hereto as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of

Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-
Standard, and the other six shall be designated by the other stockholders
of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a

minority group, including the grant of veto powers over a number of corporate acts and
the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition
that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.
Page 170 of 303

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to
the Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other subsidiaries
of joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was held. The
meeting was presided by Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to the
body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of
order and no vote on the ruling was taken. The Chairman then instructed
the Corporate Secretary to cast all the votes present and represented by
proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a total of 1,329,695 (p.
27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the
three ASI nominees and Charles Chamsay, and instructed the Secretary
to so vote. Luciano E. Salazar and other proxy holders announced that all
the votes owned by and or represented by them 467,197 shares (p. 27,
Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three ASI
nominees, namely, Wolfgang Aurbach, John Griffin and David
Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and Baldwin Young. The Secretary then
certified for the election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The
representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP
No. 05617). This motion to adjourn was accepted by the Chairman,
Baldwin Young, who announced that the motion was carried and declared
Page 171 of 303
the meeting adjourned. Protests against the adjournment were registered
and having been ignored, Mr. Jaqua the ASI representative, stated that
the meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened to
have the stockholders who did not agree to the decision of the Chairman
on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting at the elevator
lobby of the American Standard Building. The continued meeting was
presided by Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast earlier in the meeting,
the ASI Group nominated its four nominees; Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation
that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the
tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean
Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417.
The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo
warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
Page 172 of 303

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED
ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE
WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS

FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY
THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF
THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS

PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17,
Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding

contractual agreements entered into by stockholders and the replacement
of the conditions of such agreements with terms never contemplated by
the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of

the property rights of stockholders without due process of law in order that
a favored group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a corporation. (pp. 14-
15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE
DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT

PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED
DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
Page 173 of 303

The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the

parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group
never pleaded in their pleading that the "Agreement" failed to express the true intent of
the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have

been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express

the true intent and agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Page 174 of 303

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to
express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that

the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and does
not preclude, the existence of two distinct groups of stockholders in
Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In any
event, the evident intention of the Philippine Investors and ASI in entering
into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former (Art. 1370, New Civil
Code). The various stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may result from all of
them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge
the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Art. 1371, New Civil
Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the

parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to create a
joint adventure, or to assume some other relation is a question of fact for
the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200
P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that
the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary corporation.
As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he

negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the Agreement
should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were

included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate
Page 175 of 303
acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the

amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and
(b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy
of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)]
and that Saniwares should not export "Standard" products otherwise than
through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out

of 9 votes of the board of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement) an effective veto
power. Furthermore, the grant to ASI of the right to designate certain
officers of the corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most significantly to the
issues of tms case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI,
which owns 40% of the capital stock and the Philippine National
stockholders who own the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two
groups of stockholders who established a corporation with provisions for a
special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm
in exchange for its manufacturing expertise, use of its brand names, and other such
Page 176 of 303
assistance. However, there is always a danger from such arrangements. The foreign
group may, from the start, intend to establish its own sole or monopolistic operations
and merely uses the joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the Philippine firm
enlarges its operations and becomes profitable, the foreign group undermines the local
majority ownership and actively tries to completely or predominantly take over the entire
company. This undermining of joint ventures is not consistent with fair dealing to say the
least. To the extent that such subversive actions can be lawfully prevented, the courts
should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of

stockholders to enter into agreements regarding the exercise of their
voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and

signed by the parties thereto, may provide that in exercising any voting
rights, the shares held by them shall be voted as therein provided, or as
they may agree, or as determined in accordance with a procedure agreed
upon by them.
Appellants contend that the above provision is included in the Corporation

Code's chapter on close corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly, although Saniwares
had 95 stockholders at the time of the disputed stockholders meeting,
these 95 stockholders are not separate from each other but are divisible
into groups representing a single Identifiable interest. For example, ASI,
its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay
family for 8 stockholders, the Santos family for 9 stockholders, the Dy
family for 7 stockholders, etc. If the members of one family and/or
business or interest group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining how closely held
Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex
"A" thereof).
Secondly, even assuming that Saniwares is technically not a close

corporation because it has more than 20 stockholders, the undeniable fact
is that it is a close-held corporation. Surely, appellants cannot honestly
claim that Saniwares is a public issue or a widely held corporation.
Page 177 of 303

In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied principles of corporation
law designed primarily for public issue corporations. These courts have
indicated that express arrangements between corporate joint ventures
should be construed with less emphasis on the ordinary rules of law
usually applied to corporate entities and with more consideration given to
the nature of the agreement between the joint venturers (Please see
Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M
& St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard
Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy
v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S.
262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev.
p. 680,1958). These American cases dealt with legal questions as to the
extent to which the requirements arising from the corporate form of joint
venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement
rather than the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture

deviate from the traditional pattern of corporation management. A noted
authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do
one or more of the following: (1) require greater than majority vote for
shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to
the shareholders control over the selection and retention of employees;
and (4) set up a procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16)
(Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not

necessarily imply that agreements regarding the exercise of voting rights
are allowed only in close corporations. As Campos and Lopez-Campos
explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does

this provision necessarily imply that these agreements can be valid only in
close corporations as defined by the Code? Suppose that a corporation
has twenty five stockholders, and therefore cannot qualify as a close
corporation under section 96, can some of them enter into an agreement
to vote as a unit in the election of directors? It is submitted that there is no
reason for denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect their
interests, as long as they do not intend to commit any wrong, or fraud on
the other stockholders not parties to the agreement. Of course, voting or
Page 178 of 303
pooling agreements are perhaps more useful and more often resorted to
in close corporations. But they may also be found necessary even in
widely held corporations. Moreover, since the Code limits the legal
meaning of close corporations to those which comply with the requisites
laid down by section 96, it is entirely possible that a corporation which is in
fact a close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like
voting agreements if these are otherwise valid. (Campos & Lopez-
Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual provision, as correctly
held by the SEC, is valid and binding upon the signatories thereto, which
include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:
As in other joint venture companies, the extent of ASI's participation in the

management of the corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance
with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative

that the parties should honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the
extent that such may interfere with the stockholder's rights to cumulative
voting as provided in Section 24 of the Corporation Code. This Court
should not be prepared to hold that any agreement which curtails in any
way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be
more cogent to hold, as the Securities and Exchange Commission has
held in the decision appealed from, that cumulative voting rights may be
voluntarily waived by stockholders who enter into special relationships
with each other to pursue and implement specific purposes, as in joint
venture relationships between foreign and local stockholders, so long as
such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which the
parties have assumed for themselves.
Page 179 of 303

On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative voting should also be
protected.
In our decision sought to be reconsidered, we opted to uphold the second

over the first. Upon further reflection, we feel that the proper and just
solution to give due consideration to both factors suggests itself quite
clearly. This Court should recognize and uphold the division of the
stockholders into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process of
determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however,
should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get
a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has
the right to vote their additional equity pursuant to Section 24 of the Corporation Code
which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not
necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as
amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in
partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities.
(amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation
Code. The point of query, however, is whether or not that provision is applicable to a
joint venture with clearly defined agreements:
Page 180 of 303

The legal concept of ajoint venture is of common law origin. It has no
precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership,
since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d.
242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts
v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395
111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43
NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election
of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as agreed
upon by the parties. As aptly stated by the appellate court:
Page 181 of 303

... ASI, however, should not be allowed to interfere in the voting within the
Filipino group. Otherwise, ASI would be able to designate more than the
three directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and
the stockholder's right to cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the
laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of
the Agreement which uses the word "designate" meaning "nominate, delegate or
appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if
the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
Page 182 of 303
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of directors.
The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now
impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the cumulative
voting procedure is dependent on the directors thus elected being genuine members of
the Filipino group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the enterprise must always
be taken into account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the Filipino investors
as well as to maintain the minority status of the foreign investors group as earlier
discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John
Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan,
Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
In all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.
Page 183 of 303

Joint Ventures
Litonjua Jr. Vs Litonjua 477 SCRA 576
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC.,
CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES,
INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY,
(formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES,
INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY
TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly
General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),
Respondents.
Actions; Civil Law; Partnership; Words and Phrases; A contract of partnership is defined
by the Civil Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits
among themselves.—A partnership exists when two or more persons agree to place
their money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and losses
between them. A contract of partnership is defined by the Civil Code as one where two
or more persons bound themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves. A joint
venture, on the other hand, is hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e., community of interests in the business
and sharing of profits and losses. Being a form of partnership, a joint venture is
generally governed by the law on partnership.
Same; Same; Same; Petitioner’s complaint does not state a valid cause of action
because not all the essential elements of a cause of action are present.—Given the
foregoing perspective, what the appellate court wrote in its assailed Decision about the
probative value and legal effect of Annex “A-1” commends itself for concurrence:
“Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the “Memorandum” (Annex “A” of the
complaint) which purports to establish the said “partnership/joint venture” is NOT a
public instrument and there was NO inventory of the immovable property duly signed by
the parties. As such, the said “Memorandum” . . . is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the purported
“partnership/joint venture” is legally inexistent and it produces no effect whatsoever.
Page 184 of 303

Necessarily, a void or legally inexistent contract cannot be the source of any contractual
or legal right. Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual respondents] herein.
As a consequence, [petitioner’s] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are present.”
Same; Same; Same; Statute of Frauds; By force of the statute of frauds, an agreement
that by its terms is not to be performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in
writing and subscribed by the party charged.—It is at once apparent that what
respondent Eduardo imposed upon himself under the above passage, if he indeed
wrote Annex “A-1,” is a promise which is not to be performed within one year from
“contract” execution on June 22, 1973. Accordingly, the agreement embodied in Annex
“A-1” is covered by the Statute of Frauds and ergo unenforceable for non-compliance
therewith. By force of the statute of frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing and subscribed by
the party charged. Corollarily, no action can be proved unless the requirement exacted
by the statute of frauds is complied with.
Same; Same; Same; Same; A complaint for delivery and accounting of partnership
property based on such void or legally non-existent actionable document is dismissible
for failure to state a cause of action.—Per the Court’s own count, petitioner used in his
complaint the mixed words “joint venture/partnership” nineteen (19) times and the term
“partner” four (4) times. He made reference to the “law of joint venture/partnership
[being applicable] to the business relationship . . . between [him], Eduardo and Bobby
[Yang]” and to his “rights in all specific properties of their joint venture/partnership.”
Given this consideration, petitioner’s right of action against respondents Eduardo and
Yang doubtless pivots on the existence of the partnership between the three of them, as
purportedly evidenced by the undated and unsigned Annex “A-1.” A void Annex “A-1,”
as an actionable document of partnership, would strip petitioner of a cause of action
under the premises. A complaint for delivery and accounting of partnership property
based on such void or legally non-existent actionable document is dismissible for failure
to state of action. So, in gist, said the Court of Appeals. The Court agrees.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA)
dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R.
SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioner’s
motion for reconsideration.
The recourse is cast against the following factual backdrop:

Page 185 of 303
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on December
4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his
brother Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his complaint, 3 docketed as
Civil Case No. 69235 and eventually raffled to Branch 68 of the court, 4 Aurelio alleged
that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement
in the Odeon Theater business which had expanded thru investment in Cineplex, Inc.,
LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II
theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations.
Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon
Theater investment.5 The same complaint also contained the following material
averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and common family
funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a memorandum

addressed by Eduardo to his siblings, parents and other relatives. Copy of this
memorandum is attached hereto and made an integral part as Annex "A" and the
portion referring to [Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of
[Aurelio’s] retaining his share in the remaining family businesses (mostly, movie
theaters, shipping and land development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all
these businesses and those to be subsequently acquired by them whichever is greater.
...
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio]
and Eduardo had accumulated in their joint venture/partnership various assets including
but not limited to the corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired [various other
assets], but Eduardo caused to be registered in the names of other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real
properties …. A list of some of these real properties is attached hereto and made an
integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so
that [Aurelio] requested for an accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting and liquidation were
not heeded].
Page 186 of 303
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the
corporate defendants as well as Bobby [Yang], are transferring . . . various real
properties of the corporations belonging to the joint venture/partnership to other parties
in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the
annotation on the titles of these real properties… a notice of lis pendens …. (Emphasis
in the original; underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have
been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the pattern …. You will
be the only one left with the company, among us brothers and I will ask you to stay as I
want you to run this office every time I am away. I want you to run it the way I am trying
to run it because I will be all alone and I will depend entirely to you (sic). My sons will
not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in
the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or
ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of
what I have and what you are entitled to. …. It will be you and me alone on this. If ever I
pass away, I want you to take care of all of this. You keep my share for my two sons are
ready take over but give them the chance to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live
better there. The rest I will give you in form of stocks which you can keep. This stock I
assure you is good and saleable. I will also gladly give you the share of Wack-Wack
…and Valley Golf … because you have been good. The rest will be in stocks from all
the corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo,
filed a joint ANSWER With Compulsory Counterclaim denying under oath the material
allegations of the complaint, more particularly that portion thereof depicting petitioner
and Eduardo as having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint
states no cause of action, since no cause of action may be derived from the actionable
document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation to
Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking
Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the
provisions of the Statute of Frauds.7
For his part, Yang - who was served with summons long after the other defendants
submitted their answer – moved to dismiss on the ground, inter alia, that, as to him,
Page 187 of 303
petitioner has no cause of action and the complaint does not state any.8 Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9
To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case
for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an
Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for
Yang, set the case for pre-trial on April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion of
Eduardo, et al., for reconsideration12 and Yang’s motion to dismiss. The following then
transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek
reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to
dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2,
2003, but his motion was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for
certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to
nullify the separate orders of the trial court, the first denying his motion to dismiss the
basic complaint and, the second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of
discretion and injudicious haste attended the issuance of the trial court’s
aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from
the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP
No. 76987.
Per its resolution dated October 2, 2003, 16 the CA’s 14th Division ordered the
consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities,

the appellate court came out with the herein assailed Decision dated March 31, 2004,
finding for Eduardo and Yang, as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of

certiorari in these consolidated cases annulling, reversing and setting aside the assailed
orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the
complaint filed by private respondent [now petitioner Aurelio] against all the petitioners
[now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Page 188 of 303

Explaining its case disposition, the appellate court stated, inter alia, that the alleged
partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached
to the complaint, and upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is "void or legally
inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the CA in its
equally assailed Resolution of December 7, 2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document
because this was not a public instrument and immovable properties were contributed to
the partnership.
B. When it ruled that the actionable document did not create a demandable right in favor
of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent]
Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that
Petitioner had done was to support his pleaded cause of action by another legal
perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court,
is for delivery or payment to him, as Eduardo’s and Yang’s partner, of his
partnership/joint venture share, after an accounting has been duly conducted of what he
deems to be partnership/joint venture property. 19
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there shall
be a proportionate sharing of the profits and losses between them. 20 A contract of
partnership is defined by the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.21 A joint venture, on the other hand,
is hardly distinguishable from, and may be likened to, a partnership since their elements
are similar, i.e., community of interests in the business and sharing of profits and losses.
Being a form of partnership, a joint venture is generally governed by the law on
partnership.22
The underlying issue that necessarily comes to mind in this proceedings is whether or
not petitioner and respondent Eduardo are partners in the theatre, shipping and realty
business, as one claims but which the other denies. And the issue bearing on the first
assigned error relates to the question of what legal provision is applicable under the
premises, petitioner seeking, as it were, to enforce the actionable document - Annex "A-
1" - which he depicts in his complaint to be the contract of partnership/joint venture
Page 189 of 303
between himself and Eduardo. Clearly, then, a look at the legal provisions determinative
of the existence, or defining the formal requisites, of a partnership is indicated.
Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall be
necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed

thereto, if an inventory of said property is not made, signed by the parties, and attached
to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned
and undated. As an unsigned document, there can be no quibbling that Annex "A-1"
does not meet the public instrumentation requirements exacted under Article 1771 of
the Civil Code. Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented
for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of validity when
immovable property is contributed to the partnership, the next logical point of inquiry
turns on the nature of petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s contribution
consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioner’s]
contribution to the so-called "partnership/joint venture" was his supposed share in the
family business that is consisting of movie theaters, shipping and land development
under paragraph 3.02 of the complaint. In other words, his contribution as a partner in
the alleged partnership/joint venture consisted of immovable properties and real rights.
….23
Significantly enough, petitioner matter-of-factly concurred with the appellate court’s

observation that, prescinding from what he himself alleged in his basic complaint, his
contribution to the partnership consisted of his share in the Litonjua family businesses
which owned variable immovable properties. Petitioner’s assertion in his motion for
reconsideration24 of the CA’s decision, that "what was to be contributed to the business
[of the partnership] was [petitioner’s] industry and his share in the family [theatre and
land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Page 190 of 303

Lest it be overlooked, the contract-validating inventory requirement under Article 1773
of the Civil Code applies as long real property or real rights are initially brought into the
partnership. In short, it is really of no moment which of the partners, or, in this case, who
between petitioner and his brother Eduardo, contributed immovables. In context, the
more important consideration is that real property was contributed, in which case an
inventory of the contributed property duly signed by the parties should be attached to
the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the
immovables in question were not contributed, but were acquired after the formation of
the supposed partnership. Needless to stress, the Court cannot accord cogency to this
specious argument. For, as earlier stated, petitioner himself admitted contributing his
share in the supposed shipping, movie theatres and realty development family
businesses which already owned immovables even before Annex "A-1" was allegedly
executed.
Considering thus the value and nature of petitioner’s alleged contribution to the
purported partnership, the Court, even if so disposed, cannot plausibly extend Annex
"A-1" the legal effects that petitioner so desires and pleads to be given. Annex "A-1", in
fine, cannot support the existence of the partnership sued upon and sought to be
enforced. The legal and factual milieu of the case calls for this disposition. A partnership
may be constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least ₱3,000.00, in which
case a public instrument shall be necessary.25 And if only to stress what has repeatedly
been articulated, an inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable
property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed
Decision26 about the probative value and legal effect of Annex "A-1" commends itself
for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the
complaint) which purports to establish the said "partnership/joint venture" is NOT a
public instrument and there was NO inventory of the immovable property duly signed by
the parties. As such, the said "Memorandum" … is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot be the source of any contractual
or legal right. Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual respondents] herein.
As a consequence, [petitioner’s] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are present. (Underscoring
and words in bracket added.)
Page 191 of 303

Likewise well-taken are the following complementary excerpts from the CA’s equally
assailed Resolution of December 7, 200427 denying petitioner’s motion for
reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as
well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not
appreciate and apply the legal provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the
latter alleged inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and there was no
inventory of immovable properties signed by the parties. Both the allegations in the
complaint and the actionable documents considered, it is crystal clear that [petitioner]
has no valid or legal right which could be violated by [respondents]. (Words in bracket
added.)
Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming
its inefficacy or nullity as a partnership document, nevertheless created demandable
rights in his favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions,

established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract
does create rights and obligations of the parties and which rights and obligations may
be enforceable and demandable. Just because the relationship created by the
agreement cannot be specifically labeled or pigeonholed into a category of nominate
contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and
earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought.
The appellate court, however, cannot really be faulted for not yielding to petitioner’s
dubious stratagem of altering his theory of joint venture/partnership to an innominate
contract. For, at bottom, the appellate court’s certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed,28 since the parties’ basic position
had been well-defined, that of petitioner being that the actionable document established
a partnership/joint venture, it is on those positions that the appellate court exercised its
certiorari jurisdiction. Petitioner’s act of changing his original theory is an impermissible
practice and constitutes, as the CA aptly declared, an admission of the untenability of
such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has

now contended that the actionable instrument may be considered an innominate
contract. xxx Verily, this now changes [petitioner’s] theory of the case which is not only
prohibited by the Rules but also is an implied admission that the very theory he himself
… has adopted, filed and prosecuted before the respondent court is erroneous.
Page 192 of 303

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of
the actionable document being a partnership document. If anything, it is so obvious we
do have to test the sufficiency of the cause of action on the basis of partnership law
xxx.29 (Emphasis in the original; Words in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected
innominate contract, petitioner’s complaint would still be dismissible as against Eduardo
and, more so, against Yang. It cannot be over-emphasized that petitioner points to
Eduardo as the author of Annex "A-1". Withal, even on this consideration alone,
petitioner’s claim against Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded
as vesting petitioner with a right to demand from respondent Eduardo the observance of
a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will ask you
to stay as I want you to run this office everytime I am away. I want you to run it the way I
am trying to run it because I will be alone and I will depend entirely to you, My sons will
not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in
the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or
ten percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the
above passage, if he indeed wrote Annex "A-1", is a promise which is not to be
performed within one year from "contract" execution on June 22, 1973. Accordingly, the
agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergo
unenforceable for non-compliance therewith.30 By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from the making thereof
shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged. Corollarily, no action can be
proved unless the requirement exacted by the statute of frauds is complied with. 31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%

equity of the family businesses supposedly promised by Eduardo to give in the near
future. Any suggestion that the stated amount or the equity component of the promise
was intended to go to a common fund would be to read something not written in Annex
"A-1". Thus, even this angle alone argues against the very idea of a partnership, the
creation of which requires two or more contracting minds mutually agreeing to
contribute money, property or industry to a common fund with the intention of dividing
the profits between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific
performance anchored on an actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a cause of action as against
respondent Eduardo and the corporate defendants. And if no of action can successfully
be maintained against respondent Eduardo because no valid partnership existed
between him and petitioner, the Court cannot see its way clear on how the same action
could plausibly prosper against Yang. Surely, Yang could not have become a partner in,
or could not have had any form of business relationship with, an inexistent partnership.
Page 193 of 303
As may be noted, petitioner has not, in his complaint, provide the logical nexus that
would tie Yang to him as his partner. In fact, attendant circumstances would indicate the
contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with
Eduardo was "for the continuation of their family business and common family funds
which were theretofore being mainly managed by Eduardo." 33 But Yang denies kinship
with the Litonjua family and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint

venture/partnership with Eduardo and what his share in the businesses will be. No
allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made
because, as aptly observed by the CA, the actionable document did not contain such
provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership
contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business
partners in the [respondent] corporations," while "Bobby is his and Eduardo’s partner in
their Odeon Theater investment’ (par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their partner in their Odeon Theater
investment thereafter. Several paragraphs later, however, petitioner would contradict
himself by alleging that his "investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate
respondents" This simply means that the "Odeon Theatre business" came before the
corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business. 34
Needless to stress, petitioner has not sufficiently established in his complaint the legal
vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals,
in its assailed decision, captured and formulated the legal situation in the following wise:
[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a

"partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which
expanded through reinvestments of profits and direct investments in several
corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with
petitioner and the …respondent. However, there was NO allegation in the complaint
which directly alleged how the supposed contractual relation was created between
[petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally inexistent directly
affects said claim against …Yang. Since [petitioner] is trying to establish his claim
against … Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect [petitioner]
Page 194 of 303
and … Yang. To establish a valid cause of action, the complaint should have a
statement of fact upon which to connect [respondent] Yang to the alleged partnership
between [petitioner] and respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they
would constitute the ultimate facts necessary to establish the elements of a cause of
action against … Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner’s motion for
reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to the
complaint that is controlling. Suffice it to state, We have not ignored the actionable
document … As a matter of fact, We emphasized in our decision … that insofar as
[Yang] is concerned, he is not even mentioned in the said actionable document. We are
therefore puzzled how a person not mentioned in a document purporting to establish a
partnership could be considered a partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of
the case, as peremptorily determined by the CA, has been discussed at length earlier
and need not detain us long. Suffice it to say that after the CA has ruled that the alleged
partnership is inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and consistently pursued in his complaint,
petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner’s
statement in par. #8 of his motion for reconsideration of the CA’s decision combined
with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or

whatever, is a legal matter. What is determinative for purposes of sufficiency of the
complainant’s allegations, is whether the actionable document bears out an actionable
contract – be it a partnership, a joint venture or whatever or some innominate contract
… It may be noted that one kind of innominate contract is what is known as du ut facias
(I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions,

established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).38
Springing surprises on the opposing party is offensive to the sporting idea of fair play,
justice and due process; hence, the proscription against a party shifting from one theory
at the trial court to a new and different theory in the appellate court. 39 On the same
rationale, an issue which was neither averred in the complaint cannot be raised for the
first time on appeal.40 It is not difficult, therefore, to agree with the CA when it made
short shrift of petitioner’s innominate contract theory on the basis of the foregoing basic
reasons.
Petitioner’s protestation that his act of introducing the concept of innominate contract
was not a case of changing theories but of supporting his pleaded cause of action – that
of the existence of a partnership - by another legal perspective/argument, strikes the
Page 195 of 303
Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-
back theory. Two paragraphs later, in the same notion, petitioner faults the appellate
court for reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on
whether or not to pursue the original cause of action or altogether abandoning the
same, thus:
12. Incidentally, assuming that the actionable document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this
partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document
attached to the complaint does not establish a contractual relationship between
[petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his document does
not create a partnership or a joint venture. This is … a myopic reading of the actionable
document.
Per the Court’s own count, petitioner used in his complaint the mixed words "joint
venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made
reference to the "law of joint venture/partnership [being applicable] to the business
relationship … between [him], Eduardo and Bobby [Yang]" and to his "rights in all
specific properties of their joint venture/partnership". Given this consideration,
petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on
the existence of the partnership between the three of them, as purportedly evidenced by
the undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable document
of partnership, would strip petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership property based on such void or
legally non-existent actionable document is dismissible for failure to state of action. So,
in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.
Page 196 of 303

Marsman Drysdale Land Inc. vs Philippine Geoanalytics Inc 622 SCRA 281
G.R. No. 183374 June 29, 2010
MARSMAN DRYSDALE LAND, INC., Petitioner,

vs.
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC.,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 183376
GOTESCO PROPERTIES, INC., Petitioner,

vs.
MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS, INC.,
Respondents.
Civil Law; Contracts; Partnership; Joint Ventures; A joint venture being a form of
partnership it is to be governed by the laws on partnership.—A joint venture being a
form of partnership, it is to be governed by the laws on partnership. PETITION for
review on certiorari of the decision and resolution of the Court of Appeals.
DECISION
CARPIO MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco
Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the
construction and development of an office building on a land owned by Marsman
Drysdale in Makati City.1
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement by investing in the
PROJECT on a FIFTY (50%) PERCENT- FIFTY (50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the

Property.
The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY
MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition
within ninety (90) days from signing of this Agreement barring any unforeseen
Page 197 of 303

circumstances over which [Marsman Drysdale] has no control. Buildable condition shall
mean that the old building/structure which stands on the Property is demolished and
taken to ground level.
4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR
HUNDRED TWENTY MILLION (P420,000,000.00) in cash which shall be payable as
follows:
4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this
Agreement.
4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION

(P370,000,000.00) shall be paid based on progress billings, relative to the development
and construction of the Building, but shall in no case exceed ten (10) months from
delivery of the Property in a Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both Parties for handling of said
balance, among other Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the Project shall be obtained from the cash contribution of
[Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in the Building
or, when necessary, from loans from various banks or financial institutions. [Gotesco]
shall arrange the required funding from such banks or financial institutions, under such
terms and conditions which will provide financing rates favorable to the Parties.
4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its contribution is
limited to the Property.
4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds
obtained from the pre-selling of units and proceeds from loans, the Parties shall agree
on other sources and terms of funding such excess as soon as practicable.
4.3.5 x x x x.
4.3.6 x x x x.
4.3.7 x x x x.
4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from
a Party) shall be repaid by the JV.
4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in whole
or in part) the other party may advance the shortfall and the Party in default shall
indemnify the Party making the substitute advance on demand for all of its losses, costs
and expenses incurred in so doing. (emphasis supplied; underscoring in the original)
Page 198 of 303
Via Technical Services Contract (TSC) dated July 14, 1997,2 the joint venture engaged
the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil
exploration, laboratory testing, seismic study and geotechnical engineering for the
project. PGI, was, however, able to drill only four of five boreholes needed to conduct its
subsurface soil exploration and laboratory testing, justifying its failure to drill the
remaining borehole to the failure on the part of the joint venture partners to clear the
area where the drilling was to be made.3 PGI was able to complete its seismic study
though.
PGI then billed the joint venture on November 24, 1997 for ₱284,553.50 representing
the cost of partial subsurface soil exploration; and on January 15, 1998 for ₱250,800
representing the cost of the completed seismic study. 4
Despite repeated demands from PGI,5 the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture was
cut short and the planned building project was eventually shelved. 6
PGI subsequently filed on November 11, 1999 a complaint for collection of sum of
money and damages at the Regional Trial Court (RTC) of Quezon City against
Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the
responsibility of paying PGI to Gotesco which, under the JVA, was solely liable for the
monetary expenses of the project.7
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI
had yet to complete the services enumerated in the contract; and that Marsman
Drysdale failed to clear the property of debris which prevented PGI from completing its
work.8
By Decision of June 2, 2004,9 Branch 226 of the Quezon City RTC rendered judgment
in favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of

plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:
(1) the sum of P535,353.50 with legal interest from the date of this decision until
fully paid;
(2) the sum of P200,000.00 as exemplary damages;
(3) the sum of P200,000.00 as and for attorney’s fees; and
(4) costs of suit.
Page 199 of 303

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is
hereby GRANTED as follows:
a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman

Drysdale] in the amount of P535,353.[50] in accordance with the [JVA].
b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman

Drysdale] the sum of P100,000.00 as and for attorney’s fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it should not have
been held jointly liable with Gotesco on PGI’s claim as well as on the awards of
exemplary damages and attorney’s fees. The motion was, by Resolution of October 28,
2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by
Decision of January 28, 2008,10 affirmed with modification the decision of the trial court.
Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The

assailed Decision dated June 2, 2004 and the Resolution dated October 28, 2005 of the
RTC of Quezon City, Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED
with MODIFICATION deleting the award of exemplary damages in favor of [PGI] and
the P100,000.00 attorney’s fees in favor of [Marsman Drysdale] and ordering defendant-
appellant [Gotesco] to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum
due [PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of the
Decision stands.
SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)
In partly affirming the trial court’s decision, the appellate court ratiocinated that
notwithstanding the terms of the JVA, the joint venture cannot avoid payment of PGI’s
claim since "[the JVA] could not affect third persons like [PGI] because of the basic civil
law principle of relativity of contracts which provides that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof." 11
Their motions for partial reconsideration having been denied, 12 Marsman Drysdale and
Gotesco filed separate petitions for review with the Court which were docketed as G.R.
Nos. 183374 and 183376, respectively. By Resolution of September 8, 2008, the Court
consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
A. …ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER

CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE
TO [PGI].
Page 200 of 303

B. …AWARDING ATTORNEY’S FEES IN FAVOR OF [PGI]…
C. …IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE
REQUIREMENT OF "SATISFACTORY PERFORMANCE" OF ITS PRESTATION
WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. …DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN

DRYSDALE’S] ENTITLEMENT TO AN AWARD OF ATTORNEY’S FEES. 13
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court
committed error when it
…ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK

PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO
REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEY’S FEES. 14
On the issue of whether PGI was indeed entitled to the payment of services it rendered,
the Court sees no imperative to re-examine the congruent findings of the trial and
appellate courts thereon. Undoubtedly, the exercise involves an examination of facts
which is normally beyond the ambit of the Court’s functions under a petition for review,
for it is well-settled that this Court is not a trier of facts. While this judicial tenet admits of
exceptions, such as when the findings of facts of the appellate court are contrary to
those of the trial court’s, or when the judgment is based on a misapprehension of facts,
or when the findings of facts are contradicted by the evidence on record,15 these
extenuating grounds find no application in the present petitions.
At all events, the Court is convinced that PGI had more than sufficiently established its
claims against the joint venture. In fact, Marsman Drysdale had long recognized PGI’s
contractual claims when it (PGI) received a Certificate of Payment 16 from the joint
venture’s project manager17 which was endorsed to Gotesco for processing and
payment.18
The core issue to be resolved then is which between joint venturers Marsman Drysdale
and Gotesco bears the liability to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the
project was to be obtained from Gotesco’s cash contribution, as its (Marsman
Drysdale’s) participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to the
fault of Marsman Drysdale that PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was never a party
to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of
Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing
Page 201 of 303
mechanism for the project, the same cannot be used to defeat the lawful claim of PGI
against the two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the
beneficial owner of the project,19 and all billing invoices indicated the consortium therein
as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively
read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the
prestations.1avvphi1 There is a solidary liability only when the obligation expressly so
states, or when the law or nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits. (emphasis and underscoring supplied),
presume that the obligation owing to PGI is joint between Marsman Drysdale and
Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the
liability of the joint venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws on

partnership.20 Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If
only the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.
In the absence of stipulation, the share of each in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable
for the losses. As for the profits, the industrial partner shall receive such share as may
be just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital. (emphasis and underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of
the project.21 They did not provide for the splitting of losses, however. Applying the
above-quoted provision of Article 1797 then, the same ratio applies in splitting the
₱535,353.50 obligation-loss of the joint venture.
Page 202 of 303

The appellate court’s decision must be modified, however. Marsman Drysdale and
Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman
Drysdale for "50% of the aggregate sum due" to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only
be contrary to the law on partnership on division of losses but would partake of a clear
case of unjust enrichment at Gotesco’s expense. The grant by the lower courts of
Marsman Drysdale cross-claim against Gotesco was thus erroneous.
Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be
denied. It cannot claim that it was compelled to litigate or that the civil action or
proceeding against it was clearly unfounded, for the JVA provided that, in the event a
party advances funds for the project, the joint venture shall repay the advancing party. 22
Marsman Drysdale was thus not precluded from advancing funds to pay for PGI’s
contracted services to abate any legal action against the joint venture itself. It was in
fact hardline insistence on Gotesco having sole responsibility to pay for the obligation,
despite the fact that PGI’s services redounded to the benefit of the joint venture, that
spawned the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be imposed
from the time of demand23 as the delay in payment makes the obligation one of
forbearance of money, conformably with this Court’s ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals.24 Marsman Drysdale and Gotesco should bear legal interest on
their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
AFFIRMED with MODIFICATION in that the order for Gotesco to reimburse Marsman
Drysdale is DELETED, and interest of 12% per annum on the respective obligations of
Marsman Drysdale and Gotesco is imposed, computed from the last demand or on
January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall
be 12% per annum computed from the time the judgment becomes final and executory
until it is fully satisfied. The appealed decision is, in all other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
Page 203 of 303

J. Tiosejo Investment Corp vs Ang 630 SCRA 334
G.R. No. 174149. September 8, 2010.
J. TIOSEJO INVESTMENT CORP., petitioner, vs. SPOUSES BENJAMIN AND

ELEANOR ANG, respondents.
Remedial Law; Appeals; The perfection of an appeal in the manner and within the
period prescribed by law is not only mandatory but jurisdictional; Considering that they
are requirements which cannot be trifled with as mere technicality to suit the interest of
a party, failure to perfect an appeal in the prescribed manner has the effect of rendering
the judgment final and executory.—While the dismissal of an appeal on purely technical
grounds is concededly frowned upon, it bears emphasizing that the procedural
requirements of the rules on appeal are not harmless and trivial technicalities that
litigants can just discard and disregard at will. Neither being a natural right nor a part of
due process, the rule is settled that the right to appeal is merely a statutory privilege
which may be exercised only in the manner and in accordance with the provisions of the
law. The perfection of an appeal in the manner and within the period prescribed by law
is, in fact, not only mandatory but jurisdictional. Considering that they are requirements
which cannot be trifled with as mere technicality to suit the interest of a party, failure to
perfect an appeal in the prescribed manner has the effect of rendering the judgment
final and executory.
Same; Same; Rules prescribing the time for doing specific acts or for taking certain
proceedings are considered absolutely indispensable to prevent needless delays and to
orderly and promptly discharge judicial business.—The record shows that, having been
granted the 15-day extension sought in its first motion, petitioner filed a second motion
for extension praying for an additional 10 days from 17 April 2006 within which to file its
petition for review, on the ground that pressures of work and the demands posed by
equally important cases prevented its counsel from finalizing the same. As correctly
ruled by the CA, however, heavy workload cannot be considered as a valid justification
to sidestep the reglementary period since to do so would only serve to encourage
needless delays and interminable litigations. Indeed, rules prescribing the time for doing
specific acts or for taking certain proceedings are considered absolutely indispensable
to prevent needless delays and to orderly and promptly discharge judicial business.
Corollary to the principle that the allowance or denial of a motion for extension of time is
addressed to the sound discretion of the court, moreover, lawyers cannot expect that
their motions for extension or postponement will be granted as a matter of course.
Contracts; Joint Ventures; By the express terms of the Joint Venture Agreement (JVA),
it appears that petitioner not only retained ownership of the property pending completion
of the condominium project but had also bound itself to answer liabilities proceeding
from contracts entered into by PPGI with third parties.—Even prescinding from the
Page 204 of 303

foregoing procedural considerations, we also find that the HLURB Arbiter and Board
correctly held petitioner liable alongside PPGI for respondents’ claims and the
P10,000.00 administrative fine imposed pursuant to Section 20 in relation to Section 38
of P.D. 957. By the express terms of the JVA, it appears that petitioner not only retained
ownership of the property pending completion of the condominium project but had also
bound itself to answer liabilities proceeding from contracts entered into by PPGI with
third parties.
Civil Law; Partnership; Under Article 1824 of the Civil Code of the Philippines, all
partners are solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties incurred due to
any wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners.— Viewed in the light of the
foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it was not
in any way privy to the Contracts to Sell executed by PPGI and respondents. As
correctly argued by the latter, moreover, a joint venture is considered in this jurisdiction
as a form of partnership and is, accordingly, governed by the law of partnerships. Under
Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable with the
partnership for everything chargeable to the partnership, including loss or injury caused
to a third person or penalties incurred due to any wrongful act or omission of any
partner acting in the ordinary course of the business of the partnership or with the
authority of his co-partners. Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.
PETITION for review on certiorari of the resolutions of the Court of Appeals (Third Div.).
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at
bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August 2006
issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841
which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment
Corp. (JTIC) for having been filed out of time1 and denied the motion for
reconsideration of said dismissal.2The
Facts
On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a residential
condominium project to be known as The Meditel on the former’s 9,502 square meter
property along Samat St., Highway Hills, Mandaluyong City.3 With petitioner
contributing the same property to the joint venture and PPGI undertaking to develop the
condominium, the JVA provided, among other terms and conditions, that the developed
Page 205 of 303
units shall be shared by the former and the latter at a ratio of 17%-83%, respectively.4
While both parties were allowed, at their own individual responsibility, to pre-sell the
units pertaining to them,5 PPGI further undertook to use all proceeds from the pre-
selling of its saleable units for the completion of the Condominium Project.”6
On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners.7 By
virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses Benjamin
and Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit
denominated as Unit A-1006, for the agreed contract price of P52,597.88 per square
meter or a total P2,077,334.25.8 On the same date PPGI and respondents also
executed Contract to Sell No. 0214 over the 12.50 square meter parking space
identified as Parking Slot No. 0405, for the stipulated consideration of P26,400.00
square meters or a total of P313,500.00.9
On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB
Case No. REM 072199-10567. Contending that they were assured by petitioner and
PPGI that the subject condominium unit and parking space would be available for turn-
over and occupancy in December 1998, respondents averred, among other matters,
that in view of the non-completion of the project according to said representation,
respondents instructed petitioner and PPGI to stop depositing the post-dated checks
they issued and to cancel said Contracts to Sell; and, that despite several demands,
petitioner and PPGI have failed and refused to refund the P611,519.52 they already
paid under the circumstances. Together with the refund of said amount and interests
thereon at the rate of 12% per annum, respondents prayed for the grant of their claims
for moral and exemplary damages as well as attorney’s fees and the costs.10
Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7
September 1999 answer alleging that the delay in the completion of the project was
attributable to the economic crisis which affected the country at the time; that the
unexpected and unforeseen inflation as well as increase in interest rates and cost of
building materials constitute force majeure and were beyond its control; that aware of its
responsibilities, it offered several alternatives to its buyers like respondents for a
transfer of their investment to its other feasible projects and for the amounts they
already paid to be considered as partial payment for the replacement unit/s; and, that
the complaint was prematurely filed in view of the on-going negotiations it is undertaking
with its buyers and prospective joint venture partners. Aside from the dismissal of the
complaint, PPGI sought the readjustment of the contract price and the grant of its
counterclaims for attorney’s fees and litigation expenses.11
Petitioner also specifically denied the material allegations of the complaint in separate
answer dated 5 February 200212 which it amended on 20 May 2002. Calling attention
to the fact that its prestation under the JVA consisted in contributing the property on
Page 206 of 303
which The Meditel was to be constructed, petitioner asseverated that, by the terms of
the JVA, each party was individually responsible for the marketing and sale of the units
pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI
and respondents, it did not receive any portion of the payments made by the latter; and,
that without any contributory fault and negligence on its part, PPGI breached its
undertakings under the JVA by failing to complete the condominium project. In addition
to the dismissal of the complaint and the grant of its counterclaims for exemplary
damages, attorney’s fees, litigation expenses and the costs, petitioner interposed a
cross-claim against PPGI for full reimbursement of any sum it may be adjudged liable to
pay respondents.13
Acting on the position papers and draft decisions subsequently submitted by the
parties,14 Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to
render the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and
rescinded on account of the non-completion of the condominium project. On the ground
that the JVA created a partnership liability on their part, petitioner and PPGI, as co-
owners of the condominium project, were ordered to pay: (a) respondents’ claim for
refund of the P611,519.52 they paid, with interest at the rate of 12% per annum from 5
February 1997; (b) damages in the sum of P75,000.00; (c) attorney’s fees in the sum of
P30,000.00; (d) the costs; and, (e) an administrative fine in the sum of P10,000.00 for
violation of Sec. 20 in relation to Sec. 38 of Presidential Decree No. 957.15 Elevated to
the HLURB Board of Commissioners via the petition for review filed by petitioner,16 the
foregoing decision was modified to grant the latter’s cross-claim in the 14 September
2004 decision rendered by said administrative body’s Second Division in HLURB Case
No. REM-A-031007-0240,17 to wit:
“Wherefore, the petition for review of the respondent Corporation is

dismissed. However, the decision of the Office below dated July 30, 2003
is modified, hence, its dispositive portion shall read:
Declaring the contracts to sell, both dated February 5, 1997, as cancelled

and rescinded, and ordering the respondents to immediately pay the
complainants the following:
a. The amount of P611,519.52, with interest at the legal rate reckoned

from February 5, 1997 until fully paid;
b. Damages of P75,000.00;
c. Attorney’s fees equivalent to P30,000.00; and
d. The Cost of suit;
2. Ordering respondents to pay this Office administrative fine of

P10,000.00 for violation of Section 20 in relation to Section 38 of P.D.
957; and
Page 207 of 303
3. Ordering respondent Primetown to reimburse the entire amount which
the respondent Corporation will be constrained to pay the complainants.
So ordered.
With the denial of its motion for reconsideration of the foregoing decision,19 petitioner
filed a Notice of Appeal dated 28 February 2005 which was docketed before the Office
of the President (OP) as O.P. Case No. 05-B-072.20 On 3 March 2005, the OP issued
an order directing petitioner to submit its appeal memorandum within 15 days from
receipt thereof.21 Acting on the motion therefor filed, the OP also issued another order
on the same date, granting petitioner a period of 15 days from 28 February 2005 or until
15 March 2005 within which to file its appeal memorandum.22 In view of petitioner’s
filing of a second motion for extension dated 15 March 2005,23 the OP issued the 18
March 2005 order granting the former an additional 10 days from 15 March 2005 or until
25 March 2005 within which to file its appeal memorandum, “provided no further
extension shall be allowed.”24 Claiming to have received the aforesaid 3 March 2005
order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion
seeking yet another extension of 10 days or until 10 April 2005 within which to file its
appeal memorandum.25
On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner26 which eventually filed its appeal memorandum by registered
mail on 11 April 2005 in view of the fact that 10 April 2005 fell on a Sunday.27 On 25
October 2005, the OP rendered a decision dismissing petitioner’s appeal on the ground
that the latter’s appeal memorandum was filed out of time and that the HLURB Board
committed no grave abuse of discretion in rendering the appealed decision.28
Aggrieved by the denial of its motion for reconsideration of the foregoing decision in the
3 March 2006 order issued by the OP,29 petitioner filed before the CA its 29 March
2006 motion for an extension of 15 days from 31 March 2006 or until 15 April 2006
within which to file its petition for review.30 Accordingly, a non-extendible period of 15
days to file its petition for review was granted petitioner in the 31 March 2006 resolution
issued by the CA Third Division in CA-G.R, SP No. 93841.31
Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented
its counsel from finalizing its petition for review, petitioner filed a motion on 17 April
2006, seeking for an additional time of 10 days or until 27 April 2006 within which to file
said pleading.32 Although petitioner filed by registered mail a motion to admit its
attached petition for review on 19 April 2006,33 the CA issued the herein assailed 23
May 2006 resolution,34 disposing of the former’s pending motion for extension as well
as the petition itself in the following wise:
“We resolve to DENY the second extension motion and rule to DISMISS
the petition for being filed late.
Page 208 of 303
Settled is that heavy workload is by no means excusable (Land Bank of
the Philippines vs. Natividad, 458 SCRA 441 [2005]). If the failure of the
petitioners’ counsel to cope up with heavy workload should be considered
a valid justification to sidestep the reglementary period, there would be no
end to litigations so long as counsel had not been sufficiently diligent or
experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-
260 [2005], citing Sublay vs. National Labor Relations Commission, 324
SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for extension or
postponement will be granted the length of time they pray for (Ramos vs.
Dajoyag, 378 SCRA 229 [2002]).SO ORDERED.”35
Petitioner’s motion for reconsideration of the foregoing resolution36 was denied for lack
of merit in the CA’s second assailed 9 August 2006 resolution,37 hence, this petition.
The Issues
Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:
I.
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE

TECHNICALITY;
II.
THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON

THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENT’S
DECISION (A) DISMISSING JTIC’S APPEAL ON A MERE TECHNICALITY; (B)
AFFIRMING THE HLURB BOARD’S DECISION INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES,
ATTORNEY’S FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE
HLURB BOARD’S DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS
COUNTERCLAIMS AGAINST SPOUSES ANG.38
The Court’s Ruling
We find the petition bereft of merit.
While the dismissal of an appeal on purely technical grounds is concededly frowned

upon,39 it bears emphasizing that the procedural requirements of the rules on appeal
are not harmless and trivial technicalities that litigants can just discard and disregard at
will.40 Neither being a natural right nor a part of due process, the rule is settled that the
right to appeal is merely a statutory privilege which may be exercised only in the
manner and in accordance with the provisions of the law.41 The perfection of an appeal
in the manner and within the period prescribed by law is, in fact, not only mandatory but
Page 209 of 303
jurisdictional.42 Considering that they are requirements which cannot be trifled with as
mere technicality to suit the interest of a party,43 failure to perfect an appeal in the
prescribed manner has the effect of rendering the judgment final and executory.44
Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit and
dismissing its petition for review for having been filed out of time. Acting on the 29
March 2006 motion filed for the purpose, after all, the CA had already granted petitioner
an inextendible period of 15 days from 31 March 2006 or until 15 April 2006 within
which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure
provides as follows:
“Sec. 4. Period of appeal.—The appeal shall be taken within fifteen (15) days from
notice of the award, judgment, final order or resolution, or from the date of its last
publication, if publication is required by law for its effectivity, or of the denial of
petitioner’s motion for new trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. Only one (1) motion for reconsideration
shall be allowed. Upon proper motion and payment of the full amount of the docket fee
before the expiration of the reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days only within which to file the petition for review. No
further extension shall be granted except for the most compelling reason and in no case
to exceed fifteen (15) days.” (Underscoring supplied)
The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10 days
from 17 April 2006 within which to file its petition for review, on the ground that
pressures of work and the demands posed by equally important cases prevented its
counsel from finalizing the same. As correctly ruled by the CA, however, heavy
workload cannot be considered as a valid justification to sidestep the reglementary
period45 since to do so would only serve to encourage needless delays and
interminable litigations. Indeed, rules prescribing the time for doing specific acts or for
taking certain proceedings are considered absolutely indispensable to prevent needless
delays and to orderly and promptly discharge judicial business.46 Corollary to the
principle that the allowance or denial of a motion for extension of time is addressed to
the sound discretion of the court,47 moreover, lawyers cannot expect that their motions
for extension or postponement will be granted48 as a matter of course.
Although technical rules of procedure are not ends in themselves, they are necessary
for an effective and expeditious administration of justice and cannot, for said reason, be
discarded with the mere expediency of claiming substantial merit.49 This holds
particularly true in the case at bench where, prior to the filing of its petition for review
before the CA, petitioner’s appeal before the OP was likewise dismissed in view of its
failure to file its appeal memorandum within the extensions of time it had been granted
by said office. After being granted an initial extension of 15 days to do the same, the
Page 210 of 303
records disclose that petitioner was granted by the OP a second extension of 10 days
from 15 March 2005 or until 25 March 2005 within which to file its appeal memorandum,
on the condition that no further extensions shall be allowed. Aside from not heeding said
proviso, petitioner had, consequently, no more time to extend when it filed its 31 March
2005 motion seeking yet another extension of 10 days or until 10 April 2005 within
which to file its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day extension granted by the
CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure
against further extensions “except for the most compelling reason”, it was clearly
inexcusable for petitioner to expediently plead its counsel’s heavy workload as ground
for seeking an additional extension of 10 days within which to file its petition for review.
To our mind, petitioner would do well to remember that, rather than the low gate to
which parties are unreasonably required to stoop, procedural rules are designed for the
orderly conduct of proceedings and expeditious settlement of cases in the courts of law.
Like all rules, they are required to be followed50 and utter disregard of the same cannot
be expediently rationalized by harping on the policy of liberal construction51 which was
never intended as an unfettered license to disregard the letter of the law or, for that
matter, a convenient excuse to substitute substantial compliance for regular adherence
thereto. When it comes to compliance with time rules, the Court cannot afford
inexcusable delay.52
Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for
respondents’ claims and the P10,000.00 administrative fine imposed pur suant to
Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it
appears that petitioner not only retained ownership of the property pending completion
of the condominium project53 but had also bound itself to answer liabilities proceeding
from contracts entered into by PPGI with third parties. Article VIII, Section 1 of the JVA
distinctly provides as follows:
“Section 1. Rescission and damages.—Non-performance by either party

of its obligations under this Agreement shall be excused when the same is
due to Force Majeure. In such cases, the defaulting party must exercise
due diligence to minimize the breach and to remedy the same at the
soonest possible time. In the event that either party defaults or breaches
any of the provisions of this Agreement other than by reason of Force
Majeure, the other party shall have the right to terminate this Agreement
by giving notice to the defaulting party, without prejudice to the filing of a
civil case for damages arising from the breach of the defaulting party.
In the event that the Developer shall be rendered unable to complete the Condominium
Project, and such failure is directly and solely attributable to the Developer, the Owner
shall send written notice to the Developer to cause the completion of the Condominium
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Project. If the developer fails to comply within One Hundred Eighty (180) days from
such notice or, within such time, indicates its incapacity to complete the Project, the
Owner shall have the right to take over the construction and cause the completion
thereof. If the Owner exercises its right to complete the Condominium Project under
these circumstances, this Agreement shall be automatically rescinded upon written
notice to the Developer and the latter shall hold the former free and harmless from any
and all liabilities to third persons arising from such rescission. In any case, the Owner
shall respect and strictly comply with any covenant entered into by the Developer and
third parties with respect to any of its units in the Condominium Project. To enable the
owner to comply with this contingent liability, the Developer shall furnish the Owner with
a copy of its contracts with the said buyers on a month-to-month basis. Finally, in case
the Owner would be constrained to assume the obligations of the Developer to its own
buyers, the Developer shall lose its right to ask for indemnity for whatever it may have
spent in the Development of the Project.
Nevertheless, with respect to the buyers of the Developer for the First Phase, the area
intended for the Second Phase shall not be bound and/or subjected to the said
covenants and/or any other liability incurred by the Developer in connection with the
development of the first phase.” (Underscoring supplied)
Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability
by claiming that it was not in any way privy to the Contracts to Sell executed by PPGI
and respondents. As correctly argued by the latter, moreover, a joint venture is
considered in this jurisdiction as a form of partnership and is, accordingly, governed by
the law of partnerships.54 Under Article 1824 of the Civil Code of the Philippines, all
partners are solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties incurred due to
any wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners.55 Whether innocent or guilty,
all the partners are solidarily liable with the partnership itself.56
WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.SO ORDERED.
Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De Castro and Mendoza,** JJ.,
concur.
Petition denied.
Note.—Under a contract of partnership, two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves; While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin to a particular partnership. (Philex
Mining Corporation vs. Commissioner of Internal Revenue, 551 SCRA 428 [2008])
Page 212 of 303
Page 213 of 303

NARRA Nickel Mining vs RedMonth Consolidate Mines Corp GR 195580 April 21, 2014
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND

DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra
Nickel and Mining Development Corp. (Narra), Tesoro Mining and Development, Inc.
(Tesoro), and McArthur Mining Inc. (McArthur), which seeks to reverse the October 1,
2010 Decision1 and the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp.

(Redmont), a domestic corporation organized and existing under Philippine laws, took
interest in mining and exploring certain areas of the province of Palawan. After inquiring
with the Department of Environment and Natural Resources (DENR), it learned that the
areas where it wanted to undertake exploration and mining activities where already
covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI),
filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-
Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and
Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782

hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and
EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao,
Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining
Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which
previously filed an application for an MPSA with the MGB, Region IV-B, DENR on
January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12
covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality
of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its
rights and interests over the MPSA application in favor of Narra.
Page 214 of 303

Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as
MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao
and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently
conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR
three (3) separate petitions for the denial of petitioners’ applications for MPSA
designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur,
Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100%
Canadian corporation. Redmont reasoned that since MBMI is a considerable
stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs
over the areas covered by applications since it knows that it can only participate in
mining activities through corporations which are deemed Filipino citizens. Redmont
argued that given that petitioners’ capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs, which are
reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section
3(aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which
provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms,
whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or
a corporation, partnership, association, or cooperative organized or authorized for the
purpose of engaging in mining, with technical and financial capability to undertake
mineral resources development and duly registered in accordance with law at least sixty
per cent (60%) of the capital of which is owned by citizens of the Philippines: Provided,
That a legally organized foreign-owned corporation shall be deemed a qualified person
for purposes of granting an exploration permit, financial or technical assistance
agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they
also applied for Financial or Technical Assistance Agreements (FTAA) denominated as
AFTA-IVB-09 for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which
are granted to foreign-owned corporations. Nevertheless, they claimed that the issue on
nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the Philippines. They asserted
that though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of
Narra),3 40% of the shares of MMC (which owns 5,997 shares of McArthur) 4 and 40% of
the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro), 5 the shares of MBMI
will not make it the owner of at least 60% of the capital stock of each of petitioners.
They added that the best tool used in determining the nationality of a corporation is the
Page 215 of 303
"control test," embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991.
They also claimed that the POA of DENR did not have jurisdiction over the issues in
Redmont’s petition since they are not enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to sue them because it has no pending claim
or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from
gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in
mining activities. On the other hand, [Redmont] having filed its own applications for an
EPA over the areas earlier covered by the MPSA application of respondents may be
considered if and when they are qualified under the law. The violation of the
requirements for the issuance and/or grant of permits over mining areas is clearly
established thus, there is reason to believe that the cancellation and/or revocation of
permits already issued under the premises is in order and open the areas covered to
other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc.,
Tesoro Mining and Development, Inc., and Narra Nickel Mining and Development Corp.
as, DISQUALIFIED for being considered as Foreign Corporations. Their Mineral
Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND
VOID.6
The POA considered petitioners as foreign corporations being "effectively controlled" by

MBMI, a 100% Canadian company and declared their MPSAs null and void. In the
same Resolution, it gave due course to Redmont’s EPAs. Thereafter, on February 7,
2008, the POA issued an Order7 denying the Motion for Reconsideration filed by
petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint
Notice of Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board
(MAB) while Narra separately filed its Notice of Appeal 10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons
under the law. Also, through a letter, they informed the MAB that they had their
individual MPSA applications converted to FTAAs. McArthur’s FTAA was denominated
as AFTA-IVB-0912 on May 2007, while Tesoro’s MPSA application was converted to
AFTA-IVB-0813 on May 28, 2007, and Narra’s FTAA was converted to AFTA-IVB-0714
on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange Commission (SEC), seeking the
revocation of the certificates for registration of petitioners on the ground that they are
foreign-owned or controlled corporations engaged in mining in violation of Philippine
laws. Thereafter, Redmont filed on September 1, 2008 a Manifestation and Motion to
Page 216 of 303

Suspend Proceeding before the MAB praying for the suspension of the proceedings on
the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of
Quezon City, Branch 92 (RTC) a Complaint16 for injunction with application for issuance
of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as
Civil Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings
pending the resolution of the Complaint before the SEC.
But before the RTC can resolve Redmont’s Complaint and applications for injunctive
reliefs, the MAB issued an Order on September 10, 2008, finding the appeal
meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby

REVERSES and SETS ASIDE the Resolution dated 14 December 2007 of the Panel of
Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02
and 2007-03, and its Order dated 07 February 2008 denying the Motions for
Reconsideration of the Appellants. The Petition filed by Redmont Consolidated Mines
Corporation on 02 January 2007 is hereby ordered DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmont’s
application for a TRO and setting the case for hearing the prayer for the issuance of a
writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of

the September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental
Motion for Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s Motion for Reconsideration and Supplemental
Motion for Reconsideration, Redmont filed before the RTC a Supplemental Complaint 21
in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the issuance of a writ of
preliminary injunction enjoining the MAB from finally disposing of the appeals of
petitioners and from resolving Redmont’s Motion for Reconsideration and Supplement
Motion for Reconsideration of the MAB’s September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmont’s Motion
for Reconsideration and Supplemental Motion for Reconsideration and resolving the
appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders
issued by the MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of
which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated

September 10, 2008 and July 1, 2009 of the Mining Adjudication Board are reversed
and set aside. The findings of the Panel of Arbitrators of the Department of Environment
and Natural Resources that respondents McArthur, Tesoro and Narra are foreign
Page 217 of 303
corporations is upheld and, therefore, the rejection of their applications for Mineral
Product Sharing Agreement should be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for
Financial or Technical Assistance Agreement (FTAA) or conversion of their MPSA
applications to FTAA, the matter for its rejection or approval is left for determination by
the Secretary of the DENR and the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration
filed by petitioners.
After a careful review of the records, the CA found that there was doubt as to the
nationality of petitioners when it realized that petitioners had a common major investor,
MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of
paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting
the 1967 SEC Rules which implemented the requirement of the Constitution and other
laws pertaining to the exploitation of natural resources, the CA used the "grandfather
rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is

owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares
shall be recorded as belonging to aliens.24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures
and their corresponding common shareholders. Using the grandfather rule, the CA
discovered that MBMI in effect owned majority of the common stocks of the petitioners
as well as at least 60% equity interest of other majority shareholders of petitioners
through joint venture agreements. The CA found that through a "web of corporate
layering, it is clear that one common controlling investor in all mining corporations
involved x x x is MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into
FTAA applications suspicious in nature and, as a consequence, it recommended the
rejection of petitioners’ MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out
that the POA has jurisdiction over them and that it also has the power to determine the
of nationality of petitioners as a prerequisite of the Constitution prior the conferring of
rights to "co-production, joint venture or production-sharing agreements" of the state to
Page 218 of 303
mining rights. However, it also stated that the POA’s jurisdiction is limited only to the
resolution of the dispute and not on the approval or rejection of the MPSAs. It stipulated
that only the Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution
which considered petitioners McArthur, Tesoro and Narra as foreign corporations.
Nevertheless, the CA determined that the POA’s declaration that the MPSAs of
McArthur, Tesoro and Narra are void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the
President (OP) a petition dated May 7, 2010 seeking the cancellation of petitioners’
FTAAs. The OP rendered a Decision26 on April 6, 2011, wherein it canceled and
revoked petitioners’ FTAAs for violating and circumventing the "Constitution x x x[,] the
Small Scale Mining Law and Environmental Compliance Certificate as well as Sections
3 and 8 of the Foreign Investment Act and E.O. 584." 27 The OP, in affirming the
cancellation of the issued FTAAs, agreed with Redmont stating that petitioners
committed violations against the abovementioned laws and failed to submit evidence to
negate them. The Decision further quoted the December 14, 2007 Order of the POA
focusing on the alleged misrepresentation and claims made by petitioners of being
domestic or Filipino corporations and the admitted continued mining operation of PMDC
using their locally secured Small Scale Mining Permit inside the area earlier applied for
an MPSA application which was eventually transferred to Narra. It also agreed with the
POA’s estimation that the filing of the FTAA applications by petitioners is a clear
admission that they are "not capable of conducting a large scale mining operation and
that they need the financial and technical assistance of a foreign entity in their
operation, that is why they sought the participation of MBMI Resources, Inc." 28 The
Decision further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of the case
only demonstrate the violations and lack of qualification of the respondent corporations
to engage in mining. The filing of the FTAA application conversion which is allowed
foreign corporation of the earlier MPSA is an admission that indeed the respondent is
not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head office in
Canada suggest that they are conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on Certiorari
of the OP’s Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409.
In the CA Decision dated February 29, 2012, the CA affirmed the Decision and
Resolution of the OP. Thereafter, petitioners appealed the same CA decision to this
Court which is now pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA.
Petitioners put forth the following errors of the CA:
I.
Page 219 of 303
The Court of Appeals erred when it did not dismiss the case for mootness
despite the fact that the subject matter of the controversy, the MPSA
Applications, have already been converted into FTAA applications and that the
same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of
jurisdiction considering that the Panel of Arbitrators has no jurisdiction to
determine the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of
Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly the
express mandate of the Foreign Investments Act of 1991, as amended, and the
FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios
acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA
Applications into FTAA Applications were of "suspicious nature" as the same is
based on mere conjectures and surmises without any shred of evidence to show
the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is
without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a

justiciable controversy by virtue of supervening events, so that a declaration thereon
would be of no practical use or value."32 Thus, the courts "generally decline jurisdiction
over the case or dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere
raising of an issue of "mootness" will not deter the courts from trying a case when there
Page 220 of 303
is a valid reason to do so. In David v. Macapagal-Arroyo (David), the Court provided
four instances where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public interest is
involved;
3.) When constitutional issue raised requires formulation of controlling principles

to guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review. 34
All of the exceptions stated above are present in the instant case. We of this Court note
that a grave violation of the Constitution, specifically Section 2 of Article XII, is being
committed by a foreign corporation right under our country’s nose through a myriad of
corporate layering under different, allegedly, Filipino corporations. The intricate
corporate layering utilized by the Canadian company, MBMI, is of exceptional character
and involves paramount public interest since it undeniably affects the exploitation of our
Country’s natural resources. The corresponding actions of petitioners during the lifetime
and existence of the instant case raise questions as what principle is to be applied to
cases with similar issues. No definite ruling on such principle has been pronounced by
the Court; hence, the disposition of the issues or errors in the instant case will serve as
a guide "to the bench, the bar and the public."35 Finally, the instant case is capable of
repetition yet evading review, since the Canadian company, MBMI, can keep on utilizing
dummy Filipino corporations through various schemes of corporate layering and
conversion of applications to skirt the constitutional prohibition against foreign mining in
Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by
petitioners since both involve the conversion of MPSA applications to FTAA
applications. Petitioners propound that the CA erred in ruling against them since the
questioned MPSA applications were already converted into FTAA applications; thus, the
issue on the prohibition relating to MPSA applications of foreign mining corporations is
academic. Also, petitioners would want us to correct the CA’s finding which deemed the
aforementioned conversions of applications as suspicious in nature, since it is based on
mere conjectures and surmises and not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners after the case was filed against them by
respondent is on point. The changing of applications by petitioners from one type to
another just because a case was filed against them, in truth, would raise not a few
sceptics’ eyebrows. What is the reason for such conversion? Did the said conversion
not stem from the case challenging their citizenship and to have the case dismissed
against them for being "moot"? It is quite obvious that it is petitioners’ strategy to have
the case dismissed against them for being "moot."
Page 221 of 303
Consider the history of this case and how petitioners responded to every action done by
the court or appropriate government agency: on January 2, 2007, Redmont filed three
separate petitions for denial of the MPSA applications of petitioners before the POA. On
June 15, 2007, petitioners filed a conversion of their MPSA applications to FTAAs. The
POA, in its December 14, 2007 Resolution, observed this suspect change of
applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear

admission that the respondents are not capable of conducting a large scale mining
operation and that they need the financial and technical assistance of a foreign entity in
their operation that is why they sought the participation of MBMI Resources, Inc. The
participation of MBMI in the corporation only proves the fact that it is the Canadian
company that will provide the finances and the resources to operate the mining areas
for the greater benefit and interest of the same and not the Filipino stockholders who
only have a less substantial financial stake in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the
case only demonstrate the violations and lack of qualification of the respondent
corporations to engage in mining. The filing of the FTAA application conversion which is
allowed foreign corporation of the earlier MPSA is an admission that indeed the
respondent is not Filipino but rather of foreign nationality who is disqualified under the
laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in their
head office in Canada suggest that they are conducting operation only through their
local counterparts.36
On October 1, 2010, the CA rendered a Decision which partially granted the petition,
reversing and setting aside the September 10, 2008 and July 1, 2009 Orders of the
MAB. In the said Decision, the CA upheld the findings of the POA of the DENR that the
herein petitioners are in fact foreign corporations thus a recommendation of the
rejection of their MPSA applications were recommended to the Secretary of the DENR.
With respect to the FTAA applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination of the Secretary of the DENR
and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the
dismissal of the petition asserting that on April 5, 2010, then President Gloria
Macapagal-Arroyo signed and issued in their favor FTAA No. 05-2010-IVB, which
rendered the petition moot and academic. However, the CA, in a Resolution dated
February 15, 2011 denied their motion for being a mere "rehash of their claims and
defenses."38 Standing firm on its Decision, the CA affirmed the ruling that petitioners
are, in fact, foreign corporations. On April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under Rule 45, questioning the Decision of the
CA. Interestingly, the OP rendered a Decision dated April 6, 2011, a day after this
petition for review was filed, cancelling and revoking the FTAAs, quoting the Order of
the POA and stating that petitioners are foreign corporations since they needed the
financial strength of MBMI, Inc. in order to conduct large scale mining operations. The
OP Decision also based the cancellation on the misrepresentation of facts and the
Page 222 of 303
violation of the "Small Scale Mining Law and Environmental Compliance Certificate as
well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 39 On July 6,
2011, the OP issued a Resolution, denying the Motion for Reconsideration filed by the
petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the
Court the fact of the OP’s Decision and Resolution. In their Reply, petitioners chose to
ignore the OP Decision and continued to reuse their old arguments claiming that they
were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and
Submission dated October 19, 2012,40 wherein they asserted that the present petition is
moot since, in a remarkable turn of events, MBMI was able to sell/assign all its
shares/interest in the "holding companies" to DMCI Mining Corporation (DMCI), a
Filipino corporation and, in effect, making their respective corporations fully-Filipino
owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed
for being "moot." Their final act, wherein MBMI was able to allegedly sell/assign all its
shares and interest in the petitioner "holding companies" to DMCI, only proves that they
were in fact not Filipino corporations from the start. The recent divesting of interest by
MBMI will not change the stand of this Court with respect to the nationality of petitioners
prior the suspicious change in their corporate structures. The new documents filed by
petitioners are factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that
petitioner corporations have violated several mining laws and made misrepresentations
and falsehood in their applications for FTAA which lead to the revocation of the said
FTAAs, demonstrating that petitioners are not beyond going against or around the law
using shifty actions and strategies. Thus, in this instance, we can say that their claim of
mootness is moot in itself because their defense of conversion of MPSAs to FTAAs has
been discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners’ nationality, whether
Filipino or foreign. In their previous petitions, they had been adamant in insisting that
they were Filipino corporations, until they submitted their Manifestation and Submission
dated October 19, 2012 where they stated the alleged change of corporate ownership to
reflect their Filipino ownership. Thus, there is a need to determine the nationality of
petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality of a

corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No.
020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement
of the Constitution and other laws pertaining to the controlling interests in enterprises
engaged in the exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is

owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only
Page 223 of 303
the number of shares corresponding to such percentage shall be counted as of
Philippine nationality. Thus, if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital stock or capital, respectively, of
which belong to Filipino citizens, all of the shares shall be recorded as owned by
Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the
corporation or partnership, respectively, belongs to Filipino citizens, only 50,000 shares
shall be counted as owned by Filipinos and the other 50,000 shall be recorded as
belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality," pertains to the control test or
the liberal rule. On the other hand, the second part of the DOJ Opinion which provides,
"if the percentage of the Filipino ownership in the corporation or partnership is less than
60%, only the number of shares corresponding to such percentage shall be counted as
Philippine nationality," pertains to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the
application of the "control test" under RA 7042, as amended by RA 8179, otherwise
known as the Foreign Investments Act (FIA), rather than using the stricter grandfather
rule. The pertinent provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by the citizens of the Philippines; a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation benefits, where the trustee
is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That were a corporation and its non-Filipino
stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to
vote of each of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent (60%) of the members of the Board of Directors, in order that
the corporation shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case
since the definition of a "Philippine National" under Sec. 3 of the FIA does not provide
for it. They further claim that the grandfather rule "has been abandoned and is no longer
the applicable rule."41 They also opined that the last portion of Sec. 3 of the FIA admits
the application of a "corporate layering" scheme of corporations. Petitioners claim that
the clear and unambiguous wordings of the statute preclude the court from construing it
and prevent the court’s use of discretion in applying the law. They said that the plain,
literal meaning of the statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to

circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the
Page 224 of 303

pronouncement of petitioners that the grandfather rule has already been abandoned
must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. In such agreements, the State shall promote the
development and use of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different
types of agreements for the exploration, development, and utilization of natural
resources with entities who are deemed Filipino due to 60 percent ownership of capital
is pertinent to this case, since the issues are centered on the utilization of our country’s
natural resources or specifically, mining. Thus, there is a need to ascertain the
nationality of petitioners since, as the Constitution so provides, such agreements are
only allowed corporations or associations "at least 60 percent of such capital is owned
by such citizens." The deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairman’s interpretation of an independent
national economy is freedom from undue foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national
sovereignty and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not
simply freedom from foreign control? I think that is the meaning of independence,
because as phrased, it still allows for foreign control.
Page 225 of 303

MR. VILLEGAS: It will now depend on the interpretation because if, for example, we
retain the 60/40 possibility in the cultivation of natural resources, 40 percent involves
some control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity
and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: ‘Where do we
base the equity requirement, is it on the authorized capital stock, on the subscribed
capital stock, or on the paid-up capital stock of a corporation’? Will the Committee
please enlighten me on this?
MR. VILLEGAS: We have just had a long discussion with the members of the team from
the UP Law Center who provided us with a draft. The phrase that is contained here
which we adopted from the UP draft is ‘60 percent of the voting stock.’
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a

corporation with 60-40 percent equity invests in another corporation which is permitted
by the Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present.
Page 226 of 303

Elementary in statutory construction is when there is conflict between the Constitution
and a statute, the Constitution will prevail. In this instance, specifically pertaining to the
provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3
of the FIA will have no place of application. As decreed by the honorable framers of our
Constitution, the grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest
in a corporation for purposes, among others, of determining compliance with nationality
requirements (the ‘Investee Corporation’). Such manner of computation is necessary
since the shares in the Investee Corporation may be owned both by individual
stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing
Corporation’). The said rules thus provide for the determination of nationality depending
on the ownership of the Investee Corporation and, in certain instances, the Investing
Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality
of the Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC
as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality.’ Under the liberal Control Test, there is no need
to further trace the ownership of the 60% (or more) Filipino stockholdings of the
Investing Corporation since a corporation which is at least 60% Filipino-owned is
considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the
portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage
of Filipino ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as of Philippine
nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in
the Investing Corporation and the Investee Corporation must be traced (i.e.,
"grandfathered") to determine the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level
of the Investing Corporation and added to the shares directly owned in the Investee
Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or
the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and
foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other
joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino).
Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis supplied)
Page 227 of 303

After a scrutiny of the evidence extant on record, the Court finds that this case calls for
the application of the grandfather rule since, as ruled by the POA and affirmed by the
OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found
by the CA, doubt is present in the 60-40 Filipino equity ownership of petitioners Narra,
McArthur and Tesoro, since their common investor, the 100% Canadian corporation––
MBMI, funded them. However, petitioners also claim that there is "doubt" only when the
stockholdings of Filipinos are less than 60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less
than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in
their petition, only made an example of an instance where "doubt" as to the ownership
of the corporation exists. It would be ludicrous to limit the application of the said word
only to the instances where the stockholdings of non-Filipino stockholders are more
than 40% of the total stockholdings in a corporation. The corporations interested in
circumventing our laws would clearly strive to have "60% Filipino Ownership" at face
value. It would be senseless for these applying corporations to state in their respective
articles of incorporation that they have less than 60% Filipino stockholders since the
applications will be denied instantly. Thus, various corporate schemes and layerings are
utilized to circumvent the application of the Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Court’s mind. To
determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather
rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of

petitioners’ corporate structure, they have to be "grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which
acquired its application from SMMI. McArthur has a capital stock of ten million pesos
(PhP 10,000,000) divided into 10,000 common shares at one thousand pesos (PhP
1,000) per share, subscribed to by the following: 44
Name Nationality Number of Amount Amount Paid

Shares Subscribed
Madridejos Filipino 5,997 PhP PhP 825,000.00

Mining 5,997,000.00
Corporation
MBMI Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60

Resources,
Inc.
Page 228 of 303

Lauro L. Filipino 1 PhP 1,000.00 PhP 1,000.00
Salazar
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00

Esguerra
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agcaoili
Michael T. American 1 PhP 1,000.00 PhP 1,000.00

Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00

Cawkell
Total 10,000 PhP PhP 2,708,174.60

10,000,000.00 (emphasis
supplied)
Interestingly, looking at the corporate structure of MMC, we take note that it has a
similar structure and composition as McArthur. In fact, it would seem that MBMI is also
a major investor and "controls"45 MBMI and also, similar nominal shareholders were
present, i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T.
Mason (Mason) and Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
Name Nationality Number of Amount Amount Paid

Shares Subscribed
Olympic Mines Filipino 6,663 PhP PhP 0

& 6,663,000.00
Development
Corp.
MBMI Canadian 3,331 PhP PhP 2,803,900.00
Resources, 3,331,000.00
Inc.
Page 229 of 303

Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Hernando
Mason

Cawkell
Total 10,000 PhP PhP 2,809,900.00

10,000,000.00
(emphasis
supplied)
Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any
amount with respect to the number of shares they subscribed to in the corporation,
which is quite absurd since Olympic is the major stockholder in MMC. MBMI’s 2006
Annual Report sheds light on why Olympic failed to pay any amount with respect to the
number of shares it subscribed to. It states that Olympic entered into joint venture
agreements with several Philippine companies, wherein it holds directly and indirectly a
60% effective equity interest in the Olympic Properties.46 Quoting the said Annual
report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation
("Olympic") entered into a series of agreements including a Property Purchase and
Development Agreement (the Transaction Documents) with respect to three nickel
laterite properties in Palawan, Philippines (the "Olympic Properties"). The Transaction
Documents effectively establish a joint venture between the Company and Olympic for
purposes of developing the Olympic Properties. The Company holds directly and
indirectly an initial 60% interest in the joint venture. Under certain circumstances and
upon achieving certain milestones, the Company may earn up to a 100% interest,
subject to a 2.5% net revenue royalty. 47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered,"

company layering was utilized by MBMI to gain control over McArthur. It is apparent that
MBMI has more than 60% or more equity interest in McArthur, making the latter a
foreign corporation.
Page 230 of 303
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten
million pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at
PhP 1,000 per share, as demonstrated below:
[[reference =
http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2014/april2014/19558
0.pdf]]
Name Nationality Number Amount Amount Paid

of
Subscribed
Shares
Sara Marie Filipino 5,997 PhP PhP 825,000.00

5,997,000.00
Mining, Inc.
MBMI Canadian 3,998 PhP PhP

3,998,000.00 1,878,174.60
Resources,
Inc.
Lauro L. Filipino 1 PhP 1,000.00 PhP 1,000.00

Salazar
Esguerra
Agcaoili

Mason

Cawkell
Total 10,000 PhP PhP

10,000,000.00 2,708,174.60
Page 231 of 303

(emphasis
supplied)
Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same
figures as the corporate structure of petitioner McArthur, down to the last centavo. All
the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and
Cawkell. The figures under "Nationality," "Number of Shares," "Amount Subscribed,"
and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI’s
corporate structure:
Sara Marie Mining, Inc.
[[reference =
0.pdf]]

of
Subscribed
Shares
Olympic Mines Filipino 6,663 PhP PhP 0

& 6,663,000.00
Development
Corp.

Resources, 3,331,000.00 2,794,000.00
Inc.
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Lauro Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
Hernando
Page 232 of 303

Mason

Cawkell

10,000,000.00 2,809,900.00
(emphasis
supplied)
After subsequently studying SMMI’s corporate structure, it is not farfetched for us to

spot the glaring similarity between SMMI and MMC’s corporate structure. Again, the
presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly
the same except for the amount paid by MBMI which now reflects the amount of two
million seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total
value of the amount paid is two million eight hundred nine thousand nine hundred pesos
(PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympic’s

participation in SMMI’s corporate structure, it is clear that MBMI is in control of Tesoro
and owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a non-
Filipino corporation and, thus, disqualifies it to participate in the exploitation, utilization
and development of our natural resources.
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of
PLMDC’s MPSA application, whose corporate structure’s arrangement is similar to that
of the first two petitioners discussed. The capital stock of Narra is ten million pesos
(PhP 10,000,000), which is divided into ten thousand common shares (10,000) at one
thousand pesos (PhP 1,000) per share, shown as follows:
[[reference =
0.pdf]]

of
Subscribed
Shares
Page 233 of 303

Patricia Louise Filipino 5,997 PhP PhP
5,997,000.00 1,677,000.00
Mining &
Development
Corp.

3,996,000.00 1,116,000.00
Resources,
Inc.
Higinio C. Filipino 1 PhP 1,000.00 PhP 1,000.00
Mendoza, Jr.
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernandez
Agcaoili
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Bocalan
Bayani H. Filipino 1 PhP 1,000.00 PhP 1,000.00

Agabin
Robert L. American 1 PhP 1,000.00 PhP 1,000.00
McCurdy

Cawkell

10,000,000.00 2,800,000.00
(emphasis
supplied)
Page 234 of 303

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and
Esguerra, is present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDC’s corporate
structure:

of Shares Subscribed
Palawan Alpha South Filipino 6,596 PhP PhP 0

Resources 6,596,000.00
Development
Corporation
MBMI Resources, Canadian 3,396 PhP PhP

3,396,000.00 2,796,000.00
Inc.
Higinio C. Mendoza, Filipino 1 PhP 1,000.00 PhP 1,000.00
Jr.
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00

10,000,000.00 2,708,174.60
(emphasis
supplied)
Page 235 of 303

Yet again, the usual players in petitioners’ corporate structures are present. Similarly,
the amount of money paid by the 2nd tier majority stock holder, in this case, Palawan
Alpha South Resources and Development Corp. (PASRDC), is zero.
Studying MBMI’s Summary of Significant Accounting Policies dated October 31, 2005
explains the reason behind the intricate corporate layering that MBMI immersed itself in:
JOINT VENTURES The Company’s ownership interests in various mining ventures

engaged in the acquisition, exploration and development of mineral properties in the
Philippines is described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and
interests therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and
indirectly an effective equity interest in the Olympic Property of 60.0%. Pursuant to a
shareholders’ agreement, the Company exercises joint control over the companies in
the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests
therein, are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective
equity interest in the Alpha Property of 60.4%. Pursuant to a shareholders’ agreement,
the Company exercises joint control over the companies in the Alpha Group.48
(emphasis supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur,
Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns
60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and
adding to the picture, MBMI’s Summary of Significant Accounting Policies statement– –
regarding the "joint venture" agreements that it entered into with the "Olympic" and
Page 236 of 303
"Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership
of the "layered" corporations boils down to MBMI, Olympic or corporations under the
"Alpha" group wherein MBMI has joint venture agreements with, practically exercising
majority control over the corporations mentioned. In effect, whether looking at the
capital structure or the underlying relationships between and among the corporations,
petitioners are NOT Filipino nationals and must be considered foreign since 60% or
more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the exception of the res inter alios acta or the
"admission by co-partner or agent" rule and "admission by privies" under the Rules of
Court in the instant case, by pointing out that statements made by MBMI should not be
admitted in this case since it is not a party to the case and that it is not a "partner" of
petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent
of the party within the scope of his authority and during the existence of the partnership
or agency, may be given in evidence against such party after the partnership or agency
is shown by evidence other than such act or declaration itself. The same rule applies to
the act or declaration of a joint owner, joint debtor, or other person jointly interested with
the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the
act, declaration, or omission of the latter, while holding the title, in relation to the
property, is evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the
partnership relation must be shown, and that proof of the fact must be made by
evidence other than the admission itself."49 Thus, petitioners assert that the CA erred in
finding that a partnership relationship exists between them and MBMI because, in fact,
no such partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating
that "by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and
McArthur. They challenged the conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this
particular partnership can be formed, it should have been formally reduced into writing
since the capital involved is more than three thousand pesos (PhP 3,000). Being that
there is no evidence of written agreement to form a partnership between petitioners and
MBMI, no partnership was created.
We disagree.
Page 237 of 303
A partnership is defined as two or more persons who bind themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits
among themselves.50 On the other hand, joint ventures have been deemed to be "akin"
to partnerships since it is difficult to distinguish between joint ventures and partnerships.
Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so
similar and closely akin to a partnership that it is ordinarily held that their rights, duties,
and liabilities are to be tested by rules which are closely analogous to and substantially
the same, if not exactly the same, as those which govern partnership. In fact, it has
been said that the trend in the law has been to blur the distinctions between a
partnership and a joint venture, very little law being found applicable to one that does
not apply to the other.51
Though some claim that partnerships and joint ventures are totally different animals,
there are very few rules that differentiate one from the other; thus, joint ventures are
deemed "akin" or similar to a partnership. In fact, in joint venture agreements, rules and
legal incidents governing partnerships are applied.52
Accordingly, culled from the incidents and records of this case, it can be assumed that
the relationships entered between and among petitioners and MBMI are no simple "joint
venture agreements." As a rule, corporations are prohibited from entering into
partnership agreements; consequently, corporations enter into joint venture agreements
with other corporations or partnerships for certain transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and
MBMI was executed to circumvent the legal prohibition against corporations entering
into partnerships, then the relationship created should be deemed as "partnerships,"
and the laws on partnership should be applied. Thus, a joint venture agreement
between and among corporations may be seen as similar to partnerships since the
elements of partnership are present.
Considering that the relationships found between petitioners and MBMI are considered
to be partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by
stating that "by entering into a joint venture, MBMI have a joint interest" with Narra,
Tesoro and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant
case. The POA has jurisdiction to settle disputes over rights to mining areas which
definitely involve the petitions filed by Redmont against petitioners Narra, McArthur and
Tesoro. Redmont, by filing its petition against petitioners, is asserting the right of
Filipinos over mining areas in the Philippines against alleged foreign-owned mining
corporations. Such claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision,
the panel shall have exclusive and original jurisdiction to hear and decide the following:
Page 238 of 303
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim,
protest, or opposition to an application for mineral agreement. The POA therefore has
the jurisdiction to resolve any adverse claim, protest, or opposition to a pending
application for a mineral agreement filed with the concerned Regional Office of the
MGB. This is clear from Secs. 38 and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio
announcements, the authorized officer(s) of the concerned office(s) shall issue a
certification(s) that the publication/posting/radio announcement have been complied
with. Any adverse claim, protest, opposition shall be filed directly, within thirty (30)
calendar days from the last date of publication/posting/radio announcement, with the
concerned Regional Office or through any concerned PENRO or CENRO for filing in the
concerned Regional Office for purposes of its resolution by the Panel of Arbitrators
pursuant to the provisions of this Act and these implementing rules and regulations.
Upon final resolution of any adverse claim, protest or opposition, the Panel of Arbitrators
shall likewise issue a certification to that effect within five (5) working days from the date
of finality of resolution thereof. Where there is no adverse claim, protest or opposition,
the Panel of Arbitrators shall likewise issue a Certification to that effect within five
working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section
are fully complied with and any adverse claim/protest/opposition is finally resolved by
the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel
of Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall
initially evaluate the Mineral Agreement applications in areas outside Mineral
reservations. He/She shall thereafter endorse his/her findings to the Bureau for further
evaluation by the Director within fifteen (15) working days from receipt of forwarded
documents. Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such endorsement.
Page 239 of 303

In case of Mineral Agreement applications in areas with Mineral Reservations, within
fifteen (15) working days from receipt of the Certification issued by the Panel of
Arbitrators as provided for in Section 38 hereof, the same shall be evaluated and
endorsed by the Director to the Secretary for consideration/approval within fifteen days
from receipt of such endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving rights
to mining areas" under Sec. 77(a) specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the

provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators within
the concerned periods for filing such claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of
the application on the bulletin boards of the Bureau, concerned Regional office(s) and in
the concerned province(s) and municipality(ies), copy furnished the barangays where
the proposed contract area is located once a week for two (2) consecutive weeks in a
language generally understood in the locality. After forty-five (45) days from the last
date of publication/posting has been made and no adverse claim, protest or opposition
was filed within the said forty-five (45) days, the concerned offices shall issue a
certification that publication/posting has been made and that no adverse claim, protest
or opposition of whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within forty-five (45) days
from the last date of publication/posting, with the Regional Offices concerned, or
through the Department’s Community Environment and Natural Resources Officers
(CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to be
filed at the Regional Office for resolution of the Panel of Arbitrators. However previously
published valid and subsisting mining claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless the requirements under this section are
fully complied with and any opposition/adverse claim is dealt with in writing by the
Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights
to mining areas" under Sec. 77(a) specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining rights.
Page 240 of 303

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which
reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the

provisions of Sections 28, 43 and 57 above, any adverse claim, protest or opposition
specified in said sections may also be filed directly with the Panel of Arbitrators within
the concerned periods for filing such claim, protest or opposition as specified in said
Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.-
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of
the application on the bulletin boards of the Bureau, concerned Regional office(s) and in
the concerned province(s) and municipality(ies), copy furnished the barangays where
the proposed contract area is located once a week for two (2) consecutive weeks in a
language generally understood in the locality. After forty-five (45) days from the last
date of publication/posting has been made and no adverse claim, protest or opposition
was filed within the said forty-five (45) days, the concerned offices shall issue a
certification that publication/posting has been made and that no adverse claim, protest
or opposition of whatever nature has been filed. On the other hand, if there be any
adverse claim, protest or opposition, the same shall be filed within forty-five (45) days
from the last date of publication/posting, with the Regional offices concerned, or through
the Department’s Community Environment and Natural Resources Officers (CENRO) or
Provincial Environment and Natural Resources Officers (PENRO), to be filed at the
Regional Office for resolution of the Panel of Arbitrators. However, previously published
valid and subsisting mining claims are exempted from posted/posting required under
this Section.
No mineral agreement shall be approved unless the requirements under this section are
fully complied with and any opposition/adverse claim is dealt with in writing by the
Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse
claim, opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is
confined only to adverse claims, conflicts and oppositions relating to applications for the
grant of mineral rights.
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and
oppositions and it has no authority to approve or reject said applications. Such power is
vested in the DENR Secretary upon recommendation of the MGB Director. Clearly,
POA’s jurisdiction over "disputes involving rights to mining areas" has nothing to do with
the cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to

resolve disputes over MPSA applications subject of Redmont’s petitions. However, said
jurisdiction does not include either the approval or rejection of the MPSA applications,
Page 241 of 303
which is vested only upon the Secretary of the DENR. Thus, the finding of the POA, with
respect to the rejection of petitioners’ MPSA applications being that they are foreign
corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular
courts, not the POA, that has jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the
time of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive
original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary
estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the submission of the case by the parties for
the decision, the panel shall have exclusive and original jurisdiction to hear and
decide the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes
involving rights to mining areas. One such dispute is an MPSA application to which an
adverse claim, protest or opposition is filed by another interested applicant.1âwphi1 In
the case at bar, the dispute arose or originated from MPSA applications where
petitioners are asserting their rights to mining areas subject of their respective MPSA
applications. Since respondent filed 3 separate petitions for the denial of said
applications, then a controversy has developed between the parties and it is POA’s
jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed
with the DENR Regional Office or any concerned DENRE or CENRO are MPSA
applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of
primary jurisdiction. Euro-med Laboratories v. Province of Batangas 55 elucidates:
Page 242 of 303
The doctrine of primary jurisdiction holds that if a case is such that its determination
requires the expertise, specialized training and knowledge of an administrative body,
relief must first be obtained in an administrative proceeding before resort to the courts is
had even if the matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court system via a
resort to the CA and to this Court as a last recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and Submission dated October 19, 2012
would want us to declare the instant petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60% Philippine-owned.56
Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer
of their shares supposedly cured the "defect" of their previous nationality. They claimed
that their current FTAA contract with the State should stand since "even wholly-owned
foreign corporations can enter into an FTAA with the State."57 Petitioners stress that
there should no longer be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in the Philippines. Thus,
whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners
cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant
case and said fact should be disregarded. The manifestation can no longer be
considered by us since it is being tackled in G.R. No. 202877 pending before this
Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned
corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into
FTAAs with the State is a non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court there is doubt,
based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court
of Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are
hereby AFFIRMED.
SO ORDERED.
PRESBITERO J. VELASCO, JR.

Associate Justice
Page 243 of 303

Page 244 of 303

G.R. No. 165849 December 10, 2007
GILBERT G. GUY, Petitioner,

vs.
THE COURT OF APPEALS (8th DIVISION), NORTHERN ISLANDS CO.,
INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and
EMILIA TABUGADIR, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170185
IGNACIO AND IGNACIO LAW OFFICES, Petitioner,

vs.
EMILIA A. TABUGADIR, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170186
SMARTNET PHILIPPINES, Petitioner,

vs.
EMILIA A. TABUGADIR, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 171066
LINCOLN CONTINENTAL DEVELOPMENT CO., INC., Petitioner,

vs.
NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A.
TABUGADIR, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176650
LINCOLN CONTINENTAL DEVELOPMENT COMPANY, INC., Petitioner,

vs.
NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A.
TABUGADIR, Respondents.
DECISION
Page 245 of 303
SANDOVAL-GUTIERREZ, J.:
Before us are five (5) consolidated cases which stemmed from Civil Case No. 04-
109444 filed with the Regional Trial Court (RTC), Branch 24, Manila, subsequently re-
raffled to Branch 461 and eventually to Branch 25.2
The instant controversies arose from a family dispute. Gilbert Guy is the son of
Francisco and Simny Guy. Geraldine, Gladys and Grace are his sisters. The family feud
involves the ownership and control of 20,160 shares of stock of Northern Islands Co.,
Inc. (Northern Islands) engaged in the manufacture, distribution, and sales of various
home appliances bearing the "3-D" trademark.
Simny and her daughters Geraldine, Gladys and Grace, as well as Northern Islands and
Emilia Tabugadir, have been impleaded as respondents in the above-entitled cases.
Northern Islands is a family-owned corporation organized in 1957 by spouses Francisco
and respondent Simny Guy. In November 1986, they incorporated Lincoln Continental
Development Corporation, Inc. (Lincoln Continental) as a holding company of the 50%
shares of stock of Northern Islands in trust for their three (3) daughters, respondents
Geraldine, Gladys and Grace. Sometime in December 1986, upon instruction of
spouses Guy, Atty. Andres Gatmaitan, president of Lincoln Continental, indorsed in
blank Stock Certificate No. 132 (covering 8,400 shares) and Stock Certificate No. 133
(covering 11,760 shares) and delivered them to Simny.
In 1984, spouses Guy found that their son Gilbert has been disposing of the assets of
their corporations without authority. In order to protect the assets of Northern Islands,
Simny surrendered Stock Certificate Nos. 132 and 133 to Emilia Tabugadir, an officer of
Northern Islands. The 20,160 shares covered by the two Stock Certificates were then
registered in the names of respondent sisters, thus enabling them to assume an active
role in the management of Northern Islands.
On January 27, 2004, during a special meeting of the stockholders of Northern Islands,
Simny was elected President; Grace as Vice-President for Finance; Geraldine as
Corporate Treasurer; and Gladys as Corporate Secretary. Gilbert retained his position
as Executive Vice President. This development started the warfare between Gilbert and
his sisters.
On March 18, 2004, Lincoln Continental filed with the RTC, Branch 24, Manila a
Complaint for Annulment of the Transfer of Shares of Stock against respondents,
docketed as Civil Case No. 04-109444. The complaint basically alleges that Lincoln
Continental owns 20,160 shares of stock of Northern Islands; and that respondents, in
order to oust Gilbert from the management of Northern Islands, falsely transferred the
said shares of stock in respondent sisters’ names. Lincoln Continental then prayed for
an award of damages and that the management of Northern Islands be restored to
Gilbert. Lincoln also prayed for the issuance of a temporary restraining order (TRO) and
a writ of preliminary mandatory injunction to prohibit respondents from exercising any
right of ownership over the shares.
On June 16, 2004, Lincoln Continental filed a Motion to Inhibit the Presiding Judge of
Branch 24, RTC, Manila on the ground of partiality. In an Order dated June 22, 2004,
Page 246 of 303
the presiding judge granted the motion and inhibited himself from further hearing Civil
Case No. 04-109444. It was then re-raffled to Branch 46 of the same court.
On July 12, 2004, Branch 46 set the continuation of the hearing on Lincoln Continental’s
application for a TRO.
On July 13, 2004, respondents filed with the Court of Appeals a Petition
for Certiorari and Mandamus, docketed as CA-G.R. SP No. 85069, raffled off to the
Tenth Division. Respondents alleged that the presiding judge of Branch 24, in issuing
the Order dated June 22, 2004 inhibiting himself from further hearing Civil Case No. 04-
109444, and the presiding judge of Branch 46, in issuing the Order dated July 12, 2004
setting the continuation of hearing on Lincoln Continental’s application for a TRO, acted
with grave abuse of discretion tantamount to lack or excess of jurisdiction.
Meanwhile, on July 15, 2004, the trial court issued the TRO prayed for by Lincoln
Continental directing respondents to restore to Gilbert the shares of stock under
controversy. In the same Order, the trial court set the hearing of Lincoln Continental’s
application for a writ of preliminary injunction on July 19, 20, and 22, 2004.
On July 16, 2004, the Court of Appeals (Tenth Division) issued a TRO enjoining Branch
46, RTC, Manila from enforcing, maintaining, or giving effect to its Order of July 12,
2004 setting the hearing of Lincoln Continental’s application for a TRO.
Despite the TRO, the trial court proceeded to hear Lincoln Continental’s application for
a writ of preliminary injunction. This prompted respondents to file in the same CA-G.R.
SP No. 85069 a Supplemental Petition for Certiorari, Prohibition,
and Mandamus seeking to set aside the Orders of the trial court setting the hearing and
actually hearing Lincoln Continental’s application for a writ of preliminary injunction.
They prayed for a TRO and a writ of preliminary injunction to enjoin the trial court
(Branch 46) from further hearing Civil Case No. 04-109444.
On September 17, 2004, the TRO issued by the Court of Appeals (Tenth Division) in
CA-G.R. SP No. 85069 expired.
On September 20, 2004, Gilbert filed a Motion for Leave to Intervene and Motion to
Admit Complaint-in-Intervention in Civil Case No. 04-109444. In its Order dated October
4, 2004, the trial court granted the motions.
Meantime, on October 13, 2004, the trial court issued the writ of preliminary mandatory
injunction prayed for by Lincoln Continental in Civil Case No. 04-109444.
On October 20, 2004, the Court of Appeals (Tenth Division) denied respondents’
application for injunctive relief since the trial court had already issued a writ of
preliminary injunction in favor of Lincoln Continental. Consequently, on October 22,
2004, respondents filed with the Tenth Division a Motion to Withdraw Petition and
Supplemental Petition in CA-G.R. SP No. 85069.
On October 26, 2004, respondents filed a new Petition for Certiorari with the Court of
Appeals, docketed as CA-G.R. SP No. 87104, raffled off to the Eighth Division. They
Page 247 of 303
prayed that the TRO and writ of preliminary injunction issued by the RTC, Branch 46,
Manila be nullified and that an injunctive relief be issued restoring to them the
management of Northern Islands. They alleged that Gilbert has been dissipating the
assets of the corporation for his personal gain.
On October 28, 2004, the Court of Appeals Eighth Division issued a TRO enjoining the
implementation of the writ of preliminary injunction dated October 13, 2004 issued by
the trial court in Civil Case No. 04-109444; and directing Lincoln Continental to turn over
the assets and records of Northern Islands to respondents.
On November 2, 2004, respondents filed with the appellate court (Eighth Division) an
Urgent Omnibus Motion praying for the issuance of a break-open Order to implement its
TRO.
On November 4, 2004, the Eighth Division issued a Resolution granting respondents’

motion. Pursuant to this Resolution, respondents entered the Northern Islands premises
at No. 3 Mercury Avenue, Libis, Quezon City.
On November 18, 2004, Gilbert filed with this Court a petition for certiorari, docketed as
G.R. No. 165849, alleging that the Court of Appeals (Eighth Division), in granting an
injunctive relief in favor of respondents, committed grave abuse of discretion tantamount
to lack or in excess of jurisdiction. The petition also alleges that respondents resorted to
forum shopping.
Meanwhile, on December 16, 2004, Smartnet Philippines, Inc. (Smartnet) filed with the
Metropolitan Trial Court (MeTC), Branch 35, Quezon City a complaint for forcible entry
against respondents, docketed as Civil Case No. 35-33937. The complaint alleges that
in entering the Northern Islands premises, respondents took possession of the area
being occupied by Smartnet and barred its officers and employees from occupying the
same.
Likewise on December 16, 2004, Ignacio and Ignacio Law Offices also filed with Branch
37, same court, a complaint for forcible entry against respondents, docketed as Civil
Case No. 34106. It alleges that respondents forcibly occupied its office space when they
took over the premises of Northern Islands.
On December 22, 2004, the Eighth Division issued the writ of preliminary injunction
prayed for by respondents in CA-G.R. SP No. 87104.
Subsequently, the presiding judge of the RTC, Branch 46, Manila retired. Civil Case No.
04-109444 was then re-raffled to Branch 25.
On January 20, 2005, respondents filed with the Eighth Division of the appellate court a
Supplemental Petition for Certiorari with Urgent Motion for a Writ of Preliminary
Injunction to Include Supervening Events. Named as additional respondents were 3-D
Industries, Judge Celso D. Laviña, Presiding Judge, RTC, Branch 71, Pasig City and
Sheriff Cresencio Rabello, Jr. This supplemental petition alleges that Gilbert, in an
attempt to circumvent the injunctive writ issued by the Eighth Division of the appellate
court, filed with the RTC, Branch 71, Pasig City a complaint for replevin on behalf of 3-D
Page 248 of 303
Industries, to enable it to take possession of the assets and records of Northern Islands.
The complaint was docketed as Civil Case No. 70220. On January 18, 2005, the RTC
issued the writ of replevin in favor of 3-D Industries.
On April 15, 2005, respondents filed with the Eighth Division a Second Supplemental
Petition for Certiorari and Prohibition with Urgent Motion for the Issuance of an
Expanded Writ of Preliminary Injunction. Impleaded therein as additional respondents
were Ignacio and Ignacio Law Offices, Smartnet, Judge Maria Theresa De Guzman,
Presiding Judge, MeTC, Branch 35, Quezon City, Judge Augustus C. Diaz, Presiding
Judge, MeTC, Branch 37, Quezon City, Sun Fire Trading Incorporated, Zolt
Corporation, Cellprime Distribution Corporation, Goodgold Realty and Development
Corporation, John Does and John Doe Corporations. Respondents alleged in the main
that the new corporations impleaded are alter egos of Gilbert; and that the filing of the
forcible entry cases with the MeTC was intended to thwart the execution of the writ of
preliminary injunction dated December 22, 2004 issued by the Court of Appeals (Eighth
Division) in CA-G.R. SP No. 87104.1awphil
On April 26, 2005, the Eighth Division issued a Resolution admitting respondents’ new
pleading. On August 19, 2005, the Eighth Division (now Seventh Division) rendered its
Decision in CA-G.R. SP No. 87104, the dispositive portion of which reads:
WHEREFORE, premises considered, the petition is hereby GRANTED and the October
13, 2004 Order and the October 13, 2004 Writ of Preliminary Mandatory Injunction
issued by Branch 46 of the Regional Trial Court of Manila are hereby REVERSED and
SET ASIDE. The December 17, 2004 Order and Writ of Preliminary Injunction issued by
this Court of Appeals are hereby MADE PERMANENT against all respondents herein.
SO ORDERED.
Meanwhile, in a Decision3 dated September 19, 2005, the RTC, Branch 25, Manila
dismissed the complaint filed by Lincoln Continental and the complaint-in-intervention of
Gilbert in Civil Case No. 04-109444, thus:
WHEREFORE, in view of the foregoing, the Complaint and the Complaint-in-

Intervention are hereby DISMISSED. Plaintiff and plaintiff-intervenor are hereby ordered
to jointly and severally pay defendants the following:
(a) Moral damages in the amount of Php2,000,000.00 each for defendants Simny
Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao;
(b) Moral damages in the amount of Php200,000.00 for defendant Emilia

Tabugadir;
(c) Exemplary damages in the amount of Php2,000,000.00 each for defendants

Simny Guy, Geraldine Guy, Grace Guy-Cheu, and Gladys Yao;
(d) Exemplary damages in the amount of Php200,000.00 for defendant Emilia

Tabugadir;
Page 249 of 303

(e) Attorney’s fees in the amount of Php2,000.000.00; and
(f) Costs of suit.
SO ORDERED.
The trial court held that Civil Case No. 04-109444 is a baseless and an unwarranted suit
among family members; that based on the evidence, Gilbert was only entrusted to hold
the disputed shares of stock in his name for the benefit of the other family members;
and that it was only when Gilbert started to dispose of the assets of the family’s
corporations without their knowledge that respondent sisters caused the registration of
the shares in their respective names.
Both Lincoln Continental and Gilbert timely appealed the RTC Decision to the Court of
Appeals, docketed therein as CA-G.R. CV No. 85937.
On September 15, 2005, 3-D Industries, Inc. filed a petition for certiorari, prohibition,
and mandamus with this Court assailing the Decision of the Court of Appeals in CA-
G.R. SP No. 87104 setting aside the writ of preliminary injunction issued by the RTC,
Branch 46. The petition was docketed as G.R. No. 169462 and raffled off to the Third
Division of this Court.
On October 3, 2005, the Third Division of this Court issued a Resolution 4 dismissing the
petition of 3-D Industries in G.R. No. 169462. 3-D Industries timely filed its motion for
reconsideration but this was denied by this Court in its Resolution 5 dated December 14,
2005.
Meanwhile, on October 10, 2005, Gilbert, petitioner in G.R. No. 165849 for certiorari,
filed with this Court a Supplemental Petition for Certiorari, Prohibition,
and Mandamus with Urgent Application for a Writ of Preliminary Mandatory Injunction
challenging the Decision of the Court of Appeals (Seventh Division), dated August 19,
2005, in CA-G.R. SP No. 87104. This Decision set aside the Order dated October 13,
2004 of the RTC, Branch 46 granting the writ of preliminary injunction in favor of Lincoln
Continental.
On November 8, 2005, Ignacio and Ignacio Law Offices and Smartnet filed with this
Court their petitions for certiorari, docketed as G.R. Nos. 170185 and 170186,
respectively.
On February 27, 2006, Lincoln Continental filed with this Court a petition for review
on certiorari challenging the Decision of the Court of Appeals (Seventh Division) in CA-
G.R. CV No. 85937, docketed as G.R. No. 171066.
On March 20, 2006, we ordered the consolidation of G.R. No. 171066 with G.R. Nos.
165849, 170185, and 170186.
In the meantime, in a Decision dated November 27, 2006 in CA-G.R. CV No. 85937, the
Court of Appeals (Special Second Division) affirmed the Decision in Civil Case No. 04-
Page 250 of 303

109444 of the RTC (Branch 25) dismissing Lincoln Continental’s complaint and Gilbert’s
complaint-in-intervention, thus:
WHEREFORE, the appeals are dismissed and the assailed decision AFFIRMED with
modifications that plaintiff and plaintiff-intervenor are ordered to pay each of the
defendants-appellees Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao
moral damages of ₱500,000.00, exemplary damages of ₱100,000.00 and attorney’s
fees of ₱500,000.00.
SO ORDERED.
Lincoln Continental and Gilbert filed their respective motions for reconsideration, but
they were denied in a Resolution promulgated on February 12, 2007.
Lincoln Continental then filed with this Court a petition for review on certiorari assailing
the Decision of the Court of Appeals (Former Special Second Division) in CA-G.R. CV
No. 85937. This petition was docketed as G.R. No. 176650 and raffled off to the Third
Division of this Court.
In our Resolution dated June 6, 2007, we ordered G.R. No. 176650 consolidated with
G.R. Nos. 165849, 170185, 170186, and 171066.
THE ISSUES
In G.R. Nos. 165849 and 171066, petitioners Gilbert and Lincoln Continental raise the
following issues: (1) whether respondents are guilty of forum shopping; and (2) whether
they are entitled to the injunctive relief granted in CA-G.R. SP No. 87104.
In G.R. Nos. 170185 and 170186, the pivotal issue is whether the Court of Appeals
committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling
that petitioners Ignacio and Ignacio Law Offices and Smartnet are also covered by its
Resolution granting the writ of preliminary injunction in favor of respondents.
In G.R. No. 176650, the core issue is whether the Court of Appeals (Special Second
Division) erred in affirming the Decision of the RTC, Branch 25, Manila dated
September 19, 2005 dismissing the complaint of Lincoln Continental and the complaint-
in-intervention of Gilbert in Civil Case No. 04-109444.
THE COURT’S RULING
A. G.R. Nos. 165849 and 171066
On the question of forum shopping, petitioners Gilbert and Lincoln Continental contend
that the acts of respondents in filing a petition for certiorari and mandamus in CA-G.R.
SP No. 85069 and withdrawing the same and their subsequent filing of a petition
for certiorari in CA-G.R. SP No. 87104 constitute forum shopping; that respondents
withdrew their petition in CA-G.R. SP No. 85069 after the Tenth Division issued a
Resolution dated October 20, 2004 denying their application for a writ of preliminary
injunction; that they then filed an identical petition in CA-G.R. SP No. 87104 seeking the
Page 251 of 303
same relief alleged in their petition in CA-G.R. SP No. 85069; and that by taking
cognizance of the petition in CA-G.R. SP No. 87104, instead of dismissing it outright on
the ground of forum shopping, the Court of Appeals committed grave abuse of
discretion tantamount to lack or excess of jurisdiction.
A party is guilty of forum shopping when he repetitively avails of several judicial

remedies in different courts, simultaneously or successively, all substantially founded on
the same transactions and the same essential facts and circumstances, and all raising
substantially the same issues either pending in, or already resolved adversely by some
other court.6 It is prohibited by Section 5, Rule 7 of the 1997 Rules of Civil Procedure,
as amended, which provides:
SECTION 5. Certification against forum shopping. – The plaintiff or principal party shall
certify under oath in the complaint or other initiatory pleading asserting a claim for relief,
or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he
has not theretofore commenced any action or filed any other claim involving the same
issues in any court, tribunal, or quasi-judicial agency and, to the best of his knowledge,
no such other action or claim is pending therein; (b) if there is such other pending action
or claim, a complete statement of the present status thereof; and (c) if he should
thereafter learn that the same or similar action has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise provided, upon motion and
hearing. The submission of a false certification or non-compliance with any of the
undertakings therein shall constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for
summary dismissal with prejudice and shall constitute direct contempt, as well as a
cause for administrative sanctions.
Forum shopping is condemned because it unnecessarily burdens our courts with heavy
caseloads, unduly taxes the manpower and financial resources of the judiciary and
trifles with and mocks judicial processes, thereby affecting the efficient administration of
justice.7 The primary evil sought to be proscribed by the prohibition against forum
shopping is, however, the possibility of conflicting decisions being rendered by the
different courts and/or administrative agencies upon the same issues.8
Forum shopping may only exist where the elements of litis pendentia are present or
where a final judgment in one case will amount to res judicata in the other.9 Litis
pendentia as a ground for dismissing a civil action is that situation wherein another
action is pending between the same parties for the same cause of action, such that the
second action is unnecessary and vexatious. The elements of litis pendentia are as
follows: (a) identity of parties, or at least such as representing the same interest in both
actions; (b) identity of rights asserted and the relief prayed for, the relief being founded
on the same facts; and (c) the identity of the two cases such that judgment in one,
regardless of which party is successful, would amount to res judicata in the
Page 252 of 303
other.10 From the foregoing, it is clear that sans litis pendentia or res judicata, there can
be no forum shopping.
While the first element of litis pendentia – identity of parties – is present in both CA-G.R.
SP No. 85069 and CA-G.R. SP No. 87104, however, the second element, does not
exist. The petitioners in CA-G.R. SP No. 85069 prayed that the following Orders be set
aside:
(1) the Order of inhibition dated June 22, 2004 issued by the presiding judge of
the RTC of Manila, Branch 24; and
(2) the Order dated July 12, 2004 issued by Branch 46 setting Gilbert’s
application for preliminary injunction for hearing.
In their petition in CA-G.R. SP No. 87104, respondents prayed for the annulment of the
writ of preliminary injunction issued by the RTC, Branch 46 after the expiration of the
TRO issued by the Tenth Division of the Court of Appeals. Evidently, this relief is not
identical with the relief sought by respondents in CA-G.R. SP No. 85069. Clearly, the
second element of litis pendentia – the identity of reliefs sought - is lacking in the two
petitions filed by respondents with the appellate court. Thus, we rule that no grave
abuse of discretion amounting to lack or excess of jurisdiction may be attributed to the
Court of Appeals (Eighth Division) for giving due course to respondents’ petition in CA-
G.R. SP No. 87104.
On the second issue, Section 3, Rule 58 of the 1997 Rules of Civil Procedure, as
amended provides:
SECTION 3. Grounds for issuance of preliminary injunction. – A preliminary injunction

may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b) That the commission, continuance, or non-performance of the act or acts

complained of during the litigation would probably work injustice to the applicant;
or
(c) That a party, court, agency, or a person is doing, threatening, or is attempting

to do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
For a party to be entitled to an injunctive writ, he must show that there exists a right to
be protected and that the acts against which the injunction is directed are violative of
this right.11 In granting the respondents’ application for injunctive relief and making the
injunction permanent, the Court of Appeals (Seventh Division) found that they have
shown their clear and established right to the disputed 20,160 shares of stock because:
Page 253 of 303
(1) they have physical possession of the two stock certificates equivalent to the said
number of shares; (2) Lincoln Continental is a mere trustee of the Guy family; and (3)
respondents constitute a majority of the board of directors of Northern Islands, and
accordingly have management and control of the company at the inception of Civil Case
No. 94-109444. The appellate court then ruled that the trial court committed grave
abuse of discretion in issuing a writ of preliminary mandatory injunction in favor of Guy.
The writ actually reduced the membership of Northern Islands board to just one member
- Gilbert Guy. Moreover, he failed to establish by clear and convincing evidence his
ownership of the shares of stock in question. The Court of Appeals then held there was
an urgent necessity to issue an injunctive writ in order to prevent serious damage to the
rights of respondents and Northern Islands.
We thus find no reason to depart from the findings of the Court of Appeals. Indeed, we
cannot discern any taint of grave abuse of discretion on its part in issuing the assailed
writ of preliminary injunction and making the injunction permanent.
B. G.R. Nos. 170185 & 170186
Ignacio and Ignacio Law Offices and Smartnet, petitioners, claim that the Court of
Appeals never acquired jurisdiction over their respective persons as they were not
served with summons, either by the MeTC or by the appellate court in CA-G.R. SP No.
87104. Thus, they submit that the Court of Appeals committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it included them in the coverage of its
injunctive writ.
Jurisdiction is the power or capacity given by the law to a court or tribunal to entertain,
hear, and determine certain controversies.12 Jurisdiction over the subject matter of a
case is conferred by law.
Section 9 (1) of Batas Pambansa Blg. 129,13 as amended, provides:
SEC. 9. Jurisdiction. – The Court of Appeals shall exercise:
(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas

corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its
appellate jurisdiction.
Rule 46 of the 1997 Rules of Civil Procedure, as amended, governs all

cases originally filed with the Court of Appeals. The following provisions of the Rule
state:
SEC. 2. To what actions applicable. – This Rule shall apply to original actions
for certiorari, prohibition, mandamus and quo warranto.
Except as otherwise provided, the actions for annulment of judgment shall be governed
by Rule 47, for certiorari, prohibition, and mandamus by Rule 65, and for quo
warranto by Rule 66.
xxx
Page 254 of 303
SEC. 4. Jurisdiction over person of respondent, how acquired. – The court shall acquire
jurisdiction over the person of the respondent by the service on him of its order or
resolution indicating its initial action on the petition or by his voluntary submission to
such jurisdiction.
SEC. 5. Action by the court. – The court may dismiss the petition outright with specific
reasons for such dismissal or require the respondent to file a comment on the same
within ten (10) days from notice. Only pleadings required by the court shall be allowed.
All other pleadings and papers may be filed only with leave of court.
It is thus clear that in cases covered by Rule 46, the Court of Appeals acquires
jurisdiction over the persons of the respondents by the service upon them of its order or
resolution indicating its initial action on the petitions or by their voluntary submission to
such jurisdiction.14 The reason for this is that, aside from the fact that no summons or
other coercive process is served on respondents, their response to the petitions will
depend on the initial action of the court thereon. Under Section 5, the court may dismiss
the petitions outright, hence, no reaction is expected from respondents and under the
policy adopted by Rule 46, they are not deemed to have been brought within the court’s
jurisdiction until after service on them of the dismissal order or resolution. 15
Records show that on April 27, 2005, petitioners in these two forcible entry cases, were
served copies of the Resolution of the Court of Appeals (Seventh Division) dated April
26, 2005 in CA-G.R. SP No. 87104.16 The Resolution states:
Private respondents SMARTNET PHILIPPINES, INC., IGNACIO & IGNACIO LAW

OFFICE, SUNFIRE TRADING, INC., ZOLT CORPORATION, CELLPRIME
DISTRIBUTION CORPO., GOODGOLD REALTY & DEVELOPMENT CORP., are
hereby DIRECTED to file CONSOLIDATED COMMENT on the original Petition for
Certiorari, the First Supplemental Petition for Certiorari, and the Second Supplemental
Petition for Certiorari (not a Motion to Dismiss) within ten (10) days from receipt of a
copy of the original, first and second Petitions for Certiorari. 17
Pursuant to Rule 46, the Court of Appeals validly acquired jurisdiction over the persons
of Ignacio and Ignacio Law Offices and Smartnet upon being served with the above
Resolution.
But neither of the parties bothered to file the required comment. Their allegation that
they have been deprived of due process is definitely without merit. We have consistently
held that when a party was afforded an opportunity to participate in the proceedings but
failed to do so, he cannot complain of deprivation of due process for by such failure, he
is deemed to have waived or forfeited his right to be heard without violating the
constitutional guarantee.18
On the question of whether the Court of Appeals could amend its Resolution directing
the issuance of a writ of preliminary injunction so as to include petitioners, suffice to
state that having acquired jurisdiction over their persons, the appellate court could do so
pursuant to Section 5 (g), Rule 135 of the Revised Rules of Court, thus:
SEC. 5. Inherent powers of courts. – Every court shall have power:

Page 255 of 303
xxx
(g) To amend and control its process and orders so as to make them conformable to
law and justice.
In Villanueva v. CFI of Oriental Mindoro19 and Eternal Gardens Memorial Parks Corp. v.
Intermediate Appellate Court,20 we held that under this Rule, a court has inherent power
to amend its judgment so as to make it conformable to the law applicable, provided that
said judgment has not yet acquired finality, as in these cases.
C. G.R. No. 176650
The fundamental issue is who owns the disputed shares of stock in Northern Islands.
We remind petitioner Lincoln Continental that what it filed with this Court is a petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended. It
is a rule in this jurisdiction that in petitions for review under Rule 45, only questions or
errors of law may be raised.21 There is a question of law when the doubt or controversy
concerns the correct application of law or jurisprudence to a certain set of facts, or when
the issue does not call for an examination of the probative value of the evidence
presented. There is a question of fact when the doubt arises as to the truth or falsehood
of facts or when there is a need to calibrate the whole evidence considering mainly the
credibility of the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole, and the
probability of the situation.22 Obviously, the issue raised by the instant petition for review
on certiorari, involves a factual matter, hence, is outside the domain of this Court.
However, in the interest of justice and in order to settle this controversy once and for all,
a ruling from this Court is imperative.
One thing is clear. It was established before the trial court, affirmed by the Court of
Appeals, that Lincoln Continental held the disputed shares of stock of Northern
Islands merely in trust for the Guy sisters. In fact, the evidence proffered by Lincoln
Continental itself supports this conclusion. It bears emphasis that this factual finding by
the trial court was affirmed by the Court of Appeals, being supported by evidence, and
is, therefore, final and conclusive upon this Court.
Article 1440 of the Civil Code provides that:
ART. 1440. A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another person is known as
the trustee; and the person for whose benefit the trust has been created is referred to as
the beneficiary.
In the early case of Gayondato v. Treasurer of the Philippine Islands,23 this Court
defines trust, in its technical sense, as "a right of property, real or personal, held by one
party for the benefit of another." Differently stated, a trust is "a fiduciary relationship with
respect to property, subjecting the person holding the same to the obligation of dealing
with the property for the benefit of another person."24
Page 256 of 303

Both Lincoln Continental and Gilbert claim that the latter holds legal title to the shares in
question. But record shows that there is no evidence to support their claim. Rather,
the evidence on record clearly indicates that the stock certificates representing the
contested shares are in respondents’ possession. Significantly, there is no proof to
support his allegation that the transfer of the shares of stock to respondent sisters is
fraudulent. As aptly held by the Court of Appeals, fraud is never presumed but must be
established by clear and convincing evidence.25 Gilbert failed to discharge this burden.
We, agree with the Court of Appeals that respondent sisters own the shares of stocks,
Gilbert being their mere trustee. Verily, we find no reversible error in the challenged
Decision of the Court of Appeals (Special Second Division) in CA-G.R. CV No. 85937.
WHEREFORE, we DISMISS the petitions in G.R. Nos. 165849, 170185, 170186 and
176650; and DENY the petitions in G.R. Nos. 171066 and 176650. The Resolutions of
the Court of Appeals (Eighth Division), dated October 28, 2004 and November 4, 2004,
as well as the Decision dated October 10, 2005 of the Court of Appeals (Seventh
Division) in CA-G.R. SP No. 87104 are AFFIRMED. We likewise AFFIRM IN TOTO the
Decision of the Court of Appeals (Special Second Division), dated November 27, 2006
in CA-G.R. CV No. 85937. Costs against petitioners.
SO ORDERED.
Page 257 of 303

G.R. No. 76590 February 26, 1990
HEIRS OF MARIA DE LA CRUZ Y GUTIERREZ, petitioners,

vs.
COURT OF APPEALS and HEIRS OF MARIA DE LA CRUZ Y
GUEVARRA, respondents.
PARAS, J.:
This is a petition for review on certiorari of the June 17, 1986 decision * of the then
Intermediate Appellate Court in AC-G.R. CV No. 05785 reversing the appealed decision
of the Regional Trial Court of Angeles City, and the November 12, 1986 resolution of
the same court denying the motion for reconsideration.
Herein petitioners are the heirs (children) of the late Maria de la Cruz y Gutierrez,
married to Mateo del Rosario Lansang, while herein private respondents are the heirs of
Maria de la Cruz y Guevarra, married to Calixto Dimalanta, and Fermin de la Cruz. The
controversy involves a 1,980 square meters portion of Lot 1488.
Page 258 of 303

From 1921 until her death in 1951, Maria de la Cruz y Gutierrez resided in the
questioned lot in the concept of an owner. She declared the lot for tax purposes in her
name. Later, she entrusted the administration of the said lot to her niece Maria de la
Cruz y Guevarra. When cadastral proceedings were held in Porac, in Cadastral Case
No. 18, on March 17, 1926, Maria de la Cruz y Gutierrez filed an answer to the
questioned lot. In the said filed answer, over the handwritten name "Maria de la Cruz y
Gutierrez" is a thumbmark presumably affixed by her, Exhibit "2-C"; that in paragraph 7,
a person named therein as Fermin de la Cruz y Gutierrez is stated to have an interest or
participation on the said lot. However, in the space provided in paragraph 8 to be filled
up with the personal circumstances of claimant Maria de la Cruz y Gutierrez, what
appears therein is the name Maria de la Cruz, married to Calixto Dimalanta, instead of
Maria de la Cruz y Gutierrez, Exhibit "2-A"; and in the space provided in paragraph 9,
intended for the personal circumstances of other person or persons who may have an
interest on the said lot, the name Fermin de la Cruz, single, appears, Exhibit "2-B".
Accordingly, the trial court rendered a decision adjudicating Lot No. 1488 in favor of
Maria de la Cruz, 26 years old, married to Calixto Dimalanta and Fermin de la Cruz,
Single. Finally, Original Certificate of Title No. 16684 of the Register of Deeds of
Pampanga was issued in their names.
Petitioners, claiming to have learned of the same only on July 1, 1974, on October 1,
1974 (allegedly barely three months after discovery of the registration, and two years
after the death of Maria de la Cruz y Guevarra who, before she died in 1974, revealed
to petitioners Daniel Lansang and Isidro Lansang that the lot of their mother Maria de la
Cruz y Gutierrez had been included in her title), filed with the then Court of First
Instance of Pampanga, Branch IV, presided over by Hon. Cesar V. Alejandria, a
complaint for reconveyance, docketed therein as Civil Case No. 2148. The same was
amended on June 16, 1975.
The main thrust of the complaint is that the claimant of Lot 1488 in Cadastral Case No.
18 was Maria de la Cruz y Gutierrez and not Maria de la Cruz y Guevarra who by not
using her maternal surname "Guevarra" succeeded in registering Lot 1488 in her name
and that of her brother Fermin de la Cruz. Under the circumstances, it is claimed that
Maria de la Cruz married to Calixto Dimalanta and Fermin de la Cruz hold the property
in trust for the petitioners.
In their answer (Rollo, pp. 62-65), private respondents claimed that the land in questi• n
is their exclusive property, having inherited the same from their parents and the OCT
No. 16684 was issued in their names. Moreover, they asserted that petitioners have lost
their cause of action by prescription.
During the pre-trial, the parties stipulated the following facts:
1. That Lot No. 1488 is the lot in question as stated in

Paragraph 3 of the Complaint;
2. That on March 17, 1926, Maria de la Cruz y Gutierrez filed

her Answer over the cadastral lot in question;
Page 259 of 303

3. That Maria de la Cruz y Gutierrez affixed her thumbmark
in the Answer dated March 17, 1926;
4. That by virtue of the Answer over Cadastral lot in question

filed by Maria de la Cruz y Gutierrez on March 17, 1926,
OCT No. 16684 was issued covering the lot in question;
5. That the maternal surname of Maria de la Cruz and

Fermin de la Cruz is Guevarra and not Gutierrez; and
6. That Maria de la Cruz y Guevarra and Fermin de la Cruz y

Guevarra did not file their answer over the lot in question. (p.
3, Intermediate Appellate Court Decision; p. 46, Rollo)
The issues stated are as follows:
1. Whether or not the handwritings in the Answer of Maria de

la Cruz y Gutierrez were her handwritings;
2. Whether or not the heirs of Maria de la Cruz y Gutierrez

are paying the land taxes of the lot in question
proportionately to their respective shares;
3. Whether or not Lot 1488, the lot in question, is declared in

the name of Maria de la Cruz y Gutierrez;
4. Whether or not during the lifetime of Maria de la Cruz y

Gutierrez up to the time of her death, she was in actual
possession of the lot in question; and
5. If there was fraud in securing OCT No. 16684 in the name

of Maria de la Cruz, married to Calixto Dimalanta, and
Fermin de la Cruz, single. (pp. 3-4, Intermediate Appellate
Court Decision; pp. 4647, Rollo)
After trial, the trial court, in a decision dated November 17, 1983 (ibid., pp. 34-42), ruled
in favor of the petitioners. The decretal portion of the said decision, reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs;
(a) ordering the above-named defendants to reconvey to the

plaintiffs a portion of 1,980 square meters of Lot No. 1488
covered by Original Certificate of Title No. 16684 of the
Register of Deeds of Pampanga, by executing a deed of
reconveyance and registering the same with the said Office
at their own expense;
(b) ordering the parties to cause the survey and division of

Lot No. 1844 into two equal parts in order that two separate
Page 260 of 303
titles, one for the plaintiffs and the other for the defendants
can be issued by the Register of Deeds of Pampanga in their
favor and one-half of the expenses therefore to be
shouldered by the plaintiffs, and the other half by the
defendant;
(c) ordering that the land to be adjudicated to the plaintiffs

should include the portion where the existing house of the
late Maria de la Cruz y Gutierrez is situated;
(d) ordering the plaintiffs and the defendants to pay the

corresponding estate and inheritance taxes if the parcels of
land inherited by them are subject to the payment of the
same;
(e) ordering the defendants to pay the costs of suit.
On appeal, considering the action as based on an implied trust, the then Intermediate
Appellate Court in its decision promulgated on June 17, 1986 (Ibid., pp. 44-53) reversed
the decision of the trial court. The dispositive portion reads:
WHEREFORE, the Court is constrained to REVERSE the decision

appealed from. A new one is hereby entered dismissing the complaint.
A Motion for Reconsideration was filed, but the same was denied in a resolution dated
November 12, 1986 (Ibid., p. 66). Hence, the instant petition.
Petitioners raised three (3) reasons warranting review, to wit:
RESPONDENT COURT ERRED WHEN IT RULED THAT THE ACTION

FOR RECONVEYANCE FILED BY HEREIN PETITIONERS WITH THE
LOWER COURT HAD ALREADY PRESCRIBED;
II
RESPONDENT COURT ERRED IN RULING THAT PETITIONERS

WERE GUILTY OF LACHES; and
III
RESPONDENT COURT ERRED IN RULING THAT THERE WAS NO

EVIDENCE OF FRAUD COMMITTED BY THE PREDECESSOR-IN-
INTEREST OF PRIVATE RESPONDENTS IN SECURING TITLE TO THE
LOT IN QUESTION.
(pp. 13, 20 and 22, Petition for Review pp. 21, 28, and 30 Rollo)
The instant petition is impressed with merit.

Page 261 of 303
The main issue in this case is whether or not petitioners' action for reconveyance has
already prescribed.
The answer is in the negative.
As aptly argued by petitioners, the Court of Appeals erred when it ruled that their action
has already prescribed; obviously on the wrong premise that the action is one based on
implied or constructive trust. As maintained by petitioners, their action is one based on
express trust and not on implied or constructive trust. Petitioners' predecessor-in-
interest, Maria de la Cruz y Gutierrez, was an unlettered woman, a fact borne out by her
affixing her thumbmark in her answer in Cadastral Case No. 18, Exhibit "2-C". Because
of her mental weakness, in a prepared document for her, Exhibit "B-3", she consented
and authorized her niece Maria de la Cruz y Guevarra to administer the lot in question.
Such fact is corroborated by the testimony of Daniel Lansay, the son of Maria de la Cruz
y Gutierrez that Maria de la Cruz y Guevarra was the one entrusted with the paying of
land taxes.
Private respondents argue that said Exhibit "B-3" is a portion of the tax declaration
(Exhibit "B") which was prepared by the Office of the Municipal Assessor/Treasurer
where the lot in question is located, and clearly not the written instrument constituting an
express trust required under Article 1443 of the Civil Code. This argument of private
respondents, is untenable. It has been held that under the law on Trusts, it is not
necessary that the document expressly state and provide for the express trust, for it
may even be created orally, no particular words are required for its creation (Article
1444, Civil Code). An express trust is created by the direct and positive acts of the
parties, by some writing or deed or will or by words evidencing an intention to create a
trust (Sotto v. Teves, 86 SCRA 154 [1978]). No particular words are required for the
creation of an express trust, it being sufficient that a trust is clearly intended (Vda. de
Mapa v. Court of Appeals, 154 SCRA 294 [1987]). Hence, petitioner's action, being one
based on express trust, has not yet prescribed. Be it noted that Article 1443 of the Civil
Code which states "No express trusts concerning an immovable or any interest therein
may be proved by parol evidence," refers merely to enforceability, not validity of a
contract between the parties. Otherwise stated, for purposes of validity between the
parties, an express trust concerning an immovable does not have to be in writing. Thus,
Article 1443 may be said to be an extension of the Statute of Frauds. The action to
compel the trustee to convey the property registered in his name for the benefit of the
cestui for trust does not prescribe. If at all, it is only when the trustee repudiates the trust
that the period of prescription may run (Enriquez v. Court of Appeals, 104 SCRA 656
[1981]).
PREMISES CONSIDERED, the June 17, 1986 decision of the Intermediate Appellate
Court is hereby REVERSED and the November 17, 1983 decision of the trial court is
hereby REINSTATED, excpt as to the latter court's finding that this case deals with an
implied trust.
SO ORDERED.
Page 262 of 303

G.R. No. 154096 August 22, 2008
IRENE MARCOS-ARANETA, DANIEL RUBIO, ORLANDO G. RESLIN, and JOSE G.

RESLIN, petitioners,
vs.
COURT OF APPEALS, JULITA C. BENEDICTO, and FRANCISCA BENEDICTO-
PAULINO, respondents.
Page 263 of 303
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 assails and seeks to nullify the
Decision1 dated October 17, 2001 of the Court of Appeals (CA) in CA-G.R. SP No.
64246 and its Resolution2 of June 20, 2002 denying petitioners' motion for
reconsideration. The assailed CA decision annulled and set aside the Orders dated
October 9, 2000, December 18, 2000, and March 15, 2001 of the Regional Trial Court
(RTC), Branch 17 in Batac, Ilocos Norte which admitted petitioners' amended complaint
in Civil Case Nos. 3341-17 and 3342-17.
The Facts
Sometime in 1968 and 1972, Ambassador Roberto S. Benedicto, now deceased, and
his business associates (Benedicto Group) organized Far East Managers and Investors,
Inc. (FEMII) and Universal Equity Corporation (UEC), respectively. As petitioner Irene
Marcos-Araneta would later allege, both corporations were organized pursuant to a
contract or arrangement whereby Benedicto, as trustor, placed in his name and in the
name of his associates, as trustees, the shares of stocks of FEMII and UEC with the
obligation to hold those shares and their fruits in trust and for the benefit of Irene to the
extent of 65% of such shares. Several years after, Irene, through her trustee-husband,
Gregorio Ma. Araneta III, demanded the reconveyance of said 65% stockholdings, but
the Benedicto Group refused to oblige.
In March 2000, Irene thereupon instituted before the RTC two similar complaints
for conveyance of shares of stock, accounting and receivership against the Benedicto
Group with prayer for the issuance of a temporary restraining order (TRO). The first,
docketed as Civil Case No. 3341-17, covered the UEC shares and named Benedicto,
his daughter, and at least 20 other individuals as defendants. The second, docketed as
Civil Case No. 3342-17, sought the recovery to the extent of 65% of FEMII shares held
by Benedicto and the other defendants named therein.
Respondent Francisca Benedicto-Paulino,3 Benedicto's daughter, filed a Motion to

Dismiss Civil Case No. 3341-17, followed later by an Amended Motion to Dismiss.
Benedicto, on the other hand, moved to dismiss4 Civil Case No. 3342-17, adopting in
toto the five (5) grounds raised by Francisca in her amended motion to dismiss. Among
these were: (1) the cases involved an intra-corporate dispute over which the Securities
and Exchange Commission, not the RTC, has jurisdiction; (2) venue was improperly
laid; and (3) the complaint failed to state a cause of action, as there was no allegation
therein that plaintiff, as beneficiary of the purported trust, has accepted the trust created
in her favor.
To the motions to dismiss, Irene filed a Consolidated Opposition, which Benedicto and
Francisca countered with a Joint Reply to Opposition.
Upon Benedicto's motion, both cases were consolidated.

Page 264 of 303
During the preliminary proceedings on their motions to dismiss, Benedicto and
Francisca, by way of bolstering their contentions on improper venue, presented the
Joint Affidavit5 of Gilmia B. Valdez, Catalino A. Bactat, and Conchita R. Rasco who all
attested being employed as household staff at the Marcos' Mansion in Brgy. Lacub,
Batac, Ilocos Norte and that Irene did not maintain residence in said place as she in fact
only visited the mansion twice in 1999; that she did not vote in Batac in the 1998
national elections; and that she was staying at her husband's house in Makati City.
Against the aforesaid unrebutted joint affidavit, Irene presented her PhP 5 community
tax certificate6 (CTC) issued on "11/07/99" in Curimao, Ilocos Norte to support her
claimed residency in Batac, Ilocos Norte.
In the meantime, on May 15, 2000, Benedicto died and was substituted by his wife,
Julita C. Benedicto, and Francisca.
On June 29, 2000, the RTC dismissed both complaints, stating that these partly
constituted "real action," and that Irene did not actually reside in Ilocos Norte, and,
therefore, venue was improperly laid. In its dismissal order,7 the court also declared "all
the other issues raised in the different Motions to Dismiss x x x moot and academic."
From the above order, Irene interposed a Motion for Reconsideration 8 which Julita and
Francisca duly opposed.
Pending resolution of her motion for reconsideration, Irene filed on July 17, 2000 a
Motion (to Admit Amended Complaint),9 attaching therewith a copy of the Amended
Complaint10 dated July 14, 2000 in which the names of Daniel Rubio, Orlando G. Reslin,
and Jose G. Reslin appeared as additional plaintiffs. As stated in the amended
complaint, the added plaintiffs, all from Ilocos Norte, were Irene's new trustees.
Parenthetically, the amended complaint stated practically the same cause of action but,
as couched, sought the reconveyance of the FEMII shares only.
During the August 25, 2000 hearing, the RTC dictated in open court an order denying
Irene's motion for reconsideration aforementioned, but deferred action on her motion to
admit amended complaint and the opposition thereto. 11
On October 9, 2000, the RTC issued an Order12 entertaining the amended complaint,
dispositively stating:
WHEREFORE, the admission of the Amended Complaint being tenable and

legal, the same is GRANTED.
Let copies of the Amended Complaint be served to the defendants who are ordered to
answer within the reglementary period provided by the rules.
The RTC predicated its order on the following premises:
(1) Pursuant to Section 2, Rule 10 of the Rules of Court,13 Irene may opt to file, as a
matter of right, an amended complaint.
Page 265 of 303

(2) The inclusion of additional plaintiffs, one of whom was a Batac, an Ilocos Norte
resident, in the amended complaint setting out the same cause of action cured the
defect of improper venue.
(3) Secs. 2 and 3 of Rule 3 in relation to Sec. 2 of Rule 4 allow the filing of the amended
complaint in question in the place of residence of any of Irene's co-plaintiffs.
In time, Julita and Francisca moved to dismiss the amended complaint, but the RTC, by
Order14 dated December 18, 2000, denied the motion and reiterated its directive for the
two to answer the amended complaint.
In said order, the RTC stood pat on its holding on the rule on amendments of pleadings.
And scoffing at the argument about there being no complaint to amend in the first place
as of October 9, 2000 (when the RTC granted the motion to amend) as the original
complaints were dismissed with finality earlier, i.e., on August 25, 2000 when the court
denied Irene's motion for reconsideration of the June 29, 2000 order dismissing the
original complaints, the court stated thusly: there was actually no need to act on Irene's
motion to admit, it being her right as plaintiff to amend her complaints absent any
responsive pleading thereto. Pushing its point, the RTC added the observation that the
filing of the amended complaint on July 17, 2000 ipso facto superseded the original
complaints, the dismissal of which, per the June 29, 2000 Order, had not yet become
final at the time of the filing of the amended complaint.
Following the denial on March 15, 2001 of their motion for the RTC to reconsider its
December 18, 2000 order aforestated, Julita and Francisca, in a bid to evade being
declared in default, filed on April 10, 2001 their Answer to the amended complaint. 15 But
on the same day, they went to the CA via a petition for certiorari, docketed as CA-G.R.
SP No. 64246, seeking to nullify the following RTC orders: the first, admitting the
amended complaint; the second, denying their motion to dismiss the amended
complaint; and the third, denying their motion for reconsideration of the second
issuance.
Inasmuch as the verification portion of the joint petition and the certification on non-
forum shopping bore only Francisca's signature, the CA required the joint petitioners "to
submit x x x either the written authority of Julita C. Benedicto to Francisca B. Paulino
authorizing the latter to represent her in these proceedings, or a supplemental
verification and certification duly signed by x x x Julita C. Benedicto." 16 Records show
the submission of the corresponding authorizing Affidavit 17 executed by Julita in favor of
Francisca.
Later developments saw the CA issuing a TRO 18 and then a writ of preliminary
injunction19 enjoining the RTC from conducting further proceedings on the subject civil
cases.
On October 17, 2001, the CA rendered a Decision, setting aside the assailed RTC
orders and dismissing the amended complaints in Civil Case Nos. 3341-17 and 3342-
17. The fallo of the CA decision reads:
Page 266 of 303

WHEREFORE, based on the foregoing premises, the petition is hereby
GRANTED. The assailed Orders admitting the amended complaints are SET
ASIDE for being null and void, and the amended complaints a quo are,
accordingly, DISMISSED.20
Irene and her new trustees' motion for reconsideration of the assailed decision was
denied through the equally assailed June 20, 2002 CA Resolution. Hence, this petition
for review is before us.
The Issues
Petitioners urge the setting aside and annulment of the assailed CA decision and
resolution on the following submissions that the appellate court erred in: (1) allowing the
submission of an affidavit by Julita as sufficient compliance with the requirement on
verification and certification of non-forum shopping; (2) ruling on the merits of the trust
issue which involves factual and evidentiary determination, processes not proper in a
petition for certiorari under Rule 65 of the Rules of Court; (3) ruling that the amended
complaints in the lower court should be dismissed because, at the time it was filed,
there was no more original complaint to amend; (4) ruling that the respondents did not
waive improper venue; and (5) ruling that petitioner Irene was not a resident of Batac,
Ilocos Norte and that none of the principal parties are residents of Ilocos Norte.21
The Court's Ruling
We affirm, but not for all the reasons set out in, the CA's decision.
First Issue: Substantial Compliance with the Rule

on Verification and Certification of Non-Forum Shopping
Petitioners tag private respondents' petition in CA-G.R. SP No. 64246 as defective for
non-compliance with the requirements of Secs. 422 and 523 of Rule 7 of the Rules of
Court at least with regard to Julita, who failed to sign the verification and certification of
non-forum shopping. Petitioners thus fault the appellate court for directing Julita's
counsel to submit a written authority for Francisca to represent Julita in the certiorari
proceedings.
We are not persuaded.
Verification not Jurisdictional; May be Corrected
Verification is, under the Rules, not a jurisdictional but merely a formal requirement
which the court may motu proprio direct a party to comply with or correct, as the case
may be. As the Court articulated in Kimberly Independent Labor Union for Solidarity,
Activism and Nationalism (KILUSAN)-Organized Labor Associations in Line Industries
and Agriculture (OLALIA) v. Court of Appeals:
V]erification is a formal, not a jurisdictional requisite, as it is mainly intended to secure an assurance that the allegations
therein made are done in good faith or are true and correct and not mere speculation. The Court may order the correction
Page 267 of 303

of the pleading, if not verified, or act on the unverified pleading if the attending circumstances are such that a strict
compliance with the rule may be dispensed with in order that the ends of justice may be served.24
Given this consideration, the CA acted within its sound discretion in ordering the
submission of proof of Francisca's authority to sign on Julita's behalf and represent her
in the proceedings before the appellate court.
Signature by Any of the Principal Petitioners is Substantial Compliance
Regarding the certificate of non-forum shopping, the general rule is that all the
petitioners or plaintiffs in a case should sign it. 25 However, the Court has time and again
stressed that the rules on forum shopping, which were designed to promote the orderly
administration of justice, do not interdict substantial compliance with its provisions under
justifiable circumstances.26 As has been ruled by the Court, the signature of any of the
principal petitioners27 or principal parties,28 as Francisca is in this case, would constitute
a substantial compliance with the rule on verification and certification of non-forum
shopping. It cannot be overemphasized that Francisca herself was a principal party in
Civil Case No. 3341-17 before the RTC and in the certiorari proceedings before the CA.
Besides being an heir of Benedicto, Francisca, with her mother, Julita, was substituted
for Benedicto in the instant case after his demise.
And should there exist a commonality of interest among the parties, or where the parties
filed the case as a "collective," raising only one common cause of action or presenting a
common defense, then the signature of one of the petitioners or complainants, acting as
representative, is sufficient compliance. We said so in Cavile v. Heirs of Clarita
Cavile.29 Like Thomas Cavile, Sr. and the other petitioners in Cavile, Francisca and
Julita, as petitioners before the CA, had filed their petition as a collective, sharing a
common interest and having a common single defense to protect their rights over the
shares of stocks in question.
Second Issue: Merits of the Case cannot be Resolved

on Certiorari under Rule 65
Petitioners' posture on the second issue is correct. As they aptly pointed out, the CA, in
the exercise of its certiorari jurisdiction under Rule 65, is limited to reviewing and
correcting errors of jurisdiction only. It cannot validly delve into the issue of trust which,
under the premises, cannot be judiciously resolved without first establishing certain
facts based on evidence.
Whether a determinative question is one of law or of fact depends on the nature of the
dispute. A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain given set of facts; or when the issue does
not call for an examination of the probative value of the evidence presented, the truth or
falsehood of facts being admitted. A question of fact obtains when the doubt or
difference arises as to the truth or falsehood of facts or when the query invites the
calibration of the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances, as well as their relation
to each other and to the whole, and the probability of the situation. 30
Page 268 of 303

Clearly then, the CA overstepped its boundaries when, in disposing of private
respondents' petition for certiorari, it did not confine itself to determining whether or not
lack of jurisdiction or grave abuse of discretion tainted the issuance of the assailed RTC
orders, but proceeded to pass on the factual issue of the existence and enforceability of
the asserted trust. In the process, the CA virtually resolved petitioner Irene's case for
reconveyance on its substantive merits even before evidence on the matter could be
adduced. Civil Case Nos. 3341-17 and 3342-17 in fact have not even reached the pre-
trial stage. To stress, the nature of the trust allegedly constituted in Irene's favor and its
enforceability, being evidentiary in nature, are best determined by the trial court. The
original complaints and the amended complaint certainly do not even clearly indicate
whether the asserted trust is implied or express. To be sure, an express trust differs
from the implied variety in terms of the manner of proving its existence.31 Surely, the
onus of factually determining whether the trust allegedly established in favor of Irene, if
one was indeed established, was implied or express properly pertains, at the first
instance, to the trial court and not to the appellate court in a special civil action for
certiorari, as here. In the absence of evidence to prove or disprove the constitution and
necessarily the existence of the trust agreement between Irene, on one hand, and the
Benedicto Group, on the other, the appellate court cannot intelligently pass upon the
issue of trust. A pronouncement on said issue of trust rooted on speculation and
conjecture, if properly challenged, must be struck down. So it must be here.
Third Issue: Admission of Amended Complaint Proper
As may be recalled, the CA veritably declared as reversibly erroneous the admission of

the amended complaint. The flaw in the RTC's act of admitting the amended complaint
lies, so the CA held, in the fact that the filing of the amended complaint on July 17, 2000
came after the RTC had ordered with finality the dismissal of the original complaints.
According to petitioners, scoring the CA for its declaration adverted to and debunking its
posture on the finality of the said RTC order, the CA failed to take stock of their motion
for reconsideration of the said dismissal order.
We agree with petitioners and turn to the governing Sec. 2 of Rule 10 of the Rules of
Court which provides:
SEC. 2. Amendments as a matter of right. -- A party may amend his pleading

once as a matter of right at any time before a responsive pleading is served or in
the case of a reply, at any time within ten (10) days after it is served.
As the aforequoted provision makes it abundantly clear that the plaintiff may amend his
complaint once as a matter of right, i.e., without leave of court, before any responsive
pleading is filed or served. Responsive pleadings are those which seek affirmative relief
and/or set up defenses,32 like an answer. A motion to dismiss is not a responsive
pleading for purposes of Sec. 2 of Rule 10. 33 Assayed against the foregoing
perspective, the RTC did not err in admitting petitioners' amended complaint, Julita and
Francisca not having yet answered the original complaints when the amended
complaint was filed. At that precise moment, Irene, by force of said Sec. 2 of Rule 10,
had, as a matter of right, the option of amending her underlying reconveyance
complaints. As aptly observed by the RTC, Irene's motion to admit amended complaint
Page 269 of 303

was not even necessary. The Court notes though that the RTC has not offered an
explanation why it saw fit to grant the motion to admit in the first place.
In Alpine Lending Investors v. Corpuz, the Court, expounding on the propriety of

admitting an amended complaint before a responsive pleading is filed, wrote:
W]hat petitioner Alpine filed in Civil Case No. C-20124 was a motion to dismiss, not an answer. Settled is the rule that a
motion to dismiss is not a responsive pleading for purposes of Section 2, Rule 10. As no responsive pleading had been
filed, respondent could amend her complaint in Civil Case No. C-20124 as a matter of right. Following this Court's ruling
in Breslin v. Luzon Stevedoring Co. considering that respondent has the right to amend her complaint, it is the correlative
duty of the trial court to accept the amended complaint; otherwise, mandamus would lie against it. In other words, the trial
court's duty to admit the amended complaint was purely ministerial. In fact, respondent should not have filed a motion to
admit her amended complaint.34
It may be argued that the original complaints had been dismissed through the June 29,
2000 RTC order. It should be pointed out, however, that the finality of such dismissal
order had not set in when Irene filed the amended complaint on July 17, 2000, she
having meanwhile seasonably sought reconsideration thereof. Irene's motion for
reconsideration was only resolved on August 25, 2000. Thus, when Irene filed the
amended complaint on July 17, 2000, the order of dismissal was not yet final, implying
that there was strictly no legal impediment to her amending her original complaints. 35
Fourth Issue: Private Respondents did not Waive Improper Venue
Petitioners maintain that Julita and Francisca were effectively precluded from raising the
matter of improper venue by their subsequent acts of filing numerous pleadings. To
petitioners, these pleadings, taken together, signify a waiver of private respondents'
initial objection to improper venue.
This contention is without basis and, at best, tenuous. Venue essentially concerns a rule
of procedure which, in personal actions, is fixed for the greatest convenience possible of
the plaintiff and his witnesses. The ground of improperly laid venue must be raised
seasonably, else it is deemed waived. Where the defendant failed to either file a motion
to dismiss on the ground of improper venue or include the same as an affirmative
defense, he is deemed to have waived his right to object to improper venue. 36 In the
case at bench, Benedicto and Francisca raised at the earliest time possible, meaning
"within the time for but before filing the answer to the complaint," 37 the matter of
improper venue. They would thereafter reiterate and pursue their objection on venue,
first, in their answer to the amended complaints and then in their petition for certiorari
before the CA. Any suggestion, therefore, that Francisca and Benedicto or his
substitutes abandoned along the way improper venue as ground to defeat Irene's claim
before the RTC has to be rejected.
Fifth Issue: The RTC Has No Jurisdiction

on the Ground of Improper Venue
Subject Civil Cases are Personal Actions
Page 270 of 303

It is the posture of Julita and Francisca that the venue was in this case improperly laid
since the suit in question partakes of a real action involving real properties located
outside the territorial jurisdiction of the RTC in Batac.
This contention is not well-taken. In a personal action, the plaintiff seeks the recovery of
personal property, the enforcement of a contract, or the recovery of damages. 38 Real
actions, on the other hand, are those affecting title to or possession of real property, or
interest therein. In accordance with the wordings of Sec. 1 of Rule 4, the venue of real
actions shall be the proper court which has territorial jurisdiction over the area wherein
the real property involved, or a portion thereof, is situated. The venue of personal
actions is the court where the plaintiff or any of the principal plaintiffs resides, or where
the defendant or any of the principal defendants resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff. 39
In the instant case, petitioners are basically asking Benedicto and his Group, as
defendants a quo, to acknowledge holding in trust Irene's purported 65%
stockownership of UEC and FEMII, inclusive of the fruits of the trust, and to execute in
Irene's favor the necessary conveying deed over the said 65% shareholdings. In other
words, Irene seeks to compel recognition of the trust arrangement she has with the
Benedicto Group. The fact that FEMII's assets include real properties does not
materially change the nature of the action, for the ownership interest of a stockholder
over corporate assets is only inchoate as the corporation, as a juridical person, solely
owns such assets. It is only upon the liquidation of the corporation that the stockholders,
depending on the type and nature of their stockownership, may have a real inchoate
right over the corporate assets, but then only to the extent of their stockownership.
The amended complaint is an action in personam, it being a suit against Francisca and
the late Benedicto (now represented by Julita and Francisca), on the basis of their
alleged personal liability to Irene upon an alleged trust constituted in 1968 and/or 1972.
They are not actions in rem where the actions are against the real properties instead of
against persons.40 We particularly note that possession or title to the real properties of
FEMII and UEC is not being disputed, albeit part of the assets of the corporation
happens to be real properties.
Given the foregoing perspective, we now tackle the determinative question of venue in
the light of the inclusion of additional plaintiffs in the amended complaint.
Interpretation of Secs. 2 and 3 of Rule 3; and Sec. 2 of Rule 4
We point out at the outset that Irene, as categorically and peremptorily found by the
RTC after a hearing, is not a resident of Batac, Ilocos Norte, as she claimed. The Court
perceives no compelling reason to disturb, in the confines of this case, the factual
determination of the trial court and the premises holding it together. Accordingly, Irene
cannot, in a personal action, contextually opt for Batac as venue of her reconveyance
complaint. As to her, Batac, Ilocos Norte is not what Sec. 2, Rule 4 of the Rules of Court
adverts to as the place "where the plaintiff or any of the principal plaintiffs resides" at the
time she filed her amended complaint. That Irene holds CTC No. 17019451 41 issued
sometime in June 2000 in Batac, Ilocos Norte and in which she indicated her address
as Brgy. Lacub, Batac, Ilocos is really of no moment. Let alone the fact that one can
Page 271 of 303
easily secure a basic residence certificate practically anytime in any Bureau of Internal
Revenue or treasurer's office and dictate whatever relevant data one desires entered,
Irene procured CTC No. 17019451 and appended the same to her motion for
reconsideration following the RTC's pronouncement against her being a resident of
Batac.
Petitioners, in an attempt to establish that the RTC in Batac, Ilocos Norte is the proper
court venue, asseverate that Batac, Ilocos Norte is where the principal parties reside.
Pivotal to the resolution of the venue issue is a determination of the status of Irene's co-
plaintiffs in the context of Secs. 2 and 3 of Rule 3 in relation to Sec. 2 of Rule 4, which
pertinently provide as follows:
Rule 3
PARTIES TO CIVIL ACTIONS
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.
SEC. 3. Representatives as parties. -- Where the action is allowed to be

prosecuted or defended by a representative or someone acting in a fiduciary
capacity, the beneficiary shall be included in the title of the case and shall be
deemed to be the real party in interest. A representative may be a trustee of an
express trust, a guardian, an executor or administrator, or a party authorized by
law or these Rules. An agent acting in his own name and for the benefit of an
undisclosed principal may sue or be sued without joining the principal except
when the contract involves things belonging to the principal.
Rule 4
VENUE OF ACTIONS
SEC. 2. Venue of personal actions. -- All other actions may be commenced and
tried where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff.
Venue is Improperly Laid
There can be no serious dispute that the real party-in-interest plaintiff is Irene. As self-
styled beneficiary of the disputed trust, she stands to be benefited or entitled to the
avails of the present suit. It is undisputed too that petitioners Daniel Rubio, Orlando G.
Reslin, and Jose G. Reslin, all from Ilocos Norte, were included as co-plaintiffs in the
amended complaint as Irene's new designated trustees. As trustees, they can only
serve as mere representatives of Irene.
Upon the foregoing consideration, the resolution of the crucial issue of whether or not
venue had properly been laid should not be difficult.
Page 272 of 303
Sec. 2 of Rule 4 indicates quite clearly that when there is more than one plaintiff in a
personal action case, the residences of the principal parties should be the basis for
determining proper venue. According to the late Justice Jose Y. Feria, "the word
'principal' has been added [in the uniform procedure rule] in order to prevent the plaintiff
from choosing the residence of a minor plaintiff or defendant as the venue."42 Eliminate
the qualifying term "principal" and the purpose of the Rule would, to borrow from Justice
Regalado, "be defeated where a nominal or formal party is impleaded in the action since
the latter would not have the degree of interest in the subject of the action which would
warrant and entail the desirably active participation expected of litigants in a case." 43
Before the RTC in Batac, in Civil Case Nos. 3341-17 and 3342-17, Irene stands
undisputedly as the principal plaintiff, the real party-in-interest. Following Sec. 2 of Rule
4, the subject civil cases ought to be commenced and prosecuted at the place where
Irene resides.
Principal Plaintiff not a Resident in Venue of Action
As earlier stated, no less than the RTC in Batac declared Irene as not a resident of
Batac, Ilocos Norte. Withal, that court was an improper venue for her conveyance
action.
The Court can concede that Irene's three co-plaintiffs are all residents of Batac, Ilocos
Norte. But it ought to be stressed in this regard that not one of the three can be
considered as principal party-plaintiffs in Civil Case Nos. 3341-17 and 3342-17,
included as they were in the amended complaint as trustees of the principal plaintiff. As
trustees, they may be accorded, by virtue of Sec. 3 of Rule 3, the right to prosecute a
suit, but only on behalf of the beneficiary who must be included in the title of the case
and shall be deemed to be the real party-in-interest. In the final analysis, the residences
of Irene's co-plaintiffs cannot be made the basis in determining the venue of the subject
suit. This conclusion becomes all the more forceful considering that Irene herself
initiated and was actively prosecuting her claim against Benedicto, his heirs, assigns, or
associates, virtually rendering the impleading of the trustees unnecessary.
And this brings us to the final point. Irene was a resident during the period material of
Forbes Park, Makati City. She was not a resident of Brgy. Lacub, Batac, Ilocos Norte,
although jurisprudence44 has it that one can have several residences, if such were the
established fact. The Court will not speculate on the reason why petitioner Irene, for all
the inconvenience and expenses she and her adversaries would have to endure by a
Batac trial, preferred that her case be heard and decided by the RTC in Batac. On the
heels of the dismissal of the original complaints on the ground of improper venue, three
new personalities were added to the complaint doubtless to insure, but in vain as it
turned out, that the case stays with the RTC in Batac.
Litigants ought to bank on the righteousness of their causes, the superiority of their
cases, and the persuasiveness of arguments to secure a favorable verdict. It is high
time that courts, judges, and those who come to court for redress keep this ideal in
mind.
Page 273 of 303

WHEREFORE, the instant petition is hereby DISMISSED. The Decision and Resolution
dated October 17, 2001 and June 20, 2002, respectively, of the CA in CA-G.R. SP No.
64246, insofar as they nullified the assailed orders of the RTC, Branch 17 in Batac,
Ilocos Norte in Civil Case Nos. 3341-17 and 3342-17 on the ground of lack of
jurisdiction due to improper venue, are hereby AFFIRMED. The Orders dated October
9, 2000, December 18, 2000, and March 15, 2001 of the RTC in Civil Case Nos. 3341-
17 and 3342-17 are accordingly ANNULLED and SET ASIDE and said civil cases
are DISMISSED.
Costs against petitioners.
SO ORDERED.
G.R. No. 160711 August 14, 2004
HEIRS OF MAXIMO LABANON, represented by ALICIA LABANON CAÑEDO and

the PROVINCIAL ASSESSOR OF COTABATO, Petitioners,
vs.
HEIRS OF CONSTANCIO LABANON, represented by ALBERTO
MAKILANG, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the recall and nullification of
the May 8, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 65617
entitled Heirs of Constancio Labanon represented by Alberto Makilang v. Heirs of
Maximo Labanon represented by Alicia Labanon Cañedo and the Provincial Assessor of
Cotabato, which reversed the August 18, 1999 Decision2 of the Kidapawan City,
Cotabato Regional Trial Court (RTC), Branch 17, in Civil Case No. 865. Likewise
assailed is the October 13, 2003 Resolution3 which disregarded petitioners’ Motion for
Reconsideration.
The Facts
The CA culled the facts this way:
During the lifetime of Constancio Labanon, prior to the outbreak of WWII, he settled
upon a piece of alienable and disposable public agricultural land situated at Brgy.
Lanao, Kidapawan, Cotabato x x x. Constancio cultivated the said lot and introduced
permanent improvements that still exist up to the present. Being of very limited
educational attainment, he found it difficult to file his public land application over said lot.
Page 274 of 303
Constancio then asked his brother, Maximo Labanon who was better educated to file
the corresponding public land application under the express agreement that they will
divide the said lot as soon as it would be feasible for them to do so. The offer was
accepted by Maximo. During the time of the application it was Constancio who
continued to cultivate the said lot in order to comply with the cultivation requirement set
forth under Commonwealth Act 141, as amended, on Homestead applications. After
which, on June 6, 1941, due to industry of Constancio, Homestead Application No.
244742 (E-128802) of his brother Maximo was approved with Homestead Patent No.
67512. Eventually, Original Certificate of Title No. P-14320 was issued by the Register
of Deeds of Cotabato over said lot in favor of Maximo Labanon.
On February 11, 1955, Maximo Labanon executed a document denominated as

"Assignment of Rights and Ownership" and docketed as Doc. No. 20; Page No. 49;
Book No. V; Series of 1955 of the Notarial Register of Atty. Florentino Kintanar. The
document was executed to safeguard the ownership and interest of his brother
Constancio Labanon. Pertinent portion of which is reproduced as follows:
"That I, MAXIMO LABANON, of legal age, married to Anastacia Sagarino, and a

resident of Kidapawan, Cotabato, for and in consideration of the expenses incurred by
my elder brother CONSTANCIO LABANON also of legal age, Filipino, widower and a
resident of Kidapawan, Cotabato, for the clearing, cultivation and improvements on the
eastern portion xxx Lot No. 1, Blk. 22, Pls-59 xxx which expenses have been incurred
by my said brother xxx before the outbreak of the last world war xxx I do hereby assign
transfer and convey my rights to, interests in and ownership on the said eastern portion
of said Lot No. 1, Block 22, Pls-59 ONE HUNDRED (100 M) ALONG THE NATIONAL
HIGHWAY, (DAVAO-COTABATO ROAD) by TWO HUNDRED FIFTY METERS (250 M)
going inside the land to cover an area of TWO AND ONE HALF HECTARES (25,000
SQ. M.), more or less, adjoining the school site of barrio Lanao, Kidapawan, Cotabato,
to the said CONSTANCIO LABANON, his heirs and assigns, can freely occupy for his
own use and benefit xxx.
IN WITNESS WHEREFOF, I have hereunto set my hand this 11th day of February 1995
at Kidapawan, Cotabato.
(SGD) MAXIMO LABANON
With my marital consent.
(SGD) ANASTACIA SAGARINO

(Wife)" (p.16, rollo)
On April 25, 1962, Maximo Labanon executed a sworn statement reiterating his desire
that his elder brother Constancio, his heirs and assigns shall own the eastern portion of
the Lot, pertinent portion of which reads:
"That I am the same and identical person who is a homestead applicant (HA-224742, E-
128802) of a tract of land which is covered by Homestead Patent No. 67512 dated June
6, 1941, known as Lot No. 1, Block 22, Pls-59, situated in [B]arrio Lanao, Municipality of
Page 275 of 303

Kidapawan, Province of Cotabato, Philippines, and containing an area of 5.0000
hectares, more or less;
That I am the same and identical person who executed a deed of ASSIGNMENT OF
RIGHTS AND OWNERSHIP in favor of my brother Constancio Labanon, now
deceased, now for his heirs, for the eastern half portion of the land above described,
and which deed was duly notarized by notary public Florentino P. Kintanar on February
11, 1955 at Kidapawan, Cotabato and entered in his Notarial Register as Doc. No. 20,
Page No. 49, Book No. V, Series of 1955; and
That in order that I and the Heirs of Constancio Labanon will exercise our respective
rights and ownership over the aforementioned lot, and to give force and effect to said
deed of assignment, I hereby, by these presents, request the Honorable Director of
Lands and the Land Title Commission to issue a separate title in my favor covering the
western half portion of the aforementioned lot and to the Heirs of Constancio Labanon a
title for the eastern half portion thereof.
IN WITNESS THEREOF, I have hereunto set my hand this 25th day of April, 1962, at
Pikit, Cotabato, Philippines." (p. 9, records)
After the death of Constancio Labanon, his heirs executed an [e]xtra-judicial settlement
of estate with simultaneous sale over the aforesaid eastern portion of the lot in favor of
Alberto Makilang, the husband of Visitacion Labanon, one of the children of Constancio.
Subsequently, the parcel of land was declared for taxation purposes in the name of
Alberto under TD No. 11593. However, in March 1991, the defendants heirs of Maximo
Labanon namely, Alicia L. Caniedo, Leopoldo Labanon, Roberto Nieto and Pancho
Labanon, caused to be cancelled from the records of the defendant Provincial Assessor
of Cotabato the aforesaid TD No. 11593 and the latter, without first verifying the legality
of the basis for said cancellation, did cancel the same. x x x Further, after discovering
that the defendant-heirs of Maximo Labanon were taking steps to deprive the heirs of
Constancio Labanon of their ownership over the eastern portion of said lot, the latter,
thru Alberto Makilang, demanded the owner’s copy of the certificate of title covering the
aforesaid Lot to be surrendered to the Register of Deeds of Cotabato so that the
ownership of the heirs of Constancio may be fully effected but the defendants refused
and still continue to refuse to honor the trust agreement entered into by the deceased
brothers. x x x4
Thus, on November 12, 1991, petitioners filed a complaint 5 for Specific Performance,
Recovery of Ownership, Attorney’s Fees and Damages with Writ of Preliminary
Injunction and Prayer for Temporary Restraining Order against respondents docketed
as Civil Case No. 865 before the Kidapawan City RTC. After hearing, the trial court
rendered its August 18, 1999 Decision, the decretal portion of which reads:
Wherefore, prescinding from the foregoing facts and considerations the Court finds and
so holds that the [defendant-heirs] of Maximo Labanon represented by Alicia Labanon
Caniedo have proved by preponderance of evidence that they are entitled to the reliefs
set forth in their answer and consequently judgment is hereby rendered as follows:
Page 276 of 303

1. Ordering the dismissal of the complaint against the Heirs of Maximo Labanon
represented by Alicia Labanon Caniedo for lack of merit;
2. Ordering the dismissal of the case against the Provincial Assessor. The claim
of the plaintiff is untenable, because the duties of the Provincial Assessor are
ministerial. Moreover, the presumption of regularity in the performance of his duty
is in his favor;
3. Ordering the plaintiff to pay the defendants the amount of P20,000.00 as

exemplary damages, P10,000.00 for Attorney’s Fees, P500.00 per appearance in
Court; and
4. To pay the costs of this suit.
IT IS SO ORDERED.6
Aggrieved, respondents elevated the adverse judgment to the CA which issued the
assailed May 8, 2003 Decision in CA-G.R. CV No. 65617, the fallo of which states:
WHEREFORE, the appeal is hereby GRANTED for being meritorious. The assailed
decision of the Regional Trial Court is hereby REVERSED and SET ASIDE and a new
one is hereby entered as follows:
1) Recognizing the lawful possession of the plaintiffs-appellants over the eastern

portion of the property in dispute;
2) Declaring the plaintiffs-appellants as owners of the eastern portion of the

property by reason of lawful possession;
3) Ordering the Provincial Assessor to reinstate TD No. 11593 and declaring TD

No. 243-A null and void;
4) Ordering the defendants-appellees to pay the plaintiffs-appellants the amount

of P20,000 as moral damages, P10,000 for attorney’s fees, P500.00 per
appearance in Court and
5) To pay the costs of the suit.
SO ORDERED.
The Issues
Surprised by the turn of events, petitioners brought this petition before us raising the
following issues, to wit:
1. Whether or not Original Certificate of Title No. 41320 issued on April 10, 1975
in the name of MAXIMO LABANON be now considered indefeasible and
conclusive; and
Page 277 of 303

2. Whether or not the Trust Agreement allegedly made by Constancio Labanon
and Maximo Labanon prescribed.7
The Court’s Ruling
The petition must fail.
First Issue
Respondents are not precluded from challenging the validity of Original Certificate of
Title No. P-41320
Petitioners argue that respondents can no longer question Maximo Labanon’s

ownership of the land after its registration under the principle of indefeasibility of a
Transfer Certificate of Title (TCT).
Such argument is inaccurate.
The principle of indefeasibility of a TCT is embodied in Section 32 of Presidential

Decree No. (PD) 1529, amending the Land Registration Act, which provides:
Section 32. Review of decree of registration; Innocent purchaser for value. The decree
of registration shall not be reopened or revised by reason of absence, minority, or other
disability of any person adversely affected thereby, nor by any proceeding in any court
for reversing judgments, subject, however, to the right of any person, including the
government and the branches thereof, deprived of land or of any estate or interest
therein by such adjudication or confirmation of title obtained by actual fraud, to file in the
proper Court of First Instance a petition for reopening and review of the decree of
registration not later than one year from and after the date of the entry of such decree of
registration, but in no case shall such petition be entertained by the court where an
innocent purchaser for value has acquired the land or an interest therein, whose rights
may be prejudiced. Whenever the phrase "innocent purchaser for value" or an
equivalent phrase occurs in this Decree, it shall be deemed to include an innocent
lessee, mortgagee, or other encumbrancer for value.
Upon the expiration of said period of one year, the decree of registration and the
certificate of title issued shall become incontrovertible. Any person aggrieved by such
decree of registration in any case may pursue his remedy by action for damages
against the applicant or any other persons responsible for the fraud.
Contrary to petitioners’ interpretation, the aforequoted legal provision does not totally
deprive a party of any remedy to recover the property fraudulently registered in the
name of another. Section 32 of PD 1529 merely precludes the reopening of the
registration proceedings for titles covered by the Torrens System, but does not
foreclose other remedies for the reconveyance of the property to its rightful owner. As
elaborated in Heirs of Clemente Ermac v. Heirs of Vicente Ermac:
While it is true that Section 32 of PD 1529 provides that the decree of registration
becomes incontrovertible after a year, it does not altogether deprive an aggrieved party
Page 278 of 303
of a remedy in law. The acceptability of the Torrens System would be impaired, if it is
utilized to perpetuate fraud against the real owners. 8
A more succinct explanation is found in Vda. De Recinto v. Inciong, thus:
The mere possession of a certificate of title under the Torrens system does not
necessarily make the possessor a true owner of all the property described therein for he
does not by virtue of said certificate alone become the owner of the land illegally
included. It is evident from the records that the petitioner owns the portion in question
and therefore the area should be conveyed to her. The remedy of the land owner whose
property has been wrongfully or erroneously registered in another's name is, after one
year from the date of the decree, not to set aside the decree, but, respecting the decree
as incontrovertible and no longer open to review, to bring an ordinary action in the
ordinary court of justice for reconveyance or, if the property has passed into the hands
of an innocent purchaser for value, for damages. 9 (Emphasis supplied.)
Undeniably, respondents are not precluded from recovering the eastern portion of
Original Certificate of Title (OCT) No. P-14320, with an area subject of the "Assignment
of Rights and Ownership" previously owned by their father, Constancio Labanon. The
action for Recovery of Ownership before the RTC is indeed the appropriate remedy.
Second Issue
The trust agreement between Maximo Labanon and Constancio Labanon may still be
enforced
Former Vice-President and Senator Arturo Tolentino, a noted civilist, explained the
nature and import of a trust:
Trust is the legal relationship between one person having an equitable ownership in
property and another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter.10
This legal relationship can be distinguished from other relationships of a fiduciary

character, such as deposit, guardianship, and agency, in that the trustee has legal title
to the property.11 In the case at bench, this is exactly the relationship established
between the parties.
Trusts are classified under the Civil Code as either express or implied. Such
classification determines the prescriptive period for enforcing such trust.
Article 1444 of the New Civil Code on express trust provides that "[n]o particular words
are required for the creation of an express trust, it being sufficient that a trust is clearly
intended."
Civil law expert Tolentino further elucidated on the express trust, thus:
Page 279 of 303

No particular form of words or conduct is necessary for the manifestation of intention to
create a trust. It is possible to create a trust without using the word "trust" or "trustee".
Conversely, the mere fact that these words are used does not necessarily indicate an
intention to create a trust. The question in each case is whether the trustor manifested
an intention to create the kind of relationship which to lawyers is known as trust. It is
immaterial whether or not he knows that the relationship which he intends to create is
called a trust, and whether or not he knows the precise characteristics of the
relationship which is called a trust.12
Correlatively, we ruled in Estate of Edward Miller Grimm v. Estate of Charles Parsons

and Patrick C. Parsons, that:
An express trust is created by the direct and positive acts of the parties, by some writing
or deed or by words evidencing an intention to create a trust; the use of the word trust is
not required or essential to its constitution, it being sufficient that a trust is clearly
intended.131avvphi1
In the instant case, such intention to institute an express trust between Maximo
Labanon as trustee and Constancio Labanon as trustor was contained in not just one
but two written documents, the Assignment of Rights and Ownership as well as Maximo
Labanon’s April 25, 1962 Sworn Statement. In both documents, Maximo Labanon
recognized Constancio Labanon’s ownership and possession over the eastern portion
of the property covered by OCT No. P-14320, even as he recognized himself as the
applicant for the Homestead Patent over the land. Thus, Maximo Labanon maintained
the title over the property while acknowledging the true ownership of Constancio
Labanon over the eastern portion of the land. The existence of an express trust cannot
be doubted nor disputed.
On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that
unrepudiated written express trusts are imprescriptible:
While there are some decisions which hold that an action upon a trust is imprescriptible,
without distinguishing between express and implied trusts, the better rule, as laid down
by this Court in other decisions, is that prescription does supervene where the trust is
merely an implied one. The reason has been expressed by Justice J.B.L. Reyes in J.M.
Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real
property prescribed in 10 years, excepting only actions based on continuing or
subsisting trusts that were considered by section 38 as imprescriptible. As held in the
case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or
subsisting trusts contemplated in section 38 of the Code of Civil Procedure referred only
to express unrepudiated trusts, and did not include constructive trusts (that are imposed
by law) where no fiduciary relation exists and the trustee does not recognize the trust at
all.14
This principle was amplified in Escay v. Court of Appeals this way: "Express trusts
prescribe 10 years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen
Gorricho et al., 54 0.G. p. 8429, Sec. 40, Code of Civil Procedure)." 15
Page 280 of 303
In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive
period for the enforcement of an express trust of ten (10) years starts upon the
repudiation of the trust by the trustee. 16
In the case at bar, Maximo Labanon never repudiated the express trust instituted
between him and Constancio Labanon. And after Maximo Labanon’s death, the trust
could no longer be renounced; thus, respondents’ right to enforce the trust agreement
can no longer be restricted nor prejudiced by prescription.
It must be noted that the Assignment of Rights and Ownership and Maximo Labanon’s
Sworn Statement were executed after the Homestead Patent was applied for and
eventually granted with the issuance of Homestead Patent No. 67512 on June 6, 1942.
Evidently, it was the intent of Maximo Labanon to hold the title over the land in his name
while recognizing Constancio Labanon’s equitable ownership and actual possession of
the eastern portion of the land covered by OCT No. P-14320.
In addition, petitioners can no longer question the validity of the positive declaration of
Maximo Labanon in the Assignment of Rights and Ownership in favor of the late
Constancio Labanon, as the agreement was not impugned during the former’s lifetime
and the recognition of his brother’s rights over the eastern portion of the lot was further
affirmed and confirmed in the subsequent April 25, 1962 Sworn Statement.
Section 31, Rule 130 of the Rules of Court is the repository of the settled precept that
"[w]here one derives title to property from another, the act, declaration, or omission of
the latter, while holding the title, in relation to the property, is evidence against the
former." Thus, petitioners have accepted the declaration made by their predecessor-in-
interest, Maximo Labanon, that the eastern portion of the land covered by OCT No. P-
14320 is owned and possessed by and rightfully belongs to Constancio Labanon and
the latter’s heirs. Petitioners cannot now feign ignorance of such acknowledgment by
their father, Maximo.
Lastly, the heirs of Maximo Labanon are bound to the stipulations embodied in the
Assignment of Rights and Ownership pursuant to Article 1371 of the Civil Code that
contracts take effect between the parties, assigns, and heirs.
Petitioners as heirs of Maximo cannot disarrow the commitment made by their father
with respect to the subject property since they were merely subrogated to the rights and
obligations of their predecessor-in-interest. They simply stepped into the shoes of their
predecessor and must therefore recognize the rights of the heirs of Constancio over the
eastern portion of the lot. As the old adage goes, the spring cannot rise higher than its
source.
WHEREFORE, the petition is DENIED. The May 8, 2003 CA Decision and October 13,
2003 Resolution in CA-G.R. CV No. 65617 are AFFIRMED with the modifications that
the Kidapawan City, Cotabato RTC, Branch 17 is directed to have OCT No. P-14320
segregated and subdivided by the Land Management Bureau into two (2) lots based on
the terms of the February 11, 1955 Assignment of Rights and Ownership executed by
Maximo Labanon and Constancio Labanon; and after approval of the subdivision plan,
to order the Register of Deeds of Kidapawan City, Cotabato to cancel OCT No. P-14320
Page 281 of 303
and issue one title each to petitioners and respondents based on the said subdivision
plan.
SO ORDERED.
G.R. No. 159810 October 9, 2006
ESTATE OF EDWARD MILLER GRIMM, represented by RAMON J. QUISUMBING

and RANDY GLEAVE LAWYER, as Judicial Administrators, petitioners,
vs.
ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS, G-P AND
COMPANY and MANILA GOLF & COUNTRY CLUB, INC., respondents.
DECISION
Page 282 of 303

GARCIA, J.:
Because legal and situational ambiguities often lead to disagreements even between or
amongst the most agreeable of persons, it behooves all concerned to put their financial
affairs and proprietary interests in order before they depart for the great beyond.
Leaving legal loose ends hanging or allowing clouds to remain on property titles when
one can do something about them before the proverbial thief in the night suddenly
comes calling only opens the door to bruising legal fights and similar distracting
inconveniences. So it was here.
In this petition for review under Rule 45 of the Rules of Court, the Estate of Edward
Miller Grimm, represented by its judicial administrators, assails and seeks to set aside
the Decision1 dated September 8, 2003 of the Court of Appeals (CA) in CA-G.R. CV No.
69990, reversing an earlier decision of the Regional Trial Court (RTC) of Makati City in
its Civil Case No. 92-2452.
At the core of the controversy is a stock certificate of the Manila Golf & Country Club,
Inc. ("MGCC" or the "Club", for short) covered by Membership Certificate (MC) No.
1088 for 100 units, the playing rights over which the Rizal Commercial Banking
Corporation (RCBC), the court-appointed receiver, had, in the meantime, leased out.
The Club issued MC No. 1088 to replace MC No. 590. Asserting clashing ownership
claims over MC No.1088, albeit recorded in the name of Charles Parsons ("Parsons",
hereinafter) are petitioner Estate of Edward Miller Grimm and respondent G-P and
Company ("G-P & Co.", hereinafter).
Parsons and Edward Miller Grimm (Grimm), together with Conrado Y. Simon (Simon),
formed in 1952 a partnership for the stated purpose of engaging in the import/export
and real estate business. Per SEC Certificate #3305,2 the partnership was registered
under the name G - P and Company.
Before September 1964, Parsons and Grimm each owned proprietary membership
share in MGCC,3 as evidenced by MC No. 374 for 100 units in the name of Parsons,
and MC No. 590, also for 100 units, in the name of Grimm. Per records, the Club issued
MC No. 590 to Grimm on May 25, 1960.4
After Grimm's demise on November 27, 1977, Parsons and Simon continued with the
partnership under the same name, G – P and Company, as reflected in Articles of
Partnership dated December 14, 1977.5 The articles of the partnership would later
undergo another amendment to admit Parsons' son, Patrick, in the partnership.6 After
Parsons died on May 12, 1988, Amended Articles of Partnership of G-P and
Company was executed on September 23, 1988 by and among Parsons' heirs, namely,
Patrick, Michael, Peter and Jose, all surnamed Parsons, albeit the amendment
appeared to have been registered with the SEC only on March 18, 1993. 7
The herein legal dispute started when brothers Patrick and Jose, both surnamed
Parsons, responding to a letter8 from the Estate of Grimm, rejected the existence of a
trust arrangement between their father and Grimm involving MC No. 1088. Thus
spurned, the Estate of Grimm filed on August 31, 1992 before the RTC of Makati City, a
suit for recovery of MC No. 1088 with damages against the Estate of Parsons, Patrick
Page 283 of 303
Parsons and MGCC. In its complaint,9 docketed as Civil Case No. 92-2452 and
eventually raffled to Branch 135 of the court, the Estate of Grimm, represented by its
judicial administrator, Ramon J. Quisumbing, alleged, among other things, the following:
1. That on September 7, 1964, Grimm transferred MC No. 590 in trust to

Parsons; on the same day, MGCC cancelled MC No. 590 and issued MC No.
1088 in the name of Parsons;
2. That in separate letters dated February 28, 1968 addressed to MGCC, both
Grimm and Parsons stated that the transfer of MC No. 590 was temporary.
Enclosed in that Parsons' letter was MC No. 1088 which he was turning over for
safekeeping to the Club, thru E.C. Von Kauffmann and Romeo Alhambra, then
MGCC honorary secretary and assistant manager, respectively;
3. That on June 9, 1978, or after Mr. Kauffman' death and Mr. Alhambra's
resignation, MGCC turned over the possession of MC No. 1088 to Parsons;
4. That in 1977, Grimm died; after a protracted proceedings, his estate was
finally settled in 1988, the year Parsons also died;
5. That Patrick and Jose Parsons had, when reminded of the trust arrangement
between their late father and Grimm, denied the existence of a trust over the
Club share and refused to return the same; and
6. That MGCC had refused, despite demands, to cancel MC No. 1088 and issue
a new certificate in the name of the Estate of Grimm.
Attached to the complaint were the demand letters and other communications which, to
the Estate of Grimm, document the Grimm-Parsons trust arrangement.
In his Answer with counterclaim,10 Patrick Parsons averred that his father was, with
respect to MC No. 1088, a mere trustee of the true owner thereof, G-P & Co., and
alleged, by way of affirmative defense, that the claim set forth in the complaint is
unenforceable, barred inter alia by the dead man's statute, prescription or had been
waived or abandoned.
Herein respondent G-P & Co., echoing Patrick Parsons' allegation respecting the
ownership of MC No. 1088, moved to intervene and to implead Far East Bank & Trust
Co. (FEBTC), as transfer agent of MGCC, as defendant-in-intervention. Attached to its
motion was its COMPLAINT In Intervention11 therein alleging (a) that on September 1,
1964, Parsons executed a Letter of Trust, infra, in which he acknowledged the
beneficial ownership of G-P & Co. over MC No. 374 and MC No.1088; (b) that Parsons,
as required by the partnership, endorsed both certificates in blank; and (c) that G-P &
Co. carried said certificates amongst its assets in its books of accounts and financial
statements and paid the monthly dues of both certificates to the Club when its
membership privileges were not temporarily assigned to others. In the same complaint-
in-intervention, G-P & Co. cited certain tax incidents as reasons why the transfer of MC
No. 374 and MC No. 1088 from Parsons to the intervenor-partnership cannot as yet be
accomplished.
Page 284 of 303
After the usual reply and answer to counterclaims had been filed, the Estate of Grimm
filed an amended complaint to include Randy Gleave Lawyer, the other judicial co-
administrator, as representative of the Estate. On April 28, 1993, the trial court admitted
the amended complaint.
After a lengthy trial, the trial court rendered its May 29, 2000 judgment 12 finding for the
Estate of Grimm, as plaintiff a quo, disposing as follows:
1. Ordering defendants ESTATE OF CHARLES PARSONS and PATRICK C.

PARSONS:
1.1 to turn over [MC] No. 1088 to plaintiff ESTATE OF EDWARD MILLER
GRIMM;
1.2 jointly and severally to pay damages to plaintiff ESTATE …in the
amount of P400,000.00 per annum from September 8, 1989 to November
12, 1998, with legal interest thereon from the date of this Decision until
fully paid;
1.3 Jointly and severally, to pay plaintiff ESTATE … attorney's fees in the
amount of P1,000,000.00 and the costs;
2. Ordering defendant [MGCC] and defendant-in-intervention [FEBTC] to cancel

[MC] No. 1088 and to issue a new Membership Certificate in lieu thereof in the
name of plaintiff ESTATE ….
3. Ordering Receiver RIZAL COMMERCIAL BANKING CORPORATION to turn

over to plaintiff ESTATE … all income derived from the lease of the playing rights
of [MC] No. 1088, less Receiver's fees and charges.
4. Ordering the dismissal of the counterclaim of the defendants … [Parsons]; and
5. Ordering the dismissal of the complaint-in-intervention and the supplemental

counterclaim of intervenor G - P AND COMPANY.
SO ORDERED. (Words in bracket added.)
In gist, the trial court predicated its ruling on the postulate that the temporary transfer of
Grimm's original share in MGCC - covered by MC No. 590 whence MC No. 1088
descended – to Parsons, created a trust relationship between the two.
Therefrom, only herein respondents G-P & Co., Patrick Parsons and the Parsons Estate
appealed to the CA, albeit MGCC would, in its brief, reiterate its readiness to issue the
corresponding replacement certificate to whosoever is finally adjudged owner of MC No.
1088.
On September 8, 2003, in CA-G.R.CV No. 69990, the appellate court rendered its
herein assailed Decision,13 disposing as follows:
Page 285 of 303

WHEREFORE, the Decision of the lower court dated May 29, 2000 is
hereby REVERSED and SET ASIDE, and another one rendered:
1. Dismissing the complaint filed by … Estate of Edward Miller Grimm for lack of
merit;
2. Ordering … Manila Golf and Country Club, Inc., and defendant-in-intervention

Far East Bank & Trust Company, as transfer agent, to immediately effect the
reconveyance of [MC] No. 1088 to Intervenor-appellant G-P and Company;
3. Ordering Rizal Commercial Banking Corporation, as receiver, to immediately

turn over to intervenor-appellant G-P and Company all income derived from the
lease of the playing rights of said Membership Certificate, less receiver's fees;
4. Ordering [the] … Estate of Edward Miller Grimm to pay appellants the amount
of P800,000.00 as attorney's fees;
5. Ordering … Estate of Edward Miller Grimm to pay appellants the costs of suit.
SO ORDERED. (Words in bracket added.)
Hence, this petition for review on the lone submission that the CA erred in finding that
respondent G-P & Co. is the beneficial owner of MC No. 1088.
In their comment to the petition, the respondents urge the outright dismissal thereof on
the ground that it raises only purely factual and evidentiary issues which are beyond the
office of an appeal by certiorari. As argued further, the factual findings of the CA are
conclusive on the parties.
It should be made clear right off that respondent Patrick Parsons, in his individual
capacity, and the Estate of Parsons (collectively, the Parsons) are not claiming
beneficial ownership over MC No. 1088. The same goes for respondent MGCC which
went to state on record that "[T]he ownership of [MC] No. 1088 (previously No. 590)
does not belong to the Club and it does not stand to gain … from the determination of
its real owner."14
We GRANT the petition.
The respondents' formulation of the grounds for the dismissal of the instant petition is a
statement of the general rule. A resolution of the petition would doubtless entail a review
of the facts and evidentiary matters against which the appealed decision is cast, a
procedure which is ordinarily outside the province of the Court and the office of a
certiorari review under Rule 45 of the Rules of Court. For, the rule of long standing is
that the Court will not set aside the factual determinations of the CA lightly nor will it
embark in the evaluation of evidence adduced during trial. This rule, however, admits of
several exceptions. Among these are when the factual conclusions of the CA are
manifestly erroneous; are contrary to those of the trial court; when the judgment of the
CA is based on misapprehension of facts or overlooked certain relevant facts not
disputed by the parties which, if properly considered, would justify a different
Page 286 of 303
conclusion.15 Decidedly, this case falls within the recognized exceptions to the rule on
the finality of factual findings or conclusions of the CA.
The principal issue tendered in this case turns on who between petitioner Estate of
Grimm and respondent G.P. & Co. beneficially owns MC No. 1088. Corollary thereto -
owing to the presentation by respondents of a LETTER OF TRUST that Parsons
allegedly executed in favor of G-P and Company with respect to MC No. 1088 - is the
question of whether or not the transfer of MC No. 590 effected on September 7, 1964 by
Grimm in favor of Parsons resulted, as the petitioner would have it, in the formation of a
trust relation between the two. Thus formed, the trust relationship would preclude the
trustee from disposing of the trust property, save when repudiation of the trust had
effectively supervened.
The trial court found the September 7, 1964 Grimm- to- Parsons certificate transfer to
be only temporary and without valuable consideration to accommodate a third person
and thus adjudged Grimm to be the real owner of MC No. 590, as later replaced by MC
No. 1088. According to the trial court, such transfer created a trust, with Parsons, as
trustee, and Grimm, as the beneficial owner of the share thus transferred, adding that
Parsons, as mere trustee, is without right to transfer the replacement certificate to G-P
& Co.
On the other hand, the CA, while eschewing the alternative affirmative defenses
interposed below by respondents, nonetheless ruled for respondent G–P & Co. Citing
Article 1448 of the Civil Code,16 the appellate court held that respondent G–P & Co.
pertains the beneficial ownership of MC No. 1088, an implied trust in its favor having
been created when MC No. 590 and MC No. 374 were acquired for and placed in the
names of Grimm and Parsons, respectively, albeit the partnership paid for the price
therefor. To the appellate court, the fact that these certificates were carried, as of
December 31, 1974, November 27, 1977 and December 31, 1978 in the books 17 of G-P
& Co. as investment assets only proves one thing: the company paid the acquisition
costs for the membership certificates. If Grimm was the real owner of said share, he
should have, according to the appellate court, objected to its inclusion in the partnership
assets during his lifetime. Completing its ratiocination, the CA wrote:
xxx. A trust, which derives its strength from the confidence one reposes on
another especially between the partners and the company, does not lose that
character simply because of what appears in a legal document. The transfer
therefore of Grimm's [MC] No. 590 on September 7, 1964 in favor of Charles
Parsons resulted merely in the change of the person of trustee but not of the
beneficial owner, the G-P and Company.
The CA's ruling does not commend itself for acceptance. As it were, the assailed
decision started on the wrong foot and thus had to limp all along to arrive at a strained
and erroneous conclusion. We shall explain.
A party in whose favor a legal presumption exists may rely on and invoke such legal
presumption to establish a fact in issue. He need not introduce evidence to prove that
fact. For, a presumption is prima facie proof of the fact presumed and to the party
against whom it operates rests the burden of overthrowing by substantial and credible
Page 287 of 303
evidence the presumption.18 Under the law on evidence, it is presumed that "there was
sufficient consideration for a contract." 19
Inasmuch as Grimm's name appeared on MC No. 590 as registered owner thereof, he

is deemed to have paid sufficient consideration for it. The onus of proving otherwise
would fall on respondents G-P & Co. and/or the Parsons. Without so much of an
explanation, however, the CA minimized the value of MC No. 590 as arguably the best
evidence of ownership. Corollarily, the appellate court devalued the rule on legal
presumption and faulted petitioner Estate of Grimm for not presenting evidence to prove
that Grimm paid for his original acquisition of MC No. 590. Wrote the CA:
Contrary to the findings of the lower court, [petitioner] failed to establish [its] right
over the said shares. xxx Not a single evidence of proof of payment for the said
shares was ever presented by the [petitioner] to establish ownership. (Words in
bracket added.)20
Ironically, while the CA held it against the petitioner for failing to adduce proof of
payment by Grimm for his MC No. 590, it nonetheless proceeded to declare respondent
G-P & Co. to be the beneficial owner of said certificate even if it, too, had not presented
proof for such payment. Respondent G-P & Co., in its complaint-in-intervention (should
have been answer-in-intervention), did not allege paying for MC No. 590. Surely,
payment cannot be validly deduced, as the CA did, from the bare fact of such
membership certificate being listed in the books of respondent G -P & Co. as
partnership investment assets. For one, the self-serving book entries in question are, as
correctly dismissed by the trial court, not evidentiary of ownership. Else, anyone can lay
a claim, or worse, acquire ownership over a share of stock by the simple expedience of
listing, without more, the same in the partnership or corporate books. The sheer
absurdity of the notion need no belaboring.
For another, what appears or what respondent company uniformly entered as

investments are: "Manila Golf & Country Club, Inc. 2 shares." No reference was made
whatsoever in the books or financial statements about MC No. 590, (MC. No. 1088) and
MC. No. 374. In the absence of the number reference or other similar identifying details,
the CA's categorical conclusion that one of the "2 shares" referred to is MC No. 1088 is
at best speculative. This observation becomes all the more valid given that Michael
Parsons had in his name two (2) Club share certificates. Exhibit "X-4," a September 21,
1964 letter from Parsons to Mr. Kaufmann made specific reference to Michael's shares:
Under the circumstance, please disregard … the previous letter which Michael
wrote in connection with the shares in his name ….
In the case of the two shares in the name of Michael, please leave the two in his
name . . . .
As matter now stands, in summary, I shall retain my shares in my name and

continue playing under such shares; Michael will retain two shares … assigning
one to Mr. Stoner; and Pete Grimm will assign his playing rights to Mr. Daikichi
Yoshida.21
Page 288 of 303

And for a significant third, respondent G-P & Co. is not the same G-P & Co. that
Parsons, Grimm and Simon organized in 1952, the former being an entity that came into
existence only on September 23, 1988. It is thus well-nigh impossible for respondent
company to have participated in a transaction that occurred years before it acquired
juridical personality. In the concrete, it is not physically possible for respondent G-P &
Co. to have paid the price for the purchase of Grimm's MC No. 590, the same having
been acquired in 1960 or some 28 years before the respondent company was
established by the execution of the Articles of Partnership on September 23, 1988. The
trial court depicted the incongruity of the situation in the following fashion:
Intervenor [respondent G-P & Co.] is not the same partnership originally formed
by Grimm, Parsons and Simon. When Grimm died on November 27, 1977, the
original partnership was dissolved. The death of a partner causes dissolution of a
partnership [Article 1829, Civil Code]. A new partnership was formed with
Parsons and Simon as partners. Besides this new partnership formed after the
death of Grimm, there were five (5) others formed [Exhibit DD, EE, FF, GG, HH
and II] carrying the name, G-P and Company. 22 (Words in bracket in the original)
Independent of the cited Article 1829 of the Civil Code on the matter of partnership
dissolution, however, it bears to state that Parsons and Simon executed on December
13, 1977 a joint affidavit23 wherein they declared the dissolution of the original 3-man G-
P & Co., owing to the death of Grimm. The registration on December 14, 1977 of a new
Articles of Partnership of G-P & Co. followed the execution by Parsons and Simon of
said affidavit. 24
It may be, as respondents rationalize, that the succeeding G-P & Co. partnerships
merely continued with the business started by the original G-P & Co.25 This element of
continuity, assuming to be true, does not, however, detract from the fact that the
partnerships of the same name formed after Grimm's demise are entities altogether
different and with personalities distinct from the original partnership.
This brings us to the next issue of whether or not the transfer to Parsons of MC No. 590,
as replaced by MC No. 1088, partook of the nature of a trust transaction.
Trust is the legal relationship between one having an equitable ownership in property
and another person owning the legal title to such property, the equitable ownership of
the former entitling him to the performance of certain duties and the exercise of certain
powers by the latter.26 Trust relations between parties may be express, as when the
trust is created by the intention of the trustor.27 An express trust is created by the direct
and positive acts of the parties, by some writing or deed or by words evidencing an
intention to create a trust; the use of the word trust is not required or essential to its
constitution, it being sufficient that a trust is clearly intended. 28 Implied trust comes into
existence by operation of law, either through implication of an intention to create a trust
as a matter of law or through the imposition of the trust irrespective of, and even
contrary to any such intention.29
Judging from their documented acts immediately before and subsequent to the actual
transfer on September 7, 1964 of MC No. 590, Parsons, as transferee, and Grimm, as
transferor, indubitably contemplated a trust arrangement. Consider:
Page 289 of 303
There can be no quibbling, owing to the letter exchanges between the Club, in particular
its Honorary Secretary E. C. Von Kauffman, and Parsons, that the reason Grimm
transferred his MC No. 590 to Parsons was because of the latter's wish to
accommodate one Daikichi Yoshida. Earlier, Parsons recommended to Club
management the approval of Mr. Yoshida's "Application For Waiting List Eligible To
[Club] Proprietary Membership."30 In a letter of August 10, 196431 to the MGCC's Board
of Directors, Parsons endorsed the application of Yoshida as Club member. While the
Club's response does not appear in its files, it is quite apparent that Parsons addressed
a letter to Kauffman requesting that Yoshida be taken in as a Company assignee. In his
reply-letter32 of August 29, 1964, Kauffman explained why he cannot, under Club rules,
favorably act on Parsons' specific request, but suggested a viable solution, as follows:
Reference to your letter dated August 25th, there is a hitch … of assigning the
playing rights to Mr. Daikichi Yoshida, as a company assignee.
xxx xxx xxx
The only solution that I see is that you transfer Pete Grimm's 100 units to your
name and leave the other 100 units in your name, then you may assign the
playing rights of one of the certificates for 100 units to Mr. Yoshida. Mr. Yoshida
was approved by the Board but not as a Company assignee. (Emphasis added.)
Parsons' response to Kauffman's August 29, 1964 letter partly reads as follows:
Thank you for your letter of the 29th ….
Under the circumstances, please disregard the previous letter which I wrote with
reference to Pete Grimm's and my shares ….
xxx xxx xxx
As matter now stands, in summary, I shall retain in my name and continue

playing under such shares …. And Pete Grimm will assign his playing rights to
Mr. Daikichi Yoshida.
The conclusion easily deductible from the foregoing exchanges is that, given existing
Club restrictions, the simplest way to accommodate and qualify Yoshida for Club
membership was for Grimm to transfer his 100-unit share to Parsons who will then
assign the playing rights of that share to Yoshida.33 The RTC aptly described the
relevant factual situation, viz.:
With these exchanges between Parsons and Kauffman …, it is apparent that

since the shares held by Parsons and Grimm are individual shares and not
company shares, their shares may not be assigned …. The proposal of Parsons
that "Pete Grimm will assign his playing rights to … Yoshida" was rejected by
Kauffman in his letter dated September 5, 1964 [Exhibit X-5 / 27] that "Pete
Grimm's assignment to him (Yoshida) cannot be made as the rules are that only
members who holds (sic) 200 units may assign 100 units to an individual." A
letter of the same date … [Exhibit X-6 / 28] was sent by Kauffman to Mr. Yoshida
Page 290 of 303
informing him of his election to the Club apologizing for the delay …. Kauffman
wrote further " … Mr. Charles Parsons has made arrangement for to play (sic) as
assignee of extra membership which he now holds."
The election of Yoshida as assignee of a proprietary member and the resignation

of Grimm were approved by the Club's Board… on August 27, 1964. Kauffman
and Parsons were still discussing the ways … Mr Yoshida can be accommodated
… as of September 5, 1964, but the resignation of Grimm and election of
Yoshida was already approved … more than a week before. 34 (Words in bracket
in the original; Underscoring added.)
Even on the above factual perspective alone, it is not difficult to characterize, as did the
trial court, the certificate transfer from Grimm to Parsons, as temporary, there being no
evidence whatsoever that the transfer was for value. Such transfer was doubtless
meant only to accommodate Yoshida whose stay in the country was obviously
temporary. As it were, Yoshida's application35 for Club membership juxtaposed with the
August 10, 1964 endorsement- letter36 of Parsons, yielded the information that he
(Yoshida) is the manager of the Manila Liaison Office of Mitsubishi Shoji Kaisha desiring
to acquire Company membership in the name of his employer Mitsubishi to enable
future representatives to avail themselves of Club facilities. Since Club membership did
not seem possible at the time, Yoshida had to come in as an assignee of a proprietary
member.
Other compelling evidence attest to the temporary nature of the transfer in question.
The trial court cited two in its Decision. Wrote that court:
Even a witness for the (respondents) intervenor and the Parsons, Celso Jamias,
Chief Accountant of G-P and Company, confirmed that the transfer of the share
to Parsons was temporary. In a letter [Exhibit 7-GG] dated 10 August 1991
addressed to Atty. Patricia Cecilia B. Bisda, counsel for G-P and Company,
Jamais wrote:
". . . please be informed that the accommodation for Mr. Yoshida to have
playing rights has not bearing on the ownership of the share. The share of
…Grimm (EMG) was transferred to Mr. Charles Parsons (CP) to
accommodate Mr. Yoshida due to Manila Golf club requirements.
Atty. Patricia Cecilia B. Bisda …echoed the view of Jamias, in a letter [Exhibit Y]
dated 30 August 1991 addressed to … (the) then General Manager of the Club:
She wrote:
"Also, we would like to clarify …. That the accommodation of Mr. Yoshida

to enjoy the playing rights has no bearing to the ownership of the shares.
The share of Edward Grimm was transferred to Charles Parsons to
accommodate D. Yoshida due to club requirements."37
Any lingering doubt, however, as to the temporary nature of the Grimm-to-Parsons

transfer should, in our view, be put to rest by what MGCC records-file contained and the
testimony of its former records custodian, Romeo Alhambra. In his affidavit of May 12,
Page 291 of 303
1989,38 Alhambra stated that "[A]ccording to Club records, the transfer of [MC] # 580
was only temporary, and that Mr. Grimm was and, according to club records, is in fact
the owner of [MC] # 1088" and that after the transfer, "Mr. Charles Parsons endorsed
the share certificate and turned it over to … Kauffmann … for safekeeping." Forming
parts of the same records were letters both dated February 28, 1968 – the day the
share certificate transfer was effected – separately submitted by Grimm and Parsons, to
inform MGCC of the temporary nature of the transfer. In his letter, Grimm stated that
MC No. 1088 "is still my property and I wish it recorded as such in the Club's
file."39 Parsons' letter40 was just as simple as it was revealing, thus:
Reference to the transfer of [MC] #590 in the name of Mr. E.M. Grimm to my
name, for which I now have the new Certification No. 1088 …, please be advised
that this transfer was made on a temporary basis and that said new certificate is
still the property of Mr. E.M. Grimm and I enclose the certificate duly endorsed by
me for safekeeping.
At bottom then, documented events immediately before and after the February 28, 1968
share certificate conveyance in question veritably confirm the trust arrangement
Parsons had or intended to have with Grimm and vice versa, vis-à-vis MC No. 1088. If,
as herein respondent G-P & Co. posits at every turn, Parsons was its trustee, then the
latter's act of endorsing MC No. 1088 in blank and then delivering the same to the Club
for safekeeping instead of directly to the G-P & Co. was without sense.
The trial court correctly described the relationship that was formed between Grimm and
Parsons, and the consequence of such relationship, as follows:
Since the transfer of Grimm's share to Parsons was temporary, a trust was
created with Parsons as the trustee, and Grimm, the beneficial owner of the
share. The duties of trustees have been said, in general terms, to be: "to protect
and preserve the trust property, and to see to it that it is employed solely for the
benefit of the cestui que trust." xxx Parsons as a mere trustee, it is not within his
rights to transfer the share to G-P and Company (sic).
The Court has, to be sure, considered the Letter of Trust41 dated September 1,
1964 largely because, in respondents' own words, it "provides the answer to the
question of who the real owner of MC #1088 is."42 In the Letter he purportedly signed,
Parsons declared holding MC No. 374 and MC No. 1088 as "NOMINEE IN TRUST for
and in behalf of G-P AND COMPANY … or its nominee." This piece of document is not,
however, a winning card for the respondents. The trial court mentioned two compelling
reasons why not, both reasons bearing on the due execution and genuineness of the
document. Wrote the court:
This "LETTER OF TRUST" was purportedly signed by Parsons on September 1,

1964. But the transfer of [MC] No. 590 was recorded (and MC No. 1088 issued)
only on September 7, 1964 in the Club's Proprietary Membership Card No. 144
[Exhibit 8]. With the testimony of Celso B. Jamias, a long time employee of G-P
and Company, the doubt as to the genuineness of the signature of Parsons on
the "LETTER OF TRUST" was brought to light. Jamias was cross-examined on
Page 292 of 303

the signatures of Parsons on several documents including the signature of the
LETTER OF TRUST":
Q: How about the signature appearing on Exhibit CC-1 …?
A: This is Charles Parsons, sir.
Q: - You are familiar with the signature?
A: Yes, sir.
Q: - I'm showing you Exhibit I which is a letter of trust dated September 1,

1964, comparing those signatures which you identified above the printed name
C. Parsons there are, two signatures, the signatures you identified earlier and the
one appearing on the letter of trust are similar in the sense that the "s" of
Parsons is elevated and it slopes down, is that correct?
xxx xxx xxx
A: - Based on how I see, this doesn't seem to be the signature of Parsons, it

looks like but it is not, sir. [TSN, May 4, 1999, pp 5-6]. (Words in parenthesis
added.)
And lest it be overlooked, Parsons had previously acknowledged Grimm to be the

owner of MC No. 1088, after his earlier repeated declarations that the transfer of the
replaced MC No. 580 was temporary. Parsons was thus in contextually in estoppel to
deny, thru the Letter of Trust aforementioned, hypothetically assuming its authenticity,
Grimm's ownership of the replacement certificate.
Summing up, the Court finds the evidence adduced and admitted by the trial court more
than adequately supporting a conclusion that MC No. 1088 was issued to and held by
Parsons as the trustee thereof of Grimm or his estate. The fact that respondent G-P &
Co. may have paid, starting 1992, as evidence discloses, the membership fees due on
MC No. 1088 does not make Grimm less of a beneficial owner. Such payment,
needless to stress, is not a mode of acquiring ownership.
Parenthetically, the CA is observed to have said that in the settlement of the estate of
Parsons, MC No. 1088 was not included in the list of stocks owned by him. And from
this inconsequential event, the appellate court would conclude that the estate
administrator recognized Parsons to be a mere trustee of such certificate. While the
decision does quite say so, the implication is that Parsons was the trustee of G -P & Co.
We cannot agree with this non-sequitur approach which, at bottom, clearly tends to
lower the evidentiary bar for respondents. Needless to stress, it is not for the CA and all
courts for that matter to compensate for a burden of proof not discharged or
a quantum of evidence not met.
The Court cannot, for two reasons, also lend cogency to the CA's observation that the
heirs of Grimm may have had waived, abandoned or denounced their rights to the trust
Page 293 of 303
property when, for P100,000.00, they executed a Deed of Acknowledgment of
Satisfaction of Partnership Interests.43 Firstly, the deed, as a quitclaim instrument, did
not mention any share certificate at all, which is only logical since MC No. 1088 was not
a partnership asset in the first place. Secondly, the intention to waive a known right
must be clear and unequivocal. In this case, the intent to renounce beneficial ownership
of MC No. 1088 cannot reasonably be drawn from the tenor of the quitclaim document.
For perspective, what the heirs of Grimm stated in the Deed of Acknowledgment is that
the amount of P100,000.00 they received "represents the total liquidation and complete
settlement … of the entire partnership interests pertaining to the late Edward Miller
Grimm as partner in G-P AND COMPANY." If, to borrow from Thompson v. Court of
Appeals,44 we apply the standard norm on how a waiver must be formulated, then
clearly the general terms of the aforementioned deed merely indicate a clearance from
general accountability, not specifically an abandonment of ownership of the disputed
share. For:
xxx. Settled is the rule that a waiver to be valid and effective must, in the first
place, be couched in clear and unequivocal terms which leave no doubt as to the
intention of a party to give up a right or benefit which legally pertains to him. xxx
A waiver may not be attributed to a person when the terms thereof do not
explicitly and clearly evidence an intent to abandon a right vested in such person.
If we apply the standard rule that waiver must be cast in clear and unequivocal
terms, then clearly the general terms of the cited release and quitclaim indicates
merely a clearance from general accountability, not specifically a waiver of
Amcham's beneficial ownership of the disputed shares. 45
In all, the facts and circumstances attendant militate against the CA's finding pointing to
G-P & Co. as the beneficial owner of MC No. 1088. What the evidence adduced instead
proved beyond cavil is that Grimm or his estate is such owner. We therefore reverse.
WHEREFORE, the herein assailed decision of the Court of Appeals

is REVERSED and SET ASIDE, and the Decision of the Regional Trial Court of Makati
City in Civil Case No. 92-2452 is REINSTATED.
Costs against the respondents.
SO ORDERED.
Page 294 of 303

G.R. No. 136021 February 22, 2000
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON

SECUYA, RUFINA SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA,
GLICERIA SECUYA and PURITA SECUYA, petitioners,
vs.
GERARDA M. VDA. DE SELMA, respondent.
PANGANIBAN, J.:
In action for quieting of title, the plaintiff must show not only that there is a cloud or
contrary interest over the subject real property, but that the have a valid title to it. In the
present case, the action must fail, because petitioners failed to show the requisite title.
The Case
Before us is a Petition for Review seeking to set aside the July 30, 1998 Decision of the
Court of Appeals (CA) in CA-G.R. CV No. 38580,1 which affirmed the judgment2 of the
Regional Trial Court (RTC) of Cebu City. The CA ruled:
WHEREFORE, [there being] no error in the appealed decision, the same is

hereby AFFIRMED in toto.3
The decretal portion of the trial court Decision reads as follows:
WHEREFORE, in view of all the foregoing [evidence] and considerations, this

court hereby finds the preponderance of evidence to be in favor of the defendant
Gerarda Selma as judgment is rendered:
1. Dismissing this Complaint for Quieting of title, Cancellation of Certificate of

Title of Gerarda vda. de Selma and damages,
Page 295 of 303
2. Ordering the plaintiffs to vacate the premises in question and turn over the
possession of the same to the defendant Gerarda Selma;
3. Requiring the plaintiffs to pay defendant the sum of P20,000 as moral

damages, according to Art. 2217, attorney's fees of P15,000.00, litigation
expenses of P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs of this
suit.1âwphi1.nêt
SO ORDERED.4
Likewise challenged is the October 14, 1998 CA Resolution which denied petitioners'
Motion for Reconsideration.5
The Facts
The present Petition is rooted in an action for quieting of title filed before the RTC by
Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad, Gliceria and Purita
— all surnamed Secuya — against Gerarda M. vda. de Selma. Petitioners asserted
ownership over the disputed parcel of land, alleging the following facts:
xxx xxx xxx
8. The parcel of land subject of this case is a PORTION of Lot 5679 of the
Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page 279,
Friar Lands Sale Certificate Register of the Bureau of Lands (Exh. "K"). The
property was originally sold, and the covering patent issued, to Maxima Caballero
Vda. de Cariño (Exhs. "K-1"; "K-2). Lot 5679 has an area of 12,750 square
meters, more or less;
9. During the lifetime of Maxima Caballero, vendee and patentee of Lot 5679,
she entered into that AGREEMENT OF PARTITION dated January 5, 1938 with
Paciencia Sabellona, whereby the former bound herself and parted [with] one-
third (1/3) portion of Lot 5679 in favor of the latter (Exh. "D"). Among others it
was stipulated in said agreement of partition that the said portion of one-third so
ceded will be located adjoining the municipal road (par. 5. Exh "D");
10. Paciencia Sabellona took possession and occupation of that one-third portion
of Lot 5679 adjudicated to her. Later, she sold the three thousand square meter
portion thereof to Dalmacio Secuya on October 20, 1953, for a consideration of
ONE THOUSAND EIGHT HUNDRED FIFTY PESOS (P1,850.00), by means of a
private document which was lost (p. 8, tsn., 8/8/89-Calzada). Such sale was
admitted and confirmed by Ramon Sabellona, only heir of Paciencia Sabellona,
per that instrument denominated CONFIRMATION OF SALE OF UNDIVIDED
SHARES, dated September 28, 1976(Exh. "B");
11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia
Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON NI
PACIENCIA SABELLONA (Last Will and Testament of Paciencia Sabellona),
dated July 9, 1954, executed and acknowledged before Notary Public Teodoro P.
Page 296 of 303
Villarmina (Exh. "C"). Pursuant to such will, Ramon Sabellona inherited all the
properties left by Paciencia Sabellona;
12. After the purchase [by] Dalmacio Secuya, predecessor-in interest of plaintiffs
of the property in litigation on October 20, 1953, Dalmacio, together with his
brothers and sisters — he being single — took physical possession of the land
and cultivated the same. In 1967, Edilberto Superales married Rufina Secuya,
niece of Dalmacio Secuya. With the permission and tolerance of the Secuyas,
Edilberto Superales constructed his house on the lot in question in January 1974
and lived thereon continuously up to the present (p. 8., tsn 7/25/88 — Daclan).
Said house is inside Lot 5679-C-12-B, along lines 18-19-20 of said lot, per
Certification dated August 10, 1985, by Geodetic Engineer Celestino R. Orozco
(Exh. "F");
13. Dalmacio Secuya died on November 20, 1961. Thus his heirs — brothers,
sisters, nephews and nieces — are the plaintiffs in Civil Case No. CEB-4247 and
now the petitioners;
14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-meter

portion of Lot 5679, evidenced by Exhibit "P". Then on February 19, 1975, she
bought the bigger bulk of Lot 5679, consisting of 9,302 square meters, evidenced
by that deed of absolute sale, marked as Exhibit "5". The land in question, a
3,000-square meter portion of Lot 5679, is embraced and included within the
boundary of the later acquisition by respondent Selma;
15. Defendant-respondent Gerarda Selma lodged a complaint, and had the

plaintiffs-petitioners summoned, before the Barangay Captain of the place, and in
the confrontation and conciliation proceedings at the Lupong Tagapayapa,
defendant-respondent Selma was asserting ownership over the land inherited by
plaintiffs-petitioners from Dalmacio Secuya of which they had long been in
possession . . . in concept of owner. Such claim of defendant-respondent Selma
is a cloud on the title of plaintiffs-petitioners, hence, their complaint (Annex "C").6
Respondent Selma's version of the facts, on the other hand, was summarized by the
appellate court as follows:
She is the registered owner of Lot 5679-C-120 consisting of 9,302 square meters
as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324), having bought
the same sometime in February 1975 from Cesaria Caballero as evidenced by a
notarized Deed of Sale (Exhibit "5", Record, p. 323) and ha[ve] been in
possession of the same since then. Cesaria Caballero was the widow of Silvestre
Aro, registered owner of the mother lot, Lot. No. 5679 with an area of 12,750
square meters of the Talisay-Minglanilla Friar Lands Estate, as shown by
Transfer Certificate of Title No. 4752 (Exhibit "10", Record, p. 340). Upon
Silvestre Aro's demise, his heirs executed an "Extrajudicial Partition and Deed of
Absolute Sale" (Exhibit "11", Record, p. 341) wherein one-half plus one-fifth of
Lot No. 5679 was adjudicated to the widow, Cesaria Caballero, from whom
defendant-appellee derives her title.7
Page 297 of 303

The CA Ruling
In affirming the trial court's ruling, the appellate court debunked petitioners' claim of
ownership of the land and upheld Respondent Selma's title thereto. It held that
respondent's title can be traced to a valid TCT. On the other hand, it ruled that
petitioners anchor their claim on an "Agreement of Partition" which is void for being
violative of the Public Land Act. The CA noted that the said law prohibited the alienation
or encumbrance of land acquired under a free patent or homestead patent, for a period
of five years from the issuance of the said patent.
Hence, this Petition.8
The Issues
In their Memorandum, petitioners urge the Court to resolve the following questions:
1. Whether or not there was a valid transfer or conveyance of one-third (1/3)

portion of Lot 5679 by Maxima Caballero in favor of Paciencia Sabellona, by
virtue of [the] Agreement of Partition dated January 5, 1938[;] and
2. Whether or not the trial court, as well as the court, committed grave abuse of
discretion amounting to lack of jurisdiction in not making a finding that
respondent Gerarda M. vda. de Selma [was] a buyer in bad faith with respect to
the land, which is a portion of Lot 5679.9
For a clearer understanding of the above matters, we will divide the issues into
three: first, the implications of the Agreement of Partition; second, the validity of the
Deed of Confirmation of Sale executed in favor of the petitioners; and third, the validity
of private respondent's title.
The Court's Ruling
The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must demonstrate a legal or an

equitable title to, or an interest in, the subject real property. 10 Likewise, they must show
that the deed, claim, encumbrance or proceeding that purportedly casts a cloud on their
title is in fact invalid or inoperative despite its prima facie appearance of validity or legal
efficacy.11 This point is clear from Article 476 of the Civil Code, which reads:
Whenever there is cloud on title to real property or any interest therein, by reason
of any instrument, record, claim, encumbrance or proceeding which is apparently
valid or effective but is in truth and in fact invalid, ineffective, voidable or
unenforceable, and may be prejudicial to said title, an action may be brought to
remove such cloud or to quiet title.
Page 298 of 303

An action may also be brought to prevent a cloud from being cast upon title to
real property or any interest therein.
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the name of
Private Respondent Selma, is a cloud on their title as owners and possessors of the
subject property, which is a 3,000 —square-meter portion of Lot No. 5679-C-120
covered by the TCT. But the underlying question is, do petitioners have the requisite
title that would enable them to avail themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents: the Agreement of

Partition executed by Maxima Caballero and Paciencia Sabellona and the Deed of
Confirmation of Sale executed by Ramon Sabellona. We will now examine these two
documents.
First Issue:
The Real Nature of the "Agreement of Partition"
The duly notarized Agreement of Partition dated January 5, 1938; is worded as follows:
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cariño, now

residing and with postal address in the Municipality of Dumaguete, Oriental
Negros, depose the following and say:
1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla Estate
and the said application has already been indorsed by the District Land Officer,
Talisay, Cebu, for private sale in my favor;
2. That the said Lot 5679 was formerly registered in the name of Felix Abad y
Caballero and the sale certificate of which has already been cancelled by the
Hon. Secretary of Agriculture and Commerce;
3. That for and in representation of my brother, Luis Caballero, who is now the
actual occupant of said lot I deem it wise to have the said lot paid by me, as Luis
Caballero has no means o[r] any way to pay the government;
4. That as soon as the application is approved by the Director of Lands, Manila,

in my favor, I hereby bind myself to transfer the one-third (l/3) portion of the
above mentioned lot in favor of my aunt, Paciencia Sabellana y Caballero, of
legal age, single, residing and with postal address in Tungkop, Minglanilla, Cebu.
Said portion of one-third (1/3) will be subdivided after the approval of said
application and the same will be paid by her to the government [for] the
corresponding portion.
5. That the said portion of one-third (1/3) will be located adjoining the municipal
road;
Page 299 of 303

6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion herein
adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-Minglanilla
Estate and will pay the corresponding portion to the government after the
subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of
January, 1988, at Talisay, Cebu."12
The Agreement: An Express Trust, Not a Partition
Notwithstanding its purported nomenclature, this Agreement is not one of partition,

because there was no property to partition and the parties were not co-owners. Rather,
it is in the nature of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship that obliges the trustee to deal with the property
for the benefit of the beneficiary.13 Trust relations between parties may either be
express or implied. An express trust is created by the intention of the trustor or of the
parties. An implied trust comes into being by operation of law. 14
The present Agreement of Partition involves an express trust. Under Article 1444 of the
Civil Code, "[n]o particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended." That Maxima Caballero bound herself to
give one third of Lot No. 5629 to Paciencia Sabellona upon the approval of the former's
application is clear from the terms of the Agreement. Likewise, it is evident that
Paciencia acquiesced to the covenant and is thus bound to fulfill her obligation therein.
As a result of the Agreement, Maxima Caballero held the portion specified therein as
belonging to Paciencia Sabellona when the application was eventually approved and a
sale certificate was issued in her name.15 Thus, she should have transferred the same
to the latter, but she never did so during her lifetime. Instead, her heirs sold the entire
Lot No. 5679 to Silvestre Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when petitioners filed their
Complaint, Paciencia and her successors-in-interest did not do anything to enforce their
proprietary rights over the disputed property or to consolidate their ownership over the
same. In fact, they did not even register the said Agreement with the Registry of
Property or pay the requisite land taxes. While petitioners had been doing nothing, the
disputed property, as part of Lot No. 5679, had been the subject of several sales
transactions16 and covered by several transfer certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under express
trusts,17 prescription may, however, bar a beneficiary's action for recovery, if a
repudiation of the trust is proven by clear and convincing evidence and made known to
the beneficiary.18
Page 300 of 303

There was a repudiation of the express trust when the heirs of Maxima Caballero failed
to deliver or transfer the property to Paciencia Sabellona, and instead sold the same to
a third person not privy to the Agreement. In the memorandum of incumbrances of TCT
No. 308719 issued in the name of Maxima, there was no notation of the Agreement
between her and Paciencia. Equally important, the Agreement was not registered; thus,
it could not bind third persons. Neither was there any allegation that Silvestre Aro, who
purchased the property from Maxima's heirs, knew of it. Consequently, the subsequent
sales transactions involving the land in dispute and the titles covering it must be upheld,
in the absence of proof that the said transactions were fraudulent and irregular.
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not proven that they are
the rightful successors-in-interest of Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya on
October 20, 1953, and that the sale was embodied in a private document. However,
such document, which would have been the best evidence of the transaction, was never
presented in court, allegedly because it had been lost. While a sale of a piece of land
appearing in a private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and recorded in the
Registry of Property.20
Moreover, while petitioners could not present the purported deed evidencing the
transaction between Paciencia Sabellona and Dalmacio Secuya, petitioners' immediate
predecessor-in-interest, private respondent in contrast has the necessary documents to
support her claim to the disputed property.
The Questionable Value of the Deed
Executed by Ramon Sabellona
To prove the alleged sale of the disputed property to Dalmacio, petitioners instead
presented the testimony of Miguel Secuya, one of the petitioners; and a
Deed21 confirming the sale executed by Ramon Sabellona, Paciencia's alleged heir.
The testimony of Miguel was a bare assertion that the sale had indeed taken place and
that the document evidencing it had been destroyed. While the Deed executed by
Ramon ratified the transaction, its probative value is doubtful. His status as heir of
Paciencia was not affirmatively established. Moreover, he was not presented in court
and was thus not quizzed on his knowledge — or lack thereof — of the 1953
transaction.
Petitioners' Failure to Exercise Owners'
Rights to the Property
Page 301 of 303

Petitioners insist that they had been occupying the disputed property for forty-seven
years before they filed their Complaint for quieting of title. However, there is no proof
that they had exercised their rights and duties as owners of the same. They argue that
they had been gathering the fruits of such property; yet, it would seem that they had
been remiss in their duty to pay the land taxes. If petitioners really believed that they
owned the property, they have should have been more vigilant in protecting their rights
thereto. As noted earlier, they did nothing to enforce whatever proprietary rights they
had over the disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed property, alleging
that she was aware of their possession of the disputed properties. Thus, they insist that
she could not be regarded as a purchaser in good faith who is entitled to the protection
of the Torrens system.
Indeed, a party who has actual knowledge of facts and circumstances that would move
a reasonably cautious man to make an inquiry will not be protected by the Torrens
system. In Sandoval v. Court of Appeals,22 we held:
It is settled doctrine that one who deals with property registered under the
Torrens system need not go beyond the same, but only has to rely on the title.
He is charged with notice only of such burdens and claims as are annotated on
the title.
The aforesaid principle admits of an unchallenged exception: that a person

dealing with registered land has a right to rely on the Torrens certificate of title
and to dispense without the need of inquiring further except when the party has
actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry, or when the purchaser has knowledge of a
defect or the lack of title in his vendor or of sufficient facts to induce a reasonably
prudent man to inquire into the status of title of the property in litigation. The
presence of anything which excites or arouses suspicion should then prompt the
vendee to look beyond the certificate and investigate the title of the vendor
appearing on the face of the certificate. One who falls within the exception can
neither be denominated an innocent purchaser for value purchaser in good faith;
and hence does not merit the protection of the law.
Granting arguendo that private respondent knew that petitioners, through Superales and
his family, were actually occupying the disputed lot, we must stress that the vendor,
Cesaria Caballero, assured her that petitioners were just tenants on the said lot. Private
respondent cannot be faulted for believing this representation, considering that
petitioners' claim was not noted in the certificate of the title covering Lot No. 5679.
Moreover, the lot, including the disputed portion, had been the subject of several sales
transactions. The title thereto had been transferred several times, without any
protestation or complaint from the petitioners. In any case, private respondent's title is
amply supported by clear evidence, while petitioners' claim is barren of proof.
Page 302 of 303
Clearly, petitioners do not have the requisite title to pursue an action for quieting of
title.1âwphi1.nêt
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.
SO ORDERED.
Page 303 of 303

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Bus Org1 Atty Ong Abrantes Part 2 of 4

G.R. No. 19892 September 6, 1923

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

Following the presentation of an application to be adjudged an insolvent by the

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y

Santiago Jo Chung Cang . . . . . . . . . P6,000.00

Yap Gueco . . . . . . . . . . . . . . . . . . . . 6,000.00

Lim Yogsing . . . . . . . . . . . . . . . . . . . 6,000.00

Que la duracion de la sociedad sera la de seis años, a contar de la fecha de esta

El objeto de la sociedad sera la compra y venta de mercaderias en general.

El administrador o administradores de la sociedad podran, previa conformidad

Las ganancias o perdidas que resultaren durante cada año comercial, se

Las ganancias que resultaren en cada año comercial, si resultaren algunas

Que ambos administradores podran disponer de mil discientos pesos (P1,200)

Que pasado el termino de seis años, y es de la conveniencia de los accionistas

En cuyos terminos dejamos formalizada esta escritura de sociedad

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de

Firnando en presencia de:

"ESTADOS UNIDOS DE AMERCA

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de

"Asiento No. 157

Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun el

(Fdo.) "QUIRICO ABETO

Another case may be supposed. A partnership is organized for commercial

Having in mind that these partnerships are prevailingly of a personal character,

It is rendered impossible for the general partnership to adopt a firm name

LA COMPAÑIA MARITIMA, plaintiff-appellant,

Rosado, Sanz and Opisso, for appellant.

Haussermann, Cohn and Williams, for appellees.

Paragraph 12 of the articles of partnership is as follows:

Articles 140 and 141 of the Code of Commerce are as follows:

In limited partnership the Code of Commerce recognizes a difference between general

Article 127 of the Code of Commerce is as follows:

That is partnership has been formed without articles of association or capital

Article 1675 of the Civil Code is as follows:

In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is

And again: lawphil.net

Torres, Johnson and Tracey, JJ., concur.

ARELLANO, C. J., dissenting:

As to the nature of the defendant company in this action, I take it to be:lawphil.net

439. The articles of association, besides the requirements contained in article

Nevertheless, if besides his industry he should contribute some capital toward

TEODORO DE LOS REYES, plaintiff-appellee,

Ramon Diokno for appellant.

One of the partner, Esperidion Borja, paid P522.69 on account of the

5. Vicente Lukban and Espiridion Borja, notwithstanding that they alleged

Article 127 of the Code of Commerce provides:

Article 1252 of the Civil Code provides:

Johnson, Carson, Trent and Araullo, JJ., concur.

MORELAND, J., dissenting:

We have these facts before us:

An action on a judgment as a debt, obligation, or contract being unknown to the Civil

As a necessary result the plaintiff is not entitled to a judgment in this action.

ELMO MUÑASQUE, petitioner,

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.: