PARTNERSHIP CHAPTER II
partnership was not made in bad faith.
1. Ortega VS CA, 245 SCRA 529
FACTS:
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 to
change the firm name. On 19 December 1980, Joaquin
L. Misa, Jesus B. Bito, and Mariano M. Lozada
associated themselves together, as senior partners with
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 his withdrawal and retirement
from the firm of Bito, Misa and Lozada and requested to
make proper liquidation including his interest to the two
floors of the building.
The petitioner led with this Commission's Securities
Investigation and Clearing Department (SICD) a petition
for dissolution and liquidation of partnership which
resulted to respondents-appellees filing their opposition.
The Hearing Officer held that the withdrawal of Atty.
Misa had dissolved the partnership of Bito, Misa and
Lozada. A Motion for Reconsideration was sought but
during the pendency of the case in the CA, Bito and
Lozada died which prompted Misa to renew his
application for receivership.
ISSUES:
Whether or not CA has erred in holding that the
partnership of Bito, Misa & Lozada is a partnership at
will;
Whether or not CA has erred in holding that the
withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and
Whether or not CA has erred in holding that private
respondent's demand for the dissolution of the
partnership so that he can get a physical partition of
HELD:
No. The SC upheld the ruling of the CA regarding the
nature of the partnership. The SC further stated that a
partnership that does not fix its term is a partnership at
will. 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
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.
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.
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
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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.
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 liquidation of the assets of the partnership following
its dissolution is governed by various provisions of the
Civil Code; 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.
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.
2. LOZANO VS DEPAKAKIBO
FACTS:
Lozana and Depakakibo established a partnership for the
purpose of maintaining, operating, and distributing electric
light and power in the Municipality of Dumangas. The
partnership is capitalized at the sum ofP30, 000.00 where
Lozana agreed to furnish 60% while Depakakibo,
40%.However, the franchise for venture in favor of
Buenaflor was cancelled and revoked by the Public Service
Commission. Lozana thereafter sold Generator Buda
[Lozana’s contribution to the partnership; no liquidation
made] to Decologon. When the decision was appealed, a
temporary certificate of public convenience was issued
inthe name of Decolongon. Depakakibo sold one Crossly
Diesel Engine [Depakakibo’s contribution to the
partnership] to Spouses Jimenea and Harder. Lozana
brought action against Depakakibo alleging the latter
wrongfully detained the Generator Buda and wooden posts
to which he is entitled to the possession of. Lozano prayed
the properties be delivered back to him.
CFI ordered sheriff to take possession of the properties and
the delivery thereof to Lozano. Depakakibo alleged
properties have been contributed to the partnership and
therefor he is not unlawfully detaining them. In addition,
Lozano sold his contribution to partnership in violation of
terms of their agreement. CFI declared Lozano owner of
and entitled to the equipment. Depakakibo appealed
decision to the Supreme Court.
ISSUE:
W/N partnership is void or the act of the partnership in
furnishing electric current to the franchise holder without
previous approval of Public Service Commission render the
partnership void?
W/N disposal of contribution of parties is allowed.
RULING:
Validity of the Partnership
Partnership is valid. The fact of furnishing the current to
the holder of the franchise alone, without the previous
approval of the Public Service Commission, does not per
se make the contract of partnership null and void from
the beginning and render the partnership entered into by
the parties forthe purpose also void and non-existent
Disposal of Contributed Property to the Partnership
Facts show that parties entered into the contract of
partnership, Lozana contributing the amount of P18,
000, and there has not been liquidation prior to the sale
of the contributed properties: Buda Diesel Engine and 70
posts. It necessarily follows that the Buda diesel engine
contributed by the plaintiff had become the property of
the partnership. As properties of the partnership, the
same could not be disposed of by the party contributing
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the same without the consent or approval of the
partnership or of the other partner. (Clemente vs.
Galvan, 67 Phil., 565)
PARTNERSHIP; CONTRIBUTION IN KIND;
DISPOSAL BY CONTRIBUTING PARTIES NOT
ALLOWED.—An equipment which was contributed by
one of the partners to the partnership becomes the
property of the partnership and as such cannot be
disposed of by the party contributing the same without
the consent or approval of the partnership or of the other
partner (Clemente vs. Galvan, 67 Phil., 565).
ID.; ANTI-DUMMY LAW; REFERS TO ALIENS
ONLY.— The admission by the defendant that he and
the plaintiff, who are both Filipinos, are dummies of
another person, is an error of law, and not a statement of
fact. Since both parties are not aliens but Filipinos, the
Anti-Dummy law has not been violated. The said law
refers to aliens only (Commonwealth Act 1080 as
amended).
ID.; FURNISHING CURRENT TO FRANCHISE
HOLDER WlTHOUT APPROVAL OF PUBLIC
SERVICE COMMISSION; PARTNERSHIP NOT
VOID AB INITIO. —The act of the partnership in
furnishing electric current to the franchise holder
without the previous approval of the Public Service
Commission, does not per se make the contract of
partnership null and void' from the beginning.
3. UY VS. PUZON
FACTS:
Bartolome Puzon had two contraacts with the
government for the constructio of roads and bridges. He
then sought the financial assistance of William Uy and
proposed that they create a partnership which would be
the sub-contractor of the projects. They agreed that the
profits will be divided among themselves. William
agreed to the formation of the partnership "U.P.
Construction Company". They agreed to contribute
P50,000.00 each.
However, Puzon failed to pay but promised to contribute
hisshare as soon as his application of loan with the PNB
shall be approved. Uy gave Puzon advance contribution
of his share inpartnership for Puzon top pay his
obligations with PNB.
Uy was entrusted with the management of the project
since Puzon is busy with his other projects; whatever
expense Uy may incur shall be considered part of his
contribution. Upon approval of Puzon’s loan with the
PNB, he gave Uy P60, 000 for reimbursement of Uy’s
contribution and Puzon’s contribution to the partnership
capital. To guarantee the payment of the loan, Puzon
assigned to PNB all payments to be received on account
of the contracts with the Bureau of Public Highways for
the construction; this was done without the knowledge
and consent of Uy.
Financial demands of the project increased, thus, Uy
called on Puzon to place his capital contribution; Puzon
failed to doso. Uy thereafter sent letters of demand to
which Puzon replied that he’s not capable of putting
additional capital. Puzon wrote UP Construction
Company terminating their subcontract agreement.
Uy was then not allowed in the office of UP
Construction Company and his authority to deal with
BPH was revoked. Hence, he instituted an action against
Puzon seeking the dissolution of the partnership and
payment of damages for the violation of the latter of the
terms of their partnership agreement.
RTC found that Puzon failed to contribute his share in
the capital of the partnership and caused the failure of
partnership to realize expected profits. The court ordered
the dissolution of the partnership and Puzon to pay Uy a
certain sum. Franco Puzon substituted Bartolome Puzon
on the appeal of the case before the Supreme Court.
ISSUES:
Whether or not the amount of money ordered by the trial
court for the failure to contribute his share in the capital
of the partner is proper.
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RULING:
Yes. The award of P200,000.00 as his share in the
unrealized profits of the partnership is proper. Under
Article 2200 of the Civil Code, indemnification for
damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee
failed to obtain. In other words lucrum cessans is also a
basis for indemnification.
There is no doubt Uy failed tomake profits because of
Puzon's breach of contract. The partnership showed
some profits even though the profit and lossstatement
showed net loss; it may be due to error in accounting.
Had the appellant not been remiss in his obligations as
partner and as prime contractor of the construction
projects inquestion as he was bound to perform pursuant
to the partnership and subcontract agreements, and
considering the fact that the total contract amount of
these two projects is P2,327,335.76, it is reasonable to
expect that the partnership would haveearned much
more than the P334,255.61. We have hereinabove
indicated. The award, therefore, made by the trial court
of theamount of P200,000.00, as compensatory damages,
is not speculative, but based on reasonable estimate.
Evidence; The appellate court accords respect to the trial
court’s conclusions on credibility of witnesses.—The
question of whom to believe being a matter largely
dependent on the trier’s discretion, the findings of the
trial court, who had the better opportunity to examine
and appraise the factual issue, certainly deserve respect.
Partnerships; Damages; A partner in a construction
venture who failed to stand by his commitment to the
partnership will be ordered to reimburse to his co-partner
whatever the latter invested and spent for the projects of
the venture.—Since the defendantappellant was at fault,
the trial court properly ordered him to reimburse the
plaintiff-appellee whatever amount the latter had
invested in or spent for the partnership on account of the
construction projects.
Same; Same; Indemnification for damages includes
losses suffered and profits obligee failed to obtain.—
Regarding the award of P200,000.00 as his share in the
unrealized profits of the partnership, the appellant
contends that the findings of the trial court that the
amount of P400,000.00 as reasonable profits of the
partnership venture is without any basis and is not
supported by the evidence. The appellant maintains that
the lower court, in making its determination, did not take
into consideration the great risks involved in business
operations involving as it does the completion of the
projects within a definite period of time, in the face of
adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the
projects in the field, contributed in a large measure to the
failure of the partnership to realize such profits by his
field management. This argument must be overruled in
the light of the law and evidence on the matter. Under
Article 2200 of the Civil Code, indemnification for
damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee
failed to obtain. In other words lucrum cessans is also a
basis for indemnification.
Same; Same; Award of compensatory damages being
reasonable and not speculative is upheld.—Had the
appellant not been remiss in his obligations as partner
and as prime contractor of the construction projects in
question as he was bound to perform pursuant to the
partnership and sub-contract agreements, and
considering the fact that the total contract amount of
these two projects is P2,327,335.76, it is reasonable to
expect that the partnership would have earned much
more than the P334,225.61 We have hereinabove
indicated. The award, therefore, made by the trial court
of the amount of P200,000.00, as compensatory
damages, is not speculative, but based on reasonable
estimate.
4. LIWANAG VS CA
GR No. 114398, October 24, 1997
FACTS:
Petitioner Carmen Liwanag and a certain Thelma
Tabligan went to the house of complainant Isidora
Rosales (Rosales) and asked her to join them in the
business of buying and selling cigarettes. Convinced of
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the feasibility of the venture, Rosales readily agreed.
Under their agreement, Rosales would give the money
needed to buy the cigarettes while Liwanag and Tabligan
would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise the
money would be returned to Rosales. Consequently,
Rosales gave several cash advances to Liwanag and
Tabligan amounting to P633,650.00
Alarmed that Liwanag was no longer visiting her
regarding their business and believing that the amounts
she advanced were being misappropriated, Rosales filed
a case of estafa against Liwanag.
Liwanag advances the theory that the intention of the
parties was to enter into a contract of partnership,
wherein Rosales would contribute the funds while she
would buy and sell the cigarettes, and later divide the
profits between them. She also argues that the
transaction can also be interpreted as a simple loan, with
Rosales lending to her the amount stated on an
installment basis.
RTC found Liwanag guilty for the crime of estafa. The
Court of Appeals affirmed the lower court’s decision
ISSUE:
Whether Liwanag can be acquitted from the crime of
estafa because she and Rosales formed a partnership.
RULING:
No, Liwanag could not be acquitted from the crime of
estafa.
The Supreme Court held that Estafa is a crime
committed by a person who defrauds another causing
him to suffer damages, by means of unfaithfulness or
abuse of confidence, or of false pretenses or fraudulent
acts.
In the case at hand, even assuming that a contract of
partnership was indeed entered into by and between the
parties, we have ruled that when money or property have
been received by a partner for a specific purpose (such
as that obtaining in the instant case) and he later
misappropriated it, such partner is guilty of estafa.
Criminal Law; Estafa; Elements; Words and Phrases;
Estafa is a crime committed by a person who defrauds
another causing him to suffer damages, by means of
unfaithfulness or abuse of confidence, or of false
pretenses or of fraudulent acts.—Estafa is a crime
committed by a person who defrauds another causing
him to suffer damages, by means of unfaithfulness or
abuse of confidence, or of false pretenses or of
fraudulent acts.
From the foregoing, the elements of estafa are present,
as follows:
(1) That the accused defrauded another by abuse
of confidence or deceit; and
(2) That damage or prejudice capable of
pecuniary estimation is caused to the offended
party or third party, and it is essential that there
be a fiduciary relation between them either in
the form of a trust, commission or adminis-
tration
Partnerships; When money or property has been
received by a partner for a specific purpose and later
misappropriates it, such partner is guilty of estafa.—The
language of the receipt could not be any clearer. It
indicates that the money delivered to Liwanag was for a
specific purpose, that is, for the purchase of cigarettes,
and in the event the cigarettes cannot be sold, the money
must be returned to Rosales. Thus, even assuming that a
contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or
property have been received by a partner for a specific
purpose (such as that obtaining in the instant case) and
he later misappropriated it, such partner is guilty of
estafa.
Neither can the transaction be considered a loan, since in
a contract of loan once the money is received by the
debtor, ownership over the same is transferred. Being the
owner, the borrower can dispose of it for whatever
purpose he may deem proper. In the instant petition,
however, it is evident that Liwanag could not dispose of
the money as she pleased because it was only delivered
to her for a single purpose, namely, for the purchase of
cigarettes, and if this was not possible then to return the
money to Rosales. Since in this case there was no
transfer of ownership of the money delivered, Liwanag
5
is liable for conversion under Art. 315, par. 1(b) of the
Revised Penal Code Whether a partnership was formed?

HELD:
5. RAMNANI VS. CA The Court held that there was a partnership formed.
Even without a written agreement, the scenario is clear.
FACTS: Spouses Ishwar supplied the capital of $150,000.00 for
the business. They entrusted the money to Choithram to
Ishwar Jethmal Ramnani and his wife Sonya had their main invest in a profitable business venture in the Philippines.
business based in New York. Ishwar received US For this purpose they appointed Choithram as their
$150,000.00 from his father-in-law in Switzerland. In 1965, attorney-in-fact. We have a situation where two brothers
Ishwar Jethmal Ramnani sent the amount of US engaged in a business venture. One furnished the capital,
$150,000.00 to Choithram in two bank drafts of the other contributed his industry and talent. Justice and
US$65,000.00 and US $ 85,000.00 for the purpose of equity dictate that the two share equally the fruit of their
investing the same in real estate in the Philippines. joint investment and efforts.
Subsequently, spouses Ishwar executed a general power of
attorney appointing Ishwar’s full blood brothers Choithram
and Navalrai as attorneys-in-fact, empowering them to
Remedial Law; Appeals; Supreme Court will not review
manage and conduct their business concerns in the
finding of facts of the Court of Appeals.—It is not the
Philippines. Choithram, as attorney-in-factr, entered into
function of the Supreme Court to analyze or weigh such
two agreements for the purchase of two parcels of land
evidence all over again, its jurisdiction being limited to
located in Pasig Rizal from Ortigas & Company, Ltd.
reviewing errors of law that might have been committed
Partnership (Ortigas Ltd.) with a total area of
by the lower court. It should be observed, in this regard,
approximately 10,048 square meters.
that the Court of Appeals did not hold that the Articles
of Co partnership, identified in the record as Exhibit
Three buildings were constructed thereon and were
"A", was conclusive evidence that the respondent was an
leased out by Choithram as attorney-in-fact of spouses
industrial partner of the said company, but considered it
Ishwar. Two of these buildings were later burned.
together with other factors, consisting of both
testimonial and documentary evidences, in arriving at
In 1970 Ishwar asked Choithram to account for the
the factual conclusion expressed in the decision.
income and expenses relative to these properties during
the period 1967 to 1970. Choithram failed and refused to
render such accounting which prompted Ishwar to
revoke the general power of attorney. Choithram and
5. EVANGELISTA V. ABAD SANTOS
Ortigas Ltd. were duly notified by notice in writing of
such revocation. It was also registered with the
FACTS:
Securities and Exchange Commission and published in
The Manila Times. Nevertheless, Choithram as such
On October 9, 1954 a co-partnership was formed under
attorney-in-fact of Ishwar, transferred all rights and
the name of “Evangelista & Co.” On June 7, 1955 the
interests of Ishwar spouses in favor of Nirmla Ramnani,
articles of co-partnership was admended as to include
the wife of Choitram’s son, Moti. Ortigas also executed
herein respondent, Estrella Abad Santos, as industrial
the corresponding deeds of sale in favor of Nirmla and
partner, with herein petitioners Domingo Evangelista,
the TCT ISSUEd in her favour. Thus, spouses Ishwar
Jr., Leonardo Atienza Abad Santos and Conchita P.
filed a complaint in the Court of First Instance of Rizal
Navarro, the original capital partners, remaining in that
against Choithram and spouses Nirmla and Moti
capacity, with a contribution of P17, 500 each. The
(Choithram et al.) and Ortigas Ltd. for reconveyance of
amended articles provided inter alia, that “the
said properties or payment of its value and damages.
contribution of Estrella Abad Santos consists of her
industry being an industrial partner”, and that the profits
ISSUE:

6
and losses “shall be divided and distributed among
Navarro and Leonardo Atienza Abad Santos to be
divided among them equally; and 30% for the fourth
partner Estrella Abad Santos.”
On December 17, 1963 herein respondent filed suit
against the three other partners in the CFI of Manila,
alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the
partners except to her; and that notwithstanding her
demands the defendants had refused and continued to
refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to
pay her any share in the dividends declared by the
partnership. She therefore prayed that the defendants be
ordered to render accounting to her of the partnership
business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney’s
fees and costs.
ISSUE:
WON Abad Santos is an industrial partner and is entitled
to the shares of the partnership
HELD:
Yes. It is clear that even as she was still a Judge of the
CFI Manila, she has rendered services for appellants
without which they would not have had been the
wherewithal to operate the business for which appellant
company was organized.
Article 1767 of the New Civil Code which provided that
“By contract of partnership two or more persons bind
themselves, to contribute money, property or industry to
a common fund, with the intention of diving the profits
among themselves, ‘does not specify the kind of industry
that a partner may thus contribute, hence the said
services may legitimately be considered as appellee’s
contribution to the common fund.
Another article of the same Code relied upon appellants
reads: Article 1789. An industrial partner cannot engage
business for himself, unless the partnership expressly
permits him to do so, an if he should do so, the capitalist
partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained
in violation of the provision, with a right to damages in
either case.’
It is not disputed that the provision against the industrial
partner engaging in business for himself seeks to prevent
any conflict of interest between the industrial partner and
the partnership, and to insure faithful compliance by the
same partner with the prestation. There is no pretense,
however, even on the part of the appellee is engaged in
any business antagonistic to that of appellant company,
since being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a
business and that appellee has faithfully complied with
her prestation.
Mortgage; Considering that the purported mortgage of
the properties subject of this litigation appears to be
fraudulent and simulated, the same is declared null and
void.—This purported mortgage of the subject properties
in litigation appears to be fraudulent and simulated. The
stated amount of $3 Million for which it was mortgaged
is much more than the value of the mortgaged properties
and its improvements. The alleged mortgagee-company
(Overseas) was organized only on June 26, 1989 but the
mortgage was executed much earlier, on June 20, 1989,
that is six (6) days before Overseas was organized.
Overseas is a “shelf” company worth only $100.00. In
the manifestation of spouses Ishwar dated April 1, 1991,
the Court was informed that this matter was brought to
the attention of the Central Bank (CB) for investigation,
and that in a letter of March 20, 1991, the CB informed
counsel for spouses Ishwar that said alleged foreign loan
from Overseas has not been previously approved/
registered with the CB. Obviously, this is another ploy
of Choithram, et al. to place these properties beyond the
reach of spouses Ishwar should they obtain a favorable
judgment in this case. The Court finds and so declares
that this alleged mortgage should be as it is hereby
declared null and void.
Agency; Power of Attorney, Revocation of; The
publication of the notice of revocation of the power of
attorney in the Manila Times, a newspaper of general
circulation, is sufficient warning to third persons,
including Ortigas
—The problem is compounded in that
respondent Ortigas is caught in the web of this bitter
fight. It had all the time been dealing with Choithram as
7
attorney-in-fact of Ishwar. However, evidence had been
adduced that notice in writing had been served not only
on Choithram, but also on Ortigas, of the revocation of
Choithram’s power of attorney by Ishwar’s lawyer, on
May 24, 1971. A publication of said notice was made in
the April 2, 1971 issue of The Manila Times for the
information of the general public. Such notice of
revocation in a newspaper of general circulation is
sufficient warning to third persons including Ortigas. A
notice of revocation was also registered with the
Securities and Exchange Commission on March 29,
1971. Indeed in the letter of Choithram to Ishwar of June
25, 1971, Choithram was pleading that Ishwar execute
another power of attorney to be shown to Ortigas who
apparently learned of the revocation of Choithram’s
power of attorney.
Despite said notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-in-fact
of Ishwar, to assign the rights of petitioner Ishwar to
Nirmla. While the primary blame should be laid at the
doorstep of Choithram, Ortigas is not entirely without
fault. It should have required Choithram to secure
another power of attorney from Ishwar. For recklessly
believing the pretension of Choithram that his power of
attorney was still good, it must, therefore, share in the
latter’s liability to Ishwar.
Property; Implied Trust; As defendant Nirmla Ramnani
acquired the property subject matter of litigation by
means of fraud, the transfer of said property in her favor
should be considered to have created an implied trust for
the benefit of plaintiff-spouses.—In said amended
complaint, spouses Ishwar, among others, pray for
payment of actual damages in an amount no less than the
value of the properties in litigation instead of a
reconveyance as sought in the original complaint.
Apparently they opted not to insist on a reconveyance as
they are American citizens as alleged in the amended
complaint. The allegations of the amended complaint
above reproduced clearly spelled out that the transfer of
the property to Nirmla was fraudulent and that it should
be considered to be held in trust by Nirmla for spouses
Ishwar.
As above-discussed, this allegation is well-taken and the
transfer of the property to Nirmla should be considered
to have created an implied trust by Nirmla as trustee of
the property for the benefit of spouses Ishwar.”
Civil Procedure; Provisional Remedies; Injunction;
Evidence shows that the defendants have committed and
threaten to commit further acts of disposition of the
properties in litigation, apparently designed to render
ineffective any judgment in favor of plaintiffspouses,
hence, their motion to dissolve the writ of preliminary
injunction should be denied.—The motion to dissolve
the writ of preliminary injunction filed by Choithram, et
al. should be denied. Its issuance by this Court is proper
and warranted under the circumstances of the case. x x x
As above extensively discussed, Choithram, et al. have
committed and threaten to commit further acts of
disposition of the properties in litigation as well as the
other assets of Choithram, apparently designed to render
ineffective any judgment the Court may render favorable
to spouses Ishwar.
The purpose of the provisional remedy of preliminary
injunction is to preserve the status quo of the things
subject of the litigation and to protect the rights of the
spouses Ishwar respecting the subject of the action
during the pendency of the suit, and not to obstruct the
administation of justice or prejudice the adverse party. In
this case for damages, should Choithram, et al. continue
to commit acts of disposition of the properties subject of
the litigation, an award of damages to spouses Ishwar
would thereby be rendered ineffectual and meaningless.
Partnership; We have here a situation where two
brothers engaged in a business venture, with one
furnishing the capital, and the other contributing his
industry and talent. Justice and equity dictate that the
two share equally the fruit of their joint investment and
efforts.—Nevertheless, under the peculiar circumstances
of this case and despite the fact that Choithram, et al.,
have committed acts which demonstrate their bad faith
and scheme to defraud spouses Ishwar and Sonya of
their rightful share in the properties in litigation, the
Court cannot ignore the fact that Choithram must have
been motivated by a strong conviction that as the
industrial partner in the acquisition of said assets he has
as much claim to said properties as Ishwar, the capitalist
partner in the joint venture. The scenario is clear.
Spouses Ishwar supplied the capital of $150,000.00 for
the business. They entrusted the money to Choithram to
8
invest in a profitable business venture in the Philippines.
For this purpose they appointed Choithram as their
attorney-in-fact. Choithram in turn decided to invest in
the real estate business. He bought the two (2) parcels of
land in question from Ortigas as attorney-in-fact of
Ishwar. Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital entrusted
to him, plus a loan, to build two buildings. Although the
buildings were burned later, Choithram was able to build
two other buildings on the property. He rented them out
and collected the rentals. Through the industry and
genius of Choithram, Ishwar’s property was developed
and improved into what it is now—a valuable asset
worth millions of pesos. As of the last estimate in 1985,
while the case was pending before the trial court, the
market value of the properties is no less than
P22,304,000.00. It should be worth much more today.
We have a situation where two brothers engaged in a
business venture. One furnished the capital, the other
contributed his industry and talent.
Justice and equity dictate that the two share equally the
fruit of their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one would
end up the loser. After all, blood is thicker than water.
Damages; Since the defendants acted with evident bad
faith and malice, they are liable for moral and exemplary
damages as well as attorney’s fees.
However, the Court cannot just close its eyes to the
devious machinations and schemes that Choithram
employed in attempting to dispose of, if not dissipate,
the properties to deprive spouses Ishwar of any possible
means to recover any award the Court may grant in their
favor. Since Choithram, et al. acted with evident bad
faith and malice, they should pay moral and exemplary
damages as well as attorney’s fees to spouses Ishwar.
7. LIM TANHU V. RAMOLETE
G.R. No. L-40098, 29 August 1975
FACTS:
Private respondent Tan Put alleged that she is the widow
of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, glory commercial company
with Antonio Lim Tanhu and Alfonso Ng Sua’’.
Defendants Antonio Lim Tan Hu, Alfonso Leonardo Ng
Sua, Lim Teck Chuan, and Eng Chong Leonardo,
through fraud and conspiracy, took actual and active
management of the partnership and although tee Hoon
Lim Po Chuan was the manager of glory commercial
company, defendants managed to use the funds of the
partnership to purchase lands and building in the cities
of Cebu, Lapu-Lapu, Mandaue, and the municipalities of
Talisay and Minglanilla.
She alleged in her complaint that at the time of death of
Tee Hoon Lim Po Chuan, the defendants, without
liquidation, continued the business of glory commercial
company, by purportedly organizing a corporation
known as the glory commercial company, incorporated
and sometime in the month of November, 1967,
defendants, particularly Antonio Lim Tan Hu, by means
of fraud deceit, and misrepresentations did then and
there , induce and convince her to execute a quitclaim of
all her rights and interests, in the assets of the
partnership of glory commercial company.
Thereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and
assets in favor, among others of plaintiff and until the
middle of the year 1970 when the plaintiff formally
demanded from the defendants the accounting of real
and personal properties of glory commercial company,
defendants refused and stated that they would not give
the share of the plaintiff.
ISSUE:
Whether Tan Put has right over the liquidated properties
of the partnership
RULING:
Tan has a right over the liquidated properties of
partnership. The supreme court hold that there is no
alternative but to hold that plaintiff Tan Put’s allegation
that she is the widow of Tee Hoon Lim Po Chuan has
not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows that
her relation with said deceased was that of common-law
wife. Moreover, the Supreme Court said that the lower
9
courts committed an error by awarding 1/3 of the
partnership properties to Tan because there has been no
liquidation proceedings yet. And if there has not been
any liquidation of the partnership, the only rights
plaintiff could have would be to what might result after
much liquidation to belong to the deceased partner (her
alleged husband) and before this is finished, it is
impossible to determine, what rights or interest, if any
the deceased had. In other words no specific amounts or
properties may be adjudicated to the heir or legal
representative of the deceased partner without the
liquidation being first terminated.
Under Article 55 of the Civil Code, the declaration of
the contracting parties that they take each other as
husband and wife “shall be set forth in an instrument”
signed by the parties as well as by their witnesses and
the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic
copy of the marriage contract. While a marriage may
also be proved by other competent evidence, the absence
of the contract must first be satisfactory explained.
Surely, the certification of the person who allegedly
solemnized a marriage is not admissible evidence of
such marriage unless proof of loss of the contract or of
any other satisfactory reason for its non-production is
first presented to the court.
In the case at bar, the purported certification issued by a
Mons. Jose M. Recoleto, Philippine Independent
Church, Cebu City, is not, therefore, competent
evidence, there being absolutely no showing as to
unavailability of the marriage contract and, indeed, as to
the authenticity of the signature of said certifies, the jurat
allegedly signed by a second assistant provincial fiscal
not being authorized by law, since it is not part of the
functions of his office. Besides, inasmuch as the bishop
did not testify, the same is hearsay. As regards the
testimony of the plaintiff herself on the same point and
that of her witness Antonio Nuñez, there can be no
question that they are both self-serving and of very little
evidently value, it having been disclosed at the trial that
plaintiff has already assigned all her rights in this case to
said Nuñez, thereby making him the real party in interest
here and, therefore, naturally as biased as herself.
Besides, in the portion of the testimony of Nuñez copied
in Annex C of petitioner’s memorandum, it appears
admitted that he was born only on March 25, 1942,
which means that he was less than eight years old at the
supposed time of the alleged marriage. If for this reason
alone, it is extremely doubtful if he could have
sufficiently aware of such event as to be competent to
testify about it.
Civil procedure; Rules of procedure should not be used
as tool for denial of substantial justice.—Petitioners
should be granted relief, if only to stress emphatically
once more that the rules of procedure may not be
misused and abused as instruments for the denial of
substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative
instance of how some members of the bar availing of
their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice
and equity, and, in some instances, to wittingly or
unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy
the public clamor for speedy disposition of litigations,
forgetting all the while that the plain injunction of
Section 2 of Rule 1 is that the “rules shall be liberally
construed in order to promote their object and to assist
the parties in obtaining” not only ‘speedy’ but more
imperatively, “just . . . and inexpensive determination of
every action and proceeding.”
Same; Default; When motion to lift order of default is
under both, contains the reasons for failure to answer
and as well as the facts constituting prospective defense,
a formal verification or separate affidavit of merit is not
necessary.—When a motion to lift order of default
contains the reasons for the failure to answer as well as
the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a
formal verification nor a separate affidavit of merit is
necessary.
Same; Same; Jurisdiction; A motion to lift an order of
default on the ground that service of summons has not
been made in accordance with the rules is in order and is
in essence verily an attack against the jurisdiction of the
court over the person of the defendant, no less than if it
were worded in a manner specifically embodying such a
direct challenge.
10

Same; Motions; Dismissal of action.—According to
Chief Justice Moran, “three days at least must intervene
between the date of service of notice and the date set for
the hearing, otherwise the court may not validly act on
the motion.” Such is the correct construction of Section
4 of Rule 15.
Same; Counterclaim; When a counterclaim is
compulsory:— Defendants’ counterclaim is compulsory,
not only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintiff’s
complaint, but also because from its very nature, it is
obvious that the same cannot “remain pending for
independent adjudication by the court.” (Section 2, Rule
17).
Same; Motions to Dismiss Actions—As the plaintiff’s
complaint has been framed, all the six defendants are
charged with having actually taken part in a conspiracy
to misappropriate, conceal and convert to their own
benefit the profits, properties and all other assets of the
partnership Glory Commercial Company, to the extent
that they have allegedly organized a corporation, Glory
Commercial Company, Inc. with what they had illegally
gotten from the partnership. Upon such allegations, no
judgment finding the existence of the alleged conspiracy
or holding the capital of the corporation to be the money
of the partnership is legally possible without the
presence of all the defendants.
x x x Accordingly, upon these premises, x x x it is clear
that all the six defendants below, defaulted and non-
defaulted, are indispensable parties. x x x Such being the
case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever it
appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of
the court to stop the trial and to order the inclusion of
such party.
Same; Dismissal of Actions;—The apparent idea below
is to rely on the theory that under Section 11 of Rule 3,
parties may be dropped by the court upon motion of any
party at any stage of the action, hence “it is the absolute
right prerogative of the plaintiff to choose—the parties
he desires to sue, without dictation or imposition by the
court or the adverse party.” x x x But the truth is that
nothing can be more incorrect. Section 11 of Rule 3 does
not comprehend whimsical and irrational dropping or
adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and
misjoinder of parties. x x x The rule presupposes that the
original inclusion had been made in the honest
conviction that it was proper and the subsequent
dropping is requested because it has turned out that such
inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be “on such terms as are
just”—just to all the parties. x x x His honor ought to
have considered that the outright dropping of the
nondefaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to
the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim and
Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment
against their parents.
Respondent court paid no heed at all to the mandate that
such dropping must be “on such terms as are just”—
meaning to all concerned with its legal and factual
effects.
These provisions are not to be understood as meaning
that default or the failure of the defendant to answer
should be “interpreted as an admission by the said
defendant that the plaintiff’s causes of action find
support in the law or that plaintiff is entitled to the relief
prayed for.” Being declared in default does not
constitute a waiver of rights except that of being heard
and of presenting evidence in the trial court. x x x In
other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court,
the rules see to it that any judgment against him must be
in accordance with law.
Incidentally, these considerations argue against the
present widespread practice of trial judges, as was done
by His Honor in this case, of delegating to their clerks of
court the reception of the plaintiff’s evidence when the
defendant is in default. Such a practice is wrong in
principle and orientation. It has no basis in any rule. x x
The clerk of court would not be in a position much less
have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated
11
in the law, considering his comparably limited area of
discretion and his presumably inferior preparation for
the functions of a judge. Besides, the default of the
defendant is no excuse for the court to renounce the
opportunity to closely observe the demeanor and
conduct of the witnesses of the plaintiff, the better to
appreciate their truthfulness and credibility. We
therefore declare as a matter of judicial policy that there
being no imperative reason for judges to do otherwise,
the practice should be discontinued.
It is preferable to leave enough opportunity open for
possible lifting of the order of default before proceeding
with the reception of the plaintiff’s evidence and the
rendition of the decision. x x x The gain in time and
dispatched should the court immediately try the case on
the very day of or shortly after the declaration of default
is far outweighed by the inconvenience and
complications involved in having to undo everything
already done in the event the defendant should justify his
omission to answer on time.
In all instances where a common cause of action is
alleged against several defendants some of whom
answer and the others do not, the latter or those in
default acquire a vested right not only to own the
defense interposed in the answer of their co-defendant or
co-defendants not in default but also to expect a result of
the litigation totally common with them in kind and in
amount whether favorable or unfavorable. The
substantive unity of the plaintiff’s cause against all the
defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the
singleness of the cause of action also inevitably implies
that all the defendants are indispensable parties, the
court’s power to act is integral and cannot be split such
that it cannot relieve any of them and at the same time
render judgment against the rest. x x x Of course, he has
to suffer the consequences of whatever the answering
defendant may do or fail to do, regardless of possible
adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is
concerned, it becomes his inalienable right that the same
be dismissed also as to him. It does not matter that the
dismissal is upon the evidence presented by the plaintiff
or upon the latter’s desistance, for in both contingencies,
the lack of sufficient legal basis must be the cause.
Compromise agreement; Indispensable parties; -- Where
all the defendants are indispensable parties, for which
reason the absence of any of them in the case would
result in the court losing its competency to act validly,
any compromise that the plaintiff might wish to make
with any of them must, as a matter of correct procedure,
have to await until after the rendition of the judgment, at
which stage the plaintiff may then treat the matter of its
execution and the satisfaction of his claim as variably as
he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the
non-defaulted defendants, the court should have ordered
also the dismissal thereof as to petitioners. Indeed, there
is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the
defendants here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial.
Even after a defendant has been declared in default,
provided he files a motion to set aside the order of
default, he shall be entitled to notice of all further
proceedings regardless of in default, provided he “files a
motion to set aside the order of default, who has not filed
such a motion to set aside must still be served with all”
substantially amended or supplemental pleadings.”
Pre-trial; With these facts in mind and considering that
issues had already been joined even as regards the
defaulted defendants, it would be requiring the obvious
to pretend that there was still need for an oath or a
verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their
default. x x x Under these circumstances the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18
need not be strictly complied with, unlike in cases of
default for failure to file an answer.
We can thus hold as We do hold for the purposes of the
revival of their right to notice under Section 9 of Rule
13, that petitioners’ motion for reconsideration was in
substance legally adequate, regardless of whether or not
it was under oath.
Amendment of pleadings; In any event, the dropping of
the defendants Lim and Leonardo from plaintiff’s
amended complaint was virtually a second amendment
12
of plaintiff’s complaint. And there can be no doubt that
such amendment was substantial, x x x Accordingly,
notice to petitioners of the plaintiff’s motion of October
18, 1974 was legally indispensable under the rule above-
quoted. Consequently, respondent court had no authority
to act on the motion to dismiss, pursuant to Section 6 of
Rule 15.
Appeals; Certiorari—The proceedings below have gone
so far out of hand that prompt action is needed to restore
order in the entangled situation created by the series of
plainly illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial
courts and tribunals within legal bounds, so that due
process and the rule of law may prevail at all times and
arbitrariness, whimsicality and unfairness which justice
abhors may immediately be stamped out before graver
injury, juridical and otherwise, ensues.
Pre-trial; The fundamental purpose of pre-trial, aside
from affording the parties every opportunity to
compromise or settle their differences, is for the court to
be apprised of the unsettled issues between the parties
and of their respective evidence relative thereto, to the
end that it may take corresponding measures that would
abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least
observance of technical rules. x x x In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence,
matters dealt with therein may not be disregarded in the
process of decision-making. Otherwise, the real essence
of compulsory pretrial would be insignificant and
worthless.
Civil law; Evidence; The primary evidence of a marriage
must be an authentic copy of the marriage contract.
While a marriage may also be proved by other
competent evidence, the absence of the contract must
first be satisfactorily explained. Surely, the certification
of the person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof of
loss of the contract or of any other satisfactory reason for
its nonproduction is first presented to the court.
Partnership; A partner has no obligation to account to
anyone for properties acquired after dissolution of
partnership in absence of proof he violated trust of
deceased partner during existence of partnership.—
Defendants have no obligation to account to anyone for
such acquisitions (long after the partnership had been
automatically dissolved as a result of the death of Po
Chuan) in the absence of clear proof that they had
violated the trust of Po Chuan during the existence of the
partnership.
Same; Succession; No funds or property may be
adjudicated to her or representative of deceased partner
without liquidation of partnership being first terminated.
—No specific amounts or properties may be adjudicated
to the heir or legal representative of the deceased partner
without the liquidation being first terminated.
8. EMNACE v. COURT OF APPEALS
FACTS:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business known as Ma.
Nelma Fishing Industry. In 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.
When petitioner failed to comply with the terms of the
agreement and also 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,
respondents, Tabanao's heirs, filed an action for
accounting, payment of shares, division of assets and
damages against petitioner. Petitioner filed a motion to
dismiss the complaint and argued that the trial court did
not acquire jurisdiction over the action because the
prescribed docket fee was not paid considering the huge
amount involved in the claim.
The trial court, however, 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. Petitioner questioned the order
of dismissal through a petition for certiorari before the
Court of Appeals. The appellate court rendered the
assailed decision dismissing the petition for certiorari,
upon a finding that no grave abuse of discretion
amounting to lack or excess of jurisdiction was
13
committed by the trial court in issuing the questioned
orders denying petitioner's motions to dismiss.
ISSUE:
WON the partnership was terminated due to prescription
HELD:
NO. 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. 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. 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.
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 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.
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 letter
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 a lien.
—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. 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. It is thus imperative for
respondents to pay the corresponding docket fees in
order that the trial court may acquire jurisdiction over
the action.
Petitioner, however, argues that the trial court and the
Court of Appeals erred in condoning the nonpayment of
the proper legal fees and in allowing the same to become
14
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.
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. (Italics ours) In Pilipinas Shell Petroleum
Corporation v. Court of Appeals, 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.” 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.
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.
Partnerships; An action for accounting, payment of
partnership shares, division of assets and damages 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.—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.
If an action is against a partner, on the basis of his
personal liability, it is an action in personam, and the
fact that two of the assets of the partnership are parcels
of land does not materially change the nature of the
action.—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.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.
Same; Same; Same; A 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.—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
15
on his part. 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. Besides,
venue has nothing to do with jurisdiction for venue
touches more upon the substance or merits of the case.
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 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. 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. Moreover, respondents
became owners of their respective hereditary shares
from the moment Vicente Tabanao died.
The heirs, as successors who stepped into the shoes of
their decedent upon his death, can commence any action
originally pertaining to the decedent.—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. 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.
Partnerships; Accounting; Prescription; For as long as
the partnership exists, any of the partners may demand
an accounting of the partnership’s business, and
prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting
is done.—The three (3) final stages of a partnership are:
(1) dissolution; (2) winding-up; and (3) termination.
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. 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. 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.
9. DELUAO V. CASTEEL 29 SCRA 350
FACTS:
Casteel was the original occupant and applicant of a
fishpond area since before the last World War. He
wanted to preclude subsequent applicants from entering
and spreading themselves within the area by expanding
his occupation thereof by the construction of dikes and
the cultivation of marketable fishes.
Thus, he borrowed P27, 000 from the Deluaos to finance
needed improvements for the fishpond, and was
compelled by force of this circumstance to enter into the
contract of partnership, with an agreement to divide the
fishpond after the award. Eventually, Casteel
administered the said property and single-handedly
opposed rival applicants who occupied portions of the
fishpond area. He relentlessly pursued his claim to the
said area up to the Office of the DANR Secretary, until it
was finally awarded to him.
ISSUE:
16
WON the parties can now validly divide the said
fishpond as agreed upon by them? NO.
RULING:
Spouses Deluaos’ statement that the beneficial right over
the fishpond in question is the "specific partnership
property" contemplated by art. 1811 of the Civil Code is
incorrect. A reading of the said provision will show that
what is meant is tangible property, such as a car, truck or
a piece of land, but not an intangible thing such as the
beneficial right to a fishpond. If what they have in mind
is the fishpond itself, they are grossly in error. A
fishpond of the public domain can never be considered a
specific partnership property because only its use and
enjoyment — never its title or ownership — is granted to
specific private persons.
Since we held as illegal the second part of the contract of
partnership between the parties to divide the fishpond
between them after the award, a fortiori, no rights or
obligations could have arisen therefrom. Inescapably, no
trust could have resulted because trust is founded on
equity and can never result from an act violative of the
law. Art. 1452 of the Civil Code does not support the
appellees' stand because it contemplates an agreement
between two or more persons to purchase property —
capable of private ownership — the legal title of which
is to be taken in the name of one of them for the benefit
of all. In the case at bar, the parties did not agree to
purchase the fishpond, and even if they did, such is
prohibited by law, a fishpond of the public domain not
being susceptible of private ownership.
It must be observed that, despite the decisions of the
DANR Secretary in DANR cases 353 and 353-B
awarding the area to Casteel, and despite the latter's
proposal that they divide the fishpond between them, the
Deluaos unequivocally expressed in their aforequoted
letter their decision not to share the fishpond with
Casteel. This produced the dissolution of the entire
contract of partnership (to jointly administer and to
divide the fishpond after the award) between the parties,
not to mention its automatic dissolution for being
contrary to law.
Petitioner’s final proposition that only by giving effect to
the confirmed intention of the parties may the cause of
equity and justice be served, we must state that since the
contract of service is contrary to law and, therefore, null
and void, it is not and can never be considered as the law
between the parties.
Fisheries Administrative Order 14, sec. 7 prohibiting the
transfer or sub-letting of fishponds covered by permits or
lease agreements is not inconsistent with the Fisheries
Act. Sec. 63 of the Fisheries Act allows only holders of
permits or leases issued or executed by the Secretary of
Agriculture and Natural Resources (DANR Secretary) to
exercise the acts of entering the land and construct a
fishpond therein. Therefore, only a holder of a permit or
lease and no one else may enjoy the benefits allowed by
the law. In declaring null and void a sub-lease or transfer
of the whole or part of a fishpond and/or its
improvements unless. previously approved by the
Director (Commissioner) of Fisheries, sec. 37 (a) of
Fisheries Administrative Order 14 does no more than
carry into effect the will of the legislature as expressed
in the Fisheries Act. It is a valid administrative order
issued under the authority conferred by sec. 4 of the
Fisheries Act on the DANR Secretary to "issue
instructions, orders, rules and regulations consistent with
this Act, as may be necessary to carry into effect the
provisions thereof." It surely cannot be considered an act
of legislation.
Civil law; Partnership; Contract to divide or transfer a
fishpond.—A partnership formed to divide a fishpond
into equal parts is null and void as being against public
policy. A partnership cannot be formed for an illegal
purpose because it is against several prohibitory laws.
And since the contract is null and void, the party cannot
be made to execute a formal transfer of one-half of the
fishpond and to secure official approval of the same as
agreed upon.
Purely administrative and discretionary functions of
administrative agencies of the government may not be
interfered with by the courts especially in a case where
the agency is not even a party.
Civil law; Contracts; Fisheries Act; Where equitable
grounds cannot be advanced to secure approval of
prohibited contract.— The nullity of a prohibited
contract of transfer of a fishpond under the Fisheries Act
17
cannot be cured by equitable considerations unlike other
rulings of the Supreme Court in analogous cases. Firstly,
the subject-matter in the Zamboanga case is private
property while the one at bar is public property.
Secondly, in this case there is a clear prohibition ,that
without the approval of the DANR Secretary any sub-
lease or transfer is null and void. Thus, the maxim
"equity regards that as done which should have been
done" does not apply. Lastly, the Lacuesta ruling does
not apply where there is no showing that the parties to
the contract would not have succeeded in securing the
approval of the fishpond application were it not for the
indispensable aid both material and otherwise extended
by both parties to the filing of the application. In other
words, in this case the parties are not joint applicants for
a permit.
Same; Same; Trust; Cannot be established in violation of
law. —Trust is founded on equity and can never result
from an act violative of the law
Partnership; Article 1811 of Civil Code con.strued;
Meaning of "specific partnership property."—Article
1811 of the Civil Code contemplates a tangible property,
such as a car, truck or a piece of land, but not an
intangible thing such as the beneficial right to a
fishpond.
10. KIMTENG V. YOUNG 765 SCRA 410
FACTS:
Petitioners are the majority stockholders of Ruby
Industrial Corporation and in the case of Majority
Stockholders of Ruby Industrial Corporation v. Lim, et
al., the court ordered the liquidation of Ruby Industrial
Corp (RIC) and transferred the case to the appropriate
RTC branch to supervise the liquidation. Atty. Young,
Atty. Gambol and Atty. Magat, practicing under the firm
“Young Revilla Gambol & Magat” (YRGM) appeared in
the liquidation proceedings as counsels for the
liquidator.
The petitioner filed an Opposition against the
appearance of YRGM on the ground that Revilla was
disbarred in 2009. However, the firm replied on the
Opposition stating that they had retained Revilla’s name
in the firm name as an act of charity. Petitioners cite San
Luis v. Pineda and United Stated v. Ney, et. al. to
support their argument that the use of a disbarred
lawyer’s name in the firm is tantamount to contempt of
court.
ISSUE:
W/N private respondents Atty. Young and Magat were in
contempt of court when they continued to use respondent
Revilla Jr.’s name in the firm name even after his
disbarment.
RULING:
Yes. A disbarred lawyer's name cannot be part of a
firm's name. A lawyer who appears under a firm name
that contains a disbarred lawyer's name commits indirect
contempt of court.|||
Maintaining a disbarred lawyer's name in the firm name
is different from using a deceased partner's name in the
firm name. Canon 3, Rule 3.02 allows the use of a
deceased partner's name as long as there is an indication
that the partner is deceased. This ensures that the public
is not misled. On the other hand, the retention of a
disbarred lawyer's name in the firm name may mislead
the public into believing that the lawyer is still
authorized to practice law.
Remedial Law; Special Civil Actions; Contempt; Words
and Phrases; The Supreme Court (SC) has defined
contempt of court as: a willful disregard or disobedience
of a public authority.—This court has defined contempt
of court as: a willful disregard or disobedience of a
public authority. In its broad sense, contempt is a
disregard of, or disobedience to, the rules or orders of a
legislative or judicial body or an interruption of its
proceedings by disorderly behavior or insolent language
in its presence or so near thereto as to disturb its
proceedings or to impair the respect due to such a body.
In its restricted and more usual sense, contempt
comprehends a despising of the authority, justice, or
dignity of a court. The phrase contempt of court is
generic, embracing within its legal signification a variety
of different acts.
In this case, respondents committed acts that are
considered indirect contempt under Section 3 of Rule 71.
In addition, respondents disregarded the Code of
18
Professional Responsibility when they retained the name
of respondent Revilla in their firm name. Canon 3, Rule
3.02 states: Rule 3.02. In the choice of a firm name, no
false, misleading or assumed name shall be used. The
continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its
communications that said partner is deceased.
Attorneys; Legal Ethics; Firm Name; Maintaining a
disbarred lawyer’s name in the firm name is different
from using a deceased partner’s name in the firm name.
—Maintaining a disbarred lawyer’s name in the firm
name is different from using a deceased partner’s name
in the firm name. Canon 3, Rule 3.02 allows the use of a
deceased partner’s name as long as there is an indication
that the partner is deceased. This ensures that the public
is not misled. On the other hand, the retention of a
disbarred lawyer’s name in the firm name may mislead
the public into believing that the lawyer is still
authorized to practice law. The use of a deceased
partner’s name in the firm name was the issue in the
consolidated cases Petition for Authority to Continue
Use of the Firm Name “Sycip, Salazar, Feliciano,
Hernandez & Castillo” and In the matter of the Petition
for Authority to Continue Use of the Firm Name
“Ozaeta, Romulo, De Leon, Mabanta & Reyes, 92
SCRA 1 (1979).”
Petitioners prayed that they be allowed to continue
including Atty. Alexander Sycip’s and Atty. Herminio
Ozaeta’s names in their firm names. This court denied
the petitions, explaining that there is a possibility of
deception in the use of a deceased partner’s name.
Also, Article 1815 of the Civil Code shows that the
partners in a partnership should be “living persons who
can be subjected to liability.” Further, the use of a
deceased partner’s name is not a custom in the
Philippines. On the contrary, the local custom shows that
the firm name usually identifies the senior members or
partners of a law firm.
Contempt of Court; The Supreme Court (SC) has ruled
that the use of the name of a person who is not
authorized to practice law constitutes contempt of court.
—The use of a deceased partner’s name in a law firm’s
name was allowed upon the effectivity of the Code of
Professional Responsibility, with the requirement that
“the firm indicates in all its communications that said
partner is deceased.”
On the other hand, this court has ruled that the use of the
name of a person who is not authorized to practice law
constitutes contempt of court. Remedial Law; Civil
Procedure; Forum Shopping; The filing of a Complaint
for disbarment before the Integrated Bar of the
Philippines (IBP) and the filing of this Petition for
contempt under Rule 71 do not constitute forum
shopping.—As to the allegation of forum shopping,
petitioners do not deny that they filed a Complaint for
disbarment. They argue, however, that they did not
mention the disbarment proceedings against respondents
in view of Rule 139-B, Section 18 of the Rules of Court,
which states that disbarment proceedings are private and
confidential. In addition, a Petition for contempt under
Rule 71 and a Complaint for disbarment are different
from each other.
The filing of a Complaint for disbarment before the
Integrated Bar of the Philippines and the filing of this
Petition for contempt under Rule 71 do not constitute
forum shopping. Forum shopping has been defined as:
when a party 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.
11. MUÑASQUE V. CA
FACTS:
Munasque (petitioner) entered into a partnership with
Galan under the registered name “Galan and Associates” as
Contractor. They entered into a written contract with
respondent Tropical for remodeling the latter’s Cebu
branch building. Under the contract, the project totaled
25,000 to be paid in installments; 7, 000 upon signing and
6, 000 every 15 working days.
Tropical made the first payment by check in the name of
Munasque. Munasque indorsed the check in favor of
Galan to enable Galan to deposit it in the bank and pay
for the materials and labor used in the project. However,
19
Galan allegedly spent P6, 183.37 for his personal use.
When the second check came, Munasque refused to
indorse it again to Galan.
Galan informed Tropical of the misunderstanding
between him and Munasque as partners. Hence upon
second payment, Tropical changed the name of the
payee on the second check from Munasque to “Galan
and Associates” which enabled Galan to encash the
second check.
Meanwhile, the construction was continued through
Munasque’s sole efforts by incurring debts from various
suppliers. The construction work was finished ahead of
schedule with the total expenditure reaching P 34, 000
(note yung contract nila 25k lang).
Munasque filed a complaint for payment of sum of
money and damages against Galan, Tropical, and
Tropical’s Cebu branch manager Pons. Cebu Southern
Hardware Company and Blue Diamond Glass Palace
intervened in the case for the credit which they extended
to the partnership of Munasque and Galan for the
construction project.
Both trial court and Court of Appeals absolved
respondents Tropical and its Cebu manager, Pons, from
any liability. TC held Galvan and Munasque “jointly and
severally” liable to its creditors which decision was
modified by CA and held them “jointly” liable.
ISSUES:
Whether the obligation of Munasque and Galan is joint
or solidary?
HELD:
Solidary. While it is true that under Article 1816 of CC,
“All partners, including industrial ones, shall be liable
pro rate with all their property and after all the
partnership assets have been exhausted, for the contracts
which may be entered into the name and for account of
the partnership, under its signature and by a person
authorized to act for the partnership. xxx”, 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.” 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 and 1823.
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.
Tropical had every reason to believe that a partnership
existed between Munasque and Galan and no fault or
error can be imputed against it for making payments to
“Galan and Associates” because as far as it was
concerned, Galan was a true partner with real authority
to transact in behalf of the partnership it was dealing
with (because in the first place they entered into a duly
registered partnership name and secondly, Munasque
endorsed the first check payment to Galan). This is even
more true in the cases of the intervenors 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 Munasque and Galan, Galan must
reimburse Munasque for the payments made to the
intervenors as it was satisfactorily established that Galan
acted in bad faith in his dealings with Munasque as a
partner.
Civil Law; Partnership; Fact that there was a
misunderstanding between the partners does not convert
the partnership into a sham organization.—There is
nothing in the records to indicate that the partnership
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.
Same; Same; Payments made to the partnership, valid
where the recipient made it appear that he and another
were true partners in the partnership.—Likewise, when
Muñasque received the first payment of Tropical in the
20
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.
Same; Same; Liability of partners to third persons who
extended credit to the partnership.—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.
Same; Same, Remedial Law; Civil Procedure; Pre-trial;
Delimitation of issues during the pre-trial agreed upon
by one party binds said party to the delimitation.—The
petitioner, therefore, should be bound by the delimitation
of the issues during the pre-trial because he himself
agreed to the same.
Same; Same; Liability of partners to third persons for
contracts executed in connection with the partnership
business is pro rata.—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 in
connection with partnership business is only pro rata
under Art. 1816, of the Civil Code.
Same; Same; Same; While it is true that under Article
1816 of the Civil Code, "AII partners, including
industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been
exhausted, for the contracts which may be entered into
the name and for the account of the partnership, under its
signature and by a person authorized to act for the
partnership. x x x", 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.
Same; Same; Same: Same; Solidary obligation of
partners to third persons; Rationale.—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.
Same; Same; Same; Same; Solidary liability of all
partners and the partnership as a whole for the
consequences of any wrongful act committed by any of
the partners.—ln 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.
12. ISLAND SALES V. UNITED PIONEERS
DOCTRINE: Condonation by creditor of share in
partnership debt of one partner does not increase pro rata
liability of other partners.
FACTS:
United Pioneers, a general partnership duly registered
under the laws of the Philippines, purchased from Island
Sales a motor vehicle on instalment basis, and for this
21
purpose, executed a promissory note for P9,440 payable
in 12 equal monthly installments of P786.63. The first
installment was payable on or before May 22, 1961 and
the subsequent installments on the 22nd day of every
month thereafter, until fully paid, with the condtion that
failure to pay any of said installments as they fall due
would render the whole unpaid balance immediately due
and demandable.
Having failed to receive the installment due on July 22,
1961, Island Sales sued United Pioneers for the unpaid
balance amounting to P7,119.07. Daco, Guizona, Sim,
Lumauig, and Palisoc were included as co-defendants in
their capacity as general partners of United Pioneers.
Guizona failed to file an answer and was consequently
declared in default. Subsequently, on motion of Island
Sales, the complaint was dismissed insofar as the
defendant Lumauig is concerned.
When the case was called for hearing, the defendants
and their counsels failed to appear notwithstanding the
notices sent to them. Consequently, the trial court
authorized Island Sales to present its evidence ex-parte,
after which the trial court rendered the decision appealed
from.
Defendants Daco and Sim move to reconsider the
decision claiming that since there are 5 general partners,
the joint and subsidiary liability of each partner should
not exceed one-fifth (⅕) of the obligations of United
Pioneers. The trial court denied the motion
notwithstanding the conformity of Island Sales to limit
the liability of the defendants Daco and Sim to only one-
fifth (⅕) of the obligations of United Pioneers.
ISSUE:
WON the condonation of a partner's share in the debts of
the company increases the remaining partners' liability
HELD:
NO. In the instant case, there were 5 general partners
when the promissory note in question was executed for
and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of Daco and Sim shall be
limited to only one-fifth (⅕) of the obligations of United
Pioneers. The fact that the complain against defendant
Lumauig was dismissed, upon motion of Island Sales,
does not unmake Lumauig as a general partner of United
Pioneers. In so moving to dismiss the complaint, Island
Sales merely condoned Lumauig's individual liability to
it.
Civil law; Partnership; Condonation by creditor of share
in partnerships debt of one partner does not increase pro
rata liability of other partners.—In the instant case, there
were five general partners when the promissory note in
question was executed for and in behalf of the
partnerships. Since the liability of the partners in pro
rata, the liability of the appellant Benjamin C. Daco shall
be limited to only 1/5 of the obligations of the defendant
company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon
motion of the plaintiff, does not unmake the said
Lumauig as a general partner in the defendant company.
In so moving to dismiss the complaint, the plaintiff
merely condoned Lumauig’s individual liability to the
plaintiff.
13. GOQUIOLAY V. SYCIP
FACTS:
Tan Sin An and Goquiolay entered into a general
commercial partnership under the partnership name “Tan
Sin An and Antonio Goquiolay” for the purpose of
dealing in real estate. The agreement lodged upon Tan
Sin An the sole management of the partnership affairs.
The lifetime of the partnership was fixed at ten years and
the Articles of Co-partnership stipulated that in the event
of death of any of the partners before the expiration of
the term, the partnership will not be dissolved but will be
continued by the heirs or assigns of the deceased partner.
But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed
a GPA in favor of Tan Sin An.
The plaintiff partnership purchased 3 parcels of land
which was mortgaged to “La Urbana” as payment of
P25,000. Another 46 parcels of land were purchased by
Tan Sin An in his individual capacity which he assumed
22
payment of a mortgage debt for P35K. A downpayment
and the amortization were advanced by Yutivo and Co.
The two obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby
the entire 49 lots were mortgaged in favor of “Banco
Hipotecario”
Tan Sin An died leaving his widow, Kong Chai Pin and
four minor children. The widow subsequently became
the administratrix of the estate. Repeated demands were
made by Banco Hipotecario on the partnership and on
Tan Sin An. Defendant Sing Yee, upon request of
defendant Yutivo Sons, paid the remaining balance of
the mortgage debt, the mortgage was cancelled.
Yutivo Sons and Sing Yee filed their claim in the
intestate proceedings of Tan Sin An for advances,
interest and taxes paid in amortizing and discharging
their obligations to “La Urbana” and “Banco
Hipotecario.”
Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land. She then sold it
to Sycip and Lee in consideration of P37,000 and of the
vendees assuming payment of the claims filed by Yutivo
Sons and Sing Yee. Later, Sycip and Lee executed in favor
of Insular Development a deed of transfer covering the 49
parcels of land.
When Goquiolay learned about the sale to Sycip and
Lee, he filed a petition in the intestate proceedings to set
aside the order of the probate court approving the sale
insofar as his interest over the parcels of land sold was
concerned. Probate court annulled the sale executed by
the administratrix w/ respect to the 60%interest of
Goquiolay over the properties
Administratrix appealed.The decision of probate court
was set aside for failure to include the indispensable
parties. New pleadings were filed. The second amended
complaint prays for the annulment of the sale in favor of
Sycip and Lee and their subsequent conveyance to
Insular Development. The complaint was dismissed by
the lower court hence this appeal.
ISSUE:
Whether or not a widow or substitute become also a
general partner or only a limited partner
Whether or not the lower court err in holding that the
widow succeeded her husband TanSin An in the sole
management of the partnership upon Tan’s death
HELD:
Kong Chai Pin became a mere general partner. 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), Goqulay 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. The articles
did not provide that the heirs of the deceased would be
merely limited partners; 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
assignees. 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 actually
contemplated that the heirs would become general
partners rather than limited ones.
Partnership; General partner by estoppel; Widow of
managing partner authorized by other partner to manage
partnership.—By authorizing the widow of the
managing partner to manage partnership property (which
a limited partner could not be authorized to do), the
other general partner recognized her as a general partner,
and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate
partnership property.
Same; Heir of Partner; Status ordinarily as limited
partner but may waive it and become a general partner.
—Although the heir of a partner ordinarily becomes a
limited partner for his own protection, yet the heir may
disregard it and instead elect to become a collective or
general partner, with all the rights and obligations of
one. This choice pertains exclusively to the heir, and
does not require the assent of the surviving partner.
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Same; Presumptions; Authority of partner to deal with
property.—A third person has the right to presume 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).

Same; Property of Partnership; Sale of immovables,

when considered within the ordinary powers of a general
partner.— 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.

Same; Sale of partnership property; Action for rescission

on ground of fraud; No inadequacy of price; Case at Bar.
— Appellant’s claim that the price was inadequate,
relies on the testimony of a realtor, who in 1955, six
years after the sale in question, asserted that the land was
by then worth double the price for which it was sold. But
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.

Same; Same; Same; Relationship alone is no badge of

fraud.— The Supreme Court has ruled that relationship
alone is not a badge of fraud (Oria Hnos vs. McMicking,
21 Phil. 243; Hermandad del Smo. Nombre de Jesus vs.
Sanchez, 40 Off. Gaz., 1685).

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