JOSEFINA P.

REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.

The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for review
which decides” We order the dissolution of the joint venture between defendant-appellant Josefina Realubit and Francis
Eric Amaury Biondo and the subsequent conduct of accounting, liquidation of assets and division of shares of the joint
venture business.

Petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis Eric Amaury Biondo (Biondo),
a French national, for the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as
the capitalist partner, the parties agreed that they would each receive 40% of the net profit, with the remaining 20% to be
used for the payment of the ice making machine which was purchased for the business.5 Biondo subsequently executed a
Deed of Assignment transferring all his rights and interests in the business in favor of respondent Eden Jaso (Eden), the
wife of respondent Prosencio Jaso.6 Spouses Jaso informed Josefina apprising her of their acquisition of said Frenchman’s
share in the business and formally demanding an accounting and inventory thereof as well as the remittance of their
portion of its profits.7

For failure, the Spouses Jaso commenced the instant suit against Josefina, her husband, Ike Realubit (Ike), and their
alleged dummies, for specific performance, accounting, examination, audit and inventory of assets and properties,
dissolution of the joint venture, appointment of a receiver and damages. It alleged that the Spouses Realubit had no
gainful occupation or business prior to their joint venture with Biondo; that with the income of the business which earned
not less than ₱3,000.00 per day, they were, however, able to acquire the two-storey building as well as the land on which
the joint venture’s ice plant stands, another building which they used as their office and/or residence and six (6) delivery
vans; and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have
fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies.8

Spouses Realubit denied the material allegations of the foregoing complaint. Claiming that they have been engaged in the
tube ice trading business under a single proprietorship even before their dealings with Biondo, she averred that Biondo left
the country in May 1997 and could not have executed the Deed of Assignment which bears a signature markedly different
from that which he affixed on their Joint Venture Agreement; that they refused the Spouses Jaso’s demand in view of the
dubious circumstances surrounding their acquisition of Biondo’s share in the business which was established at Don
Antonio Heights, Commonwealth Avenue, Quezon City; that said business had already stopped operations on 13 January
1996 when its plant shut down after its power supply was disconnected by MERALCO for non-payment of utility bills; and,
that it was their own tube ice trading business which had been moved to Quezon City that the Spouses Jaso mistook for
the ice manufacturing business established in partnership with Biondo.9

The RTC discounting the existence of sufficient evidence from which the income, assets and the supposed dissolution of
the joint venture can be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been nevertheless
subrogated to Biondo’s rights in the business in view of their valid acquisition of the latter’s share as capitalist
partner,hence, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets and
liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and accounting records
of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs the amount of ₱20,000.
for moral damages.

On appeal found that: (a) the Spouses Jaso validly acquired Biondo’s share in the business which had been transferred to
and continued its operations in Quezon City and not dissolved as claimed by the Spouses Realubit; (b) absent showing of
Josefina’s knowledge and consent to the transfer of Biondo’s share, Eden cannot be considered as a partner in the
business, pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondo’s share in the profits of
the business, Eden cannot, however, interfere with the management of the partnership, require information or account of
its transactions and inspect its books; (d) the partnership should first be dissolved before Eden can seek an accounting of
its transactions and demand Biondo’s share in the business; and, (e) the evidence adduced before the RTC do not support
the award of moral damages in favor of the Spouses Jaso.12

The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of merit in the CA’s 28
June 2007 Resolution,13 hence, this petition.
1
 Issues: a. Whether or not there was a valid assignment of rights to the joint venture.

b. whether the court may order petitioner [josefina realubit] as partner in the joint venture to render [a]n accounting to one
who is not a partner in said joint venture.

The Court’s Ruling

The petition bereft of merit. They insist that notarization did not automatically and conclusively confer validity on said deed,
since it is still entirely possible that Biondo did not execute said deed or, for that matter, appear before said notary public
but settled rule that documents acknowledged before notaries public are public documents which are admissible in
evidence without necessity of preliminary proof as to their authenticity and due execution.16

As a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys a presumption of
regularity17 but is also considered prima facie evidence of the facts therein stated.18 A party assailing the authenticity and
due execution of a notarized document is, consequently, required to present evidence that is clear, convincing and more
than merely preponderant.19 In view of the Spouses Realubit’s failure to discharge this onus, we find that both the RTC and
the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the combined strength of the above-
discussed disputable presumptions and the testimonies elicited from Eden20 and Notary Public Rolando Diaz.21 As for the
Spouses’ Realubit’s bare assertion that Biondo’s signature on the same document appears to be forged, suffice it to say
that, like fraud,22 forgery is never presumed and must likewise be proved by clear and convincing evidence by the party
alleging the same.23 Aside from not being borne out by a comparison of Biondo’s signatures on the Joint Venture
Agreement24 and the Deed of Assignment,25 said forgery is, moreover debunked by Biondo’s duly authenticated certification
dated 17 November 1998, confirming the transfer of his interest in the business in favor of Eden.26

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular
partnership or one which "has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise
of a profession or vocation."27 The rule is settled that joint ventures are governed by the law on partnerships28 which are, in
turn, based on mutual agency or delectus personae.29 Insofar as a partner’s conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs, or to require any information or
account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an
account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest does not make the
assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignee’s profits. The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital."30 Since a partner’s interest in the partnership includes his share
in the profits,31 we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondo’s
share in the profits, despite Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint venture.
Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.32  1âwphi1

Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the dissolution of the joint venture and
concluded that the ice manufacturing business at the aforesaid address was the same one established by Juanita and
Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this Court,38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the following recognized exceptionsUnfortunately for the Spouses
Realubit’s cause, not one of the foregoing exceptions applies to the case.
2
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is, accordingly,
AFFIRMED in toto.

Lyons v. Rosentock G.R. No. L-35469 (1932)

E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.

The purpose of the action is to recover four hundred forty-six(P446) and two thirds (2/3)shares of the stock of J. K.
Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which accrued on said stock
prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial court absolved the defendant executor from
the complaint, and the plaintiff appealed.

Prior to his death on June 18, 1923, Henry W. Elser is concerned in buying, selling, and administering real estate. In
several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with
him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of a
missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone for
nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a written statements
showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Lyons execute in
favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to
represent Lyons fully and amply, to the mutual advantage of both. Later, two of the pieces of property were sold by Elser,
leaving in his hands a single piece of property (w/)improvements located at 616-618 Carried Street, in the City of Manila

Later, Elser was interested to buy San Juan Estate for P570,000. To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and when this option was about to expire without his having been able to
raise the necessary funds, he paid P15,000 more for an extension of the option, with the understanding in both cases that,
in case the option should be exercised, the amounts thus paid should be credited as part of the first payment. The amounts
paid for this option and its extension were supplied by Elser entirely from his own funds. In the end he was able from his
own means, and with the assistance which he obtained from others, to acquire said estate. The amount required for the
first payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the
option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained from a
Chinese merchant of the city named Uy Siuliong and in order to get the money it was necessary for Elser not only to give a
personal note signed by himself and his two associates in the projected enterprise, but also by the Fidelity & Surety
Company. With this money and what he already had in bank Elser purchased the San Juan Estate on or about June 28,
1920. For the purpose of the further development of the property a limited partnership had, about this time, been organized
by Elser and three associates, under the name of J. K. Pickering & Company; and when the transfer of the property was
effected the deed was made directly to this company. As Elser was the principal capitalist in the enterprise he received by
far the greater number of the shares issued, his portion amount in the beginning to 3,290 shares.

Elser contemplated and hoped that Lyons might be induced to come in with him and supply part of the means necessary
to carry the enterprise through. Elser wrote Lyons a letter, informing him that he had made an offer for a big subdivision
and that, if it should be acquired and Lyons would come in, the two would be well fixed. Eight days before the first option
expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign , meaning
that he should resign his position with the mission board in New York. On the same date he wrote Lyons a letter explaining
some details of the purchase, and added "have advised in my cable that you resign and I hope you can do so immediately
and will come and join me on the lines we have so often spoken about. . . . There is plenty of business for us all now and I
believe we have started something that will keep us going for some time." In one or more communications prior to this,
Elser had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.

Elser found him averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United
States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that
the board of missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer
and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to
take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good thing.
3
One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this venture, was
the board of mission was averse to his engaging in business activities other than tthe church was concerned; and some of
Lyons' missionary associates had apparently been criticizing his independent commercial activities. Upon receipt of this
letter Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the
San Juan project.

Elser purchased of the San Juan Estate, his book showed that he was indebted to Lyons to the extent of, possibly,
P11,669.72, which had accrued to Lyons from profits and earnings derived from other properties; and when the J. K.
Pickering & Company was organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as
he then believed that Lyons would be one of his associates in the deal. It will be noted that the par value of these 200
shares was more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to
the Philippine Islands, he accepted these shares and sold them for his own benefit. It seems to be supposed in the
appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the present action, or at
least strengthens the considerations involved in a feature of the case to be presently explained. This view is manifestly
untenable, since the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued
to him leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We should
perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of
directors of the J. K. Pickering & Company, his qualification for this office being derived precisely from the ownership of
these shares.

It will be remembered that, when Elser obtained the loan of P50,000 to complete the amount needed for the first payment
on the San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co.
on the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co.
insisted upon having security for the liability thus assumed by it. To meet this requirements Elser mortgaged to the Fidelity
& Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was
executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned that the latter had determined not to come into this deal, Elser began to cast around for
means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose he addressed a
letter to the Fidelity & Surety Co., asking & was granted to permit him to substitute a property owned by himself at 644 M.
H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security.
But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the release of the
old were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the
Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together
with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it.

The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on
September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo mortgage
remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons used the
words above quoted, and as that conversation supplies the most reasonable explanation of Elser's recession from his
purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in accepting as a proven fact the
consent of Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable under the
circumstances, in view of the abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons 200
shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser
had owed to Lyons upon statement of account. The trial court found in effect that the excess value of these shares over
Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the assistance that had been derived from
the mortgage placed upon Lyon's interest in the Carriedo property. Whether the agreement was reached exactly upon this
precise line of thought is of little moment, but the relations of the parties had been such that it was to be expected that
Elser would be generous; and he could scarcely have failed to take account of the use he had made of the joint property of
the two.

Later, Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more than five
months later. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the
extent of a single cent; and although the court refused to allow the defendant to prove the Elser was solvent at this time in
an amount much greater than the entire encumbrance placed upon the property, it is evident that the risk imposed upon
Lyons was negligible. It is also plain that no money actually deriving from this mortgage was ever applied to the purchase
of the San Juan Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no
actual liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest
4
financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon his
own account.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the
Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided
interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is
entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as
claimed in his complaint.

Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner already
explained had been used to held finance the purchase of the San Juan Estate. He seems to have supposed that the
Carried property had been mortgaged to aid in putting through another deal, namely, the purchase of a property referred to
in the correspondence as the "Ronquillo property"; and in this connection a letter of Elser of the latter part of May, 1920,
can be quoted in which he uses this language:

As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money for
Ronquillo buy (P60,000) if the owner comes through.

Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons leads us to
infer that he thought that the money obtained by mortgaging the Carriedo property had been used in the purchase of this
property. It doubtedless appeared so to him in the retrospect, but certain consideration show that he was inattentive to the
contents of the quotation from the letter above given. He had already been informed that, although Elser was angling for
the Ronquillo property, its price had gone up, thus introducing a doubt as to whether he could get it; and the quotation
above given shows that the intended use of the money obtained by mortgaging the Carriedo property was that only part of
the P50,000 thus obtained would be used in this way, if the deal went through. Naturally, upon the arrival of Lyons in
September, 1920, one of his first inquiries would have been, if he did not know before, what was the status of the proposed
trade for the Ronquillo property.

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this effect;: "I have
mortgaged the property on Carriedo Street, secured by my personal note. You are amply protected. I wish you to join me in
the San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was received by him, and we
consider this point of fact of little moment, since the proof shows that Lyons knew that the Carriedo mortgage had been
executed, and after his arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as
shortly occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the situation, but he
knew enough, we think, to apprise him of the material factors in the situation, and we concur in the conclusion of the trial
court that Elser did not act in bad faith and was guilty of no fraud.

If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and
article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the
law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses
money belonging to another . Of course, if an actual relation of partnership had existed in the money used, the case might
be difference; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed,
existed. But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser,
in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be
distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with
reference to trust supply a basis for this action. The doctrines referred to operate, however, only where money belonging to
one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment
to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any
partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if
any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo
property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed
between him and Elser while the latter was still alive. While the admission of this testimony was of questionable propriety,
5
any error made by the trial court on this point was error without injury, and the determination of the question is not
necessary to this decision. We therefore pass the point without further discussion.

The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.

Lim Tong Lim v. Philippine Fishing Gear Industries, Inc. G.R. No. 136448 (1999)

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV
41477,   which disposed as follows:
1

1. That plaintiff(Phil Fishing Gear) is entitled to the writ of preliminary attachment

2. That defendants are jointly liable to plaintiff for :

a. P532,045.00 unpaid purchase price of the fishing nets covered by the Agreement plus
P68,000.00 representing the unpaid price of the floats not covered by said Agreement;

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the
amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction
for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have
to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable,
unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of
the P900,000.00 deposited by it with the Clerk of Court.

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

6
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought
against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.   On September 20,
5

1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his
behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.   The trial court maintained the Writ, and
6

upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000.  7

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

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the three   in Civil Case No. 1492-MN which Chua and Yao
9

had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.   The
10

Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the
amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as
full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess/short will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;

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

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be
held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court
ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing . . . . Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is . . . . By a contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of dividing the profits among themselves (Article
1767, New Civil Code).  13

i the court of appeals erred in holding, based on a compromise agreement that chua, yao and petitioner lim
entered into in a separate case, that a partnership agreement existed among them.

7
 ii since it was only chua who represented that he was acting for ocean quest fishing corporation when he
bought the nets from philippine fishing, the court of appeals was unjustified in imputing liability to petitioner
lim as well.

Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on
the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of
Lease " showed that he had merely leased to the two the main asset of the purported partnership — the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.

Further found:

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio
Chua was already Yao's partner;(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire
two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;(3) That they borrowed P3.25 million
from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.(4) That they bought the boats from CMF
Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;(5) That Lim, Chua and Yao agreed that the refurbishing, re-
equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao;(6) That
because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million
secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady
Anne Mel and Yao's FB Tracy to Lim Tong Lim.(7) That in pursuance of the business agreement, Peter Yao and Antonio
Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their
purported business name.(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by
Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation
of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.(9) That the case was amicably
settled through a Compromise Agreement executed between the parties-litigants the terms of which are already
enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
8
 Compromise Agreement: Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate
their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both
lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the
RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the
existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner,Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in
the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that
he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to
pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts,
who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not
to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides: Sec. 21. Corporation by estoppel. — All persons who assume
to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its
corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has no personality and
would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it
cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all
the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which

9
has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or
for other acts performed as such agent.  17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages
and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation
and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held jointly   liable with Chua and Yao. Petitioner contests such liability,
18

insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be
held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.

Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped
the benefits of the contract entered into by persons with whom he previously had an existing relationship,
he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

CIR v. Suter, G.R. No. L-25532 (1969)

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein respondent William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. They contributed fix sum of money, the
limited partnership was registered with the SEC. The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and
accessories. It held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation
with the Central Bank.

Later, general partner Suter and limited partner Spirig got married and, thereafter Carlson sold his share in the partnership
to Suter and his wife. The sale recorded with the SEC.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner,
CIR, whom later, in an assessment, consolidated the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
10
 Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which reversed
Commissioner of Internal Revenue ruling.

Issues: (a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single
taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia
Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in
the partnership for a nominal amount of P1.00.

CIR’s theory, is that the marriage of Suter and Spirig and their subsequent acquisition of the interests of Carlson in the
partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership should
be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business;
consequently the income tax return of respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue
Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-residents, only one
consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses; ....

Suter maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law
because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year
after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries
and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which
applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations
to each other are prohibited from entering into universal partnerships. It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership.

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject firm was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as contributed by them to the common fund, or else
"all that the partners may acquire by their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows
that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes
provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally
erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by

11
them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property of
both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct
and separate from that of its partners (unlike American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law. The limited partnership's separate individuality
makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue
Code merges registered general co-partnerships (compañias colectivas) with the personality of the individual partners for
income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30
October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of
the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were
already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so
would exempt the limited partnership from income taxation but would throw the tax burden upon the partners-spouses in
their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage
of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not
enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to
use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with
what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of
a general copartnership (compañia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus,
the code taxes the latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the
duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms
part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and
People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become conjugal only when
no longer needed to defray the expenses for the administration and preservation of the paraphernal capital of the wife.
Then again, the appellant's argument erroneously confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the partnership since the law taxes the income of even joint
accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their
individual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of
husband and wife) may be the same for a given taxable year, their consequences would be different, as their contributions
in the business partnership are not the same.

12
The difference in tax rates between the income of the limited partnership being consolidated with, and when split from the
income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently stands, does not
authorize it, and even bars it by requiring the limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

Uy v. Puzon G.R. No. L-19819 (1977)

WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction Company" and ordering
the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1) P115,102.13, with legal interest thereon from the
date of the filing of the complaint until fully paid; (2) P200,000.00, as plaintiffs share in the unrealized profits of the "U.P.
Construction Company" and (3) P5,000.00, as and for attorney's fees.

Bartolome Puzon had a contract with the Republic of the Philippines for the construction of the Pagadian Zamboanga City
Road, Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding difficulty in accomplishing both
projects, Bartolome Puzon sought the financial assistance of the plaintiff, William Uy. As an inducement, Puzon proposed the
creation of a partnership between them which would be the sub-contractor of the projects and the profits to be divided equally
between them. William Uy inspected the projects in question and, expecting to derive considerable profits therefrom, agreed to
the proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was subsequently engaged as
subcontractor of the construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall contribute the amount
of P50,000.00 in cash. 5 Puzon was short of cash and he promised to contribute his share in the partnership capital as soon as
his application for a loan with the Philippine National Bank in the amount of P150,000.00 shall have been approved. However,
before his loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this purpose, on
October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance contribution of his share in the
partnership to be organized between them under the firm name U.P. CONSTRUCTION COMPANY which amount mentioned
above will be used by Puzon to pay his obligations with the Philippine National Bank to effect the release of his mortgages with
the said Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial contribution to the
proposed partnership and which the said Puzon was to use in payment of his obligation to the Rehabilitation Finance
Corporation. 7 Puzon promised William Uy that the amount of P150,000.00 would be given to the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital contribution of William Uy which the said Uy had advanced to clear the title of
Puzon's property; P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as Puzon's personal
loan to the partnership. 8

Although the partnership agreement was signed by the parties on January 18, 1957,9 work on the projects was started by the
partnership on October 1, 1956 in view of the insistence of the Bureau of Public Highways to complete the project right
away. 10 Since Puzon was busy with his other projects, William Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be considered as part of his contribution. 11 At the end of December, 1957, William
Uy had contributed to the partnership the amount of P115,453.39, including his capital. 12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to William Uy the amount of
P60,000.00. Of this amount, P40,000.00 was for the reimbursement of Uy's contribution to the partnership which was used to
clear the title to Puzon's property, and the P20,000.00 as Puzon's contribution to the partnership capital. 13

To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and consent of William
Uy, 14 assigned to the Philippine National Bank all the payments to be received on account of the contracts with the Bureau of
Public Highways for the construction of the afore-mentioned projects. 15 By virtue of said assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments on the government projects in question to the Philippine National
Bank which, in turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the Bureau of
Public Highways in payment of the partial work completed by the partnership on the projects, the amount of P332,539.60 was

13
applied in payment of Puzon's loan and only the amount of P27,820.80 was deposited in the partnership funds, 16 which, for all
practical purposes, was also under Puzon's account since Puzon was the custodian of the common funds.

As time passed and the financial demands of the projects increased, William Uy, who supervised the said projects, found
difficulty in obtaining the necessary funds with which to pursue the construction projects. William Uy correspondingly called
on Bartolome Puzon to comply with his obligations under the terms of their partnership agreement and to place, at lest, his
capital contribution at the disposal of the partnership. Despite several promises, Puzon, however, failed to do
so. 17 Realizing that his verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction projects, wrote the
subcontractor, U.P. Construction Company, on November 20, 1957, advising the partnership, of which he is also a partner, that
unless they presented an immediate solution and capacity to prosecute the work effectively, he would be constrained to consider
the sub-contract terminated and, thereafter, to assume all responsibilities in the construction of the projects in accordance with
his original contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as of December 1, 1957. 21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority to deal with the Bureau
of Public Highways in behalf of the partnership was revoked by Bartolome Puzon who continued with the construction projects
alone. 22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their partnership agreement,
instituted an action in court, seeking, inter alia, the dissolution of the partnership and payment of damages.

Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it was the plaintiff, William
Uy, who violated the terms thereof. He, likewise, prayed for the dissolution of the partnership and for the payment by the
plaintiff of his, share in the losses suffered by the partnership.

After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their partnership agreement,
failed to contribute his share in the capital of the partnership applied partnership funds to his personal use; ousted the
plaintiff from the management of the firm, and caused the failure of the partnership to realize the expected profits of at least
P400,000.00. As a consequence, the trial court dismissed the defendant's counterclaim and ordered the dissolution of the
partnership. The trial court further ordered the defendant to pay the plaintiff the sum of P320,103.13.

Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal before this Court, the said
Bartolome Puzon died, and was substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact, which relates to the
following points:

(1) That the appellant is not guilty of breach of contract; and

(2) That the amounts of money the appellant has been order to pay the appellee is not supported by the evidence and the
law.

After going over the record, we find no reason for rejecting the findings of fact below, justifying the reversal of the decision
appealed from.

The findings of the trial court that the appellant failed to contribute his share in the capital of the partnership is clear
incontrovertible. The record shows that after the appellant's loan the amount of P150,000.00 was approved by the Philippin
National Bank in November, 1956, he gave the amount P60,000.00 to the appellee who was then managing the
construction projects. Of this amount, P40,000.00 was to be applied a reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the appellant's property, and th balance of P20,000.00, as Puzon's
contribution to the partnership. 23 Thereafter, the appellant failed to make any further contributions the partnership funds as
shown in his letters to the appellee wherein he confessed his inability to put in additional capital to continue with the projects. 24

14
Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share in the partnership capital
inasmuch as the amount of P40,000.00, allegedly given to him in October, 1956 as partial contribution of the appellee is merely a
personal loan of the appellant which he had paid to the appellee, is plainly untenable. The terms of the receipts signed by the
appellant are clear and unequivocal that the sums of money given by the appellee are appellee's partial contributions to the
partnership capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated: ñé+.£ªwph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in Check No. SC 423285
Equitable Banking Corporation, dated October 24, 1956, as advance contribution of the share of said
William Uy in the partnership to be organized between us under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by the undersigned to pay his obligations with the
Philippine National Bank to effect the release of his mortgages with the said bank. (Emphasis supplied)

In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also said: ñé+.£ªwph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in Check No. SC423287,
of the Equitable Banking Corporation, as partial contribution of the share of the said William Uy to the U.P.
CONSTRUCTION COMPANY for which the undersigned will use the said amount in payment of his
obligation to the Rehabilitation Finance Corporation. (Emphasis supplied)

The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained by competent evidence.
It is of record that the appellant assigned to the Philippine National Bank all the payments to be received on account of the
contracts with the Bureau of Public Highways for the construction of the aforementioned projects to guarantee the
repayment of the bank. 27 By virtue of the said appeflant's personal loan with the said bank assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments on the construction projects in question to the Philippine National
Bank who, in turn, applied portions of it in payment of the appellant's loan. 28

The appellant claims, however, that the said assignment was made with the consent of the appellee and that the assignment not
prejudice the partnership as it was reimbursed by the appellant.

But, the appellee categorically stated that the assignment to the Philippine National Bank was made without his prior
knowledge and consent and that when he learned of said assignment, he cal the attention of the appellant who assured
him that the assignment was only temporary as he would transfer the loan to the Rehabilitation Finance Corporation within
three (3) months time. 29

The question of whom to believe being a matter large dependent on the trier's discretion, the findings of the trial court who had
the better opportunity to examine and appraise the fact issue, certainly deserve respect.

That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied. The record show that
during the period from March, 1957 to September, 1959, the appellant Bartolome Puzon received from the Bureau of
Public highways, in payment of the work accomplished on the construction projects, the amount of P1,047,181.01, which
amount rightfully and legally belongs to the partnership by virtue of the subcontract agreements between the appellant and
the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine National Bank, the latter
withheld and applied the amount of P332,539,60 in payment of the appellant's personal loan with the said bank. The
balance was deposited in Puzon's current account and only the amount of P27,820.80 was deposited in the current
account of the partnership. 30 For sure, if the appellant gave to the partnership all that were eamed and due it under the
subcontract agreements, the money would have been used as a safe reserve for the discharge of all obligations of the firm and
the partnership would have been able to successfully and profitably prosecute the projects it subcontracted.

When did the appellant make the reimbursement claimed by him?

For the same period, the appellant actually disbursed for the partnership, in connection with the construction projects, the
amount of P952,839.77. 31 Since the appellant received from the Bureau of Public Highways the sum of P1,047,181.01, the
appellant has a deficit balance of P94,342.24. The appellant, therefore, did not make complete restitution.

The findings of the trial court that the appellee has been ousted from the management of the partnership is also based
upon persuasive evidence. The appellee testified that after he had demanded from the appellant payment of the latter's

15
contribution to the partnership capital, the said appellant did not allow him to hold office in the U.P. Construction Company
and his authority to deal with the Bureau of Public Highways was revoked by the appellant. 32

As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the evidence of record as
warrant its reverw.

Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the plaintiff-appellee whatever
amount latter had invested in or spent for the partnership on account of construction projects.

How much did the appellee spend in the construction projects question?

It appears that although the partnership agreement stated the capital of the partnership is P100,000.00 of which each part
shall contribute to the partnership the amount of P50,000.00 cash 33 the partners of the U.P. Construction Company did
contribute their agreed share in the capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial
amount P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of cash advances
coveting expenses of the construction projects as they were incurred. Since the determination of the amount of the
disbursements which each of them had made for the construction projects require an examination of the books of account, the
trial court appointed two commissioners, designated by the parties, "to examine the books of account of the defendant regarding
the U.P. Construction Company and his personal account with particular reference to the Public Works contract for the
construction of the Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by virtue of the two projects above
mentioned, the disbursements or disposition made by defendant of the portion thereof released to him by the Philippine National
Bank and in whose account these funds are deposited . 35

In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they are in agreement, as well as
their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money received from the firm, under
Debits; and the resulting monthly investment standings of the partners, under Balances. The commissioners are agreed
that at the end of December, 1957, the appellee had a balance of P8,242.39. 38 It is in their respective adjustments of the
capital account of the appellee that the commissioners had disagreed.

Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of P24,239.48, representing the
checks isssued by the appellant, 39 and encashed by the appellee or his brother, Uy Han so that the appellee would owe the
partnership the amount of P15,997.09.

Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following additional amounts:

(1) P7,497.80 — items omitted from the books of partnership but recognized and charged to Miscellaneous Expenses by
Mr. Ablaza;

(2) P65,103.77 — payrolls paid by the appellee in the amount P128,103.77 less payroll remittances from the appellant in
amount of P63,000.00; and

(3) P26,027.04 other expeses incurred by the appellee at construction site.

With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the findings of the trial which
we find to be in accord with the evidence:

To enhance defendant's theory that he should be credited P24,239.48, he presented checks allegedly given to plaintiff and
the latter's brother, Uy Han, marked as Exhibits 2 to 11. However, defendant admitted that said cheeks were not entered
nor record their books of account, as expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han
testified that of the cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court, considering that Han's
explanation thereof is the more plausible because if they were employed in the prosecution of the partners projects, the
corresponding disbursements would have certainly been recorded in its books, which is not the case. Taking into account
16
defendant is the custodian of the books of account, his failure to so enter therein the alleged disbursements, accentuates
the falsity of his claim on this point. 40

Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his proclivity to favor the
appellant and because of the inaccurate accounting procedure adopted by him in auditing the books of account of the partnership
unlike Mr. Tayag's report which inspires faith and credence. 41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of his personal funds
which not been entered in the books of the partnership but which been recognized and conceded to by the auditor
designated by the appellant who included the said amount under Expenses. 42

The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and convincing. 43

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection withe the projects and
not entered in the books of the partnership since all vouchers and receipts were sent to the Manila office which were under the
control of the appellant. However, officer which were under the control of the appellant. However, a list of these expenses are
incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.

In resume', the appelllee's credit balance would be as follows:

  ñé+.£ªwph!1

Undisputed
balance as of
Dec. 1967

Add: Items P 8,242.

omitted from
the books but

recognized  
and charged
to
Miscellaneous

Expenses by 7,497.80
Mr. Ablaza
Add: P128,  
Payrolls
paid by 103.7
the 7
appelle
e

Less: 63,00 65,10

Payro 0.00 3.77
ll
remitt
ance
s
recei
ved

Add:    
Other
expe
nses
incurr
17
 ed at
the

site 26,02  
(Exhs 7.04
, ZZ,
ZZ-1
to
ZZ-4)

  TOTA P106,
L 871.0
0

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he also advanced for the
construction projects but which were not included in the Commissioner's Report. 44

Appellee's total investments in the partnership would, therefore, be:

Appellee's total P106,871.

credits
00

Add: 3,917,39
unrecorded
balances
for the
month of
Dec. 1957
(Exhs.
KKK, KK-1
to KKK_19,
KKK-22)

Add: 4,665.00
Payments
to Munoz,
as
subcontract
or of five,
(5) Bridges
(p. 264 tsn;
Exhs. KKK-
20, KKK-
21)

Total Pl
Investment 15,453.39
s

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 appemnt 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.
18
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.

Has the appellee failed to make profits because of appellant's breach of contract?

There is no doubt that the contracting business is a profitable one and that the U.P. Construction Company derived some
profits from' co io oa ects its sub ntracts in the construction of the road and bridges projects its deficient working capital and
the juggling of its funds by the appellant.

Contrary to the appellant's claim, the partnership showed some profits during the period from July 2, 1956 to December 31,
1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this was primarily due to the confusing accounting
method employed by the auditor who intermixed h and accthe cas ruamethod of accounting and the erroneous inclusion of
certain items, like personal expenses of the appellant and afteged extraordinary losses due to an accidental plane crash, in the
operating expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of P41,611.28.

For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net profit of P52,943.89. 46

Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public Highways, in payment of the
zonstruction projects in question, the amount of P1,047,181.01 47 and disbursed the amount of P952,839.77, 48 leaving an
unaccounted balance of P94,342.24. Obviously, this amount is also part of the profits of the partnership.

During the trial of this case, it was discovered that the appellant had money and credits receivable froin the projects in
question, in the custody of the Bureau of Public Highways, in the amount of P128,669.75, representing the 10% retention
of said projects.49 After the trial of this case, it was shown that the total retentions Wucted from the appemnt amounted to
P145,358.00. 50 Surely, these retained amounts also form part of the profits of the partnership.

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 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
have earned much more than the P334,255.61 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.

WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed with costs against the
appellant, it being understood that the liability mentioned herein shall be home by the estate of the deceased Bartolome
Puzon, represented in this instance by the administrator thereof, Franco Puzon.

SO ORDERED.

Fernando (Chairman), Barredo, Antonio and Santos, JJ., concur. 1äwphï1.ñët

Aquino, J., concurs in the result.

Footnotes ñé+.£ªwph!1

1 Known as Project No. 51-7-5-1, in the amount of P1,976,103.90 which was later on increased to
P2,037,880.12 (Exhibit A).

2 known as Project Nos. 51-7-4 (Spur 1) and 51-7-5-2, in the amount of P258,229.64 which was later on
increased to P289,455.64 (Exhibit B).

3 Exhibit EEE.

19
4 Exhibits FFF, GGG.

5 paragraph 6, Exhibit EEE.

6 Exhibit HHH.

7 Exhibit HHH-1.

8 pp. 248, 313, t.s.n.

9 Exhibit EEE.

10 p. 230, t.s.n.; see also Exhibits FFF, GGG.

11 pp. 230, 241, 249, 299, t.s.n.

12 Exhibits CCC; pp. 263, 264, t.s.n.

13 p. 249, t.s.n.

14 p. 288, t.s.n.

15 Exhibits 59 and 60

16 Exhibit AAA

17 pp. 237, 238, t.s.n.

18 Exhibits III-1, III-3, III-5, III-8.

19 Exhibits III, III-4, III-6.

20 Exhibit III-2.

21 Exhibit III-7.

22 p. 276, t.s.n.; Exhibit LLL.

23 p. 249, t.s.n.

24 Exhibits III, III-4, III-6.

In his letter dated November 25,1957, the appellant said:

In all our previous conferences and discussions, cordial and sometimes high pitched, to find a solution to
our continuous losses. I have confessed to you my inability to put additional cipital to continue on with the
project. This has been brought about by any the change of policy by the RFC in connection with my
application filed with that Office, on which is premised the assignment of the contract on my loan from the
PNB and which is with your full knowledge and approval.

xxx xxx xxx

Since we are depending on outside capital to help us in the prosecution of the projects, since under the
present circumstances and conditions, it is very hard to bring about the necessary, outside capital, and
20
because, whatever financing I may be able to place is borrowed and temporary, which you can not
conform, then I wish to advise you that, I can no longer continue to go on with our partnership for the
reason that I cannot place additional capital beyond what I have placed including my share of the
obligation." (Exhibit III-4) The appellant's position "as no longer able to put additional capital", was
reiterated in his letter dated November 27, 1957. (See Exhibit III-6).

25 Exhibit HHH.

26 Exhibit HHH-1.

27 Exhibits 59 and 60.

28 See Exhibit HHH-1.

29 William Uy's testimony reads, as follows:

Q When did vou first know that the two projects of Mr Puzon at Zamboanga del Sur which was the subject
maltter of the sub-contract agreement were encumbered by an assignment, made by Mr. Puzon in favor of
the Philippine National Bank?

A I think in January or February after my return from the projects. That was the time he told me about th
assignment. I have no knowledge of the assignment. (p. 288, t.s.n.)

Q When you signed the partnership and sub-contract agreements Exhibits EE and FF and also Exhibit
GGG, you already knew that the projects were encumbered by an assignment in favor of the Philippine
National Bank?

A Yes, sir, but he informed me that it was only a formality, and that he will make the necessary
arrangement because I objected to it on that assignment.

Q So that in spite of the fact that you knew that the two projects subject matter of these contracts Exhibits
FFF and GGG were already assigned by Mr. Puzon to the Philippine National Bank you still signed the
subcontracts Exhibits FFF and GGG?

A I signed because of his promise to cancel that assignment and transfer it to the RFC within three months
time and continue in the meantime that P50,000.00 and if he can not maintain that, he will get that from the
outside source. (p. 290, tsn ).

30 Exhibit AAA.

31 Puzon's advances of P991.054.78 less the amounts of P16,265.01, which were incurred for the personal
expenses of Puzon, and P21,950.00, representing questionable disbursements of which P20,00.00 was
allegedly lost in an airplane crash, equals P952,839.77 (See Exhibit BBB).

32 The appellee's testimony on this point, reads:

Q After you wrote Mr. Puzon Exhibits III-1 to III-9,what happened?

A After I have written these letters, I was being driven out of the company and then I was not allowed to
hold office that office we were supposed to be. Then he wrote a letter a informing, the Bureau of Public
Highways that I am no longer connected in that projects and he issued a letter of revocation my power. So
my hands are tied.

Q Showing to you this document which is a revocation of power of Mr. Puzon, what reference has this with
the revocation issued by Mr. Puzon?
21
A This is the very letter of revocation of power given to me

Q Whose signature is this which reads Bartolome Puzon

A That is the signature of Mr. Puzon.

Q Below, the signature, there appears a signature which reads Zenaida O. Beltran', whose signature is
that?

A That is the signature of one of the clerks of the company

ATTY. SALVADOR:

For purposes of Identification, we request that this revocation of Mr. Puzon he marked as Exhibit LLL, for
the plaintiff.

COURT:

Let is be marked. (pp. 276-277, tsn).

33 par. 6, Exhibit EEE.

34 Exhibits HHH, HHH-1.

35 p. 53, Record on Appeal.

36 Jesus B. Tayag, for the plaintiff, and Angel C. Ablaza, for the defendant.

37 p. 58, Record on Appeal.

38 pp. 61, 64, Record on Appeal.

39 Exhibits 2 to 11, inclusive.

40 pp. 241-242, Record on Appeal.

41 pp. 246-247. Record on Appeal.

42 pp. 163-167, t. s. n.

43 Mr. Tayag's testimony on this point reads:

Q We notice Mr. Tayag under the capital account in your report, Commissioner's Report, you made
adjustments in the form of payrolls paid in 1956 to 1957 in the amount of P128,103.77, would you please
explain why you made such adjustment?

A I believe, I have already explained in my comment. When I was examining the books of the U.P.
Construction Company, I found out that the amount charge to salaries and wages were remittances by
telegraphic transfers to the Zamboanga Office. In proper accounting, remittances should not have been
entered as salaries immediately because you don't know what disposition would be made finally of the
amount remitted, until the amounts are actually paid and covered by payrolls in Zamboanga Office, nothing
should be recorded as salaries and wage. Instead, the remittances should have been charged to the
incharge or manager of the project or payroll clerk asa ccount receivable. When the particular payrolls are
reported back to Manila, that is the time you enter the actual amount paid. Because while the remittances in
22
 round figures say P10,000.00, the actual payroll would not be exactly that amount. At the time of the receipt
of the payrolls, that is the only time the adjustment of salaries and wages should be made. So I asked the
personnel of the U.P. Construction Company whether there were payrolls in the files. I was told that there
were paurolls but they would not release to me without permission from Mr. Puzon or his attorney. So, I
contacted Mr. Uy by telephone whether there were payrolls or papers in the project site. He told me that
there were and that they were sent to Manila. As a proof, he brought to me a list in detail containing the
names of the employees by the month and the amount received by them. When I returned back to the
Office of Mr. Puzon, I inquired again whether the payrolls will be lent to me. There was much delay and
later on I understood that Mrs. Barrera telephoned the attorney of Mr. Puzon, who agreed release the
payrolls to me. I checked over the list of Mr. Uy with the payrolls. I found out that the amount corresponding
to employee in his list tally with those in the payrolls. But payrolls most of them were not in total. So there
was no way knowing the total amount in the payrolls. I believe there reasonable proof that those were the
payrolls that ;were paid Mr. Uy. That is the reason why I included in my Exhibit A the amount of Pl
28,103.77.

Q Do you have the list of the persons to whom paymen were made by Mr. Uy which you said was given to
you prior your seeing the payrolls in the U.P. Construction Company office and confronting it with the said
payrolls which you foun that they tally?

A Yes, sir, I have the list given to me by Mr. Uy whic shows here 'Summary payrolls for the month of
October 1956 January 1957' already signed. (Witness handing to counsel the plaintiff the said list).

ATTY. SALVADOR:

Consisting of nine pages, which for purposes of identification we request that the same be marked as
Exhibits YY, YY-1, to YY-8.

COURT:

Let them be so marked.

ATTY. SALVADOR:

Q Now, in your adjustment Mr. Tayag under the capital account of Mr. Uy, Exhibit A. Tayug, there is a
deduction fro said amount of P128,103.77, representing payrolls paid by him in the amount of P63,000.00,
what does this amoint represent?

A As I have said the amount charged to salaries an wages in the books of Mr. Puzon were the remittances
Zamboanga Office intended for the payment of the laborers; The amount of P63,000.00 as mentioned by
me in schedule 2, the same remittances which I deducted from the total of th payrolls. I deducted this
amount of P63,000.00 from the P128,000.00 plus resulting only in the amount of P65,108, which is the net
credit carried to the account of Mr. Uy. (pp 165169, tsn)

Island sales Inc v. United Pioneers G.R. No. L-22493 (1975)

ISLAND SALES, INC., plaintiff-appellee,

vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendant-
appellant.

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila,
Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:

23
 WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay
plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's
fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to
pay the plaintiff in this case with the understanding that the judgment against these individual defendants
shall be enforced only if the defendant company has no more leviable properties with which to satisfy the
judgment against it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines,
purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for
P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that
failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and
demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid
balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default. 1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is
concerned. 2

When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent
to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte  , after which the trial court
3

rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( /  ) of the obligations of the
1 5

defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the
liability of the defendants Daco and Sim to only one-fifth ( /  ) of the obligations of the defendant company.  Hence, this
1 5 4

appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the
partnership.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name and
for the account of the partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract.

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:

The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was,
therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by the
express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole
debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only

24
 one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase
the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall
be limited to only one-fifth ( /  ) of the obligations of the defendant company. The fact that the complaint against the
1 5

defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs.

SO ORDERED.

Buenviaje v. Spouses Salonga G.R. No. 216023 (2016)

DR. RESTITUTO C. BUENVIAJE, Petitioner, v. SPOUSES JOVITO R. AND LYDIA B. SALONGA,

JEBSON HOLDINGS CORPORATION AND FERDINAND JUAT BAÑEZ, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated November 29, 2013 and the
Resolution3 dated December 15, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 93422, essentially
upholding the Decision4 dated September 16, 2004 and the Resolution5 dated January 25, 2005 of the
Housing and Land Use Regulatory Board (HLURB) Board of Commissioners (HLURB-BOC) which, inter alia:
(a) ordered respondent Jebson Holdings Corporation (Jebson) to comply with its obligations under the
Contract to Sell it entered into with petitioner Dr. Restituto C. Buenviaje (Buenviaje); (b) declared
respondents Spouses Jovito R. Salonga and Lydia B. Salonga (Sps. Salonga) not solidarily liable with
Jebson and respondent Ferdinand Juat Banez (Banez) with regard to such Contract to Sell; (c) rescinded
the "swapping arrangement" entered into by Buenviaje, Jebson, and Bañez with regard to the Contract to
Sell; and (d) ordered Buenviaje to pay Sps. Salonga moral damages and attorney's fees in the amounts of
P50,000.00 and P25,000.00, respectively.

The Facts

On May 29, 1997, Jebson, an entity engaged in the real estate business, through its Executive Vice
President, Bañez, entered into a Joint Venture Agreement6 (JVA) with Sps. Salonga. Under the JVA, Sps.
Salonga, who owned three (3) parcels of land with an area of 2,935 square meters situated in Tagaytay
City, and covered by Transfer Certificate of Title (TCT) No. T-9000, agreed for Jebson to construct thereon
ten (10) high-end single detached residential units, to be known as Brentwoods Tagaytay Villas
(Brentwoods).7 They likewise assumed to subdivide the property into individual titles upon which Jebson
shall assume the liability to pay their mortgage loan with the Metropolitan Bank and Trust Company.8  On
the other hand, Jebson undertook to construct the units at its own expense, secure the building and
development permits, and the license to sell from the HLURB, as well as the other permits required. Out of
the ten (10) units, seven (7) units, i.e., Units 3, 4, 5, 6, 8, 9, and 10, will belong to Jebson while the
remaining three (3) units, i.e., Units 1, 2, and 7, will correspond to Sps. Salonga's share.9 The units
allocated to Sps. Salonga were to be delivered within six (6) months after Jebson's receipt of the down
payment for the units allocated to it.10 Jebson was also allowed to sell its allocated units under such terms
as it may deem fit, subject to the condition that the price agreed upon was with the conformity of Sps.
Salonga.11 chanrobleslaw

25
On June 9, 1997, Jebson entered into a Contract to Sell12 (subject CTS) with Buenviaje over Unit 5 for a
total consideration of P10,500,000.00, without the conformity of Sps. Salonga.13 Out of the purchase price,
P7,800,000.00 was paid through a "swapping arrangement," whereby Buenviaje conveyed to Jebson a
house and lot located in Garden Villas, Tagaytay valued at P5,800,000.00 (house and lot) and Tagaytay
Highlands Golf share No. 0722 (golf share) worth P2,000,000.00 on July 1, 1997, while the remaining
balance was paid periodically. An additional sum of P125,000.00 for the retaining wall (P70,000.00) and
air-conditioning system (P55,000.00) was likewise paid for by Buenviaje.14 chanrobleslaw

However, despite full payment of the contract price, Jebson was unable to complete Unit 5 in violation of its
contractual stipulation to finish the same within twelve (12) months from the date of issuance of the
building permit. Thus, in April 1999, Buenviaje formally demanded the immediate completion and delivery
of Unit 5, to which Jebson cited the 1997 financial crisis as the reason for the delay. Accordingly, Jebson
asked to be given until the early part of the year 2000 to complete the same but still failed to do so.15 chanrobleslaw

On May 27, 2002, Buenviaje filed before the HLURB Regional Field Office IV (HLURB-RIV) a Complaint for
Specific Performance with Damages and Attorney's Fees, against Jebson, Bañez, and Sps. Salonga
(respondents), praying for the (a) completion of Unit 5, (b) partition and subdivision of the property, (c)
delivery of the title to Unit 5, and (d) payment of damages and attorney's fees. In the alternative, he
prayed for the rescission of the subject CTS, and the return of all payments made thereunder, with interest
at 24% per annum (p.a.), as well as the house and lot, and golf share pursuant to the "swapping
arrangement."16 chanrobleslaw

The complaint was consolidated with those filed by other parties, i.e., Beliz Realty and Development
Corporation (Beliz Realty) and Spouses George and Valentina Co (Sps. Co; collectively, complainants), who
similarly entered into contracts to sell with Jebson, and sought the completion of the units they
purchased.17chanrobleslaw

In their defense, Jebson and Bañez claimed that they were ready to comply with all their contractual
obligations but were not able to secure the necessary government permits because Sps. Salonga
stubbornly refused to cause the consolidation of the parcels of land covered by TCT No. T-9000, and their
partition into ten (10) individuallots.18 chanrobleslaw

For their part, Sps. Salonga averred that they were not liable to the complainants since there was no
privity of contract between them, adding that the contracts to sell were unenforceable against them as
they were entered into by Jebson without their conformity, in violation of the JVA. They maintained that
they were ready to cause the subdivision and individual titling of the subject property. They also filed a
cross-claim against Jebson for the latter's failure to complete and deliver to them the three (3) units
corresponding to their share in Brentwoods, and for representing to the buyers that it owned the land
where Brentwoods was located.19 chanrobleslaw

The HLURB-RIV Ruling

In a Decision20 dated December 5, 2002, the HLURB-RIV: (a) rescinded the respective contracts to sell
entered into by Jebson with the complainants; (b) found respondents solidarily liable for (i) the return of
the payments made by the complainants, with interest of 12% per annum (p.a.), and (ii) the payment of
moral and exemplary damages, attorney's fees, and litigation expenses; and (c) ordered respondents to (i)
return to Buenviaje and Beliz Realty the properties conveyed to Jebson through their respective "swapping
arrangements," and (ii) pay an administrative fine of P30,000.00 for violation of Sections 4, 5, 20, and 25
of Presidential Decree No. (PD) 957.21 chanrobleslaw

The HLURB-RIV found that respondents were not legally authorized to sell Brentwoods as they have not
secured the necessary Registration Certificate and License to Sell. Furthermore, they failed to complete the
construction of the units as well as to deliver the units to the complainants on time, entitling the latter to

26
the refund of their payments, including interests. It further found Sps. Salonga solidarily liable with Jebson
and Bañez as joint venture partners liable to the general buying public.22 chanrobleslaw

Aggrieved, Sps. Salonga appealed to the HLURB-BOC.23 chanrobleslaw

The HLURB-BOC Ruling

In a Decision24 dated September 16, 2004, the HLURB-BOC reversed and set aside the HLURB-RIV's ruling,
and (a) upheld the validity of the respective contracts to sell of Jebson with Buenviaje25  and Beliz Realty; cralawred

(b) rescinded the "swapping arrangements" under the said CTS, and ordered Jebson and Bañez, jointly and
severally, to return the properties received thereunder to Buenviaje and Beliz Realty, who shall, in turn,
pay the cash values thereof; (c) fixing a period of six (6) months for the completion of the construction of
Units 3, 5, 6 and 7; and (d) ordered the complainants to pay respondents Sps. Salonga moral damages
and attorney's fees.26chanrobleslaw

The HLURB-BOC held that there was no substantial breach but only a slight or casual one, which did not
justify a rescission of the contracts to sell, especially in view of the fact that the residential units covered
by the said contracts were already at their finishing stages. Considering the accomplishment level of the
work done on the said units, and further noting that the primary relief sought in the complaints of
Buenviaje and Beliz Realty was specific performance, the HLURB-BOC ruled that the proper remedy,
instead, was to fix the period for completion of the concerned units.27 chanrobleslaw

Nonetheless, it invalidated the "swapping arrangements" in the respective contracts to sell of Jebson with
Buenviaje and Beliz Realty, which allowed the use of non-cash assets as substantial downpayment, leaving
Jebson with insufficient funds to complete their units, and to construct and deliver the units allocated to
Sps. Salonga who were prejudiced thereby.28 chanrobleslaw

It also found no basis to hold Sps. Salonga solidarily liable with Jebson and Bañez under the subject CTS,
considering that: (a) the JVA does not provide for solidarity for any act or omission of either party and, in
fact, expressly provides that Sps. Salonga shall be free of any liability from any third party as regards non-
compliance with HLURB Rules and Regulations;29 (b) the legal obligation to procure the required
development, permit, license to sell, and certificate of registration from the HLURB devolved entirely and
exclusively on Jebson and Bañez;30 (c) Sps. Salonga were not the ones in control of the project, but
Bañez;31 and (d) even assuming Sps. Salonga directly or indirectly controlled Jebson, Section 40 of PD 957
exempts from its rule of solidary liability one who has acted in good faith and did not directly or indirectly
induce the act or acts constituting the violation or cause of action.32 chanrobleslaw

Buenviaje and complainants moved for reconsideration but the same were denied in a Resolution33 dated
January 25, 2005. Dissatisfied, Buenviaje elevated the matter to the Office of the President (OP).34 chanrobleslaw

The OP's Ruling

In a Decision35 dated November 30, 2005, the OP affirmed the ruling of the HLURB-BOC, finding: (a) no
factual basis to hold Sps. Salonga solidarily liable with Jebson, pointing out that under the JVA, Jebson, as
the developer, holds Sps. Salonga free from liability to third parties for non compliance with HLURB rules
and regulations;36 (b) the contracts to sell between Jebson and the complainants to be unenforceable
against Sps. Salonga whose conformity thereto was not secured in violation of the JVA;37 (c) the rescission
of the contracts to sell was not the most economical solution to the problem confronting the parties
considering that the units have already reached the finishing stage;38 and (d) the rescission of the
"swapping arrangements" entered into by Jebson and the buyers to be proper.39 chanrobleslaw

Complainants separately moved for reconsideration, all of which were denied in an Order40 dated January
31, 2006. Unperturbed, Buenviaje and Beliz Realty filed a petition for review before the CA.41 However, in
the course of the proceedings, Beliz Realty withdrew all its claims against Sps. Salonga.42 chanrobleslaw

27
 The CA Ruling

In a Decision43 dated November 29, 2013, the CA affirmed the OP ruling. It found that Jebson violated the
terms of the JVA when it failed to secure the pertinent government permits for the development of
Brentwoods, and sold its allocated units without the conformity of Sps. Salonga.44 chanrobleslaw

Considering that the primary prayer of Buenviaje and Beliz Realty was for specific performance, i.e., the
completion of the construction of their units, which are almost finished, it ruled that the OP correctly (a)
sustained the HLURB Decision holding the rescission of the contracts to sell to be impractical; and (b)
ordered that the said units be finished and delivered to Buenviaje and Beliz Realty, rescinding only the
"swapping arrangement" in their respective contracts to sell with Jebson.45 Anent Buenviaje's liability for
moral damages and attorney's fees to Sps. Salonga, the CA opined that the OP's in toto affirmation of the
HLURB-BOC ruling is equivalent to an affirmation of the ratio of said finding of liability, i.e., that Buenviaje
connived with Jebson in diluting the cash portion of its payments to the prejudice of the spouses.46 chanrobleslaw

Buenviaje, Jebson, and Bañez, respectively filed their motions for reconsideration, but the same were
denied by theCA in a Resolution47 dated December 15, 2014; hence, the present petition filed by
Buenviaje.48 chanrobleslaw

The Issues Before the Court

The essential issues for the Court's resolution are whether or not the CA correctly ruled that: (a) the grant
of the remedy of specific performance in Buenviaje's favor was proper under the prevailing circumstances
of the case; (b) Sps. Salonga are not solidarily liable with Jebson and Banez to Buenviaje for the
completion of the construction and delivery of the unit; (c) the "swapping arrangement" was invalid; and
(d) Buenviaje is liable to Sps. Salonga for moral damages and attorney's fees.

The Court's Ruling

The petition is partly meritorious.

I.

Specific performance and "rescission" (more accurately referred to as resolution)

are alternative remedies available to a party who is aggrieved by a counter-party's breach of a reciprocal
obligation. This is provided for in Article 1191 of the Civil Code, which partly reads:
chanRoblesvirtualLawlibrary

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

x x x x (Emphasis supplied)

Specific performance is defined as "[t]he remedy of requiring exact performance of a contract in the
specific form in which it was made, or according to the precise terms agreed upon."49 It pertains to "[t]he
actual accomplishment of a contract by a party bound to fulfill it."50 chanrobleslaw

On the other hand, resolution is defined as the "unmaking of a contract for a legally sufficient reason x x
x."51 "[Resolution] does not merely terminate the contract and release the parties from further obligations
to each other, but abrogates the contract from its inception and restores the parties to their original
positions as if no contract has been made. Consequently, mutual restitution, which entails the return of the
28
benefits that each party may have received as a result of the contract, is thus required."52 Notably,
resolution under Article 1191 of the Civil Code "will not be permitted for a slight or casual breach, but only
for such substantial and fundamental violations as would defeat the very object of the parties in making the
agreement. Ultimately, the question of whether a breach of contract is substantial depends upon the
attending circumstances."53 chanrobleslaw

In this case, the HLURB-BOC, the OP, and the CA all pointed out that Buenviaje primarily prayed for the
remedy of specific performance - i.e., the completion of Unit 5, the subdivision of Sps. Salonga's property
into individual lots per unit, and the tum-over of Unit 5 as well as the subdivided lot portion allocated to
such unit to him and only prayed for the remedy of rescission as an alternative remedy.54 Thus, it remains
apparent that as between the two remedies made available to him, Buenviaje, had, in fact, chosen the
remedy of specific performance and therefore, ought to be bound by the choice he had made. To add,
"[t]he fundamental rule is that reliefs granted a litigant are limited to those specifically prayed for in the
complaint; other reliefs prayed for may be granted only when related to the specific prayer(s) in the
pleadings and supported by the evidence on record."55 Hence, based on this postulate, the lower tribunals
could hardly be faulted for granting the proper relief in accordance with what Buenviaje himself had
claimed.

Relatedly, it is observed that Buenviaje's alternative prayer for resolution is textually consistent with that
portion of Article 1191 of the Civil Code which states that an injured party "may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible." Nevertheless, the impossibility of
fulfillment was not sufficiently demonstrated in the proceedings conducted in this case. As the HLURB BOC
pointed out, "[t]here is no finding that specific performance has become impossible or that there are
insuperable legal obstacles to the completion of the constructed units so as to justify [resolution]."56 In
fact, as the CA contrarily remarked, Buenviaje's "main prayer [for specific performance] x x x appears to
be the more plausible course of action"57 "[s]ince the units covered by the disputed Contracts To Sell are
almost finished, and [have] most likely [been] complete[d]."58 chanrobleslaw

With these in mind, the CA therefore correctly upheld the directive for Jebson to comply with its obligations
under the subject CTS with Buenviaje as prayed for by the latter. Failing to show any cogent reason to hold
otherwise, Buenviaje can no longer recant his primary choice of relief. His prayer for resolution in the
instant petition must perforce fail.

II.

With the propriety of specific performance having been decreed, Buenviaje's claim to be restituted the
alleged purchase price of P10,625,000.00 - for which Sps. Salonga were claimed to be solidarily liable -
thus, holds no basis. As above-intimated, mutual restitution is the proper consequence of the remedy of
resolution. It cannot arise - as it is, in fact, theoretically incompatible - with the remedy of specific
performance, which is the relief prayed for and consequently, granted to the injured party herein.

In this relation, it is fitting to clarify that the obligations to be fulfilled, i.e., the completion of Unit 5, the
subdivision of Sps. Salonga's property into individual lots per unit, and the tum-over of Unit 5, as well as
the subdivided lot portion allocated to such unit, are obligations of Jebson to Buenviaje under the subject
CTS dated June 1997. These obligations are subsumed in the general provisions of Articles 3 and 4, which
respectively read:
chanRoblesvirtualLawlibrary

ARTICLE 3. POSSESSION

3.1. Upon execution of this contract and the payment of the amounts stated in Article 1.2 are in good
standing and the housing unit is completed hereof, the BUYER may take possession of the subject house
and lot of this contract, in the concept of a lessee or tenant until such time as the housing unit have been
fully paid. BUYER's right of possession shall continue so long as he complies with all the terms and
conditions hereof.

29
 ARTICLE 4. TRANSFER OF OWNERSHIP

4.1 It is hereby agreed and understood that title to the above-described lot subject of this contract shall
remain with the SELLER and shall pass to and be transferred to the BUYER only upon complete payment by
the BUYER of all his obligations herein stipulated, at which time the SELLER agrees to execute a final Deed
of Absolute Sale in favor of the BUYER.59

In this case, it is undisputed that Sps. Salonga were not parties to the above-mentioned contract. Under
Article 131160 of the Civil Code, it is a basic principle in civil law on relativity of contracts, that contracts can
only bind the parties who had entered into it and it cannot favor or prejudice third persons. Contracts take
effect only between the parties, their successors in interest, heirs and assigns. Thus, absent any privity of
contract as to them, there is no basis to hold Sps. Salonga liable for any of the obligations stated under the
said contract to sell.

At this juncture, it should be further made clear that the imputation of joint or solidary liability against a
particular person- such as that insistently claimed against Sps. Salonga by Buenviaje first presupposes the
existence of that person's obligation. On the active side, the joint or solidary nature of an obligation is an
aspect of demandability; it pertains to the extent of a creditor's entitlement to demand fulfillment against
any or all of his debtors under one particular obligation. Based on case law, a solidary obligation is one in
which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to demand
the satisfaction of the whole obligation from any or all of the debtors. On the other hand, a joint obligation
is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is entitled to
demand only a proportionate part of the credit from each debtor.61 chanrobleslaw

As already mentioned, no source of obligation under the subject CTS can be traced to Sps. Salonga as they
were clearly non-parties thereto. Therefore, without such extant obligation, the possibility of holding them
liable in solidum with Jebson under the said contract is out of the question.

Neither has Buenviaje persuasively argued that Sps. Salonga may be held solidarily liable pursuant to law,
which is a distinct source of obligation.62 More particularly, Buenviaje attempts to establish that Section 40
of PD 957 as well as Articles 1822 and 1824 of the Civil Code, are legal provisions which render Sps.
Salonga solidarity liable together with Jebson:

chanRoblesvirtualLawlibrary Section 40 of PD 957 reads:

chanRoblesvirtualLawlibrary

Section 40. Liability of controlling persons. Every person who directly or indirectly controls any person
liable under any provision of this Decree or of any rule or regulation issued thereunder shall be liable jointly
and severally with and to the same extent as such controlled person unless the controlling person acted in
good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of
action.

In this case, records are bereft of any showing that Sps. Salonga had direct or indirect control over Jebson
throughout the course of the entire Brentwoods Project. In fact, even if it is assumed that they had some
sort of control over Jebson, it was not shown that they acted in bad faith and had a hand in inducing
Jebson's acts from which Buenviaje's cause of action arose. As such, the foregoing provision cannot be
invoked to hold Sps. Salonga solidarily liable with Jebson.

Similarly, there is no perceptible legal basis to hold them solidarily liable under Articles 1822 and 1824 of
the Civil Code. These provisions, which are found under Section 3, Chapter 2, Title IX, Book IV of the Civil
Code on Partnership, respectively state:
chanRoblesvirtualLawlibrary

Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners, loss or injury is caused to any person,

30
not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act.

xxxx

Article 1824. All partners are liable solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823.

Evidently, the foregoing legal provisions pertain to the obligations of a co-partner in the event that the
partnership to which he belongs is held liable. In this case, Buenviaje never dealt with any partnership
constituted by and between Jebson and Sps. Salonga. As previously mentioned, the subject CTS, which
was the source of the obligations relative to the completion and delivery of Unit 5, solely devolved upon the
person of Jebson. As there was no partnership privy to any obligation to which Buenviaje is a creditor,
Articles 1822 and 1824 of the Civil Code do not apply.

While Jebson, as developer, and Sps. Salonga, as land owner, entered into a joint venture, which - based
on case law may be considered as a form of partnership,63 the fact remains that their joint venture was
never privy to any obligation with Buenviaje; hence, liability cannot be imputed against the joint venture
based on the same principle of relativity as above mentioned. Besides, it should be pointed out that the
JVA64 between Jebson and Sps. Salonga was limited to the construction of the residential units under the
Brentwoods Project and that Jebson had the sole hand in marketing the units allocated to it to third
persons, such as Buenviaje. In fact, under the express terms of the JVA, Jebson, as the developer, had
even stipulated to hold Sps. Salonga free from any liability to third parties for non-compliance with HLURB
rules and regulations. As things stand, only Jebson should be held liable for its obligations to Buenviaje
under the subject CTS.

III.

Pursuant to Articles 117765 and 131366 of the Civil Code, creditors are given remedies whenever their
debtors perform acts or omissions or enter into contracts that tend to defraud the former of what is due
them. Such remedy comes in the form of rescission under Articles 1381(3)67 in relation to Articles
138368 and 138469 of the Civil Code. Rescission (as contemplated in Articles 1380 to 1389 of the Civil Code)
is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be valid, by restoration of things to their
condition at the moment prior to the celebration of the contract. It implies a contract, which even if initially
valid, produces a  lesion or a pecuniary damage to someone.70 In the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is
the raison d 'etre as well as the measure of the right to rescind. Hence, where the defendant makes good
the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383
and 1384.71 chanrobleslaw

In this case, it must be recapitulated that under the JVA, Sps. Salonga are supposed to receive a total of
three (3) Brentwoods residential units from Jebson, who in turn, is obligated to construct these units at its
own expense. Jebson bound itself to deliver the same within six (6) months after receipt of the
downpayment for the units allocated to it. Meanwhile, Jebson through Bañez - entered into "swapping
arrangements" with its buyers (among others, Buenviaje), whereby it accepted various non-cash assets as
suitable payments for the said units. Sps. Salonga assailed the property swaps as they purportedly
deprived the funding for the Brentwoods project to the tune of P13,000,000.00. Specifically, they asked
that the swapped properties be ordered returned to the buyers concerned and that their values be paid in
cash by the latter to be utilized for the completion of the corresponding units.72 The HLURB-BOC, which was
later affirmed by the OP and then by the CA, found Sps. Salonga's supplication to be meritorious, holding
that the latter were prejudiced by the property swaps inasmuch as these arrangements ate up more than
80% of the down payments which would have been utilized to complete the units. Moreover, it was
observed that the said arrangements were done without the conformity of Sps. Salonga as required in their
31
JVA with Jebson, and thus, were entered into to defraud them.73 As a result, the HLURB-BOC ordered the
rescission of the "swapping arrangement" entered into by Jebson with Buenviaje and instead, ordered him
to pay in cash the sum of P7,200,000.00 as part of his down payment under the subject CTS.

After a careful study of this case, the Court, however, finds no basis to rescind the aforesaid "swapping
arrangement." Although the same was admittedly entered into by Jebson with Buenviaje without the
conformity of Sps. Salonga, the records do not support the HLURB-BOC's finding that this separate
arrangement was entered into in order to defraud Jebson's creditor under the JVA, i.e., Sps. Salonga, and
hence, should not be rescinded. As aptly observed by Justice Alfredo Benjamin S. Caguioa during the
deliberations on this case, the act of Jebson in accepting non-cash assets as suitable payments was a
business decision made by it. While such may have been the cause of Jebson's inability to timely complete
the Brentwoods project (possibly due to the lack of immediate access to liquid capital at that time), the
soundness or unsoundness of that business decision is not enough for the Court to conclude that the said
swaps were entered into to defraud Sps. Salonga, notwithstanding the resulting "economic prejudice" to
them. As the records show, Jebson was, in fact, able to receive both cash and non cash asset payments
made by Buenviaje,74 and hence, could have properly

managed the same to meet its obligations in light of its financial position. In Union Bank Philippines v. Sps.
Ong,75 the Court explained the requirement of fraud relative to rescissible contracts under Article 1381 of
the Civil Code:
chanRoblesvirtualLawlibrary

Essentially, petitioner anchors its case on Article 1381 of the Civil Code which lists as among the rescissible
contracts "[T]hose undertaken in fraud of creditors when the latter cannot in any other manner collect the
claim due them."

Contracts in fraud of creditors are those executed with the intention to prejudice the rights of
creditors. They should not be confused with those entered into without such mal-intent, even if, as a
direct consequence thereof, the creditor may suffer some damage. In determining whether or not a
certain conveying contract is fraudulent, what comes to mind first is the question of whether
the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors. To
creditors seeking contract rescission on the ground of fraudulent conveyance rest the onus of
proving by competent evidence the existence of such fraudulent intent on the part of the
debtor, albeit they may fall back on the disputable presumptions, if proper, established under Article 1387
of the Code.76 (Emphases supplied)

Here, the onus of proving that the "swapping arrangement" was a fraudulent conveyance, or a trick and
contrivance to defeat creditor rights, was not sufficiently discharged by Sps. Salonga. Thus, absent such
proof of fraud, the Court concludes that the "swapping arrangement" was a bona fide transaction freely
entered into between Jebson and Buenviaje, and therefore, valid and binding. As such, the HLURB-BOC's
directive to rescind the "swapping arrangement" entered into by Jebson with Buenviaje and the consequent
order for the latter to pay Jebson the sum of P7,200,000.00 in cash as part of his down payment under the
subject CTS, is hereby reversed. If at all, Sps. Salonga's remedy is to compel Jebson to honor its
obligations under its contract with them, and not the rescission of the afore-discussed property swap,
which is part and parcel of the consideration underlying the subject CTS between Jebson and Buenviaje, a
distinct and independent contract from the JVA altogether.

IV.

In order that moral damages under Article 221977 of the Civil Code may be awarded, there must be
pleading and proof of moral suffering, mental anguish, fright and the like.78 In Mahinay v. Velasquez,79 the
Court explained:
chanRoblesvirtualLawlibrary

While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court, it is nevertheless essential that the claimant
32
should satisfactorily show the existence of the factual basis of damages and its causal
connection to defendant's acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held that there must be
clear testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff fails to
take the witness stand and testify as to his/her social humiliation, wounded feelings and
anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs. National labor
Relations Commission, the Court held that "additional facts must be pleaded and proven to warrant
the grant of moral damages under the Civil Code, these being, x x x social humiliation, wounded
feelings, grave anxiety, etc. that resulted therefrom."80 (Emphases and underscoring supplied)

As to attorney's fees, the general rule is that the same cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate. They are not to be awarded every time
a party wins a suit. The power of the court to award attorney's fees under Article 220881 of the Civil Code
demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no
sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous
conviction of the righteousness ofhis cause.82
chanrobleslaw

In this case, the tribunals a quo grounded Buenviaje's liability for moral damages and attorney's fees to
Sps. Salonga on his alleged connivance with Jebson and Bañez in diluting the cash portion of his down
payments to the prejudice of Sps. Salonga. However, a judicious perusal of the record reveals that aside
from Buenviaje's actual payment of non-cash assets as part of the purchase price of Unit 5, no other
evidence shows that such connivance exists. In the absence of such proof, it cannot be concluded that
Buenviaje had some ulterior purpose in paying non-cash assets as part of the consideration. As the Court
views it, Buenviaje honestly thought that he could partially pay the purchase price of Unit 5 with the said
non-cash assets amounting to P7,200,000.00 as anyway Jebson and Bañez accepted the offer. "Good faith
is always presumed, and upon him who alleges bad faith rests the burden of proof,"83 which was not
overcome in this case.

Thus, there was no factual basis to declare Buenviaje liable to Sps. Salonga for moral damages and
attorney's fees; consequently, such awards must be deleted. While factual findings of quasi-judicial
agencies, especially when affirmed by the CA, are binding on the Court, such findings may be overturned
when, inter alia, they are grounded on mere speculation,84 as in this instance.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated November 29, 2013 and the
Resolution dated December 15, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 93422 are
hereby AFFIRMED with MODIFICATION, DELETING the following directives: (a) the rescission of the
"swapping arrangement" entered into by respondent Jebson Holdings Corporation (Jebson) with petitioner
Dr. Restituto C. Buenviaje (Buenviaje) and the consequent order for the latter to pay Jebson the sum of
P7,200,000.00 in cash as part of his down payment under their Contract to Sell; and (b) the order for
Buenviaje to pay respondents Spouses Jovito R. Salonga and Lydia B. Salonga moral damages and
attorney's fees in the amounts of P50,000.00 and P25,000.00, respectively. The rest of theCA Decision
STANDS.

SO ORDERED. chanRoblesvirtualLawlibrary

Leonardo-De Castro,**  (Acting Chairperson), Bersamin,  and Caguioa, JJ., concur.

Sereno, C.J., on official business.

Endnotes:

33
**
 Per Special Order No. 2383 dated September 27, 2016.

1
Rollo, pp. 18-119.

2
 Id. at 122-145. Penned by Associate Justice Ramon A. Cruz with Associate Justices Hakim S. Abdulwahid
and Romeo F. Barza concurring.

3
 Id. at 146-149.

4
 Id. at 212-234. Signed by HLURB Commissioner and Chief Executive Officer Romulo Q. Fabul,
Commissioner Jesus Y. Pang, and DPWH-Representative Ex-Officio Commissioner Joel I. Jacob.

5
 Id. at 235-237.

6
 Id. at 151-157.

7
 Id. at 123.

8
 Id. at 155.

9
 Id. at 123.

10
 Id. at 153.

11
 Id. at 155.

12
 Id. at 164-170.

13
 Id. at 124.

14
 Id. at 124-125.

15
 Id. at 125-126.

16
 Id. at 126.

17
 Id.

18
 Id.

19
 Id. at 126-127.

20
 Id. at 187-211. Signed by Housing and Land Use Arbiter Atty. Ma. Perpetua Y. Aquino and HLURB
Director Alfredo M. Tan II.

21
 Entitled "REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES
FOR VIOLATIONS THEREOF," approved on July 12, 1976. Id. at 208-210.

22
 Id. at 205-207.

23
 Id. at 129.

24
 Id. at 212-234.

34
25
cralawred  Id. at 164-170.

26
 Id. at 232-234.

27
 Id. at 223-225.

28
 Id. at 226.

29
 Id. at 227. See also clause 4.6 of the JVA; id. at 155.

30
 Id. See also clause 4.I of the JVA; id. at 154.

31
 Id. at 229.

32
 Id.

33
 Id. at 235-237.

34
 Id. at 130.

35
 Id. at 238-250. Penned by Deputy Executive Secretary for Legal Affairs Manuel B. Gaite.

36
 Id. at 248.

37
 Id.

38
 Id. at 249.

39
 Id. at 248-249.

40
 Id. at 251-253.

41
 Id. at 131.

42
 Id. at 137. See also Manifestation (With Motion for total Waiver or Withdrawal of Any Claim by Beliz
Realty and Development Corporation Against Spouses Jovito R. Salonga and Lydia B. Salonga) dated
February 11, 2013; id. at 322-323.

43
 Id. at 122-145.

44
 Id. at 139.

45
 Id. at 139-140.

46
 Id.at 140-142.

47
 Id. at 146-150.

48
 Id. at 18-119.

49
Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, 515 Phil. 431, 438 (2006).

50
 Id.

35
51
 Black's Law Dictionary, Eighth Edition, p. 1332.

52
Gotesco Properties, Inc. v. Sps. Fajardo, 705 PhiL 294, 303 (2013); citations omitted.

53
 See  Nolasco v. Cuerpo, G.R. No. 210215, December 9, 2015; citations omitted.

54
 See rollo, pp. 139-140,220, and 248

55
  PCJC v. PNCC, 617 Phil. 940, 948 (2009).

56
  Rollo, p. 224.

57
 Id. at 139.

58
 Id. at 140.

59
 Id. at 166.

60
 Article 1311 of the Civil Code reads: ChanRoblesVirtualawlibrary

Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the property he received from the
decedent.
61
 See  Spouses Berot v. Siapno, 738 Phil. 673, 690 (2014), citing PH Credit Corporation v. CA, 421 Phil.
821, 832 (2001).

62
 See Article 1157 ofthe Civil Code.

63
 See J. Tiosejo Investment Corp. v. Sps. Ang, 644 Phil. 60 l (20 l 0).

64
 See JVA, rollo, pp. 151-157.

65
 Article 1177 of the Civil Code reads: ChanRoblesVirtualawlibrary

Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfY their
claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the acts which the debtor may have done to
defraud them.
66
 Article 1313 of the Civil Code reads: ChanRoblesVirtualawlibrary

Article 1313. Creditors are protected in cases of contracts intended to defraud them.
67
 Article 1381 (3) of the Civil Code reads: ChanRoblesVirtualawlibrary

Article 1381. The following contracts are rescissible:

chanRoblesvirtualLawlibrary xxxx

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them; x x x x
68
 Article 1383 of the Civil Code reads: ChanRoblesVirtualawlibrary

Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
69
 Article 1384 ofthe Civil Code reads: ChanRoblesVirtualawlibrary

Article 1384. Rescission shall be only to the extent necessary to cover the damages caused.

36
70
  The Wellex Group, Inc. v. U-Land Airlines Co., Ltd, G.R. No. 167519, January 14,2015, 745 SCRA 563,
620, citing Ong v. CA, 369 Phil. 243, 251-252 (1999).

71
 See  The Wellex Group, Inc. v. U-Land Airlines Co., Ltd, id. at 623, citations omitted.

72
Rollo, pp. 220, 226

73
 Id. at 226.

74
 Id. at 124-125.

75
 525 Phil. 58 (2006).

76
 Id. at 70.

77
 Article 2219 of the Civil Code reads:

Article 2219. Moral damages may be recovered in the following and analogous cases:
chanRoblesvirtualLawlibrary ChanRoblesVirtualawlibrary

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest; (6) Illegal search;
(7) Libel, slander or any other form of defamation; (8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The parents of the female seduced, abducted, raped, or abused, referred to in No.3 of this article, may also
recover moral damages.

The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No.9 of
this article, in the order named.

78
Mahinay v. Velasquez, 464 Phil. 146, 149 (2004), citing San Miguel Brewery, Inc. vs. Magno, 128 Phil.
328, 336 (1967).

79
 Id.
80
 Id. at 149-150, citing Kierulf v. CA, 336 Phil. 414,431-432 (1997).

81
 Article 2208 of the Civil Code reads:

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
chanRoblesvirtualLawlibrary

costs, cannot be recovered, except:

chanRoblesvirtualLawlibrary

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
37
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of
litigation should be recovered.
In all cases, the attorney's fees and expenses oflitigation must be reasonable.

82
Vergara v. Sonkin, G.R. No. 193659, June 15, 2015, 757 SCRA 442, 457, citing The President of the
Church of Jesus Christ of Latter Day Saints v. BTL Construction Corporation, 724 Phil. 354, 372 (2014).

83
Balbuena v. Sabay, 614 Phil. 402, 414 (2009), citation omitted.

84
 See NGEI Multi-Purpose Cooperative, Inc. v. Filipinas Palmoil Plantation, Inc., 697 Phil. 433 (2012).

Pang Lim and GAlvez v. Lo Seng G.R. no. L-16318 (1921)

G.R. No. L-16318             October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,

vs.
LO SENG, defendant-appellant.

Cohn, Fisher and DeWitt for appellant.

No appearance for appellees.

STREET, J.:

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese
residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of running a
distillery, known as "El Progreso," in the Municipality of Paombong, in the Province of Bulacan. The land on which said
distillery is located as well as the buildings and improvements originally used in the business were, at the time to which
reference is now made, the property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September,
1911, leased the same to the firm of Lo Seng and Co. for the term of three years.

Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented by one Lo Shui as
attorney in fact, became effective whereby the lease was extended for fifteen years. The reason why the contract was
made for so long a period of time appears to have been that the Bureau of Internal Revenue had required sundry
expensive improvements to be made in the distillery, and it was agreed that these improvements should be effected at the
expense of the lessees. In conformity with this understanding many thousands of pesos were expended by Lo Seng and
Co., and later by Lo Seng alone, in enlarging and improving the plant.

Among the provisions contained in said lease we note the following:

Know all men by these presents:

xxx     xxx     xxx

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede
by way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng
(doing business under the firm name of Lo Seng and Co.), after the termination of the previous

38
 contract, because of the fact that they are required, by the Bureau of Internal Revenue, to
rearrange, alter and clean up the distillery.

2. That all the improvements and betterments which they may introduce, such as machinery,
apparatus, tanks, pumps, boilers and buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings
being considered as improvements.

3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of
September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all
modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo
Seng.

We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting,
hereby accept this contract in each and all its parts, said contract to be effective upon the termination of the
contract of September 11, 1911.

Neither the original contract of lease nor the agreement extending the same was inscribed in the property registry, for the
reason that the estate which is the subject of the lease has never at any time been so inscribed.

On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position
of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged
before a notary public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire
distillery plant including the land used in connection therewith. As in case of the lease this document also was never
recorded in the registry of property. Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the
latter refused to yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises. From the decision of the justice
of the peace the case was appealed to the Court of First Instance, where judgment was rendered for the plaintiffs; and the
defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which reads in part as
follows:

ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time of making
the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law.

In considering this provision it may be premised that a contract of lease is personally binding on all who participate in it
regardless of whether it is recorded or not, though of course the unrecorded lease creates no real charge upon the land to
which it relates. The Mortgage Law was devised for the protection of third parties, or those who have not participated in the
contracts which are by that law required to be registered; and none of its provisions with reference to leases interpose any
obstacle whatever to the giving of full effect to the personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to be so understood by all commentators, there being,
so far as we are aware, no authority suggesting the contrary. Thus, in the commentaries of the authors Galindo and
Escosura, on the Mortgage Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid of and in
respect to third persons only; it does not affect the relations between the contracting parties, nor their capacity to contract.
Any question affecting the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while
any question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la Legislacion
Hipotecaria, vol. I, p. 461.)

Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease
in question was from the beginning, and has remained, binding upon all the parties thereto — among whom is to be
numbered Pang Lim, then a member of the firm of Lo Seng and Co. — this does not really solve the problem now before
us, which is, whether the plaintiffs herein, as purchasers of the estate, are at liberty to terminate the lease, assuming that it
was originally binding upon all parties participating in it.

39
Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the Civil Code; and the
position of the defendant derives no assistance from the mere circumstance that the lease was admittedly binding as
between the parties thereto.  1awph!l.net

The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which
evidently has reference to the familiar proposition that recorded instruments are effective against third persons from the
date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected
by any purchaser of the estate whomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would
prevent a purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating
any lease which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as applied
to the lease now before us.

Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority for the
proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken part in the contract. That
provision is practically identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that
unrecorded leases shall be of no effect as against third persons; and the same observation will suffice to dispose of it that
was made by us above in discussing the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease
is binding on all persons who participate therein, this does not determine the question whether, admitting the lease to be so
binding, it can be terminated by the plaintiffs under article 1571.

Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as article 1549 of the
Civil Coded — all of which, as we have seen, are undecisive — we are brought to consider the aspect of the case which
seems to us conclusive. This is found in the circumstance that the plaintiff Pang Lim has occupied a double role in the
transactions which gave rise to this litigation, namely, first, as one of the lessees; and secondly, as one of the purchasers
now seeking to terminate the lease. These two positions are essentially antagonistic and incompatible. Every competent
person is by law bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any contract previously entered into by
himself.

While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out
his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including
the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived
from himself, and for which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that
prior to the acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. Both
therefore had been in relations of confidence with Lo Seng and in that position had acquired knowledge of the possibilities
of the property and possibly an experience which would have enabled them, in case they had acquired possession, to
exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co., Pang Lim knew that the
original lease had been extended for fifteen years; and he knew the extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if the condition of the law
were found to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease,
could intervene as purchaser of the property and confiscate for his own benefit the property which he had sold for a
valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such eventuality.

Above all other persons in business relations, partners are required to exhibit towards each other the highest degree of
good faith. In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the
confidential agent of the other. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to
the detriment of another, apply exclusively to his own benefit the results of the knowledge and information gained in the
character of partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the renewal
of a lease on property used by the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner
obtaining the renewal is held to be a constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule
has even been applied to a renewal taken in the name of one partner after the dissolution of the firm and pending its
liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19
Am. Rep., 252.)

40
An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is deducible from
articles 1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and
warrant the subject-matter of the sale and is responsible to the vendee for the legal and lawful possession of the thing sold.
The pertinence of these provisions to the case now under consideration is undeniable, for among the assets of the
partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very
lease; and while it cannot be supposed that the obligation to warrant recognized in the articles cited would nullify article
1571, if the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said articles
(1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim
from setting up his interest as purchaser of the estate to the detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in courts of common
law under the head of estoppel by deed, in accordance with which it is held that if a person, having no title to land, conveys
the same to another by some one or another of the recognized modes of conveyance at common law, any title afterwards
acquired by the vendor will pass to the purchaser; and the vendor is estopped as against such purchaser from asserting
such after-acquired title. The indenture of lease, it may be further noted, was recognized as one of the modes of
conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.)

From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in question, is not
in a position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by him.
Moreover, it is fatal to the maintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is that in
the action of unlawful detainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated
is the right to possession; and in order to maintain the action, in the form in which it is here presented, the proof must show
that occupant's possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the right
to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang Lim and Benito Galvez
have purchased the estate from Lo Yao, the original landlord, they are, as between themselves, in the position of tenants in
common or owners pro indiviso, according to the proportion of their respective contribution to the purchase price. But it is
well recognized that one tenant in common cannot maintain a possessory action against his cotenant, since one is as
much entitled to have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27
Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by
Pang Lim or Benito Galvez. Having lawful possession as against one cotenant, he is entitled to retain it against both.
Furthermore, it is obvious that partition proceedings could not be maintained at the instance of Benito Galvez as against Lo
Seng, since partition can only be effected where the partitioners are cotenants, that is, have an interest of an identical
character as among themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are
bound to respect Lo Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discussion that the deed of sale under which the plaintiffs acquired the
right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs. It is, however, earnestly insisted by the
attorney for Lo Seng that this document, having never been recorded in the property registry, cannot under article 389 of
the Mortgage Law, be used in court against him because as to said instrument he is a third party. The important question
thus raised is not absolutely necessary to the decision of this case, and we are inclined to pass it without decision, not only
because the question does not seem to have been ventilated in the Court of First Instance but for the further reason that
we have not had the benefit of any written brief in this case in behalf of the appellees.

The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It is so ordered,
without express adjudication as to costs.

Evangelista & Co. v. Abad Santos G.R. no. L-31684 (1973)

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA
ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
41
Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of
Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that
"the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and
losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo
C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30%
for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila,
alleging that the partnership, which was also made a party-defendant, had been paying dividends to the partners except to
her; and that notwithstanding her demands the defendants had refused and continued to refuse and let her examine the
partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits after such accounting, plus attorney's
fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied
likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and byway of affirmative
defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her
share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan
which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which the
plaintiff had signed a promisory note as co-maker and mortgaged her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an
industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as
claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered
judgement "declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the
business operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her
share in the partnership profits and/or dividends after such an accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs of this suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the
appellate court the said respondent was one of the judges of the City Court of Manila, and despite its
findings that respondent had been paid for services allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.

42
 (B) In not finding that a portion of respondent's testimony quoted in the decision proves that
said respondent did not bind herself to contribute her industry, and she could not, and in fact
did not, because she was one of the judges of the City Court of Manila since 1954.

(C) In finding that respondent did not in fact contribute her industry, despite the appellate
court's own finding that she has been paid for the services allegedly rendered by her, as
well as for the loans of money made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955, and to pay the respondent her alleged share in
the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with costs, against the respondent.

It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals.
The evidence presented by the parties as the trial in support of their respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been commited by the lower court. It should be observed, in this regard, that the
Court of Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive
evidence that the respondent was an industrial partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced
if only to demonstrate that the same were made after a through analysis of then evidence, and hence are beyond this
Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is
pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in fact
admitted by appellants as industrial partner of Evangelista & Co." and that "The grounds relied upon by the
lower Court are untenable" (Pages 21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that
the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the partnership —
the lower court relied mainly on the appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which contradict the said finding' (Page 21, Appellants'
Brief). The lower court could not have done otherwise but rely on the exhibits just mentioned, first, because
appellants have admitted their genuineness and due execution, hence they were admitted without objection
by the lower court when appellee rested her case and, secondly the said exhibits indubitably show the
appellee is an industrial partner of appellant company. Appellants are virtually estopped from attempting to
detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and
consent, and there is no credible showing that they ever protested against or opposed their contents prior
of the filing of their answer to appellee's complaint. As a matter of fact, all the appellant Evangelista, Jr.,
would have us believe — as against the cumulative force of appellee's aforesaid documentary evidence —
is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does
not express the true intent and agreement of the parties thereto, the real understanding between them
being the appellee would be merely a profit sharer entitled to 30% of the net profits that may be realized
between the partners from June 7, 1955, until the mortgage loan of P30,000.00 to be obtained from the
RFC shall have been fully paid. This version, however, is discredited not only by the aforesaid documentary
evidence brought forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their
43
 answer to the complaint on February 8, 1964 — or a period of over eight (8) years — appellants did nothing
to correct the alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to
suppose that, had appellee not filed the present action, appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact
which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to
make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact
that since before the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella
Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila,
devoting all her time to the performance of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the parties, for she could not lawfully contribute her
full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.

The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then
concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as
she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without
which they would not have had the wherewithal to operate the business for which appellant company was
organized. Article 1767 of the New Civil Code which provides that "By contract of partnership two or more
persons bind themselves, to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves, 'does not specify the kind of industry that a partner may thus
contribute, hence the said services may legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one
of the branches of the City Court of Manila can hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only
after filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their Supplemental Answer dated June 29, 1964 — or after
around nine (9) years from June 7, 1955 — subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her
alleged share, interests or participation, as an alleged industrial partner, in the defendant partnership and/or
in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila,
devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments
appertaining to the said office, aside from teaching in law school in Manila, without the express consent of
the herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a appellee as a City judge
even before she joined appellant company on June 7, 1955 as an industrial partner, why did it take
appellants many yearn before excluding her from said company as aforequoted allegations? And how can
they reconcile such exclusive with their main theory that appellee has never been such a partner because
"The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the net profits
which the appellant partnership may realize from June 7, 1955, until the mortgage of P30,000.00 obtained
from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a formal accounting and to receive her share in the net

44
 profit that may result from such an accounting, which right appellants take exception under their second
assigned error. Our said holding is based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors
of law, accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence.

The judgment appealed from is affirmed, with costs.

Catalan v. Gatchalian G.R. no. L-11648 (1959)

Clemente v. Galvan G.R no. 45662 (1939)

G.R. No. L-45662             April 26, 1939

ENRIQUE CLEMENTE, plaintiff-appellee,
vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.

Engracio F. Clemeña and Celedonio Bernardo for appellant.

Vicente Bengson for defendant-appellee.
No appearance for other party.

DIAZ, J.:

The intervenor Jose Echevarria having lost in the Court of First Instance of manila which rendered judgment against him,
the pertinent portion of which reads: "and with respect to the complaint of the intervenor, the mortgage executed in his
favor by plaintiff is declared null and void, and said complaint in intervention, as well as the counterclaim filed by the
defendant against the intervenor, is dismissed, without pronouncement as to costs," he appealed to this court on the
ground that, according to him, the lower court committed the errors assigned in his brief as follows:

I. The court a quo erred in finding in the appealed decision that plaintiff was unable to take possession of the
machines subject of the deed of mortgage Exhibit B either before or after the execution thereof.

II. The court a quo likewise erred in deciding the present case against the intervenor-appellant, on the ground,
among others, that "plaintiff has not adduced any evidence nor has he testified to show that the machines
mortgaged by him to the intervenor have ever belonged to him, notwithstanding that said intervenor is his close
relative.".

III. The lower court also erred in declaring null and void the mortgage executed by plaintiff in favor of the intervenor
and, thereby, dismissing the complaint in intervention.

45
 IV. The lower court lastly erred in ordering the receiver J. D. Mencarini to deliver to the defendant the aforesaid
machines upon petition of the plaintiff.

In order to have a clear idea of the question, it is proper to state the facts bearing on the case as they appear in the
decision and judgment of the lower court and in the documents which constitute all the evidence adduced by the parties
during the trial.

On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan y Compañia" to engage in
the manufacture and sale of paper and other stationery. they agreed to invest therein a capital of P100,000, but as a matter
of fact they did not cover more than one-fifth thereof, each contributing P10,000. Hardly a year after such organization, the
plaintiff commenced the present case in the above-mentioned court to ask for the dissolution of the partnership and to
compel defendant to whom the management thereof was entrusted to submit an accounting of his administration and to
deliver to him his share as such partner. In his answer defendant expressed his conformity to the dissolution of the
partnership and the liquidation of its affairs; but by way of counterclaim he asked that, having covered a deficit incurred by
the partnership amounting to P4,000 with his own money, plaintiff reimburse him of one-half of said sum. On petition of the
plaintiff a receiver and liquidator to take charge of the properties and business for the partnership while the same was not
yet definitely dissolved, was appointed, the person chosen being Juan D. Mencarini. The latter was already discharging the
duties of his office when the court, by virtue of a petition ex parte of the plaintiff, issued the order of May 24, 1933, requiring
said receiver to deliver to him (plaintiff) certain machines which were then at Nos. 705-707 Ylaya Street, Manila but
authorizing him to charge their value of P4,500 against the portion which may eventually be due to said plaintiff. To comply
with said order, the receiver delivered to plaintiff the keys to the place where the machines were found, which was the
same place where defendant had his home; but before he could take actual possession of said machines, upon the strong
opposition of defendant, the court, on motion of the latter, suspended the effects of its order of May 24, 1933. In the
meantime the judgments rendered in cases Nos. 42794 and 43070 entitled "Philippine Education Co., Inc. vs. Enrique
Clemente" for the recovery of a sum of money, and "Jose Echevarria vs. Enrique Clemente", also for the recovery of a sum
of money, respectively, were made executory; and in order to avoid the attachment and subsequent sale of the machines
by the sheriff for the satisfaction from the proceeds thereof of the judgments rendered in the two cases aforecited, plaintiff
agreed with the intervenor, who is his nephew, to execute, as he in fact executed in favor of the latter, a deed of mortgage
Exhibit B encumbering the machines described in said deed in which it is stated that "they are situated on Singalong Street
No. 1163", which is a place entirely different from the house Nos. 705 and 707 on Ylaya Street hereinbefore mentioned.
The one year agreed upon in the deed of mortgage for the fulfillment by the plaintiff of the obligation he had contracted with
the intervenor, having expired, the latter commenced case No. 49629 to collect his mortgage credit. The intervenor, as
plaintiff in the said case, obtained judgment in his favor because the defendant did not interpose any defense or objection,
and, moreover, admitted being really indebted to the intervenor in the amount set forth in the deed of mortgage Exhibit B.
The machines which the intervenor said were mortgaged to him were then in fact in custodia legis, as they were under the
control of the receiver and liquidator Juan D. Mencarini. It was, therefore, useless for the intervenor to attach the same in
view of the receiver's opposition; and the question having been brought to court, it decided that nothing could be done
because the receiver was not a party to the case which the intervenor instituted to collect his aforesaid credit. (Civil case
No. 49629.) The question ended thus because the intervenor did not take any other step until he thought of joining in this
case as intervenor.

1. From the foregoing facts, it is clear that plaintiff could not obtain possession of the machines in question. The
constructive possession deducible from the fact that he had the keys to the place where the machines were found
(Ylaya Street Nos. 705-707), as they had been delivered to him by the receiver, does not help him any because the
lower court suspended the effects of the other whereby the keys were delivered to him a few days after its
issuance; and thereafter revoked it entirely in the appealed decision. Furthermore, when he attempted to take
actual possession of the machines, the defendant did not allow him to do so. Consequently, if he did not have
actual possession of the machines, he could not in any manner mortgage them, for while it is true that the oft-
mentioned deed of mortgage Exhibit B was annotated in the registry of property, it is no less true the machines to
which it refers are not the same as those in question because the latter are on Ylaya Street Nos. 705-707 and the
former are on Singalong Street No. 1163. It can not be said that Exhibit B-1, allegedly a supplementary contract
between the plaintiff and the intervenor, shows that the machines referred to in the deed of mortgage are the same
as those in dispute and which are found on Ylaya Street because said exhibit being merely a private document, the
same cannot vary or alter the terms of a public document which is Exhibit B or the deed of mortgage.

2. The second error attributed to the lower court is baseless. The evidence of record shows that the machines in
contention originally belonged to the defendant and from him were transferred to the partnership Galvan y
46
 Compania. This being the case, said machines belong to the partnership and not to him, and shall belong to it until
partition is effected according to the result thereof after the liquidation.

3. The last two errors attributed by the appellant to the lower court have already been disposed of by the
considerations above set forth. they are as baseless as the previous ones.

In view of all the foregoing, the judgment appealed from is affirmed, with costs against the appellant. So ordered.

Sison v. McQuaid G.R. No. L-6304 (1953)

G.R. No. L-6304        December 29, 1953

SERGIO V. SISON, plaintiff-appellant,
vs.
HELEN J. MCQUAID, defendant-appellee.

Manansala and Manansala for appellant.

J.C. Orendain for appllee.

REYES, J.:

On March 28, 1951, plaintiff brought an action in the Court of First Instance of Manila against defendant, alleging that
during the year 1938 the latter borrowed from him various sums of money, aggregating P2,210, to enable her to pay her
obligation to the Bureau of Forestry and to add to her capital in her lumber business, receipt of the amounts advanced
being acknowledged in a document, Exhibit A, executed by her on November 10, 1938 and attached to the complaint; that
as defendant was not able to pay the loan in 1938, as she had promised, she proposed to take in plaintiff as a partner in
her lumber business, plaintiff to contribute to the partnership the said sum of P2,210 due him from defendant in addition to
his personal services; that plaintiff agreed to defendant's proposal and, as a result, there was formed between them, under
the provisions of the Civil Code, a partnership in which they were to share alike in the income or profits of the business,
each to get one-half thereof; that in accordance with said contract, plaintiff, together with defendant, rendered services to
the partnership without compensation from June 15, 1938 to December, 1941; that before the last World War, the
partnership sold to the United States Army 230,000 board feet of lumber for P13,800, for the collection of which sum
defendant, as manager of the partnership, filed the corresponding claim with the said army after the war; that the claim was
"finally" approved and the full amount paid — the complaint does not say when — but defendant has persistently refused to
deliver one-half of it, or P6,900, to plaintiff notwithstanding repeated demands, investing the whole sum of P13,800 for her
own benefit. Plaintiff, therefore, prays for judgment declaring the existence of the alleged partnership and requiring the
defendant to pay him the said sum of P6,900, in addition to damages and costs.

Notified of the action, defendant filed a motion to dismiss on the grounds that plaintiff's action had already prescribed, that
plaintiff's claim was not provable under the Statute of Frauds, and that the complaint stated no cause of action. Sustaining
the first ground, the court dismissed the case, whereupon, plaintiff appealed to the Court of Appeals; but that court has
certified the case here on the ground that the appeal involved only questions of law.

It is not clear from the allegations of the complaint just when plaintiff's cause of action accrued. Consequently, it cannot be
determined with certainty whether that action has already prescribed or not. Such being the case, the defense of
prescription can not be sustained on a mere motion to dismiss based on what appears on the face of the complaint.

But though the reason given for the order of dismissal be untenable, we find that the said order should be upheld on the
ground that the complaint states no cause of action, which is also one of the grounds on which defendant's motion to
dismiss was based. Plaintiff seeks to recover from defendant one-half of the purchase price of lumber sold by the
47
partnership to the United States Army. But his complaint does not show why he should be entitled to the sum he claims. It
does not allege that there has been a liquidation of the partnership business and the said sum has been found to be due
him as his share of the profits. The proceeds from the sale of a certain amount of lumber cannot be considered profits until
costs and expenses have been deducted. Moreover, the profits of the business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions had. Hence, the need for a general liquidation
before a member of a partnership may claim a specific sum as his share of the profits.

In view of the foregoing, the order of dismissal is affirmed, but on the ground that the complaint states no cause of action
and without prejudice to the filing of an action for accounting or liquidation should that be what plaintiff really wants. Without
costs in this instance.
1awphil.

Rojas v. MAglana G.R. No. 30616 (1990)

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs.  CONSTANCIO B. MAGLANA, Defendant-Appellee.
 
DECISION
 
PARAS, J.:
 
This is a direct appeal to this Court from a decision  ** of the then Court of First Instance of Davao, Seventh
Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast
Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite
term of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests
products licenses and concessions over public and/or private forest lands and to operate, develop and promote
such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf
of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership,
including marketing and handling of cash and is authorized to sign all papers and instruments relating to the
partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations
of the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record
on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as
industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit
"B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight
difference in the purpose of the second partnership which is to hold and secure renewal of timber license instead
of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30)
years, everything else is the same.

48
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to
ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07
(Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing
among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership
of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after
payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor
of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership,
be dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the
name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of
any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area
(Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS
Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as well as his obligation to perform his duties as
logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will
just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision,
R.A. 949).: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February
21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the
recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by
Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961
in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started
examining the records and supporting papers of the partnership as well as the information furnished them by the
parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching
thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the
report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to
be submitted to the trial court:

49
 (a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the
second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision,
R.A. pp. 895-896). - nad

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as
follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired
from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share
— the partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the basis of share and share alike — this covered by
actual contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the
basis of 80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of
the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's
name were acquired with partnership funds or with funds of the defendant and — the Court declares that
there is no evidence that these properties were acquired by the partnership funds, and therefore the
same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be
liable for them — the Court declares that neither parties is entitled to damages, for as already stated
above it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court
for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it
dissolve the partnership or not — the Court declares that the letter of the defendant to the plaintiff dated
February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to
the laborers and employees of the Eastcoast Development Enterprises, — the COURT DECLARES THE
SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David — is VALID
AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount
of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according
to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account
to the partnership;

50
 "11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received
as logging superintendent, and which was not paid to him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff. : rd

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was
carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and
at will. It was considered as a partnership at will because there was no term, express or implied; no period was
fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development
Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been
novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas,
appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him
and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the
legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal
error to consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of
appellee Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them,
being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-
Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code
and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-
Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident
that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second
one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee,
pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits
and fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they
adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the
capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as
important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First Articles of Partnership were
only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered
(Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second partnership, all
business transactions were carried out under the duly registered articles. As found by the trial court, it is an
admitted fact that even up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A.
pp. 950-957). No rights and obligations accrued in the name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed
to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter,
the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more
convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to
contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to
perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of
the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply
with the promised contributions and he will not work as logging superintendent. By such statements, it is
obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered
themselves governed by the articles of the duly registered partnership.
51
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither
be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing
partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the
answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect
a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause.
Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but
in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased,
hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas
and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles
of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike"
between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are
as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana
who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule
that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of
the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and
damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v.
Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports
which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of
P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution,
he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership,
no plausible reason could be found to disturb the findings and conclusions of the trial court.
: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS
Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused
to contribute either in cash or in equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to
exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided
for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.
: nad

SO ORDERED.

Magdusa v. Albaran G.R. No. L-17526 (1962)

.R. No. L-17526             June 30, 1962

52
GREGORIO MAGDUSA, ET AL., petitioners,
vs.
GERUNDIO ALBARAN, ET AL., respondents.

Montenegro, Madayag, Viola and Hernandez, Olimpio R. Epis, David C. Ocangas and Bonifacio M. Belderol for petitioners.
Lozano, Soria, Muana, Ruiz and Morales for respondents.

REYES, J.B.L., J.:

Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of the Court of First Instance of
Bohol and ordering appellant Gregorio Magdusa to pay to appellees, by way of refund of their shares as partners, the
following amounts: Gerundio Albaran, P8,979.10; Pascual Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo
Bebero, P3,020.27; plus legal interests from the filing of the complaint, and costs.

The Court of Appeals found that appellant and appellees, together with various other persons, had verbally formed a
partnership de facto, for the sale of general merchandise in Surigao, Surigao, to which appellant contributed P2,000 as
capital, and the others contributed their labor, under the condition that out of the net profits of the business 25% would be
added to the original capital, and the remaining 75% would be divided among the members in proportion to the length of
service of each. Sometime in 1953 and 1954, the appellees expressed their desire to withdraw from the partnership, and
appellant thereupon made a computation to determine the value of the partners' shares to that date. The results of the
computation were embodied in the document Exhibit "C", drawn in the handwriting of appellant. Appellees thereafter made
demands upon appellant for payment, but appellant having refused, they filed the initial complaint in the court below.
Appellant defended by denying any partnership with appellees, whom he claimed to be mere employees of his.

The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed the complaint on the ground
that the other were indispensable parties but hid not been impleaded. Upon appeal, the Court of Appeals reversed, with the
result noted at the start of this opinion.

Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course. 1äwphï1.ñët

The main argument of appellant is that the appellees' action can not be entertained, because in the distribution of all or part
of a partnership's assets, all the partners have no interest and are indispensable parties without whose intervention no
decree of distribution can be validly entered. This argument was considered and answered by the Court of Appeals in the
following words:

We now come to the last issue involved. While finding that some amounts are due the plaintiffs, the lower court
withheld an award in their favor, reasoning that a judgment ordering the defendant to pay might affect the rights of
other partners who were not made parties in this case. The reason cited by the lower court does not constitute a
legal impediment to a judgment for the plaintiffs in this case. This is not an action for a dissolution of a partnership
and winding up of its affairs or liquidation of its assets in which the interest of other partners who are not brought
into the case may be affected. The action of the plaintiffs is one for the recovery of a sum of money with Gregorio
Magdusa as the principal defendant. The partnership, with Gregorio Magdusa as managing partner, was brought
into the case as an alternative defendant only. Plaintiffs' action was based on the allegation, substantiated in
evidence, that Gregorio Magdusa, having taken delivery of their shares, failed and refused and still fails and
refuses to pay them their claims. The liability, therefore, is personal to Gregorio Magdusa, and the judgment should
be against his sole interest, not against the partnership's although the judgment creditors may satisfy the judgment
against the interest of Gregorio Magdusa in the partnership subject to the condition imposed by Article 1814 of the
Civil Code.

We do not find the preceding reasoning tenable. A partner's share can not be returned without first dissolving and
liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return is dependent on the discharge of
the creditors, whose claims enjoy preference over those of the partners; and it is self-evident that all members of the
partnership are interested in his assets and business, and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation Exhibit "C" is not signed by the other members of the partnership besides
appellees and appellant; it does not appear that they have approved, authorized, or ratified the same, and, therefore, it is
not binding upon them. At the very least, they are entitled to be heard upon its correctness.
53
In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the capital shares of the
appellees, as retiring partners, can not be repaid, for the firm's outside creditors have preference over the assets of the
enterprise (Civ. Code, Art. 1839), and the firm's property can not be diminished to their prejudice. Finally, the appellant can
not be held liable in his personal capacity for the payment of partners' shares for he does not hold them except as manager
of, or trustee for, the partnership. It is the latter that must refund their shares to the retiring partners. Since not all the
members of the partnership have been impleaded, no judgment for refund can be rendered, and the action should have
been dismissed.

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the action ordered dismissed, without
prejudice to a proper proceeding for the dissolution and liquidation of the common enterprise. Costs against appellees.

Fue Leung v. IAC, 169 scra 746 (1989)

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881
which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring
private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering
the petitioner to pay to the private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch
II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in
October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of
petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner acknowledged
his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so that the
trial court commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence
Yap issued a certification and testified that the translation to the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter
in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondents
testimony to the effect that they were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia
further testified that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own
54
investment in another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the
trial court granting the private respondents motion for examination of certain documentary exhibits. The signatures in
Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were
indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's
Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the restaurant for the year 1974.
Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corporation testified that said check (Exhibit
B) was deposited by and duly credited to the private respondents savings account with the bank after it was cleared by the
drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by the petitioner and debited against his own account in
said bank. This fact was clearly shown and indicated in the petitioner's statement of account after the check (Exhibit B) was
duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said check
was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and impugned
the genuineness of the receipt (Exhibit D). His evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his
salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a
little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was the sole
owner of the restaurant, the petitioner presented various government licenses and permits showing the Sun Wah
Panciteria was and still is a single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check No.
13389470 B in the amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence, the court
ruled in favor of the private respondent. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the
latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees in the amount of
P5,000.00 and cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and, as supplement
to the said motion, he requested that the decision rendered should include the net profit of the Sun Wah Panciteria which
was not specified in the decision, and allow private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.

The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision,
the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which
was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as
follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering
the latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p.
150, Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The questioned
decision was further modified by the appellate court. The dispositive portion of the appellate court's decision reads:

55
 WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of
P2,000.00 a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August
30, 1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.

Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)

Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. The dispositive
portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the latter to
pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13, 1978. (pp. 105-
106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the setting up
and operations of the panciteria. While the dispositive portions merely ordered the payment of the respondents share,
there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two
courts declared that the private petitioner is entitled to a share of the annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous. Thus, the petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria,
in return of which private respondent allegedly will receive a share in the profits of the restaurant. The same complaint did
not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the
Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by a partner to
a partnership;" (p. 75, Rollo)

The pertinent portions of the complaint state:

xxx xxx xxx

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

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant is
attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the
petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the
operation of the said panciteria. These allegations, which were proved, make the private respondent and the petitioner
partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract
56
of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted his
rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding the use of the term
financial assistance therein. We agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the expectation of any returns therefrom'. It
connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a
return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"...
nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action."
(De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the private
respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory
Report (Exhibit "J") on the ground that the alleged standards or specimens used by the PC Crime Laboratory in arriving at
the conclusion were never testified to by any witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H"
"H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the two receipts
issued separately by the petitioner to the private respondent and So Sia (Exhibits "A" and "D") and compared the
signatures on them with the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of
Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual examination conducted on the questioned
documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both
receipts (Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the private
respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have these exhibits together with the two receipts examined by the
PC Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence nor was any hint
of objection registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records sufficiently
establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely
erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the
complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

57
 Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a
written extra-judicial demand by the creditor, and when there is any written acknowledgment of the debt by
the debtor.'

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are — 1)
two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the
part of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110)-have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of the
firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would
be incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give
him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the
winding up partners or the surviving partners or the person or partnership continuing the business, at the
date of dissolution, in the absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807,
and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run
only upon the dissolution of the partnership when the final accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for being excessive
and unconscionable and above the claim of private respondent as embodied in his complaint and testimonial evidence
presented by said private respondent to support his claim in the complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah Panciteria, a
certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs. Licup).

Q Mrs. Witness, you stated that among your duties was that you were in charge of the
custody of the cashier's box, of the money, being the cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer who pays, you were the one who accepted the
money and you gave the change, if any, is that correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the
money?

A We balance it with the manager, Mr. Dan Fue Leung.

ATTY. HIPOLITO:

58
 I see.

Q So, in other words, after your job, you huddle or confer together?

A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is
the gross income of the restaurant?

A For regular days, I received around P7,000.00 a day during my shift alone and during pay
days I receive more than P10,000.00. That is excluding the catering outside the place.

Q What about the catering service, will you please tell the Honorable Court how many times
a week were there catering services?

A Sometimes three times a month; sometimes two times a month or more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to
11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day?

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-examination on the
matter of income but he failed to comply with his promise to produce pertinent records. When a subpoena duces
59
tecum was issued to the petitioner for the production of their records of sale, his counsel voluntarily offered to bring them to
court. He asked for sufficient time prompting the court to cancel all hearings for January, 1981 and reset them to the later
part of the following month. The petitioner's counsel never produced any books, prompting the trial court to state:

Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales
book. ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to ask
counsel for the defendant to bring said records and counsel for the defendant promised to bring those that
were available. Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle
the issue, defendant instead of presenting the books where the same, etc. were recorded, presented
witnesses who claimed to have supplied chicken, meat, shrimps, egg and other poultry products which,
however, did not show the gross sales nor does it prove that the same is the best evidence. This Court
gave warning to the defendant's counsel that if he failed to produce the books, the same will be considered
a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the
income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed
would be adverse if produced." (Rollo, p. 145)

The records show that the trial court went out of its way to accord due process to the petitioner.

The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested
his case on February 25, 1981, however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably there were several postponement
asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this case
be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and understanding reset the hearing to November 17,
1981. On said date, the counsel for the defendant who again failed to present the defendant asked for
another postponement, this time to November 24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a condition in the order granting the
postponement to said date that if the defendant cannot be presented, counsel is deemed to have waived
the presentation of said witness and will submit his case for decision.

On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-
working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981,
on motion of defendant's counsel, the same was again reset to December 22, 1981 as previously
scheduled which hearing was understood as intransferable in character. Again on December 22, 1981, the
defendant's counsel asked for postponement on the ground that the defendant was sick. the Court, after
much tolerance and judicial magnanimity, denied said motion and ordered that the case be submitted for
resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within
which to file their simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the
corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell
jewelries, businessmen, brokers, manager, bank employees, and people from all walks of life converge and patronize Sun
Wah.

There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the
respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restaurant in 1955,
it is because of the petitioner's contentions that all profits were being plowed back into the expansion of the business.
There is no basis in the records to sustain the petitioners contention that the damages awarded are excessive. Even if the
Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of
the records for such modification. There is no basis in the records for this Court to change or set aside the factual findings
of the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the respondent's
submissions but, after promising to do so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same
continues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into
the future with no fixed ending date.
60
Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil
Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry
on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution
because the continuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent court is
AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved.

SO ORDERED.

Laguna Transportation v. SSS G.R. No. L-14606 (1960)

G.R. No. L-14606             April 28, 1960

LAGUNA TRANSPORTATION CO., INC., petitioner-appellant,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

Yatco & Yatco for appellant.

Solicitor General Edilberto Barot, Solicitor Camilo Quiason and Crispin Baizas for appellee.

BARRERA, J.:

On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna petition
praying that an order be issued by the court declaring that it is not bound to register as a member of respondent Social
Security System and, therefore, not obliged to pay to the latter the contributions required under the Social Security Act.1 To
this petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to petitioner's failure to exhaust
administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business has been in
operation for at least 2 years prior to September 1, 1957.

On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that petitioner failed to exhaust
administrative remedies. When the case was called for preliminary hearing, it was postponed by agreement of the parties.
Subsequently, it was set for trial. On the date of the trial, the parties agreed to present, in lieu of any other evidence, a
stipulation of facts, which they did on May 27, 1958, as follows:

1. That petitioner is a domestic corporation duly organized and existing under the laws of the Philippines, with
principal place of business at Biñan, Laguna;

61
2. That respondent is an agency created under Republic Act No. 1161, as amended by Republic Act No. 1792, with
the principal place of business at the new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila, where it
may be served with summons;

3. That respondent has served notice upon the petitioner requiring it to register as member of the System and to
remit the premiums due from all the employees of the petitioner and the contribution of the latter to the System
beginning the month of September, 1957;

4. That sometime in 1949, the Biñan Transportation Co., a corporation duly registered with the Securities and
Exchange Commission, sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio Mercado,
Florentino Mata and Dominador Vera Cruz;

5. That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the Biñan Transportation
Company, in addition to new lines which it was able to secure from the Public Service Commission;

6. That the original partners forming the Laguna Transportation Company, with the addition of two new members,
organized a corporation known as the Laguna Transportation Company, Inc., which was registered with the
Securities and Exchange Commission on June 20, 1956, and which corporation is the plaintiff now in this case;

7. That the incorporators of the Laguna Transportation Company, Inc., and their corresponding shares are as
follows:

Name No. of Amount Amount

Shares Subscribed Paid

Dominador Cruz 333 shares P33,300.00 P9,160.81

Maura Mendoza 333 shares 33,300.00 9,160.81

Gonzalo Mercado 66 shares 6,600.00 1,822.49

Artemio Mercado 94 shares 9,400.00 2,565.90

Florentino Mata 110 shares 11,000.00 3,021.54

Sabina Borja     64 shares       6,400.00       1,750.00

1,000 shares P100,000.0 P27,481.55

0

8. That the corporation continued the same transportation business of the unregistered partnership;

9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a supplemental Information Sheet
. . .;

10. That prior to November 11, 1957, plaintiff requested for exemption from coverage by the System on the ground
that it started operation only on June 20, 1956, when it was registered with the Securities and Exchange
Commission but on November 11, 1957, the Social Security System notified plaintiff that it was covered;

11. On November 14, 1957, plaintiff through counsel sent a letter to the Social Security System contesting the
claim of the System that plaintiff was covered, . . .

12. On November 27, 1957, Carlos Sanchez, Manager of the Production Department of the respondent System for
and in behalf of the Acting Administrator, informed plaintiff that plaintiff's business has been in actual operation for
at least two years, . . .
62
On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a decision the dispositive part of
which reads:

Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged in business as
common carrier which had been in operation for at least two years prior to the enactment of Republic Act No. 1161,
as amended by Republic Act 1792 and by virtue thereof, it was subject to compulsory coverage under said law. . . .

From this decision, petitioner appealed directly to us, raising purely questions of law.

Petitioner claims that the lower court erred in holding that it is an employer engaged in business as a common carrier
which had been in operation for at least 2 years prior to the enactment of the Social Security Act and, therefore, subject to
compulsory coverage thereunder.

Section 9 of the Social Security Act, in part, provides:

SEC. 9 Compulsory Coverage. — Coverage in the System shall be compulsory upon all employees between the
ages of sixteen and sixty years, inclusive, if they have been for at least six months in the service of an employer
who is a member of the System. Provided, That the Commission may not compel any employer to become a
member of the System unless he shall have been in operation for at least two years . . . . (Italics supplied.).

It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo Mercado,
Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the operation of its business as a common
carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the
partnership into a corporate entity, by registering its articles of incorporation with the Securities and Exchange Commission
on June 20, 1956. The firm name "Laguna Transportation Company" was not altered, except with the addition of the word
"Inc." to indicate that petitioner was duly incorporated under existing laws. The corporation continued the same
transportation business of the unregistered partnership, using the same lines and equipment. There was, in effect, only a
change in the form of the organization of the entity engaged in the business of transportation of passengers. Hence, said
entity as an employer engaged in business, was already in operation for at least 3 years prior to the enactment of the
Social Security Act on June 18, 1954 and for at least two years prior to the passage of the amendatory act on June 21,
1957. Petitioner argues that, since it was registered as a corporation with the Securities and Exchange Commission only
on June 20, 1956, it must be considered to have been in operation only on said date. While it is true that a corporation
once formed is conferred a juridical personality separate and district from the persons composing it, it is but a legal fiction
introduced for purposes of convenience and to subserve the ends of justice. The concept cannot be extended to a point
beyond its reasons and policy, and when invoked in support of an end subversive of this policy, will be disregarded by the
courts. (13 Am. Jur. 160.)

If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as
a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the motion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. (1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S.
Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)

To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security Act was enacted.
An employer could easily circumvent the statute by simply changing his form of organization every other year, and then
claim exemption from contribution to the System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent circumvention of the statute would, thereby, be opened.

Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation commenced
on April 1, 1949 while it was a partnership and continued by the corporation upon its formation on June 20, 1956. Unlike in
the conveyance made by the Biñan Transportation Company to the partners Gonzalo Mercado, Artemio Mercado,
Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the pleadings or in the stipulation of
facts that the lines and equipment of the unregistered partnership had been sold and transferred to the corporation,
petitioner herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a mere
change in the form of the organization of the employer engaged in the transportation business, i.e., from an unregistered
partnership to that of a corporation. As a rule, courts will look to the substance and not to the form.(Colonial Trust Co. vs.
63
Montolo Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et
al., 44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)

Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing its
business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12; Chicago Smelting
& Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the rule is that
the members of the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the
corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.)

Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed, with costs against petitioner-
appellant. So ordered.

Singson v. isabela Sawmill G.R. No. L-27343 (1979)

G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN
LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY,
TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA
G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.:

This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil
Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F",
of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the machineries and
other chattels mentioned therein, all of which are property of the defendant partnership "Isabela Sawmill",
(2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the
said partnership and over the proceeds of their sale at public auction, superior to the right of the defendant
Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the
defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with
legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is
indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest thereon at the
rate of 1 % per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and
25% of the total indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees
being stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin
E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the complaint on June 5,
1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44,
with legal interest thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is
indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of Pl,048.78, with legal interest
thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the
plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest thereon from the filing of the
complaint on June 5. 1959; (9) that the defendant Margarita G. Saldajeno, having purchased at public
auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having
sold said assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which
the defendant partnership is held indebted to, them, as above indicated and she is hereby ordered to pay
64
 the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G.
Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor of the
other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The
defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the
respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the
defendant Margarita G. Saldajeno and the surety on the bond that she has filed for the lifting of the
injunction ordered by this court upon the commencement of this case.

The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo
Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.

SO ORDERED. 1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme
Court "considering that the resolution of this appeal involves purely questions or question of law over which this Court has
no jurisdiction ...
2

On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber
Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela
Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the
Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:

WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros
Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him
on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this
Court; and to make said injunction permanent after hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the
sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to the
plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees,
and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and
25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78,
plus 6% annual interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen,
Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo
Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void
being in fraud of creditors of the defendant partnership and without valuable consideration insofar as the
said defendant is concerned:

(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in
case the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions that
the proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid
to the defendant Margarita G. Saldajeno;

(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared
jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of the
assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs may recover
in this action;

(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to,
with costs to the defendants.

65
 Bacolod City, June 4, 1959. 3

The action was docketed as Civil Case No. 5343 of said court.

In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following
special and affirmative defenses:

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of:
Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;

3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros
Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo
Tubungbanua became the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership to its creditors and third
persons;

4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo
Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the
properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel
Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental
on the same date:

5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of
Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they
have no cause of action against answering defendant herein and the defendant Isabela Sawmill;

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances,
gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo
Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G. Saldajeno,
Leon Garibay and Timoteo Tubungbanua, has already been dissolved;

7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc.,
Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts
sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of
parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the
claims for payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe
statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there
were such credits and claims;

10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence
that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court
because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No.
L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1,
p.124), as it appears from the complaint in this case to annul the decision of this same court, but of another
branch (Branch II, Judge Querubin presiding). 4

66
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying "that
in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the
latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in accordance to the said
judgment. ...
5

After trial, judgment was rendered in favor of the plaintiffs and against the defendants.

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning
the following errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

II

THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE
PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE
"COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA
SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND
SAID MARGARITA G. SALDAJENO).

IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958,
WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN
CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS
NULL AND VOID.

VI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-
APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223
CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH
CIVIL CASE NO. 5223.

VIII

67
 THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA,
INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE
DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A
PARTNER.

IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO

LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.

XI

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6

The facts, as found by the trial court, are:

At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and
Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said
stipulation reads as folows:

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and
Timoteo Tubungbanua entered into a Contract of Partnership under the firm name "Isabela
Sawmill", a copy of which is hereto attached Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two
Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the
said purcahse price, the said partnership agreed to make arrangements with the
International Harvester Company at Bacolod City so that the latter would sell farm
machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by
the partnership. A copy of the corresponding contract of sle is attached hereto as Appendix
"B".

3. That through the method of payment stipulated in the contract marked as Appendix "B"
herein, the International Harvester Company has been paid a total of P19,211.11, leaving
an unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices
"C", "C-1", and "C-2".

4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno
and Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo
Tubungbanua, a copy of which Complaint is attached as Appendix 'D'.

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and
Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto
attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of Negros
Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and
Margarita G. Saldajeno executed a document entitled "Assignment of Rights with Chattel
68
 Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming a part of the
record of the above mentioned Civil Case No. 4797, which deed was referred to in the
Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated
May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide
the assets and properties of the "Isabela Sawmill" between them, but they continued the
business of said partnership under the same firm name "Isabela Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2)
notices that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental
certain trucks, tractors, machinery, officeequipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita
G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a
Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the enforcement of the judgment
rendered in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, a
certified copy of which certificte of sale is hereto attached as Appendix "H".

10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of
sale in favor of the Pan Oriental Lumber Company transfering to the latter for the sum of
P45,000.00 the trucks, tractors, machinery, and other things that she had purchashed at a
public auction referred to in the foregoing paragraph, a certified true copy of which Deed of
Sale is hereto attached as Appendix "I".

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve
the right to present additional evidence at the hearing of this case.

Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C",
"C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not present any evidence. The case hardly involves quetions
of fact at all, but only questions of law.

The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount
of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is
expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and
"C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6,
1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the
said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of
P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of
the defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25,
1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved
that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid
for.

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs.
"N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the
69
 sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant
partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of
P1,579.44.

The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to
the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to
the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January
27, 1959, leaving an outstanding balance of P1,048.78.

The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness,
and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the
defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said
transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10.

Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold
to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela Sawmill"
which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said
purchase price was applied to the judgment that she has obtained against he said mortgagors in Civil Case
No. 5223 of this Court.

Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G.
Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that
she had bought at public aucton one week before.

xxx xxx xxx 7

It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case
No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern
Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and, therefore, within
the jurisdiction of the municipal court.

This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel
mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo
Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of
First Instnace. Where the basic issue is something more than the right to recover a sum of money and where the money
claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the
litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is
defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction
over any case the subject matter of which is not capable of pecuniary estimation. An action for the annulment of a
judgment and an order of a court of justice belongs to th category. 8

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has
adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the
recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the
municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue
is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such actions as cases where the subject ogf the
litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance.

In Andres Lapitan vs. SCANDIA, Inc., et al.,  this Court held:

9

Actions for specific performance of contracts have been expressly prounounced to be exclusively
cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28,
70
 1967; Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason
appears, and none is here advanced by the parties, why an actin for rescission (or resolution) should be
differently treated, a "rescission" being a counterpart, so to speak, of "specific performance'. In both cases,
the court would certainly have to undertake an investigation into facts that would justify one act of the other.
No award for damages may be had in an action for resicssion without first conducting an inquiry into
matters which would justify the setting aside of a contract, in the same manner that courts of first instance
would have to make findings of fact and law in actions not capable of pecuniary estimnation espressly held
to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31,
1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the
money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v.
Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960
(the relations of the parties, the right to support created by the relation, etc., in actions for support); De
Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims
are predicated). Issues of the same nature may be raised by a party against whom an action for rescission
has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an
action for rescission should be taken as the basis for concluding such action for resiccison should be taken
as the basis for concluding such action as one cpable of pecuniary estimation - a prayer which must be
included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the
breach committed by defendant, and not later on precluded from recovering damages by the rule against
splitting a cause of action and discouraging multiplicitly of suits.

The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan,   where this Court held:
10

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled
therein that although the purposes of an action is to recover an amount plus interest which comes within the
original jurisidction of the Justice of the Peace Court, yet when said action involves the foreclosure of a
chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action
should be instituted before the Court of First Instance.

In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves
the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within
the competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising
jurisidction over Civil Case No. 5343.

The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved
in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had been ordered
foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and coordinate
jusridiction, this Court originally ruled that:

A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot
be allowed to interfere with each others' judgments or decrees.  11

The foregoing doctrine was reiterated in a 1953 case   where this Court said:
12

The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the
same court is not infringed when the Judge who modifies or annuls the order isued by the other Judge acts
in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is
infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint

71
 the sheriff from carrying out an order by execution issued in another case by the Judge of another branch of
the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog,   the judgment sought to be annulled was rendered by the Court
13

of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both courts
belonging to the same Judicial District. This Court held that:

The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in
which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be
interfered with by any court concurrrent jurisdiction.

Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance belongs
solely to the very same branch which rendered the judgement.  14

Two years later, the same doctrine was laid down in the Sterling Investment case. 15

In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court of
Appeals,   this Tribunal, speaking through Mr. Justice Villamor declared:
16

... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that
the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels that this is as
good an occasion as any to re-examine the doctrine laid down ...

In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of
the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to
judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the
actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and
executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action in
the two cases being distinct and separate from each other, there is no plausible reason why the venue of
the action to annul the judgment should necessarily follow the venue of the previous action ...

The present doctrine which postulate that one court or one branch of a court may not annul the judgment of
another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered
by another court of first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case. 17

In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of
Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court.

It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the
business.   However, on dissolution, the partnershop is not terminated but continuous until the winding up to the
18

business. 19

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up the
business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in
72
the memorandum-agreement that the remaining partners had constituted themselves as the partnership entity, the "Isabela
Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the properties
of said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua,
belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the trial
court because she purchased at public auction the properties of the partnership which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers.
The appellees and the public in general had a right to expect that whatever, credit they extended to Leon Garibay and
Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could be enforced against the
proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno
did not relieve her from liability to the creditors of the partnership.

The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of the
assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of
the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them.

Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good faith in
extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-
agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the aprtnership, the
applees would not have been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under
the facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doping business through the two
remaining partners.

The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the propertiesof
the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights
of a third person, he may file an action to annul the contract.

This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercised an
action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show
detriment which would positively result to him from the contract in which he has no intervention.  21

The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the
partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua. Hence, said appelees have a right to file the action to nullify the chattel mortgage in question.

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot
be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed,
the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their co-
defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo
Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons.  22

WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay
attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse

73
the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the
plaintiffs-appellees, without pronouncement as to costs.

SO ORDERED.

Teck Seing and Co. v. Pacific Commercial Co. G.R. No. 19892 (1923)

TECK SEING & CO., LTD., petitioner-appellee. SANTIAGO JO CHUNG CANF ET AL., partners, v.
PACIFIC COMMERCIAL COMPANY ET AL., creditors-appellants.

Del Rosario & Del Rosario and Block, Johnston & Greenbaum for Appellants.

F. V. Arias for appellees Jo Ibec and Go Tayco.

No appearance for petitioner and appellee.

Jose A. Espiritu and Felipe Ysmael as amick curie.

SYLLABUS

1. MERCANTILE LAW; CONTRACTS; PARTNERSHIP; INSTANT CASE. — Held: That the mercantile
establishment which operated under the name of Teck Seing & Co., Ltd., and which was constituted by the
document set forth in the decision, is not a corporation, nor a cuenta en participacion (joint account
association), nor a sociedad anonima, nor a sociedad en comandita (limited partnership), nor a de facto
commercial association, but is a general partnership.

2. ID.; ID.; ID.; LIMITED PARTNERSHIP. -- Those who seek to avail themselves of the protection of laws
permitting the creation of limited partnership must show a substantially full compliance with such laws. A
limited partnership that has not complied with the law of its creation is not considered a limited partnership
at all, but a general partnership in which all the members are liable.

3. ID.; ID.; ID. — To establish a limited partnership, there must be, at least, one general partner and the
name of the least one of the general partners in the firm name. (Code of Commerce, arts. 122 [2], 146,
148.)

4. ID.; ID.; ID.; DEFECTS IN THE ORGANIZATION; FIRM NAME; ARTICLE 126 OF THE CODE OF
COMMERCE, CONSTRUED. — Article 126 of the Code of Commerce requires the general copartnership to
transact business under the name of all its members, or of several of them, or of one only. The object of
the article is manifestly to protect the public against imposition and fraud.

5. ID.; ID.; ID,; ID.; ID.; ID. — Article 126 of the Code of Commerce was intended more for the protection
of the creditors than of the partners themselves. A distinction can be drawn between the right of the
alleged partnership to institute action when failing to live up to the provision of the law, or even the rights
of the partners as among themselves, and the right of a third person to hold responsible a general
partnership which merely lacks a firm name, in order to make it a partnership de jure. the law should be
construed as rendering contracts made in violation of it unlawful and unenforceable at the instance of the
offending party only, but not as designed to take away the rights of innocent parties who may have dealt
with the offenders in ignorance of their having violated the law.

6. ID.; ID., ID.; ID.; ID.; ID. — The civil law and the common law alike point to a difference between the
rights of the partners who have failed to comply with the law and the rights of third persons who have
dealt with the partnership.

74
7. ID.; ID.; ID.; ID.; ID.; ID. — According to the Spanish civil law, defects in the organization cannot effect
relations with third persons. Contracts entered into by commercial associations defectively organized are
valid when they are voluntarily executed by the parties, if the only controversy relates to whether or not
they complied with the agreement.

8. ID.; ID.; ID.; ID.; ID.; ID.; FAILURE OF REGISTRY, EFFECT. — While the failure to register in the
commercial registry, necessarily precludes the members from enforcing rights acquired by them against
third persons, such failure cannot prejudice the rights of third persons. (Decisions of the supreme court of
Spain of December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.)

9. ID.; ID.; ID.; ID.; ID.; ID.; DECISION IN HUNG-MAN-YOC v. KIENG-CHIONG-SENG, DISTINGUISHED.
— There is a marked difference between the facts of the case of Hung-Man-Yoc v. Kieng-Chiong-Seng
([1906], 6 Phil., 498), and the facts of the instant case.

10. ID.; ID.; ID.; ID.; ID.; ID,; TEST OF PARTNERSHIP. — The legal intention deducible from the acts of
the parties controls in determining the existence of a partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although their purpose was to avoid the creation of such
relation.

11. ID.; ID.; ID.; ID.; ID.; ID.; BANKRUPTCY AND INSOLVENCY; LIABILITY OF PARTNERSHIP AND
PARTNERS. — If a firm be insolvent, the creditors may proceed both against the firm against the solvent
partner or partners, first exhausting the assets of the firm before seizing the property of the partners.

DECISION

MALCOLM, J. :

Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantile, Teck
Seing & Co., Ltd.," the creditor, the Pacific Commercial Company, Pinol & Company, Riu Hermanos, and W.
H. Anderson & Company, filed a motion in which the Court was prayed to enter an order:" (A) Declaring
the individual partners as described in paragraph 5 parties to this proceeding; (B) to require each of said
partners to file an inventory of his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this proceeding." The trial judge first granted
the motion, but, subsequently, on opposition being renewed, denied it. it is from this last order that an
appeal was taken in accordance with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some importance and of some
intricacy. The issue in the case relates to a determination of the nature of the mercantile establishment
which operated under the name into, and analyze, the document constituting Teck Seing & Co., Ltd. It
reads:jgc:chanrobles.com.ph

"ESCRITURA DE SOCIEDAD MERCANTILE LIMITADA

"Sepan todos por la presente: jgc:chanrobles.com.ph

"Que nosotros, Santiago Jo Chung Cang, mayor de edad, comerciante, vecino y residente del municipio de
Tabogon, Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad, comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante, vecino y
residente del municipio y Provincia de Cebu, Islas Filipinas, Lim Yogsing, mayor de edad, comerciante,
vecino y residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos
75
constar por la presente, que constituimos y formamos una sociedad Mercantile limitada, bajo la leyes
vigentes en las Islas Filipinas, y para ser registrada de acuerdo con los reglamentos vigentes del Codigo de
Comercio en Filipinas.

"Que la razon social se denominara "Teck Seing & Co., Ltd," y tendra su domicilio principal en la Calle
Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.

"Que el capital socia sera de treinta mil pesos (P30,000) moneda legal de las Islas Filipinas, dividido en
cinco acciones de a P6,000 como sigue:

Santiago Jo Chung Cang P6,000.00

Go TAYCO 6,000.00

Yap Guenco 6,000.00

Jo Ybec 6,000.00

Lim Yogsing 6,000.00

Total 30,000.00

"Que la duracion de la sociedad sera la de seis anos a contar de la fecha de esta escritura, pudiendo
prorrogarse este tiempo a discrecion unanime de todos los accionistas.

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

"El administrator o administradores de la sociedad podran, previa conformidad de los accionistas,

establecer cuantas sucursales o establecimietos considere necesarios para facilitar sus negocious y el
mayor desarrollo del comercio a que se dedica la sociedadm verificando todas las operaciones que crean
convenientes para el fomento de su capital.

"Las ganacias perdiad que resultaren durante cada ano comercial, se distribuiran proporcionalmente entre
los accionistas, de acuerdo con el capital apotado por cada uno de los mismos.

"Las ganancias que resultaren en cads ano comercial, si resultaren algunas ganancias, no podran ser
retiradas por los accionistas hasta dentro del termino de tres anos a contar de la fecha del primer balance
anual de negocio, quendando por tanto estas ganancias en reserva, para ampliar el capital aportado por los
accionistas y ampliar portanto la esfera de accion emprendida por la misma sociedad. Al pasar o expirar el
termino de tres anos, cada accionista podra retirar o depositar en poder de la sociedad, las ganancias que
le debieran corresponder durante dicho termino de tres anos.

"Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquirea cantidad o cantidades de
la sociedad, que haya sido aportadoo por los mismo, para atender sus gastos particulares ni aun pagando
redito alguno sobre la cantidad que intenten disponer o extraer de dicha sociedad.

"El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la administracion de la
Compania, quienes podran usar indisstintamente la firma social, quedando por consiquiente authorizados
ambos para hacer en nombre de ella toda clase de operaciones, negocios y especulaciones mercantiles,
practicando judicial y extrajudicialmente cuantos actos se requieran para el bien de la sociedad, nombrar
procuradores o abogados para reclamaciones y cobro de creditors y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procedentes. En caso de ausencia, enfermedad o
cualquier otro impedimento del accionista administrador Sr. Lim Yogsing, este podra conferir poder general
o especial al accionista que crea conveniente para que en union del administrador auxiliar Sr. Vicente

76
Jocson Jo, pudieran ambos administrar convenientemente los negocious de la sociedad. Que los
administradores podran tener los empleados necesarios para el mejor manejo de los negocios de la
sociedad, y fijaran los sueldos que debieran percibir dichos empleados por servicios rendidos a la sociedad.

"Que ambos administradores podran disponer de mil doscientos pesos (1,200) moneda filipina,
anualmente, para sus gastos particulares, siendo dicha cantidad de P1,200 la que corresponde a cada uno
de dichos administradores, como emolumentos o salarios que se les asigna a cada uno, por sus trabajos en
la administracioon de la sociedad. Entendiendose, que, los accionistas podran disponer cada fin de ano la
gratificacion que se concedera a cada administrador, si los negocios del ano fueran boyantes y justifiquen
la concesion de una grtificacion especial, aparte del salario aqui dispuesto y especificado.

"Que pasado el termino de seis años, y es de la conveniencia de los accionistas la continuacion del negocio
de esta sociedad, dicho termino sera prorrogado por igual numero de anos, sin necesidad del otorgamiento
de ulteriores escrituras, quedando la presente en vigor hasta el termino dispuesto por todos los accionistas.

"Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo estipulado en
esta escritura, ya por actos en el curso y direccion de los negocios en ella comprendidos, se procurara
arreglar entre los mis-mos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de este modo,
dichos accionistas nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando ulteriores recursos.

"En cuyos terminos dejamos formalizada esta escritura de sociedad Mercantile limitada, y prometemos
cumplirla fiel y estrictamente segun los pactos que hemos establecido.

"En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas, hoy 31
de octubre de mil novecientos diez y nueve.

(Fdos.) "LIM YOGSING

"JO YBEC POR HO SENG SIAN

"SANTIAGO JO CHUNG CANG

"GO TAYCO

"YAP GUECO

Firmed en presencia de: chanrob1es virtual 1aw library

(Fdos.) "ATALINO LEYSON

"JULIO DIAZ

"ESTADOS UNIDOS DE AMERICA

"ISLA FILIPINAS

"PROVINCIA DE CEBU

"En el Municipio de Cebu, de la Provincia antes mencionada, I. F. ., hoy 31 de octubre de 1919, A. D., ante
mi, Notario Publico que subscribe, comparecieron personalmente Santiago Jo Ching Cang, go Tayco, Yapp
Guenco, Lim Yogsing y Ybec, representado este ultimo por Ho Seng Sian, segun authorizacion hecha en
telegrama de fecha 27 de septiembre de 1919 que se me ha presentado en este mismo acto, de quienes
doy fe de que les conozco por ser las mismas personas que otorgaron el preinserto documento, ratificando

77
ante mi su contenido y manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr.
Santiago Jo Chung me exhibio su cedula personal expedida en Cebu, Cebu, I. F. el dia 19 de septiembre de
1919 bajo el No. H77742, Go Tayco tambien me exhibio la suya expedida en Cebu, Cebu, I. F., el dia 9 de
octubre de 1919 bajo el No. G2042490, Yap Guenco tambien me exhibio la suya expedida en Cebu, Cebu,
I. F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la suya expedia en
Cebu, Cebu, I. F., el dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng Sian representante de Jo
Ybec, me exhibo su cedula personal expedida en Cebu, Cebu, I. F. el dia 4 de febrero expedida en Cebuu,
Cebu, I. F. el dia 4 de febrero de 1919 bajo el No. F1453733.

"Ante mi,

(Fdo.) "F.V. ARIAS

"Notario publico

"Hasta el 1. o de enero de 1920

"Asiento No. 157

Pagina No. 95 de mi

Registro Notarial

Serie 1919

Libro 2. o.

"Presentado a las diez y cuarentay tres minutos de la manana de hoy, segun el asiento No. 125, pagina 9
del Tomo 1. o del Libro Diario. Cebu, 11 de febrero de 1920.

(Fdo) "QUIRICO ABETO

"Registrador Mercantile Ex-officio

[SELLO]

"Inscrito el documento que precede al folio 84 hoja No. 188, inscripcion 1. a del Tomo 3. o del Libro
Registro de Sociedades Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta pesos con cincuenta
centavos. Art.197, Ley No. 2711, Codigo Administrativo.

(Fdo) "QUIRICO ABETO

"Registrador Mercantile Ex-Officio"

[SELLO]

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a corporation.
Neither is it contended by any one that Teck Seing & Co., Ltd., is the accidental partnership denominated
cuenta en participacion (joint account association).

Counsel for the petitioner and appellee described his client in one place in his opposition to the motion of
the creditors, as "una verdadera sociedad anonima" (a true sociedad anonima). The provisions of the Code
of Commerce relating to sociedades anonimas were, however, repealed by section 191 of the Corporation
Law (Act No. 1459), with the exceptions that sociedades anomimas lawfully organized at the time of the

78
passage of the Corporation Law were recognized, which is not our case.

The document providing for the partnership contract purported to form "una sociedad mercantile limitada,"
and counsel of the petitioner’s first contention was that Teck SEing & Co., Ltd. was not "sociedad regular
colectiva, ni siquiera comanditaria, sino una sociedad mercantile limitada." Let us see if the partnership
contract created a "sociedad en comandita," or, as it known in English, and will hereafter be spoken of, "a
limited partnership."
cralaw virtua1aw library

To establish a limited partnership there must be, at least one general partner and the name of at least one
of the general partners must appear in the firm name. (Code of Commerce, Arts. 122 [2], 146, 148.) But
neither of these requirements have been fulfilled. The general rule is, that those who seek to avail
themselves of the protection of laws permitting the creation of limited partnerships must show a
substantially full compliance with such laws. A limited partnership that has not complied with the law of its
creation is not considered a limited partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp. 499,595; 20 R. C. L.,
1064.)

The contention of the creditors and appellants is that the partnership contract established a general
partnership.

Article 125 of the Code of Commerce provides that the articles of general copartnership must state the
names, surnames, and domiciles of the partners; the firm name; the names, and surnames of the partners
to whom the management of the firm and the use of its signature is intrusted; the capital which each
partner contributes in cash, credits, or the basis on which their appraisement is to be made; the duration of
the copartnership; and the amounts which, in a proper case, are to be given to each managing partner
annually for his private expenses, while the succeeding article of the Code provides that the general
copartnership must transact business under the name of all its members, of several of them, or of done
only. Turning to the document before us, it will be noted that all of the requirements of the Code have been
met, with the sole exception of the relating to the sole exception of that relating to the composition of the
firm name. We leave consideration of this phase of the case for later discussion.

The remaining possibility is the revised contention of counsel for the petitioners to the effect that Teck
Seing & Co., Ltd. is "una sociedad mercantile ’de facto’ solamante" (only a de facto commercial
association), and that the decision of the Supreme Court in the case of Hung-Man-Yoc v. Kieng-Chiong-
Seng [1906], is controlling. It was this argument which convinced the trial judge, who gave effect to his
understanding of the case last cited and which here must be given serious attention.

The decision in Hung-Man-Yoc v. Kieng-Chiong-Seng, supra, discloses that the firm Kieng-Chiong-Seng was
not organized by means of any public document; that the partnership had not recorded in the mercantile
registry; and that Kieng-Chiong-Seng was not proven to be the firm name, but rather the designation of
the partnership. The conclusion then was, that the partnership in question was merely de facto and that,
therefore, giving effect to the provisions of article 120 of the Code of Commerce, the right of action was
against the persons in charge of the management of the association.

Laying the facts of the case of Hung-Man-Yoc v. Kieng-Chiong-Seng, supra, side by side with the facts
before us, a marked difference is at once disclosed. In the cited case, the organization of the partnership
was not evidenced by any public document; here, it is by a public document. In the cited case, the
partnership naturally could not present a public instrument for record in the mercantile registry; here, the
contract of partnership has been duly registered. But the two cases are similar in that the firm name failed
to include the name of any of the partners.

We come then to the ultimate question, which is, whether we should follow the decision in Hung-man-Yoc
v. Kieng-Chiong-Seng, supra, or whether we should differentiate the two cases, holding Teck Seing & Co.,
Ltd., a general copartnership, notwithstanding the failure of the firm name to include the name of one of

79
the partners. Let us now notice this decisive point this decisive point in the case.

Article 119 of the Code of Commerce requires every commercial association before beginning its business
to state its articles, agreements, and conditions in a public instrument, which shall be presented for record
in the mercantile registry. Article 120, next following, provides that the persons in charge of the
management of the association who violate the provisions of the foregoing article shall be responsible in
solidum to the persons not members of the association with whom they may have transacted business in
the name of the association. Applied to the facts before us, it would seem that Teck Seing & Co., Ltd. has
fulfilled the provisions of article 119. Moreover, to permit the creditors only to look to the person in charge
of the management of the association, the partner Lim Yogsing, would not prove very helpful to them.

What is said in article 126 of the Code of Commerce relating to the general copartnership transacting
business under the name of all its members or of several of them or of one only, is wisely included in our
commercial law. It would appear, however, that this provision was inserted more for the protection of the
creditors than of the partners themselves. A distinction could well be drawn between the right of the
alleged partnership to institute action when failing to live up to the provisions of the law, or even the rights
of the partners as among themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm in order to make it a partnership de jure.

The civil law and the common law alike seem to point to a difference between the rights of the partners
who have failed to comply with the law and the rights of third persons who have dealt with the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members to
register the articles of association in the commercial registry, agreements containing all the essential
requisites are valid as between the contracting parties, whatever the form adopted, and that, while the
failure to register in the commercial registry necessarily precludes the members from enforcing rights
acquired by them against third persons, such failure cannot prejudice the rights of third person. (See
decisions of December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The same
reasoning would be applicable to the formal requisite pertaining to the firm name.

The common law is to the same effect. The State of Michian had a statute prohibiting the transaction of
business under an assumed name or any other than the real name of the individual conducting the same,
unless such person shall file with the county clerk a certificate setting forth the name under which the
business is to be conducted and the real name of each of the partners, with their residences and post-office
addresses, and making a violation thereof a misdemeanor. The Supreme Court of Michigan said: jgc:chanrobles.com.ph

"The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting
persons from concealing their identity by doing business under an assumed name, making it unlawful to
use that their real names in transacting business without a public record of who they are, available for use
in courts, and to punish those who violate the prohibition. the object of this act is not limited to facilitating
the collection of debts, or the protection of those giving credit to person doing business under an assumed
name. It is not unilateral in its application. It applies to debtor and creditor, contractor and contractee,
alike. Parties doing business with those acting under an assumed name, Whether they buy or sell, have a
right, under the law, to know who they are, and who to hold responsible, in case the question of damages
for failure to perform or breach of warranty should arise.

"The general rule is well settled that, where statutes enacted to protect the public against fraud or
imposition, or to safeguard the public health or morals, contain a prohibition and impose a penalty, all
contract in violation thereof are void. . . .

"As this act involves purely business transactions, and affects only money interests, we think it should be
construed as rendering contracts made in violation of it unlawful and unenforceable at the instance of the
offending party only, but not as designed to take away the right of innocent parties who may have dealt
with the offenders in ignorance of their having violated the statute." (Cashin v. Pilter [1912], 168 Mich.,

80
386; Ann. Cas. [1913-C], 697.)

The early decision of our Supreme Court in the case of Prautch, Scholes & Co. v. Hernandez ([1903], 1
Phil., 705), contains the following pertinent observations: jgc:chanrobles.com.ph

"Another case may be supposed. A partnership is organized for commercial purposes. It fails to comply
with the requirement of article 119, A creditor sues the partnership for a debt contracted by it, claiming to
hold the partners severally. They answer that their failure to comply with the Code of Commerce makes
them a civil partnership and that they are in accordance with article 1698 of the Civil Code only liable
jointly. to allow such liberty of action would be to permit the parties by a violation of the code to escape a
liability which the law has seen fit to impose upon persons who organized commercial partnership;
’Because it would be contrary to all legal principles that the nonperformance of a duty should redound to
the benefit of the person in default either intentional or unintentional.’ (Mercantile Law, Eixala, fourth ed.,
p. 145.)" (See also Lichauco v. Lichauco [1916], 33 Phil., 350, 360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment after articles
121 and 126 of the Code: jgc:chanrobles.com.ph

"From the decision cited in this and in the previous comments, the following is deduced : 1st Defects in the
organization cannot affect relations with third persons. 2d. Member who contract with other persons before
the association is lawfully organized are liable to these persons. 3d. The intention to form an association is
necessary, so that if the intention of mutual participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no association. 4th. An association, the article of
which have not been registered, is valid in favor of third persons. 5th. The private pact or agreement to
form a commercial association is governed not by the commercial law but by the civil law. 6th. Secret
stipulations expressed in a public instrument, but not inserted in the articles of association, do not affect
third person, but are binding on the parties themselves. 7th. An agreement made in a public instrument,
other than the articles of association, by means of which one of the partners guarantees to another certain
profits or secures him from losses, is valid between them, without affecting the association. 8th. Contracts
entered into by commercial associations defectively organized are valid when they are voluntarily executed
by the parties, if the only controversy relates to whether or not they complied with the agreement.

x          x           x

"The name of the collective merchant is called firm name. By this name, the new being is distinguished
from others, its sphere of action fixed, and the juridical personality better determined, without constituting
an exclusive character of the general partnership to such an extent as to serve the purpose of giving a
definition of said kind of a mercantile partnership, as is the case in our Code.

"Having in mind that these partnership are prevailingly of a personal character, article 126 says that they
must transact business under the name of all its members, of some of them or of one only, the words ’and
company’ to be added in the latter two cases.

"It is rendered impossible for the general partnership to adopt a firm name appropriate to its commercial
object; the law wants to link, and does link, the solidary and unlimited responsibility of the member of this
partnership with the formation of its name, and imposes a limitation upon personal liberty in its selection,
not only by prescribing the requisites, but also by prohibiting persons not members of the company from
including their names in its firm name under penalty of civil solidary responsibility.

"Of course, the form required by the Code for the adoption of the firm name does not prevent the addition
thereto of any other title connected with the commercial purpose of the association. The reader may see
our commentaries on the mercantile registry about the business names and firm names of associations, but
it is proper to establish here that, while the business name may be alienated by any of the means admitted

81
by the law, it seems impossible to separate the firm names of general partnerships from the juridical entity
for the creation of which it was formed." (Vol. 2, pp. 197, 213.)

On the question of whether the fact that the dirm name "Teck Seing & Co., Ltd." does not contain the name
of all or any of the partners as prescribed by the Code of Commerce prevents the creation of a general
partnership, Professor Jose A. Espiritu, as amicus curiae, states: jgc:chanrobles.com.ph

"My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the information
of a general partnership, especially if the other requisites are present and the requisites regarding
registration of the articles of association in the Commercial Registry has been complied with, as in present
case. I do not believe that the adoption of a wrong name is a material fact to be taken into consideration in
this case; first, because the mere fact that a person uses a name not his own does not prevent him being
bound in a contract or an obligation he voluntarily entered into; second, because such a requirement of the
law is merely a formal and not necessarily an essential one to the existence of the partnership, and as long
as the name to use it, the acts and contracts done and entered into under such a name bind the firm to
third persons; and third, because the failure of the partners herein to adopt the correct name prescribed by
law cannot shield them from their personal liabilities, as neither law nor equity will permit them to utilize
their own mistake in order to put the blame on third persons, and much less, on the firm creditors in order
to avoid their personal responsibility." cralaw virtua1aw library

The legal intention deducible from the acts of the parties controls in determining the existence of a
partnership. If they intend to do a thing which in law constitute a partnership, they are partners, although
their purpose was to avoid the creation of such relation. Here, the intention of the persons making up Teck
Seing & Co., Ltd. was to establish a partnership which they erroneously denominated a limited partnership.
If this was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while
assuming their enjoyment of the advantages to be derived from the relation must be disregarded. The
partners who have their identity under a designation distinct from that of any of the members of the firm
should be penalized, and not the creditors who presumably have dealt with the partnership in good faith.

Article 127 and 237 of the Code of Commerce make all the member of the general copartnership liable
personally and in solidum with all their property for the results of the transaction made in the name and for
the account of the partnership. Section 51 of the Insolvency Law, likewise, makes all the property of the
partnership and also all the separate property of each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg on Bankruptcy, sec. 108; De los Reyes v. Lukban and Borja [1916],
35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. v. Pacific Commercial Co. [1922], 44 Phil.,
916)

We reach the conclusion that the contract of partnership in the document hereinbefore quoted established
a general partnership or, to be more exact, a partnership as this word is used in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court of origin for
further proceedings pursuant to the motion presented by the creditors, in conformity with the provision of
the Insolvency Law. Without special finding as to the costs in this instance, it is so ordered.

J. Teosejo Investment v. Ang G.R. no. 174149 (2010)

J. TIOSEJO INVESTMENT CORP., PETITIONER, VS. SPOUSES BENJAMIN AND ELEANOR ANG,
RESPONDENTS.

DECISION

PEREZ, J.:
82
Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks the
reversal of the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of the Court
of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively, dismissed the petition for review of petitioner
J. Tiosejo Investment Corp. (JTIC) for having been filed out of time[1] and denied the motion for
reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown Property
Group, Inc. (PPGI) for the development of a residential condominium project to be known as The
Meditel on the former's 9,502 square meter property along Samat St., Highway Hills, Mandaluyong City.[3] 
With petitioner contributing the same property to the joint venture and PPGI undertaking to develop the
condominium, the JVA provided, among other terms and conditions, that the developed units shall be
shared by the former and the latter at a ratio of 17%-83%, respectively.[4]  While both parties were
allowed, at their own individual responsibility, to pre-sell the units pertaining to them,[5] PPGI further
undertook to use all proceeds from the pre-selling of its saleable units for the completion of the
Condominium Project." [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No. 96-06-
2854 in favor of petitioner and PPGI as project owners.[7]  By virtue of said license, PPGI executed Contract
to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square
meter condominium unit denominated as Unit A-1006, for the agreed contract price of  P52,597.88  per
square meter or a total P2,077,334.25.[8] On the same date PPGI and respondents also executed Contract
to Sell No. 0214 over the 12.50 square meter parking space identified as Parking Slot No. 0405, for the
stipulated consideration of P26,400.00 square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of the
aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No. REM 072199-10567. 
Contending that they were assured by petitioner and PPGI that the subject condominium unit and parking
space would be available for turn-over and occupancy in December 1998, respondents averred, among
other matters, that in view of the non-completion of the project according to said representation,
respondents instructed petitioner and PPGI to stop depositing the post-dated checks they issued and to
cancel said Contracts to Sell;  and, that despite several demands, petitioner and PPGI have failed and
refused to refund the P611,519.52 they already paid under the circumstances.  Together with the refund of
said amount and interests thereon at the rate of 12% per annum, respondents prayed for the grant of their
claims for moral and exemplary damages as well as attorney's fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September 1999
answer alleging that the delay in the completion of the project was attributable to the economic crisis which
affected the country at the time; that the unexpected and unforeseen inflation as well as increase in
interest rates and cost of building materials constitute force majeure and were beyond its control; that
aware of its responsibilities, it offered several alternatives to its buyers like respondents for a transfer of
their investment to its other feasible projects and for the amounts they already paid to be considered as
partial payment for the replacement unit/s; and, that the complaint was prematurely filed in view of the
on-going negotiations it is undertaking with its buyers and prospective joint venture partners.  Aside from
the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of its
counterclaims for attorney's fees and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in separate answer dated 5
February 2002[12] which it amended on 20 May 2002.  Calling attention to the fact that its prestation under
the JVA consisted in contributing the property on which The Meditel was to be constructed, petitioner
asseverated that, by the terms of the JVA, each party was individually responsible for the marketing and
sale of the units pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI and

83
respondents, it did not receive any portion of the payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI breached its undertakings under the JVA by failing to
complete the condominium project.  In addition to the dismissal of the complaint and the grant of its
counterclaims for exemplary damages, attorney's fees, litigation expenses and the costs, petitioner
interposed a cross-claim against PPGI for full reimbursement of any sum it may be adjudged liable to pay
respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the parties,[14] Housing and
Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render the 30 July 2003 decision declaring the
subject Contracts to Sell cancelled and rescinded on account of the non-completion of the condominium
project.  On the ground that the JVA created a partnership liability on their part, petitioner and PPGI, as co-
owners of the condominium project, were ordered to pay: (a) respondents' claim for refund of the
P611,519.52 they paid, with interest at the rate of 12% per annum from 5 February 1997; (b) damages in
the sum of P75,000.00; (c) attorney's fees in the sum of P30,000.00; (d) the costs; and, (e) an
administrative fine in the sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of Presidential
Decree No. 957. [15]nbsp; Elevated to the HLURB Board of Commissioners via the petition for review filed by
petitioner,[16] the foregoing decision was modified to grant the latter's cross-claim in the 14 September
2004 decision rendered by said administrative body's Second Division in HLURB Case No. REM-A-031007-
0240,[17] to wit:

Wherefore, the petition for review of the respondent Corporation is dismissed. However, the decision of the
Office below dated July 30, 2003 is modified, hence, its dispositive portion shall read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and rescinded, and
ordering the respondents to immediately pay the complainants the following:

a. The amount of P611,519.52, with interest at the legal rate reckoned from February 5,
1997 until fully paid;
b. Damages of P75,000.00;
c. Attorney's fees equivalent to P30,000.00; and
d. The Cost of suit;

2. Ordering respondents to pay this Office administrative fine of P10,000.00 for violation of
Section 20 in relation to Section 38 of P.D. 957; and

3. Ordering respondent Primetown to reimburse the entire amount which the respondent
Corporation will be constrained to pay the complainants.

So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,[19] petitioner filed a Notice of
Appeal dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P. Case
No. 05-B-072.[20]  On 3 March 2005, the OP issued an order directing petitioner to submit its appeal
memorandum within 15 days from receipt thereof.[21]  Acting on the motion therefor filed, the OP also
issued another order on the same date, granting petitioner a period of 15 days from 28 February 2005 or
until 15 March 2005 within which to file its appeal memorandum.[22] In view of petitioner's filing of a second
motion for extension dated 15 March 2005,[23] the OP issued the 18 March 2005 order granting the former
an additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal
memorandum, "provided no further extension shall be allowed."[24] Claiming to have received the aforesaid
3 March 2005 order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking yet
another extension of 10 days or until 10 April 2005 within which to file its appeal memorandum.[25]

84
On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of
petitioner[26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in view of
the fact that 10 April 2005 fell on a Sunday.[27] On 25 October 2005, the OP rendered a decision dismissing
petitioner's appeal on the ground that the latter's appeal memorandum was filed out of time and that the
HLURB Board committed no grave abuse of discretion in rendering the appealed decision.[28]  Aggrieved by
the denial of its motion for reconsideration of the foregoing decision in the 3 March 2006 order issued by
the OP,[29] petitioner filed before the CA its 29 March 2006 motion for an extension of 15 days from 31
March 2006 or until 15 April 2006 within which to file its petition for review.[30]  Accordingly, a non-
extendible period of 15 days to file its petition for review was granted petitioner in the 31 March 2006
resolution issued by the CA Third Division in CA-G.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel from
finalizing its petition for review, petitioner filed a motion on 17 April 2006, seeking for an additional time of
10 days or until 27 April 2006 within which to file said pleading.[32]  Although petitioner filed by registered
mail a motion to admit its attached petition for review on 19 April 2006,[33] the CA issued the herein
assailed 23 May 2006 resolution,[34] disposing of the former's pending motion for extension as well as the
petition itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition for being filed late.

Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs. Natividad, 458
SCRA 441 [2005]). If the failure of the petitioners' counsel to cope up with heavy workload should be
considered a valid justification to sidestep the reglementary period, there would be no end to litigations so
long as counsel had not been sufficiently diligent or experienced (LTS Philippine Corporation vs. Maliwat,
448 SCRA 254, 259-260 [2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188
[2000]).

Moreover, lawyers should not assume that their motion for extension or postponement will be granted the
length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

Petitioner's motion for reconsideration of the foregoing resolution[36] was denied for lack of merit in the CA's
second assailed 9 August 2006 resolution,[37] hence, this petition.

The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE

TECHNICALITY;

II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON THE
MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENT'S DECISION (A)
DISMISSING JTIC'S APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING THE HLURB
BOARD'S DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH
PRIMETOWN TO PAY SPOUSES ANG DAMAGES, ATTORNEY'S FEES AND THE COST OF
THE SUIT; AND (C) AFFIRMING THE HLURB BOARD'S DECISION INSOFAR AS IT
FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES ANG. [38]

The Court's Ruling

We find the petition bereft of merit.

85
While the dismissal of an appeal on purely technical grounds is concededly frowned upon,[39] it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial
technicalities that litigants can just discard and disregard at will.[40] Neither being a natural right nor a part
of due process, the rule is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law.[41]  The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only mandatory but
jurisdictional.[42]  Considering that they are requirements which cannot be trifled with as mere technicality
to suit the interest of a party,[43] failure to perfect an appeal in the prescribed manner has the effect of
rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA for
denying its second motion for extension of time for lack of merit and dismissing its petition for review for
having been filed out of time.  Acting on the 29 March 2006 motion filed for the purpose, after all, the CA
had already granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April 2006
within which to file its petition for review.  Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure provides as
follows:

Sec. 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioner's motion for new trial or reconsideration duly filed in
accordance with the governing law of the court or agency a quo.  Only one (1) motion for reconsideration
shall be allowed.  Upon proper motion and payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15)
days only within which to file the petition for review.  No further extension shall be granted except for the
most compelling reason and in no case to exceed fifteen (15) days." (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first motion, petitioner filed
a second motion for extension praying for an additional 10 days from 17 April 2006 within which to file its
petition for review, on the ground that pressures of work and the demands posed by equally important
cases prevented its counsel from finalizing the same.  As correctly ruled by the CA, however, heavy
workload cannot be considered as a valid justification to sidestep the reglementary period[45] since to do so
would only serve to encourage needless delays and interminable litigations.  Indeed, rules prescribing the
time for doing specific acts or for taking certain proceedings are considered absolutely indispensable to
prevent needless delays and to orderly and promptly discharge judicial business.[46] Corollary to the
principle that the allowance or denial of a motion for extension of time is addressed to the sound discretion
of the court,[47] moreover, lawyers cannot expect that their motions for extension or postponement will be
granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an effective and
expeditious administration of justice and cannot, for said reason, be discarded with the mere expediency of
claiming substantial merit.[49]  This holds particularly true in the case at bench where, prior to the filing of
its petition for review before the CA, petitioner's appeal before the OP was likewise dismissed in view of its
failure to file its appeal memorandum within the extensions of time it had been granted by said office. 
After being granted an initial extension of 15 days to do the same, the records disclose that petitioner was
granted by the OP a second extension of 10 days from 15 March 2005 or until 25 March 2005 within which
to file its appeal memorandum, on the condition that no further extensions shall be allowed.  Aside from
not heeding said proviso, petitioner had, consequently, no more time to extend when it filed its 31 March
2005 motion seeking yet another extension of 10 days or until 10 April 2005 within which to file its appeal
memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by the CA and the
injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions "except for
the most compelling reason", it was clearly inexcusable for petitioner to expediently plead its counsel's
86
heavy workload as ground for seeking an additional extension of 10 days within which to file its petition for
review.  To our mind, petitioner would do well to remember that, rather than the low gate to which parties
are unreasonably required to stoop, procedural rules are designed for the orderly conduct of proceedings
and expeditious settlement of cases in the courts of law.  Like all rules, they are required to be
followed[50] and utter disregard of the same cannot be expediently rationalized by harping on the policy of
liberal construction[51] which was never intended as an unfettered license to disregard the letter of the law
or, for that matter, a convenient excuse to substitute substantial compliance for regular adherence thereto.
When it comes to compliance with time rules, the Court cannot afford inexcusable delay.[52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and
Board correctly held petitioner liable alongside PPGI for respondents' claims and the P10,000.00
administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express
terms of the JVA, it appears that petitioner not only retained ownership of the property pending completion
of the condominium project[53] but had also bound itself to answer liabilities proceeding from contracts
entered into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as follows:

"Sec. 1. Rescission and damages. Non-performance by either party of its obligations under this Agreement
shall be excused when the same is due to Force Majeure.  In such cases, the defaulting party must exercise
due diligence to minimize the breach and to remedy the same at the soonest possible time.  In the event
that either party defaults or breaches any of the provisions of this Agreement other than by reason of Force
Majeure, the other party shall have the right to terminate this Agreement by giving notice to the defaulting
party, without prejudice to the filing of a civil case for damages arising from the breach of the defaulting
party.

In the event that the Developer shall be rendered unable to complete the Condominium Project, and such
failure is directly and solely attributable to the Developer, the Owner shall send written notice to the
Developer to cause the completion of the Condominium Project.  If the developer fails to comply within One
Hundred Eighty (180) days from such notice or, within such time, indicates its incapacity to complete the
Project, the Owner shall have the right to take over the construction and cause the completion thereof.  If
the Owner exercises its right to complete the Condominium Project under these circumstances, this
Agreement shall be automatically rescinded upon written notice to the Developer and the latter shall hold
the former free and harmless from any and all liabilities to third persons arising from such rescission.  In
any case, the Owner shall respect and strictly comply with any covenant entered into by the Developer and
third parties with respect to any of its units in the Condominium Project.  To enable the owner to comply
with this contingent liability, the Developer shall furnish the Owner with a copy of its contracts with the said
buyers on a month-to-month basis.  Finally, in case the Owner would be constrained to assume the
obligations of the Developer to its own buyers, the Developer shall lose its right to ask for indemnity for
whatever it may have spent in the Development of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area intended for the
Second Phase shall not be bound and/or subjected to the said covenants and/or any other liability incurred
by the Developer in connection with the development of the first phase." (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it
was not in any way privy to the Contracts to Sell executed by PPGI and respondents.  As correctly argued
by the latter, moreover, a joint venture is considered in this jurisdiction as a form of partnership and is,
accordingly, governed by the law of partnerships.[54] Under Article 1824 of the Civil Code of the Philippines,
all partners are solidarily liable with the partnership for everything chargeable to the partnership, including
loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any
partner acting in the ordinary course of the business of the partnership or with the authority of his co-
partners.[55]  Whether innocent or guilty, all the partners are solidarily liable with the partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

87
SO ORDERED.

Corona, C.J., (Chairperson), Velasco, Jr., Leonardo-De Castro, and Mendoza,*  JJ., concur.

Endnotes:

*
  Per raffle dated 1 March 2010, Associate Justice Jose Catral Mendoza is designated as additional member
in place of Associate Justice Mariano C. Del Castillo, who was a signatory in the questioned Resolution
dated 23 May 2006.

[1]
 Record, CA-G.R. SP No. 93841, pp. 818-819.

[2]
 Id. at 859-860.

[3]
 Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, pp. 246-255.

[4]
 Id. at 251-252.

[5]
 Id. at 249-250.

[6]
 Id. at 253.

[7]
 Id. at 2.

[8]
 Id. at 6-8.

[9]
 Id. at 3-5.

[10]
 Id. at 9-12.

[11]
 Id. at 23-29.

[12]
 Id. at 101-110.

[13]
 Id. at 133-147.

[14]
 Id. at 41-54; 56-77; 157-175; 178-210.

[15]
 Id. at 211-214.

[16]
 Id. at 263-274.

[17]
 Id. at 396-399.

[18]
 Id. at 396.

[19]
 Id. at 401-408; 413-414.

[20]
 Rollo, 263-264.

[21]
 Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, at 424-425.

[22]
 Id. at 423.
88
[23]
 Rollo, pp. 270-271.

[24]
 Id. at 274.

[25]
 Id. at 278-279.

[26]
 Id. at 378-381.

[27]
 Id. at 282-296.

[28]
 Id. at 405-409.

[29]
 Id. at 410-416; 420.

[30]
 Record, CA-G.R. SP No. 93841, pp. 2-3.

[31]
 Id. at 7.

[32]
 Id. at 8-10.

[33]
 Id. at 415-421; 422-452.

[34]
 Id. at 818-819.

[35]
 Id. at 819.

[36]
 Id. at 820-841.

[37]
 Id. at 859-860.

[38]
 Rollo, pp. 25-26.

[39]
 Ace Navigation Co., Inc. v. Court of Appeals, 392 Phil. 606, 613 (2000).

[40]
  Casim v. Flordeliza,  425 Phil. 210, 220 (2002).
[41]
 Producer's Bank of the Philippines v. Court of Appeals,  430 Phil. 812, 828 (2002).

[42]
 Dayrit v. Philippine Bank of Communication, 435 Phil. 120, 128-129 (2002).

[43]
 Cuevas v. Bais Steel Corporation,  439 Phil. 793, 806 (2002).

[44]
 Heirs of Teofilo Gaudiano v. Benemerito, G.R. No. 174247, 21 February 2007, 516 SCRA 416, 424.

[45]
 LTS Philippines. Corp. v. Maliwat, 489 Phil. 230, 235 (2005).

[46]
 Laguna Metts Corporation v. Court of Appeals, G.R. No. 185220, July 27, 2009, 594 SCRA 139,143.

[47]
 Videogram Regulatory Board v. Court of Appeals, 332 Phil. 820, 830 (1996).

[48]
 R. Transport Corporation v. Philhino Sales Corporation, G.R. No. 148150, 12 July 2006, 494 SCRA 630,
639.

89
[49]
 Sy v. ALC Industries, Inc. G.R. No. 168339, 10 October 2008, 568 SCRA 367, 375.

[50]
 Republic v. Kenrick Development Corporation, G.R. No. 149576, 8 August 2006, 498 SCRA 220, 231.

[51]
 Digital Microwave Corporation v. Court of Appeals, 384 Phil. 842, 848 (2000).

[52]
 Moneytrend Lending Corporation v. Court of Appeals, G.R. No. 165580, 20 February 2006, 482 SCRA
705, 713.

[53]
 Art. I. Sec. 6. Pending the completion of the Condominium Project, the ownership of the Property shall
remain with the Owner.  Upon the organization of the condominium corporation for the Condominium
Project, the Owner shall transfer the ownership over the Property to the said corporation, shall cause the
registration of the transfer with the appropriate Registry of Deeds and issuance of a new torrens title in the
name of the said corporation.

[54]
  Primelink Properties and Development Corporation v. Lazatin-Magat, G.R. No. 167379, 27 June 2006,
493 SCRA 444, 467; Aurbach v. Sanitary Wares Manufacturing Corporation, 259 Phil. 606, 624 (1989).  

[55]
 Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with authority of his co-partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.

90