1.) 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 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: 

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 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 gratiadole 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: 

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: 

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 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. 

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.
2.) G.R. No. L-17526             June 30, 1962
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.
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.
3.) 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 [Sison] brought an action in the Court of First Instance of Manila against
defendant [Mcquiad], alleging that during the year 1938 the latter [Mcquaid] borrowed from him [Sison] 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 [Mcquiad] 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 [Sison] 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 [Sison],
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 [Mcquiad], 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 [Mcquiad] 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 [Sison], 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 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.net
4.) G.R. No. 17024             March 24, 1922

DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.

C. Lozano and Cecilio I. Lim for appellant.

Montinola, Montinola & Hontiveros for appellee.

ROMUALDEZ, J.:

In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership for the
purpose of exploiting a fish pond situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute to the payment of the expenses of the business, which obligation she
made good, and both agreeing to divide the profits between themselves, which they had been doing until the death
of the said Perpetua in the year 1912.

The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein plaintiff, as
her heir to succeed to all her rights and interests in the fish pond in question.

Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of the fish
pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this
action to recover said part of the fish pond belonging to his decedent, Perpetua, and delivery having been refused,
Domingo Bearneza brought this action recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from the year 1913 to 1919, as damages (the amended complaint
was filed on April 12, 1920), amounting, according to plaintiff, to the sum of thirteen thousand one hundred pesos
(13,100).

In his answer, the defendant denies generally and specifically the allegations of the complaint, and alleges, as
special defense, that "the formation of the supposed partnership between the plaintiff and the defendant for the
exploitation of the aforesaid fish pond was not carried into effect, on account of the plaintiff having refused to defray
the expenses of reconstruction and exploitation of said fish pond." As another special defense, the defendant
alleges "that in the event that the court should hold the plaintiff to be entitled to the undivided one-half of the fish
pond, claimed in the complaint, the plaintiff's action has prescribed, the time for bringing the same having elapsed."

Proceedings having been held as usual, the court below rendered judgment, declaring the plaintiff owner of one-
half of the fish pond, which was composed of the portions known as "Alimango" and "Dalusan," but without
awarding him any of the damages claimed by him, the same not having been proven, in the opinion of the court, and
ordering the defendant to pay the costs.

From this judgment the defendant appeals, making various assignments of error. The plaintiff did not appeal from
that part of the judgment denying his claim for damages; hence the only question we are called upon to decide
is whether or not the plaintiff has any right to maintain an action for the recovery of one-half of the said fish
pond.

The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the proof
contained in the record is conclusive and there is no dispute, was of a civil nature. It was a particular partnership, as
defined in article 1678 of the Civil Code, it having had for its subject-matter a specified thing, to with, the exploitation
of the aforementioned fish pond. Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish pond," this reference cannot
be held to include the land on which the said fish pond was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3 of the defendant show that he has been paying, as
exclusive owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said land belongs to
the State. The conclusion, therefore, from the evidence is that the land on which the fish pond was constructed did
not constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership, and, therefore, the
provisions of the Code of Commerce not being applicable thereto (article 1670 of the Civil Code), it was dissolved
by the death of Perpetua Bearneza, and falls under the provisions of article 1700, subsection 3, of the same Code,
and not under the exception established in the last paragraph of said article 1700 of the Civil Code.

Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch as it does
not appear that any stipulation to that effect has ever been made by her and the defendant, pursuant to the
provisions of article 1704 of the Code last cited.

The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status was
that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the herein
plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and nothing more.
Before this liquidation is made, which up to the present has not been effected, it is impossible to determine
what rights or interests, if any, the deceased had, the partnership bond having been dissolved.

There is no sufficient ground for holding that a community of property existed between the plaintiff and the
defendant, it not being known whether the deceased still had any interest in the partnership property which could
have been transmitted by will to the plaintiff. There being no community of property, article 395 of the Civil Code
cited by the plaintiff in support of his contention can have no application to the case at bar.

Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true that the latter's
act in requiring the heirs of Perpetua to contribute to the payment of the expenses of exploitation of the aforesaid
fishing industry was an attempt to continue the partnership, but it is also true that neither the said heirs collectively,
nor the plaintiff individually, took any action in response to that requirement, nor made any promise to that effect,
and therefore no new contract of partnership existed.

We find that the plaintiff has not sufficiently shown his right of action.

The judgment appealed from is modified, the same being affirmed insofar as it denies the plaintiff's claim for
damages, and reversed insofar as it declares the said plaintiff owner of one-half of the fish pond, "Alimango"
and "Dalusan," here in dispute.
 5.) G.R. No. 144214. July 14, 2003]

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO

JOSE, Petitioners, v. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, Respondents.

DECISION

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latters
dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July
26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:

WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the
Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof
a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to
[respondents] the amount of P253,114.00. No pronouncement as to costs.4 cräläwvirtualibräry

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a
capital of P750,000 for the operation of a restaurant and catering business under the name
Aquarius Food House and Catering Services.5 Villareal was appointed general manager and Carmelito
Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5,

1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.6 cräläwvirtualibräry

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners.7 cräläwvirtualibräry

In the same month, without prior knowledge of respondents, petitioners closed down the
restaurant, allegedly because of increased rental. The restaurant furniture and equipment were
deposited in the respondents house for storage.8 cräläwvirtualibräry

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer
interested in continuing their partnership or in reopening the restaurant, and that they were
accepting the latters offer to return their capital contribution.9 cräläwvirtualibräry

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the
request for the return of their one-third share in the equity of the partnership. The repeated oral and
written requests were, however, left unheeded.10 cräläwvirtualibräry
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from
the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and equipment worth
over P400,000; and that the latter had no right to demand a return of their equity because
their share, together with the rest of the capital of the partnership, had been spent as a
result of irreversible business losses.12 cräläwvirtualibräry

In their Reply, respondents alleged that they did not know of any loan encumbrance on the
restaurant. According to them, if such allegation were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such, not chargeable to the partnership. The former
further averred that they had not received any regular report or accounting from the latter, who had
solely managed the business. Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as the latter found a better
location for the restaurant.13 cräläwvirtualibräry

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture
and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were
inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds
were paid to them.16 cräläwvirtualibräry

After trial, the RTC17 ruled that the parties had voluntarily entered into a partnership, which could be
dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them liable as follows:18 cräläwvirtualibräry

WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners]
ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorneys fee in the amount of P30,000.00

(c) Costs of suit.

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in
continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence
was presented to show financial losses, the CA computed their liability as follows:

Consequently, since what has been proven is only the outstanding obligation of the partnership in the
amount of P240,658.00, although contracted by the partnership before [respondents] have joined
the partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must
have to be deducted from the remaining capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of
[respondents], this amount of P759,342.00 must be divided into three (3) shares or in the amount
of P253,114.00 for each share and which is the only amount which [petitioner] will return to
[respondents] representing the contribution to the partnership minus the outstanding debt
thereof.19cräläwvirtualibräry

Hence, this Petition.20

 Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in accordance with law and jurisprudence;

9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and

9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to
costs.22
cräläwvirtualibräry

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the
latters share in the partnership; (2) whether the CAs computation of P253,114 as respondents share
is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Courts Ruling

The Petition has merit.

First Issue:

Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the formers dissatisfaction with, and loss of
trust in, the latters management of the partnership affairs. These findings were amply supported by
the evidence on record. Respondents consequently demanded from petitioners the return of their
one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally hold its equity
or assets. The partnership has a juridical personality separate and distinct from that of each of the
partners.23 Since the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.24

Second Issue:

What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it
can only pay out what it has in its coffers, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the partnership must first be
compensated.25 After all the creditors have been paid, whatever is left of the partnership
assets becomes available for the payment of the partners shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents one-
third share in the partnership cannot be determined until all the partnership assets will
have been liquidated -- in other words, sold and converted to cash -- and all partnership
creditors, if any, paid. The CAs computation of the amount to be refunded to respondents as their
share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the
time of the dissolution of the partnership. We cannot sustain the underlying idea that the
capital contribution at the beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits
earned or decreased by losses sustained. It does not remain static and unaffected by the
changing fortunes of the business. In the present case, the financial statements presented
before the trial court showed that the business had made meager profits.26 However, notable
therefrom is the omission of any provision for the depreciation27 of the furniture and the equipment.
The amortization of the goodwill28 (initially valued at P500,000) is not reflected either. Properly
taking these non-cash items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the partnership. Both the trial and
the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the
latter failed to recognize the consequent corresponding decrease of the capital.

Second, the CAs finding that the partnership had an outstanding obligation in the amount
of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership for the following reason:

x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The
balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh. A) par. 6 shows an
outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. 8) shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who
obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact
that their investment would either grow or shrink. In the present case, the investment of
respondents substantially dwindled. The original amount of P250,000 which they had invested could
no longer be returned to them, because one third of the partnership properties at the time of
dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise
investments.29cräläwvirtualibräry

Petitioners further argue that respondents acted negligently by permitting the partnership assets in
their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should
have liquidated these sole tangible assets of the partnership and considered the proceeds as
payment of their net capital. Hence, petitioners argue that the turnover of the remaining partnership
assets to respondents was precisely the manner of liquidating the partnership and fully settling the
latters share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their
capital investment.

Third Issue:

Costs

Section 1, Rule 142, provides:

SECTION 1. Costs ordinarily follow results of suit.  Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless
otherwise provided by law.

Although, as a rule, costs are adjudged against the losing party, courts have discretion, for special
reasons, to decree otherwise. When a lower court is reversed, the higher court normally does not
award costs, because the losing party relied on the lower courts judgment which is presumed to have
been issued in good faith, even if found later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET
ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation
and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.
6.) G.R. No. L-45464             April 28, 1939

JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.

Josue Soncuya in his own behalf.

Conrado V. Sanchez and Jesus de Veyra for appellee.

VILLA-REAL, J.:

On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of Manila and amended
complaint against Carmen de Luna in her own name and as co-administratrix of the intestate estate, of Librada
Avelino, in which, upon the facts therein alleged, he prayed that defendant be sentenced to pay him the sum of
P700,432 as damages and costs.

To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer based on the following
grounds: (1) That the complaint does not contain facts sufficient to constitute a cause of action; and (2) that
the complaint is ambiguous, unintelligible and vague.

Trial on the demurrer having been held and the parties heard, the court found the same well-founded and
sustained it, ordering the plaintiff to amend his complaint within a period of ten days from receipt of notice of the
order.

Plaintiff having manifested that he would prefer not to amend his amended complaint, the attorney for the
defendant, Carmen de Luna, filed a motion praying that the amended complaint be dismissed with costs against
the plaintiff. Said motion was granted by The Court of First Instance of Manila which ordered the dismissal of the
aforesaid amended complaint, with costs against the plaintiff.

From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors committed by the lower
court in its order referred to.

The demurrer interposed by defendant to the amended complaint filed by plaintiff having been sustained on the
grounds that the facts alleged in said complaint are not sufficient to constitute a cause of action and that the
complaint is ambiguous, unintelligible and vague, the only questions which may be raised and considered in the
present appeal are those which refer to said grounds.

In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay plaintiff
damages in the sum of P700,432 as a result of the administration, said to be fraudulent, of the partnership,
"Centro Escolar de Señoritas", of which plaintiff, defendant and the deceased Librada Avelino were
members. For the purpose of adjudicating to plaintiff damages which he alleges to have suffered as a
partner by reason of the supposed ni ni fraudulent management of he partnership referred to, it is first
necessary that a liquidation of the business thereof be made to the end that the profits and losses may be
known and the causes of the latter and the responsibility of the defendant as well as the damages which
each partner may have suffered, may be determined. It is not alleged in the complaint that such a liquidation
has been effected nor is it prayed that it be made. Consequently, there is no reason or cause for plaintiff to
institute the action for damages which he claims from the managing partner Carmen de Luna (Po Yeng Cheo
vs. Lim Ka Yam, 44 Phil., 172).

Having reached the conclusion that the facts alleged in the complaint are not sufficient to constitute a cause of
action on the part of plaintiff as member of the partnership "Centro Escolar de Señoritas" to collect damages from
defendant as managing partner thereof, without a previous liquidation, we do not deem it necessary to discuss the
remaining question of whether or not the complaint is ambiguous, unintelligible and vague.

In view of the foregoing considerations, we are of the opinion and so hold that for a partner to be able to claim
from another partner who manages the general copartnership, damages allegedly suffered by him by
reason of the fraudulent administration of the latter, a previous liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, with costs against the
appellant. So ordered.
7.) G.R. No. L-5837             May 31, 1954

CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,

vs.
JAIME HERNANDEZ, defendant-appellee.

Ojeda and Vilgera for appellants.

Cea and Zurbano for appellee.

REYES, J.:

This is an action for the recovery of the sum of P115,312.50, with interests, as plaintiffs' alleged share in the
profits of a partnership.

It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate or secret partnership for
the purpose of acquiring the plants, franchises and other properties of the Manila Electric Co. — hereinafter
called the Meralco — in the provinces of Camarines Sur, Albay, and Sorsogon, with the idea of continuing that
company's business in that region. No formal articles were drawn for it was the purpose of the members to
incorporate once the deal had been consummated. But in the meantime they elected Pedro Serranzana and David
Serrano general manager and secretary-treasurer, respectively, of the partnership.

Negotiation for the purchase was commenced, but as it made no headway, defendant was taken in as a member
of the partnership so that he could push the deal through, and to that end he was given the necessary power of
attorney. Using partnership funds, defendant was able to buy the Meralco properties for P122,000, paying
P40,000 upon the signing of the deed of sale and agreeing to pay the balance in two equal installments, that is,
P41,000 on or before July 31, 1947, and another P41,000 on or before January 31, 1948, with interest at 6 per cent
per annum and with a penalty clause which reads:

(6) That in case the VENDEE fails to make the payment or payments of the balance due or any part thereof
as herein provided, this contract shall, at the option of the VENDOR, be annuled and, in such an event, all
payments made by the VENDEE to the VENDOR by virtue of this contract shall be forfeited and retained by
the VENDOR in full satisfaction as the liquidated damages sustained by said VENDOR; and the said
VENDOR shall have the right to forthwith reenter and take possession of the premises, properties and rights
which are the subject-matter of this contract.

Although defendant was the one named vendee in the deed of sale, there is no question that the transaction was in
penalty made for the partnership so that the latter assumed control of the business the day following the sale.

About the latter half of the following month the members of the partnership proceeded with the formation of the
proposed corporation, apportioning among themselves its shares of stock in proportion to their respective
contributions to the capital of the partnership and their individual efforts in bringing about the acquisition of the
Meralco properties. But before the incorporation papers could be perfected, several partners, not satisfied
with the way matters were being run and fearful that the venture might prove a failure because the business
was not going well and there was a possibility of their being assessed more than their original investments
when the time came to meet the two installments of the unpaid purchase price due the Meralco, expressed
their desire to withdraw from the partnership and get back the money they had invested therein. In
accordance with this wish, one of them, Judge Jaime Reyes, in a meeting held on April 10, 1947, to consider
various matters connected with the business, presented a resolution to the effect that those partners who
did not want to remain in the association should be allowed to withdraw and get back their contributions.
The resolution was approved, with the herein plaintiffs voting affirmatively, and on that same day plaintiffs and
Judge Reyes withdrew from the partnership, and, as admitted by both parties, the partnership was then
dissolved. In accordance with the terms of the resolution, the withdrawing partners were, on the following day,
reimbursed their respective contributions to the partnership fund.

Following the dissolution of the partnership, the members who preferred to remain in the business went ahead with
the formation of the corporation, taking in new associates as stockholders. And defendant, on his part, in
fulfillment of his trust, made a formal assignment of the Meralco properties to the treasurer of the corporation, giving
them a book value of P365,000, in return for which the corporation issued, to the various subscribers to its capital
stock, shares of stock of the total face value of P225,000 and assumed the obligation of paying what was still due
the Meralco on the purchase price. The new corporation was named "Bicol Electric Company."

Though business was losing during the first year, that is, in 1947, the corporation, thanks to a loan obtained from the
RFC later prospered and made money. Then trouble began for one of its big stockholders, the defendant herein.

Two years from their withdrawal from the partnership, when the corporate business was already in a
prosperous condition, plaintiffs brought the present suit against Jaime Hernandez, claiming a share in the
profit the latter is supposed to have made from the assignment of the Meralco properties to the corporation,
estimated by plaintiffs to be P225,000 and their share of it to be P115,312.50.

Defendant's answer denies that he has made any profit out of the assignment in question and alleges that in any
event plaintiffs, after their withdrawal from the partnership, ceased to have any further interest in the subsequent
transactions of the remaining members.

After trial the lower court found that the partnership had not realized any profit out of the assignment of the Meralco
properties to the corporation and that, even supposing that profit had really been made, defendant would not be the
one to answer to plaintiffs for their share thereof, because he did not receive the consideration for the assignment,
which according to the court, consisted of the subscriptions of various persons to the capital stock of the
corporation. The court therefore dismissed the complaint with costs against the plaintiffs. From this decision plaintiffs
appealed. The case comes within our jurisdiction because of the amount involved.

We find no merit in the appeal.

In the first place, the profit alleged to have been realized from the assignment of the Meralco properties to the
new corporation, the Bicol Electric Company, is more apparent than real. It is true that the value set for those
properties in the deed of assignment was P365,000 when the acquisition price was only P122,000. But one should
not jump to the conclusion that a profit, consisting of the difference between the two sums was really made out of
the transaction, for the assignment was not made for cash but in payment for subscriptions to shares of stock in the
assignee, and while those shares had a total face value of P225,000, this is not necessarily their real worth.
Needless to say, the real value of the shares of stock of a corporation depends upon the value of its assets over and
above its liabilities. It does not appear that the Bicol Electric Company had any assets other than those acquired
from the Meralco, and according to the evidence the company, aside from owing the Meralco, P82,000 was, in the
language of the court below, actually "in the red."

In the second place, assuming that the assignment actually brought profit to the partnership, it is hard to see
how defendant could be made to answer for plaintiffs' alleged share thereof. As stated in the decision below,
defendant did not receive the consideration for the assignment for, as already stated, the assignment was made in
payment for subscriptions of various persons to the capital stock of the new corporation. Plaintiffs, in order to give
color of legality to their claim against defendant, maintain that the latter should be held liable for damages
caused to them, consisting of the loss of their share of the profits, due to defendant's failure properly to
perform his duty as a liquidator of the dissolved partnership, this on the theory that as managing partner of
the partnership, it was defendant's duty to liquidate its affairs upon its dissolutions. But it does not appear
that plaintiffs have ever asked for a liquidation, and as will presently be explained no liquidation was called for
because when plaintiffs withdrew from the partnership the understanding was that after they had been
reimbursed their investment, they were no longer to have any further interest in the partnership or its
assets and liabilities. Moreover, the stipulation of facts made at the hearing does not bear out the claim that
defendant was the managing partner of the partnership, for if there appears that the partnership had its general
manager in the person of Pedro Serranzana, who upon the formation of the new corporation also became its vice-
president and general manager.

As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be due him
after a liquidation. But certainly no liquidation is necessary where there is already a settlement or an
agreement as to what the retiring partner shall receive. In the instant case, it appears that a settlement was
agreed upon on the very day the partnership was dissolved. For when plaintiffs and Judge Jaime Reyes
withdrew from the partnership on that day they did so as agreed to by all the partners, subject to the only
condition that they were to be repaid their contributions or investments within three days from said date.
And this condition was fulfilled when on the following day they were reimbursed the respective amounts
due them pursuant to the agreement.

There is evidence that the partnership was at that time operating its business at a loss and that the partnership did
not have necessary funds to meet its obligation to Meralco for the balance of the purchase price. And in that
connection it should be recalled that nonpayment of that obligation would result in the partnership losing its entire
investment because of the penalty clause in the deed of sale. Because of these circumstances there is every reason
to believe that plaintiffs together with Judge Jaime Reyes, withdrew from the partnership for fear that they might lose
their entire investment should they choose to remain in the partnership which then faced the danger of losing its
entire assets. As testified to by Judge Reyes, one of the withdrawing partners, it was clearly understood that
upon their withdrawal and return to them of their investment they would have nothing more to do with the
association. It must, therefore, have been the intention or understanding of the parties that the withdrawing
partners were relinquishing all their rights and interest in the partnership upon the return to them of their
investment. That Judge Reyes did not join the plaintiffs in this action is a clear indication that such was really the
understanding. Judge Reyes has testified that when he was invited to join in the present claim he refused because
he did not want to be a "sin verguenza." And, indeed, if the agreement was that the withdrawing partners were still
to have participation in the subsequent transactions of the partnership so that they would have a share not only in
the profits but also in the losses, it is not likely that their investment would have been returned to them.

It is, therefore, our conclusion that the acceptance by the withdrawing partners, including the plaintiffs, of their
investment in the instant case was understood and intended by all the parties as a final settlement of whatever
rights or claim the withdrawing partners might have in the dissolved partnership. Such being the case they are now
precluded from claiming any share in the alleged profits, should there be any, at the time of the dissolution.

In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis so that the judgment of
dismissal rendered by the court below should be, as it is hereby, affirmed, with costs against the appellants.
8.) G.R. No. L-28920             October 24, 1928

MAXIMO GUIDOTE, plaintiff-appellant,
vs.
ROMANA BORJA, as administratrix of the estate of Narciso Santos, deceased, defendant-appellee.

Francisco, Lualhati and Lopez for appellant.

M. G. Goyena for appellee.

OSTRAND, J.:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of Narciso Santos,
deceased, to recover the sum of P9,534.14, a part of which was alleged to be the net profits due the plaintiff in
a partnership business conducted under the name of "Taller Sinukuan," in which the deceased was the
capitalist partner and the plaintiff the industrial partner, the rest of the sum consisting of advances alleged to
have been made to said partnership by the plaintiff. The defendant in her answer admitted the existence of the
partnership and in a cross-complaint and counter-claim prayed that the plaintiff be ordered to render an
accounting of the partnership business and to pay to the estate of the deceased the sum of P25,000 as net profits,
credits, and property pertaining to said deceased.

In the first trial of the case the plaintiff called several witnesses and introduced a so-called accounting and a mass of
documentary evidence consisting of books, bills, and alleged vouchers, which documentary evidence was so
hopelessly and inextricably confused that the court, as stated in its decision, could not consider it of much probative
value. It was, however, fund as facts that the aforesaid partnership had been formed, on or about June 15, 1918;
that Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving partner; and that plaintiff failed to
liquidate the affairs of the partnership and to render an account thereof to the administratrix of Santos' estate. The
court, therefore, dismissed the plaintiff's complaint and absolved the defendant therefrom, and ordered the
plaintiff to render a full and complete accounting, verified by vouchers, of the partnership business from June
15, 1918, until September 1, 1922. To this decision and order the plaintiff duly excepted.

The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public accountant. Numerous
objections to said account were presented by the defendant, and the court, upon hearing, disapproved the account
and ordered that the defendant submit to the court an accounting of the partnership business from the date of the
commencement of the partnership, June 15, 1918, up to the time the business was closed.  1awph!l.net

On January 25, 1924, the defendant presented an account and liquidation prepared by a public accountant,
Santiago A. Lindaya, showing a balance of P29,088.95 in favor of the defendant. The account was set down for
hearing upon the question of its approval or disapproval by the court, at which hearing the defendant introduced the
public accountant Jose Turiano Santiago to testify as to the results of an audit made by him of the accounts of the
partnership. Santiago testified that he had been a public accountant for over 20 years, having appeared in court as
such on several occasions; that he had examined the exhibits offered in evidence of the case by both parties; that
he had prepared a separate accounting or liquidation similar in results to that prepared by Lindaya, but with a few
differences in the sums total; and that according to his examination, the financial status of the partnership was as
follows:

Narciso Santos is a creditor of the Taller

<br<
Sinukuan in the sum of P26,020.89 consisting
td=""></br<>
as follows:
For his capital .................................. P12,588.53
For his credit ................................... 10,348.30
For his share of the profits ............ 3,068.06

Total ................................................... 26,020.89

Maximo Guidote is a debtor to the Taller
 Sinukuan in the sum of P20,020.89,
consisting as follows:
For his debt (debito) ......................... P29,088.95
Less his share of the profits ........... 3,068.06

Total balance ...................................... 26.020.89

In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff presented Tomas Alfonso
and the bookkeeper, Pio Gaudier, as witnesses in his favor. In regard to the character of the testimony of these
witnesses, His Honor, the trial judge, says:

The testimony of these two witnesses is so unreliable that the court can place no reliance thereon. Mr.
Tomas Alfonso is the same public accountant who filed the liquidation Exhibit O on behalf of the plaintiff, in
relation to the partnership business, which liquidation was disapproved by this court in its decision of August
20, 1923. It is also to be noted that Mr. Alfonso would have this court believe the proposition that the plaintiff,
a mere industrial partner, notwithstanding his having received the sum of P21,649.61 on the various jobs
and contracts of the "Taller Sinukuan," had actually expended and paid out the sum of P63,360.27, of
P44,710.66 in excess of the gross receipts of the business. This proposition is not only improbable on its
face, but it materially contradicts the allegations of plaintiff's complaint to the effect that the advances made
by the plaintiff only the amount to P2,017.50.

Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct liquidation for the
same partnership business all of which were repeated by the court in its decisions of September 1, 1922 and
the court finds that the testimony given by him at the last hearing is confusing, contradictory and unreliable. 1awph!l.net

As to the other witnesses for the plaintiff His Honor further says:

The testimony of the other witnesses for the plaintiff deserves but scant consideration as evidence to
overcome the testimony of Mr. Santiago, as a whole particularly that of the witness Chua Chak, who, after
identifying and testifying as to a certain exhibit shown him by counsel for plaintiff, showed that he could
neither read nor write English, Spanish, or Tagalog, and that of the witness Mr. Claro Reyes, who, after
positively assuring the court that a certain exhibit tendered him for identification was an original document,
was forced to admit that it was but a mere copy.

The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified by Jose Turinao
Santiago were just and correct and ordered the plaintiff to pay the defendant the sum of P26,020.89, Philippine
currency, with legal interest thereon from April 2, 1921, the date of the defendant's answer, and to pay the costs.
From this judgment the plaintiff appealed to this court and presents the following assignments of error:

(1) That the court erred in dismissing the plaintiff's complaint and ordering him to present a
liquidation of the operations and accounts of the partnership formed with the deceased Narciso
Santos, from the beginning of the partnership until September 1, 1922.

(2) That the court erred in approving the liquidation made by the public accountant Santiago A. Lindaya, with
the modification introduced by the witness Jose Turiano Santiago.

(3) That the court erred in ordering the plaintiff and appellant to pay to the defendant and appellee the sum
of P26,020.89.

As to the first assignment of error there may be some merit in the appellant's contention that the dismissal of his
complaint was premature. The better practise would, perhaps, have been to let the complaint stand until the result of
the liquidation of the partnership affairs was known. But under the circumstances of this case no harm was done by
the dismissal of the complaint, and the error, if any there be, is not reversible.

Under the same assignment of error the plaintiff argues that as the deceased up to the time of his death
generally took care of the payments and collections of the partnership, his legal representatives were under
the obligation to render accounts of the operations of the partnership, notwithstanding the fact that the
plaintiff was in charge of the business subsequent to the death of Santos. This argument is without merit. In
the case of Wahl vs. Donaldson Sim & Co. (5 Phil., 11, 14), it was held that the death of one of the partners
dissolves the partnership, but that the liquidation of its affairs is by law intrusted, not to the executors of
the deceased partner, but to the surviving partners or the liquidators appointed by them (citing article 229 of
the Code of Commerce and secs. 664 and 665 of the Code of Civil Procedure). The same rule is laid down by the
Supreme Court of Spain in sentence of October 12, 1870.

The other assignments of error have reference only to questions of fact in regard to which the findings of the court
below seem to be as nearly correct as possible upon the evidence presented. There may be errors in the
interpretation of the accounts, and it is possible that the amount of P26,020.89 charged against the plaintiff is
excessive, but the evidence presented by him is so confusing and unreliable as to be practically of no weight and
cannot serve as a basis for a readjustment of the accounts prepared by the accountant Lindaya and the apparently
reliable witness, Jose Turiano Santiago.

We should, perhaps, have been more inclined to question the conclusions of Lindaya and Santiago if the plaintiff
had shown a disposition to render an honest account of the business and to effect a fair liquidation of the
partnership but instead of doing so, he has by means of very questionable, and apparently false, evidence sought to
mulct his deceased partner's estate to the extent of over P9,000. The rule for the conduct of a surviving partner is
thus stated in 20 R. C. L., 1003:

In equity surviving partners are treated as trustees of the representatives of the deceased partner, in
regard to the interest of the deceased partner in the firm. As a consequence of this trusteeship,
surviving partners are held in their dealings with the firm assets and the representatives of the deceased to
that nicety of dealing and that strictness of accountability required of and incident to the position of one
occupying a confidential relation. It is the duty of surviving partners to render an account of the
performance of their trust to the personal representatives of the deceased partner, and to pay over
to them the share of such deceased member in the surplus of firm property, whether it consists of
real or personal assets.

The appellant has completely failed to observe the rule quoted, and he is not in position to complain if his testimony
and that of his witnesses is discredited.

The appealed judgment is affirmed with the costs against the appellant. So ordered.
9.) [G.R. No. 18707. December 9, 1922. ]

PO YENG CHEO, Plaintiff-Appellee, v. LIM KA YAM, Defendant-Appellant.

F. R. Feria and Romualdez Bros. for Appellant.

Quintin Llorente and Carlos C. Viana for Appellee.

SYLLABUS

1. PARTNERSHIP; LIABILITY OF MANAGER ACCOUNT; LIQUIDATION. — Though the manager of a mercantile

partnership which has ceased to do business is a accountable to his associates for any assets of the concern in his
hands, judgment cannot be rendered against him for the proportionate share of the capital claimed by one of the
partners in an action brought by such partner alone, where the concern has not been liquidated and there is no proof
showing the existence of assets applicable to capital account.

2. ID.; ID.; ACTION BY SINGLE PARTNER. — Where the only assets in the hands of the manager of a defunct
partnership consists of shares in other companies, the true value of which is not proved, it is error, in an action for an
accounting brought against him by one of the partners, to give judgment in favor of the plaintiff for a sum of money
equivalent to his aliquot part of the of the par value of such shares. A single partner cannot recover from another,
without process of liquidation or division, a part of the undivided property of the partnership.

3. ID. : LIQUIDATION; SURVIVING MEMBER. — When the manager of a mercantile partnership dies the duty of
liquidating it devolves upon the surviving member, or members, of the firm and not upon the legal representative of
the deceased member.

4. ID.; CLAIM FOR DAMAGES AGAINST MANGER. — When the manager of a mercantile partnership who is charged
with the duty of liquidating the same dies, his associates should take the proper steps to settle its affairs; and any
claim against him. or his estate, for damages incident to the misappropriation of its funds by him or for damage
resulting from his wrongful acts as manager, in excess of his interest in the assets, should be prosecuted against his
estate in administration in the manner provided by law.

5. EXECUTORS AND ADMINISTRATORS; PARTNERSHIPS; ACCOUNTING; DISCONTINUANCE OF ACTION. — When the

manger of a defunct partnership who is named defendant in an action for an accounting of its affairs and against
whom judgment is sought for mismanagement or misappropriation of its funds dies, the action should be
discontinued, upon motion to that effect by his personal representative, and the claim for damages should be
presented to the committee on claims in the administration of his estate. It is error to prosecute such an action to
judgment over the objection of the administrator.

DECISION

STREET, J.:

By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged sole owner of a business
formerly conducted in the City of Manila under the style of Kwong Cheong Tay. sough to obtain an accounting
from Lim Ka Yam, as managing partner in said business and to recover from its properties and assets. The
defendant having during the pendency of the cause in the court below and the death suggested of record, his
administrator, one Lim Yock, was required to appear and make defense.

In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that the
plaintiff entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the business
already referred to, and he accordingly required Lim Yock Tock, as administrator, to present a liquidation of
said business within a stated time. This order bore no substantial fruit, for the reason that Lim Yock Tock
personally knew nothing about the aforesaid business (which had ceased operation more than ten years previously)
and was apparently unable to find any books or documents that could shed any real light on its transaction. However,
he did submit to the a paper written by Lim Ka Yam in life purporting to give, with vague and uncertain details a
history of the formation of the Knong Cheong Tay and some account of its disruption and cessation from business in
1910. To this narrative was appended a statement of assets and liabilities, purporting to show that after the business
was liquidated, it was actually debtor to Lim Ka Yam to the extent of several thousand pesos. Appreciating the
worthlessness of this so-called statement, and all parties apparently realizing that nothing more was likely to be
discovered by further insisting on an accounting, the court proceeded, on December 27, 1921, to tender final
judgment in favor of the plaintiff.

The decision made on this occasion takes as its basis the fact stated by the court in its earlier decision of July 1, 1921,
which may be briefly set forth as follows:chanrob1es virtual 1aw library

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po Yeng Cheo
inherited the interest left by Po Gui Yao in a business conducted in Manila had been in existence in manila
for many years prior to 1903, as mercantile partnership, with a capitalization of P160.000, engaged in the import and
export trade; and after the death of Po Gui Yao following seven persons were interested therein as partners in the
amounts set opposite their respective names, to wit: Po Yeng Cheo, P60.000; Chua Chi Yek. P50,000; Lim Ka Yam,
P10.000; Lee Kom Chuen, P10,000; Ley Kwong, P10.000; Chan Liong Chao, P10,000; Lee Yuen, P10,000. The
manager of Kwong Cheong Tay, for many years prior to its complete cessation from business in 1910, was
Lim Ka Yam, the original defendant herein.

Among the properties pertaining to Kwong Cheong Tay and constituting part of its assets were ten shares of a total
par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and certain shares to the
amount of P1,000 in the Manila Electric Railroad and Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing principally to the fact
that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he ten then resided. Lim Ka
Yam appears at no time to have submitted to the partners any formal liquidation of the business, though
repeated demands to that effect have been made upon him by the plaintiff.

In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to
recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand pesos
(P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff’s
proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric Railroad and Light
Company, estimated at P11,000, together with the costs . From this judgment the defendant appealed.

In beginning our comment on the case, it is to be observed that this court finds itself strictly circumscribed so far as
our power of review is concerned, to the facts found by the trial judge, for the plaintiff did not appeal from the
decision of the court below in so far as it was unfavorable to him, and the defendant, as appellant, has not caused a
great part of the oral testimony to be brought up. It results, as stated, that we must accept the facts as found by the
trial judge; and our review must be limited to the error, or errors, if any, which may be apparent upon the face of the
appealed decision, in relation with the pleadings of record.

Proceeding then to consider the appealed decision in relation with the facts therein stated and other facts appearing in
the orders and proceedings in the cause, it is quite apparent that the judgment cannot be sustained. In the first place,
it was erroneous in any event to give judgment in favor of the plaintiff to the extent of his share of the
capital of Kwong Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business; and he can only be made liable for the
capital when, upon liquidation of the business, there are found to be assets in his hands applicable to
capital account. That the sum of the hundred and sixty thousand pesos (P160.000) was embarked in this
business many years ago reveals nothing as to the condition of the capital account at the time the concern
ceased to do business; and even supposing — as the court possibly did — that the capital was intact in 1908, this
would to be a going concern; for in that precise interval of time the capital may have been diminished or dissipated
from causes in on wise chargeable to the negligence or misfeasance of the manager.

Again, so far as appears from the appealed decision, the only property pertaining to Kwong Cheong Tay at the time
this action was brought consisted of shares in the two concerns already mentioned of the total par value of P11,000,
Of course, if these shares had been sold and converted into money, the proceeds, if not needed to pay debts, would
have been distributable among the various persons in interest, that is, among the various shareholders, in their
respective proportions. But under the circumstances revealed in this case, it was erroneous to give judgment in favor
of the plaintiff for his aliquot part of the par value of said shares. It is elementary that one partner, suing alone,
cannot recover of the managing partner the value of such partner’s individual interest; and a liquidation
of the business is an essential prerequisite. It is true that in Lichauco v. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager the plaintiff’s aliquot part of the proceeds of the business, then long
since closed; but in that case the affairs of the defunct concern had been actually liquidated by the manager to the
extent that he had apparently converted all its properties into money had pocketed the same — which was admitted;
— and nothing remained to be done except to compel him to pay over the money to the persons in interest. In the
present case, the shares referred to — constituting the only assets of Kwong Cheong Tay — have not been converted
into ready money and doubtless still remain in the name of Kwong Cheong Tay as owner. Under these
circumstances it is impossible to sustain a judgment in favor of the plaintiff for this aliquot part of the par
value of said shares, which would be equivalent to allowing one of several coowners to recover from
another, without process of division, a part of an undivided property.
Another condition will be noted as present in this case which in our opinion is fatal to the maintenance of the appealed
judgment. This is that, after the death of the original defendant, Lim Ka Yam, the trial court allowed the action to
proceed against Lim Yock Tock, as his administrator, and entered judgment for a sum of money against said
administrator as the accounting party, — notwithstanding the insistence of the attorneys for the latter that the action
should be discontinued in the form in which it was being prosecuted. The error of the trial court in so doing can be
readily demonstrated from more than one point of view.

In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affairs devolves upon the surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. (Wahl vs Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata v. Green, 6
Phil., 744.) And the same rule must be equally applicable to a civil partnership clothed with the form of a
commercial association (art. 1670, Civil; Lichauco v. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it
therefore became the duty of his surviving associates to take the proper steps to settle the affairs of the
firm, and any claim against him, or his estate, for a sum of money due to the partnership by reason of any
misappropriation of its funds by him, or for damages resulting from his wrongful acts manager, should be
prosecuted against his estate in administration in the manner pointed out in sections 686 to 701, inclusive, of the
Code of Civil Procedure. Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like
the shares in the Siong Chyip Konski and the Manila Electric Railroad and Light Company, are in the possession of the
deceased partner, the proper step for the surviving associates to take would be to make application to the court
having charge of the administration to require the administrator to surrender such property.

But, in the second place, as already indicated, the proceedings in this cause, considered in the character of an action
for an accounting, were futile; and the court, abandoning entirely the effort to obtain an accounting, gave judgment
against the administrator upon the supposed liability of his intestate to capital and assets. But of course the action
was not maintainable in this aspect after the death of the defendant; and the motion to discontinue the action as
against the administrator should have been grated.

The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be understood that
this order is without prejudice to any proceeding which may be undertaken by the proper person of persons in interest
to settle the affairs of Kwong Cheong Tay and in connection therewith to recover from the administrator of Lim Ka
Yam the shares in the two concerns mentioned above. No special pronouncement will be made as to costs of either
instance. So ordered.
10.) G.R. No. L-20341             May 14, 1966

DR. SIMEON S. CLARIDADES, plaintiff and appellant,

vs.
VICENTE C. MERCADER and PERFECTO FERNANDEZ, defendants and appellees,
GUILLERMO REYES, intervenor and appellant,
ARMANDO H. ASUNCION, intervenor and appellee,
ALFREDO J. ZULUETA and YAP LEDING, intervenors and appellees.

Francisco S. Dizon for plaintiffs and appellants.

Gonzales, Sr. and Munsayac for defendants and appellees.
Jose F. Tiburcio for intervenors and appellees Zulueta and Leding.
Toribio T. Bella for intervenor and appellee Asuncion.

CONCEPCION, J.:

Appeal from an order of dismissal of the Court of First Instance of Bulacan based upon the ground that venue had
been improperly laid.

Petitioner, Dr. Simeon S. Claridades brought this action against Vicente C. Mercader and Perfecto Fernandez for
the dissolution of a partnership allegedly existing between them and an accounting of the operation of the
partnership, particularly a fishpond located in Sta. Cruz, Marinduque, which was the main asset of the partnership,
from September 1954, as well as to recover moral and exemplary damages, in addition to attorney's fees and costs.

In their answer the defendants admitted the existence of the partnership and alleged that its operation had been so
far unproductive. By way of special defense, they alleged, also, that there is an impending auction sale of said
fishpond due to delinquency in the payment of taxes owing to lack of funds and plaintiff's failure to contribute what is
due from him. Defendants, likewise, set up a counter-claim for damages, by reason of the institution of this action,
and for attorney's fees and costs.

Subsequently, Guillermo Reyes was allowed to intervene for the purpose of recovering a sum of money allegedly
due him for services rendered as foreman of said fishpond, plus damages. Later, one Armando Asuncion
succeeded in intervening as the alleged assignee of the interest of defendant Mercader in said partnership and
fishpond. Thereafter, on plaintiff's motion, the lower court appointed a receiver of the fishpond. Upon the other hand,
Alfredo Zulueta and his wife Yap Leding sought permission to intervene, still later, alleging that they are the owners
of said fishpond, having bought one-half (½)of it from Benito Regencia, who, in turn, had acquired it from Asuncion,
who had purchased the fishpond from defendant Mercader, and the other half having been assigned to him directly
by Asuncion.

Despite plaintiff's opposition thereto, said permission was granted in an order dated February 8, 1962, which,
likewise gave the Zuluetas ten (10) days within which to file such pleading as they may deem necessary for the
protection of their rights. Soon thereafter, or on February 12, 1962, the Zuluetas filed a motion to dismiss upon the
ground that the complaint states no cause of action; that venue has been improperly laid; and that plaintiff complaint
is moot and academic. Acting upon the motion, on March 2, 1962, the lower court granted the same upon the
ground of improper venue. A reconsideration of this order having been denied, plaintiff and intervenor Reyes have
interposed the present appeal.

The only question for determination before us is whether or not this action should have been instituted, not
in the Court of First Instance of Bulacan, but in that of Marinduque, where the aforementioned fishpond is
located. The lower court answered this question in the affirmative, upon the ground that the subject matter of this
case is the possessor of said fishpond, because plaintiff prays in the complaint that the assets of the partnership,
including said fishpond be sold, that the proceeds of the sale be applied to the payment of the debts of the
partnership, and that the residue be distributed equally among the partners; that, as intervenor, Asuncion claims to
have an interest in said fishpond; that the same has been placed under a receivership; and that the Zuluetas claim
to be the exclusive owners of the fishpond aforementioned.
The conclusion drawn from these premises is erroneous. Plaintiff's complaint merely seeks the liquidation of
his partnership with defendants Fernandez and Mercader. This is obviously a personal action, which may
be brought in the place of residence of either the plaintiff or the defendants. Since plaintiff is a resident of
Bulacan, he had the right to bring the action in the court of first instance of that province.1 What is more,
although defendants Fernandez and Mercader reside in Marinduque, they did not object to the venue. In other
words, they waived whatever rights they had, if any, to question it.2

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question,
did not change the nature or character of action, such sale being merely a necessary incident of the
liquidation of the partnership, which should precede and/or is part of its process of dissolution. Neither
plaintiff's complaint nor the answer filed by defendants Fernandez and Mercader questioned the title to said
property or the possession thereof.

Again, the situation was not changed materially by the Intervention either of Asuncion or of the Zuluetas, for, as
alleged successors to the interest Mercader in the fishpond, they, at best, stepped into his shoes. Again, the nature
of an action is determined by the allegations of the complaint.3 At any rate, since the venue was properly laid when
the complaint was filed, said venue cannot, subsequently, become improper in consequence of issues later raised
by any of the intervenors. The court having legally acquired authority to hear and decide the case, it can not be
divested of that authority by said intervenors. "An intervention cannot alter the nature of the action and the issues
joined by the original parties thereto."4

Wherefore, the order appealed from should be as it is hereby set aside and the case remanded to the lower court
for further proceedings, with costs against intervenors appellees, Armando H. Asuncion and Mr. and Mrs. Alfredo J.
Zulueta. It is so ordered.
11.) G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED,
WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited"
("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora
Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on
land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum
Agreement dated 26 June 1984 with the Cruz spouses.   The partnership had its main office in Makati, Metropolitan
1

Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager
with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his
stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan
and took charge of the preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal
sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel
Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy
Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the
partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to
use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong,
Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988.  The actual operations of the business enterprise
2

continued as before. All the employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong,
petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy
Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was responsible for the obligations of the old
partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
Mountain business enterprise. His unpaid salaries remained unpaid. 3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries
accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges,
contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally
dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages
and attorney's fees.5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter
and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business,
that the new partnership had not retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to absorb the employees of the old
partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply
declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin
Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, but
these though impleaded had, apparently, not been served with summons in the proceedings before the Labor
Arbiter.
6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the
Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical
personality separate and distinct from that of each of its members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract
between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's
membership. 7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which
had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new
partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come
into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as
against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the
changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner
in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code
provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

x x x           x x x          x x x

(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;

x x x           x x x          x x x

(2) in contravention of the agreement between the partners, where

the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any time;

x x x           x x x          x x x

(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total
partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the
remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was
enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of
the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that
the business of the old partnership was simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or
most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not,
however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill,
et al,  the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to
8

a third party creditor of the old partnership.  The liability of the new partnership, upon the other hand, in the set of
9

circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the
person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and
assigns (or the representative of the deceased partner assigns) his rights in partnership property to
two or more of the partners, or to one or more of the partners and one or more third persons, if the
business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns)
their rights in partnership property to the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as
set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative
of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or
more third persons who promise to pay the debts and who continue the business of the dissolved
partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the
business under the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with
others without liquidation of the partnership affairs;
 The liability of a third person becoming a partner in the partnership continuing the business, under
this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership
property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in
this article the creditors of the retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on account of any consideration promised
for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on the ground
of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor
of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to
priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare
of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not
detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under
Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new
general or assistant general manager to run the affairs of the business enterprise take over. An assistant general
manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top
manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not
therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise
authorized cause for termination in the case at bar was redundancy.   The new partnership had its own new
10

General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of
Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or
redundant.   It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for
11

each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that
Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the
services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the
new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for
unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying
moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that
an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per
annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the
award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to
protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total
amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by
private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29
November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to
December 1987) in the total amount of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three
(3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.
12.) G.R. No. L-11840             July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C. GOQUIOLAY, plaintiffs-
appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.

REYES, J. B. L., J.:

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more than
P200,00) dismissing the plaintiffs-appellants' complaint.

From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29, 1940, Tan
Sin An and Antonio C. Goquiolay", entered into a general commercial partnership under the partnership name
"Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement
lodge upon Tan Sin An the sole management of the partnership affairs, stipulating that —

III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic),
and Antonio C. Goquiolay as co-partner.

IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner (sic) or by his
authorized agent, and it is expressly stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may deem proper, and vest in
such persons, firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing and partner (sic)
might do or cause to be done.

V. The co-partner shall have no voice or participation in the management of the affairs of the co-partnership;
but he may examine its accounts once every six (6) months at any time during ordinary business hours, and
in accordance with the provisions of the Code of Commerce. (Article of Co-Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that —

In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any time upon mutual agreement in writing
of the partners (Art. XIII, articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:

That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of said co-
partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An should act as the Manager for
said co-partnership for the full period of the term for which said co-partnership was organized or until the
whole period that the said capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal and deliver for the co-
partnership, and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments or
documents in writing whatsoever kind or nature which shall be necessary to the proper conduction of the
said businesses, including the power to mortgage and pledge real and personal properties, to secure the
obligation of the co-partnership, to buy real or personal properties for cash or upon such terms as he may
deem advisable, to sell personal or real properties, such as lands and buildings of the co-partnership in any
 manner he may deem advisable for the best interest of said co-partnership, to borrow money on behalf of
the co-partnership and to issue promissory notes for the repayment thereof, to deposit the funds of the co-
partnership in any local bank or elsewhere and to draw checks against funds so deposited ... .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels of
land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua
de Construccion y Prestamos" for a period of ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt
thereon for P35,000.00 with interest. The downpayment and the amortization were advanced by Yutivo and Co., for
the account of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was
appointed administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on the partnership
and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo
Sans Hardware Co., paid the remaining balance of the mortgage debt, and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the intestate
proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations of the partnership
"Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at
first, Kong Chai Pin later admitted the claims in her amended answer and they were accordingly approved by the
Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the
aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the administratrix
executed on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants Washington Sycip and Betty
Lee in consideration of P37,000.00 and of vendees' assuming payments of the claims filed by Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in
favor of the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July 25, 1949, a
petition in the intestate proceedings seeking to set aside the order of the probate court approving the sale in so far
as his interest over the parcels of land sold was concerned. In its order of December 29, 1949, the probate court
annulled the sale executed by the administratrix with respect to the 60% interest of Antonio Goquiolay over the
properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later certified the case to us (93 Phil.,
413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the orders of the probate court
complained of and remanding the case for new trial, due to the non-inclusion of indispensable parties. Thereafter,
new pleadings were filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of the sale
in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned. The
answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After
hearing, the complaint was dismissed by the lower court in its decision dated October 30, 1956; hence, this
appeal taken directly to us by the plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-appellants
assign as errors that —
 I — The lower court erred in holding that Kong Chai Pin became the managing partner of the partnership
upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership executed between Tan
Sin An and Antonio Goquiolay, and the general power of attorney granted by Antonio Goquiolay.

II — The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in view of
the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.

IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties by
virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order to pay
the partnership indebtedness.

V — The lower court erred in finding that the partnership did not pay its obligation to the Banco Hipotecario.

VI — The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.

VII — The lower court erred in finding that Kong Chai Pin managed the business of the partnership after the
death of her husband, and that Antonio Goquiolay knew it.

VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose the management of
the partnership by Kong Chai Pin estops him now from attacking the validity of the sale of the partnership
properties.

IX — The lower court erred in holding that the buyers of the partnership properties acted in good faith.

X — The lower court erred in holding that the sale was not fraudulent against the partnership and Antonio
Goquiolay.

XI — The lower court erred in holding that the sale was not only necessary but beneficial to the partnership.

XII — The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay the costs
of suit.

There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin, succeeded her
husband, Tan Sin An, in the sole management of the partnership, upon the latter's death. While, as we previously
stated in our narration of facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business, such power, premised as it is
upon trust and confidence, was a mere personal right that terminated upon Tan's demise. The provision in the
articles stating that "in the event of death of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred to the managerial right given to Tan Sin
An; more appropriately, it related to the succession in the proprietary interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the management of the partnership, being a limitation upon
his right as a general partner, must be held coextensive only with Tan's right to manage the affairs, the contrary not
being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly sanctioned
under Article 222 of the Code of Commerce.2

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2 Vivante, Tratado
de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation by the Louisiana State Law
Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was limited merely to
the value of the share or estate left by the deceased Tan Sin An, they became no more than limited partners
and, as such, were disqualified from the management of the business under Article 148 of the Code of
Commerce. Although ordinarily, this effect follows from the continuance of the heirs in the partnership, 3 it
was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions, manifested her intent
to be bound by the partnership agreement not only as a limited but as a general partner. Thus, she
managed and retained possession of the partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In fact, by executing the
deed of sale of the parcels of land in dispute in the name of the partnership, she was acting no less than as
a managing partner. Having thus preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she might have derived only from the estate of her deceased husband.
By allowing her to retain control of the firm's property from 1942 to 1949, plaintiff estopped himself to deny
her legal representation of the partnership, with the power to bind it by the proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect the
sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in the
negative. Strangers dealing with a partnership have the right to assume, in the absence of restrictive
clauses in the co-partnership agreement, that every general partner has power to bind the partnership,
specially those partners acting with ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had between the partners. Its knowledge
is enough that it is contracting with the partnership which is represented by one of the managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently in its behalf and within the scope of his authority." [Le
Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —

If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves, that does not necessarily affect the
validity of the acts of a partner, while acting within the scope of the ordinary course of business of the partnership,
as regards third persons without notice. The latter may rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
of his co-partners. The regular course of business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the latter's authority to do so, or that he should
first ascertain whether or not the other partners had given their consent thereto. In fact, Article 130 of the same
Code of Commerce provides that even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they may have caused to the common
fund."

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:

367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el
silencio del contrato, debia quiza el legislador privar de la administracion a uno de los socios en beneficio
del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido
 Administrador? El remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran
en todo acto de la Sociedad? Pero este concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas horas. Hubieran sido disposiciones menos
oportunas que lo adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza que deberia
animar la colaboracion de los socios, y en la ley inflexible de responsabilidad que implica comunidad en los
intereses de los mismos.

En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin dar
de ello noticia a los otros, porque cada uno de ellos ejerce la administracion en la totalidad de sus
relaciones, salvo su responsabilidad en el caso de una administracion culpable. Si debiera dar noticia, el
beneficio de su simultania actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se
echaria a perder. Se objetara el que de esta forma, el derecho de oposicion de cada uno de los socios
puede quedar frustrado. Pero se puede contestar que este derecho de oposicion concedido por la ley como
un remedio excepcional, debe subordinarse al derecho de ejercer el oficio de Administrador, que el Codigo
concede sin limite: "se presume que los socios se han concedido reciprocamente la facultad de
administrar uno para otro." Se haria precipitar esta hipotesis en la otra de una administracion colectiva (art.
1,721, Codigo Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de todos los socios — lo
que el Codigo excluye ........, si se obligase al socio Administrador a dar noticia previa del negocio a los
otros, a fin de que pudieran oponerse si no consintieran.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:

Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es bastante que los actos y
contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino que es preciso el concurso
de estos dos elementos, uno, que el socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su
firma social. Asi se que toda obligacion contraida bajo la razon social, se presume contraida por la
Compañia. Esta presunion es impuesta por motivos de necesidad practica. El tercero no puede cada vez
que trata con la Compañia, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris
tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razon social una obligacion que no
interesa a la Sociedad, este podra rechazar la accion del tercero probando que el acreedor conocia que la
obligacion no tenia ninguna relacion con ella. Si tales actos y contratos no comportasen la concurrencia de
ambos elementos, seria nulos y podria decretarse la responsabilidad civil o penal contra sus autores.

En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compañia, o contabilizados
en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata de acto o contrato que ha
producido beneficio social, tendria plena validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos tienen por
un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and, therefore, to be governed by the
Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one partner to bind
the partnership. States Art. 1695 thereof:

Should no agreement have been made with respect to the form of management, the following rules shall be
observed:

1. All the partners shall be considered agents, and whatever any one of the may do individually shall bind
the partnership; but each one may oppose any act of the others before it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership realty to
Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only interposed his objections
after the deed of conveyance was executed and approved by the probate court, and, consequently, his opposition
came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the partnership as found by the trial court.
This question, however, need not be resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the full claims of the
two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in effect, threw
the partnership into dissolution, which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of accounting and contribution between the co-
debtors, that should be ventilated separately.

Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by the appellees,
with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the partnership. The "devise", according
to the appellants, started way back sometime in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on
the possibility of selling his share in the partnership; and upon his refusal to sell, was followed by the filing of the
claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff partnership (whose liability was alleged to be joint and several),
Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient knowledge) negatives any
conspiracy on her part in the alleged fraudulent scheme, even if she subsequently decided to admit their validity
after studying the claims and finding it best to admit the same. It may not be amiss to remark that the probate court
approved the questioned claims.

There is complete failure of proof, moreover, that the price for which the properties were sold was unreasonably low,
or in any way unfair, since appellants presented no evidence of the market value of the lots as of the time of their
sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May of 1955 is no proof of the market value in
1949, specially because in the interval, the new owners appear to have converted the land into a subdivision, which
they could not do without opening roads and otherwise improving the property at their own expense. Upon the other
hand, Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears that the partnership
had neither cash nor other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the questioned transactions, leading to
the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against appellant
Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.

RESOLUTION

December 10, 1963

REYES, J. B. L., J.:

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have
upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the
widow of the managing partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's estate
and as partner, in lieu of the husband), in favor of buyers Washington Sycip and Betty Lee for the following
consideration:

Cash paid P37,000.00

Debts assumed by
purchase:
        To Yutivo 62,415.91
        To Sing Yee Cuan &   54,310.13
 Co.
        TOTAL P153,726.0
4

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin,
widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law
to manage the affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she took
over administration of the partnership property; and that, in any event, the sale should be set aside because it was
executed with the intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond
controversy:

(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the
firm, to a stranger. There is no question between partners inter se, and this aspects of the case was expressly
reserved in the main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying and
selling real estate". The Article of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the co-partnership are as follows:

1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates into
lots for the purpose of leasing and selling them.;

(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely
acquired to be sold, although subject a mortgage in favor of the original owners, from whom the partnership had
acquired them.

With these points firmly in mind, let us turn to the points insisted upon by appellant.

It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and retained possession of the
partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that —

. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she
had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do
it and besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to
help her and because I believe in God and I wanted to help her.

Q. — So the answer to my question is you did not take any steps?

A. — I did not.

Q. — And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?

A. — In the year 1945. (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein he sated:

that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are
receiving quite a lot of benefit from that plantation.

Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than
those of Hernando Young and Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the properties
"abandoned and undeveloped", omits to mention that said part of the testimony started with the question:

Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there in
Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped, and the
family of the widow (Kong Chai Pin) did not receive any income from the partnership properties, was given in
answer to the question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say to that?
(Dep. 19 July 1956, p. 8)

And also —

What can you say so to the development of these other properties of the partnership which you saw during
the occupation?" (Dep., p. 13, Emphasis supplied)

to which witness gave the following answer:

I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven (11)
hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or
his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)

Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng
Lai that the widow "could just do it" (i e., continue to manage the properties. Witnesses Lim and Young referred to
the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the
occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management
during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949.

We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his
willingness that the widow should manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here involved. But the authority was given, and she
did have it when she made the questioned sale, because it has never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the
property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What
this argument overlooks is that the widow was not a mere agent, because she had become a partner upon her
husband's death, as expressly provided by the articles of co-partnership. Even more, granting that by succession to
her husband, Tan Sin An, the widow only a became the limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and recognized her has general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the
widow, if she were only a limited partner, to administer the properties of the firm, even as a mere agent:

Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity agents of the managing partners.(Emphasis supplied)

By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to be considered
a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily") becomes a
limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value
of the estate inherited so as not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a collective or general partner,
with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance bud also
with the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the assent of the
surviving partner.

It must be remembered that the articles of co-partnership here involved expressly stipulated that:

In that event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would be merely limited partner; on the contrary they
expressly stipulated that in case of death of either partner "the co-partnership ... will have to be continued" with the
heirs or assigns. It certainly could not be continued if it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of associations is fundamental; and specially
because the conversion into a limited association would leave the heirs of the deceased partner without a share in
the management. Hence, the contractual stipulation does actually contemplate that the heirs would become general
partners rather than limited ones.

Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal
and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so compellable, it does not legitimately
follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general
laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner
into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the
start.

It is immaterial that the heirs name was not included in the firm name, since no conversion of status is involved, and
the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership.

It must never be overlooked that this case involves the rights acquired by strangers, and does not deal with the
rights arising between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter se
were expressly reversed in our main decision. Now, in determining what kind of partner the widow of partner Tan
Sin An had elected to become, strangers had to be guided by her conduct and actuations and those of appellant
Goquiolay. Knowing that by law a limited partner is barred from managing the partnership business or property, third
parties (like the purchasers) who found the widow possessing and managing the firm property with the
acquiescense (or at least without apparent opposition) of the surviving partners were perfectly justified in assuming
that she had become a general partner, and, therefore, in negotiating with her as such a partner, having authority to
act for, and in behalf of, the firm. This belief, be it noted, was shared even by the probate court that approved the
sale by the widow of the real property standing in the partnership name. That belief was fostered by the very
inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale
in 1949, there was more than ample time for Goquiolay to take up the management of these properties, or at least
ascertain how its affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable
notice in the commercial registry could have warned strangers that they must deal with him alone, as sole general
partner. But he did nothing of the sort, because he was not interested (supra), and he did not even take steps to
pay, or settle, the firm debts that were overdue since before the outbreak of the last war. He did not even take steps,
after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would
have no intervention in the management of the partnership. This laches certainly contributed to confirm the view that
the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property has the requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).

The stipulation in the articles of partnership that any of the two managing partners may contract and sign in
the name of the partnership with the consent of the other, undoubtedly creates an obligation between the
two partners, which consists in asking the other's consent before contracting for the partnership. This
 obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the partner
with whom he enters into the transaction is violating the articles of partnership, but on the contrary, is acting
in accordance therewith. And this finds support in the legal presumption that the ordinary course of business
has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No.
31, section 334). This last presumption is equally applicable to contracts which have the force of law
between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This argument
is lamentably superficial because it fails to differentiate between real estate acquired and held as stock-in-trade and
real state held merely as business site (Vivante's "taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the sale of its real property (immovables) is
not within the ordinary powers of a partner, because it is not in line with the normal business of the firm. But where
the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the
immovables thus acquired by the firm form part of its stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the partner. This distinction is supported by the opinion of
Gay de Montella1, in the very passage quoted in the appellant's motion for reconsideration:

La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los fines sociales. Pero
esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de
comecio o a los productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied)

The same rule obtains in American law.

In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either partner has the legal right to sell the firm real
estate

In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:

And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.

And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:

If the several partners engaged in the business of buying and selling real estate can not bind the firm by
purchases or sales of such property made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their association is not really a
partnership at all, but a several agency.

Since the sale by the widow was in conformity with the express objective of the partnership, "to engage * * * in
buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et
al., 49 N. E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the
Court expressly found that:

The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to
pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On
 that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then belonging to the firm, including the
counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business,
and signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen
McGrath, surviving partner of said firm, and Owen McGrath, individually, have here-unto set their hands, this
20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared, ready for filing, the petition
for the dissolution of the partnership and appointment of a receiver, which he subsequently filed, as
hereinafter stated. On the day the mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was any intention to make then. At that
time none of the claims secured by the mortgages were due, except, it may be, a small part of one of them,
and none of the creditors to whom the mortgages were made had requested security, or were pressing for
the payment of their debts. ... The mortgages appear to be without a sufficient condition of defeasance, and
contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they
did as soon as the mortgages were filed, through the attorney who then represented them, as well as the
plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed
upon the filing of the petition. The avowed purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control of the firm, and insure the preference of the
mortgages, all of which was known to them at the time: ... . (Cas cit., p. 343, Emphasis supplied)

It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that conveyances were
made with intent to terminate the partnership, and that they were not within the powers of McGrath as partner. But
there is no similarly between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale
included even the fixtures used in the business, in our case, the lands sold were those acquired to be sold. In the
McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the
partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the
partnership. Clearly, the McGrath ruling is not applicable.

We will now turn to the question to fraud. No direct evidence of it exists; but appellant points out, as indicia thereof,
the allegedly low price paid for the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.

First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its
approval is now final. The claims were, in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-
claimants. To show that the price was inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced
sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show
such "gross inadequacy" as to justify rescission of the sale. If at the time of the sale (1949 the price of P153,726.04
was really low, how is it that appellant was not able to raise the amount, even if the creditor's representative, Yu Khe
Thai, had already warned him four years before (1946) that the creditors wanted their money back, as they were
justly entitled to?

It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts. But the lands
were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and then to the Banco
Hipotecario. Was it reasonable to expect that other persons would loan money to the partnership when it was
unable even to pay the taxes on the property, and the interest on the principal since 1940? If it had been possible to
find lenders willing to take a chance on such a bad financial record, would not Goquiolay have taken advantage of
it? But the fact is clear on the record that since liberation until 1949 Goquiolay never lifted a finger to discharge the
debts of the partnership. Is he entitled now to cry fraud after the debts were discharged with no help from him?

With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that
relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip
and Betty Lee, were without independent means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have
a record of inveterate defaults like the partnership "Tan Sin An & Goquiolay".

Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm and their
component members. But no proof is adduced. If he was such a victim, he could have easily defeated the
conspirators by raising money and paying off the firm's debts between 1945 and 1949; but he did; he did not even
care to look for a purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose (as he
claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange
that the conspirators should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An, and that
the sale should have been routed through the probate court taking cognizance of Tan Sin An's estate, all of which
increased the risk that the supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as subrogees of the
Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and several) debtors (Exhibit "N"
mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the effect that:

Where the obligation of the decedent is joint and several with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. (Emphasis supplied)

Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and those of
Tan Sin An personally, and a mortgage in indivisible, in the sense that each and every parcel under mortgage
answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).

A final and conclusive consideration. The fraud charged not being one used to obtain a party's consent to a contract
(i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud of creditors that gives
rise to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889;
Article 1383, New Civil Code), "the action for rescission is subsidiary; it can not be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintenable, even if the fraud charged actually did exist.

Premises considered, the motion for reconsideration is denied.

Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

Separate Opinions

BAUTISTA ANGELO, J., dissenting:

This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed by Antonio C.
Goquiolay, et al., seeking to annul the sale made by Kong Chai Pin of three parcels of land to Washington Z. Sycip
and Betty Y. Lee on the ground that it was executed without proper authority and under fraudulent circumstances. In
a decision rendered on July 26, 1960, we affirmed this decision although on grounds different from those on which
the latter is predicated. The case is once more before us on a motion for reconsideration filed by appellants raising
both questions of fact and of law.

On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial partnership for a
period of ten years with a capital of P30,000.00 of which Goquiolay contributed P18,000.00 representing 60% while
Tan Sin An P12,000.00 representing 40%. The business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership was duly registered, and among the conditions agreed
upon in the partnership agreement which are material to this case are: (1) that Tan Sin An would be the exclusive
managing partner, and (2) in the event of the death of any of the partners the partnership would continue, the
deceased to be represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in
favor of Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers of
management.

On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521 of the
cadastral survey of Davao, the only assets of the partnership, with the capital originally invested, financing the
balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de Construccion Prestamos"
in the amount of P25,000.00 payable in ten years. On the same date, Tan Sin An, in his individual capacity,
acquired 46 parcels of land executing a mortgage thereon in favor of the same company for the sum of P35,000.00.
On September 25, 1940, these two mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result Tan Sin An, in his individual capacity, and the partnership bound themselves
to pay jointly and severally the total amount of P52,282.80, with 8% annual interest thereon within the period of eight
years mortgaging in favor of said entity the 3 parcels of land belonging to the partnership to Tan Sin An.

Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four children, all
of whom are minors of tender age. On March 18, 1944, Kong Chai Pin was appointed administratrix of the intestate
estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the partnership amounting to P46,116.75 in Japanese
currency.

Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo Sons
Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a conference in the office of
the former during which he offered to buy the interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the
widow, sent her counsel, Atty. Dominador Zuño, to ask Goquiolay to execute in her favor a power of attorney.
Goquiolay refused both to sell his interest in the partnership as well as to execute the power of attorney.

Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co., and Sing, Yee and
Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin An for the sum of
P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of both Tan Sin An and the
partnership. After first denying any knowledge of the claims, Kong Chai Pin, as administratrix, admitted later without
qualification the two claims in an amended answer she filed on February 28, 1947. The admission was predicated
on the ground that she and the creditors were closely related by blood, affinity and business ties. On due course,
these two claims were approved by the court.

On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition in the
probate court to sell all the properties of the partnership as well as some of the conjugal properties left by Tan Sin
An for the purpose of paying the claims. Following approval by the court of the petition for authority to sell, Kong
Chai Pin, in her capacity as administratrix, and presuming to act as managing partner of the partnership, executed
on April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the partnership in favor of Betty Y.
Lee and Washington Z. Sycip in consideration of the payment to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in
whose favor the buyers executed a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Sycip
subsequently executed a deed of sale of the same properties in favor of their co-defendant Insular Development
Company, Inc. It should be noted that these transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf of the ultimate buyer, the
Insular Development Company, Inc., with money given by the latter.

Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate proceedings
a petition to set aside the order of the court approving the sale. The court granted the petition. While the order was
pending appeal in the Supreme Court, Goquiolay filed the present case on January 15, 1953 seeking to nullify the
sale as stated in the early part of this decision. In the meantime, the Supreme Court remanded the original case to
the probate court for rehearing due to lack of necessary parties.

The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership properties on the
ground that she had no authority to sell because even granting that she became a partner upon the death of Tan
Sin An the power of attorney granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all the rights
and prerogatives of Tan Sin An as managing partner.

The trial court sustained the validity of the sale on the ground that under the provisions of the articles of partnership
allowing the heirs of the deceased partner to represent him in the partnership after hid death Kong Chai Pin became
a managing partner, this being the capacity held by Tan Sin An when he died.

In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different grounds,
among which the salient points are: (1) the power of attorney given by Goquiolay to Tan Sin An as manager
of the partnership expired after his death; (2) his widow Kong Chai Pin did not inherit the management of
the partnership, it being a personal right; (3) as a general rule, the heirs of a deceased general partner come
into the partnership in the capacity only of limited partners; (4) Kong Chai Pin, however, became a general
partner because she exercised certain alleged acts of management; and (5) the sale being necessary to pay
the obligations of the partnership, she was therefore authorized to sell the partnership properties without
the consent of Goquiolay under the principle of estoppel, the buyers having the right to rely on her acts of
management and to believe her to be in fact the managing partner.

Considering that some of the above findings of fact and conclusions of law are without legal or factual basis,
appellants have in due course filed a motion for reconsideration which because of the importance of the issues
therein raised has been the subject of mature deliberation.

In support of said motion, appellants advanced the following arguments:

1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners only,
therefore Kong Chai Pin, who must necessarily have entered the partnership as a limited partner originally,
could have not chosen to be a general partner by exercising the alleged acts of management, because
under Article 148 of the Code of Commerce a limited partner cannot intervene in the management of the
partnership even if given a power of attorney by the general partners. An Act prohibited by law cannot give
rise to any right and is void under the express provisions of the Civil Code.

2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family, the
rest, members of the law firm which handles the Yutivo interests and handled the papers of sale. They did
not rely on the alleged acts of management — they believed (this was the opinion of their lawyers) that Kong
Chai Pin succeeded her husband as a managing partner and it was on this theory alone that they submitted
the case in the lower court.

3. The alleged acts of management were denied and repudiated by the very witnesses presented by the
defendants themselves.

The arguments advanced by appellants are in our opinion well-taken and furnish sufficient basis to reconsider our
decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion, it is enough that we lay
stress on the following points: (1) there is no sufficient factual basis to conclude that Kong Chai Pin executed acts of
management to give her the character of general manager of the partnership, or to serve as basis for estoppel that
may benefit the purchasers of the partnership properties; (2) the alleged acts of management, even if proven, could
not give Kong Chai Pin the character of general manager for the same is contrary to law and well-known authorities;
(3) even if Kong Chai Pin acted as general manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close relatives to the prejudice of
Goquiolay.

1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our ruling we
apparently gave particular importance to the fact that it was Goquiolay himself who tried to prove the acts of
management. Appellants, however, have emphasized the fact, and with reason, that the appellees themselves are
the ones who denied and refuted the so-called acts of management imputed to Kong Chai Pin. To have a clear view
of this factual situation, it becomes necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one Hernando
Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to the properties and
deriving some income therefrom and she had no other means of livelihood except those properties and some
rentals derived from the properties." He went on to say by way of remark that she could continue doing this because
he wanted to help her. On point that he emphasized was that he was "not interested in agricultural lands."

On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay, who was a
close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of Goquiolay. Young testified
that in 1945 he was still in Davao, and insisted no less than six times during his testimony that he was not in Manila
in 1945, the year when he allegedly gave the information to Goquiolay, stating that he arrived in Manila for the first
time in 1947. He testified further that he had visited the partnership properties during the period covered by the
alleged information given by him to Goquiolay and that he found them "abandoned and underdeveloped," and that
Kong Chai Pin was not deriving any income from them.

The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership properties and
corroborated the testimony of Hernando Young in all respects: "the properties in Mamay were underdeveloped, the
shacks were destroyed in Tigato, and the family of Kong Chai Pin did not receive any income from the partnership
properties." He specifically rebutted the testimony of Goquiolay in his deposition given on June 30, 1956 that Kong
Chai Pin and her family were living in the partnership properties and stated that the 'family never actually lived in the
properties of the partnership even before the war or after the war."

It is unquestionable that Goquiolay was merely repeating an information given to him by a third person, Hernando
Young — he stressed this point twice. A careful analysis of the substance of Goquiolay's testimony will show that he
merely had no objection to allowing Kong Chai Pin to continue attending to the properties in order to give her some
means of livelihood, because, according to the information given him by Hernando Young, which he assumed to be
true, Kong Chai Pin had no other means of livelihood. But certainly he made it very clear that he did not allow her
to manage the partnership when he explained his reason for refusing to sign a general power of attorney for Kong
Chai Pin which her counsel, Atty. Zuño, brought with him to his house in 1948. He said:

. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me if I could execute a
general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the use of executing a
general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that plantation
for agricultural purposes, I said for agricultural purposes she can use that plantation ... (T.s.n., p. 9, Hearing
on May 5, 1955)

It must be noted that in his testimony Goquiolay was categorically stating his opposition to the management of the
partnership by Kong Chai Pin and carefully made the distinction that his conformity was for her to attend to the
partnership properties in order to give her merely a means of livelihood. It should be stated that the period covered
by the testimony refers to the period of occupation when living condition was difficult and precarious. And Atty.
Zuño, it should also be stated, did not deny the statement of Goquiolay.

It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of management of the
partnership properties is highly controverted. The most that we can say is that the alleged acts are doubtful more so
when they are disputed by the defendants themselves who later became the purchasers of the properties, and yet
these alleged acts, if at all, only refer to management of the properties and not to management of the partnership,
which are two different things.

In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be upheld on the
ground of estoppel, first, because the alleged acts of management have not been clearly proven; second, because
the record clearly shows that the defendants, or the buyers, were not misled nor did they rely on the acts of
management, but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she
succeeded her husband in the partnership as managing partner by operation of law; and third, because the
defendants are themselves estopped to invoke a defense which they tried to dispute and repudiate.

2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts give her the
character of general manager of the partnership as we have concluded in our decision?
Out answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known commentator, is
clearly of the opinion that mere acceptance of the inheritance does not make the heir of a general partner a general
partner himself. He emphasized that the heir must declare that he is entering the partnership as a general partner
unless the deceased partner has made it an express condition in his will that the heir accepts the condition of
entering the partnership as a prerequisite of inheritance, in which case acceptance of the inheritance is enough.1 But
here Tan Sin An died intestate.

Now, could Kong Chai Pin be deemed to have declared her intention to become general partner by
exercising acts of management? We believe not, for, in consonance with out ruling that as a general rule
the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that the
heir, upon entering the partnership, must make a declaration of his character, otherwise he should be
deemed as having succeeded as limited partner by the mere acceptance of inheritance. And here Kong Chai
Pin did not make such declaration. Being then a limited partner upon the death of Tan Sin An by operation
of law, the peremptory prohibition contained in Article 1482 of the Code of Commerce became binding upon
her and as a result she could not change her status by violating its provisions not only under the general
principle that prohibited acts cannot produce any legal effect, but also because under the provisions of
Article 1473 of the same Code she was precluded from acquiring more rights than those pertaining to her as
a limited partner. The alleged acts of management, therefore, did not give Kong Chai Pin the character of general
manager to authorize her to bind the partnership.

Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the character of a
general partner, could she sell the partnership properties without authority from the other partners?

Our answer is also in the negative in the light of the provisions of the articles of partnership and the pertinent
provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of Commerce says:

If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern the
association.

And the pertinent portions of the Articles of partnership provides:

VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as regards compensation as he may deem proper, and vest in
such person, firm or corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing partner might do or cause
to be done. (Page 23, Record on Appeal)

It would thus be seen that the powers of the managing partner are not defined either under the provisions of the
Code of Commerce or in the articles of partnership, a situation which, under Article 2 of the same Code, renders
applicable herein the provisions of the Civil Code, And since, according to well-known authorities, the relationship
between a managing partner and the partnership is substantially the same as that of the agent and his principal,4 the
extent of the power of Kong Chai Pin must, therefore, be determined under the general principles governing agency.
And, on this point, the law says that an agency created in general terms includes only acts of administration, but
with regard to the power to compromise, sell, mortgage, and other acts of strict ownership, an express power of
attorney is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even without express power of attorney, may
perform acts affecting ownership if the same are necessary to promote or accomplish a declared object of the
partnership, but here the transaction is not for this purpose. It was effected not to promote any avowed object of the
partnership.6 Rather, the sale was effected to pay an obligation of the partnership by selling its real properties which
Kong Chai Pin could not do without express authority. The authorities supporting this view are overwhelming.

La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines sociales. Pero
esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de
 comercio, o los productos de la fabrica para explotacion de los cuales se ha constituido la Sociedad.
Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estaria facultado para otorgar las ventas que fuere necesario. Por el contrario, el gerente
no tiene atribuciones para vender las instalaciones del comercio ni la fabrica, ni las maquinarias, vehiculos
de transporte, etc., que forman parte de la explotacion social. En todos estas casos, igualmente que si
tratase de la venta de una marca o procedimiento mecanico o quimico, etc., siendo actos de disposicion
seria necesario contar con la conformidad expresa de todos los socios. (R. Gay de Montella, id., pp. 223-
224, Emphasis supplied)

Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los señalados
por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones que sirven
para aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos segun el interes convenido de
la Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo almacenas y tiendas, expedir
cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y adquirir inmuebles
destinados a su explotacion o al empleo estable de sus capitales. Pero no podran ejecutar los actos que
estan en contradiccion con la explotacion que les fue confiada no podran cambiar el objeto, el domicilio la
razon social; fundir a la Sociedad en otra; ceder la accion, y por tanto, el uso de la firma social a otro
renunciar definitivamente el ejercicio de uno de otro ramo comercio que se les haya confiado y enajenar o
piqnorar el taller o el banco social excepto que la venta o piqnoracion tengan por el objeto procurar los
medios necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de Derecho
Mercantil, pp. 124-125, Vol II, la. ed.; Emphasis supplied)

The act of one partner to bind the firm, must be necessary for the carrying on of its business. If all that can
be said of it was that it was convenient, or that it facilitated the transaction of the business of the firm, that is
not sufficient, in the absence of evidence of saction by other partners. Nor, it seems, will necessity itself be
sufficient if it be an extraordinary necessity. What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While, within this rule, one
member of a partnership may, in the usual and ordinary course of its business, make a valid sale or pledge,
by way of mortgage or otherwise, of all or part of its effects intended for sale, to a bona fide purchaser or
mortgage, without the consent of the other members of the firm, it is not within the scope of his implied
authority to make a final disposition of all of its effects, including those employed as the means of carrying
on its business, the object and effect of which is to immediately terminate the partnership, and place its
property beyond its control. Such a disposition, instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of the partnership in its formation. (McGrath, et al. vs.
Cowen, et al., 49 N.F. 338, 343; Emphasis supplied)

Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but to pay its
obligation without first obtaining the consent of the other partners, the sale is invalid being in excess of her authority.

4. Finally, the same under consideration was effected in a suspicious manner as may be gleaned from the following
circumstances:

(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of Davao have
an area of 200 hectares more or less, or 2,000,000 square meters. These properties were purchased by the
partnership for purposes of subdivision. According to realtor Mata, who testified in court, these properties could
command at the time he testified a value of not less than P312,000.00, and according to Dalton Chen, manager of
the firm which took over the administration, since the date of sale no improvement was ever made thereon precisely
because of this litigation. And yet, for said properties, aside from the sum of P37,000.00 which was paid for the
properties of the deceased and the partnership, only the paltry sum of P66,529.91 was paid as a consideration
therefor, of which the sum of P46,116.75 was even paid in Japanese currency.

(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose was only to
pay the partnership's obligation. She could have negotiated a loan if she wanted to pay it by placing the properties
as security, but preferred to sell them even at such low prices because of her close relationship with the purchasers
and creditors who conveniently organized a partnership to exploit them, as may be seen from the following
relationship of their pedigree:
 KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of the defendant Yutivo
Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors, are
owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of Jose). YU KHE THAI is a
grandson of the same Jose P. Yutivo, and president of the two alleged creditors. He is the acknowledged
head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is married to Ana Yu, a
daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe Thai. The
INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the specific purpose of buying the
partnership properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the
lawyers who studied the papers of sale and have been counsel for the Yutivo interests; Dalton Chen a
brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh,
an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin, have
already conceived the idea of possessing the lands for purposes of subdivision, excluding Goquiolay from their plan,
and this is evident from the following sequence of events:

Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the
partnership filed their claim against the partnership in the intestate proceedings. The creditors studied ways
and means of liquidating the obligation of the partnership, leading to the formation of the defendant Insular
Development Co., composed of members of the Yutivo family and the counsel of record of the defendants,
which subsequently bought the properties of the partnership and assumed the obligation of the latter in favor
of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family.
The buyers took time to study the commercial potentialities of the partnership properties and their lawyers
carefully studied the document and other papers involved in the transaction. All these steps led finally to the
sale of the three partnership properties.

Upon the strength of the foregoing considerations, I vote to grant motion for reconsideration.