BusOrg Partnership Case Compilation

[G.R. No. 30616 : December 10, 1990.
]
192 SCRA 110
EUFRACIO
D.
ROJAS, Plaintiff-Appellant,
MAGLANA,Defendant-Appellee.
vs. CONSTANCIO
B.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of CoPartnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT
ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second
partnership which is to hold and secure renewal of timber license instead of to secure the
license as in the first partnership and the term of the second partnership is fixed to thirty
(30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1,
1956, and was able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of
Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's
complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit
"A") called Eastcoast Development Enterprises (EDE) with only the two of them as
partners. The partnership EDE with an indefinite term of existence was duly registered on
January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests rights and concessions." (Rollo, p.
114).
A duly registered Articles of Co-Partnership was filed together with an application for a
timber concession covering the area located at Cateel and Baganga, Davao with the
Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and
became the basis of subsequent renewals made for and in behalf of the duly registered
partnership EDE.
Under the said Articles of Co-Partnership, appelleeMaglana shall manage the business
affairs of the partnership, including marketing and handling of cash and is authorized to
sign all papers and instruments relating to the partnership, while appellant Rojas shall be
the logging superintendent and shall manage the logging operations of the partnership. It
is also provided in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said
partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services
of Pahamotang as industrial partner.
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled
"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT
ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas
shall purchase the interest, share and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also agreed in the said instrument that after
payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the
owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang
was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of
the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas
without the benefit of any written agreement or reconstitution of their written Articles of
Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the
newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was
transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the partnership as
well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with
the promised contributions and he will not work as logging superintendent. Maglana then
told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing
from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).:nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the
partnership (R.A. 949).
1 | BusOrg Partnership Case Compilation by FCS
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against
Maglana for the recovery of properties, accounting, receivership and damages, docketed
as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development Enterprises
(Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114)
was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required
the inclusion of the entire year 1961 in the report to be submitted by the commissioners
(Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information furnished them by the
parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with
counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was
granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid.,
p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,
1964 approving the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues
were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the
dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and
share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the
partnership (Decision, R.A. pp. 895-896).-nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion
of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby
rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after
Pahamotang retired from the second partnership, that is, after August 31, 1957,
when Pahamotang was finally paid his share the partnership of the defendant
and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions, or on
the basis of share and share alike this covered by actual contributions of the
plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959,
the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the
profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's
share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in
his or in his wife's name were acquired with partnership funds or with funds of the
defendant and the Court declares that there is no evidence that these properties
were acquired by the partnership funds, and therefore the same should not belong
to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused
them and who should be liable for them the Court declares that neither parties
is entitled to damages, for as already stated above it is not a wise policy to place a
price on the right of a person to litigate and/or to come to Court for the assertion of
the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not the Court declares that
the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and
other merchandise to the laborers and employees of the Eastcoast Development
Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David is VALID AND BINDING UPON THE PARTIES AND SHOULD BE
CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS Estate,
Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually received,
and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19
his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he
should have received as logging superintendent, and which was not paid to him,
and this should be considered as part of Maglana's contribution likewise to the
partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.:rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that
when the second partnership was dissolved there was no written contract of copartnership; there was no reconstitution as provided for in the Maglana, Rojas and
Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas
and Maglana after the dissolution of the second partnership was a de facto partnership and
at will. It was considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of
Eastcoast Development
Enterprises (EDE) evidenced by the Articles of Co-Partnership
3
dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved
by the unregistered articles of co-partnership among appellant Rojas, appelleeMaglana and
Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the
relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A")
continues to govern the relations between them and it was legal error to consider a de
facto partnership between said two partners or a partnership at will. Hence, the letter of
appelleeMaglana dated February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the partnership agreement agreed
upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is
entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits
between them of "share and share alike" as stipulated in the registered Articles of CoPartnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana,
it appears evident that it was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they unmistakably called an
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for
the fact that they took in one industrial partner; gave him an equal share in the profits and
fixed the term of the second partnership to thirty (30) years, everything else was the
same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and Maglana as
stipulated in both partnerships call for the same amounts. Just as important is the fact that
all subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First Articles of
Partnership were only amended, in the form of Supplementary Articles of Co-Partnership
(Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise
stated, even during the existence of the second partnership, all business transactions were
carried out under the duly registered articles. As found by the trial court, it is an admitted
fact that even up to now, there are still subsisting obligations and contracts of the latter
(Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second
partnership except in favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even
more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the
latter of his obligation to contribute either in cash or in equipment, to the capital
investment of the partnership as well as his obligation to perform his duties as logging
superintendent. This reminder cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able
to comply with the promised contributions and he will not work as logging superintendent.
By such statements, it is obvious that Roxas understood what Maglana was referring to and
left no room for doubt that both considered themselves governed by the articles of the
duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will,
for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in
the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the
period, with or without justifiable cause. Of course, if the cause is not justified or no cause
was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share alike" between the
partners.
But an accounting must first be made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners
from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have contributed P160,984.00,
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who
has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Article 1786, Civil Code)
and for interests and damages from the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a
contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their
voluminous reports which was approved by the trial court, they showed that on 50-50%
basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for
P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of
Pahamotang which is unquestionably a continuation of the duly registered partnership and
the sharing of profits and losses which should be on the basis of share and share alike as
provided for in the duly registered Articles of Co-Partnership, no plausible reason could be
found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled
that after the withdrawal
of Pahamotang, Rojas entered into a management contract with
4
another logging enterprise, the CMS Estate, Inc., a company engaged in the same business
as the partnership. He withdrew his equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his duties as logging superintendent,
as stipulated in their partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than his contribution
(Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,
Branch III, is hereby MODIFIED in the sense that the duly registered partnership of
Eastcoast Development Enterprises continued to exist until liquidated and that the sharing
basis of the partners should be on share and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.:nad SO ORDERED.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted
at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities
and Exchange Commission on 4 August 1948. The SEC records show that there
were several subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on
6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April
1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees
Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and
more particularly, my interest in the two floors of this building. I
would like to have this resolved soon because it has to do with my
own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another

letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their self-respect.
The result of such policies is the formation of the union, including
the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa&Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in

the partnership assets plus the profits, rent or interest attributable
to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito,
Misa&Lozada in any of their correspondence, checks and pleadings
and to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with
the amount of P500,000.00 and exemplary damages in the amount
of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa&Lozada did
not dissolve the said law partnership. Accordingly, the petitioner
and respondents are hereby enjoined to abide by the provisions of
the Agreement relative to the matter governing the liquidation of
the shares of any retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito,
Misa&Lozada." The Commission ruled that, being a partnership at will, the law firm could
be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa&Lozada has
not been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved partnership
and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued
an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638
and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December
1991. The death of the two partners, as well as the admission of new partners, in the law
firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No.
24648). He expressed concern over the need to preserve and care for the partnership
assets. The other partners opposed the prayer.
"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership which
could be computed and paid in the manner stipulated in the partnership agreement; (d)
that the case should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets; and (e) that
the appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would all
be considered as partnerships for a definite undertaking. There would therefore be
no need to provide for articles on partnership at will as none would so exist.
Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion. 3
1. Whether6or not the Court of Appeals has erred in holding that the partnership of
Bito, Misa&Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa&Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership
need not be unduly belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:
"2. Purpose. The purpose for which the partnership is formed, is to

act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."
The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one
of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act
or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve
the partnership. An unjustified dissolution by the partner can subject him to a possible
action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination. 9
the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith,
in the context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners for
allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro
Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such
death or retirement shall be determined by two (2) independent appraisers, one to
7 (by the partnership and the other by the) retiring partner or the heirs
be appointed
of a deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them whose
decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the first
ten (10) days of every month in installments of not less than P20,000.00 for the
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to
SO ORDERED.
G.R. No. L-6339
April 20, 1954
MANUEL LARA, ET AL., plaintiffs-appellants,

vs.
PETRONILO DEL ROSARIO, JR., defendant-appellee.
MONTEMAYOR, J.:
In 1950 defendant Petronilodel Rosario, Jr., owner of twenty-five taxi cabs or cars, operated
a taxi business under the name of "Waval Taxi." He employed among others three
mechanics and 49 chauffeurs or drivers, the latter having worked for periods ranging from
2 to 37 months. On September 4, 1950, without giving said mechanics and chauffeurs 30
days advance notice, Del Rosario sold his 25 units or cabs to La Mallorca, a transportation
company, as a result of which, according to the mechanics and chauffeurs abovementioned they lost their jobs because the La Mallorca failed to continue them in their
employment. They brought this action against Del Rosario to recover compensation for
overtime work rendered beyond eight hours and on Sundays and legal holidays, and one
month salary (mesada) provided for in article 302 of the Code of Commerce because the
failure of their former employer to give them one month notice. Subsequently, the three
mechanics unconditionally withdrew their claims. So only the 49 drivers remained as
plaintiffs. The defendant filed a motion for dismissal of the complaint on the ground that it
stated no cause of action and the trial court for the time being denied the motion saying
that it will be considered when the case was heard on the merits. After trial the complaint
was dismissed. Plaintiffs appealed from the order of dismissal to the Court of Appeals
which Tribunal after finding only questions of law are involved, certified the case to us.
The parties are agreed that the plaintiffs as chauffeurs received no fixed compensation
based on the hours or the period of time that they worked. Rather, they were paid on the
commission basis, that is to say, each driver received 20 per cent of the gross returns or
earnings from the operation of his taxi cab. Plaintiffs claim that as a rule, each drive
operated a taxi 12 hours a day with gross earnings ranging from P20 to P25, receiving
therefrom the corresponding 20 per cent share ranging from P4 to P5, and that in some
cases, especially during Saturdays, Sundays, and holidays when a driver worked 24 hours
a day he grossed from P40 to P50, thereby receiving a share of from P8 to P10 for the
period of twenty-four hours.
The reason given by the trial court in dismissing the complaint is that the defendant being
engaged in the taxi or transportation business which is a public utility, came under the
exception provided by the Eight-Hour Labor Law (Commonwealth Act No. 444); and
because plaintiffs did not work on a salary basis, that is to say, they had no fixed or regular
salary or remuneration other than the 20 per cent of their gross earnings "their situation
was therefore practically similar to piece workers and hence, outside the ambit of article
302 of the Code of Commerce."
For purposes of reference we are reproducing the pertinent provisions of the Eight-Hour
Labor Law, namely, sections 1 to 4.
SECTION 1. The legal working day for any person employed by another shall not be
more than eight hours daily. When the work is not continuous, the time during
which the laborer is not working and can leave his working place and can rest
completely shall not be counted.
SEC. 2. This Act shall apply to all persons employed in any industry or occupation,
whether public or private, with the exception of farm laborers, laborers who prefer
to be paid on piece work basis, domestic servants and persons in the personal
service of another and members of the family of the employer working for him.
SEC. 3. Work may be performed beyond eight hours a day in case of actual or
impending emergencies, caused by serious accidents, fire flood, typhoon,
earthquakes, epidemic, or other disaster or calamity in order to prevent loss of life
and property or imminent danger to public safety; or in case of urgent work to be
performed on the machines, equipment, or installations in order to avoid a serious
loss which the employer would otherwise suffer, or some other just cause of a
similar nature; but in all cases the laborers and the employees shall be entitled to
receive compensation for the overtime work performed at the same rate as their
regular wages or salary, plus at least twenty-five per centum additional.
In case of national emergency the Government is empowered to establish rules
and regulations for the operation of the plants and factories and to determine the
wages to be paid the laborers.
SEC. 4. No person, firm, or corporation, business establishment or place or center

of work shall compel an employee or laborer to work during Sundays and legal
holidays, unless he is paid an additional sum of at least twenty-five per centum of
his regular remuneration: Provided however, That this prohibition shall not apply to
public utilities performing some public service such as supplying gas, electricity,
power, water, or providing means of transportation or communication.
Under section 4, as a public utility, the defendant could have his chauffeurs work on
Sundays and legal holidays without paying them an additional sum of at least 25 per cent
of their regular remuneration: but that with reference only to work performed on Sundays
and holidays. If the work done on such days exceeds 8 hours a day, then the Eight-Hour
Labor Law would operate, provided of course that plaintiffs came under section 2 of the
said law. So that the question to be decided here is whether or not plaintiffs are entitled to
extra compensation for work performed in excess of 8 hours a day, Sundays and holidays
included.
It will be noticed that the last part of section 3 of Commonwealth Act 444 provides for
extra compensation for over-time work "at the same rate as their regular wages or
salary, plus at least twenty-five per centum additional'" and that section 2 of the same act
excludes application thereof laborers who preferred to be on piece work basis. This
connotes that a laborer or employee with no fixed salary, wages or remuneration but
receiving as compensation from his employer uncertain and variable amount depending
upon the work done or the result of said work (piece work) irrespective of the amount of
time employed, is not covered by the Eight-Hour Labor Law and is not entitled to extra
compensation should he work in excess of 8 hours a day. And this seems to be the
condition of employment of the plaintiffs. A driver in the taxi business of the defendant,
like the plaintiffs, in one day could operate his taxi cab eight hours, or less than eight hours
or in excess of 8 hours, or even 24 hours on Saturdays, Sundays, and holidays, with no
limit or restriction other than his desire, inclination and state of health and physical
endurance. He could drive continuously or intermittently, systematically or haphazardly,
fast or slow, etc. depending upon his exclusive wish or inclination. One day when he feels
strong, active and enthusiastic he works long, continuously, with diligence and industry
and makes considerable gross returns and receives as much as his 20 per cent
commission. Another day when he feels despondent, run down, weak or lazy and wants to
rest between trips and works for less number of hours, his gross returns are less and so is
his commission. In other words, his compensation for the day depends upon the result of
his work, which in turn depends on the amount of industry, intelligence and experience
applied to it, rather than the period of time employed. In short, he has no fixed salary or
wages. In this we agree with the learned trial court presided by Judge FelicisimoOcampo
which makes the following findings and observations of this point.
. . . As already stated, their earnings were in the form of commission based on the
gross receipts of the day. Their participation in most cases depended upon their
own industry. So much so that the more hours they stayed on the road, the greater
the gross returns and the higher their commissions. They have no fixed hours of
labor. They can retire at pleasure, they not being paid a fixed salary on the hourly,
daily, weekly or monthly basis.
It results that the working hours of the plaintiffs as taxi drivers were entirely
characterized by its irregularity, as distinguished from the specific regular
remuneration predicated on specific and regular hours of work of factories and
commercial employees.
In the case of the plaintiffs, it is the result of their labor, not the labor itself, which
determines their commissions. They worked under no compulsion of turning a fixed
income for each given day. . . ..
In an opinion dated June 1, 1939 (Opinion No. 115) modified by Opinion No. 22, series
1940, dated June 11, 1940, the Secretary of Justice held that chauffeurs of the Manila
Yellow Taxicab Co. who "observed in a loose way certain working hours daily," and "the
time they report for work as well as the time they leave work was left to their discretion.,"
receiving no fixed 9
salary but only 20 per cent of their gross earnings, may be considered as
piece workers and therefore not covered by the provisions of the Eight-Hour Labor Law.
on August 30, 1950, when the new Civil Code went into effect, that is, one year after its
publication in the Official Gazette. The alleged termination of services of the plaintiffs by
the defendant took place according to the complaint on September 4, 1950, that is to say,
after the repeal of Article 302 which they invoke. Moreover, said Article 302 of the Code of
Commerce, assuming that it were still in force speaks of "salary corresponding to said
month." commonly known as "mesada." If the plaintiffs herein had no fixed salary either by
the day, week or month, then computation of the month's salary payable would be
impossible. Article 302 refers to employees receiving a fixed salary. Dr. Arturo M. Tolentino
in his book entitled "Commentaries and Jurisprudence on the Commercial Laws of the
Philippines," Vol. 1, 4th edition, p. 160, says that article 302 is not applicable to employees
without fixed salary. We quote
Employees not entitled to indemnity. This article refers only to those who are
engaged under salary basis, and not to those who only receive compensation
equivalent to whatever service they may render. (1 Malagarriga 314, citing
decision of Argentina Court of Appeals on Commercial Matters.)
In view of the foregoing, the order appealed from is hereby affirmed, with costs against
appellants.
The Wage Administration Service of the Department of Labor in its Interpretative Bulletin
No. 2 dated May 28, 1953, under "Overtime Compensation," in section 3 thereof entitled
Coverage, says:
The provisions of this bulletin on overtime compensation shall apply to all persons
employed in any industry or occupation, whether public or private, with
the exception of farm laborers, non-agricultural laborers or employees who are
paid on piece work, contract, pakiao, task or commission basis, domestic servants
and persons in the personal service of another and members of the family of the
employer working for him.
From all this, to us it is clear that the claim of the plaintiffs-appellants for overtime
compensation under the Eight-Hour Labor Law has no valid support.
As to the month pay (mesada) under article 302 of the Code of Commerce, article 2270 of
the new Civil Code (Republic Act 386) appears to have repealed said Article 302 when it
repealed the provisions of the Code of Commerce governing Agency. This repeal took place
G.R. Nos. L-11483-11484
February 14, 1958
In the matter of the Testate Estate of the deceased Edward E. Christensen,

ADOLFO
CRUZ
AZNAR,petitioner.
MARIA LUCY CHRISTENSEN DANEY and ADOLFO CRUZ AZNAR, petitionersappellants,
vs.
MARIA HELEN CHRISTENSEN GARCIA and BERNARDA CAMPOREDONDO, oppositorsappellees.
BERNARDA
vs.
ADOLFO CRUZ AZNAR, as Executor
CHRISTENSEN, defendant-appellant.
factthat she was baptized Christensen, is not in any way related to me, nor hasshe
been at any time adopted to me, and who, from all information I have now resides
in Egipt, Digos, Davao, Philippines, the sum of THREEE THOUSAND SIXHUNDRED
PESOS (P3,600) Philippine Currency, the same to be deposited in trustfor said
Maria Lucy Christensen with the Davao Branch of the PhilippineNational Bank, and
paid to her at the rate of One Hundred Pesos (P100), Philippine Currency per month
until the the principal thereof as well as any interest which may have accrued
thereon, is exhausted.
CAMPOREDONDO, plaintiff-appellee,
of
the
Deceased
EDWARD
E.
8. I give devise and bequeath unto BERNARDA CAMPORENDONDO, now residing

inPadada, Davao, Philippines, the sum of One Thousand Pesos (P1,000), Philippine
Currency.
FELIX, J.:
From the records of the above-entitled cases, it appears that as of 1913,Edward E.
Christensen, an American citizen, was already residing in Davao and on the following year
became the manager of Mindanao Estates located in the municipality of Padada of the
same province. At a certain time, which the lower court placed at 1917, a group of laborers
recruited from Argao, Cebu, arrived to work in the said plantation. Among the group was a
young girl,BernardaCamporendondo, who became an assistant to the cook. Thereafter,
thegirl and Edward E. Christensen, who was also unmarried staring living together as
husband and wife and although the records failed to establishthe exact date when such
relationship commenced, the lower court found the same to have been continous for over
30 years until the death of Christensen occurecd on April 30, 1953. Out of said relations, 2
children, Lucy and Helen Christensen, were allegedly born.
10
G. R. NO. L-11484.
Upon the demise of the American, who had left a considerable amount of properties his will
naming Adolfo Cruz Aznar as executor was duly presented for probate in court and became
the subject of Special Proceedings No. 622 of the Court of First Instance of Davao. Said will
contains, among others, the following provisions:
xxx
xxx
xxx.
3. I declare . . . that I have but one (1) child, named MARIA LUCY CHRISTENSEN
(now Mrs. Bernard Daney), who was born in the Philippines about twenty-eight
years ago, and who is now residing at No. 665 Rodger Young Village, Los Angeles,
California, U.S.A.
4. I further declare that I have no living ascendants, andnodescendantsexcept my
above named daughter, MARIA LUCY CHRISTENSEN DANEY.
xxx
xxx
xxx
xxx
xxx.
12. I hereby give, devise and bequeath, unto my well-beloved daughter, the said
MARIA Lucy CHRISTENSEN DANEY (Mrs. Bernard Daney), now residing as aforesaid
at No. 665 Rodger Young Village Los Angeles, California, U.S.A., all the income from
the rest, remainder, and residue of my property and estate, real, personal and/or
mixed, of whatsoever kind or character, andwheresover situated; of which I may be
possessed at any death and which mayhave come to me from any source
whatsoever, during her lifetime,Provided, honvever, that should the said MARIA
LUCY CHRISTENSEN DANEY at any time prior to her decease having living issue,
then, and in that event, the life interest herein given shall terminate, and if so
terminated, then I give, devise, and bequeath to my said daughter, the said MARIA
LUCY CHRISTENSEN DANEY, the rest remainder and residue of my property, with
the same force and effectas if I had originally so given, devised and bequeathedit
to her; and provided, further, that should be said Maria Lucy ChristensenDaney die
without living issue then, and in that event, I give, devise and bequeath all the
rest, remainder and residue of my property, one-half (1/2) to my well-beloved
sister, Mrs. CARRIE LOIUSE C. BORTON, now residing at No. 2124 Twentieth Street,
Bakersfield, California, U.S.A. and one-half (1/2) to the children of my deceased
brother, JOSEPH C. CRISTENSEN, . . .
13. I hereby nominate and appoint Mr Adolfo Cruz Aznar, of Davao City, Philippines,
my executor, and the executor of this, my last will and testament.
. . . (Exh. A).
xxx.
7. I give, devise and bequeath unto MARIA LUCY CHRISTENSEN, now married
toEduardo Garcia, about eighteen years of age and who, notwithstanding the
Oppositions to the probate of this will were separately filed by Maria Helen Christensen
Garcia and BernardaCamporendondo, the first contending that thewill lacked the
10 | B u s O r g P a r t n e r s h i p C a s e C o m p i l a t i o n b y F C S
formalities required by law; that granting that he had, thedispositions made therein were
illegal because although she and Lucy Christensen were both children had by the deceased
with BernardaCamporendondo, yet she was given only a meager sum of P3,600 out of an
estate valued at $485,000 while Lucy would get the rest of the properties;and that the
petitioner Adolfo Cruz Aznar was not qualified to be appointed as administrator of the
estate because he had an interest adverse to thatof the estate. It was therefore prayed by
his oppositor that the application for probate be denied and the will disallowed; that the
proceeding be declared intestate and that another disinterested person be appointed as
administrator.
BernardaCamporedondo, on the other hand, claimed ownership over one-halfof the entire
estate in virtue of her relationship with the deceased, it being alleged that she and the
testator having lived together as husband andwife continuously for a period of over 30
years, the properties acquired during such cohabitation should be governed by the rules on
co-ownership. This opposition was dismissed by the probate court on the ground that
shehad no right to intervene in said proceeding, for as such common-law wife she had no
successional right that might be affected by the probate of thewill, and likewise, she could
not be allowed to establish her title and co-ownership over the properties therein for such
questions must be ventilated in a court of general jurisdiction. In view of this ruling of the
Court and in order to attain the purpose sought by her overruled opposition
BernardaCamporedondo had to institute, as she did institute Civil Case No. 1076 of the
Court of First Instance of Davao (G.R. No. L-11483) which we will consider and discuss
hereinafter.
11
In the meantime, Adolfo Cruz Aznar was appointed special adminsitrator of the estate after
filing a bond for P5,000 pending the appointment of a regular one, and letters of special
administrition were correspondingly issued to him on May 21, 1953.
The records further show that subsequent to her original opposition. Helen Christensen
Garcia filed a supplemental opposition and motion to declare her an acknowledged natural
child of Edward E. Christensen, alleging that shewas conceived during the time when her
mother BernardaCamporendondo was living with the deceased as his common-law wife;
that she had been in continous possession of the status of a natural child of the deceased;
thatahe had in her favor evidence and/or proof that Edward Christensen was her father;
and that she and Lucy had the same civil status as children of the decedent and
BernardaCamporedondo. This motion was opposed jointly by the executor and Maria Lucy
Christensen Daney asserting that before, during and after the conception and birth of
Helen Christensen Garcia, her mother was generally known to be carrying relations with 3
different men; that during the lifetime of the decedent and even years before his death,
Edward Christensen verbally as well as in writing disavowed relationship with said
oppositor; that oppositor appropriated and used the surname Christensen illegally and
without permission from the deceased. Thus they prayed the Court that the will be
allowed; that Maria Helen Christensen Garcia be declared not in any way related to the
deceased; and that the motion of said oppositor be denied.
After due hearing, the lower court in a decision dated February 28, 1953, found that
oppositor Maria Helen Cristensen had been in continous possession of the status of a
natural child of the deceased Edward Christensen notwithstanding the fact that she was
disowned by him in his will, for such action must have been brought about by the latter's
disaproval of said oppositor's marriage to a man he did not like. But taking into
considerationthat such possession of the status of a natural child did not itself constitute
acknowledgment but may only be availed of to compel acknowledgment, the lower Court
directed Maria Lucy Christensen Daneytoacknowledge the oppositor as a natural child of
Edward E. Christensen. Thewill was, however, allowed the letters testamentary
consequently issued toAdolfo Cruz Aznar, the executor named therein. From the portion of
the decision requiring Lucy Christensen to acknowledge Helen as a natural child of the
testator, the former and the executor interposed an appeal to the Court of Appeals (CA-G.
R. No. 13421-R), but the appellate tribunal elevatedthe same to Us on the ground that the
case involves an estate the value of which far exceeds P50,000.00 and thus falls within the
exclusive appellate jurisdiction of this Court pursuant to Section 17 (5), Republic Act No.
296.
The principal issue in this litigation is whether the lower court erred in finding that the
oppositor Maria Helen Christensen Garcia had been in continous possession of the status of
a natural child of the deceased EdwardE. Christensen and in directing Maria Lucy
Christensen Daney, recognizeddaughter and instituted heirs of the decedent, to
acknowledge the former assuch natural child.
Maria Lucy Christensen was born on April 25, 1922, and Maria Helen Christensen on July 2,
1934, of the same mother, BernardaCamporedondo, during the period when the latter was
publicly known to have been living as common-law wife of Edward E. Chrisiensen. From the
facts of the case there can be no question as to Lucy's parentage, but controversy arose
when Edward Christensen, in making his last will and testament, disavowed such paternity
to Helen and gave her only a legacy of P3,600. ln the course of the proceeding for the
probate of the will (Exh, A), Helen introduced documentary and testimonial evidence to
support her claim that she, Lucy,was a natural child of the deceased and, therefore,
entitled to the hereditaryshare corresponding to such descendant. Several witness testified
in herfavor, including the mother BernardaCamporendondo, her former teachersandother
residents of the community, tending to prove that she was known in the locality as a child
of the testator and was introduced by the latter to the circle of his friends and
acquaintances as his daughter. Family portraits, greeting cards and letters were likewise
presented to bolster herassertion that she had always been treated by the deceased and
by Lucy herself as a member of the family.
Lucy Christensen and Adolfo Cruz Aznar, as executor, tried to repudiate herclaim by
introducing evidence to prove that on or about the period when shewas conceived and
born, her mother was carrying an affair with another man,Zosimo Silva, a former laborer in
her Paligue plantation. Silva executed an affidavit and even took the witness stand to
testify to this effect. Appellants also strived to show that the defendant's solicitations for
Helen's welfare and the help extended to her merely sprang out generosity and hammered
on the fact that on several occasions, the deceased disclaimed any relationship with her
(Exh. O-Daney, Exh.Q-Daney, Exh.Z-Daney, Exh.8-Helen).
Going over the evidence adduced during the trial, it appears indubitable that on or about
the period when Helen was born, BernardaCamporendondo had established residence at
her plantation at Paligue, Davao, and that although Edward Christensen stayed in Davao
City to manage his merchandising business, he spent the weekends with the former and
their child Lucy in the Christensenplantation. Even granting that Zosimo Silva at his stage
fitted himself intothe picture, it cannot be denied that Helen's mother and the deceased
weregenerally and publicly known to be living together as husband and wife. Thismust
have been the reason why Christensen from Helen's birth in 1934 providedfor her
maintenance; shouldered the expenses for her education to the extentthat she was even
enrolled as an intern in an exclusive college for girls inManila; tolerated or allowed her
carrying the surname "Christensen", and ineffectgaver her the attention and care that a
father would only do to this offspring. We should take note that nothing appears on record
to show thatChristensen ever entertained any doubt or disputed Helen's paternity.
Hisrepudations
of
her
relationship
with
him
came
about
only
after
heandBernardaComperodondo parted ways in March, 1950, and apparently after Helentook
sides with her mother. Furthermore, it seems that despite that decedent's desire that she
continue her studies, Helen ignored the same andgot married to a man for Christensen
held no high esteem. We may state at hisjuncture that while it is true that herein
appellants introduced witnesses todisproveoppositor'r claim, the lower Court that had the
opportunity to observe the conduct of the witnesses while testifying and could better
12 and impartiality in the case, arrived at the conclusion that Maria
gaugetheir credibility
Helen Christensen had established that she had been in continouspossessions of the status
of a natural child of the deceased. Considering the preponderant evidence on record, We
see no reason to reverse said ruling.The testator' lastacts cannot be made the criterion in
determining whether oppositor was his child or not, for human frailty and parental
arrogance maydraw a person to adopt unnatural or harsh measures against an erring child
orone who displeases just so the weight of his authority could be felt. In theconsideration
of a claim that one is a natural child, the attitude or directacts of the person against whom
such action is directed or that of his family before the controversy arose or during his
lifetime if he predeceases the claimant, and not a single opportunity or an isolated
occasions but as a whole, must be taken into account. The possession of such status is one
of the cases that gives rise to the right, in favor of the child, of coumpulsaryrecognition.
(Art. 283, Civil Code).
The lower Court, however, after making its finding directed Maria Lucy Christensen Daney,
an heir of the decedent, to recognize oppositor as a natural child of the deceased. This
seems improper. The Civil Code for 2 kinds of acknowledgement of a natural child:
voluntary and compulsory. In the first instance, which may be effected in the record of
birth, a will, a statement before a court of record or in an authentic writing (Art. 278,Civil
Code), court intervention is very nil and not altogether wanting, whereas in the second,
judicial pronouncement is essential, and while it is true that the effect of a voluntary and a
compulsory acknowledgment onthe right of the child so recognized is the same, to
maintain the view of thelower Court would eliminate the distinction between voluntary acts
and those brought about by judicial dicta. And if We consider that in the case, where, the
presumed parent dies ahead of the child and action for compulsory recogniton is brought
against the heirs of the deceased, as in the instant case, the situation would take absurd
turn, for the heirs would be compelled to recognize such child as a natural child of the
deceased without a properprovision of the law, for as it now stands, the Civil Code only
requires a declaration by the court of the child's status as a natural child of the parent who,
if living, would be compelled to recognize his offspring as such.Therefore, We hold that in
cases of compulsory recognition, as in the case at bar, it would be sufficient that a
competent court, after taking into account all the evidence on record, would declare that
under any of the circumstances specified by Article 283 of the Civil Code, a child has
acquired the status of a natural child of the presumptive parent and as such is entitled to
all rights granted it by law, for such declaration is by itself already a judicial recognition of
the paternity of the parent concerned which is her against whom the action is directed, are
bound to respect.
G.R. No. L-11483
Coming now to Civil Case No. 1076 of the Court of First Instance of Davao,
BernardaCamporendondo claimed in her complaint 1/2 of the properties of thedeceased as
co-owner thereof in virtue of her relations with the deceased. She alleged as basis for
action that she and the deceased Edward E. Christensen had lived and cohabitated as
husband and wife, continously and openly for a period for more than 30 years; that within
said period, plaintiff and the deceased acquired real and personal properties through their
common effort and industry; and that in virtue of such relationship, she was a co-owner of
said properties. As the executor refused to account forand deliver the share allegedly
belonging to her despite her repeated demands, she prayed the court that said executor
be ordered to submit an inventory and render an accounting of the entire estate of the
deceased;to divide the same into 2 equal parts and declare that one of them lawfully
belonged to plaintiff; and for such other reliefs as may be deemed just and equitable in the
premises. In his answer, the executor denied the avermentsof the complaint, contending
that the decedent was the sole owner of the properties left by him as they were acquired
through his own efforts; thatplaintiff had never been a co-owner of any property acquired
or possessed by the late Edward christensen during his lifetime; that the personal
relationship between plaintiff and the deceased was purely clandestinebecause the former
habitually lived in her plantation at Paligue, Davao, from the time she acquired the same in
1928; that she also maintained relations with 2 other men; and that the claim of plaintiff
would violate the provisions of Article 2253 of the Civil Code as the vested rights of the
compulsory heirs of the deceased would be impaired. Defendant thus prayed for the
dismissal of the complaint and as counterclaim demanded the sum ofP70.000.00
representing actual, moral and exemplary damages.
Due hearing was conducted thereon and after the parties ad submitted theirrespective
memoranda, the lower Court on August 25, 1954, rendered judgmentfinding that the
deceased Edward Christensen and BernardaCamporendondo,not otherwise suffering from
any impediment to contract marriage, lived together as husband and wife without marital
ties continously for over 30years until the former's death in 1953; that out of such relations
2 childrenwere born; and that the properties in controversy were acquired by either orboth
of them through their work or industry. Relying on Section 144 of theCivil Code which said
court considered to have created another mode ofacquiring ownership, plaintiff was held to
be entitled to one-half of saidproperties as co-owner thereof in view of her relationship with
the deceasedand ordered the executor to account for and deliver the same by her.
Fromthis decision, defendant Aznar, as Executor of the will, perfected an appealto the
Court of Appeals, but as the property involved in the litigation exceeds P50,000.00 said
tribunal elevated the case to Us for consideration.
It is not controverted that at the time of his death, Edward Christensen was the owner of
certain properties, including shares of stock in the plantation bearing his name and a
general merchandising store in Davao City. It is also undeniable that the deceased and
appellee, both capacitated to enter into the married state, maintained relations as
husband and wife, continuously and publicly for a considerable number of years which the
lower Court declared to be until the death of Christensen in 1953. While as a general rule
appellate courts do not usually disturb the lower court's findings of fact, unless said finding
is not supported by or totally devoid of or inconsistent with the evidence on record, such
finding must ofnecessity be modified to confrom with the evidence if the reviewing
tribunalwere to arrive at the proper and just solution of the controversy. In theinstant case,
the court a quo overlooked or failed to consider the testimonies of both Lucy and Helen
Christensen to the effect that the deceased and their mother BernardaCamporendondo
had some sort of quarrel or misunderstanding and parted ways as of March, 1950, a fact
which appelleewas not able to overcome. Taking into account the circumstances of this
13 trial court, with the modification that the cohabitation should appear
caseas found by the
as continuous from the early 20's until March, 1950, the question left for our determination
is whether BernardaCamporedondo, byreason of such relationship, may be considered as a
co-owner of the properties acquired by the deceased during said period and thus entitledto
one-half thereof after the latter's death.
Presumably taking judicial notice of the existence in our society of a certain kind of
relationship brought about by couples living together as husbands and wives without the
benefit of marriage, acquiring and bringingproperties unto said union, and probably
realizing that while same may not beacceptable from the moral point of view they are as
much entitled to theprotection of the laws as any other property owners, the
lawmakersincorporated Article 144 in Republic Act No. 386 (Civil Code of the Philippines) to
govern their property relations. Said article read as follows:
ART. 114. When a man and a woman live together as husband and wife, but they
are not married, or their marriage is void from the beginning, the property acquired
by either or both of them through their work or industry or their wages and salaries
shall be governed by the rules of co-ownership.
It must be noted that such form of co-ownership requires that the man and the woman
thus living together must not in any way be incapacitated to contract marriage and that
the properties realized during their cohabitation be acquired through the work, industry,
employment or occupation of both or either of them. And the same thing may be said of
whose marriages are by provision of law declared void abintio. While it is true that these
requisites are fully met and satisfied in the case at bar, We must remember that the
deceased and herein appellee were already estranged as of March, 1950. There being no
provision of law governing the cessation of such informal civil partnership, if ever existed,
same may be considered terminated upon their separation or desistance to continue said
relations.The Spanish Civil Code which was then enforce contains to counterpart of Article
144 and as the records in the instant case failed to show showthata subsequent
reconciliation ever took place and considering that Republic ActNo. 386 which recognizeed
such form of co-ownership went into operation onlyon August 30, 1950, evidently, this
later enactment cannot be invoked as basis for appellee's claim.
In determining the question poised by this action We may look upon the jurisprudence then
obtaining on the matter. As early as 1925, this Court already declared that where a man
and a woman, not suffering from any impediment to contract marriage, live together as
husband and wife, an informal civil partnership exists and made the pronouncement that
each of them has an intereat in the properties acquired during said union and is entitled to
participate therein if said properties were the product oftheir JOINT efforts (Marata vs.
Dionio G.R. No. 24449, Dec. 31, 1925). In another case, this Court similarly held that
although there is no technical marital partnership between person living maritally without
being lawfully married, nevertheless there is between them an informalcivil partnership,
and the parties would be entitled to an equal interest where the property is acquired
through their JOINT efforts (Lesaca vs. FelixVda. de Lesaca, 91 Phil., 135).
Appellee, claiming that the properties in controversy were the product of their joint
industry apparently in her desire to tread on the doctrine laiddown in the aforementioned
cases, would lead Us to believe that her help wassolicited or she took a hand in the
management of and/or acquisition of thesame. But such assertion appears incredible if We
consider that she wasobserved by the trial Court as an illiterate woman who cannot even
remembersimple things as the date when she arrived at the Mindanao Estate, when
shecommenced relationship with the deceased, not even her approximate age orthat of
her children. And considering that aside from her own declaration, which We find to be
highly improbable, there appears no evidence to proveher alleged contribution or
participation in the acquisition of the properties involved therein, and that in view of the
holding of this Courtthat for a claim to one-half of such property to be allowed it must be
provedthat the same was acquired through their joint efforts and labor (Flores
vs.Rehabilitation Finance Corporation, * 50 Off. Gaz. 1029), We have no recoursebut
reverse the holding of the lower Court and deny the claim of BernardaCampredondo. We
may further state that even granting, for the sake ofargument, that this case falls under
the provisions of Article 144 of theCivil Code, same would be applicable only as far as
properties acquiredafter the effectivity of Republic Act 386 are concerned and to no other,
forsuch law cannot be given retroactive effect to govern those already possessedbefore
August 30, 1950. It may be argued, however, that being a newly created right, the
provisions of Section 144 should be made to retroact if only toenforce such right. Article
2252 of the same Code is explicit in thisrespect when it states:
SEC. 2252. Changes made and new provisions and rules laid down by this Code
which may prejudice or impair vested or acquired rights in accordance with the old
legislation, shall have ro retroactive effect.
xxx
xxx
xxx.
As it cannot be denied that the rights and legitimes of the compulsory heirsof the
deceased Edward Christensen would be impaired or diminished if the claim of herein
appellee would succeed, the answer to such argument wouldbe simply obvious.
With regard to appellant Aznar's contention that the lower Court erred in admitting the
testimony of appelleeBernardaCamporedondo dealing with facts that transpired before the
death of Edward Christensen on the ground that it is prohibited by Section 26-(c), Rule 123
of the Rules of Court. We deem it unnecessary to delve on the same because even
admitting that the court a quo committed the error assigned, yet it will not affect anymore
the outcome of the case in view of the conclusion We have already arrived at on the main
issue.
On the strength of the foregoing considerations, We affirm the decision of the lower Court
in case G.R. No. L-11484, with the modification that MariaLucy Christensen Daney need not
be compelled to acknowledge her sister Maria Helen Christensen Garcia as a natural child
of her father Edward E. Christensen, the declaration of the Court in this respect being
sufficient to enable14
her to all the rights inherent to such status.
The decision appealed from in case G.R. No. L-11483 is hereby reversed and another one
rendered, dismissing plaintiff's complaint.
Costs
are
taxed
against
appellants
in
G.R.
No.
L-11484
appelleeBernardaCamporedondo in G.R. No.L-11483. It is so ordered.
G.R. No. L-25532
and
against
February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange Commission. The firm
engaged, among other activities, in the importation, marketing, distribution and operation
of automatic phonographs, radios, television sets and amusement machines, their parts
and accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership
to Suter and his wife. The sale was duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when
the latter, in an assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered
a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William J.
Suter and his wife, Julia SpirigSuter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia SpirigSuter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of
Suter and Spirig and their subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction
of juridical personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business; consequently
the income tax return of respondent Suter for the years in question should have included
his and his wife's individual incomes and that of the limited partnership, in accordance with
Section 45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals
held, that his marriage with limited partner Spirig and their acquisition of Carlson's
interests in the partnership in 1948 is not a ground for dissolution of the partnership, either
in the Code of Commerce or in the New Civil Code, and that since its juridical personality
had not been affected and since, as a limited partnership, as contra distinguished from a
duly registered general partnership, it is taxable on its income similarly with corporations,
Suter was not bound to include in his individual return the income of the limited
15
partnership.
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when
the subject firm was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by their industry or
work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil,
7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, segunesto, no puedencelebrar entre si el contrato de sociedad
universal, pero o podranconstituirsociedad particular?Aunque el punto ha
sidomuydebatido, nosinclinamos a la tesispermisiva de los contratos de sociedad
particular entre esposos, yaqueningunprecepto de nuestroCodigo los prohibe, y
hay
queestar
a
la
norma
general
segun
la
quetoda
persona
escapazparacontratarmientras no sea declaradoincapazpor la ley. La jurisprudencia
de la Direccion de los Registrosfuefavorableaestamismatesis en su resolution de 3
de febrero de 1936, mas parececambiar de rumbo en la de 9 de marzo de 1943.
We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner, William
J. Suter to the originally limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed.,
page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It
follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage
not being one of the causes provided for that purpose either by the Spanish Civil Code or
the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter
and Julia Spirig were separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and
English law that does not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of
the component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaiascolectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil.
504) as authority for disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited cases, the corporations
were already subject to tax when the fiction of their corporate personality was pierced; in
the present case, to do so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits or alter egos of the
16 that justified a disregard of their corporate personalities for tax
stockholders, a factor
purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes;
it conducted its own dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a
business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. &Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively the
income of the spouses and forms part of the conjugal partnership of gains. This is not
wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the appellant's argument
erroneously confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of their own. 1 Appellant
is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable
unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their
individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a given
taxable year, their consequences would be different, as their contributions in the business
partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a justification for
requiring consolidation; the revenue code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
As the limited partnership under consideration is taxable on its income, to require that
income to be included in the individual tax return of respondent Suter is to overstretch the
letter and intent of the law. In fact, it would even conflict with what it specifically provides
in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compaiacolectiva) and a limited partnership, when the
code plainly differentiates the two. Thus, the code taxes the latter on its income, but not
the former, because it is in the case ofcompaiascolectivas that the members, and not the
firm, are taxable in their individual capacities for any dividend or share of the profit derived
G.R. No. L-4935
May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved, defendant
makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was
not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
REYES, J.:
III. The trial court erred in denying defendant's motion to strike.
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description of
the land sought to be recovered. The original complaint described the land as a portion of
a lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land
record of Rizal Province and as containing an area of 13 hectares more or less. But the
complaint was amended
by reducing the area of 6 hectares, more or less, after the
17
defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied
by him. The second amendment became necessary and was allowed following the
testimony of plaintiff's surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness, Quirino Feria, had testified
that the area occupied and claimed by defendant was about 13 hectares, as shown in his
Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its
allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessor in interest" from
"time in-memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the complaint be dismissed with
costs and plaintiff required to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof to
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful
owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff
the amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present action is
not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the
Rules of Court require is that an action be brought in the name of, but not necessarily by,
the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to
bring the action, that is to file the complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes
now plaintiff, through its undersigned counsel." It is true that the complaint also states that
the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being represented by another
person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc.
can not act as managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may nevertheless enter into a joint
venture with another where the nature of that venture is in line with the business
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043,
citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the
venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at my
time, even of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall be so freely when the presentation of the
merits of the action will be subserved thereby and the objecting party fails to
satisfy the18
court that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may grant a
continuance to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision, Chief
Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than
that asked for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and that the
appellate court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules of Court, 1952
ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage
of the trial, that the land in dispute "is that described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name QuirinoBolaos," defendant later changed
his lawyer and also his theory and tried to prove that the land in dispute was not covered
by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly
establishes that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3 square meters, more or less, covered by transfer
certificate of title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4,
situated in the same barrio, having an area of 74,789 square meters, more or less, covered
by transfer certificate of title No. 37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under original certificate of title No. 735.
The identity of the lots was established by the testimony of Antonio Manahan and Magno
Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own witness, Quirico Feria. The
combined testimony of these three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well
within the area covered by the two transfer certificates of title already mentioned. This fact
also appears admitted in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered
in 1914, the decree of registration can no longer be impugned on the ground of fraud, error
or lack of notice to defendant, as more than one year has already elapsed from the
issuance and entry of the decree. Neither court the decree be collaterally attacked by any
person claiming title to, or interest in, the land prior to the registration proceedings.
(Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of
that of plaintiff, the registered owner, be acquired by prescription or adverse possession.
(Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs.
Judge of CFI of Tarlac, 2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the
right to secure possession under a decree of registration does not prescribed. (Francisco
vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is
that rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This
disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until
he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the hearing was
P10 a month for each hectare and that the area occupied by defendant was 13.2619
hectares. The total rent to be paid for the area occupied should therefore be P132.62 a
month. It is appears from the testimony of J. A. Araneta and witness EmigdioTanjuatco that
as early as 1939 an action of ejectment had already been filed against defendant. And it
cannot be supposed that defendant has been paying rents, for he has been asserting all
along that the premises in question 'have always been since time immemorial in open,
continuous, exclusive and public and notorious possession and under claim of ownership
adverse to the entire world by defendant and his predecessors in interest.' This assignment
of error is thus clearly without merit.
ELIGIO
ESTANISLAO,
JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and
LEOCADIO SANTIAGO,respondents.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.
During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same cause and seeking to sustain
that allegation with a copy of the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct, for the pretended identity of
parties and cause of action in the two suits does not appear. That other case is one for
recovery of ownership, while the present one is for recovery of possession. And while
appellant claims that he is also involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the contrary, it appears that the
action seeks relief for each individual plaintiff and not relief for and on behalf of others. The
motion for dismissal is clearly without merit.
19
Wherefore, the judgment
appealed from is affirmed, with costs against the plaintiff.
GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain
lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased
to the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate
a gas station thereat to be known as Estanislao Shell Service Station with an initial
investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL
for the occupancy of the said lots owned in common by them. A joint affidavit was
executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They
agreed to help their brother, petitioner herein, by allowing him to operate and manage the
gasoline service station of the family. They negotiated with SHELL. For practical purposes
and in order not to run counter to the company's policy of appointing only one dealer, it
was agreed that petitioner would apply for the dealership. Respondent Remedios helped in
managing the bussiness with petitioner from May 3, 1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement
with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be
deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that
said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed
by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the
business to private respondents, but therafter petitioner failed to render subsequent
accounting. Hence through Atty. Angeles, a demand was made on petitioner to render an
accounting of the profits.
G.R. No. L-49982 April 27, 1988
The financial report of December 31, 1968 shows that the business was able to make a
profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was
realized. 3
(1) Ordering the defendant to execute a public instrument embodying all

the provisions of the partnership agreement entered into between plaintiffs
and defendant as provided for in Article 1771, Civil Code of the Philippines;
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner praying among others that the latter be ordered:
(2) Ordering the defendant to render a formal accounting of the business

operation from April 1969 up to the time this order is issued, the same to
be subject to examination and audit by the plaintiff,
1. to execute a public document embodying all the provisions of the

partnership agreement entered into between plaintiffs and defendant as
provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the
period from May 6, 1966 up to December 21, 1968 and from January 1,
1969 up to the time the order is issued and that the same be subject to
proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net
profits of the business in an amount of no less than P l50,000.00 with
interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
20
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and

costs of the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment dismissing
the complaint and counterclaim and ordering private respondents to pay petitioner P
3,000.00 attorney's fee and costs. Private respondent filed a motion for reconsideration of
the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly appointed
presiding judge of the same branch, set aside the aforesaid derision and rendered another
decision in favor of said respondents.
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by
way of attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp.
161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors
allegedly committed by the trial court. In due course, a decision was rendered by the Court
of Appeals on November 28,1978 affirming in toto the decision of the lower court with
costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30,
1979. Not satisfied therewith, the petitioner now comes to this court by way of this petition
for certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis
the Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the
petitioner and the private respondents as regards the ownership and or
operation of the gasoline service station business.
The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the
plaintiffs and as against the defendant:
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A)
and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein
reproduced(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of
Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES
LIMITED a corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE
LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND
PESOS (P l5,000.00) Philippine Currency, so that we can use the said
amount to augment our capital investment in the operation of that
gasoline station constructed ,by the said company on our two lots
aforesaid by virtue of an outstanding Lease Agreement we have entered
into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in aumenting our capital investment in
the operation of the said gasoline station, has agreed to give us the said
amount of P 15,000.00, which amount will partake the nature of
ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said
21
amount
of FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL
COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED
RENTALS to us be applied as monthly rentals for the sai two lots under our
Lease Agreement starting on the 25th of May, 1966 until such time that
the said of P 15,000.00 be applicable, which time to our estimate and onehalf months from May 25, 1966 or until the 10th of October, 1966 more or
less;
(5) That we have likewise agreed among ourselves that the SHELL
COMPANY OF THE PHILIPPINES LIMITED execute an instrument for us to
sign embodying our conformity that the said amount that it will generously
grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963
(identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III,
Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez,
and R.D. Liwanag, respectively) executed in favour of SHELL by the herein

CO-OWNERS and another Lease Agreement dated 19th March 1964 . . .
also executed in favour of SHELL by CO-OWNERS Remedios and MARIA
ESTANISLAO for the lease of adjoining portions of two parcels of land at
Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total
monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO
AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER EligioEstanislao Jr. is the Dealer of the Shell Station
constructed on the leased land, and as Dealer under the Cash Pledge
Agreement dated llth May 1966, he deposited to SHELL in cash the amount
of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his
purchase on credit of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit
up to P 25,000, has secured the conformity of his CO-OWNERS to waive
and assign to SHELL the total monthly rentals due to all of them to
accumulate the equivalent amount of P 15,000, commencing 24th May
1966, this P 15,000 shall be treated as additional cash deposit to SHELL
under the same terms and conditions of the aforementioned Cash Pledge
Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and
the mutual covenants among the CO-OWNERS herein and SHELL, said
parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals
due to all CO-OWNERS, collectively, under the above describe two Lease
Agreements, one dated 13th November 1963 and the other dated 19th
March 1964 to enable DEALER to increase his existing cash deposit to
SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL COOWNERS and DEALER hereby irrevocably assign to SHELL the monthly
rental of P 3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly rentals
accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated as
additional cash deposit by DEALER to SHELL, thereby in increasing his
credit limit from P 10,000 to P 25,000. This agreement, therefore, cancels
and supersedes the Joint affidavit dated 11 April 1966 executed by the COOWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow
DEALER to purchase from SHELL petroleum products, on credit, up to the
amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and
conditions of the above-mentioned Cash Pledge Agreement dated llth May
1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the
parties that the P 15,000.00 advance rental due to them from SHELL shall augment their
"capital investment" in the operation of the gasoline station, which advance rentals shall
be credited as rentals from May 25, 1966 up to four and one-half months or until 10
October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL the
monthly rentals due them commencing the 24th of May 1966 until such time that the
22
monthly rentals accumulated equal P 15,000.00 which private respondents agree to be a
cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. As abovestated it provided therein that "This agreement, therefore, cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that
previous Joint Affidavit, whatever partnership agreement there was in said previous
agreement had thereby been abrogated. We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals
starting May 25, 1966 while the latter agreement also refers to advance rentals of the
same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document that it "cancels and
supersedes" the previous one. True it is that in the latter document, it is silent as to the
statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of
the parties in the gasoline station business and it speaks of petitioner as the sole dealer,
but this is as it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a partnership
with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private respondent
Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents
periodic accounting of the business. 4 Petitioner gave a written authority to private
respondent Remedies Estanislao, his sister, to examine and audit the books of their
"common business' amingnegosyo). 5Respondent Remedios assisted in the running of the
business. There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the profits
among themselves. 6 The sole dealership by the petitioner and the issuance of all
government permits and licenses in the name of petitioner was in compliance with the
afore-stated policy of SHELL and the understanding of the parties of having only one dealer
of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and
its conclusion based on the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against
petitioner. This decision is immediately executory and no motion for extension of time to
file a motion for reconsideration shag beentertained. SO ORDERED.
G.R. No. 413
February 2, 1903
JOSE FERNANDEZ, plaintiff-appellant,

vs.
FRANCISCO DE LA ROSA, defendant-appellee.
Vicente Miranda, for appellant.
Simpliciodel Rosario, for appellee.
LADD, J.:
The object of this action is to obtain from the court a declaration that a partnership exists
between the parties, that the plaintiff has a consequent interested in certain cascoes which
are alleged to be partnership property, and that the defendant is bound to render an
account of his administration of the cascoes and the business carried on with them.
Judgment was rendered for the defendant in the court below and the plaintiff appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state them
in order to indicate the point in dispute, may be briefly summarized. The plaintiff alleges
that in January, 1900, he entered into a verbal agreement with the defendant to form a
partnership for the purchase of cascoes and the carrying on of the business of letting the
same for hire in Manila, the defendant to buy the cascoes and each partner to furnish for
that purpose such amount of money as he could, the profits to be divided proportionately;
that in the same January the plaintiff furnished the defendant 300 pesos to purchase a
casco designated as No. 1515, which the defendant did purchase for 500 pesos of Doa
Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums
aggregating about 300 pesos for repairs on this casco; that on the fifth of the following
March he furnished the defendant 825 pesos to purchase another casco designated as No.
2089, which the defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title
to this casco also in his own name; that in April the parties undertook to draw up articles of
partnership for the purpose of embodying the same in an authentic document, but that the
defendant having proposed a draft of such articles which differed materially from the terms
of the earlier verbal agreement, and being unwillingly to include casco No. 2089 in the
partnership, they were unable to come to any understanding and no written agreement
was executed; that the defendant having in the meantime had the control and
management of the two cascoes, the plaintiff made a demand for an accounting upon him,
which the defendant refused to render, denying the existence of the partnership
altogether.
The defendant admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between himself
and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a partner of the
plaintiff in a bakery business, being also a party to the negotiations, but he denies that any
agreement was ever consummated. He denies that the plaintiff furnished any money in
January, 1900, for23
the purchase of casco No. 1515, or for repairs on the same, but claims
that he borrowed 300 pesos on his individual account in January from the bakery firm,
consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he
admits he received from the plaintiff March 5, he claims was for the purchase of casco No.
1515, which he alleged was bought March 12, and he alleges that he never received
anything from the defendant toward the purchase of casco No. 2089. He claims to have
paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second
one.
The case comes to this court under the old procedure, and it is therefore necessary for us
the review the evidence and pass upon the facts. Our general conclusions may be stated
as follows:
(1) Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the
sale was made and the casco delivered in January, although the public document of sale
was not executed till some time afterwards. This witness is apparently disinterested, and
we think it is safe to rely upon the truth of her testimony, especially as the defendant,
while asserting that the sale was in March, admits that he had the casco taken to the ways
for repairs in January.
It is true that the public document of sale was executed March 10, and that the vendor
declares therein that she is the owner of the casco, but such declaration does not exclude
proof as to the actual date of the sale, at least as against the plaintiff, who was not a party
to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in such cases, that
the actual sale precedes by a considerable time the execution of the formal instrument of
transfer, and this is what we think occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this day received from
D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco which we
are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity
of this receipt is admitted by the defendant. If casco No. 1515 was bought, as we think it
was, in January, the casco referred to in the receipt which the parties "are to purchase in
company" must be casco No. 2089, which was bought March 22. We find this to be the
fact, and that the plaintiff furnished and the defendant received 825 pesos toward the
purchase of this casco, with the understanding that it was to be purchased on joint
account.
(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio
Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of
which he is unable to state, for the purchase of a casco to be used in the plaintiff's and
defendant's business. Antonio Angulo also testifies, but the defendant claims that the fact
that Angulo was a partner of the plaintiff rendered him incompetent as a witness under the
provisions of article 643 of the then Code of Civil Procedure, and without deciding whether
this point is well taken, we have discarded his testimony altogether in considering the
case. The defendant admits the receipt of 300 pesos from Antonio Angulo in January,
claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim that
the 825 pesos which he received from the plaintiff in March were furnished toward the
purchase of casco No. 1515, thereby virtually admitting that casco was purchased in
company with the plaintiff. We discover nothing in the evidence to support the claim that
the 300 pesos received in January was a loan, unless it may be the fact that the defendant
had on previous occasions borrowed money from the bakery firm. We think all the
probabilities of the case point to the truth of the evidence of Antonio Fernandez as to this
transaction, and we find the fact to be that the sum in question was furnished by the
plaintiff toward the purchase for joint ownership of casco No. 1515, and that the defendant
received it with the understanding that it was to be used for this purposed. We also find
that the plaintiff furnished some further sums of money for the repair of casco.
(4) The balance of the purchase price of each of the two cascoes over and above the
amount contributed by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us that there was any specific verbal
agreement of partnership, except such as may be implied from the fact as to the purchase
of the casco.
(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more
probable than otherwise that no attempt was made to agree upon articles of partnership
till about the middle of the April following the purchase of the cascoes.
(7) At some time subsequently to the failure of the attempt to agree upon partnership
articles and after the defendant had been operating the cascoes for some time, the
defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and one
of 825 pesos. The only evidence in the record as to the circumstances under which the
plaintiff received these sums is contained in his answer to the interrogatories proposed to
him by the defendant, and the whole of his statement on this point may properly be
considered in determining the fact as being in the nature of an indivisible admission. He
states that both sums were received with an express reservation on his part of all his rights
as a partner. We find this to be the fact.
It is thus apparent that a complete and perfect contract of partnership was entered into by
the parties. This contract, it is true, might have been subject to a suspensive condition,
postponing its operation until an agreement was reached as to the respective participation
of the partners in the profits, the character of the partnership as collective or en
comandita, and other details, but although it is asserted by counsel for the defendant that
such was the case, there is little or nothing in the record to support this claim, and that
fact that the defendant did actually go on and purchase the boat, as it would seem, before
any attempt had been made to formulate partnership articles, strongly discountenances
the theory.
Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between
the parties? (2) If such partnership existed, was it terminated as a result of the act of the
defendant in receiving back the 1,125 pesos?
The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not
having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case
mentioned and dispensing with all formal requirements in other cases, renders inapplicable
to this species of contract the general provisions of article 1280 of the Civil Code.
(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership relation
results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 24
1695.)
We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes in
question. This establishes the first element of the contract, namely, mutual contribution to
a common stock. The second element, namely, the intention to share profits, appears to be
an unavoidable deduction from the fact of the purchase of the cascoes in common, in the
absence of any other explanation of the object of the parties in making the purchase in
that form, and, it may be added, in view of the admitted fact that prior to the purchase of
the first casco the formation of a partnership had been a subject of negotiation between
them.
Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of partnership,
might have been the result of the joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had been to make a more favorable bargain
for the two cascoes that they could have done by purchasing them separately, and that
they had no ulterior object except to effect a division of the common property when once
they had acquired it, the affectiosocietatiswould be lacking and the parties would have
become joint tenants only; but, as nothing of this sort appears in the case, we must
assume that the object of the purchase was active use and profit and not mere passive
ownership in common.
(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the
money returned to him by the defendant after the definitive failure of the attempt to agree
upon partnership articles. The amount returned fell short, in our view of the facts, of that
which the plaintiff had contributed to the capital of the partnership, since it did not include
the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite
possible, as claimed by the plaintiff, that a profit may have been realized from the business
during the period in which the defendant have been administering it prior to the return of
the money, and if so he still retained that sum in his hands. For these reasons the
acceptance of the money by the plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societasleonina, as claimed by counsel
for the defendant.
Did the defendant waive his right to such interest as remained to him in the partnership
property by receiving the money? Did he by so doing waive his right to an accounting of
the profits already realized, if any, and a participation in them in proportion to the amount
he had originally contributed to the common fund? Was the partnership dissolved by the
"will or withdrawal of one of the partners" under article 1705 of the Civil Code? We think
these questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to relinquish his
rights as a partner, nor is there any evidence that by anything that he said or by anything
that he omitted to say he gave the defendant any ground whatever to believe that he
intended to relinquish them. On the contrary he notified the defendant that he waived
none of his rights in the partnership. Nor was the acceptance of the money an act which
was in itself inconsistent with the continuance of the partnership relation, as would have
been the case had the plaintiff withdrawn his entire interest in the partnership. There is,
therefore, nothing upon which a waiver, either express or implied, can be predicated. The
defendant might have himself terminated the partnership relation at any time, if he had
chosen to do so, by recognizing the plaintiff's right in the partnership property and in the
profits. Having failed to do this he can not be permitted to force a dissolution upon his copartner upon terms which the latter is unwilling to accept. We see nothing in the case
which can give the transaction in question any other aspect than that of the withdrawal by
one partner with the consent of the other of a portion of the common capital.
The result is that we hold and declare that a partnership was formed between the parties
in January, 1900, the existence of which the defendant is bound to recognize; that cascoes
No. 1515 and 2089 constitute partnership property, and that the plaintiff is entitled to an
accounting of the defendant's administration of such property, and of the profits derived
therefrom. This declaration does not involve an adjudication as to any disputed items of
the partnership account.
The judgment of the court below will be reversed without costs, and the record returned for
the execution of the judgment now rendered. So ordered.
Arellano,
C.J.,
Willard, J., dissenting.
Torres,
Cooper,
and
Mapa,
JJ., concur.
ON MOTION FOR A REHEARING.

MAPA, J.:
25
This case has been decided on appeal in favor of the plaintiff, and the defendant has
moved for a rehearing upon the following grounds:
1. Because that part of the decision which refers to the existence of the partnership which
is the object of the complaint is not based upon clear and decisive legal grounds; and
2. Because, upon the supposition of the existence of the partnership, the decision does not
clearly determine whether the juridical relation between the partners suffered any
modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos
from the funds of the partnership, or if it continued as before, the parties being thereby
deprived, he alleges, of one of the principal bases for determining with exactness the
amount due to each.
With respect to the first point, the appellant cites the fifth conclusion of the decision, which
is as follows: "We are unable to find from the evidence before us that there was any
specific verbal agreement of partnership, except such as may be implied from the facts as
to the purchase of the cascoes."
Discussing this part of the decision, the defendant says that, in the judgment of the court,
if on the one hand there is no direct evidence of a contract, on the other its existence can
only be inferred from certain facts, and the defendant adds that the possibility of an
inference is not sufficient ground upon which to consider as existing what may be inferred
to exist, and still less as sufficient ground for declaring its efficacy to produce legal effects.
This reasoning rests upon a false basis. We have not taken into consideration the mere
possibility of an inference, as the appellant gratuitously stated, for the purpose of arriving
at a conclusion that a contract of partnership was entered into between him and the
plaintiff, but have considered the proof which is derived from the facts connected with the
purchase of the cascoes. It is stated in the decision that with the exception of this evidence
we find no other which shows the making of the contract. But this does not mean (for it
says exactly the contrary) that this fact is not absolutely proven, as the defendant
erroneously appears to think. From this data we infer a fact which to our mind is certain
and positive, and not a mere possibility; we infer not that it is possible that the contract
may have existed, but that it actually did exist. The proofs constituted by the facts referred
to, although it is the only evidence, and in spite of the fact that it is not direct, we consider,
however, sufficient to produce such a conviction, which may certainly be founded upon any
of the various classes of evidence which the law admits. There is all the more reason for its
being so in this case, because a civil partnership may be constituted in any form, according
to article 1667 of the Civil Code, unless real property or real rights are contributed to it
the only case of exception in which it is necessary that the agreement be recorded in a
public instrument.
It is of no importance that the parties have failed to reach an agreement with respect to
the minor details of contract. These details pertain to the accidental and not to the
essential part of the contract. We have already stated in the opinion what are the essential
requisites of a contract of partnership, according to the definition of article 1665.
Considering as a whole the probatory facts which appears from the record, we have
reached the conclusion that the plaintiff and the defendant agreed to the essential parts of
that contract, and did in fact constitute a partnership, with the funds of which were
purchased the cascoes with which this litigation deals, although it is true that they did not
take the precaution to precisely establish and determine from the beginning the conditions
with respect to the participation of each partner in the profits or losses of the partnership.
The disagreements subsequently arising between them, when endeavoring to fix these
conditions, should not and can not produce the effect of destroying that which has been
done, to the prejudice of one of the partners, nor could it divest his rights under the
partnership which had accrued by the actual contribution of capital which followed the
agreement to enter into a partnership, together with the transactions effected with
partnership funds. The law has foreseen the possibility of the constitution of a partnership
without an express stipulation by the partners upon those conditions, and has established
rules which may serve as a basis for the distribution of profits and losses among the
partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered into by
the plaintiff and the defendant falls within the provisions of this article.
With respect to the second point, it is obvious that upon declaring the existence of a
partnership and the right of the plaintiff to demand from the defendant an itemized
accounting of his management thereof, it was impossible at the same time to determine
the effects which might have been produced with respect to the interest of the partnership
by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could only be determined
after a liquidation of the partnership. Then, and only then, can it be known if this sum is to
be charged to the capital contributed by the plaintiff, or to his share of the profits, or to
both. It might well be that the partnership has earned profits, and that the plaintiff's
participation therein is equivalent to or exceeds the sum mentioned. In this case it is
evident that, notwithstanding that payment, his interest in the partnership would still
continue. This is one case. It would be easy to imagine many others, as the possible results
of a liquidation are innumerable. The liquidation will finally determine the condition of the
legal relations of the partners inter se at the time of the withdrawal of the sum mentioned.
It was not, nor is it possible to determine this status a priori without prejudging the result,
as yet unknown, of the litigation. Therefore it is that in the decision no direct statement
has been made upon this point. It is for the same reason that it was expressly stated in the
decision that it "does not involve an adjudication as to any disputed item of the
partnership account."
The contentions advanced by the moving party are so evidently unfounded that we can not
see the necessity or convenience of granting the rehearing prayed for, and the motion is
therefore denied.
G.R. No. 3186
26
March 7, 1907
THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED
MEN, plaintiff-appellee,
vs.
THE VETERAN ARMY OF THE PHILIPPINES, defendant-appellant.
Hartigan,
Rohde,
W. A. Kincaid for appellee.
&
Gutierrez
for
appellant.
WILLAR, J.:
Article 5 provides that:

This association shall be composed of
(a) A department.
(b) Two or more posts.
It is provided in article 6 that the department shall be composed of a department
commander, fourteen officers, and the commander of each post, or some member of the
post appointed by him. Six members of the department constitute a quorum for the
transaction of business.
The Constitution also provides for the organization of posts. Among the posts thus
organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March, 1903, a
contract of lease of parts of a certain buildings in the city of Manila was signed by W.W.
Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1, Improved Order
of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton Post,
Veteran Army of the Philippines as lessee. The lease was for the term of two years
commencing February 1, 903, and ending February 28, 1905. The Lawton Post occupied
the premises in controversy for thirteen months, and paid the rent for that time. It them
abandoned them and this action was commenced to recover the rent for the unexpired
term. Judgment was rendered in the court below on favor of the defendant McCabe,
acquitting him of the complaint. Judgment was rendered also against the Veteran Army of
the Philippines for P1,738.50, and the costs. From this judgment, the last named defendant
has appealed. The plaintiff did not appeal from the judgment acquitting defendant McCabe
of the complaint.
It is claimed by the appellant that the action can not be maintained by the plaintiff, The
Great Council of the United States of the Improved Order of Red Men, as this organization
did not make the contract of lease.
Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows:
The object of this association shall be to perpetuate the spirit of patriotism and
fraternity those men who upheld the Stars and Stripes in the Philippine Islands
during the Spanish war and the Philippine insurrection, and to promote the welfare
of its members in every just and honorable way; to assist the sick and afflicted and
to bury the dead, to maintain among its members in time of peace the same union
and harmony with which they served their country in times of war and insurrection.
It is also claimed that the action can not be maintained against the Veteran Army of the
Philippines because it never contradicted, either with the plaintiff or with Apach Tribe, No.
1, and never authorized anyone to so contract in its name.
We do not find it necessary to consider the first point because we think the contention of
the appellant on the second point must be sustained.
It is difficult to determine the exact nature of the defendant organization. It is of course not
a mercantile partnership. There is some doubt as to whether it is a civil partnership, in
view of the definition of the term in article 1665 of the Civil Code. That article is as follows:
Partnership is a contract by which 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.
It seems to be the opinion of the commentators that where the society is not constituted
for the purpose of gain. it does not fall within this article of the Civil Code. Such an
organization is fully covered by the Law of Associations of 1887, but that law was never
extended to the Philippine Islands. According to some commentators it would be governed
by the provisions relating to the community of property. However, the questions thus
presented we do not find necessary to , and to not resolve. The view most favorable to the
appellee is the one that makes the appellant a civil partnership. Assuming that is such, and
is covered by the provisions of title 8, book 4 of the Civil Code, it is necessary for the
appellee to prove that the contract in question was executed by some authorized to so by
the Veteran Army of the Philippines.
society which that particular officer saw fit to make, or that a contract when so made
without consultation with, or knowledge of the other members of the department should
bind it. We therefore, hold, that no contract, such as the one in question, is binding on the
Veteran Army of the Philippines unless it was authorized at a meeting of the department.
No evidence was offered to show that the department had never taken any such action. In
fact, the proof shows that the transaction in question was entirely between Apache Tribe,
No. 1, and the Lawton Post, and there is nothing to show that any member of the
department ever knew anything about it, or had anything to do with it. The liability of the
Lawton Post is not presented in this appeal.
Judgment against the appellant is reversed, and the Veteran Army of the Philippines is
acquitted of the complaint. No costs will be allowed to either party in this court. After the
expiration of twenty days let judgment be rendered in accordance to the lower court for
proper action. So ordered.
Article 1695 of the Civil Code provides as follows:
27
Should no agreement have been made with regard to the form of management,
the following rules shall be observed:
G.R. No. L-18703
1 All the partners shall be considered as agents, and whatever any one of them
may do by himself shall bind the partnership; but each one may oppose the act of
the others before they may have produced any legal effect.
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL
BANKING CORPORATION,petitioners-appellants.
One partner, therefore, is empowered to contract in the name of the partnership only when
the articles of partnership make no provision for the management of the partnership
business. In the case at bar we think that the articles of the Veteran Army of the
Philippines do so provide. It is true that an express disposition to that effect is not found
therein, but we think one may be fairly deduced from the contents of those articles. They
declare what the duties of the several officers are. In these various provisions there is
nothing said about the power of making contracts, and that faculty is not expressly given
to any officer. We think that it was, therefore, reserved to the department as a whole; that
is, that in any case not covered expressly by the rules prescribing the duties of the officers,
the department were present. It is hardly conceivable that the members who formed this
organization should have had the intention of giving to any one of the sixteen or more
persons who composed the department the power to make any contract relating to the
Jose
Yulo,
Ross
and
Antonio Sanz for appellee.
August 28, 1922
Lawrence
and
J.
A.
Wolfson
for
appellants.
ROMUALDEZ, J.:
The record of this proceeding having been transmitted to this court by virtue of an appeal
taken herein, a motion was presented by the appellants praying this court that this case be
considered purely a moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily filed an application for a
judicial decree adjudging itself insolvent, which is just what the herein petitioners and
appellants tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by
the appellants in their motion aforesaid. The question raised in this case is not purely moot
one; the fact that a man was insolvent on a certain day does not justify an inference that
he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that
he was on a day some time prior thereto. Many contingencies, such as unwise
investments, losing contracts, misfortune, or accident, might happen to reduce a
person from a state of solvency within a short space of time. (Kimball vs. Dresser,
98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge
Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another
to declare it insolvent in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and is,
indebted to the appellants in various sums amounting to not less than P1,000, payable in
the Philippines, which were not paid more than thirty days prior to the date of the filing by
the petitioners of the application for involuntary insolvency now before us. These facts
were sufficient established by the evidence.
28
The trial court denied the petition on the ground that it was not proven, nor alleged, that
the members of the aforesaid firm were insolvent at the time the application was filed; and
that was said partners are personally and solidarily liable for the consequence of the
transactions of the partnership, it cannot be adjudged insolvent so long as the partners are
not alleged and proven to be insolvent. From this judgment the petitioners appeal to this
court, on the ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether or not a limited
partnership, such as the appellee, which has failed to pay its obligation with three creditors
for more than thirty days, may be held to have committed an act of insolvency, and
thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a juridical
entity for all intents and purposes, which personality is recognized in all its acts and
contracts (art. 116, Code of Commerce). This being so and the juridical personality of a
limited partnership being different from that of its members, it must, on general principle,
answer for, and suffer, the consequence of its acts as such an entity capable of being the
subject of rights and obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. Failed to pay its obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of
bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and must be adjudged
insolvent. We are not unmindful of the fact that some courts of the United States have held
that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary view. But
it must be borne in mind that under the American common law, partnerships have no
juridical personality independent from that of its members; and if now they have such
personality for the purpose of the insolvency law, it is only by virtue of general law enacted
by the Congress of the United States on July 1, 1898, section 5, paragraph (h), of which
reads thus:
In the event of one or more but not all of the members of a partnership being
adjudged bankrupt, the partnership property shall not be administered in
bankruptcy, unless by consent of the partner or partners not adjudged bankrupt;
but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of
the partner or partners adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the
limitations prescribed in subsection (h) above set forth gave rise to the conflict noted in
American decisions, as stated in the case of In reSamuels (215 Fed., 845), which mentions
the two apparently conflicting doctrines, citing one from In re Bertenshaw (157 Fed., 363),
and the other from Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that contained in section 5 of
said Act of Congress of July 1, 1898, nor any rule similar thereto, and the juridical
personality of limited partnership being recognized by our statutes from their formation in
all their acts and contracts the decision of American courts on this point can have no
application in this jurisdiction, nor we see any reason why these partnerships cannot be
adjudged bankrupt irrespective of the solvency or insolvency of their members, provided
the partnership has, as such, committed some of the acts of insolvency provided in our
law. Under this view it is unnecessary to discuss the other points raised by the parties,
although in the particular case under consideration it can be added that the liability of the
limited partners for the obligations and losses of the partnership is limited to the amounts
paid or promised to be paid into the common fund except when a limited partner should
have included his name or consented to its inclusion in the firm name (arts. 147 and 148,
Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more
than thirty days to pay its obligations to the petitioners the Pacific Commercial Co. the
Asiatic Petroleum Co. and the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners have the
right to a judicial decree declaring the involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited
partnership Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable
for having failed for more than thirty days to meet its obligations with the three petitioners
herein, and it is ordered that this proceeding be remanded to the Court of First Instance of
Manila with instruction to said court to issue the proper decrees under section 24 of Act No.
1956, and proceed therewith until its final disposition.
Chua, representative of Thai Tong Chuache & Co. insured the latter's
interest with Travellers Multi-Indemnity Corporation for P100,000.00
(P70,000.00 for the building and P30,000.00 for the contents thereof)
(Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F02500 (Exhibit "A"), covering the building for P50,000.00 with respondent
Zenith Insurance Corporation. On July 16, 1975, another Fire Insurance
Policy No. 8459 (Exhibit "B") was procured from respondent Philippine
British Assurance Company, covering the same building for P50,000.00 and
the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
It is so ordered without special finding as to costs.
xxx xxx xxx

... Thus the apportioned share of each company is as follows: (table
deleted)
G.R. No. L-55397 February 29, 1988

TAI
TONG
CHUACHE
29
vs.
THE
INSURANCE
COMMISSION
and
CORPORATION, respondents.
&
TRAVELLERS
CO., petitioner,
MULTI-INDEMNITY
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the decision of the Insurance
Commission in IC Case #367 1dismissing the complaint 2 for recovery of the alleged unpaid
balance of the proceeds of the Fire Insurance Policies issued by herein respondent
insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land
and a building located at San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of S.S.S., which building was
insured with respondent S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache
Inc. in the amount of P100,000.00. To secure the payment of the loan, a
mortgage was executed over the land and the building in favor of Tai Tong
Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
We are showing hereunder another apportionment of the loss which

includes the Travellers Multi-Indemnity policy for reference purposes.
(table deleted)
Based on the computation of the loss, including the Travellers MultiIndemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of the
loss. Complainants were paid the following: P41,546.79 by Philippine
British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and
P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6. Amended
Complaint). Demand was made from respondent Travellers Multi-Indemnity
for its share in the loss but the same was refused. Hence, complainants
demanded from the other three (3) respondents the balance of each share
in the loss based on the computation of the Adjustment Standards Report
excluding Travellers Multi-Indemnity in the amount of P30,894.31
(P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS
Accredited) but the same was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance
Corporation admitted the material allegations in the complaint, but denied
liability on the ground that the claim of the complainants had already been
waived, extinguished or paid. Both companies set up counterclaim in the
total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the

Commission in its letter of July 22, 1977 that the herein claim of
complainants for the balance had been paid in the amount of P 5,938.57 in
full, based on the Adjustment Standards Corporation Report of September
22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No.
599 DV and alleged as its special and affirmative defenses the following, to
wit: that Fire Policy No. 599 DV, covering the furniture and building of
complainants was secured by a certain Arsenio Chua, mortgage creditor,
for the purpose of protecting his mortgage credit against the complainants;
that the said policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the policy contains an
endorsement in favor of Arsenio Chua as his mortgage interest may appear
to indicate that insured was Arsenio Chua and the complainants; that the
premium due on said fire policy was paid by Arsenio Chua; that respondent
Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention
claiming the proceeds of the fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity.
Travellers
Insurance, in answer to the complaint in intervention, alleged
30
that the Intervenor is not entitled to indemnity under its Fire Insurance
Policy for lack of insurable interest before the loss of the insured premises
and that the complainants, spouses Pedro and Azucena Palomo, had
already paid in full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos'
complaint on the ground that the insurance policy subject of the complaint was taken out
by Tai Tong Chuache & Company, petitioner herein, for its own interest only as mortgagee
of the insured property and thus complainant as mortgagors of the insured property have
no right of action against herein respondent. It likewise dismissed petitioner's complaint in
intervention in the following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity
to the Intervenor-mortgagee. The complainant testified that she was still
indebted to Intervenor in the amount of P100,000.00. Such allegation has
not however, been sufficiently proven by documentary evidence. The
certification (Exhibit 'E-e') issued by the Court of First Instance of Davao,
Branch 11, indicate that the complainant was Antonio Lopez Chua and not
Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for
reconsideration but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an

issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez
Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision
appealed from considering the manner it was written. 5 As correctly pointed out by
respondent insurance commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the insured property. Perusal of
the decision reveals however that it readily absolved respondent insurance company from
liability on the basis of the commissioner's conclusion that at the time of the occurrence of
the peril insured against petitioner as mortgagee had no more insurable interest over the
insured property. It was based on the inference that the credit secured by the mortgaged
property was already paid by the Palomos before the said property was gutted down by
fire. The foregoing conclusion was arrived at on the basis of the certification issued by the
then Court of First Instance of Davao, Branch II that in a certain civil action against the
Palomos, Antonio Lopez Chua stands as the complainant and not petitioner Tai Tong
Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that the case
of a party is constituted by his own affirmative allegations. Under Section 1, Rule
131 6 each party must prove his own affirmative allegations by the amount of evidence
required by law which in civil cases as in the present case is preponderance of evidence.
The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence as required by law to obtain
favorable judgment. 7 Thus, petitioner who is claiming a right over the insurance must
prove its case. Likewise, respondent insurance company to avoid liability under the policy
by setting up an affirmative defense of lack of insurable interest on the part of the
petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the
insurance policy taken out by petitioner over the mortgaged property. Neither did it deny
that the said property was totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense of lack of insurable
interest on the part of the petitioner that before the occurrence of the peril insured against
the Palomos had already paid their credit due the petitioner. Respondent having admitted
the material allegations in the complaint, has the burden of proof to show that petitioner
has no insurable interest over the insured property at the time the contingency took place.
Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no effort to
present any evidence to substantiate its claim, while petitioner did. For said respondent's
failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved respondent
insurance company from liability on the basis of the certification issued by the then Court
of First Instance of Davao, Branch II, that in a certain civil action against the Palomos,
Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit extended by herein petitioner to
the Palomos secured by the insured property must have been paid. Such is a glaring error
which this Court cannot sanction. Respondent Commission's findings are based upon a
mere inference.
The record of the case shows that the petitioner to support its claim for the insurance
proceeds offered as evidence the contract of mortgage (Exh. 1) which has not been
cancelled nor released. It has been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by
private respondent. Moreover, petitioner's claim that the loan extended to the Palomos has
not yet been paid was corroborated by Azucena Palomo who testified that they are still
indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan
granted to Azucena Palomo by petitioner the same should have been brought by Tai Tong
Chuache or by its representative in its own behalf. From the above premise respondent
concluded that the obligation secured by the insured property must have been paid.
G.R. No. L-45425
April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest
by way of income tax. They appealed from the decision rendered in the case on October
23, 1936 by the Court of First Instance of the City of Manila, which dismissed the action
with the costs against them.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent
pointed out that the action must be brought in the name of the real party in interest. We
agree. However, it should be borne in mind that petitioner being a partnership may sue
and be sued in its name or by its duly authorized representative. The fact that Arsenio
Lopez Chua is the31
representative of petitioner is not questioned. Petitioner's declaration
that Arsenio Lopez Chua acts as the managing partner of the partnership was corroborated
by respondent insurance company. 11 Thus Chua as the managing partner of the
partnership may execute all acts of administration 12 including the right to sue debtors of
the partnership in case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache &
Company is an agent of the partnership. Being an agent, it is understood that he acted for
and in behalf of the firm. 13 Public respondent's allegation that the civil case flied by
Arsenio Chua was in his capacity as personal creditor of spouses Palomo has no basis.
The case was submitted for decision upon the following stipulation of facts:
The respondent insurance company having issued a policy in favor of herein petitioner
which policy was of legal force and effect at the time of the fire, it is bound by its terms
and conditions. Upon its failure to prove the allegation of lack of insurable interest on the
part of the petitioner, respondent insurance company is and must be held liable.
1.
Gatchalian ....................................................................................................
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity
Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the amount
of P100,000.00. Costs against said private respondent.
Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this Honorable
Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase
one sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the
amounts as follows:
Jose
P0.18
2. Gregoria Cristobal ...............................................................................................
.18
3. Saturnina Silva ....................................................................................................
.08
4. Guillermo Tapia ...................................................................................................
.13
5. Jesus Legaspi ......................................................................................................
.15
6. Jose Silva ............................................................................................................. .07

SO ORDERED.
7. Tomasa Mercado ................................................................................................
.08
8. Julio Gatchalian ...................................................................................................
.13
9.
Santiago ................................................................................................
.13
Emiliana
10. Maria C. Legaspi ...............................................................................................
.16
11. Francisco Cabral ...............................................................................................
.13
12.
Javier ....................................................................................................
.14
13.
Santiago ...................................................................................................
14.
Guzman ......................................................................................
Gonzalo
Maria
Buenaventura
.17
.13
15. Mariano Santos .................................................................................................
.14
Total ........................................................................................................
2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs

purchased,32
in the ordinary course of business, from one of the duly authorized
agents of the National Charity Sweepstakes Office one ticket bearing No. 178637
for the sum of two pesos (P2) and that the said ticket was registered in the name
of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934, the
above-mentioned ticket bearing No. 178637 won one of the third prizes in the
amount of P50,000 and that the corresponding check covering the abovementioned prize of P50,000 was drawn by the National Charity Sweepstakes Office
in favor of Jose Gatchalian & Company against the Philippine National Bank, which
check was cashed during the latter part of December, 1934 by Jose Gatchalian &
Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return covering the
prize won by Jose Gatchalian & Company and that on December 29, 1934, the said
return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit
A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose
Gatchalian & Company requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
Company until January 20, 1935 within which to pay the said amount of P1,499.94,
a copy of which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made a part
hereof, requesting exemption from payment of the income tax to which reply there
were enclosed fifteen (15) separate individual income tax returns filed separately
by each one of the plaintiffs, copies of which returns are attached and marked
Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of
this case and made parts hereof; a statement of sale signed by Jose Gatchalian
showing the amount put up by each of the plaintiffs to cover up the attached and
marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by
Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and
made part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption
from the payment of tax and reiterated his demand for the payment of the sum of
P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by
the defendant, notwithstanding subsequent demand made by defendant upon the
plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit
H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the
tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by
official receipt No. 7454879 which is attached and marked Exhibit J and made a
part hereof, and requested defendant that plaintiffs be allowed to pay under
protest the balance of the tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted
by defendant subject to the condition that plaintiffs file the usual bond secured by
two solvent persons to guarantee prompt payment of each installments as it
becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of P118.70 a month, the
first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment
of the sum of P602.51, a copy of which protest is attached and marked Exhibit L,
but that defendant in his letter dated August 1, 1935 overruled the protest and
denied the request for refund of the plaintiffs;
2. Buenaventura Guzman ...............................
.13
- Do -
3. Maria Santiago ............................................
.17
- Do -
4. Gonzalo Javier ..............................................
.14
- Do -
14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in
his letter dated July 23, 1935, copy of which is attached and marked Exhibit M,
ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the
warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
5. Francisco Cabral ..........................................
.13
- Do -
6. Maria C. Legaspi ..........................................
.16
- Do -
7. Emiliana Santiago .........................................
.13
- Do -
8. Julio Gatchalian ............................................
.13
- Do -
9. Jose Silva ......................................................
.07
- Do -
10. Tomasa Mercado .......................................
.08
- Do -
11. Jesus Legaspi .............................................
.15
- Do -
12. Guillermo Tapia ...........................................
.13
- Do -
13. Saturnina Silva ............................................
.08
- Do -
14. Gregoria Cristobal .......................................
.18
- Do -
15. Jose Gatchalian ............................................
.18
- Do -
2.00
Total cost of said
15. That in order to avoid annoyance and embarrassment arising from the levy of
their property, the plaintiffs on August 28, 1936, through Jose Gatchalian,
Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the
municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the
unpaid balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and marked Exhibit
N and made a part hereof; and that on September 3, 1936, the plaintiffs formally
protested to the defendant against the payment of said amount and requested the
refund thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest and
denied the refund thereof; copy of which is attached and marked Exhibit P and
made a part
33hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44)
paid under protest by them but that defendant refused and still refuses to refund
the said amount notwithstanding the plaintiffs' demands.
ticket; and that, therefore, the persons named above are entitled to the parts of
whatever prize that might be won by said ticket.
17. The parties hereto reserve the right to present other and additional evidence if
necessary.
Pulilan, Bulacan, P.I.
Exhibit E referred to in the stipulation is of the following tenor:
(Sgd.) JOSE GATCHALIAN
To whom it may concern:
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify,

that on the 11th day of August, 1934, I sold parts of my shares on ticket No.
178637 to the persons and for the amount indicated below and the part of may
share remaining is also shown to wit:
Purchaser
Amount
Address
1. Mariano Santos ...........................................
P0.14
Pulilan, Bulacan.
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED

JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
Name
1.
Exhibi
t
No.
Jose D-1
Purchas
e
Price
Price
Won
Expenses
Net
prize
P0.18
P4,42
P 480
3,94
Gatchalian ..............................
............
2.
Gregoria
Cristobal ................................. D-2
.....
.18
3.
Saturnina
Silva ....................................... D-3
......
.08
4.
Guillermo
Tapia ...................................... D-4
....
.13
3,325
360
2,96
5
5. Jesus Legaspi by Maria

D-5
Cristobal .........
.15
3,825
720
3,10
5
6.
Jose
Silva ....................................... D-6
.............
.08
1,875
360
1,51
5
7.
Tomasa
Mercado ................................. D-7
......
.07
1,875
360
1,51
5
8. Julio Gatchalian by Beatriz

D-8
Guzman .......
.13
3,150
240
2,91
0
9.
Emiliana
Santiago ................................. D-9
.....
.13
3,325
360
2,96
5
10.
Maria
C.
Legaspi .................................. D-10
....
.16
4,100
960
3,14
0
11.
Francisco
Cabral .................................... D-11
..
.13
3,325
360
2,96
5
12.
Gonzalo
Javier ...................................... D-12
....
.14
3,325
360
2,96
5
13.
Maria
Santiago ................................. D-13
.........
.17
4,350
360
3,99
0
14.
.13
3,325
360
2,96
4,575
1,875
2,000
360
34
Buenaventura D-14
2,57
5
1,51
5
Guzman ...........................
15.
Mariano
Santos .................................... D-15
....
5
.14
2.00
3,325
50,00
0
2,96
5
360
<=""
style="font-size:
text-decoration:
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14px;
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128);
arial,
The legal questions raised in plaintiffs-appellants' five assigned errors may properly be
reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own; in the first case it is admitted that
the partnership thus formed is liable for the payment of income tax, whereas if there was
merely a community of property, they are exempt from such payment; and (2) whether
they should pay the tax collectively or whether the latter should be prorated among them
and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as
last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding calendar year from all sources by every
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association or insurance company, organized in the Philippine
Islands, no matter how created or organized, but not including duly registered
general copartnership (compaias colectivas), a tax of three per centum upon such
income; and a like tax shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar year from all sources
within the Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance
company organized, authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing obligations of
residents, corporate or otherwise: Provided, however, That nothing in this section
shall be construed as permitting the taxation of the income derived from dividends
or net profits on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a
participacion), association, or insurance company, or property, real, personal, or
mixed, shall be ascertained in accordance with subsections (c) and (d) of section
two of Act Numbered Two thousand eight hundred and thirty-three, as amended by
Act Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every taxable
participacion), association, or insurance company in the calendar year nineteen
hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the latter is
exempt from the payment of income tax under the law. But according to the stipulation
facts the plaintiffs organized a partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which
they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued
the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the
same capacity, collected the said check. All these circumstances repel the idea that the
plaintiffs organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated among them and paid individually,
resulting in their exemption from the tax.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots
with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next
day he transferred his rights to his four children, the petitioners, to enable them to build
their residences. The company sold the two lots to petitioners for P178,708.12 on March 13
(Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that
they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them
to the Walled City Securities Corporation and Olga Cruz Canda for the total sum of
P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or
P33,584 for each of them. They treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the
Commissioner of Internal Revenue required the four petitioners to pay corporate income
tax on the total profit of P134,336 in addition to individual income tax on their shares
thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge
and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance
to the plaintiffs appellants. So ordered.
Not only that. He considered the share of the profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required
them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
G.R. No. L-68118 October 29, 1985
Thus, the petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains
already paid by them.
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.

OBILLOS,
brothers
and
sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of
the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
Demosthenes B. Gadioma for petitioners.
The petitioners contested the assessments. Two Judges of the Tax Court sustained the
same. Judge Roaquin dissented. Hence, the instant appeal.
35
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two parcels
of land which they had acquired from their father.
We hold that it is error to consider the petitioners as having formed a partnership under
article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result
in oppressive taxation and confirm the dictum that the power to tax involves the power to
destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and
simple. To consider them as partners would obliterate the distinction between a coownership and a partnership. The petitioners were not engaged in any joint venture by
reason of that isolated transaction.
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where
15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the
agreement that they would divide the prize The ticket won the third prize of P50,000. The
15 persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint
ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:
Their original purpose was to divide the lots for residential purposes. If later on they found
it not feasible to build their residences on the lots because of the high cost of construction,
then they had no choice but to resell the same to dissolve the co-ownership. The division
of the profit was merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeas
says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y
la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por razon
36
del origen, en que la sociedad presupone necesariamente la convencion,
mentras que la comunidad puede existir y existe ordinariamente sin ela; y
por razon del fin objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su integridad la cosa
comun y favorecer su conservacion.
Co-owership distinguished from partnership.We find that the case at bar

is fundamentally similar to the De Leon case. Thus, like the De Leon heirs,
the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their
deceased parents; they did not contribute or invest additional ' capital to
increase or expand the inherited properties; they merely continued
dedicating the property to the use to which it had been put by their
forebears; they individually reported in their tax returns their
corresponding shares in the income and expenses of the 'hacienda', and
they continued for many years the status of co-ownership in order, as
conceded by respondent, 'to preserve its (the 'hacienda') value and to
continue the existing contractual relations with the Central Azucarera de
Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31,
1963).
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que

se dice que si en nuestro Derecho positive se ofrecen a veces dificultades
al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina cientifica seala como
nota fundamental de diferenciacion aparte del origen de fuente de que
surgen, no siempre uniforme, la finalidad perseguida por los
interesados: lucro comun partible en la sociedad, y mera conservacion y
aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1,
10 Ed., 1971, 328- 329).
All co-ownerships are not deemed unregistered pratnership.CoOwnership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise,
would
be
to
subject
the
income
of all
co-ownerships of inherited properties to the tax on corporations, inasmuch
as if a property does not produce an income at all, it is not subject to any
kind of income tax, whether the income tax on individuals or the income
tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11,
1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 7778).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived". There must
be an unmistakable intention to form a partnership or joint venture.*
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the co-heirs used the inheritance or the incomes derived
therefrom as a common fund to produce profits for themselves, it was held that they were
taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198,
where father and son purchased a lot and building, entrusted the administration of the
building to an administrator and divided equally the net income, and from Evangelista vs.
Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought
four pieces of real property which they leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner should have investigated was whether the
father donated the two lots to the petitioners and whether he paid the donor's tax (See Art.
1448, Civil Code). We are not prejudging this matter. It might have already prescribed.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of
which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income
tax, real estate dealer's tax and the residence tax for the years 1945 to 1949,
inclusive, in accordance with the respondent's assessment for the same in the total
amount of P6,878.34, which is hereby affirmed and the petition for review filed by
petitioner is hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments
are cancelled. No costs.
SO ORDERED.
1. That the petitioners borrowed from their father the sum of P59,1400.00 which
amount together with their personal monies was used by them for the purpose of
buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an
area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
37
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land
with an aggregate area of 3,718.40 sq. m. including improvements thereon for
P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements thereon for P108,825.00. This property has
an assessed value of P4,983.00 as of 1948;
G.R. No. L-9996
October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,

petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Santiago
F.
Alidio
and
Angel
S.
Dakila,
Jr.,
for
petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo
Umali and Solicitor Felicisimo R. Rosete for Respondents.
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq.
m. including improvements thereon for P237,234.34. This property has an
assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and
receive rents; to issue receipts therefor; in default of such payment, to bring suits
against the defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners
had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945, the
total amount collected as rents on their real properties was P9,599.00 while the
expenses amounted to P3,650.00 thereby leaving them a net rental income of
P5,948.33;
Total
including
compromise
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30,
out of which amount was deducted in the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13;
REAL ESTATE DEALER'S FIXED TAX
10. That in 1948, they realized a gross rental income of P17,453.00 out of the
which amount was deducted the sum of P4,837.65 as expenses, thereby leaving
them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-1949, computed, according to assessment
made by said officer, as follows:
INCOME TAXES
surcharge
and
P6,157.09
1946
P37.50
1947
150.00
1948
150.00
38
1945
14.84
1949
150.00
1946
1,144.71
Total including penalty
P527.00
1947
10.34
RESIDENCE TAXES OF CORPORATION
1948
1,912.30
1945
P38.75
1949
1,575.90
1946
38.75
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected,

and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of
the Philippines, no matter how created or organized but not including duly
registered general co-partnerships (compaias colectivas), a tax upon such income
equal to the sum of the following: . . .
1947
38.75
1948
38.75
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
1949
38.75
Total including surcharge
P193.75
39
TOTAL TAXES DUE
P6,878.34.
Said letter of demand and corresponding assessments were delivered to petitioners on

December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals,
with a prayer that "the decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the payment of the
taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for
the respondent, and a petition for reconsideration and new trial having been subsequently
denied, the case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided
for in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate dealers
fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the
pertinent parts of which read:
By the contract of partnership two or more persons bind themselves to contribute

money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present
in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money
and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and circumstances surrounding the case, we
are fully satisfied that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was
not property inherited by them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof in order to establish said
common fund.
2. They invested the same, not merely not merely in one transaction, but in
a series of transactions. On February 2, 1943, they bought a lot for P100,000.00.
On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property acquired
by the petitioners in February, 1943. In other words, one cannot but perceive a
character of habitually peculiar to business transactions engaged in the purpose of
gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by
way of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely Simeon Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over
twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose
in creating the set up already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
40
constitute a partnership,
the collective effect of these circumstances is such as to leave no
room for doubt on the existence of said intent in petitioners herein. Only one or two of the
aforementioned circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality independent
of that of its members, did not come into existence, and some of the characteristics of
partnerships are lacking in the case at bar. This pretense was correctly rejected by the
Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue Code
includes "partnerships" among the entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships which constitute precisely one of
the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of
the law on partnerships, in order that one could be deemed constituted for purposes of the
tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en participation)" and "associations," none of which
has a legal personality of its own, independent of that of its members . Accordingly, the
lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general copartnerships" which are possessed of the aforementioned personality have
been expressly excluded by law (sections 24 and 84 [b] from the connotation of the term
"corporation" It may not be amiss to add that petitioners' allegation to the effect that their
liability in connection with the leasing of the lots above referred to, under the management
of one person even if true, on which we express no opinion tends to increase the
similarity between the nature of their venture and that corporations, and is, therefore, an
additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently
from "partnerships". By specific provisions of said laws, such "corporations" include
"associations, joint-stock companies and insurance companies." However, the term
"association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change,
and the affairs of which, like corporate affairs, are conducted by a single individual,
a committee, a board, or some other group, acting in a representative capacity. It
is immaterial whether such organization is created by an agreement, a declaration
of trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common
law' trust, and 'investment' trust (whether of the fixed or the management type),
an interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which
is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it
includes not only a partnership as known at common law but, as well, a syndicate,
group, pool, joint venture or other unincorporated organizations which carries on
any business financial operation, or venture, and which is not, within the meaning
of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal
Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income
Taxation, p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes
these partnerships with the exception only of duly registered general copartnerships
within the purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465
provides in part:
NGO TIAN TEK and NGO HAY, petitioner,

vs.
PHILIPPINE EDUCATION CO., INC., respondent.
Tansinsin and Yatco for petitioner.
Marcial Esposo for respondent.
PARAS, J.:
Entities liable to residence tax.-Every corporation, no matter how created or

organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which in no case, shall exceed one thousand pesos, in accordance
with the following schedule: . . .
The
term
'corporation'
as
used
in
this
Act
includes
joint-stock
company, partnership, joint account (cuentas en participacion), association or
insurance company, no matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and
84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and that the
latter was approved on June 15, 1939, the day immediately after the approval of said
41No. 465 (June 14, 1939), it is apparent that the terms "corporation"
Commonwealth Act
and "partnership" are used in both statutes with substantially the same meaning.
Consequently, petitioners are subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties
above mentioned for a period of over twelve years, and that the yearly gross rentals of
said properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are
subject to the tax provided in section 193 (q) of our National Internal Revenue Code, for
"real estate dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and
holding himself out as a full or part time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs
against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.
G.R. No. L-48113
April 7, 1947
The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila
an action against the defendants, Vicente Tan alias Chan Sy and the partnership of Ngo
Tian Tek and Ngo Hay, for the recovery of some P16,070.14, unpaid cost of merchandise
purchased by Lee Guan Box Factory from the plaintiff and five other corporate entities
which, though not parties to the action, had previously assigned their credits to the
plaintiff, together with attorney's fees, interest and costs. /by agreement of the parties, the
case was heard before a referee, Attorney Francisco Dalupan, who in due time submitted
his report holding the defendants jointly and severally liable to the plaintiff for the sum of
P16,070.14 plus attorney's fees and interest at the rates specified in the report. On March
6, 1939, the Court of First Instance of Manila rendered judgment was affirmed by the Court
of Appeals in its decision of January 31, 1941, now the subject of our review at the instance
of the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals whose findings of fact
are conclusive, "as far back as the year 1925, the Modern Box Factory was established at
603 Magdalena Street, Manila. It was at first owned by Ngo Hay, who three years later was
joined by Ngo Tian Tek as a junior partner. The modern Box Factory dealt in pare and
similar merchandise and purchased goods from the plaintiff and its assignors in the names
of the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about
the year 1930, the Lee Guan Box Factory was established a few meters from the Modern
Box Factory, under the management of Vicente Tan. When that concern, through Vicente
Tan, sought credit with the plaintiff and its assignors, Ngo Hay, in conversations and
interviews with their officers and employees, represented that he was the principal owner
of such factory, that the Lee Guan Box Factory and the Modern Box Factory belonged to the
same owner, and that the Lee Guan Box Factory was a subsidiary of the Modern Box
Factory. There is evidence that many goods purchased in the name of the Lee Guan Box
Factory were delivered to the Modern Box Factory by the employees of the plaintiff and its
assignors upon the express direction of Vicente Tan. There is also evidence that the
collectors of the sellers were requested by Vicente Tan to collect and did collect from
the Modern Box Factory the bills against the Lee Guan Box Factory. In the fact the record
shows many checks signed by Ngo Hay or Ngo Tian Tek in payment of accounts of the Lee
Guan Box Factory. Furthermore, and this seems to be conclusive-Ngo Hay, testifying for
the defense, admitted that 'he' was the owner of the Lee Guan Box Factory in and before
the year 1934, but that in January, 1935, 'he' sold it, by the contract of sale Exhibit 7, to
Vicente Tan, who had been his manager of the business. Tan declared also that before
January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and Ngo Tian Tek. The
contract Exhibit 7 was found by the referee, to be untrue and simulated, for various
convincing reasons that need no repetition here. And the quoted statements serve
effectively to confirm the evidence for the plaintiff that it was Ngo Hay's representations of
ownership of, and responsibility for, Lee Guan Box Factory that induced them to open
credit for that concern. It must be stated that in this connection to answer appellant's
fitting observation that the plaintiff and the assignors have considered Ngo Hay, the
Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts of the
partners themselves, and that the proof as to Ngo Hay's statements regarding the
ownership of Lee Guan Box Factory must be taken in that view. Ngo Hay was wont to say
'he' owned the Modern Box Factory, meaning that he was the principal owner, his other
partner being Ngo Tian Tek. Now, it needs no demonstration for appellant does not deny
it that the obligations of the Lee Guan Box Factory must rest upon its known owner. And
that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals erred in holding that
42 was a subsidiary of the Modern Box Factory and in disregarding the
Lee Guan Box Factory
fact that the contracts evidencing the debts in question were signed by Vicente
Tan alias Chan Sy, without any indication that tended to involve the Modern Box Factory or
the petitioner. In the first place, we are concluded by the finding of the Court of Appeals
regarding the ownership by the petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts entered into by a factor of a
commercial establishment known to belong to a well known enterprise or association, shall
be understood as made for the account of the owner of such enterprise or association,
even when the factor has not so stated at the time of executing the same, provided that
such contracts involve objects comprised in the line and business of the establishment.
(Article 286, Code of Commerce.) The fact that Vicente Tan did not have any recorded
power of attorney executed by the petitioner will not operate to prejudice third persons,
like the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions which gave rise to
this suit, Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay under the
contract, Exhibit 7; and the petitioner assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is simulated. This contention is purely
factual and must also be overruled.
The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue
for the credits assigned by the five entities with which Lee Guan Box Factory originally
contracted, it being argued that the assignment, intended only for purposes of collection,
did not make said respondent the real party in interest. The petitioner has cited 5 Corpus
Juris, section 144, page 958, which points out that "under statutes authorizing only a bona
fideassignee of choses in action to sue thereon in his own name, an assignee for collection
merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated in the assignment,"
precludes us from ruling that respondent company is not a bona fide assignee. Even
assuming, however, that said assignment was only for collection, we are not prepared to
say that, under section 114 of the Code of Civil Procedure, in force at the time this action
was instituted, ours is not one of those jurisdictions following the rule that "when a choose,
capable of legal assignment, is assigned absolutely to one, but the assignment is made for
purpose of collection, the legal title thereto vests in the assignee, and it is no concern of
the debtor that the equitable title is in another, and payment to the assignee discharges
the debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner could indeed
be prejudiced by such assignment, because section 114 of the Code of Civil Procedure
reserves to it "'any set-off or other defense existing at the time of or before notice of the
assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting
parties and does not follow assignment," and that the contracts assigned to the
respondent company "are immoral and against public policy and therefore void," constitute
defenses on the merits, but do not affect the efficacy of the assignment. It is obvious that,
apart from the fact that the petitioner can not invoke fraud of its authorship to evade
liability, the appealed decision is founded on an obligation arising, not from fraud, but from
the very contracts under which merchandise had been purchased by Lee Guan Box Factory.
The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to
hold that the writ of attachment is issued at the commencement of this action by the Court
of First Instance is illegal, and to award in favor of the petitioner damages for such
wrongful attachment. For us to sustain petitioner's contention will amount to an
unauthorized reversal of the following conclusion of fact of the Court of Appeals: "The
stereotyped manner in which defendants obtained goods on credit from the six companies,
Vicente Tan's sudden disappearance, the execution of the fake sale Exhibit 7 to throw the
whole responsibility upon the absent or otherwise insolvent Tan, defendant's mercurial and
unbelievable theories as to the ownership of the Modern Box Factory and Lee Guan Box
Factory obviously adopted in a vain effort to meet or explain away the evidentiary force
of plaintiff's documentary evidence are much too significant to permit a declaration that
the attachment was not justified."
Regarding the suggestion in petitioner's memorandum that this case should be dismissed
because of the death of Ngo Hay, it is sufficient to state that the petitioner Ngo Tian Tek
and Ngo Hay is sued as a partnership possessing a personality distinct from any of the
partners.
The appealed decision is affirmed, with costs against the petitioner. So ordered.
G.R. No. L-31684 June 28, 197

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,vs.ESTRELLA ABAD SANTOS,
respondent.
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The
amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos
consists of her industry
43 being an industrial partner", and that the profits and losses "shall
be divided and distributed among the partners ... in the proportion of 70% for the first
three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad
Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad
Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in
the Court of First Instance of Manila, alleging that the partnership, which was also made a
party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and let
her examine the partnership books or to give her information regarding the partnership
affairs to pay her any share in the dividends declared by the partnership. She therefore
prayed that the defendants be ordered to render accounting to her of the partnership
business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff ever demanded that she be
allowed to examine the partnership books; and byway of affirmative defense alleged that
the amended Articles of Co-partnership did not express the true agreement of the parties,
which was that the plaintiff was not an industrial partner; that she did not in fact contribute
industry to the partnership; and that her share of 30% was to be based on the profits which
might be realized by the partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.
The parties are in agreement that the main issue in this case is "whether the plaintiffappellee (respondent here) is an industrial partner as claimed by her or merely a profit
sharer entitled to 30% of the net profits that may be realized by the partnership from June
7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully
paid, as claimed by appellants (herein petitioners)." On that issue the Court of First
Instance found for the plaintiff and rendered judgement "declaring her an industrial partner
of Evangelista & Co.; ordering the defendants to render an accounting of the business
operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff such amounts
as may be due as her share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's fees in the sum of
P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments
of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner
of Evangelista & Co., notwithstanding the admitted fact that since 1954 and until after
promulgation of the decision of the appellate court the said respondent was one of the
judges of the City Court of Manila, and despite its findings that respondent had been paid
for services allegedly contributed by her to the partnership. In this connection the Court of
Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves
that said respondent did not bind herself to contribute her industry, and she could not, and
in fact did not, because she was one of the judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the
appellate court's own finding that she has been paid for the services allegedly rendered by
her, as well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully
excluded from, and deprived of, her alleged share, interests and participation, as an
alleged industrial partner, in the partnership Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby
respondent was declared an industrial partner of the petitioner, and petitioners were
ordered to render an accounting of the business operation of the partnership from June 7,
1955, and to pay the respondent her alleged share in the net profits of the partnership plus
the sum of P2,000.00 as attorney's fees and the costs of the suit, instead of dismissing
respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts
as found by the Court of Appeals. The evidence presented by the parties as the trial in
support of their respective positions on the issue of whether or not the respondent was an
industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the
extent of reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law that might have been
commited by the lower court. It should be observed, in this regard, that the Court of
Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit
"A", was conclusive evidence that the respondent was an industrial partner of the said
company, but considered it together with other factors, consisting of both testimonial and
documentary evidences, in arriving at the factual conclusion expressed in the decision.
44
The findings of the Court of Appeals on the various points raised in the first assignment
of error are hereunder reproduced if only to demonstrate that the same were made after a
through analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary evidence does not
conclusively prove that appellee was in fact admitted by appellants as industrial partner of
Evangelista & Co." and that "The grounds relied upon by the lower Court are untenable"
(Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being
that "In finding that the appellee is an industrial partner of appellant Evangelista & Co.,
herein referred to as the partnership the lower court relied mainly on the appellee's
documentary evidence, entirely disregarding facts and circumstances established by
appellants" evidence which contradict the said finding' (Page 21, Appellants' Brief). The
lower court could not have done otherwise but rely on the exhibits just mentioned, first,
because appellants have admitted their genuineness and due execution, hence they were
admitted without objection by the lower court when appellee rested her case and, secondly
the said exhibits indubitably show the appellee is an industrial partner of appellant
company. Appellants are virtually estopped from attempting to detract from the probative
force of the said exhibits because they all bear the imprint of their knowledge and consent,
and there is no credible showing that they ever protested against or opposed their
contents prior of the filing of their answer to appellee's complaint. As a matter of fact, all
the appellant Evangelista, Jr., would have us believe as against the cumulative force of
appellee's aforesaid documentary evidence is the appellee's Exhibit "A", as confirmed
and corroborated by the other exhibits already mentioned, does not express the true intent
and agreement of the parties thereto, the real understanding between them being the
appellee would be merely a profit sharer entitled to 30% of the net profits that may be
realized between the partners from June 7, 1955, until the mortgage loan of P30,000.00 to
be obtained from the RFC shall have been fully paid. This version, however, is discredited
not only by the aforesaid documentary evidence brought forward by the appellee, but also
by the fact that from June 7, 1955 up to the filing of their answer to the complaint on
February 8, 1964 or a period of over eight (8) years appellants did nothing to correct
the alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to
suppose that, had appellee not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A" does not express the true intent and
agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is
an overriding fact which proves that the parties to the Amended Articles of Partnership,
Exhibit "A", did not contemplate to make the appelleeEstrella Abad Santos, an industrial
partner of Evangelista & Co. It is an admitted fact that since before the execution of the
amended articles of partnership, Exhibit "A", the appelleeEstrella Abad Santos has been,
and up to the present time still is, one of the judges of the City Court of Manila, devoting all
her time to the performance of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the parties, for she could not
lawfully contribute her full time and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point,
quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would not have had the wherewithal to
operate the business for which appellant company was organized. Article 1767 of the New
Civil Code which provides that "By contract of partnership two or more persons bind
themselves, to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves, 'does not specify the kind of industry
that a partner may thus contribute, hence the said services may legitimately be
considered as appellee's contribution to the common fund. Another article of the same
Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business
for himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There is
no pretense, however, even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge of one of the branches of
the City Court of Manila can hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly shown by the
fact that it was only after filing of the complaint in this case and the answer thereto
appellants exercised their right of exclusion under the codal art just mentioned by alleging
in their Supplemental Answer dated June 29, 1964 or after around nine (9) years from
June 7, 1955 subsequent to the filing of defendants' answer to the complaint,
defendants reached an agreement whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as an alleged industrial partner, in
the defendant partnership and/or in its net profits or income, on the ground plaintiff has
never contributed her industry to the partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege and emoluments
appertaining to the said office, aside from teaching in law school in Manila, without the
express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even before she joined appellant company on June 7,
1955 as an industrial partner, why did it take appellants many yearn before excluding her
from said company as aforequoted allegations? And how can they reconcile such exclusive
45 that appellee has never been such a partner because "The real
with their main theory
agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the net
profits which the appellant partnership may realize from June 7, 1955, until the mortgage
of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully
paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal accounting
and to receive her share in the net profit that may result from such an accounting, which
right appellants take exception under their second assigned error. Our said holding is
based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any agreement;
(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of
the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
People vsDela Cruz (Cannot be found online)
CATALAN vs. GATCHALIAN (digest lang)
105 Phil 1270, G.R. No. L-11648, April 22, 1959
FACTS:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr.Maravetogether
with the improvements thereon to secure a credit from the latter. Thepartnership failed to
pay the obligation. The properties were sold to Dr.Marave at apublic auction. Catalan
redeemed the property and he contends that title should becancelled and a new one must
be issued in his name.
ISSUE:
Did Catalans redemption of the properties make him the absolute owner of thelands?
HELD:
No. Under Article 1807 of the NCC every partner becomes a trustee for hiscopartner
with regard to any benefits or profits derived from his act as a partner.Consequently, when
Catalan redeemed the properties in question, he became a trusteeand held the same in
trust for his copartnerGatchalian, subject to his right to demandfrom the latter his
contribution to the amount of redemption.
G.R. No. 5840
September 17, 1910
THE UNITED STATES, plaintiff-appellee,vs.EUSEBIO CLARIN, defendant-appellant.
ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with
EusebioClarin and Carlos de Guzman, might buy and sell mangoes, and, believing that he
could make some money in this business, the said Larin made an agreement with the three
men by which the profits were to be divided equally between him and them.
(3) As provided by article 1807;
Pedro Tarug, EusebioClarin, and Carlos de Guzman did in fact trade in mangoes and
obtained P203 from the business, but did not comply with the terms of the contract by
delivering to Larin his half of the profits; neither did they render him any account of the
capital.
partnership; otherwise the result would be that, if the partnership, instead of obtaining
profits, suffered losses, as it could not be held liable civilly for the share of the capitalist
partner who reserved the ownership of the money brought in by him, it would have to
answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.
Larin charged them with the crime of estafa, but the provincial fiscal filed an
information only against EusebioClarin in which he accused him of appropriating to himself
not only the P172 but also the share of the profits that belonged to Larin, amounting to
P15.50.
We therefore freely acquit EusebioClarin, with the costs de oficio. The complaint for
estafa is dismissed without prejudice to the institution of a civil action.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed
that the facts presented concerned the defendant and themselves together.
G.R. No. L-45624

April 25, 1939
GEORGE LITTON, petitioner-appellant,vs.HILL & CERON, ET AL., respondentsappellees.
CONCEPCION, J.:
The trial court, that of First Instance of Pampanga, sentenced the defendant,
EusebioClarin, to six months' arresto mayor, to suffer the accessory penalties, and to
return to Pedro Larin P172, besides P30.50 as his share of the profits, or to subsidiary
imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and in
deciding his appeal we arrive at the following conclusions:
When 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, a contract
is formed which is 46
called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and
Guzman, he invested his capital in the risks or benefits of the business of the purchase and
sale of mangoes, and, even though he had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon of his three partners to return his capital
to him, but upon the partnership of which he himself formed part, or if it were to be done
by one of the three specifically, it would be Tarug, who, according to the evidence, was the
person who received the money directly from Larin.
The P172 having been received by the partnership, the business commenced and
profits accrued, the action that lies with the partner who furnished the capital for the
recovery of his money is not a criminal action for estafa, but a civil one arising from the
partnership contract for a liquidation of the partnership and a levy on its assets if there
should be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa
"who, to the prejudice of another, shall appropriate or misapply any money, goods, or any
kind of personal property which they may have received as a deposit on commission for
administration or in any other character producing the obligation to deliver or return the
same," (as, for example, in commodatum, precarium, and other unilateral contracts which
require the return of the same thing received) does not include money received for a
This is a petition to review on certiorari the decision of the Court of Appeals in a case
originating from the Court of First Instance of Manila wherein the herein petitioner George
Litton was the plaintiff and the respondents Hill &Ceron, Robert Hill, Carlos Ceron and
Visayan Surety & Insurance Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill &Ceron, a certain number of mining
claims, and by virtue of said transaction, the defendant Carlos Ceron delivered to the
plaintiff a document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for
5,000, 5,000 and 7,000 shares respectively total 17,000 shares of Big Wedge Mining
Company, which we have sold at P0.11 (eleven centavos) per share or P1,870.00 less 1/2
per cent brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of P720, and
unable to collect this sum either from Hill &Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The court, after trial,
ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership
Hill &Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On appeal to the
Court of Appeals, the latter affirmed the decision of the court on May 29, 1937, having
reached the conclusion that Ceron did not intend to represent and did not act for the firm
Hill &Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals
as to the question of fact just mentioned, namely, that Ceron individually entered into the
transaction with the plaintiff, but in view, however, of certain undisputed facts and of
certain regulations and provisions of the Code of Commerce, we reach the conclusion that
the transaction made by Ceron with the plaintiff should be understood in law as effected by
Hill &Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at the trial that
he and Ceron, during the partnership, had the same power to buy and sell; that in said
partnership Hill as well as Ceron made the transaction as partners in equal parts; that on
the date of the transaction, February 14, 1934, the partnership between Hill and Ceron was
in existence. After this date, or on February 19th, Hill &Ceron sold shares of the Big Wedge;
and when the transaction was entered into with Litton, it was neither published in the
newspapers nor stated in the commercial registry that the partnership Hill &Ceron had
been dissolved.
Hill testified that a few days before February 14th he had a conversation with the
plaintiff in the course of which he advised the latter not to deliver shares for sale or on
commission to Ceron because the partnership was about to be dissolved; but what
importance can be attached to said advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took place?
47
Under article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial
registry. (See also Cardell vs. Maeru, 14 Phil., 368.) The Supreme Court of Spain held that
the dissolution of a partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from buying and selling shares on their own account.
Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as
such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for purposes of
speculation and/or for manipulating the market, irrespective of whether the purchase or
sale is made from or to a private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the firm responsible
to him. According to the articles of copartnership of 'Hill &Ceron,' filed in the Bureau of
Commerce.
Sixth. That the management of the business affairs of the copartnership shall be
entrusted to both copartners who shall jointly administer the business affairs, transactions
and activities of the copartnership, shall jointly open a current account or any other kind of
account in any bank or banks, shall jointly sign all checks for the withdrawal of funds and
shall jointly or singly sign, in the latter case, with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be signed by one of the
partners if the other partner consented. Without the consent of one partner, the other
cannot bind the firm by a written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff (the plaintiff conceded
that the firm name was not mentioned at that time), the latter has failed to prove that Hill
had consented to such contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above
quoted that the management of the business of the partnership has been entrusted to
both partners thereof, but we dissent from the view of the Court of Appeals that for one of
the partners to bind the partnership the consent of the other is necessary. 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 inquires 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 authorized 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 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.)
The second paragraph of the articles of partnership of Hill &Ceron reads in part:
Second: That the purpose or object for which this copartnership is organized is to
engage in the business of brokerage in general, such as stock and bond brokers, real
brokers, investment security brokers, shipping brokers, and other activities pertaining to
the business of brokers in general.
The kind of business in which the partnership Hill &Ceron is to engage being thus
determined, none of the two partners, under article 130 of the Code of Commerce, may
legally engage in the business of brokerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership. Ceron, therefore, could
not have entered into the contract of sale of shares with Litton as a private individual, but
as a managing partner of Hill &Ceron.
The respondent argues in its brief that even admitting that one of the partners could
not, in his individual capacity, engage in a transaction similar to that in which the
partnership is engaged without binding the latter, nevertheless there is no law which
prohibits a partner in the stock brokerage business for engaging in other transactions
different from those of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this alleged corroboration because
the only finding of fact made by the Court of Appeals is to the effect that the transaction
made by Ceron with the plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay to the
plaintiff, jointly and severally, the sum of P720, with legal interest, from the date of the
filing of the complaint, minus the commission of one-half per cent (%) from the original
price of P1,870, with the costs to the respondents. So ordered.
48
been obtained, the complaint to compel compliance with the said contract had to be, as it
must be in fact, a procedural failure.
Although this question has already been considered and settled in our decision, we
nevertheless take cognizance of the motion in order to enlarge upon our views on the
matter.
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 copartner; 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.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
RESOLUTION
Wherefore, unless the contrary is shown, namely, that one of the partners did not
consent to his copartner entering into a contract with a third person, and that the latter
with knowledge thereof entered into said contract, the aforesaid presumption with all its
force and legal effects should be taken into account.
July 13, 1939

CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one of the defendants
sentenced in our decision to pay to the plaintiff the amount claimed in his complaint. It is
asked that we reconsider our decision, the said defendant insisting that the appellant had
not established that Carlos Ceron, another of the defendants, had the consent of his
copartner, the movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of partnership that
Hill and Ceron, only partners of the firm Hill &Ceron, would, as managers, have the
management of the business of the partnership, and that either may contract and sign for
the partnership with the consent of the other; the parties of partnership having been, so it
is said, recorded in the commercial registry, the appellant could not ignore the fact that the
consent of the movant was necessary for the validity of the contract which he had with the
other partner and defendant, Ceron, and there being no evidence that said consent had
There is nothing in the case at bar which destroys this presumption; the only thing
appearing in he findings of fact of the Court of Appeals is that the plaintiff "has failed to
prove that Hill had consented to such contract". According to this, it seems that the Court
of Appeals is of the opinion that the two partners should give their consent to the contract
and that the plaintiff should prove it. The clause of the articles of partnership should not be
thus understood, for it means that one of the two partners should have the consent of the
other to contract for the partnership, which is different; because it is possible that one of
the partners may not see any prospect in a transaction, but he may nevertheless consent
to the realization thereof by his copartner in reliance upon his skill and ability or otherwise.
And here we have to hold once again that it is not the plaintiff who, under the articles of
partnership, should obtain and prove the consent of Hill, but the latter's partner, Ceron,
should he file a complaint against the partnership for compliance with the contract; but in
the present case, it is a third person, the plaintiff, who asks for it. While the said
presumption stands, the plaintiff has nothing to prove.
Passing now to another aspect of the case, had Ceron in any way stated to the
appellant at the time of the execution of the contract, or if it could be inferred by his
conduct, that he had the consent of Hill, and should it turn out later that he did not have
such consent, this alone would not annul the contract judging from the provisions of article
130 of the Code of Commerce reading as follows:
No new obligation shall be contracted against the will of one of the managing partners,
should he have expressly stated it; but if, however, it should be contracted it shall not be
annulled for this reason, and shall have its effects without prejudice to the liability of the
partner or partners who contracted it to reimburse the firm for any loss occasioned by
reason thereof. (Emphasis supplied.)
Under the aforequoted provisions, when, not only without the consent but against the
will of any of the managing partners, a contract is entered into with a third person who
acts in good faith, and the transaction is of the kind of business in which the partnership is
engaged, as in the present case, said contract shall not be annulled, without prejudice to
the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to protect a third
person who contracts with one of the managing partners of the partnership, thus avoiding
fraud and deceit to which he may easily fall a victim without this protection which the Code
of Commerce wisely
49provides.
If we are to interpret the articles of partnership in question by holding that it is the
obligation of the third person to inquire whether the managing copartner of the one with
whom he contracts has given his consent to said contract, which is practically casting upon
him the obligation to get such consent, this interpretation would, in similar cases, operate
to hinder effectively the transactions, a thing not desirable and contrary to the nature of
business which requires promptness and dispatch one the basis of good faith and honesty
which are always presumed.
In view of the foregoing, and sustaining the other views expressed in the decision, the
motion is denied. So ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
G.R. No. L-22442
August 1, 1924
ANTONIO PARDO, petitioner,vs.THE HERCULES LUMBER CO., INC., and IGNACIO
FERRER, respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one
of the respondents herein, seeks by this original proceeding in the Supreme Court to obtain
a writ of mandamus to compel the respondents to permit the plaintiff and his duly
authorized agent and representative to examine the records and business transactions of
said company. To this petition the respondents interposed an answer, in which, after
admitting certain allegations of the petition, the respondents set forth the facts upon which
they mainly rely as a defense to the petition. To this answer the petitioner in turn
interposed a demurrer, and the cause is now before us for determination of the issue thus
presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in
the Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the petitioner or his agent to inspect
the records and business transactions of the said Hercules Lumber Company, Inc., at times
desired by the petitioner. No serious question is of course made as to the right of the
petitioner, by himself or proper representative, to exercise the right of inspection conferred
by section 51 of Act No. 1459. Said provision was under the consideration of this court in
the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), where we
held that the right of examination there conceded to the stockholder may be exercised
either by a stockholder in person or by any duly authorized agent or representative.
The main ground upon which the defense appears to be rested has reference to the
time, or times, within which the right of inspection may be exercised. In this connection the
answer asserts that in article 10 of the By-laws of the respondent corporation it is declared
that "Every shareholder may examine the books of the company and other documents
pertaining to the same upon the days which the board of directors shall annually fix." It is
further averred that at the directors' meeting of the respondent corporation held on
February 16, 1924, the board passed a resolution to the following effect:
The board also resolved to call the usual general (meeting of shareholders) for March 30
of the present year, with notice to the shareholders that the books of the company are at
their disposition from the 15th to 25th of the same month for examination, in appropriate
hours.
The contention for the respondent is that this resolution of the board constitutes a
lawful restriction on the right conferred by statute; and it is insisted that as the petitioner
has not availed himself of the permission to inspect the books and transactions of the
company within the ten days thus defined, his right to inspection and examination is lost,
at least for this year.
We are entirely unable to concur in this contention. The general right given by the
statute may not be lawfully abridged to the extent attempted in this resolution. It may be
admitted that the officials in charge of a corporation may deny inspection when sought at
unusual hours or under other improper conditions; but neither the executive officers nor
the board of directors have the power to deprive a stockholder of the right altogether. A
by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities to this
effect are too numerous and direct to require extended comment. (14 C.J., 859; 7 R.C.L.,
325; 4 Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs. Guthrie, 27 Utah, 248;
107 Am., St. Rep., 664. 681.) Under a statute similar to our own it has been held that the
statutory right of inspection is not affected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty days before an election. (State
vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised
"at reasonable hours." This means at reasonable hours on business days throughout the
year, and not merely during some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of
the respondents calls in question the motive which is supposed to prompt the petitioner to
make inspection; and in this connection it is alleged that the information which the
petitioner seeks is desired for ulterior purposes in connection with a competitive firm with
which the petitioner is alleged to be connected. It is also insisted that one of the purposes
of the petitioner is to obtain evidence preparatory to the institution of an action which he
means to bring against the corporation by reason of a contract of employment which once
existed between the corporation and himself. These suggestions are entirely apart from the
issue, as, generally speaking, the motive of the shareholder exercising the right is
immaterial. (7 R.C.L., 327.)
50
We are of the opinion that, upon the allegations of the petition and the admissions of
the answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained; and
the writ of mandamus will issue as prayed, with the costs against the respondent. So
ordered.
Johnson, Malcolm, Villamor, Ostrand, and Romualdez, JJ., concur.
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner, vs.HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
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 WahPanciteria 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 WahPanciteria since October,
1955 from petitioner Dan Fue Leung.
The Sun WahPanciteria, 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 WahPanciteria 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 WahPanciteria 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, H1 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 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:
The petitioner did not receive any contribution at the time he started the Sun
WahPanciteria. 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 WahPanciteria. To bolster his contention that he
was the sole owner of the restaurant, the petitioner presented various government licenses
and permits showing the Sun WahPanciteria 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).
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).
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 WahPanciteria from October, 1955,
until fully paid, and
51attorney'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 WahPanciteria 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)
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 WahPanciteria, 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:

xxxxxxxxx
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 WahPanciteria,
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 WahPanciteria 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 WahPanciteria 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".
52
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 WahPanciteria, notwithstanding the use of the term financial assistance therein.
We agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the
expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of
someone driven into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived
from the operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that
the '"... nature of the action filed in court is determined by the facts alleged in the
complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment of
Sun WahPanciteria.
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 WahPanciteria. 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 WahPanciteria. 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.
53
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 WahPanciteria, 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:
caI 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.
xxxxxxxxx
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)
xxxxxxxxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127128)
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 ducestecum 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.
54
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:
xxxxxxxxx
(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;
xxxxxxxxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision
of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
G.R. No. 110782 September 25, 1998
therefor, we lay aside discussions of the constitutional challenge to said law in

deciding this petition.
IRMA
IDOS, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
As narrated by the Court of Appeals, the background of this case is as follows:
QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88 2 as follows:
55
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond
reasonable doubt and is hereby sentenced to suffer the penalty of
imprisonment of six (6) months and to pay a fine of P135,000.00 and to
pay private complainant Eddie Alarilla the amount of the check in question
of P135,000.00 at 12% interest from the time of the filing of the
(i)nformation (August 10, 1988) until said amount has been fully paid.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
The complainant Eddie Alarilla supplied chemicals and rawhide to the

accused-appellant Irma L. Idos for use in the latter's business of
manufacturing leather. In 1985, he joined the accused-appellant's business
and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties
agreed to terminate their partnership. Upon liquidation of the business the
partnership had as of May 1986 receivables and stocks worth
P1,800,000.00. The complainant's share of the assets was P900,000.00 to
pay for which the accused-appellant issued the following postdated checks,
all drawn against Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
Elevated from the Third Division 3 of this Court, the case was accepted for resolution en
banc on the initial impression that here, a constitutional question might be involved. 4 It
was opined that petitioner's sentence, particularly six months' imprisonment, might be in
violation of the constitutional guarantee against imprisonment for non-payment of a debt. 5
A careful consideration of the issues presented in the petition as well as the
comments thereon and the findings of fact by the courts below in the light of
applicable laws and precedents convinces us, however, that the constitutional
dimension need not be reached in order to resolve those issues adequately. For,
as herein discussed, the merits of the petition could be determined without
delving into aspects of the cited constitutional guarantee vis-a-vis provisions of
the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no necessity
3) 103115490 9-30-86 P135,828.87

4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks,
but the third check (Exh. A) which is the subject of this case, was
dishonored on October 14, 1986 for insufficiency of funds. The complainant
demanded payment from the accused-appellant but the latter failed to pay.
Accordingly, on December 18, 1986, through counsel, he made a formal
demand for payment. (Exh. B) In a letter dated January 2, 1987, the
accused-appellant denied liability. She claimed that the check had been
given upon demand of complainant in May 1986 only as "assurance" of his
share in the assets of the partnership and that it was not supposed to be
deposited until the stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of
Bulacan which on August 22, 1988 filed an information for violation of BP
Blg. 22 against accused-appellant.
Complainant danied that the checks issued to him by accused-appellant
were subject to the disposition of the stocks and the collection of
receivables of the business. But the accused-appellant insisted that the
complainant had known that the checks were to be funded from the
proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did
not want to continue in the tannery business and had no use for a share of
the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp.
12, 16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the
accused-appellant guilty of the crime charged. The accused-appellant's
motion for annulment of the decision and for reconsideration was denied
by56
the trial court in its order dated April 12, 1991. 6
Herein respondent court thereafter affirmed on appeal the decision of the trial
court. Petitioner timely moved for a reconsideration, but this was subsequently
denied by respondent court in its Resolution 7 dated June 11, 1993. Petitioner
has now appealed to us by way of a petition for certiorari under Rule 45 of the
Rules of Court.
During the pendency of this petition, this Court by a resolutions 8 dated August 30, 1993,
took note of the compromise agreement executed between the parties, regarding the civil
aspect of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement 9 filed on August 5, 1993. After submission of the Comment 10 by
the Solicitor General, and the Reply 11 by petitioner, this case was deemed submitted for
decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the
innocence of the accused based on mere probabilities
which, on the contrary, should have warranted her

acquittal on reasonable doubt. Even then, the conclusion of
the trial court is contrary to the evidence on record,
including private complainant's judicial admission that
there was no consideration for the check.
2 The Honorable Court of Appeals has confused and
merged into one the legal concepts of dissolution,
liquidation and termination of a partnership and on the
basis of such misconception of the law, disregarded the
fact of absence of consideration of the check and convicted
the accused.
3 While this appeal was pending, the parties submitted for
the approval of the Honorable Court a compromise
agreement on the civil liability. The accused humbly
submits that this supervening event, which by its terms
puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration,
should have a legal effect favorable to the accused,
considering that the dishonored check constitutes a private
transaction between partners which does not involve the
public interest, and considering further that the offense is
not one involving moral turpitude.
4 The Honorable Court of Appeals failed to appreciate the
fact that the accused had warned private complainant that
the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the
recent case of Magno vs. Court of Appeals, 210 SCRA 471,
which calls for a more flexible and less rigid application of
the Bouncing Checks law. 12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and
decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a "buyout" of said complainant's interest in the partnership, and not merely as a commitment on
petitioner's part to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject
check knowing at the time of issue that she did not have sufficient funds in or credit with
the drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming
the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in
favor of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it
"must come clearly within both the spirit and the letter of the statue. 13 Otherwise, the act
has to be declared outside the law's ambit and a plea of innocence by the accused must be
sustained.
The relevant provisions of B.P. 22 state that:
Sec.
571. Checks without sufficient funds. Any person who makes or draws
and issues any check to apply on account or for value, knowing at the time
of issue that he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the bank to stop payment,
shall be punished by imprisonment of not less than thirty days but not
more than one (1) year or by a fine of not less than but not more than
double the amount of the check which fine shall in no case exceed Two
hundred thousand pesos, or both such fine and imprisonment at the
discretion of the court.
The same penalty shall be imposed upon any person who having sufficient
funds in or credit with the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or to maintain a credit or
to cover the full amount of the check if presented within a period of ninety
(90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person

or persons who actually signed the check in behalf of such drawer shall be
liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing
and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when presented
within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless
such maker or drawer pays the holder thereof the amount due thereon or
makes arrangements for payment in full by the drawee of such check
within five (5) banking days after receiving notice that such check has not
been paid by the drawee. (Emphasis supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or for
value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such check
in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment. 14
In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by
the partnership, and only when such collection and sale were realized. 15 Thus, there is
sufficient basis for the assertion that the petitioner issued the subject check (Metrobank
Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence
only complainant's share or interest in the partnership, or at best, to show her
commitment that when receivables are collected and goods are sold, she would give to
private complainant the net amount due him representing his interest in the partnership. It
did not involve a debt of or any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant;
only one (the third) was not. But eventually even this one was redeemed by petitioner.
Secondly, even private complainant admitted that there was no consideration whatsoever
for the issuance of the check, whose funding was dependent on future sales of goods and
receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioner and complainant had
agreed to dissolve the partnership, such ageement did not automatically put an end to the
partnership, since they still had to sell the goods on hand and collect the receivables from
debtors. In short, they were still in the process of "winding up" the affairs of the
partnership, when the check in question was issued.
Art. 1829. On dissolution the partnership is not terminated, but continues

until the winding up of partnership affairs is completed. (Emphasis
supplied.)
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) windingup; and (3) termination. These stages are distinguished, to wit:
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. The check was thus issued by
the petitioner to complainant, as would a partner to another, and not as payment from a
debtor to a creditor.
(1) Dissolution Defined

Dissolution is the change in the relation of
the partners caused by any partner ceasing
to be associated in the carrying on of the
business (Art. 1828). It is that point of time
the time the partners cease to carry on the
business tonether. (Citation omitted).
(2) Winding Up Defined
58
Winding up is the process of settling

business affairs of dissolution.
(NOTE: Examples of winding up: the paying
of previous obligations; the collecting of
assets previously demandable; even new
business if needed to wind up, as the
contracting with a demolition company for
the demolition of the garage used in a
"used car" partnership.)
(3) Termination Defined

Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
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.
The more tenable view, one in favor of the accused, is that the check was issued merely to
evidence the complainant's share in the partnership property, or to assure the latter that
he would receive in time his due share therein. The alternative view that the check was in
consideration of a "buy out" is but a theory, favorable to the complainant, but lacking
support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggest that petitioner ever became
interested in acquiring, much less keeping, the shares of the complainant. What is very
clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods
and to collect the receivables of the partnership, in order to come up with the amount
necessary to satisfy the value of complainant's interest in the partnership at the
dissolution thereof. To go by accepted custom of the trade, we are more inclined to the
view that the subject check was issued merely to evidence complainant's interest in the
partnership. Thus, we are persuaded that the check was not intended to apply on account
or for value; rather it should be deemed as having been drawn without consideration at the
time of issue.
Absent the first element of the offense penalized under B.P. 22, which is "the making,
drawing and issuance of any check to apply on account or for value", petitioner's issuance
of the subject check was not an act contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing Checks
Law, the elements of deceit and damage are not essential or required to constitute a
violation thereof. In his view, the only essential element is the knowledge on the part of the
maker or drawer of the check of the insufficiency of his/her funds at the time of the
issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. "Malice or intent in issuing the worthless check is
immaterial,
prohibitum,"
being malum
doubt all the elements of the offense, one of which is knowledge of the
insufficiency of funds.
But of course this could not be an absolute proposition without descending to absurdity. For
if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to
hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go
against public policy and common sense.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the
check, be shown that he knows at the time of issue, that he does not have sufficient funds
in or credit with the drawee bank for the payment of such check in full upon its
presentment.
Public respondents further contend that "since petitioner issued the check in favor of
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed
to make good the check, then petitioner is liable for violation of B.P. 22. 18 Again, this
matter could not be all that simple. For while "the maker's knowledge of the insufficiency
of funds is legally presumed from the dishonor of his checks for insufficiency of
funds, 19 this presumption is rebuttable.
In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment
of that share in the partnership was conditioned on the subsequent realization of profits
from the unsold goods and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually "encash" the check. The
reason for the condition is that petitioner has no independent means to satisfy or
discharge the complainant's share, other than by the future sale and collection of the
partnership assets. Thus, prior to the selling of the goods and collecting of the receivables,
the complainant could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid that
cash money could be availed of by the erstwhile partners.
17
the
offense
so goes the argument for the public respondents.
In the instant case, there is only a prima facie presumption which did not preclude the
presentation of contrary evidence. 20 In fact, such contrary evidence on two points could be
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds;
and (2) lack of adequate notice of dishonor.
59
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee
bank for the payment of a check upon its presentment is an essential element of the
offense. 21 It must be proved, particularly where the prima facie presumption of the
existence of this element has been rebutted. The prima facie presumption arising from the
fact of drawing, issuing or making a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals, 22 it was held that the subsequent dishonor of the
subject check issued by accused merely engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not render the accused automatically guilty
under B.P. 22. 23
The prosecution has a duty to prove all the elements of the crime,
including the acts that give rise to the prima facie presumption; petitioner,
on the other hand, has a right to rebut the prima faciepresumption.
Therefore, if such knowledge of insufficiency of funds is proven to be
actually absent or non-existent, the accused should not be held liable for
the offense defined under the first paragraph of Section 1 of B.P. 22.
Although the offense charged is a malum prohibitum, the prosecution is
not thereby excused from its responsibility of proving beyond reasonable
Complainant did not present any evidence that petitioner signed and issued four checks
actually knowing that funds therefor would be insufficient at the time complainant would
present them to the drawee bank. For it was uncertain at the time of issuance of the
checks whether the unsold goods would have been sold, or whether the receivables would
have been collected by the time the checks would be encashed. As it turned out, three
were fully funded when presented to the bank; the remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of
funds, she could not be held liable under B.P. 22 when one was not honored right away. For
it is basic doctrine that penal statutes such as B.P. 22 "must be construed with such
strictness as to carefully safeguard the rights of the defendant . . ." 24 The element of
knowledge of insufficiency of funds has to be proved by the prosecution; absent
said proof, petitioner could not be held criminally liable under that law.
Moreover, the presumption of prima facie knowledge of such insufficiency in this
case was actually rebutted by petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
subject check on petitioner's part, thus precluding any finding of prima facie evidence of
knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
sent by the complainant or by the drawee bank to the petitioner. On this point, the record
is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by petitioner.
In addition, the terms of the parties' compromise agreement, entered into during the
pendency of this case, effectively invalidates the allegation of failure to pay or to make
arrangement for the payment of the check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by this Court in
prior cases:
Because no notice of dishonor was actually sent to and received by the
petitioner, the prima faciepresumption that she knew about the
insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides
that this presumption arises not from the mere fact of drawing, making and
issuing a bum check; there must also be a showing that, within five
banking days from receipt of the notice of dishonor, such maker or drawer
failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such
60 25 [Emphasis supplied.]
check.
The absence of a notice of dishonor necessarily deprives an accused an
opportunity to preclude a criminal prosecution. Accordingly, procedural due
process clearly enjoins that a notice of dishonor be actually served on
petitioner. Petitioner has a right to demand and the basic postulates of
fairness require that the notice of dishonor be actually sent to and
received by her to afford her the opportunity to avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the fact
that petitioner repeatedly notified the complainant of the insufficiency of funds.
Instructive is the following pronouncement of this Court in Magno v. Court of
Appeals:
Furthermore, the element of "knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason . . ." is inversely applied in this
case. From the very beginning. petitioner never hid the fact that he did not
have the funds with which to put up the warranty deposit and as a matter
of fact, he openly intimated this to the vital conduit of the transaction, Joey
Gomez, to whom petitioner was introduced by Mrs. Teng. It would have
been different if this predicament was not communicated to all the parties
he dealt with regarding the lease agreement the financing or which was
covered by L.S. Finance Management. " 27
In the instant case, petitioner intimated to private complainant the possibility
that funds might be insufficient to cover the subject check, due to the fact that
the partnership's goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest
of the banking system and the legitimate public checking account user. It
did not intend to shelter or favor nor encourage users of the system to
enrich themselves through manipulations and circumvention of the noble
purpose and objective of the law. Least should it be used also as a means
of jeopardizing honest-to-goodness transactions with some color of "getrich" scheme to the prejudice of well-meaning businessmen who are the
pillars of society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment
imposed upon the accused, the objective of retribution of a wronged
society, should be directed against the "actual and potential wrongdoers".
In the instant case, there is no doubt that petitioner's four (4) checks were
used to collateralize an accommodation, and not to cover the receipt of an
actual "account or credit for value" as this was absent, and therefore
petitioner should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioner's stead the
"potential wrongdoer," whose operation could be a menace to society,
should not be glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have
issued the check in good faith, with every intention of abiding by her
commitment to return, as soon as able, the investments of complainant in the
partnership. Evidently, petitioner issued the check with benign considerations in
mind, and not for the purpose of committing fraud, deceit, or violating public
policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn
and issued by petitioner in exchange for value received as to qualify it as a check on
account or for value; (2) there is no sufficient basis to conclude that petitioner, at the time
of issue of the check, had actual knowledge of the insufficiency of funds; and (3) there was
no notice of dishonor of said check actually served on petitioner, thereby depriving her of
the opportunity to pay or make arrangements for the payment of the check, to avoid
criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no
longer need to pass upon the validity and legality or necessity of the purported
compromise agreement on civil liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED.
The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby
REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is
hereby SET ASIDE.
61
NO COSTS.
SO ORDERED.
G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS,
BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffsappellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and
her husband CECILIO SALDAJENO, defendants-appellants.
FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of
Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela
Sawmill, et al.,", the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that
the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has
not created a chattel mortgage lien on the machineries and other chattels
mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant
partnership, have a preferred right over the assets of the said partnership
and over the proceeds of their sale at public auction, superior to the right
of the defendant Margarita G. Saldajeno, as creditor of the partners Leon
Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill'
is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89, with legal interest thereon from the filing of the complaint on
June 5, 1959; (4) that the same defendant is indebted to the plaintiff
Manuel G. Singsong in the total amount of P5,723.50, with interest thereon
at the rate of 1 % per month from May 6, 1959, (the date of the statements
of account, Exhs. "L" and "M"), and 25% of the total indebtedness at the
time of payment, for attorneys' fees, both interest and attorneys fees being
stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is
indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with
legal interest thereon from the filing of the complaint on June 5, 1959; (6)
that the same defendant is indebted to the plaintiff Jose L. Espinos in the
amount of P1,579.44, with legal interest thereon from the filing of the
complaint on June 5, 1959; (7) that the same defendant is indebted to the
plaintiff Bacolod Southern Lumber Yard in the amount of Pl,048.78, with
legal interest thereon from the filing of the complaint on June 5, 1959; (8)
that the same defendant is indebted to the plaintiff Jose Belzunce in the
amount of P2,052.10, with legal interest thereon from the filing of the
complaint on June 5. 1959; (9) that the defendant Margarita G. Saldajeno,

having purchased at public auction the assets of the defendant partnership
over which the plaintiffs have a preferred right, and having sold said assets
for P 45,000.00, is bound to pay to each of the plaintiffs the respective
amounts for which the defendant partnership is held indebted to, them, as
above indicated and she is hereby ordered to pay the said amounts, plus
attorneys fees equivalent to 25% of the judgment in favor of the plaintiff
Manuel G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20%
of the respective judgments in favor of the other plaintiffs, pursuant to. Art.
2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The
defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to
pay to the plaintiffs the respective amounts adjudged in their favor in the
event that said plaintiffs cannot recover them from the defendant
Margarita G. Saldajeno and the surety on the bond that she has filed for
the lifting of the injunction ordered by this court upon the commencement
of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs.
62
SO ORDERED. 1
further orders of this Court; and to make said injunction permanent after
hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's
fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and
costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon
Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records
of this case to the Supreme Court "considering that the resolution of this appeal involves
purely questions or question of law over which this Court has no jurisdiction ... 2
(4) That the Honorable Court order the sale of public auction of the assets
of the defendnat partnership in case the latter fails to pay the judgment
that the plaintiffs may recover in the action, with instructions that the
proceeds of the sale b e applied in payment of said judgment before any
part of saod proceeds is paid to the defendant Margarita G. Saldajeno;
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos,
Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance
of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her
husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff
of Negros Occidental a complaint the prayer of which reads:
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita
G. Saldajeno be declared jointly liable to the plaintifs for whatever
deficiency may remain unpaid after the proceeds of the sale of the assets
of the defendnt partnership are supplied in payment of the judgment that
said plaintiffs may recover in this action;
WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant
Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18,
1959 in connection with Civil Case No. 5223 of this Honorable Court, until
(6) The plaintiffs further pray for all other remedies to which the Honorable
Court will find them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio
Saldajeno, alleged the following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an
action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of
First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua
became the successors-in-interest to the said defunct partnership and
have bound themselves to answere for any and all obligations of the
defunct partnership to its creditors and third persons;
7. That this Honorable Court has no jurisdictionover the claims of the

plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be
recovered by them in this action is less than P2,000.00 each, exclusive of
interests;
8. That in so far as the claims of these alleged creditors plaintiffs are
concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims for
payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go
beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil
Code, and are therefor unenforceable, even assuming that there were such
credits and claims;
4. That to secure the performance of the obligations of the other

defendants Leon Garibay and Timoteo Tubungbanua to the answering
defendant herein, the former have constituted a chattel mortgage over the
63
properties mentioned in the annexes to that instrument entitled
"Assignment of Rights with Chattel Mortgage" entered into on May 26,
1968 and duly registered in the Register of Deeds of Negros Occidental on
the same date:
10. That this Honorable Court has no jurisdiction in this case for it is well
settled in law and in jurisprudence that a court of first instance has no
power or jurisdiction to annul judgments or decrees of a coordinate court
because other function devolves upon the proper appellate court; (Lacuna,
et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs.
del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it
appears from the complaint in this case to annul the decision of this same
court, but of another branch (Branch II, Judge Querubin presiding). 4
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have
no cause of action against answering defendant herein and the defendant
Isabela Sawmill;
Said defendants interposed a cross-claim against the defendsants Leon Garibay and
Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering
defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's
complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in
accordance to the said judgment. ... 5
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa
to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to
the Court of Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE
TO THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER
OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE"
OR "EXTINCTION" OF SAID PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A PARTNER
THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON
JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFSAPPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE
FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO.
5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS.
LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER
AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION
OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS
A PARTNER.
IX
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.
64
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR
ATTORNEY'S FEES.
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE

DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE
NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF
THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND
VOID.
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE

PLAINTIFFS-APPELLEES.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE
SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE
DEFENDNAT PARTNERSHIP.
VII
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSSDEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the
plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a
Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation
reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay,

Margarita G. Saldejeno, and Timoteo Tubungbanua entered
into a Contract of Partnership under the firm name "Isabela
Sawmill", a copy of which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban,
Inc. sold a Motor Truck and two Tractors to the partnership
Isabela Sawmill for the sum of P20,500.00. In order to pay
the said purcahse price, the said partnership agreed to
make arrangements with the International Harvester
Company at Bacolod City so that the latter would sell farm
machinery to Oppen, Esteban, Inc. with the understanding
that the price was to be paid by the partnership. A copy of
the corresponding contract of sle is attached hereto as
Appendix "B".
65
3. That through the method of payment stipulated in the

contract marked as Appendix "B" herein, the International
Harvester Company has been paid a total of P19,211.11,
leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and
"C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by
the spouses Cecilio Saldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and Timoteo
Tubungbanua, a copy of which Complaint is attached as
Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered
into a "Memorandum Agreement", a copy of which is
hereto attached as Appendix 'E' in Civil Case 4797 of the
Court of First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights with
Chattel Mortgage", a copy of which documents and its
Annexes "A" to "A-5" forming a part of the record of the
above mentioned Civil Case No. 4797, which deed was

referred to in the Decision of the Court ofFirst Instance of
Negros Occidental in Civil Case No. 4797 dated May 29,
1958, a copy of which is hereto attached as Appendix "F"
and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and
Timoteo Tubungbanua did not divide the assets and
properties of the "Isabela Sawmill" between them, but they
continued the business of said partnership under the same
firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell at
public auction on June 5, 1959 at Isabela, Negros
Occidental
certain
trucks,
tractors,
machinery,
officeequipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon
Garibay, et al." See Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros
Occidental executed a Certificate ofSale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the
enforcement of the judgment rendered in Civil Case No.
5223 of the Court of First Instance of Negros Occidental, a
certified copy of which certificte of sale is hereto attached
as Appendix "H".
10. That on October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
Oriental Lumber Company transfering to the latter for the
sum of P45,000.00 the trucks, tractors, machinery, and
other things that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified true copy
of which Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and

Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents that were
marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
"G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the crossdefendants did not present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its
Appendices "B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs.
66
"B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said
advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which balance was confirmed on
May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant
partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his
Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
credit to the defendnat "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50.
The same plaintiff also proved that the partnership ownes him the sum of
P143.00 for nipa shingles bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Lumber Yard", that on October 11, 1958 said lumber yard advanced the
sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said
cash advance, the defendant partnership delivered to Guia Lumber Yard
P920.56 worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony
of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October
11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant
'Isabela Sawmill', that against the said cash advance, the defendant
partnership delivered to the said plaintiff on November 19, 1958 P377.72
worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving
an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay
whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant
"Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on
account of said transactions, the defendant partnersip ownes him an
unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14,
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20,
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she had
bought at public aucton one week before.
xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros Occidental had
no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin
R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of
moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the
jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the
assignment of right with chattel mortgage entered into by and between Margarita G.
Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of
action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of
First Instnace. Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a consequence of the principal
relief sought, the action is as a case where the subject of the litigation is not capable of
pecuniary estimation and is cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends
upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which
courts of first instance shall have exclusive original jurisdiction over any case the subject
matter of which is not capable of pecuniary estimation. An action for the annulment of a
judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of
the principal action or remedy sought. If it is primarily for the recovery of a sum of money,
the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the
municipal courts or in the courts of first instance would depend on the amount of the
claim. However, where the basic issue is something other than the right to recover a sum
of money, where the money claim is purely incidental to, or a consequence of, the principal
relief sought, this Court has considered such actions as cases where the subject ogf the
litigation may not be estimated in terms of money, and are cognizable exclusively by
courts of first instance.
67
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:

Actions for specific performance of contracts have been expressly
prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967;Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent
reason appears, and none is here advanced by the parties, why an actin for
rescission (or resolution) should be differently treated, a "rescission" being
a counterpart, so to speak, of "specific performance'. In both cases, the
court would certainly have to undertake an investigation into facts that
would justify one act of the other. No award for damages may be had in an
action for resicssion without first conducting an inquiry into matters which
would justify the setting aside of a contract, in the same manner that
courts of first instance would have to make findings of fact and law in
actions not capable of pecuniary estimnation espressly held to be so by
this Court, arising from issues like those arised in Arroz v. Alojado, et al., L22153, March 31, 1967 (the legality or illegality of the conveyance sought
for and the determination of the validity of the money deposit made); De
Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog
v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v.

Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right
to support created by the relation, etc., in actions for support); De Rivera,
et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues of the same nature
may be raised by a party against whom an action for rescission has been
brought, or by the plaintiff himself. It is, therefore, difficult to see why a
prayer for damages in an action for rescission should be taken as the basis
for concluding such action for resiccison should be taken as the basis for
concluding such action as one cpable of pecuniary estimation - a prayer
which must be included in the main action if plaintiff is to be compensated
for what he may have suffered as a result of the breach committed by
defendant, and not later on precluded from recovering damages by the
rule against splitting a cause of action and discouraging multiplicitly of
suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled therein that although the
purposes of an action is to recover an amount plus interest which comes
within the original jurisidction of the Justice of the Peace Court, yet when
said action involves the foreclosure of a chattel mortgage covering
personal properties valued at more than P2,000, (now P10,000.00) the
action should be instituted before the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental
did no err in exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because
it had been judicially approved in Civil Case No. 4797 of the Court of First Instance of
Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No.
5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of coequal, concurrent and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court
of concurrent or coordinate jurisdiction having equal power to grant the
relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense
coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case
12
where this Court said:
The rule which prohibits a Judge from intertering with the actuations of the
Judge of another branch of the same court is not infringed when the Judge
who modifies or annuls the order isued by the other Judge acts in the same
case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193.
But the rule is infringed when the Judge of a branch of the court issues a
writ of preliminary injunction in a case to enjoint the sheriff from carrying
out an order by execution issued in another case by the Judge of another
68
branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44
Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be
annulled was rendered by the Court of First Instance of Iloilo and the action for annullment
was filed with the Court of First Instance of Antique, both courts belonging to the same
Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed by
but restricted to the court in which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of
competent jurisdiction may not be interfered with by any court concurrrent
jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the
court of First Instance belongs solely to the very same branch which rendered the
judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on
the matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice
Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy
of judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of concurrent
jurisdiciton, this Court feels that this is as good an occasion as any to reexamine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action
springs from the alleged nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the plaintiff a right to judicial
interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought
to be annulled, for a direct attack against a final and executory judgment is
not a incidental to, but is the main object of the proceeding. The cause of
action in the two cases being distinct and separate from each other, there
is no plausible reason why the venue of the action to annul the judgment
should necessarily follow the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a
court may not annul the judgment of another court or branch, not only
opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch
thereof has the authority and jurisdiction to take cognizance of, and to act
in, suit to annul final and executory judgment or order rendered by another
court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of
the Court of First Instance of Negros Occidental can take cognizance of an action to nullify
a final judgment of the other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be

associated in the carrying on of the business. 18 However, on dissolution, the partnershop
is not terminated but continuous until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela
Sawmill". Instead of winding up the business of the partnership, they continued the
business still in the name of said partnership. It is expressly stipulated in the
memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon
Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the
name of "Isabela Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon
Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The
appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she
purchased at public auction the properties of the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was
69
published in the newspapers. The appellees and the public in general had a right to expect
that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the
business in the name of the partnership "Isabela Sawmill" could be enforced against the
proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not
insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon
Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela
Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the
appellees aslo acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into
thinking that they were still dealing with the partnership "Isabela Sawmill". Under the facts,
it is of no moment that technically speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not
terminated and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the
chattel mortgage of the propertiesof the partnership executed by Leon Garibay and
Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when
a contract prejudices the rights of a third person, he may file an action to annul the
contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily
under a contract, may exercised an action for nullity of the contract if he is prejudiced in
his rights with respect to one of the contracting parties, and can show detriment which
would positively result to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G.
Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said
appelees have a right to file the action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to
the plaintiffs-appellees cannot be sustained. There is no showing that the appellants
displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed
in good faith, albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay
the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the
memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release
Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the
portion ordering appellants to pay attorney's fees and with the modification that the
defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendantsappellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall
pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares
of land found inside the area applied for by Casteel; he was later granted fishpond permit
F-289-C covering 9.3 hectares certified as available for fishpond purposes by the Bureau of
Forestry.
G.R. No. L-21906
December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order
of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The basic
action is for specific
70 performance, and damages resulting from an alleged breach of
contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the
then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No
action was taken thereon by the authorities concerned. During the Japanese occupation, he
filed another fishpond application for the same area, but because of the conditions then
prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond
application for the same area, which, after a survey, was found to contain 178.76 hectares.
Upon investigation conducted by a representative of the Bureau of Forestry, it was
discovered that the area applied for was still needed for firewood production. Hence on
May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the district
forester of Davao City that no further action would be taken on his motion, unless he filed a
new application for the area concerned. So he filed on May 27, 1947 his fishpond
application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on
December 26, 1946, was given due course on December 9, 1947 with the issuance to him
of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of the area
applied for by Casteel, upon certification of the Bureau of Forestry that the area was
likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his
own fishpond application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered upon
and spread themselves within the area, Casteel realized the urgent necessity of expanding
his occupation thereof by constructing dikes and cultivating marketable fishes, in order to
prevent old and new squatters from usurping the land. But lacking financial resources at
that time, he sought financial aid from his uncle Felipe Deluao who then extended loans
totalling more or less P27,000 with which to finance the needed improvements on the
fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied
by rival applicants, Casteel immediately filed the corresponding protests. Consequently,
two administrative cases ensued involving the area in question, to wit: DANR Case 353,
entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus
Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp.
A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit
No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, PermitteesRespondents."
However, despite the finding made in the investigation of the above administrative cases
that Casteel had already introduced improvements on portions of the area applied for by
him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove
all the improvements which he had introduced on the land, and ordered that the land be
leased through public auction. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture
and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken
up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract denominated a
"contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First Part hires and employs the Party
of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum of
TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party
of the Second Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of
Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the
Parties sometime in the month of November, 1947, with all the above-mentioned
conditions enumerated; ...
On the same date
71the above contract was entered into, Inocencia Deluao executed a
special power of attorney in favor of Jesus Donesa, extending to the latter the authority "To
represent me in the administration of the fishpond at Malalag, Municipality of Padada,
Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor
Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and
collect the value of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over
the same area in the two administrative cases (DANR Cases 353 and 353-B) and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond. However,
by letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and
Natural Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew
his petition for reinvestigation.
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive
portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit
No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and
revoked; Nicanor Casteel is required to pay the improvements introduced thereon
by said permittees in accordance with the terms and dispositions contained
elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia
Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an
action in the Court of First Instance of Davao for specific performance and damages
against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate
his contract), praying inter alia, (a) that Casteel be ordered to respect and abide by the
terms and conditions of said contract and that Inocencia Deluao be allowed to continue
administering the said fishpond and collecting the proceeds from the sale of the fishes
caught from time to time; and (b) that the defendants be ordered to pay jointly and
severally to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon
their filling the requisite bond as may be fixed by the court, a preliminary injunction be
issued to restrain Casteel from doing the acts complained of, and that after trial the said
injunction be made permanent. The lower court on April 26, 1951 granted the motion, and,
two days later, it issued a preliminary mandatory injunction addressed to Casteel, the
dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes, mandatarios y demas personas que
obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que
continue administrando personalmente la pesqueria objeto de esta causa y que la
misma continue recibiendo los productos de la venta de los pescados provenientes
de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor
Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado
Jesus Donesa de la pesqueria objeto de la demanda de autos.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
decision in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of
Nicanor Casteel should be, as hereby it is, reinstated and given due course for the
area indicated in the sketch drawn at the back of the last page hereof; and Fp. A.
No. 762 of Victorio D. Carpio shall remain rejected.
On May
that he
motion,
order of
10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others,
was the owner, lawful applicant and occupant of the fishpond in question. This
opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its
June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January
8, 1952, denying the material averments of the plaintiffs' complaint. A reply to the
defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On
June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower
court in its order of October 22, 1951. The defendants' motion for reconsideration filed on
October 31, 1951 suffered the same fate when it was likewise denied by the lower court in
its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez) finally
issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in
the morning.
72
This case was filed on April 3, 1951 and under any circumstance this Court will not
entertain any other transfer of hearing of this case and if the parties will not be
ready on that day set for hearing, the court will take the necessary steps for the
final determination of this case. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21,
1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of Court) of
the Court of First Instance of Davao, setting the hearing of the case for May 2 and 3, 1956
before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956
filed a motion for postponement. Acting on this motion, the lower court (Branch II, presided
by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3,
1956. The motion is filed by the counsel for the defendants and has the conformity
of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was initiated as
early as April 1951 and that the same has been under advisement of the
Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since September
24, 1953, and that various incidents have already been considered and resolved by
Judge Fernandez on various occasions. The last order issued by Judge Fernandez on
this case was issued on March 21, 1956, wherein he definitely states that the Court
will not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch
I, so that the same may be disposed of therein. (emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with
Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order handed
down in open court on March 21, 1956 and directing the plaintiffs to introduce their
evidence ex parte, there being no appearance on the part of the defendants or their
counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956
the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en
contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
(b) Ordena al demandado entregue la demandante la posesion y administracion de
la mitad () del "fishpond" en cuestion con todas las mejoras existentes dentro de
la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion de los
30 dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor
de los pescado beneficiados, mas los intereses legales de la fecha de la incoacion
de la demanda de autos hasta el completo pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por
gastos incurridos por aquella durante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la
suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en
tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de

pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter
alia, lack of knowledge of the order of the court a quo setting the case for trial. The
petition, however, was denied by the lower court in its order of May 21, 1956, the pertinent
portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial
of this case has been transferred or not, but to inquire from the presiding Judge,
particularly because his motion asking the transfer of this case was not set for
hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which
reads as follows:
Upon petition of the plaintiff without any objection on the part of the
defendants, the hearing of this case is hereby transferred to May 2 and 3,
1956, at 8:30 o'clock in the morning.
73
This case was filed on April 3, 1951, and under any circumstance this Court
will not entertain any other transfer of the hearing of this case, and if the
parties will not be ready on the day set for hearing, the Court will take
necessary steps for the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer of this
case and the duty of Atty. Ruiz is no other than to be present in the Sala of this
Court and to call the attention of the same to the existence of his motion for
transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified
the case to us for final determination on the ground that it involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it ordered
reception of the appellees' evidence in the absence of the appellant at the trial on
May 2, 1956, thus depriving the appellant of his day in court and of his property
without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it denied
the verified petition for relief from judgment filed by the appellant on May 11, 1956
in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of
preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21, 1956, the
lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning
and empathically stated that, since the case had been pending since April 3, 1951, it would
not entertain any further motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and
time of promulgation,1 and amounts to a legal notification for all legal purposes. 2 The order
of March 21, 1956, given in open court, was a valid notice to the parties, and the notice of
hearing dated April 21, 1956 or one month thereafter, was a superfluity. Moreover, as
between the order of March 21, 1956, duly promulgated by the lower court, thru Judge
Fernandez, and the notice of hearing signed by a "special deputy clerk of court" setting the
hearing in another branch of the same court, the former's order was the one legally
binding. This is because the incidents of postponements and adjournments are controlled
by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule
22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to
transfer the cage from one sala to another without authority or order from the court where
the case originated and was being tried. He had neither the duty nor prerogative to reassign the trial of the case to a different branch of the same court. His duty as such clerk
of court, in so far as the incident in question was concerned, was simply to prepare the trial
calendar. And this duty devolved upon the clerk of court and not upon the "special deputy
clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees'
counsel. The postponement of hearings does not depend upon agreement of the parties,
but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers, none of
whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21,
1956 intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient
notice to all the appellant's eleven other counsel of record. This is a well-settled rule in our
jurisdiction.4
deprived of his property without due process of law. 7 Verily, the constitutional requirements
of due process have been fulfilled in this case: the lower court is a competent court; it
lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject
matter of the action; the defendant (appellant) was given an opportunity to be heard; and
judgment was rendered upon lawful hearing.8
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties and
their lawyers have no right to presume that their motions for postponement will be
granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the
recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case
was under the advisement of Judge Fernandez who presided over Branch I. There was,
therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez had
exclusive control of said case, unless he was legally inhibited to try the case and he was
not.
2. Finally, the appellant contends that the lower court incurred an error in ordering the
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the
appellee's complaint. We find this contention meritorious.
There is truth in the appellant's contention that it is the duty of the clerk of court not of
the Court to prepare the trial calendar. But the assignment or reassignment of cases
already pending in one sala to another sala, and the setting of the date of trial after the
trial calendar has been prepared, fall within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of
the clerk of court of
74the Court of First Instance of Davao was located directly below Branch
I. If the appellant and his counsel had exercised due diligence, there was no impediment to
their going upstairs to the second storey of the Court of First Instance building in Davao on
May 2, 1956 and checking if the case was scheduled for hearing in the said sala. The
appellant after all admits that on May 2, 1956 his counsel went to the office of the clerk of
court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is
correct. But he was properly accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3,
1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs.
Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for
postponement. In the cited case the motion for postponement was the first one filed by the
defendant; in the case at bar, there had already been a series of postponements. Unlike
the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the
cited case did not spend for a long time, the case at bar was only finally and intransferably
set for hearing on March 21, 1956 after almost five years had elapsed from the filing of
the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time
to prepare for trial is unacceptable because between March 21, 1956 and May 2, 1956,
they had one month and ten days to do so. In effect, the appellant had waived his right to
appear at the trial and therefore he cannot be heard to complain that he has been
Apparently, the court a quo relied on exhibit A the so-called "contract of service" and
the appellees' contention that it created a contract of co-ownership and partnership
between Inocencia Deluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is conclusively
presumed to know the law. It must be assumed, conformably to such rule, that the parties
entered into the so-called "contract of service" cognizant of the mandatory and prohibitory
laws governing the filing of applications for fishpond permits. And since they were aware of
the said laws, it must likewise be assumed in fairness to the parties that they did not
intend to violate them. This view must perforce negate the appellees' allegation that
exhibit A created a contract of co-ownership between the parties over the disputed
fishpond. Were we to admit the establishment of a co-ownership violative of the prohibitory
laws which will hereafter be discussed, we shall be compelled to declare altogether the
nullity of the contract. This would certainly not serve the cause of equity and justice,
considering that rights and obligations have already arisen between the parties. We shall
therefore construe the contract as one of partnership, divided into two parts namely, a
contract of partnership to exploit the fishpond pending its award to either Felipe Deluao or
Nicanor Casteel, and a contract of partnership to divide the fishpond between them after
such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into
the so-called "contract of service" on November 25, 1949, there were two pending
applications over the fishpond. One was Casteel's which was appealed by him to the
Secretary of Agriculture and Natural Resources after it was disallowed by the Director of
Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same
area which was likewise rejected by the Director of Fisheries on November 29, 1949, refiled
by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary
of Agriculture and Natural Resources. Clearly, although the fishpond was then in the
possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit
over the area. But be that as it may, they were not however precluded from exploiting the
fishpond pending resolution of Casteel's appeal or the approval of Deluao's application
over the same area whichever event happened first. No law, rule or regulation
prohibited them from doing so. Thus, rather than let the fishpond remain idle they
cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties was
not to form a co-ownership but to establish a partnership Inocencia Deluao as capitalist
partner and Casteel as industrial partner the ultimate undertaking of which was to
divide into two equal parts such portion of the fishpond as might have been developed by
the amount extended by the plaintiffs-appellees, with the further provision that Casteel
should reimburse the expenses incurred by the appellees over one-half of the fishpond that
would pertain to him. This can be gleaned, among others, from the letter of Casteel to
Felipe Deluao on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to
your benefit because you are the ones interested in half of the work we have done
so far, besides I did not insist on our being partners in my fishpond permit, but it
was you "Tatay" Eping the one who wanted that we be partners and it so
happened that we became partners because I am poor, but in the midst of my
poverty it never occurred to me to be unfair to you. Therefore so that each of us
may be secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in Balasinon, but it does
not mean that you will treat me as one of your "Bantay" (caretaker) on wage basis
but not earning wages at all, while the truth is that we are partners. In the event
that you are not amenable to my proposition and consider me as "Bantay"
(caretaker) instead, do not blame me if I withdraw all my cases and be left without
even
a
little
and
you
likewise.
(emphasis supplied)9
75
Pursuant to the foregoing suggestion of the appellant that a document be drawn

evidencing their partnership, the appellee Inocencia Deluao and the appellant executed
exhibit A which, although denominated a "contract of service," was actually the
memorandum of their partnership agreement. That it was not a contract of the services of
the appellant, was admitted by the appellees themselves in their letter 10 to Casteel dated
December 19, 1949 wherein they stated that they did not employ him in his (Casteel's)
claim but because he used their money in developing and improving the fishpond, his right
must be divided between them. Of course, although exhibit A did not specify any wage or
share appertaining to the appellant as industrial partner, he was so entitled this being
one of the conditions he specified for the execution of the document of partnership. 11
Further exchanges of letters between the parties reveal the continuing intent to divide the
fishpond. In a letter,12dated March 24, 1950, the appellant suggested that they divide the
fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of
P3,000 presumably as reimbursement for the expenses of the appellees for the
development and improvement of the one-half that would pertain to the appellant. Two
days later, the appellee Felipe Deluao replied, 13expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of the order of
the Director of Fisheries disapproving his (appellant's) application, so that if a favorable
decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no
further need to maintain his petition for the reinvestigation of Casteel's application. Thus
by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged ground that he was no longer interested
in the area, but stated however that he wanted his interest to be protected and his capital
to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions
both dated September 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of
both parties to terminate the partnership because each refused to share the fishpond with
the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "... any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership." The approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to
the fore several provisions of law which made the continuation of the partnership unlawful
and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural Resources. 15 To
the same effect is Condition No. 3 of the fishpond permit which states that "The permittee
shall not transfer or sublet all or any area herein granted or any rights acquired therein
without the previous consent and approval of this Office." Parenthetically, we must observe
that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio
Aradillos, was cancelled not solely for the reason that his permit covered a portion of the
area included in the appellant's prior fishpond application, but also because, upon
investigation, it was ascertained thru the admission of Aradillos himself that due to lack of
capital, he allowed one Lino Estepa to develop with the latter's capital the area covered by
his fishpond permit F-289-C with the understanding that he (Aradillos) would be given a
share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of
the Secretary of Agriculture and Commerce, and the violation of this condition shall
avoid the contract; Provided, That assignment, encumbrance, or subletting for
purposes of speculation shall not be permitted in any case:Provided, further, That
nothing contained in this section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands leased under this Act, or under
any previous Act, to persons, corporations, or associations which under this Act,
are not authorized to lease public lands.
because there were allegedly no appropriate grounds to support the same and, moreover,
the conflict over the fishpond had not been finally resolved.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and

Natural Resources issued in August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. If the
permittee or lessee had, unless otherwise specifically provided, held the permit or
lease and actually operated and made improvements on the area for at least one
year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
The appellant wrote on January 4, 1951 a last letter 19 to the appellee Felipe Deluao wherein
the former expressed his determination to administer the fishpond himself because the
decision of the Government was in his favor and the only reason why administration had
been granted to the Deluaos was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter 20 dated January 5, 1951 in which he
reiterated his refusal to grant the administration of the fishpond to the appellant, stating as
a ground his belief "that only the competent agencies of the government are in a better
position to render any equitable arrangement relative to the present case; hence, any
action we may privately take may not meet the procedure of legal order."
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when
first approved by the Director under such terms and conditions as may be
prescribed, otherwise it shall be null and void. A transfer not previously approved
or reported shall be considered sufficient cause for the cancellation of the permit
or lease and forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each other in direct violation of the
undertaking for which they have established their partnership each must be deemed to
have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to
art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is caused "by the
express will of any partner at any time."
Since the partnership had for its object the division into two equal parts of the fishpond
76 and the appellant after it shall have been awarded to the latter, and
between the appellees
therefore it envisaged the unauthorized transfer of one-half thereof to parties other than
the applicant Casteel, it was dissolved by the approval of his application and the award to
him of the fishpond. The approval was an event which made it unlawful for the business of
the partnership to be carried on or for the members to carry it on in partnership.
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive
and administrative powers with regard to the survey, classification, lease, sale or any other
form of concession or disposition and management of the lands of the public domain, and,
more specifically, with regard to the grant or withholding of licenses, permits, leases and
contracts over portions of the public domain to be utilized as fishponds. 21, Thus, we held
in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitano vs.
Secretary
of
Agriculture
and
Natural
Resources,
et
al.
(L-21167, March 31, 1966), that
The appellees, however, argue that in approving the appellant's application, the Secretary
of Agriculture and Natural Resources likewise recognized and/or confirmed their property
right to one-half of the fishpond by virtue of the contract of service, exhibit A. But the
untenability of this argument would readily surface if one were to consider that the
Secretary of Agriculture and Natural Resources did not do so for the simple reason that he
does not possess the authority to violate the aforementioned prohibitory laws nor to
exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled
with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of
their partnership, succeeding events reveal the intent of both parties to terminate the
partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote 17 the appellee Inocencia Deluao, expressing his
desire to divide the fishpond so that he could administer his own share, such division to be
subject to the approval of the Secretary of Agriculture and Natural Resources. By letter
dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural
Resources) by law regarding the disposition of public lands such as granting of
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or
cancelling applications, or deciding conflicting applications, are all executive and
administrative in nature. It is a well-recognized principle that purely administrative
and discretionary functions may not be interfered with by the courts (Coloso v.
Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no
supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts
involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur.
558-559) Findings of fact by an administrative board or official, following a hearing,
are binding upon the courts and will not be disturbed except where the board or
official has gone beyond his statutory authority, exercised unconstitutional powers
or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to
the appellant's fishpond application 1717 and awarded to him the possession of the area in
question. In view of the finality of the Secretary's decision in DANR Cases 353 and 353-B,
and considering the absence of any proof that the said official exceeded his statutory
authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of
his duty, or with grave abuse of discretion, we can do no less than respect and maintain
unfettered his official acts in the premises. It is a salutary rule that the judicial department
should not dictate to the executive department what to do with regard to the
administration and disposition of the public domain which the law has entrusted to its care
and administration. Indeed, courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves the exercise of judgment
and discretion.22
Therefore, with the view that we take of this case, and even assuming that the injunction
was properly issued because present all the requisite grounds for its issuance, its
continuation, and, worse, its declaration as permanent, was improper in the face of the
knowledge later acquired by the lower court that it was the appellant's application over the
fishpond which was given due course. After the Secretary of Agriculture and Natural
Resources approved the appellant's application, he became to all intents and purposes the
legal permittee of the area with the corresponding right to possess, occupy and enjoy the
same. Consequently, the lower court erred in issuing the preliminary mandatory injunction.
We cannot overemphasize that an injunction should not be granted to take property out of
the possession and control of one party and place it in the hands of another whose title has
77
not been clearly established
by law.23
However, pursuant to our holding that there was a partnership between the parties for the
exploitation of the fishpond before it was awarded to Casteel, this case should be
remanded to the lower court for the reception of evidence relative to an accounting from
November 25, 1949 to September 15, 1950, in order for the court to determine (a) the
profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial
partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the
amounts totalling about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the appellee
Inocencia Deluao continued in possession and enjoyment of the fishpond even after it was
awarded to Casteel, she did so no longer in the concept of a capitalist partner but merely
as creditor of the appellant, and therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes harvested from the fishpond from
September 16, 1950 until Casteel shall have been finally given the possession and
enjoyment of the same. In the event that the appellee Deluao has received more than her
lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6%
interest thereon per annum, then she should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby
rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter
back in possession of the fishpond in litigation, and (3) remanding this case to the court of
origin for the reception of evidence relative to the accounting that the parties must
perforce render in the premises, at the termination of which the court shall render
judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as to
costs.
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
78
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.
No special finding as to costs is made. So ordered.
G.R. No. L-25532
February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents..
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange Commission. The firm
engaged, among other activities, in the importation, marketing, distribution and operation
of automatic phonographs, radios, television sets and amusement machines, their parts
and accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership
to Suter and his wife. The sale was duly recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when
the latter, in an assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter79protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered
a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William J.
Suter and his wife, Julia SpirigSuter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia SpirigSuter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of
Suter and Spirig and their subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction
of juridical personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business; consequently
the income tax return of respondent Suter for the years in question should have included
his and his wife's individual incomes and that of the limited partnership, in accordance with
Section 45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals
held, that his marriage with limited partner Spirig and their acquisition of Carlson's
interests in the partnership in 1948 is not a ground for dissolution of the partnership, either
in the Code of Commerce or in the New Civil Code, and that since its juridical personality
had not been affected and since, as a limited partnership, as contra distinguished from a
duly registered general partnership, it is taxable on its income similarly with corporations,
Suter was not bound to include in his individual return the income of the limited
partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only general partner, William
J. Suter to the originally limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed.,
page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It
follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when
the subject firm was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by their industry or
work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil,
7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, segunesto, no puedencelebrar entre si el contrato de sociedad
universal, pero o podranconstituirsociedad particular? Aunque el punto ha
sidomuydebatido, nosinclinamos a la tesispermisiva de los contratos de sociedad
particular entre esposos, yaqueningunprecepto de nuestroCodigo los prohibe, y
hay queestar a la norma general segun la quetoda persona escapaz para
contratarmientras no sea declaradoincapazpor la ley. La jurisprudencia de la
Direccion de los Registrosfuefavorableaestamismatesis en su resolution de 3 de
febrero de 1936, mas parececambiar de rumbo en la de 9 de marzo de 1943.
80
Nor could the subsequent
marriage of the partners operate to dissolve it, such marriage
not being one of the causes provided for that purpose either by the Spanish Civil Code or
the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter
and Julia Spirig were separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and
English law that does not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of
the component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaiascolectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil.
504) as authority for disregarding the fiction of legal personality of the corporations
involved therein are not applicable to the present case. In the cited cases, the corporations
were already subject to tax when the fiction of their corporate personality was pierced; in
the present case, to do so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes;
it conducted its own dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records
show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a
business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that
income to be included in the individual tax return of respondent Suter is to overstretch the
letter and intent of the law. In fact, it would even conflict with what it specifically provides
in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compaiacolectiva) and a limited partnership, when the
code plainly differentiates the two. Thus, the code taxes the latter on its income, but not
the former, because it is in the case ofcompaiascolectivas that the members, and not the
firm, are taxable in their individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively the
income of the spouses and forms part of the conjugal partnership of gains. This is not
wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the appellant's argument
erroneously confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of their own. 1 Appellant
is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable
unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their
individual capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the same for a given
taxable year, their consequences would be different, as their contributions in the business
partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a justification for
requiring consolidation; the revenue code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay tax on its own income.
81
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
G.R. No. 19892
September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a determination of the
nature of the mercantile establishment which operated under the name of TeckSeing& co.,
Ltd., and this issue requires us to look into, and analyze, the document constituting
TeckSeing& Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepantodospor la presente:
Quenosotros, Santiago Jo Chung Cang, mayor de edadcomerciante, vecino y
residente del municipio de TabogonProvincia de Cebu, Islas Filipinas, Go Tayco,
mayor de edad, comerciante, vecino y residente del municipio de Cebu Provincia
de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante, vecino y
residente del municipio y Provincia de Cebu, Islas Filipinas, Lim Yogsing, mayor de
edadcomerciante, vecino y residente del municipio de Cebu, Provincia de Cebu,
Islas Filipinas, y Jo Ybec, mayor de edad, comerciante, vecino y residente del
municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemosconstarpor la
presente,
queconstituimos
y
formamosunasociedadmercantillimitada,
bajolasleyesvigentes en las Islas Filipinas y para serregistrada de acuerdo con los
reglamentosvigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "TeckSeing& Co., Ltd." y tendrasudomicilio
principal en la CalleMagallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu,
Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cincoacciones de a P6,000 comosigue:
Santiago Jo Chung Cang . . . . . . . . . . . . .
P6,000.00
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . .
6,000.00
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .
6,000.00
MALCOLM, J.:
Following the presentation of an application to be adjudged an insolvent by the
"SociedadMercantil, TeckSeing& Co., Ltd.," the creditors, the Pacific Commercial Company,
Piol& Company, RiuHermanos, and W. H. Anderson & Company, filed a motion in which
the Court was prayed to enter an order: "(A) Declaring the individual partners as described
in paragraph 5 parties to this proceeding; (B) to require each of said partners to file an
inventory of his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this proceeding." The trial
judge first granted the motion, but, subsequently, on opposition being renewed, denied it.
It is from this last order that an appeal was taken in accordance with section 82 of the
Insolvency Law.
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,000.00
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . .
6,000.00
82
Total . . . . . . . . . . . . . . . . . . . . . .
30,000.00
Que la duracion de la sociedad sera la de seisaos, a contar de la fecha de

estaescritura, pudiendoprorrogarseestetiempo a discrecionunanime de todos los
accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en general.
El administrador o administradores de la sociedadpodran, previaconformidad de
los
accionistas,
establecercuantassucursales
o
establecimientosconsiderenecesarios para facilitar sus negocios y el mayor
desarrollo
del
comercio
a
que
se
dedica
la
sociedad,
verificandotodaslasoperacionesquecreanconvenientes para el fomento de su
capital.
Las
ganancias
o
perdidasqueresultarendurantecadaaocomercial,
se
distribuiranproporcionalmente entre los accionistas, de acuerdo con el capital
aportadoporcadauno de los mismos.
83
Las gananciasqueresultaren en cadaaocomercial, siresultarenalgunasganancias,

no podranserretiradaspors los accionistas hasta dentro del termino de tresaos a
contar
de
la
fecha
del
primer
balance
anual
del
negocio,
quedadnoportantoestasganancias en reserva, para ampliar el capital aportadoopor
los accionistas y ampliarportanto la esfera de accionemprendidapor la
mismasociedad.
Al
pasar
o
expirar
el
termino
de
tresaos,
cadaaccionistapodraretirar o depositar en poder de la sociedad, lasgananciasque
le debieracorresponderdurantedichotermino de tresaos.
Que
los
accionistas
no
podranextraernidisponer
en
ninguntiempocualesquieracantidad
o
cantidades
de
la
sociedad,
quehayasidoaportadopor
los
mismos,
para
atender
sus
gastosparticularesniaunpagandoreditoalgunosobre la cantidadqueintenendisponer
o extraer de dichasociedad.
El accionista Sr. Lim Yogsingtendra a su cargo, en union del Sr. Vicente Jocson Jo, la
administracion de la Compaia, quienespodranusarindistintamente la firma social,
quedandoporconsiguienteautorizadosamobs
para
hacer
en
nombre
de
ellatodacalse de operaciones, negocios y especulacionesmercantiles, practicando
judicial y extra-judicialmentcuantosactos se requieran para el bien de la sociedad,
nombrarprocuradores o abogados para reclamaciones y cobro de creditos y
proponer ante los tribunaleslasdemandas, convenios, transacciones y
excepcionesprocdentes.
En
caso
de
ausencia,
enfermedad
o
cualquierotroimpedimento
del
accionistaadministrador
Sr.
Lim
Yogsing,
estepodraconferirpoder general o especial al accionistaquecreaconveniente para
que en union del administradorauxiliar Sr. Vicente Jocson Jo, pudieran ambos
administrarconvenientemente
los
negocios
de
la
sociedad.
Que
los
administradorespodrantener
los
empleadosnecesarios
para
el
mejorquedebieranpercibirdichosempleadosporserviciosrendidos a la sociedad.
Que ambos administradorespodrandisponer de mil discientos pesos (P1,200)
monedafilipina, anualmente, para sus gastosparticulares, siendodichacantidad de
P1,200
la
quecorresponde
a
cadauno
de
dichosadministradores,
comoemolumentos o salariosque se les asigna a casuno, por sus trabajos en la
administracion
de
la
sociedad. Entendiendose,
que,
los
accionistaspodrandisponercada fin de aolagratificacionqueseconcedera a
cadaadministrador, si los negociosdelaofueranboyantes y justifiquen la concesion
de unagratificacion especial, aparte del salarioaquidispuesto y especificado.
Quepasado el termino de seisaos, y es de la conveniencia de los accionistas la
continuacion
del
negocio
de
estasociedad,
dichotermino
sera
prorrogadoporigualnumero de aos, sin necesidas del otorgamiento de
ulterioresescrituras,
quedando
la
presente
en
vigor
hasta
el
terminodispuestoportodos los accionistas.
Quelasdiferenciasquepudieransuscitarse entre los accionistas, bien sea porrazon
de lo estipulado en esta en ellacomprendidos, se procuraraarreglar entre los
mismosamistosa y extrajudicialmente, y si no se consiguiere un arreglo de
estemodo,
dichosaccionistasnombraran
un
arbitro,
cuyaresolucionestantodosobligados y por la presente se comprometen y se obligan
a acatarla en todas sus partes, renunciandoulterioresrecursos.
En cuyosterminosdejamosformalizadaestaescritura de sociedadmercantillimitada, y
prometemoscumplirlafiel y estrictamentesegun los pactosquehemosestablecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu,
Islas Filipinas, hoy 31 de octubre de mil novecientosdiez y nueve.
(Fdos.) "LIM YOGSING

"Jo YBecporHoSeng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:

(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
(Fdo.) "QUIRICO ABETO

[SELLO] "RegistradorMercantil Ex-Officio"
"ESTADOS UNIDOS DE AMERCA

"ISLAS FILIPINAS
"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre
de 1919, A.D., ante mi, NotarioPublicoque subscribe, comprecieronpersonalmente
Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec,
representadoeste ultimo porHoSeng Sian, segunautorizacionhecha en telegrama
de fecha 27 de septiembre de 1919 que se me ha presentado en estemismoacto,
de quienesdoyfe de que les conozcoporserlasmismas personas queotorgaron el
preinsertodocumento, ratificando ant emisucontenido y manifestandoser el mismo
un acto de sulibre y voluntariootorgamiento. El Sr. Santiago Jo Chung Cang me
exhibiosucedula personal expedida en Cebu, Cebu, I.F. el dia 19 de septiembre de
1919 bajo el No. H77742, Go Taycotambien me exhibio la suyaexpedida en Cebu,
Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. G2042490, Yap Guecotambien
me exhibio la suyaexpedida en Cebu, Cebu, I.F. el dia 20 de enero de 1919 bajo el
No. F1452296, Lim Yogsingtambien me exhibio la suyaexpedida en Cebu, Cebu,
I.F., el dia 26 de febrero de 1919 bajo el No. F1455662, y HoSeng Sian
representante
84 de Jo Ybec, me exhibiosucedula personal expedida en Cebu, Cebu,
I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS
"NotarioPublico
"Hasta el 1. de enero de 1920
"Asiento No. 157

Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.
Presentado a lasdiez y cuarenta y tresminutos de la maana de hoy, segun el
asiento No. 125, pagina 9 del Tomo 1. del LibroDiario. Cebu, 11 de febrero de
1920.
Inscrito el documentoquepreced al folio 84 hoja No. 188, inscripcion 1.a del Tomo
3. del LibroRegistro de SociedadesMercantiles. Cebu, 11 de febrero de 1920.
Honorariostreinta pesos con cincuenta centavos. Art. 197, Ley No. 2711,
CodigoAdministrativo.
(Fdo.) "QUIRICO ABETO

[SELLO] "RegistradorMercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident that TeckSeing& Co., Ltd., is not a

corporation. Neither is it contended by any one that TeckSeing& Co., Ltd., is accidental
partnership denominated cuenta en participacion(joint account association).
Counsel for the petitioner and appellee described his client in once place in his opposition
to
the
motion
of
the
creditors
as "unaverdaderasociedadanonima" (a
true sociedadanonima). The provisions of the Code of Commerce relating
to sociedadesanonimas were, however, repealed by section 191 of the Corporation Law
(Act No. 1459), with the exceptions the sociedadesanonimas lawfully organized at the time
of the passage of the Corporation Law were recognized, which is not our case.
The
document
providing
for
the
partnership
contract
purported
to
form "unasociedadmercantillimitada," and counsel for the petitioner's first contention was
that TeckSeing& Co., Ltd., was not "unasociedad regular colectiva, nisiquieracomanditaria,
sinounasociedadmercantillimitada." Let us see if the partnership contract created a
"sociedad en comandita," or, as it is known in English, and will hereafter be spoken of, "a
limited partnership."
To establish a limited partnership there must be, at least, one general partner and the
name of the least one of the general partners must appear in the firm name. (Code of
Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied with the law of its creation is
not considered a limited partnership at all, but a general partnership in which all the
members are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp.
499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract established
a general partnership.
Article 125 of the Code of Commerce provides that the articles of general copartnership
must estate the names, surnames, and domiciles of the partners; the firm name; the
names, and surnames of the partners to whom the management of the firm and the use of
its signature is instrusted; the capital which each partner contributes in cash, credits, or
property, stating the value given the latter or the basis on which their appraisement is to
be made; the duration of the copartnership; and the amounts which, in a proper case, are
to be given to each managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of one only. Turning to
the document before us, it will be noted that all of the requirements of the Code have been
met, with the sole exception of that relating to the composition of the firm name. We leave
consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to the
effect that TeckSeing& Co., Ltd., is "unasociedadmercantil "de facto" solamente" (only a de
facto commercial association), and that the decision of the Supreme court in the case of
Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this
argument which convinced the trial judge, who gave effect to his understanding of the
case last cited and which here must be given serious attention.
85
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm KiengChiong-Seng was not organized by means of any public document; that the partnership
had not been recorded in the mercantile registry; and that Kieng-Chiong-Seng was not
proven to be the firm name, but rather the designation of the partnership. The conclusion
then was, that the partnership in question was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of Commerce, the right of action was
against the persons in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side
with the facts before us, a marked difference is at once disclosed. In the cited case, the
organization of the partnership was not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership naturally could not present a public
instrument for record in the mercantile registry; here, the contract of partnership has been
duly registered. But the two cases are similar in that the firm name failed to include the
name of any of the partners.
We come then to the ultimate question, which is, whether we should follow the decision in
Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the two
cases, holding TeckSeing& Co., Ltd., a general copartnership, notwithstanding the failure of
the firm name to include the name of one of the partners. Let us now notice this decisive
point in the case.
Article 119 of the Code of Commerce requires every commercial association before
beginning its business to state its article, agreements, and conditions in a public
instrument, which shall be presented for record in the mercantile registry. Article 120, next
following, provides that the persons in charge of the management of the association who
violate the provisions of the foregoing article shall be responsible in solidum to the persons
not members of the association with whom they may have transacted business in the
name of the association. Applied to the facts before us, it would seem that TeckSeing& Co.,
Ltd. has fulfilled the provisions of article 119. Moreover, to permit the creditors only to look
to the person in charge of the management of the association, the partner Lim Yogsing,
would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general copartnership
transacting business under the name of all its members or of several of them or of one
only, is wisely included in our commercial law. It would appear, however, that this provision
was inserted more for the protection of the creditors than of the partners themselves. A
distinction could well be drawn between the right of the alleged partnership to institute
action when failing to live up to the provisions of the law, or even the rights of the partners
as among themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to make it a partnership de
jure.
The civil law and the common law alike seem to point to a difference between the rights of
the partners who have failed to comply with the law and the rights of third persons who
have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the obligation of the
members to register the articles of association in the commercial registry, agreements
containing all the essential requisites are valid as between the contracting parties,
whatever the form adopted, and that, while the failure to register in the commercial
registry necessarily precludes the members from enforcing rights acquired by them against
third persons, such failure cannot prejudice the rights of third persons. (See decisions of
December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The
same reasoning would be applicable to the less formal requisite pertaining to the firm
name.
The common law is to the same effect. The State of Michigan had a statute prohibiting the
transaction of business under an assumed name or any other than the real name of the
individual conducting the same, unless such person shall file with the county clerk a
certificate setting forth the name under which the business is to be conducted and the real
name of each of the partners, with their residences and post-office addresses, and making
a violation thereof a misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to protect the public against imposition and
fraud, prohibiting persons from concealing their identity by doing business under
an assumed name, making it unlawful to use other than their real names in
transacting business without a public record of who they are, available for use in
courts, and to punish those who violate the prohibition. The object of this act is not
limited to facilitating the collection of debts, or the protection of those giving credit
to persons doing business under an assumed name. It is not unilateral in its
application. It applies to debtor and creditor, contractor and contractee, alike.
Parties doing business with those acting under an assumed name, whether they
buy or sell, have a right, under the law, to know who they are, and who to hold
responsible, in case the question of damages for failure to perform or breach of
warranty should arise.
no association. 4th. An association, the articles of which have not been registered,
is valid in favor of third persons. 5th. The private pact or agreement to form a
commercial association is governed not by the commercial law but by the civil law.
6th. Secret stipulationsexpressed in a public instrument, but not inserted in the
articles of association, do not affect third persons, but are binding on the parties
themselves. 7th. An agreement made in a public instrument, other than the
articles of association, by means of which one of the partners guarantees to
another certain profits or secures him from losses, is valid between them, without
affecting the association. 8th. Contracts entered into by commercial associations
defectively organized are valid when they are voluntarily executed by the parties,
if the only controversy relates to whether or not they complied with the
agreement.
The general rule is well settled that, where statutes enacted to protect the public
against fraud or imposition, or to safeguard the public health or morals, contain a
prohibition and impose a penalty, all contracts in violation thereof are void. . . .
xxx
As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in violation
of it unlawful and unforceable at the instance of the offending party only, but not
as designed to take away the rights of innocent parties who may have dealt with
the offenders in ignorance of their having violated the statute. (Cashin vs. Pliter
[1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903],86
1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial
purposes. It fails to comply with the requirements of article 119. A creditor sues the
partnership for a debt contracted by it, claiming to hold the partners severally.
They answer that their failure to comply with the Code of Commerce makes them a
civil partnership and that they are in accordance with article 1698 of the Civil Code
only liable jointly. To allow such liberty of action would be to permit the parties by a
violation of the Code to escape a liability which the law has seen fit to impose upon
persons who organized commercial partnership; "Because it would be contrary to
all legal principles that the nonperformance of a duty should redound to the benefit
of the person in default either intentional or unintentional." (Mercantile Law, Eixala,
fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment
after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is
deduced: 1st. Defects in the organization cannot affect relations with third persons.
2d. Members who contract with other persons before the association is lawfully
organized are liable to these persons. 3d. The intention to form an association is
necessary, so that if the intention of mutual participation in the profits and losses
in a particular business is proved, and there are no articles of association, there is
xxx
xxx
The name of the collective merchant is called firm name. By this name, the new
being is distinguished from others, its sphere of action fixed, and the juridical
personality better determined, without constituting an exclusive character of the
general partnership to such an extent as to serve the purpose of giving a definition
of said kind of a mercantile partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character,
article 126 says that they must transact business under the name of all its
members, of some of them, or of one only, the words "and company" to be added
in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link, the
solidary and unlimited responsibility of the members of this partnership with the
formation of its name, and imposes a limitation upon personal liberty in its
selection, not only by prescribing the requisites, but also by prohibiting persons not
members of the company from including their names in its firm name under
penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does
not prevent the addition thereto of any other title connected with the commercial
purpose of the association. The reader may see our commentaries on the
mercantile registry about the business names and firm names of associations, but
it is proper to establish here that, while the business name may be alienated by
any of the means admitted by the law, it seems impossible to separate the firm
names of general partnerships from the juridical entity for the creation of which it
was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "TeckSeing& Co., Ltd." does not
contain the name of all or any of the partners as prescribed by the Code of Commerce
prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curi,
states:
from that of any of the members of the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.
My opinion is that such a fact alone cannot and will not be a sufficient cause of
preventing the formation of a general partnership, especially if the other requisites
are present and the requisite regarding registration of the articles of association in
the Commercial Registry has been complied with, as in the present case. I do not
believe that the adoption of a wrong name is a material fact to be taken into
consideration in this case; first, because the mere fact that a person uses a name
not his own does not prevent him from being bound in a contract or an obligation
he voluntarily entered into; second, because such a requirement of the law is
merely a formal and not necessarily an essential one to the existence of the
partnership, and as long as the name adopted sufficiently identity the firm or
partnership intended to use it, the acts and contracts done and entered into under
such a name bind the firm to third persons; and third, because the failure of the
partners herein to adopt the correct name prescribed by law cannot shield them
from their personal liabilities, as neither law nor equity will permit them to utilize
their own mistake in order to put the blame on third persons, and much less, on
the firm creditors in order to avoid their personal possibility.
Articles 127 and 237 of the Code of Commerce make all the members of the general
copartnership liable personally and in solidum with all their property for the results of the
transactions made in the name and for the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm be insolvent, but
one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before
seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los
Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda
& Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
The legal intention deducible from the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing which in law constitutes a
partnership, they 87
are partners, although their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up TeckSeing& co., Ltd. was to establish
a partnership which they erroneously denominated a limited partnership. If this was their
purpose, all subterfuges resorted to in order to evade liability for possible losses, while
assuming their enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a designation distinct
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a partnership
as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the
court of origin for further proceedings pursuant to the motion presented by the creditors, in
conformity with the provisions of the Insolvency Law. Without special findings as to the
costs in this instance, it is ordered.

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[G.R. No. 30616 : December 10, 1990.

1 | BusOrg Partnership Case Compilation by FCS

2 | BusOrg Partnership Case Compilation by FCS

3 | BusOrg Partnership Case Compilation by FCS

4 | BusOrg Partnership Case Compilation by FCS

On 19 February 1988, petitioner-appellant wrote respondents-appellees another

"2. Order the respondents to deliver or pay for petitioner's share in

5 | BusOrg Partnership Case Compilation by FCS

"5. DURATION. The partnership shall continue so long as mutually

"2. Purpose. The purpose for which the partnership is formed, is to

6 | BusOrg Partnership Case Compilation by FCS

April 20, 1954

MANUEL LARA, ET AL., plaintiffs-appellants,

7 | BusOrg Partnership Case Compilation by FCS

SEC. 4. No person, firm, or corporation, business establishment or place or center

8 | BusOrg Partnership Case Compilation by FCS

G.R. Nos. L-11483-11484

February 14, 1958

In the matter of the Testate Estate of the deceased Edward E. Christensen,

9 | BusOrg Partnership Case Compilation by FCS

8. I give devise and bequeath unto BERNARDA CAMPORENDONDO, now residing

G.R. No. L-25532

February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

We find the Commissioner's appeal unmeritorious.

G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA

Agustin O. Benitez for petitioner.

G.R. No. L-49982 April 27, 1988

(1) Ordering the defendant to execute a public instrument embodying all

(2) Ordering the defendant to render a formal accounting of the business

1. to execute a public document embodying all the provisions of the

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and

The dispositive part thereof reads as follows:

and R.D. Liwanag, respectively) executed in favour of SHELL by the herein

JOSE FERNANDEZ, plaintiff-appellant,

ON MOTION FOR A REHEARING.

G.R. No. 3186

Article 5 provides that:

Article 1695 of the Civil Code provides as follows:

G.R. No. L-18703

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

August 28, 1922

It is so ordered without special finding as to costs.

xxx xxx xxx

G.R. No. L-55397 February 29, 1988

We are showing hereunder another apportionment of the loss which

Instead of filing an answer, SSS Accredited Group of Insurers informed the

It is the contention of the petitioner that respondent Insurance Commission decided an

G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

2. Gregoria Cristobal ...............................................................................................

3. Saturnina Silva ....................................................................................................

4. Guillermo Tapia ...................................................................................................

5. Jesus Legaspi ......................................................................................................

6. Jose Silva ............................................................................................................. .07

7. Tomasa Mercado ................................................................................................

8. Julio Gatchalian ...................................................................................................

10. Maria C. Legaspi ...............................................................................................

11. Francisco Cabral ...............................................................................................

15. Mariano Santos .................................................................................................