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CASES #2 G.R. No.

L-12541 August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, Plaintiffs-Appellants, vs. YANG CHIAO SENG,Defendant-Appellee. LABRADOR, J.:
chanroble s virtual law l ibra ry

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by plaintiff.
chanrob lesvi rtualaw lib rary c han robles v irt ual law li bra ry

The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947, with the condition that if the land is expropriated or rendered impracticable for the business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership shall be terminated even if the period for which the partnership was agreed to be established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership agreement is terminated before the lapse of one and a half years period under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all improvements that the partnership may place in the premises.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh. "B").
c han roblesv irt ualawli bra ry chan rob les vi rtual law lib rary

In June , 1946, they executed a supplementary agreement, extending the partnership for a period of three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo.
cha nrob lesvi rtua lawlib rary c han robles v irt ual law l ibra ry

The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease shall continue for an indefinite period of time, but that after one year the lease may be cancelled by either party by written notice to the other party at least 90 days before the date of cancellation. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both parties appealed from said decision and the Court of Appeals, on April 30, 1955, affirmed the judgment.
chanrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
cha nrob lesvi rtua lawlib rary chan robles v irt ual law l ibra ry

In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the defendant should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from November, 1949 to October, 1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of P10,000 for the attorney's fees.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract of lease between the owners and the plaintiff against the sublease of the said property. As to the other claims, he denies the same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an attachment issued against the properties of the defendant the latter has suffered damages amounting to P100,000.
chanroble svirtualawl ibra ry cha nro bles vi rtua l law lib ra ry

The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant vacates the property. This decision, however, was set aside on a motion for reconsideration. In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief that a joint petition for postponement filed by both parties, in view of a possible amicable settlement, would be granted; that in view of the decision of the Court of Appeals in two previous cases between the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation in the profit of the business, etc. The court, finding the above motion, well-founded, set aside its decision and a new trial was held. After trial the court rendered the decision making the following findings: that it is not true that a partnership was created between the plaintiff and the defendant because defendant has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is not of the partnership but one of the lease for the reason that under the agreement the plaintiff did not share either in the profits or in the losses of the business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the supposed existence of a partnership between them. It. therefore, denied plaintiff's claim for damages or supposed participation in the profits.
chanroble svirtualawl ibra ry c hanro bles vi rtua l law lib ra ry

As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to the balcony of the theatre which could not be used for business purposes under existing ordinances of the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground that the defendant failed to present sufficient evidence to sustain the same. It is against this decision that the appeal has been prosecuted by plaintiff to this Court.
chan roble svirtualawl ibra ry c hanro bles vi rtua l law li bra ry

The first assignment of error imputed to the trial court is its order setting aside its former decision and allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former judgment. The final result of the hearing shown by the decision indicates that the setting aside of the previous decision was in the interest of justice.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff is one of the sublease and not of partnership. The action of the lower court in admitting evidence is justified by the express allegation in the defendant's answer that the agreement set forth in the complaint was one of lease and not of partnership, and that the partnership formed was adopted in view of a prohibition contained in plaintiff's lease against a sublease of the property.

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The most important issue raised in the appeal is that contained in the fourth assignment of error, to the effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and we fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership. The following are the requisites of partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a common fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil Code.).
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In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has ever demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between them.
chan roble svirtualawl ibra ry cha nrob les vi rtua l law lib rary

Plaintiff claims the sum of P41,000 as representing her share or participation in the business from December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said date.
chanrob lesvi rtualaw lib rary c hanroble s virt ual law li bra ry

We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant.
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Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur. *************

Tuason vs. Bolaos, 95 Phil. 106 , No. L-4935, May 28, 1954 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.

REYES, J.: 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 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 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. III. The trial court erred in denying defendant's motion to strike. 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 broughtin 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 the 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 Quirino Bolaos," 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 Emigdio Tanjuatco 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.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration. 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. Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff. Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur. *********
G.R. Nos. L-32347-53 December 26, 1973 AGUSTIN ABONG, petitioner, vs. THE WORKMEN'S COMPENSATION COMMISSION, NELLY BALLARES, ANACORITA DAHIL-DAHIL, MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO, SHIRLEY LOZADA and ROSARIO ALOVA, respondents. Pelaez, Jalandoni and Jamir for petitioner. Pagano C. Villavieja for respondent Workmen Compensation Commission. Labaton and Labaton for private respondents. ESGUERRA, J.: I. STATEMENT OF THE CASE Appeal by certiorari from the decision of the Workmen's Compensation Commission, awarding compensation to private respondents. II. FACTS OF THE CASE The undisputed facts as borne out by the record are follows: Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanita Monteroyo and Wilfredo Monteroyo and Demetrio Escoreal, all decent were members of a fishing outfit, the "IWAG" or more popularly called the "ALEX", owned by petitioner herein, Dr. Agustino R. Abong. On May 15, 1966, this fishing outfit set out to sea somewhat off the coast of Northern Negros. The decedents were among the 70 crew members who were loaded on two big bancas, 8 small fishing boats locally known as "lawagan" and one towing motorboat. While they were, thus, fishing, typhoon "IRMA" passed along their way, scattering the boats and blowing them far out into the open sea. The tragedy netted eight (8) dead while some sixty (60) men survived the disaster. 1 As a consequence of the incident seven (7) notices and claims for death compensation were filed with the Bacolod Sub-Regional Office (or Regional Office No. VII) of the Department of Labor by herein private respondents on June 1, 1966. A copy of the notices and claims were sent to petitioner Dr. Agustino R. Abong by registered mail at his place of business, but the envelopes containing said notices and claims were returned unclaimed, although petitioner was personally notified thrice. Thereafter, counsel for private respondents on July 6, 1966, and July 14, 1966, respectively, filed an ex-parte motion with the Bacolod SubRegional Office of the Workmen's Compensation Commission to declare petitioner in default, which motion was granted. Thereupon, claimants were allowed to present their evidence. Finding the claims of the private respondents to be allied in nature, the cases were consolidated. 2 After due hearing before Acting Referee, Bertito D. Dadivas, he rendered on August 1, 1966, a decision granting the claims, the pertinent portions of which are quoted as follows: In the light of the testimonies of herein claimants and their principal witness, Filomeno Pason, who is a survivor of that unfortunate tragedy and who personally witnessed the deaths of all eight (8) deceased workers of respondent, there is no doubt at all that their deaths arose out of and in the course of their employment as "washing" or helpers and light tenders of respondent Dr. Agustino R. Abong. Under Sections 2 and 8 of the Workmen's Compensation Act, as amended, the deaths of above deceased persons are, therefore, compensable. In granting this award it should be considered that two of the eight deceased workers Noel Lahao-lahao and Wilfredo Monteroyo were minors at the time of employment. Respondent herein has also failed to submit a report of this accident "as soon as possible after the occurence of an injury resulting in absence from work for a day or more"; nor registered himself or his business enterprise in accordance with Sections 37 and 56 of the Workmen's Compensation Act, otherwise known as Republic Act No. 3428.

Section 4-A of the Workmen's Compensation Act provides for payment of an additional compensation equal to fifty per centum of the compensation to be awarded, in case of failure of the employer to comply with any order, rule or regulation of the Workmen's Compensation Act in the event of the death of the employee or employees concerned. Wherefore, under the law, the claimants are entitled to compensation and respondent is hereby ordered: 1. To pay to claimant, ANACORITA DAHIL-DAHIL the sum of SIX THOUSAND PESOS (P6,000.00), plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00), plus the further sum of TWO HUNDRED PESOS as burial expenses, through this Office; 2. To pay to claimant, NELLY BALLARES, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00) plus the further sum of TWO HUNDRED PESOS (P200.00), as burial expenses through this Office; 3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00), or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00), plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00), through this Office; 4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND ONE HUNDRED TWENTY PESOS (P5,120.00) plus 50% penalty in the sum of TWO THOUSAND FIVE HUNDRED SIXTY PESOS (P2,560.00) or the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS (P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00) through this Office; 5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE THOUSAND PESOS (P9,000.00), plus the further sum of TWO HUNDRED PESOS (P200.00) for burial expenses, through this Office; 6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX THOUSAND PESOS (P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) representing compensation for the death of her husband, Juanito; and TWO THOUSAND SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE HUNDRED PESOS (P1,300.00) or the total sum of THREE THOUSAND NINE HUNDRED PESOS (P3,900.00) representing compensation for the death of her son, Wilfredo; plus the further sum of FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito and Wilfredo Monteroyo; or a grand total for these two cases of THIRTEEN THOUSAND THREE HUNDRED PESOS (P13,300.00), through this Office; 7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum of TWO THOUSAND SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as attorney's fees; and 8. To pay to the Workmen's Compensation Fund, through this Office, the sum of FIVE HUNDRED TWENTY PESOS (P520.00), pursuant to Section 55 of the Workmen's Compensation Act, as amended." 3 On September 14, 1966, herein petitioner filed a (1) motion to set aside the order declaring him in default and a (2) separate motion to set aside the Decision of the Acting Referee, to which seasonable oppositions were interposed by private respondents on September 26, 1966. 4 On October 25, 1966, Acting Referee Bertito D. Dadivas issued an Order denying both motions of petitioner. 5 A motion for reconsideration was then filed by petitioner on November 4, 1966, raising, inter alia, the fundamental question of jurisdiction and denial of due process. 6 An opposition thereto was interposed by private respondents on November 10, 1966. 7 On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmen Compensation Commission rendered a decision affirming the earlier decision of the referee. 8 On April 17, 1970, petitioner sought the review of the decision of Associate (Medical) Commission Castelo-Sotto by the respondent Workmen's Compensation Commission sitting en banc, but the latter however affirmed the decision with the modification that the 50% additional compensation earlier imposed as penalty was eliminated, in its resolution of July 7, 1970. 9 Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse decision against him. III. ISSUES OF THE CASE In his brief before this Court the petitioner imputes five errors committed by respondent Workmen's Compensation Commission, viz: 1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN HOLDING THAT THERE WAS AN EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE PETITIONER AND THE DECEASED CREW MEMBERS OF THE "IWAG" FISHING OUTFIT. 2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN NOT DECLARING ITSELF WITHOUT JURISDICTION OVER THE CLAIMS FOR DEATH BENEFITS. 3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN FINDING THAT THE DEATH OF THE DECEASED CREW MEMBER IS COMPENSABLE UNDER THE WORKMEN'S COMPENSATION ACT, AS AMENDED, IN FINDING PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION. 4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING PETITIONER HIS RIGHT TO BE HEARD. 5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN GRANTING EXCESSIVE AWARDS TO THE CLAIMANTS. The pivotal issue requiring determination is who is the statutory employer of the decedents and who should be liable for their death compensation. Nevertheless, We take up the merits of the points raised ad seriatim.

IV. DISCUSSION As regards the first three interrelated assigned errors, there is a faint attempt by petitioner Agustino R. Abong to evade liability by advancing the theory that he had absolutely no voice or intervention in the choice, hiring, dismissing, control, supervision and compensation of the fishermen-crew members, and that these matters, which are the essence of employer-employee relationship, are the sole responsibility of the team leader, Simplicio Panganiban, and the team-members or crew pursuant to their Agreement (Exhibit "G"). 10 The contention of petitioner is devoid of merit. It should be pointed out that this case is an appeal from the decision of the Workmen's Compensation Commission. And in this class of proceedings, only questions of law should be raised, the findings of facts made by the Commission being conclusive and binding upon this Court. 11Although this Court is authorized to inquire into the facts, it only does so when the conclusions therefrom are not supported by the evidence. In the case at bar, however, this Court finds the findings of fact made by Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., and concurred in by the Commission en banc to be fully supported by the evidence on record which clearly points out that petitioner Agustino R. Abong is the statutory employer of the decedents. In ruling for the deceased workers, the Commission said: ... After a careful review of the evidence and the records, We are inclined to agree with the proposition, advanced by the claimant's counsel that there existed an employer-employee relationship between the respondent and the decedents. Not only that the said deceased workers worked for and in the interest of the business of the herein respondent. But that they were subject to the control, supervision, and dismissal of the respondent, thru its agent, Simplicio Panganiban, the alleged "partner" of herein respondent. And while these workers were paid in kind, or by "pakiao basis" still that fact did not alter the character of their relationship with the respondent as employees of the latter. The intervention of Simplicio Panganiban, in this case, is merely that of an agent or intermediary between the owner of the fishing boat and the members of its crew. In short, Panganiban is merely the person charged by Dr. Abong to recruit the said fishermen to work for and for the enforcement of the business venture of herein respondent. The proposition, on the other hand, of the respondent's counsel, that Dr. Abong was not the employer of the decedents, simply because of an alleged partnership agreement, executed on March 23, 1962, between the respondent, Dr. Agustino R. Abong, as "Financier" and Simplicio Panganiban, as his "Team leader", is intended certainly as a very clever device designed primarily to exempt the employer from answering any liability under the provisions of the Workmen's Compensation Act, as amended. The said contract of partnership while it may be considered as valid and lawful, between the signatories thereto, the respondent Dr. Abong and his "partner" or agent, Simplicio Panganiban, nowhere in that said agreement did the decedents or their heirs in interests take any participation or manifested their conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between them, it cannot bind the non-signatories thereto, like the deceased fishermen. The case invoked by the respondent (Pajarillo, et al., vs. Social Security System, G.R. No. L-21930, August 31, 1966) can not be legally applied in the instant case, for the simple reason that the facts in that aforesaid case are not the same as those in the case at bar. Moreover, we are of the view, that the said Pajarillo case may be good only as far as the Social Security System, for purposes of membership thereat, is concerned and is not readily applicable to cases involving Workmen's Compensation claims as the one at bar. For here, the contract of partnership, if valid, only binds the parties thereto, and the decedents in this case, as the records will show, were never a party signatory thereto. How then can we tie them to that partnership agreement when it only holds the two-party, Abong and Panganiban, as the sole partners in that agreement? Furthermore, even if Panganiban will be considered as an independent contractor, which he is not, his position as such will not relieve the employer, respondent Abong, from his liability under the Act. It is well-defined in the Act, that an employer includes every person or association of persons, incorporated or not, public or private, and the legal representatives of the deceased employer. It includes the owner or manager of the business carried on in the establishment or place of work but who, for the reason that there is an independent contractor in the same, or for any other reason, is not the direct employer of laborers employed there. (Section 39, paragraph[s], Workmen's Compensation Act, as amended). xxx xxx xxx 12 As pointed out by the Commission's findings, the fundamental bases showing that petitioner, Dr. Agustino R. Abong, is the employer, are present, namely, the selection and engagement of the employee; the payment of wages; the power of dismissal and the employer's power to control the employees' conduct. 13 These powers were lodged in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his "partner". On this score alone, the petitioner for review must fail. It is wellsettled that employer-employee relationship involves findings of fact which are conclusive and binding and not subject to review by this Court. 14 Petitioner also argues that he was denied his right to heard. 15 It is contended that petitioner was not properly notified of the proceedings against him. The assigned error merits scant consideration. Proper notices and claims for compensation together with a formal letter to accomplish WCC Form No. 3 Employer's Report Accident or Sickness were duly served upon petitioner at his place of business in Sagay, Negros Occidental. 16 His failure to claim his mail and to answer the claims or controvert the same and to accomplish WCC Form No. 3, are fatal errors which cannot be repaired at this time. It needs no argument to show that service by registered mail is deemed completed upon petitioner's failure to claim his mail from the post office within five (5) days from

the first notice sent by the postmaster. 17 The further contention that the "notices" should have been sent his place of residence in Bacolod City is of no moment either. Section 26 of Republic Act No. 3428, as amended, provides: SEC. 26. Delivery of notice and claim ... . The notices shall be served by personal delivery or by sending it by registered letter addressed to the employer at his last known residence or at his place of business. (Emphasis supplied) Clearly, there was no error in sending petitioner's mails to his place of business at Sagay, Negros Occidental. And now We come to the last point. It is contended that respondent Commission erred in granting excessive awards the claimants. We find this contention incorrect. The Commission's findings relative to the wages of the decedents are findings facts which are not open to review by this Court as the same are supported by substantial evidence on record. 18We, therefore, find no cogent reason to disturb the Commission's findings on this point. V. CONCLUSION Under the circumstances, private respondents' claim should be upheld not only because they are supported by the evidence on record, but also because the Workmen's Compensation Act is a social legislation designed to give relief to the workman who has been the victim of an accident in the pursuit of his employment, and the law must be liberally construed to attain the purpose for which it was enacted. 19 Moreover, this Tribunal finds no reason in this case to depart from the rule which limits its appellate jurisdiction to the review of errors of law only, accepting as conclusive the factual findings of the Workmen's Compensation Commission which in this case are supported by substantial evidence. VI. JUDGMENT ACCORDINGLY, the assailed decision is hereby fully affirmed. Costs against the petitioner. Makalintal C.J., Castro, Teehankee, Makasiar and Muoz Palma, JJ., concur.

Arbes vs. Polistico, 53 Phil. 489 , No. 31057, September 07, 1929 G.R. No. 31057 September 7, 1929 ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-appellants. Marcelino Lontok and Manuel dela Rosa for appellants. Sumulong & Lavides for appellees. VILLAMOR, J.: This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association. It is well to remember that this case is now brought before the consideration of this court for the second time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present. The commissioner rendered his report, which is attached to the record, with the following resume:

Income: Member's shares............................ Credits paid................................ Interest received........................... 97,263.70 6,196.55 4,569.45


1,891.00 P109,620.70

Expenses: Premiums to members....................... Loans on real-estate....................... Loans on promissory notes.............. Salaries.................................... Miscellaneous............................... 68,146.25 9,827.00 4,258.55 1,095.00 1,686.10 85,012.90 Cash on hand........................................ 24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs, with costs against the defendants. The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted by the court below. As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed. With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of opinion that, the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioner's report, the conclusion reached by the court below, accepting and adopting the findings of fact contained in said report, and especially those referring to the disposition of the association's money, should not be disturbed. In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside the report or recommit it to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their objection. The trial examined the evidence and the commissioner's report, and accepted the findings of fact made in the report. We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion admitting the commissioner's findings. There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides:

A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province. Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution. We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said article Manresa, among other things says: When the subscriptions of the members have been paid to the management of the partnership, and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return of the reimbursement thereof from the manager or administrator withholding them? Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution? The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action. And he adds in explanation that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or in other words, to breathe the breath of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it. But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership, and therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract asnon-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it. Hence the distinction made in the second paragraph of this article of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province. This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them. The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different. Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264) The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner that it may deem proper. So ordered. Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.


G.R. No. L-18703

August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee, vs. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING CORPORATION,petitioners-appellants. Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants. Antonio Sanz for appellee. 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. 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 reBertenshaw (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. It is so ordered without special finding as to costs. Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.

G.R. No. L-25532

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 partnersspouses 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 Spirig Suter actually formed a single taxable unit; and (b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. 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. wasnot 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, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943. 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 (compaias colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships. The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the partners-spouses in their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for

tax purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed. As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).

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. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee, JJ., concur. Barredo, J., took no part

G.R. No. L-27010

April 30, 1969


HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents. R. M. Coronado and Associates for petitioner. Francisco Lavides for respondent. REYES, J.B.L., Acting C.J.: Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and unappealable. The essential facts are the following: Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing defective allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an amended complaint, attached to the motion. The court denied reconsideration and the leave to amend; whereupon, a second motion for reconsideration was filed. Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less, the same as the first motion", and for not being accompanied by an affidavit of merits, and further declared the dismissal final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court. The answer sets up the defense that "the proposed amended complaint did not vary in any material respect from the original complaint except in minor details, and suffers from the same vital defect of the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because the amount involved exceeds five hundred pesos; and that the second motion for reconsideration did not interrupt the period for appeal, because it was not served on three days' notice. We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a court sustains a demurrer or motion to dismiss it is error for the court to dismiss the complaint without giving the party plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order of dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and this error was compounded when the motion to accept the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for reconsideration, which was actually a first motion against the refusal to admit the amended complaint. It is contended that the second motion for reconsideration was merely pro forma and did not suspend the period to appeal from the first order of dismissal (Annex D) because (1) it merely

reiterated the first motion for reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice provided by the rules. This argument is not tenable, for the reason that the second motion for reconsideration was addressed to the court' refusal to allow an amendment to the original complaint, and this was a ground not invoked in the first motion for reconsideration. Thus, the second motion to reconsider was really not pro forma, as it was based on a different ground, even if in its first part it set forth in greater detail the arguments against the correctness of the first order to dismiss. And as to the lack of 3 days' notice, the record shows that appellees had filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4); so that even if it were true that respondents were not given the full 3 days' notice they were not deprived of any substantial right. Therefore, the claim that the first order of dismissal had become final and unappealable must be overruled. It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows: Appellants contend that the lower court erred in not admitting their amended complaint and in holding that their action had already prescribed. Appellants are right on both counts. Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party may amend his pleading once as a matter of course, that is, without leave of court, at any time before a responsive pleading is served. A motion to dismiss is not a "responsive pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was answered, the motion to admit the amendment should not have been denied. It is true that the amendment was presented after the original complaint had been ordered dismissed. But that order was not yet final for it was still under reconsideration. The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court below abuse its discretion in ruling that a contract for personal services involving more than P500.00 was either invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines? We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code. In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over formalities: hence, in general, contracts are valid and binding from their perfection regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision prescribes: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied) Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.... (Emphasis supplied) These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3) consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are couched.
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To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356: However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.... It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter partes of a contract that possesses the three validating elements of consent, subject matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit: (a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make themvalid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code. (b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action the contract. (Emphasis supplied) . It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not plead any written agreement.

The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that without the writing the contract is not valid or not enforceable by action. WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court of origin for further proceedings not at variance with this decision. Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon Valenzuela. Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur. Concepcion, C.J. and Castro, J., are on leave. Capistrano, J., took no part.
******** G.R. No. L-33580 February 6, 1931 MAXIMILIANO SANCHO, plaintiff-appellant, vs. SEVERIANO LIZARRAGA, defendant-appellee. Jose Perez Cardenas and Jose M. Casal for appellant. Celso B. Jamora and Antonio Gonzalez for appellee. ROMUALDEZ, J.: The plaintiff brought an action for the rescission of a partnership contract between himself and the defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant. The defendant denies generally and specifically all the allegations of the complaint which are incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and asking for the dissolution of the partnership, and the payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable remedy. The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs. The plaintiff appealed from said decision making the following assignments of error: 1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case. 2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October 15, 1920, until fully paid. 3. In denying the motion for a new trial. In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure, and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172). This contention is well founded. Until the accounts have been rendered as ordered by the trial court, and until they have been either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also with reference to an appeal taken from a decision ordering the rendition of accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature. But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable. In view of the lower court's findings referred to above, which we cannot revise because the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract according to article 1124 of the Code. This article cannot be applied to the case in question, because it refers to the resolution

of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well known principle that special provisions prevail over general provisions. By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full force, without special pronouncement of costs. So ordered. Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur **********

G.R. No. L-16318

October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees, vs. LO SENG, defendant-appellant. Cohn, Fisher and DeWitt for appellant. No appearance for appellees.

STREET, J.: For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of running a distillery, known as "El Progreso," in the Municipality of Paombong, in the Province of Bulacan. The land on which said distillery is located as well as the buildings and improvements originally used in the business were, at the time to which reference is now made, the property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911, leased the same to the firm of Lo Seng and Co. for the term of three years. Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years. The reason why the contract was made for so long a period of time appears to have been that the Bureau of Internal Revenue had required sundry expensive improvements to be made in the distillery, and it was agreed that these improvements should be effected at the expense of the lessees. In conformity with this understanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng alone, in enlarging and improving the plant. Among the provisions contained in said lease we note the following: Know all men by these presents: xxx xxx xxx

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing business under the firm name of Lo Seng and Co.), after the termination of the previous contract, because of the fact that they are required, by the Bureau of Internal Revenue, to rearrange, alter and clean up the distillery. 2. That all the improvements and betterments which they may introduce, such as machinery, apparatus, tanks, pumps, boilers and buildings which the business may

require, shall be, after the termination of the fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings being considered as improvements. 3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng. We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the termination of the contract of September 11, 1911. Neither the original contract of lease nor the agreement extending the same was inscribed in the property registry, for the reason that the estate which is the subject of the lease has never at any time been so inscribed. On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the land used in connection therewith. As in case of the lease this document also was never recorded in the registry of property. Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to recover possession of the premises. From the decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment was rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court. The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which reads in part as follows: ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time of making the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law. In considering this provision it may be premised that a contract of lease is personally binding on all who participate in it regardless of whether it is recorded or not, though of course the unrecorded lease creates no real charge upon the land to which it relates. The Mortgage Law was devised for the protection of third parties, or those who have not participated in the contracts which are by that law required to be registered; and none of its provisions with reference to leases interpose any obstacle whatever to the giving of full effect to the personal obligations incident to such contracts, so far as concerns the immediate parties thereto. This is rudimentary, and the law appears to be so understood by all commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid of and in respect to third persons only; it does not affect the relations between the contracting parties, nor their capacity to contract. Any question affecting the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while any question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.)

Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease in question was from the beginning, and has remained, binding upon all the parties thereto among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co. this does not really solve the problem now before us, which is, whether the plaintiffs herein, as purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding upon all parties participating in it. Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the Civil Code; and the position of the defendant derives no assistance from the mere circumstance that the lease was admittedly binding as between the parties thereto.
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The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which evidently has reference to the familiar proposition that recorded instruments are effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as applied to the lease now before us. Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority for the proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third persons; and the same observation will suffice to dispose of it that was made by us above in discussing the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is binding on all persons who participate therein, this does not determine the question whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under article 1571. Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as article 1549 of the Civil Coded all of which, as we have seen, are undecisive we are brought to consider the aspect of the case which seems to us conclusive. This is found in the circumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely, first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease. These two positions are essentially antagonistic and incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to respect the rights of any person whom he has placed in his own shoes as regards any contract previously entered into by himself. While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has received full value. The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that position had acquired knowledge of the possibilities of the property and possibly an experience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co.,

Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extent of valuable improvements that had been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease, could intervene as purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such eventuality. Above all other persons in business relations, partners are required to exhibit towards each other the highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply exclusively to his own benefit the results of the knowledge and information gained in the character of partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name of one partner after the dissolution of the firm and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.) An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease; and while it cannot be supposed that the obligation to warrant recognized in the articles cited would nullify article 1571, if the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo Seng. It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in courts of common law under the head of estoppel by deed, in accordance with which it is held that if a person, having no title to land, conveys the same to another by some one or another of the recognized modes of conveyance at common law, any title afterwards acquired by the vendor will pass to the purchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired title. The indenture of lease, it may be further noted, was recognized as one of the modes of conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.) From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by him. Moreover, it is fatal to the maintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of unlawful detainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order to maintain the action, in the form in which it is here presented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the right to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as between themselves, in the position of tenants in common or owners pro indiviso, according to the proportion of their respective contribution to the purchase price. But it is well recognized that one tenant in common cannot maintain a possessory

action against his cotenant, since one is as much entitled to have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be effected where the partitioners are cotenants, that is, have an interest of an identical character as among themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is concerned. We have assumed in the course of the preceding discussion that the deed of sale under which the plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this document, having never been recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in court against him because as to said instrument he is a third party. The important question thus raised is not absolutely necessary to the decision of this case, and we are inclined to pass it without decision, not only because the question does not seem to have been ventilated in the Court of First Instance but for the further reason that we have not had the benefit of any written brief in this case in behalf of the appellees. The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It is so ordered, without express adjudication as to costs. Johnson, Araullo, Avancea and Villamor, JJ., concur.
************** G.R. No. L-22493 July 31, 1975 ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendant-appellant. Grey, Buenaventura and Santiago for plaintiff-appellee. Anacleto D. Badoy, Jr. for defendant-appellant. CONCEPCION JR., J.: This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads: WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs. The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to pay the plaintiff in this case with the understanding that the judgment against these individual defendants shall be enforced only if the defendant company has no more leviable properties with which to satisfy the judgment against it. . The individual defendants shall also pay the costs. On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and demandable. Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company. Daniel A. Guizona failed to file an answer and was consequently declared in default. 1 Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned. 2

When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte 3 , after which the trial court rendered the decision appealed from. The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. 4 Hence, this appeal. The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. Article 1816 of the Civil Code provides: Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held: The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff. WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs. SO ORDERED. Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur. *******